SA to nudge China on Transnet solution
• Hope placed in political talks
SA is seeking to push Chinese leaders towards a political solution to the impasse between Transnet and China Railway Rolling Stock Corporation (CRRC), a desperate move underlining the devastating effect of the stalemate in the economy.
The longstanding impasse means Transnet is unable to procure much-needed spare parts and components from CRRC to return to the tracks around 120 of its idle locomotives, which play a critical role in the haulage of bulk commodities such as coal and iron ore.
CRRC in January withdrew from an in-principle agreement to provide the spare parts in what Transnet said was an unwillingness by the Asian firm to engage with the relevant authorities in SA to normalise its operations in the country. The authorities concerned include the SA Revenue Service (Sars) and the Reserve Bank.
CRRC E-Loco was the subject of a tax audit conducted by Sars, which concluded there was prima facie evidence that as part of the state-capture project, it had overstated the price of locomotives sold to Transnet. The taxman then slapped the Chinese firm with a tax bill of more than R3.6bn, an assessment CRRC disputes.
Public enterprises minister Pravin Gordhan, the shareholder representative, is set to meet his Chinese counterpart next month, when the matter is expected to be discussed.
“The CRRC locomotives directly impact the performance of three key rail corridors [North, North East and Cape corridors]. These corridors account for approximately 50% of Transnet Freight Rail’s revenue, and support three mining sector segments: export coal, chrome and manganese,” Transnet said on Tuesday.
“Minister Gordhan remains hopeful that talks with his Chinese counterparts will yield positive results, in the interest of both SOCs [state-owned companies] and relations between the two countries.”
China is one of SA’s key trading partners with trade between the two countries surpassing $54.1bn in 2020. The two nations are also founding members of the Brics trade bloc also including Brazil, India and Russia which account for 41% of the world’s population and 25% of global GDP.
The decision to go for a political solution to resolve the impasse was taken at a meeting between President Cyril Ramaphosa, Gordhan and Transnet executives, including CEO Portia Derby. The president read the riot act to the executives, urging them to finalise a strategic turnaround plan for the beleaguered state-owned logistics company.
The strategic plan aims to ensure that Transnet has sufficient rolling stock available to increase the volume of goods transported by rail; to upgrade infrastructure in rail and port; to tackle security challenges and
implement reforms to enable private sector investment; the presidency says.
At Tuesday’s meeting, Ramaphosa said the leadership should expedite plans to arrest Transnet’s decline to ensure that the entity can meaningfully contribute to the economy.
Transnet, responsible for transporting crucial minerals from rail to port, is still reeling from years of state capture and corruption under former executives. Its rail network, which covers domestic and regional corridors and is used to transport commodities for export, remains unreliable to firms in various sectors, causing harm to bottom lines and the economy.
The plans of Transnet’s freight division to bring in private players as part of Ramaphosa’s reform agenda recently received a muted response from the private sector, with only one bidder meeting the requirements to access one of the 16 slots along its container corridor (Gauteng to Durban) and south corridor (Gauteng to East London).
Potential bidders said slots were expensive at auction, and inefficient due to the potential R600m price tag for a two-year period.
To add to Transnet’s longstanding woes, including rampant cable theft and underinvestment in infrastructure, the company said it had begun an independent probe into ghost trains draining it of revenue.
The ghost trains refer to locomotives that run along Transnet’s rail network infrastructure but whose revenue do not flow back to the entity.
Ramaphosa said work was under way between the various departments to finalise the new road map, co-ordinated by Operation Vulindlela.
“I would like this process to be completed as quickly as possible. We must remain focused on structural reforms to improve the efficiency and competitiveness of the transport sector in the long term.”
Transnet is due to appoint a separate infrastructure manager within Transnet Freight Rail by October 2023 as part of plans to resolve the logistics crisis.
This is a “crucial step towards creating a level playing field for public and private operators”, Ramaphosa said while emphasising that the rail network will remain under state ownership.