Transnet’s latest financial results reflect a group that, to borrow the words of transport minister Barbara Creecy, has “plateaued”.
It has plateaued operationally in that it has more or less stabilised volumes on its rail network, albeit at a level which is far below the volumes Transnet was railing six years ago — and even further below what SA’s economy ideally needs.
It hasn’t quite plateaued financially, but if provisions for a couple of legal disputes are excluded, Transnet managed to reduce its loss for the year to end-March and is targeting to make a small profit in the next year.
Of course, reaching a plateau is better than falling off a precipice, as Transnet had done from 2019 to 2023. And there were some promising signs in the results and in the narrative from Transnet’s leadership that accompanied them. But the state-owned logistics group’s performance is not improving nearly fast enough. Nor is there enough practical evidence that it is working closely with the national logistics crisis committee to fix its ailing infrastructure and fast-track the private participation needed to introduce competition and efficiency into SA’s railways and ports.
On the financial side, the group is not in great shape, though the trend is better than it was. Revenue was up and so was cash flow. Transnet debt doubled from 2009 to 2015/16, but it has been relatively stable in the region of R130bn since then (R137bn at end-March).
But the group is spending about half of the cash it generates from its operations just in interest costs. In the latest year it had to seek a waiver from its bondholders because its cash interest cover fell below the target agreed in its covenants with them. The government has made a R47bn guarantee facility available and Transnet has made good use of this to raise the cash it needs on the domestic market, as well as from international development financiers. It says it is implementing the 33 guarantee conditions.
But there is no sustainable solution to its financial challenges unless the group can cut its costs, get rid of noncore assets and, most importantly, increase volumes through its rail and port networks. That means taking more advantage of the private sector help that is on offer to fix its operations. It also means introducing private sector competition and efficiencies into those networks and its rail and port operations.
The government’s freight logistics road map, approved by the cabinet in December, sets out the path to do that. Various pieces of legislation are in place to give effect to it. The department of transport, working with the national logistics crisis committee, is setting up a new private sector participation unit to make it happen.
Transnet’s leaders emphasised this week they supported the reforms. They now have to show that, with urgency. Transnet has made a start on separating infrastructure and operations in its rail network and its ports, to enable private operators to come in.
But it is going to be a long and complex process to introduce new private concessions, leases or joint venture partners. There are no quick and easy fixes to the logistics crisis. But SA urgently needs it to be fixed.
It is crucial that Transnet set more ambitious targets to turn around its operations, and move faster on the changes it has to make to enable private participation. Its 2024 financial results are more respectable than those of 2023; 2025 could look even better. But Creecy is rightly putting on the pressure.
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