Gordhan gives Transnet board three weeks to produce turnaround plan

Public enterprises minister Pravin Gordhan has given the board of loss-making state-owned logistics company Transnet three weeks from Friday to produce a turnaround plan as the entity battles operational inefficiencies that have wiped R5.7bn off its bottom line.

The plan, Gordhan says, should:

• include a report on how the board plans to restructure the entity for it to effectively deliver on its mandate;
• launch an initiative aimed at curbing superfluous expenses to boost financial sustainability; and
• detail how the board plans to curb instances of corrupt activity within the entity. 

“Transnet’s leadership must internalise the gravity of the situation and the extensive repercussions of persistent underperformance. Inaction is no longer an option given the inflection point Transnet finds itself in,” Gordhan said at the release of the entity’s annual results on Friday. 

“The challenges we’ve noted, especially those related to ghost trains, infrastructure theft and derailments, are not just operational setbacks. They threaten the trust our citizens place in our institutions and the stability of our economic environment.”

In July, Gordhan appointed an entirely new board at Transnet in an attempt to clean up governance after years of state capture. The new board’s 12 independent nonexecutive directors and two executive directors, led by former mining executive Andile Sangqu, were tasked with tackling years of corruption allegations while improving Transnet’s management of its rail, port and other assets.

“Once we have that [plan] in place, we can determine what is attainable, what can be measured and how we can continually assess the effectiveness of that,” Sangqu said. 

“Realistically, we think that by the end of October we will be able to draw a line in the sand and say these are the things that we believe can be achieved in the next six to 12 months once we are laying the foundation for other things that can be done in a fairly longish period.”

Restructuring of the company’s debt service costs of R1bn a month will be a key part of the plan, Sangqu said. 

“Over a 12-month period, debt alone is R12bn [and] that continues to throttle the free cash flows of a company, and it reduces its ability to have sufficient cash to do maintenance, repairs and procure spare parts. So we certainly need a completely new configuration in terms of our debt and how we restructure the organisation going forward.”

Transnet has blamed the R5.7bn loss for the year to end-March, which is significantly down from a profit of R5bn for the previous year, on the decline in rail volumes, which slumped by 13.6% from 173-million tonnes in 2021/2022 to 149-million tonnes for the period under review. 

“With improved revenue, we would’ve done much better because the rest of the expenditure shows that we have contained the costs in the context of inflation, but there are other elements that you can’t run away from,” CFO Nonkululeko Dlamini said.

“We have a significant amount of debt and we pay significant interest expense in that regard in line with what we owe to our lenders.”  

Earnings before interest, taxes, depreciation and amortisation (Ebitda) decreased 2.1% to R23bn, while operating expenditure increased 2% to R45.9bn. Revenue increased by 0.6% to R68.9bn.

“The marginal increase in revenue is attributable mainly to positive port and pipeline operational performance,” Transnet said. 

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