‘Not out of the woods yet’: Transnet says phase 2 of recovery plan is underway

Critical, but stable? Transnet says business is stabilising as it forges ahead with the second phase of its recovery plan – but admits there’s still a long way to go.

The state owned enterprise (SOE) shared updates on its recovery plan on Friday.

In recent years, Transnet has struggled to stay on the rails amid financial, infrastructural and operational challenges – repeatedly calling for state bailouts.

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To mitigate its troubles, the parastatal devised a recovery plan to turn the tide and started implementing it in October 2023.

While the first phase entailed stabilising operational performance, the second phase – currently underway – is geared towards improving operational and financial performance during the financial year ending March 2025.

Transnet claims recovery plan is progressing

Addressing the media, Transnet’s chairperson Andile Sanqu said the plan was in full steam, adding that numerous initiatives had been developed to drive volume and improve efficiencies across various divisions.

“We are pleased to say Transnet’s journey to recovery is on course. We are executing our plans to enhance operational and financial performance for long-term, sustainable growth.”

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However, he acknowledged the path to full recovery would be a lengthy process.

“We are not out of the woods yet. But the progress is real, the business is being stabilised, and we are increasingly optimistic about the future.”

New procurement T’s and C’s?

Transnet’s aging locomotives have significantly slowed down operations at various cargo terminals, due to recurring breakdowns and shortages.

What’s the plan? Transnet Freight Rail executive Russel Baatjies said when procuring locomotives, the SOE would opt for suppliers that are equipped to provide OEM support, full maintenance and technical support.

“That’s the approach we will follow,” he told The Citizen.

Additionally, he said the entity would fast-track maintenance intervention to ensure the smooth running of locomotives.

“We also anticipate that new users may introduce alternative technologies and innovation that will make the system more effective and improve service quality. Access fees will be used to maintain the rail network to a standard required for safe and reliable operations,” Sanqu added.

Transnet has 1 520 locomotives currently in operation.

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Meanwhile, some routes remain idle with a significant number having been unused for many years.

The Citizen asked if there were any plans to restore and rehabilitate idle rail lines. Baatjies said yes, but only “if there’s a demand, and nothing preventing us from using the routes”.

Port problems

Meanwhile, challenges at the country’s ports have been a lingering pain point for key economic players.

“We indicated that the problem in the ports was the failure to replace the fleet timeously,” said Michelle Phillips, Transnet Group chief executive.

“We were under a lot of pressure, at some point we had 23 vessels, now we’re sitting with six.

“We’re continuing to limp in ports… In the meantime, we are doing what we can to ensure that we are running an efficient operation.”

New measures to speed up efficiency at the ports include the introduction of technology to monitor operations in real-time and remote operation systems.

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Financial troubles

During this year’s budget speech, Finance Minister Enoch Godongwana announced a government guarantee of R47bn to allow Transnet to meet its debt obligations and free up resources to improve operations.

“In line with the government guarantee framework and our recovery plan, we have initiated a balance sheet optimisation project to present initiatives to ‘optimise’ the Transnet balance sheet,” Sanqu said.

He said that Transnet currently faced “legacy issues” such as high levels of debt and the maintenance backlog, and added that the SOE required restructuring and optimisation of the balance sheet.

“In this regard, during the current financial year, we will be working with government to determine the optimal solution to improve the financial profile of Transnet to mitigate risks of the execution of the recovery plan and to improve the financial ratios.

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“We will also work closely with all the relevant stakeholders such as the ratings agencies and investors and the lenders in finding a sustainable balance sheet model for Transnet – now and for the future.

“Importantly, Transnet’s operational and financial performance as well as its financial constraints will inform the support required by government.”

Legal challenge over Durban contract

Transnet currently faces a lawsuit for its decision to award a 25-year contract to manage the Durban Container Terminal (DCT) Pier 2 to Filipino company International Container Terminal Services Inc.

Snubbed bidder A.P Moller-Maersk is pursuing legal action to prevent the contract from going ahead.

“We have therefore noted the legal challenge to the selection of International Container Terminal Services, Inc. (ICTSI) as the preferred bidder to enter into contract negotiations for the establishment of a joint partnership to manage the upgrade and development of Pier 2 at the Durban Container Terminal,” Sanqu said.

“The process of selecting ICTSI was rigorous, competitive, and fair and complied with our governance standards. Transnet will defend its procurement process and is currently waiting on the allocation of a hearing date,” he added.

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