No lifeline for Transnet or other ailing parastatals in medium term budget

Finance Minister Enoch Godongwana on Wednesday put public-private partnerships at the centre of plans to shore up Transnet, holding off for now on fresh capital injections for the debt-ridden logistics group and other struggling state-owned enterprises.

“We will open the freight rail network to private operators to reduce inefficiencies and costs,” Godongwana confirmed in his medium-term budget policy statement (MTBPS).

The minister stressed that effective infrastructure investment is a pillar of the government’s plans to breathe life into the economy and stimulate growth. Much of this depends on the performance of Transnet, which is saddled with debt of R137 billion and woefully incapable of meeting its targets.

“In this regard, we are implementing reforms that will create conditions to attract greater private sector participation,” Godongwana said.

The reforms include mobilising “significant private sector financing and technical expertise to augment the limited public sector capacity and capability”.

The treasury was amending regulations to simplify the requirements for public-private partnership, he added.

“The department of transport, Transnet and the Passenger Rail Agency of South Africa are finalising a list of priority projects that will be issued to the market in 2025.”

Godongwana said the treasury was still quantifying the value of assets Transnet needs to dispose of before considering financial support. 

The only cash injection in the medium-term review is a special allocation of R3.2 billion for the South African National Roads Agency, designed to cover debt related to the Gauteng Freeway Improvement Project.

Transnet a year ago appeared to surprise the shareholder when it put out a call to the market for a 20-year lease of its Johannesburg-Durban corridor, but since then scruples about private partnerships have faded.

A fortnight ago, Transport Minister Barbara Creecy told parliament’s standing committee on public accounts (Scopa) that the state had no qualms about considering third party financing, stressing “we are not confused”.

The treasury said on Wednesday that “reforms that open the freight rail network to private operators will reduce inefficiencies and costs, helping firms offer lower prices and boosting economic growth”. 

Creecy confirmed that the company has a current capital requirement of between R100 billion and R120 billion.

Transnet’s debt burden carries annual interest repayment obligations of R14 billion. Its total liabilities exceeds its assets by about R60 billion, which recently caused the auditor general to warn that it might not be able to pay its short-term debts as they become due.

It secured a R18.85 billion loan from the Development Bank of Southern Africa in July and in September another of R5 billion from the New Development Bank, the multilateral development bank established by the Brics nations, to support the modernisation of the freight logistics sector.

Creecy noted that Transnet had reached only 28% of its targets in the past financial year and was operating well below industry standards, with ports averaging 20 crane moves an hour as opposed to 25 to 30.

“This results in long waiting times for vessels,” she said, adding that the success of the logistics company was “perhaps the greatest factor in ensuring our economy stabilises”.

The company is also well below its target of shifting 200 million to 220 million tonnes of freight a year, at which point, it is estimated, it will begin to make a meaningful contribution to the economy. 

The treasury said on Wednesday the transport, storage and communication sector grew by only one percent in the first six months of the year, in part because of rail inefficiencies and poor port performance.