Transnet gears up for growth as economic viability gains traction
Chief executive Derby, credited with turning the fortunes of the state-owned freight logistics group which, in its annual results this week reflected a R5 billion profit, has a plan to put Transnet on the growth track
FRESH off the back of announcing a better set of financial results for the 2021/22 year this week, Transnet chief executive Portia Derby says the national logistics entity is spreading itself thin in several sectors.
The state-owned firm is trying to shrug off the shackles of state capture and deal with decaying infrastructure and vandalism, among other woes.
But Derby, credited with turning the fortunes of the state-owned freight logistics group which, in its annual results earlier this week, reflected a R5 billion profit and an unqualified audit report for the first time since 2018, has a plan to put Transnet back on the growth track despite many challenges.
For example, the group’s largest operating division lost more than 15 million tons of freight volumes in the year ending March 31, 2022, after it declared a force majeure due to irregular locomotive acquisitions, maintenance problems and massive cable theft on its coal lines.
“Notwithstanding our limited capital investment capacity, we will prioritise various strategic interventions over the next three to five years,”
Derby said.
She envisions the hyped-up manufacture of train wagons and new manufacturing opportunities to supplement its income along with taking a bigger role in the ferrying of essential commodities, including coal.
According to the World Bank’s 2022 forecast, there were widespread coal shortages during the year, in the wake of the war in Ukraine. There is a global demand for coal.
As such, Transnet anticipated coal volumes to increase by 7 metric tonnes per annum in the medium term, which it said could generate significant revenue through partnership-based co-investment.
"For this reason, we will implement various operational breakthrough programmes to support our coal operations, which will include fast-tracking the procurement of critical components and services to support operations across the North Corridor and strategic ports, most notably the Richards Bay Coal Terminal, the Richards Bay Multipurpose Terminal and the RBT Grindrod Terminal, and allocate underutilised assets to support profitable flows exported via the Richards Bay Multipurpose Terminal,” she said in Transnet’s annual report.
Derby said the growth and renewal strategy would open revenue-earning opportunities for engineering to serve
Freight Rail’s in-house wagon and locomotive maintenance requirements and new supply chain markets, which would require wagon manufacturing and maintenance services.
Derby envisages that as the utility grows its African footprint, it would push engineering as a serious player in rolling stock manufacturing in sub-saharan Africa, as is evident with engineering’s manufacture and delivery of 300 freight wagons to Mozambican state-owned railway operator, Caminhos De Ferro De Moçambique.
Transnet sees the White Paper on Rail, which has been approved and gazetted, as a stepping stone while issues of its implementation are being ironed out.
Derby said Transnet would participate in the Interim Rail Economic Regulation Capacity, which is focused on developing a new economic regulatory model for rail, among others.
“We plan to sell rail slots on a limited number of corridors, thereby fast-tracking the implementation of the White Paper and the intended liberalising of South Africa’s rail sector.
“The slot sales will help us understand the added complexities of thirdparty access to the rail network, reposition rail in markets where we are not dominant, densify underutilised railing routes and, ultimately, move traffic from road to rail,” she said.
Transnet Freight Rail was pressing ahead with a bidding process for the sale of 16 rail slots to third-party operators, which are to be expanded to 42 slots next year.
On Thursday, Arcelormittal South Africa confirmed that it would seek to secure third-party access to Transnet’s rail network as part of efforts to stabilise the logistics involved in supplying key raw materials, such as iron ore, having experienced an intense period of rail disruption during the first half of the year, which cost it some R650 million in lost sales
To carry out Transnet’s growth plan, Derby said the entity needed a robust capital allocation framework that aligned with priority segments and networks, focusing on growth in revenue, profitability and market share, while assisting it in its debt repayments and improving overall liquidity.
This week, S&P Global Ratings lifted the credit watch on Transnet ratings on the back of improved liquidity.
This included Transnet’s longterm local and foreign currency issuer ratings at BB-, the standalone rating at BB- and the National Scale Rating at za.aa, but the outlook remained negative.
It warned that Transnet could lose its market share to competing logistics groups due to its prevailing operational challenges.
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