Executives at Transnet Freight Rail (TFR) told public enterprises minister Pravin Gordhan at a meeting last week that inadequate investment in rail infrastructure by the state was one of the reasons the company was in trouble.
Gordhan this week led a delegation to China to push for the resolution of a long-standing impasse with that country’s state-owned rail supplier, CRRC, which has withheld spare parts and locomotives after a R54bn contract it entered into with Transnet was nullified.
An insider who attended the meeting described the mood as tense as TFR executives — led by CEO Siza Mzimela — explained how the locomotives standoff, vandalism and cable theft, as well as poor investment in rail infrastructure, were to blame for the state of affairs at the rail and ports entity.
“The rail system needs to be fixed and those are the major problems. Transnet cannot shoulder the blame alone,” said the insider, who asked not to be named. Transnet has been frustrated by the Chinese refusal to release parts crucial for servicing hundreds of locomotives stuck in depots, and has sought political intervention to resolve the dispute.
The contract to acquire the locomotives was nullified by the courts after it was found that prices were inflated by middlemen acting on behalf of the Guptas. Gordhan left for China in an effort to break the impasse.
The trip was agreed to at a recent meeting with President Cyril Ramaphosa where he is said to have read the riot act to the department of public enterprises and Transnet.
He demanded solutions to the crisis that is costing the economy billions.
Gordhan refused to comment on Friday.
His department said the trip was undertaken to help Transnet access locomotives and spare parts: “Minister Gordhan is hopeful that talks with his Chinese counterparts will yield positive results in the interests of state-owned companies, and in particular to ensure the effective and efficient South African logistics and network services for the benefit of the country’s economy.”
Transnet would also not comment. The Minerals Council South Africa has expressed frustration at the missed opportunity for bulk commodity producers that lost revenue of R35bn in 2021 and R50bn in 2022 because of Transnet’s constraints.
Commenting on the visit, Jan Havenga, emeritus professor in industrial engineering at Stellenbosch University, said the direct loss to the economy in 2022 caused by TFR’s failure was R167bn.
“Coal exports were at their lowest since 1993, iron ore exports since 2010, and general freight since World War 2,” he said. Coal exports through the Richards Bay Coal Terminal last year plummeted to about 50Mt, at a time of high demand for commodities that were fetching record prices. Havenga said the visit to China was important and long overdue.
“They should be speaking to the locomotive suppliers at the right level, but first — because it is China, for which face-saving is important — to the ministers of finance and of foreign affairs,” he said.
African Rail Industry Association CEO Mesela Nhlapo said the association supported the government’s efforts to resolve the impasse.
The situation right now is untenable. It is going to explode. Communities are getting frustrated with the number of trucks — all you have to do is to look at what the queues are like going into Mozambique and Richards Bay
— Jono Gay, Chrom Tech CEO
“Releasing these new-generation and high-cost assets back into service of course makes a lot of sense. However, returning these 150 locomotives into service alone isn’t enough to solve the bigger issues facing the rail industry and the upstream economy.
“Maintenance expenditure cutbacks in terms of locomotives, wagons and track maintenance are deeply concerning for the industry and need to be addressed urgently. These locomotives are not going to solve the magnitude of the problems,” Nhlapo said.
Speaking at a webinar on Friday discussing how challenges in the energy and transportation sector were affecting junior miners, Minerals Council chief economist Henk Langenhoven said there was a bigger shift of cargo from rail to road because of the constraints at Transnet.
“In chrome and ferrochrome, there has been a switch away from rail, and a switch away from Richards Bay. The chrome guys have a major problem because of the coal trucks, and they cannot get in there.
“It should not be like this; we are really damaging our roads and the costs involved in transporting our products [are high],” he said. Langenhoven said about half of mining exports were bulk commodities such as iron ore, coal, magnetite, manganese, chrome and ferrochrome. He said imports and exports represented 60% of the country’s GDP — meaning South Africa earned 60% of its keep from trading in goods.
“That this is a crisis for the economy and a catastrophe is not an overstatement,” he said.
Jono Gay, CEO of low-cost junior chrome producer ChromTech, said there had been a shift of product from rail to road, a significant problem for bulk movers.
“If we look at the ferrochrome and chrome sectors, last year Transnet’s budget was 8.6Mt, and they moved less than 4.5-million. This year, they have revised the budget to 5.8Mt [but] whether they get close to that, I do not know.
“If you look at the total demand, we as a sector are looking to move 14Mt a year and if we can put only 5Mt on rail it shows the rest needs to go on road.
“So we are only worsening the situation. We need to find a collective solution, and my thinking is a public-private partnership. Transnet simply won’t be able to do it on its own,” he said.
Gay warned that South Africa needed to fix its rail problems fast, or there could be increased social unrest.
“The situation right now is untenable. It is going to explode. Communities are getting frustrated with the number of trucks — all you have to do is to look at what the queues are like going into Mozambique and Richards Bay. The safety element is a huge issue, trucks running day and night on roads that were not designed for it,” he said.
Crause Mabudafhasi, executive director of junior coal exporter Vuna Group, said that on average the company used to get six trains a month.
“Towards the end of last year we got an average of one train, and sometimes two trains, a month. So we had to resort to road transport to fill the gap that arose as a result of Transnet. This hit our bottom line because the cost of road transport is much higher than rail.
“This year we decided to reduce our production from 50,000t a month to 30,000t. We cannot have a situation where the stockpile is increasing in sidings waiting for rail that we do not know will come — or when. There is no consistency, which means it is affecting our turnover and profitability,” he said.
— Additional reporting by Caiphus Kgosana
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