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  • Writer's pictureJeremy Conradie.

Transnet Starts South Africa Rail Reform With Key Unit Formed

South African state-owned freight company Transnet SOC Ltd. established a unit that will manage and operate its rail network, a key step in reviving the utility’s performance and opening up the market to private investors.

The creation of the so-called an interim infrastructure manager is part of a government policy to bring in “radical structural reforms in the sector that are intended to enable and facilitate private sector investment,” acting chief executive officer Michelle Phillips said in a statement on November 1.

The policy aims to liberalize the rail sector by regulating rail infrastructure and providing private train operating companies with access to the freight rail network,” - Michelle Phillips (acting CEO Transnet)

Transnet is struggling to reverse a collapse that has hobbled economic growth in Africa’s most industrialized economy. Volumes of goods and commodities, including iron ore and coal shipped through the company’s freight rail network for export, have dropped because of issues including vandalism, idle locomotives and cable theft.

The company has requested a bailout from the state of about 100 billion rand ($5.3 billion) over the next two years. However, Finance Minister Enoch Godongwana made no mention of a Transnet bailout in the mid-term budget policy statement which he delivered on November 1. The highlights of which are below:

  • SA’s main budget deficit forecast for 2023 has worsened, to 4.9% of GDP, compared to the 4% estimated in the February budget.

  • The gross debt will rise from R4.8 trillion in the current financial year to R6 trillion in 2025/26.

  • Over the next three years, debt-servicing costs as a share of revenue will increase from 20.7% in 2023/24 to 22.1% in 2026/27.

  • Spending has been revised down by R21 billion for the current financial year. Further reductions of R64 billion in 2024/25 and R69 billion in 2025/26 are proposed.

  • No bailout was announced for Transnet.

  • No further major bailouts were announced for other state-owned enterprises (SOEs) such as Eskom, Denel or SAA.

  • Additional funding of R24 billion for the 2023/2024 public sector wage increase (this is lower than an amount of R37 billion cited by Godongwana in May, as the increase will only cover key departments such as education, health and policing/defence. Other departments will need to absorb the increase, according to National Treasury)

  • Fast-tracking ‘growth enhancing’ reforms announced by President Cyril Ramaphosa previously. (However, a new financing mechanism for large infrastructure projects is being proposed – no details were provided).

In October however, Transnet did give details of a plan to boost freight volumes throughout the network.

Transnet will also create a transport economic regulator to set prices for the sale of train slots and regulate the system between infrastructure managers and train operating companies, the company said on November 1.

Sources: Bloomberg and Moneyweb

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