Transnet is talking to its customers about co-funding repairs to its heavy haul iron ore and coal lines and hopes to reach agreement on this within weeks, Transnet CEO Michelle Phillips said on Tuesday.
December’s network statement opened the way for private sector train operators to come onto Transnet’s rail network for the first time, but Transnet has made it clear that the network infrastructure itself is so broken that even the new operators are unlikely to boost capacity and efficiency unless there is significant investment to refurbish the lines and get them up to standard.
Phillips said Transnet was in conversation with its customers on the coal and iron ore lines. It had done an independent technical assessment of the lines, with the support of its customers. The assessment indicated that R13bn was needed over five years to do the work required on the coal line to Richards Bay, and a further R10bn on the iron ore line from Sishen to Saldanha.
Transnet did not want to go to the minister [of finance] for money but it needed a plan B. Customers had said they were ready to provide funding, but wanted to be sure the funding would be applied in the areas they had agreed with customers, including the signalling and other infrastructure areas.
“We have had conversations with customers which so far have been very positive. If we have our way we will finalise these within weeks,” Phillips said at the Investing in African Mining Indaba in Cape Town.
The move to get customers to help fund urgent refurbishment of the network comes in a context in which Transnet’s rail volumes, which had plummeted between 2017 and 2022, have picked up off their lows but are still well short of the targets in its 2023 recovery plan.
They are even further short of the volumes SA needs if it is to lift its exports of iron ore and coal, as well as other commodities such as chrome and manganese.
Phillips reiterated on Tuesday that Transnet was pushing to achieve 160 to 165-million tonnes for its financial year to March, up from 152Mt in the previous year, and though this is below the 173Mt target, it was still a significant achievement.
But Kumba Iron Ore CEO Mpumi Zikalala said while volumes on some bulk corridors had improved, others had not. “We are still in a state of crisis,” she said.
Kumba is one of the mining companies that has had to reduce jobs because Transnet could not get its commodities out to export markets.
“That is a terrible thing and this needs greater urgency,” Zikalala said at the indaba.
But the ability of Transnet and its customers to sit around a table and talk had made a big difference over the past two years. “We have had aggressive conversations,” Zikalala said.
It’s understood that Transnet has asked its iron ore and coal customers, led by majors such as Kumba, to come up with proposals for what form co-funding might take, rather than trying to prescribe funding models. The idea could be that customers would get money back on their rail tariffs in some form in return for putting up the funds.
Phillips made it clear to Business Day last month that she remains reluctant to give up control of the two heavy haul lines, which are Transnet’s most profitable businesses. But some of the big exporters are keen to see the lines concessioned out to private network operators, which could significantly expand their capacity and boost SA’s minerals exports.
In the short term however, Transnet urgently needs funding to get the lines fixed. Treasury has been resolute about not providing an equity injection, but it has restructured its budget facility for infrastructure (BFI), which makes cash available to fund specific infrastructure projects under tight conditions, which often require co-funding from the private sector.
Phillip said last month that Transnet had applied to the BFI to fund certain of its rail infrastructure projects. It also plans to go out to market by May to seek private partners to modernise the bulk terminal at its Richards Bay port, an important export port for commodities such as chrome and magnetite.
The terminal is separate from the Richards Bay Coal Terminal, which is privately owned and operated by SA’s coal exporters, and which has the capacity to export almost double as much coal as it is now, if Transnet’s rail network could transport the coal.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.