Transnet’s derailed dreams: Can the railway network recover?

If you grew up pre-2010, you might have a vivid picture of a coal-heaped goods train moving swiftly past SA’s vibrant towns and villages.

Sadly, Mzansi’s Gen-Z might not get the thrilling view of a Transnet train gliding through the railways to deliver precious cargo – as the embattled parastatal struggles to keep its wheels on the rails.

Transnet’s Freight Rail (TFR) division has been struggling to keep operations running, due to shortage of locomotives, infrastructural backlogs, rampant cable theft and vandalism.

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‘The ANC went wrong with Transnet’

Speaking to The Citizen, economist Dawie Roodt blamed Transnet’s ongoing struggles on mismanagement, incompetence and corruption. 

“The ANC went wrong with Transnet,” said Roodt, referring to the ruling party.

He said the economic implications of a dysfunctional railway network have a lingering effect on the goods supply chain, adding that the agriculture and mining industries were most affected due to unavailability of a reliable transport network.

TFR’s halt of operations has led to heavy reliance on truck to transport goods such as coal and grain nationwide.

“The road network is not supposed to carry this number of trucks,” Roodt said.

“We’re destroying our roads,” he added.

Coming amid load shedding, Roodt said a dysfunctional rail network dampens investor confidence as it makes it difficult for companies to operate efficiently.

“A rail network is crucial, and [SA’s freight rail] is not functioning,” he said.

ALSO READ: Transnet inefficiencies costing South Africa R1 billion a day

‘TFR’s declining performance is multifaceted’

Fixed Income Analyst at Anchor Capital, Lelethu Poswa said TFR’s main challenges stemmed from capacity constraints and criminal activity.

Poswa blamed TFR’s capacity constraints on long-term underinvestment in infrastructure and the shortage of locomotives.

“For years, Transnet has chosen to reduce or defer immediate spending on infrastructure to offset weak earnings generation, largely due to declining rail volumes,” he told The Citizen.

According to the analyst, Transnet’s capital expenditure (capex) which includes maintenance and infrastructure had decreased to R14 billion in FY23, from R33.5 billion in FY15.

“While reducing capex can alleviate immediate funding pressures, if this becomes a yearly practice for almost a decade, it will ultimately have a negative impact on the quality of existing infrastructure,” Poswa explained.

“Aging infrastructure becomes more susceptible to operation disruptions,” he added.

ALSO READ: Business’s fraying patience with Transnet

Light at the end of the tunnel?

Reflecting on the parastatal’s resilient history, Poswa said for more than 20 years, Transnet managed to successfully raise debt without relying on government.

“This underscores Transnet’s strong ability to secure debt for its existing operations without government support,” he said.

Echoing Roodt’s sentiments, Poswa said the parastatal’s recent years of operational and financial underperformance had decreased its market confidence.

He further explained that Transnet’s challenges constrained its ability to access debt from local and international capital markets.

“This is evidenced by the refinancing challenges of the TN23 bond, which amounts to R7 billion – due on 11 November 2023,” Poswa said.

Weighing in on the complexity of Transnet’s challenges, the analyst said more state bailouts were imminent.

“It’s road to recovery is likely to be a long one,” he said.

Despite its challenges, Poswa believes Transnet remains an important entity for SA.

“It has a strong business profile underpinned by it being a monopoly provider of port and pipeline infrastructure, [with] a dominant position in freight rail,” he said.

The Citizen reached out to Transnet for comment, but had not received a response at the time of publication.

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