Transnet has asked that the government take on a portion of its historical debt, similar to the R245bn debt relief offered to ailing power utility Eskom, as the state logistics company continues to struggle under a R130bn debt pile and other operational and financial challenges.
Should Transnet’s request be approved, this would help shore up its balance sheet and allow it to restructure and undertake the investment and maintenance needed while it pursues plans to bring in private players to help operate its railway infrastructure and dilapidated ports.
Its request for a bailout comes as the government is clamping down on spending.
Finance minister Enoch Godongwana is scheduled to deliver the medium-term budget policy statement on November 1, in which he is expected to announce wide-ranging budget cuts amid a deteriorating fiscal position because of low growth, low revenue and high borrowing costs.
In its integrated report for the year ended March 31, Transnet said it plans to spend R84.9bn in the next five years on infrastructure at Transnet Freight Rail, its largest operating division.
The request for a government bailout was made by the board, led by Andile Sangqu, and Transnet executives during a joint presentation of the state-owned enterprise’s (SOE) turnaround plan to public enterprises minister Pravin Gordhan and Godongwana on Tuesday.
“Transnet needs to repair its balance sheet in order to clear the maintenance backlog,” a source told Business Day.
Sangqu previously revealed to parliament that Transnet will consider disposing of some of its assets to raise the R50bn that is required to finance its rail infrastructure maintenance.
In 2022 Transnet received a state bailout of R5,8bn to repair infrastructure damaged during the KwaZulu-Natal floods and to buy new locomotives.
The SOE has consistently underperformed, costing its clients and itself millions of rand in revenue. It has faced myriad crises, including inefficiency, theft, vandalism and a deteriorating financial performance.
Poor operational performance also hurt Transnet’s ability to earn the revenue it needs to repay its loans, which ratings agency Moody’s alluded to in October 2022 when it flagged liquidity pressures that could hamper debt repayments due in the next 12 months.
State capture
Sources close to the discussions say Transnet asked that the government take up some of the debt it accumulated during the state capture era, which was characterised by corruption and mismanagement, according to the state capture commission’s report. The report, which was released in 2022, traced Transnet contracts worth R41.2bn that were irregularly awarded for the benefit of companies linked to the Guptas or their associate Salim Essa.
“As long as there is this debt that Transnet would never be able to repay, Transnet will never be able to maintain its railways,” another source added.
In a statement released on Sunday, Transnet said the turnaround plan, which was requested by Gordhan in September after the SOE posted a R5.7bn loss, includes areas that require immediate government support. “The turnaround plan outlines operational and financial initiatives which must be implemented in the next six, 12 and 18 months to stabilise the business and position the company for growth,” Transnet said.
Elements of the turnaround plan include ensuring financial stability, cost reduction measures, cash flow and working capital improvements. It also includes a report on how the board plans to restructure to effectively deliver on its mandate, an initiative to curb superfluous expenses and details on how the board plans to curb corrupt activity within the entity.
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