The R47bn credit guarantee facility advanced to Transnet by the National Treasury should rather have been a direct equity injection, says Stellenbosch University logistics expert Prof Jan Havenga.
A direct capital injection would have demonstrated the government’s commitment to funding rail and ports infrastructure, he told the Sunday Times.
“In all honesty, the government does fund roads, so it would be fair to fund rail infrastructure, but rail reform must first be in place, then infrastructure can be funded that will be available to all private operators,” he said.
Havenga said the R47bn was merely a sovereign guarantee that allows Transnet to borrow and the Treasury will guarantee repayment in case of a default. But at least it allowed the rail and ports company, which is saddled with a R135bn debt pile, to borrow at cheaper rates.
“Sovereign guarantees open the door to cheaper debt, balance sheet restructuring, and better oversight,” he said, adding that the money will still need to be paid back.
In a statement on Friday, the Treasury said Transnet will be able to draw an initial amount of R22.8bn to deal with immediate liquidity matters such as settling maturity debt. However, strict conditions have been attached to the support package, including implementation of the recovery plan presented by the board last month, and complying with commitments to introduce private operators to the network.
In the recovery plan, Transnet committed to delivering a minimum of 154.4Mt in bulk commodities by the end of financial 2024. It said should the government accede to its request for financial support, it could lift this target to 170Mt and to 193Mt for financial 2025.
Havenga commended the management team led by acting CEO Michelle Phillips for showing a strong commitment to turning the entity around.
The new management, although still in acting roles, is much more open, focused and solution-orientated than the previous one. But the damage done by the previous management is significant
— Prof Jan Havenga
“The new management, although still in acting roles, is much more open, focused and solution-orientated than the previous one. But the damage done by the previous management is significant and it will sometimes be a slow process. This guarantee facility will provide relief and fast-track the process,” he said.
The Treasury said it had not considered the request for an equity injection because the budget for 2023/2024 was closed, but it was “confident that this guarantee facility alongside swift implementation of the recovery plan will be sufficient to resolve Transnet’s challenge”.
Transnet welcomed the financial support from the government “as the company implements its recovery plan for the turnaround of the business”.
The Treasury said the credit facility came with strict conditions that would be continuously reviewed and amended as necessary.
“Any further drawdowns will be subject to Transnet meeting these conditions. [Finance minister Enoch] Godongwana is positive that the necessary reforms needed to put Transnet back on track can be achieved if the entity commits to meeting the strict conditionalities attached to the guarantee and quickly implementing the reforms informed by the national logistics crisis committee.”
Mesela Nhlapo, CEO of the African Rail Industry Association, welcomed news of the support package.
“It enables Transnet to approach the debt market in order to execute on its capital and maintenance programme and to enable operations to perform more efficiently. Yes, it is additional debt, but for now, it is sufficient support for them to execute their recovery plan. All hands on deck. Transnet cannot fail, not on our watch,” she said.
The CEO of the Road Freight Association (RFA), Gavin Kelly, said the allocation was a step in the right direction, but noted that such help for state-owned entities had failed in the past.
“The RFA looks forward to seeing and experiencing vastly changed efficiencies from the port and rail services controlled by Transnet,” Kelly said.
“The question remains whether the management, operational foresight and control that were required for many years will now come into play … Will this suddenly now happen, or are we to see a similar experience as happened with SAA, where countless bailouts occurred without the desired result.”
