The National Treasury approved the provision of a guarantee to Transnet as part of a condition for the state- owned logistics company to secure an R18.5bn loan from the African Development Bank (AfDB) to avoid inevitably providing it with a bailout.
“I had two options. Either to give them cash or a guarantee. I opted for a guarantee,” finance minister Enoch Godongwana told Business Day on the sidelines of the ANC’s three-day lekgotla.
The government was “stuck between a rock and a hard place”, Godongwana said, because had the Treasury refused the guarantee, it would be required to provide the funding to Transnet to support its recovery plans.
This is a deviation from the Treasury’s “tough love” approach to errant state-owned enterprises as it ramps up its fiscal consolidation agenda with the aim of reining in public debt.
Transnet, which reported a R1.6bn loss in the six months to end-September 2023, had previously requested a R100bn bailout from the government to support its turnaround plan, which the Treasury refused, requiring it to look to the capital markets for funding.
A government guarantee is a contingent liability and is an obligation by the government to pay the debt of a state-owned entity in the event that it defaults on its debt obligation. The government has guaranteed the debt of several struggling state-owned enterprises including Eskom, Denel, SAA, Land Bank and Transnet.
The Treasury provided Transnet with a R47bn guarantee in December 2023 to support its recovery plan and to meet its debt obligations. The guarantee came with strict conditions to take specific action to accelerate a turnaround, speed up reforms and encourage private sector participation.
Transnet’s recovery plan, which was released in October 2023, has clear targets for volume growth and the improvement of capacity over the next six, 12 and 18 months, “aimed at improving operational and financial performance and curbing expenses”.
One of the highlights of its turnaround plan outlined in 2023 was for its biggest division, Transnet Freight Rail, to ramp up volumes to 170-million tonnes in 2023/24 and to 193-million in 2024/25.
The 25-year AfDB loan to Transnet, which was approved in July, will facilitate the first phase of the company’s R152.8bn ($8.1bn) five-year capital investment plan to improve its existing capacity ahead of expansion for the priority segments throughout the transport value chain.
The approval of the state guarantee to Transnet would, however, not open the flood gates for other SOEs to place their begging bowel at the Treasury’s door, Godongwana said
“We’ve gone through the cycle of the bigger ones [SOEs]. We’ve gone through SAA, Denel, Eskom. We are beginning to get a better grip of the problems at Transnet,” he said.
“To avoid that overdependence [at Transnet] we are bringing in private operators upfront so that we must be able to deliver product without relying on Transnet. That also puts Transnet under pressure to perform.”
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