New Transnet leadership urgently needed – BLSA

Transnet urgently needs new leadership to be appointed to maintain the momentum of the short term measures instituted by the National Logistics Crisis Committee.

Busi Mavuso, CEO of Business Leadership South Africa (BLSA), says in her weekly newsletter that although a process is under way to appoint a new CEO in particular, recent news reports suggest the board was facing political interference in the process.

“This is unfortunate. If Transnet wants to regain its role as an efficient and effective rail and port infrastructure operator, it must have a board and executive team who are in sync and accountable.”

Mavuso points out a deeply problematic feature of the way state-owned entities (SOEs) are run is that the board can be overruled by the minister in the department of public enterprises when it comes to appointing top executives.

“This basically renders the board unable to function as it cannot properly hold the executive to account, a problem we have seen before in Eskom. Therefore, it is important that the political processes focus on how to support and empower the board and not undermine it. Government, as the sole shareholder, can after all appoint the board members and it should then empower them to act.”

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Transnet part of the reason for retrenchments at mines

She says it is depressing to read about the retrenchments taking place in the resources sector as commodity prices slide, but also because mining companies are unable to get output to their markets.

“Stockpiles have been building up due to problems with the rail and port services that Transnet provides, but they cannot grow any more. The only option is to reduce production, which means there is too many workers.”

The logistics crisis is a very serious challenge for the economy, which is why business and government have pulled together with unprecedented speed to work on solutions, she says. Business in South Africa partnered with government, mobilising resources to rapidly resolve the most pressing issues while supporting wider reforms to improve the functioning of the system.

The National Logistics Crisis Committee (NLCC) was set up as a coordinating mechanism and has been functioning for six months with more than 45 private sector experts and CEOs involved with deep experience in rail, port and road.

Five workstreams are already in place to improve operations in rail, ports, road, border crossings and security and government is leading three workstreams focusing on policy, regulation and legislative reforms.

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Already short term successes

Mavuso says there are already successes from this process, with a 45% reduction in vessels anchored outside Durban port and a 36% reduction in the waiting time to anchor for container vessels. Security patrols and other resources funded by business have already helped reduce incidents on rail and therefore the number of trains cancelled. Interventions at the Lebombo Border Post have resulted in an increase in vehicles processed from 1 600 to 1 900 per day.

“The short-term interventions can help to reduce the negative impact, but the critical work is in resolving the long-term outlook for the sector. As we learned with the electricity sector, it is only deep structural reforms that can sustainably shift the performance of the system.”

The good news is that the NLCC already produced an excellent guide to the required changes in the Freight Logistics Roadmap and the Private Sector Participation framework that has been approved by cabinet, she says. This envisages a change from a monopolistic system almost entirely managed by Transnet to an open and competitive system with multiple operators.

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Next major challenge: Transnet’s finances

Mavuso says the next major challenge is Transnet’s finances.

“There was some surprise at how little mention was made of Transnet in the budget speech last week. Treasury provided a R47 billion guarantee for Transnet, which enables it to raise new debt, but that guarantee was made with strict conditions, including that Transnet introduces private sector partnerships as called for by the roadmap.”

The guarantee ensures Transnet can meet its immediate obligations, but it is critical that it also delivers the reforms to enable the next step of its financial repair. Mavuso says Treasury’s approach seems to be to keep the pressure for sustainable reforms as well, given its custodianship of the country’s finances and the negative impact Transnet historically had on them.

“The reform process has been quick in gathering resources and developing a plan. There have also been effective short term interventions to improve performance. But that momentum is at risk if we do not see strong appointments at Transnet who are empowered to drive reform in the utility under the direction of the board. I look forward to an announcement soon so that we can then get to work,” Mavuso says.