A wandering albatross flew to my balcony from Transnet’s Joburg headquarters, straight over Megawatt Park for fear of being bugged, to drop off the latest evidence that all is not well at 138 Eloff Street.
You will recall my column a month ago (“Does Ramaphosa know what’s going on at Transnet Freight Rail?” September 4) in which I revealed that Transnet’s balance sheet is so anaemic that it is relying on asset revaluations, deferring creditors and salary reductions to meet its debt covenants.
The picture is not looking good for the first half of its new financial year either. Writing to customers, Ahmed Hansa, head of finance for Transnet Freight Rail’s North Corridor, pleads with them to settle invoices for September rail charges a month earlier than the agreed October 25 deadline.
Clearly working capital constraints are starting to bite, and now the rail monopoly wants to add a further R40bn to its stressed balance sheet. Of specific concern is the huge decline in productivity and efficiency as measured in per thousand gross tonne kilometres (GTKs) per loco per month in the general freight business. This has dropped by 32% from 5,509 to 3,702 GTKs between 2017 to 2021.
There are a minimum 1,500 locomotives allocated to general freight. There have been about 500 locomotives worth of inefficiency added to the system in just five years. If we assume an average value of $2m per locomotive, that equates to $1bn (or R16bn) of inefficient use of assets.
We know Transnet’s overall accumulated maintenance backlog over the past 10 years sits at R26.8bn. What has caused this enormous drop in efficiency, and how much of that is attributable to the significant backlog in infrastructure maintenance expenditure?
Transnet is so cash constrained it has been forced to ask customers for early payments, and clearly this decline in planned maintenance expenditure is set to continue. Transnet has also revealed it has 300 locomotives standing waiting for maintenance.
My albatross tells me there are an average of just under 330 active locomotives standing for more than 24 hours across the network each day waiting for an instruction to move.
Transnet announced a 400 locomotive build programme recently. Industry estimates are that this will gobble up a minimum of R30bn of the R44bn budget (before any wagon builds).
One can only speculate about the real reasons for this extraordinary expenditure and lining up of juicy tenders, given that Transnet has roughly 500 locomotives being used less efficiently than just five years ago in the general freight business.
Transnet is so debt constrained that it is relying on asset revaluations, deferring creditors, asking for early payments and executing salary reductions to meet its debt covenants.
The first rule of railways for 200 years has been “do more with less”. Should the expenditure not go to the heart of the problem, which is maintenance backlogs and efficiency improvements?
I feel for Eskom’s new board, who have been given the Sisyphean task of returning Eskom’s ageing, poorly maintained power stations back to an energy availability factor (EAF) of 75%. There is broad agreement from industry bodies in the power sector and organised business that the board is a good mix of skills, experience and technical capability.
Independent energy analyst Clyde Mallinson tells me actual year-to-date EAF is 59.25%. Using Eskom’s likely risk scenario, the EAF for the remaining three months will be of the order of — wait for it — 52%. Using a simple weighted average, (9 x 59.25% + 3 x 52%)/12, yields an EAF average for 2022 of 57.45%.
There is a belief that bringing back experience, the Eskom “greybeards”, and applying some discipline, is mostly what is required to fix the problem. But what is often overlooked in this equation is the extent to which the culture inside Eskom has been poisoned by mafia groups, who threaten staff. As public enterprises minister Pravin Gordhan has said euphemistically, some staff are “resisting” the efforts to clean out the rot, as was shown by Camden being taken offline due to “an employee opening the wrong valve and in the process contaminating all of our demineralised water supply that we need to run the steam turbine”.
Little wonder CEO Andre de Ruyter has had his private vehicle bugged. It’s the same culture that has given rise to the construction mafia. One can sugar coat it and try to explain it away as evidence that people want economic inclusion. But it is pure criminality, and often treasonous if one considers the costs to the broader economy of load-shedding.
Until this is dealt with decisively by redoubling resources and capacity inside the police and the Special Investigating Unit, the new board broom will soon find its bristles worn down to stubs in its attempt to clean this Aegean stable.
Reuel Khoza, who has never been afraid of speaking truth to political power (remember his tirade against the ANC leadership in 2012 when he labelled them a danger to our democracy?) was right to call out President Cyril Ramaphosa’s lack of testicular fortitude to act decisively and move with the courage of his convictions to stamp out this rising criminal tide that threatens to undermine all the good economic reform work that has been done so far.
• Avery, a financial journalist and broadcaster, produces BDTV's Business Watch. Contact him at Badger@businesslive.co.za.
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