Public Enterprises Minister Pravin Gordhan has instructed the newly appointed Transnet board to look at methods to turn around the entity's woes, as the parastatal reported a R5.7 billion loss for its 2023 year.
This comes after Transnet released its financial results on Friday, in which it posted a massive loss due to the volumes delivered by its freight rail business dropping 13.6 percent during the period from 173 to 149 million tons.
The group’s latest results show that earnings before interest, taxes, depreciation and amortisation (Ebitda) decreased 2.1 percent to R23bn, while operating expenditure increased two percent to R45.9bn.
Revenue increased by just 0.6 percent to R68.9bn, from a previous R68.5bn, boosted by positive port and pipeline operational performance, the group said.
Transnet cited power supply disruptions, cable theft and floods in KwaZulu- Natal as the reasons for its poor performance.
In July, Gordhan appointed a new board at Transnet in a bid to clean up governance at the parastatal.
Gordhan said via a web stream during the presentation of the results that Transnet's performance for the year ended in March 2023, together with the Auditor-General's critical findings, called for urgent and corrective action, particularly within the Transnet Freight Rail division.
“The newly appointed board and I are fully aligned on the urgent need to turn around the operational performance and financial position of Transnet. The deterioration in its operational and financial performance will be and must be stopped,” he said.
Gordhan said nothing would be allowed to get in the way of the effective implementation of the radical plan.
“Some changes will be evident in the short term, and others taking longer given the complexity of the entity we are dealing with,” he said.
Gordhan asked the board to look at the operational transformation of Transnet, to develop a plan to radically transform the operational performance of each of the business areas, including the restructuring of the entity.
He said the board needed to identify the root causes of the inability of management and staff to meet the performance targets and a plan to deal with the deficiencies.
Transnet has been making headlines about its inefficiency and its financial loss-making.
Another problem is that the Transnet freight business does not have enough locomotives that move through its rail network. The parastatal also experienced disruptions to the rail network, mainly 3,877 incidents of cable theft.
Transnet CEO Portia Derby said: "It's been a harrowing couple of years - three years".
Derby said Transnet has had a 25 percent reduction in an available locomotive fleet. She said there were about 370 locomotives, available as long-standing locos.
Transnet has been in dispute with China Railway Rolling Stock Corporation (CRRC), and the company refused to provide Transnet with spares.
Derby said negotiations with CRRC were ongoing to fully resolve the dispute, but Transnet has signed a settlement agreement with CRRC, which has agreed to provide the Transnet spare parts.
Chairman of Transnet's board, Andile Sangqu, said the turnaround strategy included initiatives to tackle the supply of locomotives and revenue recovery.
“Once we have that in place, we can determine what is attainable, what can be measured, and how we can continually assess the effectiveness of that... Realistically, we think that by the end of October, we will be able to draw a line in the sand and say these are the things that we believe can be achieved in the next six to 12 months once we are laying the foundation for other things that can be done in a fairly longish period,” he said.
As Transnet is also debt-laden, Sangqu said the restructuring of the entity's debt service costs of R1bn a month would be a key part of the plan.
Transnet chief financial officer Nonkululeko Dlamini said: “With improved revenue, we would’ve done much better because the rest of the expenditure (outlook) shows that we have contained the costs in the context of inflation, but there are other elements that you can’t run away from.
“We have a significant amount of debt, and we pay significant interest expense in that regard in line with what we owe to our lenders," she said.
Key priorities going forward:
– Increasing locomotive availability to service in particular key export flows such as export coal and chrome. Transnet Freight Rail (TFR) is also pursuing collaboration with existing rail partners such as Caminhos De Ferros De Mocambique (CFM) to increase volume movements to neighbouring countries. TFR began implementing outcomes-based security solutions on August 1, 2023, which is expected to result in improvements in incidents of cable theft moving forward.
– Another key focus area is successfully bedding down the recently announced DCT Pier 2 partnership. Transnet said it was now at the due diligence phase and the operating teams had commenced engagements with the international terminal operator partner, International Container Terminal Services Inc (ICTSI).
– The conclusion of the first LNG terminal section 56 transaction was expected to be announced by the end of the 2024 financial year.
– The Leasing Company project, plans for which were announced in the current reporting year, an essential intervention for successful third-party access, was expected to commence operations in the next financial year.
BUSINESS REPORT