HILARY JOFFE: Transnet’s Teflon bosses shrug off chaos around them

There was a flurry at the Joburg Indaba on Thursday when news of Transnet Freight Rail CEO Siza Mzimela’s resignation emerged. Few of the mining folk expected Mzimela to appear at the Indaba at noon as scheduled. 

Yet there she was, all cheerful and unapologetic. She was duly thanked by the hosts for not disappointing the audience. But one cannot imagine any of the other CEOs in the room being remotely as nonchalant if they’d had to resign from a company whose performance had crashed during their three-year tenure, causing huge losses not just for the company but for the country.

Mining CEOs, more than anyone, know that they are there to understand and manage risk. They know they are judged on how they lead through the bad times, not just the good times, and on how they perform in the face of cycles and crises that may be beyond their control. 

But as Mzimela and her outgoing boss, Portia Derby, seemed to see it, Transnet’s slide was not really a management problem at all. And Mzimela’s narrative on Thursday again blamed factors “outside our control” for freight rail’s slide. She blamed the locomotives that weren’t available because the Chinese suppliers, implicated in state capture, had refused to provide spares — though it’s not clear why Transnet did little to find alternatives after the problem emerged in 2019, nor why some of its non-Chinese locomotives are also standing idle.

She blamed theft and vandalism on the rail lines, which has escalated sharply — though it’s not clear why Transnet took so long to call for help. She blamed underinvestment in infrastructure and the “bumps” on the lines that force the trains to slow or be cancelled. She even took a swipe at the private sector for taking so long to collaborate with Transnet to address all its challenges. 

Derby and Mzimela are now on their way out, and public enterprises minister Pravin Gordhan should have received the turnaround plan from the board at the beginning of September. The narrative might not appear to matter, but it is material to the question of what it is that needs to be turned around at Transnet and whether the plan addresses that. 

It’s urgent for the country, which by Stellenbosch University professor Jan Havenga’s calculations is losing R1bn a day as a result of the dysfunction at Transnet, most of this because of freight rail. The rail service has seen volumes decline from a peak of over 200-million tonnes a year in 2019 to an expected 143-million in 2023. Unless rail is turned around before the end of the year, SA stands to lose markets for its exports and jobs and investment in its mines, as well as in other industries. And Transnet stands to make further losses. 

But a factor that’s often missed is how urgent it is to stave off debt default or even bankruptcy at Transnet. The company, which made a loss of almost R6bn in the year to March, has R130bn of debt. And its lenders and bondholders will be asking searching questions about the plausibility of the turnaround plan.

The first problem is that in the latest year Transnet breached certain of its loan covenants because its cash flow didn’t sufficiently cover its interest payments. It managed to get a waiver from the lenders, which agreed not to call a default. They might not be so sympathetic next time, unless they can be convinced that new leadership at Transnet will recognise what went wrong with the management of the company and have the humility and the ability to change its fortunes. 

The second problem is that there are some big chunks of debt that have to be repaid in 2023 and in coming years. There’s a R7bn bond maturing in November and a total of almost R10bn by the end of December, with a further R40bn due over the next three years. Those bonds and loans could in theory be rolled over or refinanced. But lenders are reportedly losing patience with Transnet so, again, and it’s a question of whether they can be convinced it can get back on the right track, as it were.

In the shorter term, the collaboration with the private sector through the national logistics crisis committee will be crucial to fixing Transnet’s operations, or helping Transnet fix itself. There are early signs of progress, but there’s still a long way to go even to stabilise some of the operations, never mind restore them to full capacity. 

In the medium to longer term SA’s rail and port logistics need a completely new model. The national logistics crisis committee collaboration will feed into that. The presidency has drafted a new road map for the logistics industry, which will set out where Transnet fits in and what its role will be, and where private players will come into a market that should look quite different in years hence.

Meanwhile, the government would do well to do take a hard look at its notion of what a CEO is, or should be, and what it needs to do to enable good leadership at key state-owned enterprises (SOEs). It doesn’t necessarily need an engineer to run an Eskom or a Transnet, and many engineers wouldn’t have the leadership skills. What it does need is a seasoned executive who knows how to run a large, technically complex organisation in challenging times. And it needs to let them do the job.

There are a good few such CEOs in the private sector. But the contrast between public and private was never more on show than this week. We had more of the endless Transnet and Eskom leadership soap opera, while FirstRand put a seamless succession plan in place, appointing a new CEO with two decades of banking experience, who as it happens is a black woman, Mary Vilakazi.

The room at the Indaba had a good few mining CEOs, many of them black, with decades of experience managing large and complex organisations in tough industries. But as long as the politics around Transnet and Eskom is so poisonous and the political interference so extensive, they will struggle to attract and retain good CEOs and the dramas will continue.

• Joffe is editor at large.