The delay by Transnet in finalising the contract for the partial privatisation of its flagship Durban port with a Philippines-based multinational port operator has raised questions about the state-owned logistics company’s commitment to attracting private sector participation in its ailing rail and port network.
Transnet has yet to sign a contract with International Container Terminal Services (ICTSI), the global player it chose almost three months ago as its partner to turn around the container terminal, which has been plagued by inefficiencies.
ICTSI, a R140bn-plus operator straddling six continents, was announced in July as Transnet’s preferred equity partner to run the Durban container terminal for the next 25 years.
The transaction is part of efforts to turn around the container terminal and comes nearly two years after President Cyril Ramaphosa’s administration announced it would allow for private sector participation at the port, which has been hampered by inefficiencies, ageing infrastructure and congestion.
ICTSI executives this week expressed concerns about the delay, especially given the uncertainty about Transnet’s leadership and the challenges of an election in 2024.
But they were upbeat about the Philippines-based operator’s ability to turn around the container terminal, emphasising that it is accustomed to difficult conditions and that optimising processes and improving morale at the terminal could go far in improving its efficiency.
ICTSI’s global corporate head, Chris Gonzalez, said the group, which operates 32 container terminals had been eyeing Durban for more than two decades. “It is a highly important and well-balanced gateway terminal. Those are rare,” he said. But he acknowledged that turning around the terminal is “not a slam dunk”.
Transnet has insisted on holding on to the majority of the shares in the new partnership entity that will operate the terminal and on keeping the 2,000 workers in its employ and seconding them to the new venture. Critics charge the constraints could limit ICTSI’s ability to turn around the Durban terminal, which is Transnet’s biggest container terminal, handling 72% of the Port of Durban’s throughput and 46% of SA’s port traffic.
However, Gonzalez said the deal gives ICTSI full operational and management control of the terminal and ICTSI would have the majority of the seats on the five-member board of the new entity. Existing employees would retain their jobs on the same financial terms.
Gonzalez said ICTSI’s objective is to grow the business. However, in the Durban and Cape Town ports each worker handles an average of 850 containers a year while the efficient global average is 1,200-1,600.
ICTSI will improve efficiency through process optimisation. It expects motivation to improve under a new management team. Gonzalez said the group is accustomed to dealing with strong trade unions in other countries where it operates.
There are also improvements to be made in procurement.
ICTSI understands the new entity will not be subject to the rules of the Public Financial Management Act as state-owned enterprises are.
Important deal
The 25-year partnership deal with Transnet commits ICTSI to lift volumes at the terminal to an annual 2.8-million TEUs (20 foot equivalent units) from its current 1.7-million, which is below its rated capacity of 2.1-million.
It is up to ICTSI to decide how to do this, but it expects to do so through a mix of improving efficiencies and investing in new equipment.
Once ICTSI takes over in Durban, the terminal will account for about 13% of its global volumes so the deal is an important one for the group.
Gonzalez said the Port of Durban is unusual among emerging-market ports in being relatively balanced between imports and exports, though that makes it more complex to operate than other emerging-market ports, which generally ship in mainly imports.
While ICTSI believes there is much room for improvement, it disagrees with the World Bank rankings.
“There is no doubt that the port could do much better but to say they are number 362 or 368 that is not true,” said ICTSI senior vice-president for the Europe, Middle East and Africa region Hans-Ole Madsen.
Gonzalez and Madsen were in SA this week for courtesy meetings with Transnet leadership. It is unclear why it has taken so long to sign the contract, which had been largely drafted and finalised as part of the bid process, which went back to early 2022 when Transnet first went out to the market for proposals.
It is understood Transnet has been busy with a confirmatory due diligence study of ICTSI. The purchase price has been agreed but has not been disclosed.
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