Transnet in Trouble – Is South Africa’s transport giant going off the rails?
Three months. That’s how long Transnet has before it runs out of money for debt-servicing and operations, according to Moody’s ratings.
Unless, of course, as with all our struggling state-owned enterprises, it receives (another) bailout from the government.
Moody’s said in a statement that “[Transnet] requires additional government support to refinance upcoming debt maturities and secure funds for its expanded capex program.”
To be quite honest however, with the multi-billion hole left in its budget from the decision not to increase VAT, I think the government has enough problems of its own to contend with without having to throw more money at yet another SOE with its hand out.
Yet without some kind of cash injection from somewhere, Transnet looks set to grind to a halt within the next 90 days. The African Development Bank has estimated that the company’s full recovery requires over R150 billion in capital investment.
Adding to its woes is the possibility of a credit downgrade. Transnet is currently under review, with Moody’s citing its deteriorating liquidity position, “unsustainable” capital structure, absence of support from the government, and slow pace of operational improvements.
We should also add corruption, failing and unmaintained infrastructure, and theft to that list.
The only solution at this point seems to be going cap in hand to the private sector, that wealthy, benevolent relative who can, apparently, be relied on to hand out cash whenever Mummy and Daddy say no.
But perhaps this time, even the most generous Uncle might baulk. Transnet doesn’t look like the wisest investment at the moment.
Both the World Bank and S&P Global Market Intelligence rank its container ports as among the least efficient in the world, for starters.
And despite reassurances from Moody’s that “The government remains supportive of Transnet and will provide additional guarantees or other assistance to prevent default on its upcoming debt maturities,” there is a general air of twitchiness around the lack of any kind of formal announcement confirming this.
Transnet itself, however, appears buoyant and optimistic.
“Transnet’s move to break its monopoly on South Africa’s freight rail transport and revitalise its struggling network has already attracted strong market interest,” says Moshe Motlohi, acting CEO of Transnet’s Rail Infrastructure Manager (TRIM), the office responsible for repairing over 20 000 kilometres of Transnet’s rail network.
In an interview with The Africa Report, he said they have received “5 credible bids” from private operators.
If all goes according to plan, the successful bidders will be announced by the third quarter of this year, with work starting in October.
And yet, there are already rumblings about the terms and conditions surrounding the access fees private sector operators will have to pay to TRIM, with many saying they “don’t enable investments.”
News reports late last year claimed that “The offerings that Transnet has put out to the private sector have not been that attractive, which has led to the process stalling. There’s work still to be done to make the terms of potential PSP [tariffs] in Transnet’s businesses, including rail, attractive for the private sector.”
Settling on price will ultimately fall to the new Economic Regulatory Transport Act of South Africa (ERTA), which hasn’t yet even been drafted.
And investors want other guarantees, too.
“We need to see service level commitments, as well as certain lender protections to enable us to raise both the equity and the debt that is needed to progress with investments,” says James Holley, CEO of private rail operator Traxtion, which has a 30-year track record of sub-Saharan operations. “We are ready to invest in trains as soon as some of these changes are processed into the access agreement.”
In the meantime, the three-month running-out-of-money deadline grows ever closer.
And yet even if the money miraculously appears on time and the most urgent work starts, Motlohi admits it will be a gradual process.
“The state of the [rail] network is not the best, requiring extensive maintenance and repairs,” he says. “However, there is urgency and understanding of how Transnet is holding back the economy.”
“Holding back the economy” is something of an understatement. When you look at the numbers, words such as “crippling” and “destroying” come to mind.
The South African logistics industry cites research from Stellenbosch University that shows Transnet’s dysfunctional railway lines cost South Africa R1 billion every day in lost GDP.
And yes, you read that correctly.
One billion Rand. Every. Single. Day.
That’s not even counting the loss of over 100 potential jobs and R50m in tax revenue.
One of the biggest issues from where I’m sitting is theft. Unfortunately, that’s not going to be solved by throwing money at the problem.
Reports state that the volume of cargo that Transnet carries has collapsed by over a third in the last five years alone, thanks largely to theft and vandalism. In 2023, Transnet reported the theft of over a thousand kilometres of copper cable, resulting in delays for exporters and, worse, collisions between trains.
Theft levels were even worse in 2024.
“This is not random theft,” says Gavin Kelly, CEO of the Road Freight Association. “An organised syndicate is usually behind copper theft on rail lines.”
Worryingly, the railway lines are not Transnet’s only headache; The ports it operates are also in crisis.
Lack of operational efficiencies, coupled with protracted container loading and waiting times, means Transnet ports are rapidly losing market share to others on the African continent.
Although the company is working to partner with the private sector to run its container terminals at its Cape Town and Durban ports, the biggest raincloud threatening to drown any attempts at rejuvenation is, as always, debt.
Transnet’s current debt load of over R130 billion makes it exceptionally difficult to pay back all its lenders on time, creating an increasing risk of it defaulting on some of its debt repayments. If that happened, it would trigger other lenders to immediately call for loan repayments that Transnet is simply in no position to make.
The catastrophic effect on our economy of a complete collapse of Transnet operations means all hope currently rides on a massive injection of capital by the private sector. But looking at the obstacles to this investment that the company is currently facing, I for one am fearful that Transnet’s crisis has become an unstoppable, speeding train about to come off its badly maintained tracks.