A fresh start for Transnet

For once in a long time, President Cyril Ramaphosa’s government has shown a welcome sense of urgency in tackling the country’s deepening freight logistics crisis. Last Wednesday, the cabinet confirmed two appointments. Michelle Phillips, caretaker group CEO of Transnet, became CEO, and Russell Baatjies was appointed CEO of Transnet Freight Rail (TFR), the group’s biggest, if troubled, rail freight unit. The government brought in an outsider, Nozipho Maphumulo, formerly with Eskom, as Transnet’s group financial officer.

The appointments end months of a vacuum created by the departure of Portia Derby and Sizakele Mzimela, respectively group CEO and TFR’s CEO, in 2023. Those expected exits were immediately welcomed by industry and commodity producers who were strangled by Transnet’s ports and rail networks in moving their commodity exports. Retailers also missed out on imports for the festive period as port operations failed to handle their stock.

Outside Transnet, the new executives were unknown until their elevation in 2023 at the height of the logistics crisis.

Phillips has served on the group’s executive committee longer than Baatjies. She ran Transnet Pipelines, a small but critical business division. She has worked in other divisions of the company and, critically, understands economic regulation — the other biggest headache for Transnet in the coming months.

Baatjies proved a safe pair of hands during the interregnum. Industry, which was frustrated by Derby and Mzimela’s leadership, has felt heard in the past few months.

The new team’s jobs won’t be easy. But the odds for success are better than under the Derby-Mzimela regime.

With the new board’s support, Phillips has to move urgently to pick her executive team. The CEO of the Transnet National Ports Authority (TNPA), Pepi Silinga, is on suspension pending the outcome of an investigation into tender irregularities.

For years, Transnet’s balance sheet was shored up by the TNPA, the ports landlord that has recently been corporatised. The corporatisation means that Transnet’s costs are now more transparent and it cannot rely on the TNPA’s strength when it approaches the debt capital markets.

Up to the May elections, Phillips and her team will have to rely on the board’s protection from an interventionist shareholder ministry until the department of public enterprises is dismantled. Then they will have to pray for a sensible transport minister to be appointed in June. They also have to shepherd Transnet into an era of economic regulation and private sector competition. Last week, parliament also approved economic regulation for transport. This means that all of Transnet’s divisions — not only ports and pipelines — will now be subject to economic regulation.

The disappearance of Pravin Gordhan’s department of public enterprises signals a phase of uncertainty. Policy oversight will move to respective departments and shareholder and governance oversight will move into a new holdings company for state-owned enterprises. If history is anything to go by, this new entity is likely to take years to establish.

Arresting the steep decline will take hard work and fortitude. Still, the insider knowledge of Phillips’ team is a key advantage.

Thankfully, Phillips has access to private sector help — something her predecessor was reluctant to accept.