The SA authorities are holding up completion of the deal that will see state logistics company Transnet solve its long-standing dispute with China Railway Rolling Stock Corporation (CRRC) over the delivery of spare parts and components for the entity’s locomotives.
“It is the SA side that is holding up the process that will help us get the spare parts required and get the technicians into the country,” said public enterprises minister Pravin Gordhan, who visited China earlier with Transnet executives to try end the deadlock. He added that CRRC still had to deliver 99 locomotives to Transnet between this year and 2024.
“Some of their [technicians’] visas have been arranged to enter the country. But they will only be sent off from China once there is a sign-off of all major issues from both sides.”
He said there is no need for a “diplomatic spat” between the two countries over the issue.
The crux of the dispute is that Transnet awarded CRRC contracts to supply locomotives and parts that were later found to be unlawful and inflated, prompting the Reserve Bank to freeze its accounts and putting it in the crosshairs of the SA Revenue Service (Sars), which requires a tax clearance certificate.
The dispute has put SA in an awkward position as it has prevented CRRC from supplying spare parts and components for Transnet’s locomotives. This in turn has affected the rail capacity and efficiency of the state-owned logistics firm which plays a critical role in the economy that is barely growing.
Gordhan was speaking during a presentation of Transnet’s annual earnings report which showed that the entity swung into a R5.7bn loss from a profit of R5bn in the previous year.
Transnet blamed the deterioration on the decline in rail volumes, which slumped 13.6% to 149-million tonnes in the year to the end of March.
Transnet CEO Portia Derby said there has been a 25% decline in the available locomotive fleet which has been worsened by decreased loco reliability due to spares not being available. The entity has 1,854 operational locomotives.
CRRC in January withdrew from an in-principle agreement to provide the spare parts in what Transnet said was an unwillingness by the Chinese firm to engage with Sars and the Reserve Bank.
“The two issues that they [Sars] had is that you cannot do business with us without a tax clearance certificate ... and there had been a restriction on their [CRRC] two bank accounts in SA. The last issue that remains outstanding is for the Reserve Bank to regularise their bank accounts so that whatever cash goes into that ... would not be forfeited,” Derby said.
Gordhan, meanwhile, has turned up the pressure on Transnet, giving its board three weeks from Friday to produce a turnaround plan as the entity battles with operational inefficiencies.
The plan, Gordhan says, should include a report on how the board plans to restructure the entity for it to effectively deliver on its mandate, launch an initiative to curbing superfluous expenses to boost financial sustainability, and detail how it plans to curb corruption.
“Transnet’s leadership must internalise the gravity of the situation and the extensive repercussions of persistent underperformance,” the minister said.
“The challenges we’ve noted, especially those related to ghost trains, infrastructure theft and derailments, are not just operational setbacks. They threaten the trust our citizens place in our institutions and the stability of our economic environment.”
In July, Gordhan appointed a new board at Transnet, headed by former mining executive Andile Sangqu, and tasked it with tackling years of corruption and to improve management of its rail, port and other assets.
“Once we have that [plan] in place we can determine what is attainable, what can be measured and how we can continually assess the effectiveness of that,” Sangqu said.
“Realistically, we think that by the end of October we will be able to draw a line in the sand and say these are the things we believe can be achieved in the next six to 12 months.”
Restructuring the company’s debt service costs of R1bn a month will be a key part of the plan, Sangqu said.
“Over a 12-month period, debt alone is R12bn [and] that continues to throttle the free cash flows of the company and reduces its ability to have sufficient cash to do maintenance, repairs and procure spare parts.
“So we need a new configuration in terms of how we restructure the organisation. We have a significant amount of debt and we pay significant interest expenses,” he said
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