Transnet has been allocated double the R2.9bn it requested from the government over the medium term as the state seeks to avert the further deterioration of the port and freight rail operator, which has just emerged from a near-crippling strike by unions.
The Treasury has allocated Transnet a total of R5.8bn in the medium-term budget policy statement (MTBPS), presented by finance minister Enoch Godongwana on Wednesday. Half of the amount is allocated to fund the repair of infrastructure damaged by the April floods in KwaZulu-Natal and the Eastern Cape, and the other half to maintain freight rail locomotives.
Transnet generated a net profit of R5bn for 2021/2022 but only because of a restatement of its property portfolio. The allocated amount by the Treasury will provide much-needed relief to Transnet’s financial health, which has significantly deteriorated because of years of state capture, the floods and the recent 12-day industrial action, which brought operations to a standstill as workers downed tools over higher wages.
The funds are also expected to increase locomotive capacity, whose shortage has been flagged by Transnet’s customers because they have not been able to export desired volumes.
Transnet is a key role player in SA’s economy as exporters of crucial commodities such as coal, iron ore and manganese use its infrastructure to transport their goods from rail to port.
“Transnet is allocated R2.9bn to ensure the return of out-of-service locomotives. This will be complemented by R2.9bn from in-year spending adjustments to deal with flood damage that affected its operations in eThekwini,” Godongwana said medium-term budget presentation.
He added during a pre-budget media briefing that it “is far more cost-effective for the government to fund Transnet because the revenue forgone by Transnet’s lack of performance exceeds the loses that would have been made had the logistics company not received a cash injection”.
“The state rail and ports operator suffered severe and widespread damage to assets, installations and operations from the heavy rains and flooding in April 2022, resulting in unexpected repair costs and loss of revenue,” the Treasury said in the MTBPS documents.
“While the Port of Durban is now operating, major repairs are still required to fully restore Transnet Freight Rail (TFR) operations in KwaZulu-Natal.”
The move by Godongwana to allocate funds to the state-owned entity is a slight shift away from the “tough love” stance he had previously pronounced on wayward state-owned companies that turn to the state for bailouts, which puts further strain on the already overburdened fiscus.
The SA National Roads Agency has been allocated R23.7bn to pay off government-guaranteed debt on condition that it finds a solution to the E-tolls. State-owned arms firm Denel has been allocated R204.7m to reduce contingent liabilities and a further R3.4bn if it meets the conditions set out in its turnaround plan.
“All three companies are important enablers of economic growth but face near-term challenges that require immediate injections of funds,” the Treasury said.
“Additional calls for government guarantees or funds will continue to be evaluated against the minimum criteria for consideration of requests outlined in the 2021 budget.”
Transnet’s continued shortage of locomotives, combined with a surge in cable theft and the vandalism of locomotives, and other operational rail and ports issues, have frustrated the company’s customers, especially miners. Mining firms have lost about R50bn in pre-strike revenue because of infrastructure inefficiencies that resulted in mineral exporters being unable to take advantage of the 2021 commodity price boom.
TFR, the largest operating division of the state-owned logistics company, said on Wednesday that the strike had caused a surge in cable theft and vandalism across the rail network, particularly along its container corridor between the port of Durban and the industrial hub of Gauteng. That had resulted in significant delays in its train service and post-strike recovery efforts.
Transnet, whose initial offer of a 1% pay increase was rejected by unions, last week agreed to a pay hike of between 5.5% and 6% to the majority union, the United National Transport Union (Untu), whose members returned to work. Members of minority union SA Transport and Allied Workers Union (Satawu) initially delayed returning to work after rejecting the company’s revised offer.
However, Satawu members returned to work a few days after Untu members because the wage agreement signed between Untu and Transnet is also binding on Satawu because of its minority status.
As post-strike cleanup operations continue, the aftermath of the industrial action is expected to negatively affect the agriculture sector, particularly perishable exports. The mining sector is also expected to be negatively affected by the strike in the fourth quarter as poor rail infrastructure and labour action further dampened production, the Treasury said.
“The Transnet strike could weigh on the mining sector in the fourth quarter, with major mineral-export harbours having operated at significantly lower capacity.”
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