Transnet has reached tipping point, says African Rail Industry Association CEO

Mesela Kope-Nhlapo, CEO of the African Rail Industry Association, says President Cyril Ramaphosa's directive to Transnet this week to implement reforms “swiftly and completely” to end the logistics crisis is welcome but long overdue.

“I celebrate it with caution — until I see third-party access to the freight rail network for the private sector. The slow implementation of this critical reform is wreaking havoc with the economy.”

Ramaphosa announced in his 2022 state of the nation address that Transnet would begin providing third-party access from April of that year. Instead, its handling of the bid process was so inept and contrary to advice that it amounted to “bad faith” and defiance of the department of transport’s rail policy.

“It is a deeply flawed situation that when the president says we're going to have third-party access on April 1, and on April 1 Transnet says in effect the department of transport can do what it likes, 'We're doing our own thing.'”

The restrictive terms and conditions Transnet imposed on the use of the rail network by private freight operators — among other disincentives, offering only a two-year access period — ensured that there'd be few bidders.  Just two companies participated, one of which was successful. 

Kope-Nhlapo says it was a clear sign that Transnet is still ideologically opposed to meaningful private sector participation.

“You cannot grant third-party access and tell business,  'You will belong to my bargaining council so that you pay the same high labour costs as I do.' And that you will take the third-party access with the infrastructure ‘as is’. What is ‘as is’?

“If you say 'voetstoots' it means you know something and must disclose it upfront.  You can't say 'voetstoots', and then if you don't agree to sign a nondisclosure agreement you disqualify yourself already.

“The bullying tactics, the dictatorial style of running Transnet, is why you have these terms and conditions that don't make any sense.”

If Transnet knew anything about running a rail company it would know that its terms and conditions were completely unreasonable, she says.

“Who were they speaking to in the local industry? They were not speaking to us. They refused to speak to us. We were warning them for two years what would happen.”

She suspects Transnet knew that its terms and conditions would be unacceptable. If it was acting in good faith, “you'd have to ask if they know what they're doing”.

She believes the state-owned company is not fully committed to the national rail policy — according to which Transnet Freight Rail will compete on a level playing field with private-sector operators — which is why it has  been stalling on third-party access.

If there's one thing the public sector is good at, it is that if they want to make sure something doesn't work they will make sure it doesn't work. They will keep on going back to the drawing board

“If there's one thing the public sector is good at, it is that if they want to make sure something doesn't work they will make sure it doesn't work. They will keep on going back to the drawing board.”

She says Transnet has also acted in bad faith in revaluing assets so it can show a profit and not be seen to be breaching its  debt covenants. “There's an intent to portray a situation that does not exist.”

Kope-Nhlapo says careful scrutiny is needed of Transnet’s material revaluations, which have risen significantly despite a drop in cash flow, operational performance and maintenance spend. Errors could be “catastrophic” for the rail industry, she says.

“If cash generation and volumes are dropping and maintenance is being materially deferred, revaluations need to be carefully considered because future impairments will have a dire impact on Transnet’s gearing ratio.

“Are they going to try every trick in the book each time they need to account? How do you revalue an asset up when it is not being maintained?”

Citing Stellenbosch University logistics expert professor Jan Havenga, Kope-Nhlapo says the cost of Transnet's inability to meet the requirements of the South African economy equates to R400bn over the past year, or 6% of national GDP.

“This is more proof of the havoc Transnet's slow implementation of rail reform is wreaking on the economy.”

If she's right about Transnet's ideological opposition, what are the chances of meaningful private-sector participation happening any time soon?

“Third-party access will happen,” she says. “We have dedicated this year as the year of third-party access. We as South Africans need to fight for this country. We cannot let a few individuals bury the economy.” 

She says she is not surprised that the president has finally read the riot act to Transnet executives, demanding that they accelerate reform to enable private-sector investment.

“The national transport policy says government will fund infrastructure. But the reality is that they have such fiscal constraints there is no alternative but to bring in the private sector to fund the maintenance of the infrastructure.”

Her association, along with other logistics organisations, has been working with Operation Vulindlela and the department of transport.

“We've been doing the studies, getting real advice on many things and sharing it with the Presidency. The department of transport has been quite instrumental in making sure everyone has an input so we can push this policy through and run with it. It's not perfect, but we can run with it.”

Has Transnet subscribed to the reform policy or is it  still ideologically opposed?

“I think they were told that third-party access is happening, and they will try every trick in the book to delay it as much as possible.”

What will be the tipping point for Transnet?

“It's been reached already. They wanted R80bn from the National Treasury; they didn't get it. But it has to come from somewhere.”

The reality is that Transnet needs R60bn to fix 5,500km of track, Kope-Nhlapo says, citing calculations by Havenga.

“There comes a point where what was politically impossible becomes a necessity: working with the private sector to save the railway infrastructure. We're there.”