Transnet’s radical board shake-up aimed at fixing rail and ports

Public Enterprises Minister Pravin Gordhan’s announcement of nine new appointments to the Transnet board on Tuesday, including Minerals Council vice-president Andile Sangqu as chair, is perhaps the most radical overhaul at the state-owned logistics company in decades.

Transnet’s board

The Minerals Council reckons inefficiencies at Transnet may have cost the country R150 billion in lost sales last year. Stellenbosch University logistics professor Jan Havenga estimates that economic growth in 2022 would have been closer to 10% than the actual 2% achieved in 2022 had Transnet been operating at nameplate capacity, and without load shedding.

ALSO READ: Gordhan appoints former top Anglo American exec Andile Sangqu as new Transnet chair

Given that roughly 80% of Transnet Freight Rail’s business and 50% of overall revenue comes from miners, it’s no surprise that Sangqu has been brought in to address the bottlenecks that have crippled minerals exports. Sangqu was previously executive head at Anglo American SA. 

In December last year, a confidential letter leaked to the press from the Minerals Council addressed to Transnet chair Popo Molefe highlighted the level of frustration with the logistics operator’s operational decline.

The letter called for the removal of CEO Portia Derby and CEO of Transnet Freight Rail Sizakele Mzimela, and for drastic action to reverse the “tragic decline” of Transnet.

Logistics snarl-ups

Relations have improved considerably since then. A National Logistics Crisis Committee was set up by President Cyril Ramaphosa with Business for South Africa to address the logistics snarl-ups.

This week the Minerals Council said it welcomed the new board appointments.

“The Minerals Council looks forward to establishing a working relationship with the new Board as Transnet, business and the government strive to stabilise rail and port performances and grow the capacity of these export channels to provide a cost-effective and efficient logistics platform for the mining industry and broader economy,” it said in a statement, adding that it would collaborate with the new board to take forward and implement urgent resolutions to the challenges that Transnet is experiencing.

The African Rail Industry Association (Aria) also welcomed the appointments, saying it hopes the new board will hit the ground running in addressing the challenges facing the rail industry.  

“We hope that the board focuses attention to the grassroots rail operational efficiency and performance of Transnet. That it focuses on modernising the network operating systems and signalling systems and that, most importantly, it brings transparency into the true state of the national railway infrastructure, which has suffered from years of poor maintenance,” says Aria in a statement.

“It is only when the true challenges that face the freight rail sector are completely understood that real solutions can be found.

“We urge the new board to fast-track the implementation of the rail reform agenda according to the National Rail Policy (NRP) which was gazetted in 2022. We urge government to encourage Transnet to reconcile the planned limited scope of third-party access with the cabinet-approved policy and to commit to an expedited timeline for enabling the structural reforms outlined by Operation Vulindlela [a government programme aimed at accelerating structural reforms to support economic growth].”

New board’s skills

The new board is now top-heavy with specialist skills, such as Lebogang Letsoalo, a global supply chain consultant and CEO of Sincpoint, and maritime expert Martin Debel. He brings extensive knowledge of ports, terminal operations, shipping and waterborne logistics and technology to the Transnet board.

Refilwe Buthelezi, current president of the Engineering Council of South Africa, is another appointee, as is the former head of legal services at Stanbic and later the Industrial Development Corporation, Mosadiwamaretlwe Zambane.

The labour movement is represented by Elias Monage, a 20-year veteran of the National Union of Metal Workers of South Africa (Numsa). 

Derby, chief financial officer Nonkululeko Dlamini and non-executive directors Molefe and Sydney Mufamadi will remain on the expanded 13-person board.

“These appointments will put Transnet on a firm strategic path that provides critical expertise, experience and acumen for Transnet to optimally and strategically execute on its roadmap, business plan, improve governance and optimise performance,” said Gordhan.

Maintenance and infrastructure

Havenga points out that many of the problems now facing Transnet were inherited from previous generations of management, including under-investment in maintenance and infrastructure.

Richards Bay Coal Terminal has an export capacity of 90 million tons a year, but last year handled just 52 million tons, which meant SA producers were unable to reap the full benefits of the post-Covid coal boom when prices jumped to as high as $300 a ton.

SA’s general freight volumes have now dropped to about 50 million tons a year, a level last seen in World War II. 

Load shedding and Transnet’s steady decline are the key bottlenecks to faster economic growth. Gordhan says the appointments are intended to “ensure strategic alignment in Transnet’s pursuit of its mandate as a key lever and driver of our economic engine, development and transformation”.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

NOW READ: R60 billion needed to restore SA’s crumbling rail network