Despite upbeat statements by Transnet about its turnaround, actual rehabilitation of the rail network is not happening, says South Africa's leading logistics expert, Stellenbosch University's Prof Jan Havenga.
“Right now nobody is actually fixing the network, the infrastructure.”
The problem is not a lack of urgency or ambition by the new Transnet leadership but a lack of cash and “a huge, blundering error” that has left it with no proper portfolio analysis or financial model, without which it cannot source the R20bn per year over 10 years he estimates fixing the network will cost.
“You cannot do what needs to be done without a proper portfolio analysis and financial model”, says Havenga, who advises the Operation Vulindlela logistics reform team in the Presidency.
Funds to fix the infrastructure should come from Transnet, the private sector or the National Treasury.
“But Transnet cannot trade itself out of its problems no matter how hard it tries. It cannot generate the necessary cash to fix this. They keep asking the Treasury for a bailout, which the Treasury is not willing to give them.”
To get the private sector “to come to the party”, Transnet needs to be restructured.
“It's got a very challenged balance sheet, an extremely wide portfolio — many ports, terminals, ports authorities, different pieces of railway track including high density export lines, coal lines, iron ore lines and other lines that haven't been rationalised yet, and a pipeline business. You need to restructure this jumbled portfolio properly, finance what needs to be financed, fix what needs to be fixed.”
But the essential financial model on which to base all this has not been done.
“That's the heart of the problem. You cannot do what needs to be done if you don't have a proper portfolio analysis.”
Without this the private sector won't fund them, and nor will the Treasury.
"Treasury has been saying for more than a year that without a proper portfolio analysis and proper financial model they cannot assist the balance sheet for Transnet. They’ve burnt their fingers bailing out SOEs too often.”
Transnet keeps asking, while at the same time trying all sorts of private sector partnerships.
“I'm very positive about the fact that they're trying to get the private sector on board. They're not resistant to this, they're just not prepared well because there's no portfolio analysis.
“Michelle Phillips (Transnet group CEO) will do anything to save this country and this company and its various parts. But a strategic analysis is required to do it properly, and this has never been done.”
Transnet should have done it, he says. The Treasury asked for it as a condition for the R47bn loan guarantee they provided last year, “but never really pushed for it”.
The National Logistics Crisis Committee (NLCC) comprising business and government, which was supposed to assist with the restructuring of Transnet, didn’t do much either.
“The NLCC should have done more.”
For reasons he doesn't know business is not part of the two workstreams, out of eight, that should have dealt with the restructuring and financing of Transnet.
The private sector is not part of the two workstreams that should have dealt with the restructuring and financing of Transnet. Whether because of this or not, “that work has not been as quick, accurate and well driven as was required”.
Michelle Phillips (Transnet group CEO) will do anything to save this country and this company and its various parts. But a strategic analysis is required to do it properly, and this has never been done
Business has only themselves to blame for this, he says.
“They're part of the overarching structure of the NLCC and they could have insisted on it, there could have been a bigger drive and bigger focus on this.”
Even if they weren't part of these two workstreams, “business should have been asking more serious questions about what happens in those workstreams. It's an oversight issue.”
He hopes that with a new shareholder, the department of transport, and new minister, Barbara Creecy, the restructuring of Transnet and the portfolio analysis and financial model integral to the process, will get the “huge urgency” the situation requires.
“We should have done this last year. The fact that it has still not been done is criminal. For me it is one of the most glaring, obvious mistakes that was made. The fact that the preparatory work in terms of portfolio analysis, financial model, debt optimisation, balance sheet restructuring, all of that stuff, the fact that it was not done in 2024 is a huge, blundering error.”
Havenga says “somebody very senior in government” said to him the fact that the previous board of Transnet traded without a proper financial model was “criminal negligence”.
“If somebody senior in government said that about the previous board of Transnet, why have we allowed another year of trading and trying to fix Transnet without a proper financial model?”
This was a key cause of Transnet's ongoing suboptimal performance, which he estimates is costing South Africa R1bn a day in lost GDP, more than 100 jobs a day that could have been created, and the fiscus about R50m of tax revenue a day.
He doesn’t believe the calamitous failure to address Transnet restructuring is about clinging to its old monopoly mindset or wanting to control the reform process.
“They're just not well prepared. I think their heart is in the right place, they just haven't done a proper strategic analysis of Transnet.”
That requires a willingness to “disaggregate” this unwieldy conglomerate of different businesses, units and agencies, “which is not there yet”.
“To have all the ports authorities, all the terminals, all the railway lines, plus the train operating company, plus the country's pipeline system, all of that in one company is a very, very strange phenomenon in the world.”
The NLCC should have played a bigger role in driving the restructuring of Transnet, he says. “And they didn't. The roadmap was approved by government in December 2023, and I cannot understand that it's now nearly a year later and we haven't done it.
“The NLCC should have done more as far as this is concerned. Everybody in the NLCC should have pushed this more, and they didn't. It's been much too slow and really needs to be speeded up, it needs to get legs.
“The minister needs to get down to the nitty gritty of how to restructure Transnet, how to get a financial model out of it.”
South Africa needs the rail network to be moving at least 250Mt by 2030, he says. It's still struggling to move 150Mt.
“We ’ll have to work really, really hard to get there. There’s no chance we’re going to get anywhere near what we wanted this financial year [170Mt] because we didn’t do the preparatory work that ’s required. If you don't fix the network, you can't run trains."
