Transnet says it is not privatising but seeks partners

Transnet says its move to enlist private sector participation, including bringing in a private partner to take over the running of its Durban to Johannesburg rail corridor for the next 20 years, is essential to ensure it delivers on its mandate. 

The state-owned ports and freight operator has ruled out a complete privatisation of its assets, but has invited private players to participate in its rail and port network that has been hampered by inefficiencies, ageing infrastructure and congestion.

The inefficiencies have had a negative effect not only on its revenue, but also on that of its clients, many of which rely on its large network to move essential goods as such minerals and agriculture produce. 

Private participation in public infrastructure is controversial within the ANC and its allies, some of whom argue that it constitutes privatisation. But President Cyril Ramaphosa reiterated in his state of the nation address the government’s commitment to bring private players into Transnet to help reform the rail sector and enable new investment in SA ports.

Questioned by ANC and EFF MPs at a public enterprises parliamentary committee meeting on Wednesday, Transnet executives including board chair Popo Molefe, CEO Portia Derby and Transnet Freight Rail (TFR) CEO Sizakele Mzimela all emphasised that Transnet’s assets were not being privatised. 

“All that we are doing is inviting the private sector to put its hands on the deck with us and partner with them to resolve the challenges that are facing the country instead of us listening all the time to being told how efficient the private sector is and how inefficient the public sector is,” Molefe said. 

“Concessioning on some of the assets means that Transnet will continue to retain ownership of the asset, but for a defined period it will partner with the private sector to see whether combining the capacities of both will help us to enhance investment infrastructure operational efficiencies.”

Private investment in SA’s ports and rail is one of the key areas of structural reform the government has identified in its overhaul of the economy to boost investment and job creation.

The move by TFR, the largest subsidiary of Transnet accounting for over 45% of revenue, to auction 16 of its slots on its network to private players received a muted response from the private sector after only one bidder, Traxtion Sheltam, out of a potential 19 was successful.

This raised concerns that the conditions attached to the tender were too stringent and costly for the private sector to fully participate. 

Transnet’s bid to invite the private sector to maintain, run and invest in the 670km-long container corridor, which connects Durban and Johannesburg, is another of the many public-private partnerships on which the company has embarked.

The corridor, however, is an example of the progressive decay of SA’s rail network in recent years, as it is heavily affected by cable theft. This has affected its ability to move goods on the line, and has resulted in a cumulative financial loss of R19bn over the past 12 years. 

“The intention is not to go out to find a private partner because we believe we are not capable to deal with the things that we could possibly put into place to turn things around. But the container corridor has been a loss-making corridor for a number of years,” Mzimela said. 

“The reason we are sitting with a market share of around 30% on rail is because the system is unreliable. It is unreliable because of continued underinvestment in the infrastructure that has actually eroded our ability to move the maximum cargo on that corridor.” 

Transnet’s continued shortage of locomotives, combined with a surge in cable theft and the vandalism of locomotives, as well as other operational rail and ports issues, have frustrated the company’s customers, especially miners.

Mining firms have lost about R50bn in revenue in 2022 because of these inefficiencies, resulting in them failing to take advantage of the 2021 commodity price boom.

Transnet was allocated nearly R6bn by the National Treasury in the 2022 medium-term budget statement for repair and maintenance of its locomotives, of which 722 out of 1,571 are unreliable and old. 

In January, it issued a tender to procure new components for its idle locomotives which were irregularly procured from Chinese firm CRRC E-Loco Supply. A year of negotiations between Transnet and the Chinese firm over the delivery of spare parts came to naught in 2022, prompting Transnet to issue the open-ended tender. 

maekot@businesslive.co.za