Nicola Mawson
The auditor-general (AG) has raised concerns over Transnet’s financial health after the state-owned logistics operator reported a loss that widened from R5.1 billion last year to R7.3bn in the year to March, a decline that it said yesterday was because the high court had ruled that it must pay Total SA and Sasol about R6bn after the petroleum companies accused it of breaching a 1991 pricing contract.
Transnet, which has made a R9.3bn provision for the estimated claim, interest and legal fees, is appealing the ruling on “various grounds”.
In addition to the appeal in the matter with Total SA and Sasol, Transnet and the Special Investigating Unit (SIU) have jointly taken Nedbank to the Gauteng High Court, Johannesburg, to set aside interest rate swop transactions, which took place in 2015 and 2016 between Transnet and Nedbank and resulted in profit for Nedbank, according to the directors’ report in the financials.
Transnet and the SIU also seek to recover the amounts that were allegedly unduly paid by Transnet to Nedbank under the transactions.
Among the AG’s other worries was that it found material irregularities, including that the state logistics operator paid R555 million in VAT, due at the end of last February, late, to improve its cash flow, which is a breach of the law.
As a result, the South African Revenue Service fined Transnet R57.7m and charged interest of R6.5m.
Transnet, which boasts eight commercial ports, 30 400km of rail with 1 911 operational locomotives, and almost 51 000 staff, remedied the issue and the AG will not be taking the matter any further.
The AG also noted that Transnet had to restate figures for the prior two years because of “errors in the financial statements”, while there are uncertainties around future litigation.
The external auditors also raised concerns that Transnet may not be able to continue as a “going concern in the foreseeable future”.
However, Transnet – which is currently implementing a recovery plan – believes that any risks will be “satisfactorily addressed” as it restructures.
Group revenue for the year increased by 11.6% to R76.7bn, up from R68.7bn in 2023, in line with weighted average tariff increases throughout the business, higher volumes from the rail and container businesses, partially offset by lower pipeline volumes.
Transnet added that government guarantees to the value of R47bn provided it with the expectation that the group “will continue to have access to adequate resources and facilities to be able to continue its operations as well as fund the capital investment programme for the foreseeable future, as a going concern”.
On Friday, the BRICS’ New Development Bank granted Transnet a R5bn loan. This would help support the modernisation and improvement of South Africa’s freight rail sector.
Transnet is targeting a profit of R1bn next year.
Among other challenges Transnet faces are an ageing fleet, high network vandalism and theft, underinvestment, issues it must deal with in addition to the current macroeconomic environment.
In its results statement, Transnet said that “rail volumes were impacted by various operational challenges, including collisions and community unrest on the coal line and equipment challenges on the ore line, derailments, Eskom power outages affecting all lines, as well as customer challenges on the coal and general freight business lines”.
The state-owned company also stated that petroleum volumes decreased, mostly because of a refinery shutdown in the first quarter of the year.
Despite these challenges, Transnet chairperson Andile Sangqu said the recovery plan was bearing fruit and the company was “on course to contributing positively to economic growth in the country”.
“Our recovery plan has led to a notable recovery in rail volumes, with the Coal Corridor exceeding baseline targets by 9%. Cash generated from operations after working capital changes also increased by 13.6% in the year, at R28.8bn, up from R21.8bn at the end of March 2023,” Sangqu said.
“Revenue grew by 11.6%. However, we recorded a net loss of R7.3bn, primarily due to a provision for litigation costs. We have reduced irregular expenditure by 37% and maintained an unqualified audit opinion, reinforcing our commitment to strong governance. Despite challenges, we are on a path to financial stability.”
Transnet is now focusing on increasing locomotive availability and returning long-standing locomotives to service key export flows, has finalised the selection process for an equity partner for the Durban port (although it is being sued by the unsuccessful bidder), and finished construction of the Mamathwane Crossing Loop in the Northern Cape ahead of schedule.
BUSINESS REPORT