Transnet ‘profit’ row

BACKLOG: RAIL OPERATORS CONCERNED

Private rail operators have raised questions about the maintenance backlog at Transnet and the sustainability of the stateowned entity’s reported profit of R5 billion, up from a loss of R8 billion in 2021 financial year.

The 2022 profit figure relies on a revaluation of the company’s investment property portfolio of R10 billion. This is an accounting adjustment – not a cash flow item – that rescues Transnet from another probable loss, according to an analysis by the African Rail Industry Association (Aria).

Transnet released its 2022 results last month, showing a nearly two percent increase in revenue to R68.5 billion, and a 20.5% increase in Ebitda (earnings before interest, taxation, depreciation and amortisation) to R23.4 billion. The group also reported a profit of R5 billion, reversing the R8.7 billion loss reported in 2021.

Aria says this enabled Transnet to meet its key debt covenants of cash interest cover and its gearing ratio. The group is required to remain below a 50% debt-to-equity ratio (2022 actual: 45.5%).

This was achieved by:

A large increase in creditors of R3 billion at March 2022 (mainly due to accrual of expenditure), and

The revaluation of Property, Plant and Equipment by R13.2 billion and investment properties by R10 billion.

Perhaps even more concerning is the maintenance backlog accumulating at Transnet – nearly R27 billion over the last 10 years, according to Aria.

Asked to respond to the analysis, Transnet said the figures presented by Aria are incorrect and misleading.

“Aria represents mainly private sector suppliers and a handful of private rail operators who do not utilise the Transnet system,” the state-owned ports and logistics company said.

Aria’s analysis shows that in 2012, Transnet spent R3.4 billion on maintenance, a figure that dropped to less than R1.2 billion in 2015. By 2022 it was up to R2.7 billion, but this is roughly half of what it should have spent if we take 2012 as the benchmark and inflate the figure for the time value of money.

By Aria’s analysis, Transnet’s maintenance backlog totals roughly R27 billion over 10 years. This creates problems of a different kind, said Aria CEO Mesela Nhlapo.

“Planned maintenance deferred means that R1 not spent today results in an exponential deterioration in the state of infrastructure, which effectively means it will have to spend R5 in future to maintain a piece of infrastructure just because it was not addressed timeously.”