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Op Ed | Transnet turns a new leaf, but there are many cracks in the system

By December 15, 2022January 25th, 2023No Comments

By Tshegofatso Mathe

Commissioned by PARI, first published in Mail and Guardian

Over the past 18 months, state-owned ports and freight rail operator Transnet has declared six force majeures — it weathered circumstances outside of its control that made it difficult to fulfil its contractual obligations.

The reasons included a strike, floods in KwaZulu-Natal and the closure of a major coal line due to an accident. But underpinning these circumstances is a freight company that is incapacitated and therefore constantly fails to optimally fulfil its mandate. This is thanks to years of crippling mismanagement and corruption, which are affecting the overall economic performance of the country.

On 30 November, the South African Revenue Service released trade statistics for October, which recorded a preliminary trade balance deficit of R4.31 billion from a supply of R26.2 billion in September. Overall, exports were down by 17% in that month. This is the first deficit since April 2020.

The decline happened in a month when workers at the freight company downed tools to demand wage increases. Absa chief economist Miyelani Maluleke said the dataset shows how damaging the strike was to exports.

While the strike was ongoing, the Mineral Council of South Africa called for a speedy resolution as it claimed it was losing R815 million in export revenue per day due to the industrial action.

Beyond this, the council lamented that the strike compounded the bulk losses in mineral exports, which it was already experiencing because Transnet was struggling to meet targeted annual tonnages on its rail network and throughput at ports.

It estimated an export loss of R50 billion on an annualised basis this year for iron ore, coal, chrome, ferrochrome and manganese exporters, as measured by delivered tonnages against contracted rail tonnages. This compares to a loss of R35 billion in 2021 based on the same metric. One of the reasons for the losses is that the company is gravely affected by high levels of criminality — with rampant theft of copper cable and other assets — and the rise of procurement mafias that block local projects that do not benefit them.

The efficient movement of goods is essential to having a healthy and thriving economy, but Transnet’s shortcomings continue to leave some sectors with a bloody nose as they struggle to mitigate its failures. Turning around Transnet’s performance will require broader social support for their programme, and an alignment of economic interests that allow effective freight utility.

In its heyday, the freight company’s system had the capacity to run a total of 430 million tonnes of goods — it now only manages a measly 180 million tonnes. In addition to this, every single month Transnet is losing about 100km of cable — which means a dwindling number of trains that can transport goods.

Balancing act

To overturn this, the company needs to invest R78 billion in revitalising and extending its infrastructure, funds it simply does not have.

The numbers accounting for the losses for only this year can make anyone dizzy, but it is crucial to mention them to help map out where things actually stand. Years of State Capture have left the entity with an almost empty wallet.

In a tricky juggling act to make sure its systems do not completely collapse, it conducts various levels of maintenance of its infrastructure. This is a stoic acknowledgement that it cannot manage a complete A-grade maintenance of its overall systems.

At a recent dialogue series titled “Capacity of the State”, where one roundtable looked at the conditions affecting the freight rail and public transport, it was made clear that Transnet prioritises specific areas of the network to ensure maintenance to A-level. For the other systems, maintenance hovers at B- and C-levels, depending on the volumes that need to move on those portions of the network, and the frequency of movement of trains.

This is not ideal for a monopoly company as big as Transnet since, to avoid unforeseen calamities, investing in maintenance should be ahead of demand. However, the entity has lost key skills, which continues to impede its progression. Adept employees were driven out to weaken institutions for nefarious purposes, and the environment continues to undervalue and disincentive strategic technical capacity.

The freight giant lacks capacity and, as a result, more trucks transporting goods are on our roads, which poses its own set of challenges.

As a public company, it has been liable to corruption and State Capture, which has come at the expense of performance. This is particularly evident in procurement, which complies with Public Finance Management Act principles, often at the expense of the broader development and investment goals of Transnet.

Historical moves to clean up Transnet’s business came with unwitting trade-offs, including the decision to terminate dodgy contracts with the China Railway Rolling Stock Corporation, which then refused to deliver spare parts to repair the existing fleet — again, costing the company billions, as it parked increasing numbers of locomotives. This problem has since been resolved.

Promise of transformation

It does seem that some work is being done to redirect Transnet’s misfortunes. In May, the cabinet approved the White Paper on National Rail Policy, which takes a holistic view of the trajectory of the development of the country’s rail system.

In his statement on the policy, Minister of Transport Fikile Mbalula said that: “This [White Paper] not only creates policy certainty but also introduces radical structural reforms in the sector. This is intended to open up space for private sector investment and effective economic regulation that enables equitable access to both the primary and secondary network.”

He said the De Villiers report of 1986, which advocated against new rail investments and for sweating existing assets and deregulation of the road sector in 1988, pushed large portions of the rail industry into acute decline.

Mbalula said the new policy intends to place rail on a sound footing to play a meaningful role as the backbone of a seamlessly integrated transport value chain, able to make a meaningful contribution to the economy.

Beyond this glimmer of hope, Transnet is looking to introduce new technology in their systems, which could potentially cut down on derailments and security incidents. It is also proceeding with bringing in private sector operators to run trains on its railway lines, but it has faced heavy criticism for this approach, which the African Rail Industry Association argues is not in line with the National Rail Policy and will not work as intended.

Tshegofatso Mathe is a freelance journalist. She was commissioned to write this article by the Public Affairs Research Institute and the Association of former Directors-General.