BLSA concerned about SA’s future logistics policy

The future logistics policy environment is concerning when compared to how private investment helped Eskom to get out of load shedding. This is if there is no clear direction for making important decisions to solve the problems in the sector.

Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), points out in her weekly newsletter that the country has almost achieved the end of load shedding thanks to the private sector’s embrace of electricity generation.

“Billions are being invested in new renewable energy plants, adding significant capacity to the grid. At the same time, the partnership between business and government has enabled private sector expertise to support Eskom in improving plant performance, all in line with the Energy Action Plan.”

She says the electricity story in South Africa is an example of what can be achieved when we approach a problem in a new way. “It is the art of the possible, but with a much wider conception of what is possible than we had thought before.

“I found myself pondering the comparison between the electricity story and logistics last week during a meeting of the executive of Transnet and the BLSA Council. Transnet’s new management team is making good progress on many fronts, but, particularly when it comes to drawing on the private sector, there is a limited conception of what is possible.”

Transnet is working on several public/private partnerships, including concessions for the Richards Bay and Durban ports, she says. “But compared to the electricity sector, which enabled a dramatic increase in investment, the steps on the logistics front are lukewarm.”

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Transnet trying to raise finance with high debt level

Transnet is struggling to raise finance given its high debt level that is costing it R13 billion per year to service, including R60 billion of debt accumulated during state capture for which the utility received no positive value.

It now faces a R51.4 billion maintenance backlog for network restoration while its fleet of locomotives is ageing rapidly. Transnet is working on several private sector partnerships, largely through “private sector participation” arrangements where private investors contribute equity or operating leases.

“These are all well and good, but as the electricity experience shows, if the private sector is empowered to become a producer and supplier itself, rapid progress can be achieved,” Mavuso says.

“The logistics sector has a history of private sector participation with the toll roads most obviously. The N1 and N3 toll roads were among the first public-private partnerships in our democratic history and enabled the rapid deployment of private capital to support economic growth.

“Those deals made it possible for the private sector to build and operate the roads on 30-year concessions. The model has even worked for cross-border infrastructure, particularly the Maputo Corridor that links Johannesburg to Maputo.”

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We need greater vision for rail and ports

Mavuso says if we were pushing the envelope of what is possible, we would have a far greater vision for the rail and ports sector. “Concessions of whole rail corridors can be done. Whole ports can be concessioned. That could introduce real competition, with rail corridors and ports competing to provide the best and lowest cost services against each other.

“That would enable the economy to become far more competitive in servicing export markets, driving economic growth and creating jobs and tax revenue. And as the electricity sector has shown, it can happen fast once the key decisions are made.”

But Mavuso says she is concerned about the policy environment for logistics in future, making it hard for such important decisions to be made. “It is entirely unclear which government department oversees our big state-owned enterprises. After the closure of the department of state-owned enterprises at the end of the last election, the SOEs were initially being overseen directly by the presidency.

“They are in the process of moving to their policy departments: Eskom to energy and electricity and Transnet to transport, but then they are supposed to be moving to a new SOE holding company once the relevant legislation is enacted.”

Mavuso warns that this is a potentially long and confusing period where it will be difficult to develop the kind of vision needed to drive a strategy for the sectors. “It does not inspire confidence, given the kind of vision we need to ensure world-class logistics services for our country.”