The Treasury has shot down Transnet’s request for a R100bn bailout to fund its debt obligations and capital investments, with finance minister Enoch Godongwana saying in his medium-term budget policy statement (MTBPS) that Transnet’s request for financing was not accompanied by guarantees the entity would improve its balance sheet.
This means the state-owned logistics company’s board, led by Andile Sangqu, would most likely have to go back to the drawing board and re-formalise its turnaround plan, which relies heavily on government support for implementation.
The plan was presented to public enterprises minister Pravin Gordhan and Godongwana in October after Transnet posted a R5.7bn loss, mainly due to a decline in rail volumes.
The beleaguered entity also recently lost senior members of its executive management including CEO Portia Derby, CFO Nonkululeko Dlamini — who has since moved to Telkom — and Transnet Freight Rail (TFR) CEO Siza Mzimela. All three resigned in the wake of the release of Transnet’s latest financial results, which showed that the entity was sitting on a R130bn debt pile and R13bn in interest payments per year.
In 2022, Transnet was allocated R5.9bn for the procurement of new locomotives and rebuilding rail infrastructure that was damaged due to the 2022 floods in KwaZulu-Natal and the Eastern Cape.
“Transnet just came to us a few weeks ago with an invoice,” Godongwana said during a pre-budget media briefing on Wednesday.
“This time around we are not going to give a bailout, whether in the form of a cash injection or state guarantees, until we are satisfied with the implementation of the logistics road map [by the presidency],” he said.
However, the door is not closed for Transnet to be given further state support, and for the next three months the Treasury will be engaging with the entity on ways to implement the road map. Among the conditions for more state support is enhancing efficiencies, facilitating the introduction of competition and leveraging the financial and technical support of the private sector, Godongwana said in the MTBPS.
“Only once these three objectives are reflected in Transnet’s corporate and operational plans will there be a conversation about whether and how the government can provide financial support to transform the logistics sector.”
“The National Treasury is working with Transnet and the department of public enterprises to ensure that Transnet can meet its debt obligations.”
Transnet’s inefficiencies are estimated to have wiped off 5% of GDP in 2022 and cost the mining sector R50bn in lost revenue in the same year.
TRF's collapse stems from operational failures, increased theft and vandalism, reduced locomotive availability and the poor condition of infrastructure resulting from underinvestment, Treasury documents show.
“Transnet has initiated a five-year R122.7bn capital investment programme, including R99.5bn for operational maintenance and R23.2bn to expand infrastructure, starting in 2023/24. Further borrowing is restricted by its existing debt, which stood at R130bn at the end of March 2023, and declining revenues,” the documents read.
The Treasury’s rejection of Transnet’s funding request is in line with its “tough love” stance towards ailing state-owned entities, which are serial underperformers that drain the public purse by continually requesting bailouts.
For Eskom, the government plans to implement stricter conditions to its R254bn debt relief including the sale of its finance company. Of this amount, R16bn has already been disbursed since February. Any further disbursements are subject to the passing of the Eskom Debt Relief Amendment Bill by parliament.
“A task team has been established with officials from the National Treasury, the department of public enterprises and Eskom to monitor compliance with the conditions and report quarterly on whether Eskom qualifies for the conversion of the loan to equity,” the Treasury said.
“This arrangement will enable the utility to undertake much-needed maintenance and investment, and to improve its financial position. Eskom’s financial sustainability remains at risk from poor generating plant performance, declining sales, lack of cost-reflective tariffs, rising municipal arrears and high debt-service costs.”
State-owned arms manufacturer Denel was given R1.9bn out of an allocated R3.4bn in March. These funds are to help settle debt obligations, pay for restructuring and enhance working capital.
The remaining R1.5bn allocation will be disbursed to the entity following the sale of its noncore assets.
“In September 2023, Denel requested that a further R100m of the ring-fenced funds be released to settle the last government-guaranteed debt obligation. Following its settlement, Denel has no debt obligations remaining and its government guarantee will be revoked,” the Treasury said.
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