The Minerals Council SA is “just a lobby group” and one out of 16 isn’t a failure.
Transnet Freight Rail (TFR) CEO Siza Mzimela’s insouciance to questions I posed belie the crisis at the state-owned rail operator as it battles a train wreck every bit as disastrous as load-shedding in its broader economic impact.
Mzimela was referring to the now infamous leaked letter of December 4 from the council’s president, Nolitha Fakude, to Transnet chair Popo Molefe, calling for her head to roll along with that of group CEO Portia Derby, over failures to arrest the dizzying decline at the freight monopoly. This is leading to billions of rand worth of lost export opportunities for its members, not to mention the devastating effect on many other sectors of the broader economy.
In Mzimela’s view everything is hunky-dory with TFR’s mining customers at an individual level, which account for 80% of its revenue, despite these customers collectively losing upwards of R100bn annually at current prices due to TFR’s decline.
I could barely hide my incredulity when, on a panel with Stellenbosch logistics expert and former Transnet insider Jan Havenga, she disagreed with my reading that only selling one out of 16 slots on auction during the first third party access pilot last year was an abject failure.
The rail industry kept on telling TFR the terms and conditions weren’t feasible, yet it soldiered on, and now you’ve got one party, Traxtion, which might take up one out of 16 slots if the terms and conditions can be contracted in the next few months. How is that possible?
Lost in translation
Well, Mzimela would have us believe this pilot phase was just to test the market ahead of true third party access next year. With one out of 16 slots having been sold, the market is telling TFR something, though with Mzimela at the helm it is being lost in translation.
The cost of this insouciance was captured in a searing leader in The Economist, in which the world’s most globally influential financial publication decried the ANC government’s incessant focus on a “developmental state”, which is clearly “less useful than keeping the lights on and trains running”.
Havenga told The Economist general freight volumes have slumped to their lowest level since the World War 2, while coal exports collapsed to levels not seen since 1993 despite record prices since Russia’s invasion of Ukraine. The main coal line through Richards Bay ought to carry 81-million tonnes a year but managed just 66% of that. The cost to the industry? R80bn.
Add to these the extra costs from the inefficiency of going by road, and the total hit comes to about R400bn or 5% of GDP. The reasons trotted out for this dismal performance are cable theft and Chinese locomotives. But TFR’s silence about its operational inefficiencies is even more revealing.
What about the lack of infrastructure maintenance that’s keeping trains idle? What about the 120 new generation General Electric locomotives, the best in the world, which are standing idle? What about the cancellation of Multirail, and not having a well functioning network planning system?
TFR doesn’t account for operational issues that are having a huge compounding negative effect on the challenges of cable theft and the Chinese locomotives debacle, which is now out to a new tender.
Then you’ve got the balance-sheet stress. Revaluations at Transnet are getting to the point of being suspicious. How can you have a scenario where the African Rail Industry Association has shown that TFR is not maintaining the network, rail volumes are tanking, revenue is dropping and its cash position is loss-making, yet it is raising the value of the rail track?
The most recent interim results to September 30 saw a R1bn revaluation of track to R7.6bn over six months. Revaluations conveniently help with gearing ratios, which Transnet decreased from 45.5% to 43.7%, below the level that triggers key covenants.
Speaking of balance sheets, Transnet’s assets have increased by 456% since 2005, while on the income statement side revenue has only managed to expand by 171% over that same period. Doing less with more is not how this works.
Back to Mzimela’s response to the Minerals Council. Yes, its members are allowed to assist with some equipment issues and security, but Mzimela bridled at the suggestion that they be allowed to assist with operational and strategic issues. Why not let them in? These are extraordinary times. The mines understand the operational issues intimately — the railway is after all an extension of their operations to the sea.
Havenga tells me that around the world best practice is to “insert railways into supply chains”, and he believes the mines have an absolute right to insight into rail’s strategy and to provide input. Indeed, their future and the future of our country depend on it.
Havenga says a Marshall Plan of sorts is needed. “There are many fingerprints on the murder weapon. History, previous management, theft, vandalism, the locomotive deal ... But current management is not improving this. This is ‘all hands on deck’ time. The loss to everybody is too much. Transnet could be a major disaster to our economy if everybody doesn’t get involved, right now, and be allowed to provide the assistance they can.”
• Avery, a financial journalist and broadcaster, produces BDTV’s Business Watch. Contact him at badger@businesslive.co.za.
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