The African Rail Industry Association (ARIA) has slammed Transnet for posing a sovereign and reputational risk to South Africa's economy amid alleged resistance to implementing third-party access to its rail network, maintenance backlogs and the effect of the crippling two-week wage strike.
But Transnet dismissed the comments as alarmist and not based on fact as it was investing in maintenance and proceeding with the slot sales process which will be concluded this financial year.
ARIA CEO Mesela Nhlapo said this week that the problems at Transnet were deep and the company was not facing them honestly.
“It is like you are about to have a major heart attack and are in denial,” she said, adding that SA was witnessing the beginning of the end of Transnet.
Nhlapo was speaking at a panel discussion hosted by ARIA on how the railway network could be more efficient.
“When was the last time Transnet was bailed out by the Treasury? It means there is something fundamentally wrong there,” Nhlapo said, referring to the allocation to Transnet in last month's medium-term budget policy statement (MTBPS).
Transnet was allocated R5.8bn towards repairing infrastructure damaged by the floods in April and maintaining freight rail locomotives.
The assertion that the rail industry ... poses a sovereign risk is presented so skewedly and [is] laced with so many incorrect statistics that we can only view this as an attempt ... to argue for a collapsing industry to enable wholesale privatisation
— Transnet
'They have always said 'we are self-funded', so what happened in this case?”
Transnet has not been able to keep up with the demands of its customers as it grapples with a lack of maintenance, shortage of spare parts, vandalism, cable theft and the aftermath of the irregular procurement of 1,064 locomotives. The government has announced plans for third-party access to the rail network to ensure competitiveness.
Nhlapo said Transnet had underspent on maintenance of rail infrastructure by at least R27bn over the past decade and its financial position did not support further lending.
Transnet denied allegations of a lack of maintenance, saying freight rail had a four-year increase in its maintenance spending and had spent R4.1bn in 2021, which has increased in excess of R2bn this financial year. Transnet had an obligation imposed by the Railway Safety Regulator “to ensure that all the lines are safe for operations”.
Nhlapo said that in the 2021/22 financial year, Transnet had revalued its property portfolio by R11bn, which resulted in a R5bn net profit for the year. Without that, it would have reported a R6bn loss.
“When you interrogate their financial statement, you realise it is not a profit, or cash in the bank. Transnet has created a fictitious impression that the company is OK by re-evaluating their assets. This is a short-term plug to a dam wall that will soon break. If Transnet was honest about their condition a solution could be found.”
She said Transnet had asked its customers to pay 30 days early and requested them to postpone payment to suppliers so that the company's cash position would look better at its half-year results.
Nhlapo said the two-week industrial action at Transnet had exposed the effect the logistics company has on the economy after an estimated daily loss of R1bn.
“The strike should have scared everyone in the country. Transnet’s imminent collapse will destroy the country’s economy. Transnet’s refusal to implement transparent and proper reforms is difficult to comprehend given its financial and operational position” she said, referring to third-party access.
“Where we find ourselves with Transnet is they will find every loophole in the system not to comply with the national rail policy.”
Juanita Maree, CEO of the South African Association of Freight Forwarders (SAAFF), said Transnet needed urgent reforms.
“Unless we fix it we probably have a bigger disaster than Eskom and that is what policymakers or decisionmakers fail to understand” she said.
Maree called on the government to create an enabling environment in which the logistics sector could thrive.
“The private sector cannot create an environment, we can participate in an environment, but we need the government to create an enabling environment for us to work in. It does not matter how hard we shout, how badly we behave, if we don't have a trust relationship so the government can create an enabling environment we are not going to get anywhere.”
In response to the allegations, Transnet said ARIA did not represent railway operators, barring Traxtion, and it was strange for a small organisation with minor representation of suppliers of rail material to say it speaks on behalf of the rail industry.
“The assertion by ARIA that the rail industry as it pertains to Transnet 'poses a sovereign risk' to the country is presented so skewly and laced with so many incorrect statistics that we can only view this as an attempt to create exaggerated alarm, with the view to argue for a collapsing industry to enable wholesale privatisation of the freight rail industry to benefit a few members of ARIA at the expense of national interests,” said Transnet.
It said ARIA had a biased view of the state of the freight rail industry and presented incorrect facts to drive a particular narrative about the role of the state in the economy.
On third-party access, Transnet said: “Here too ARIA is way off the mark. TFR proactively introduced slot sales to test the concept of third-party access in the prevailing legislative landscape while the department of transport develops the national rail policy implementation framework and enabling interventions as outlined in the white paper”. It said the test would provide insights for implementation on the broader network once the department was ready for policy implementation.
“The two-year period is in essence the first phase to better understand the implication of allowing third-party access on the network and to assess the impact on labour and other parts of the business,” said Transnet.
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