Transnet board committed to getting back on track, Gordhan tells MPs

The new Transnet board faced a grilling from parliament’s portfolio committee on public enterprises on Wednesday, as the economy continues to reel from port and rail logistics constraints that have choked the supply of goods.

The board, which was announced in July, takes the helm of the troubled state-owned entity that is facing challenges such as R130bn debt, operational troubles and the recent resignation of key figures including former Transnet Group CEO Portia Derby and former Transnet Freight Rail CEO Siza Mzimela.

Minister of public enterprises Pravin Gordhan told the committee that while the board entered the fray amid Transnet’s crisis, its members are committed to concluding its recovery plan and improving its operations.

“The board has been in place for about four months and among the things that we asked the board, as a shareholder, to look into is the underperformance, make a diagnosis as to what is the problem, and then have an undertaking that will constitute the recovery plan,” said Gordhan.

The minister said the logistics challenges are also receiving the attention of President Cyril Ramaphosa, as are the three special task forces he has undertaken with the private sector: the National Electricity Crisis, National Logistics Crisis and the Crime and Corruption committees.

Gordhan said the government is processing the recovery plan.

Chairperson Andile Sangqu said since its appointment the board has spent the past three months studying the myriad challenges, and charting a path to financial and operational recovery.

Deteriorating position

“The recovery plan, which we announced on October 26 takes into consideration several factors given the Transnet operating environment. We wanted to ensure that we aligned the plan to the changing policy environment.”

“The National Rail Policy and Economic Regulation of Transport Bill of 2022 were considered during the formation of the recovery plan. Transnet is implementing the plan against a deteriorating financial position as attested by the high debt levels and weak liquidity position,” said Sangqu.

According to Transnet’s annual report for the 2022-23 financial year, revenue fell from R72.9bn to R98.6bn, while operating expenses surged to R45.9bn and borrowing increased to R130bn in the past five years.

“Due to limited funds, [the] maintenance backlog has increased to R50bn. The high maintenance backlog leads to poor asset health and weak operational performance,” said Sangqu.

Transnet interim group CEO Michelle Phillips said Transnet has to get to grips with vandalism, cable theft and the destruction of infrastructure, apart from its financial and operational woes. She said while hundreds of suspects have been arrested, conviction rates have been as low as 4%.

“We are faced with several criminal elements who are hell-bent on destroying the good work we have been doing and it prevents us from doing what we need to do,” said Phillips.

Acting CFO Hlengiwe Makhathini said Transnet’s R5.7bn loss for the 2022-23 financial year is the culmination of a range of challenges at ports and in the broader economy.

“We had industrial strike action and inflationary pressure. Given all those challenges, that we were able to meet expenses is something that we need to keep doing to tighten our belts …,” said Makhathini.

She said Transnet saved R1.539bn on personnel costs, due to one-off voluntary severance package costs.

The increase in energy costs was largely driven by a R1.1bn increase in fuel costs, offset by a R310m reduction in electricity costs, she said. She added that material and maintenance costs increased by R405m in support of operations.

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