Challenges at Transnet Freight Rail (TFR) might have cost SA's mining companies some cream off the top, says CEO Siza Mzimela, but the logistics entity still provides a good enough service for the industry to make “super profits”.
“They have lost an opportunity to make more money, so for me there is a difference,” Mzimela said on the sidelines of the Investing in Africa Mining Indaba held last week.
“All of the mining companies have made and reported super profits. Every single mining company has made super profits, what they have lost is the opportunity to make more.”
She said TFR was itself disappointed at having lost the chance to make more revenue from the commodities boom.
“We would have wanted to equally benefit from the opportunity to make more. For them to still be in a position to report the profit they have reported, is as a result of what Transnet was able to move on their behalf,” Mzimela said.
For them to still be in a position to report the profit they have reported, is as a result of what Transnet was able to move on their behalf
— Transnet CEO Siza Mzimela
Roger Baxter, CEO of Minerals Council SA, which represents 80% of the mining industry, said: “While mining companies did extremely well financially, there are underlying challenges demanding our full attention. We are working closely with Transnet to address the constraints that are preventing SA Inc from fully benefiting from high commodity prices and strong demand for our minerals.”
He told the Indaba that thanks to strong global prices SA’s mineral production was just shy of R1.2-trillion in 2021, well above the R910bn achieved a year earlier, which had given the domestic economy a vital injection of higher taxes, wages and increased employment.
But Baxter said R50bn had been left on the table in 2021 because of Transnet's constraints. “If the capacity of the rail network for bulk commodities like iron ore, coal and chrome is considered, the opportunity loss is R50bn, a third of which would have flowed into the fiscus.”
On a more narrow basis, comparing what Transnet actually shipped with what it had forecast it would ship, the opportunity cost was R35bn for the three commodities.
According to the Minerals Council, the industry’s direct contribution to GDP jumped 36% to R481bn in 2021, and its contribution to the economy improved to 8.7% in 2021 from 7.1% in 2020. Nearly 459,000 people were employed in mining in 2021, up from 452,866 the year before, while R154bn was paid in wages and salaries compared with R152bn in 2020.
Mzimela said TFR was trying to get its house in order and meet its targets but was struggling due to the state capture locomotive scandal, cable theft, vandalism, difficulty in sourcing spare parts and other issues.
She said fixing Transnet was going to have to be a two-way street, with customers — particularly the mines — doing their bit. New mining operations were further away from the existing railway lines.
“Ultimately, it is about finding a solution about locomotives. We are trying to find a commercial solution on our side to increase the availability of locomotives. There are legal issues and they are outside of our control.”
Last year Transnet and the Special Investigating Unit (SIU) asked the courts to cancel contracts worth R54bn for the procurement of 1,064 locomotives that were signed in 2014 on the watch of the then CEO Brian Molefe and CFO Anoj Singh. About half the locomotives have already been delivered.
“You must remember that the 1,064 contract is an SIU matter,” Mzimela said. “It might have been a Transnet transaction, but it is sitting in a legal space at this time.”
She said the potential money to be made in the current commodities market made the locomotive problem even more frustrating. “There are ongoing discussions and progress around trying to find a proper solution to the locomotive issues. The thing that is unfortunate is that it happened at a time when there is this commodity boom. Everybody knows the house needs to be repaired.”
TFR and the mining industry were joined at the hip, Mzimela said.
“Whatever loss they speak about, it also has a direct impact on us. So as Transnet we would have loved to also be benefiting from the current commodity boom. It is unfortunate it comes at a time when we are right in the middle of fixing all of the challenges that we are facing.”
She said TFR deserved to be recognised for the contribution it had made over the years, in good times and in bad.
“There have been ups and downs, and Transnet has been there for the coal customers at a point at which there were serious declines in commodity prices. Now there is heightened demand in terms of commodity prices, but Transnet has been there all of the time during the highs and the lows.
“I think somehow that gets lost in the messaging when we are all frustrated. We are all frustrated. We are also frustrated by the inability to participate in the opportunity for us all to make more money.”
Work is under way to allow private sector third parties to operate on the TFR container corridor. Transnet has invited bids for 16 slots — six to move containers and general goods between City Deep and Durban and the others between Gauteng and the Free State and Eastern Cape.
“This would be our first phase so that we are able to test the concept,” Mzimela said.
“That work continues to be ongoing. The floods [in KwaZulu-Natal] have damaged our infrastructure on the very corridor where we intended to start with the first phase of third-party access. There will be an impact in terms of timing and when people can come physically on the line. We think it is an opportunity for people who want to join the line to gear up for access.”
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