EDITORIAL: Transnet bailout must be subject to tough conditions

Finance minister Enoch Godongwana made it clear at the time of his November 1 medium-term budget that he wouldn’t even discuss a bailout for Transnet until the ailing state-owned enterprise tailored its turnaround plan to align it with government’s new road map for the logistics industry. He made it clear too that the days of dishing out unconditional cash bailouts were over.

Now he has bowed to pressure to help Transnet out of its financial hole, agreeing to a R47bn guarantee facility that will help the state-owned rail, port and pipeline operator avoid an imminent default and refinance the big chunk of debt that’s scheduled to mature in coming months.

We have to hope that the finance minister has stuck to his convictions and will subject Transnet to the strict conditionality he promised. That ought to mean, first, that it must implement far-reaching changes to turn its operations around. Second, it must let go of its obsession with control and speedily open its rail networks and its ports to maximum private participation, in line with the road map.

If it does not do both these things, Transnet will be forever at the finance minister’s door begging for more money — just as Eskom has been for the past 15 years, though with even less justification than Eskom.

The crucial thing about Transnet is that its financial problem is entirely an operational problem — crisis may be a better word. What’s more, it reflects a sharp deterioration over the past five years, rather than going back to state capture as the politicians like to spin it. The numbers in Transnet’s turnaround plan show just how badly its rail network has crashed, with volumes falling from a peak of 226-million tonnes in 2017/2018 to 149-million tons in the latest year. Port and pipeline volumes are down too.

The decline in its operations has cut Transnet’s revenues and its profits since 2017/18, driving up its debt to R130bn. Its ability to generate cash to cover its interest costs has plummeted. Transnet effectively defaulted last year, before lenders agreed to waive loan conditions; it could have come close to default now. In the past it never really needed government guarantees to borrow on the market: now it can’t do without them.

Fortunately, former CEO Portia Derby and freight rail chief Siza Mzimela are now out. That should make it at least possible to undo the damage they’ve done to the group’s operations and its management team. Under the new board and well-regarded acting CEO Michelle Phillips, there are hopes for a turnaround — and for a genuine move to the private participation that’s long been promised.

But Godongwana needs to keep the pressure firmly on. Treasury has given Transnet access to an immediate R22bn facility, with the rest subject to it meeting conditions. These include divesting noncore assets, cutting the cost structure and looking to private funding for infrastructure and maintenance. And there is mention of restoring operational and financial viability.

But Treasury hasn’t yet detailed the conditions. It needs to do so urgently, and transparently. SA needs to know what Transnet will deliver in return for the bailout and when — and what penalties it will face should it continue to undermine SA’s economy.