Transnet Group CEO Michelle Phillips said yesterday the utility was engaging its funders to renegotiate its debts to longer term as it was hampered by an R1 billion a month interest re-payment, which confined legroom.
Transnet has a staggering debt burden of R120bn.
Phillips said the government was not clear on not providing further subventions which necessitated proactive steps to manage the debt risk.
Transnet, has seen a decline in profits from R5bn in 2019 to a net loss of R5.7bn in 2023.
Speaking at a PSG Think Big webinar, Phillips said debt was still a huge burden for Transnet although the group was in a better financial position with R27bn of the R47bn credit guarantee from the government in hand for the reform and recovery programme.
“Debt is a huge challenge for us. Allowing us to borrow more money is not the best solution. We are mindful about what the government can and cannot do. We make applications, the government makes the decisions,” Phillips said.
“Our finance costs, that is interest, is upwards of R1bn a month. It’s very, very difficult to run a business like that. It’s like paying your bond with a credit card, you do not want to be in that space. We are continuously engaging with government because that is what you do with shareholder.”
However, Phillips is confident that the recovery plan is on track for Transnet to meet its 170 million ton target by the end of its financial year.
She said application for third-party access to the rail network will be open by September or October, with advanced plans for activating a B-Fleet Rolling stock company to provide wagons and locomotives as well as the preparation of non-tariff requirements as the utility prepares for full private sector access to the rail network, which has been cross-subsidised for too long.
Phillips said ongoing work centred on the corporatisation of the Transnet National Ports Authority (TNPA), which is expected to be in place by April 2025 as well as the separation of Transnet Freight Rail (TFR) into Infrastructure Management and Freight and Rail.
Transnet published both its network statement and proposed tariff methodology on time, and the interim regulator held public consultations timeously to look at the comments from public and other stakeholders, leading to the final network statement which is expected to be published on time.
Philips said Transnet was working on improvements to help the private sector on-board the rail network, outside of the programme as part of the requirements for government's guaranteed.
“We have a substantial B-Fleet, we have agreed with the government as well as that we will establish a rolling stock leasing company together with a partner,” she said.
“We need a partner who will bring in capital and be able to refurbish some of the locomotives and and wagons, once we done that we will be offer to the market for use of the network but there is a lot of work.”
Phillips said Transnet had signed up for a step in Original Equipment Manufacturer (OEM) to be able to bring some of the long-standing locomotives out, and has begun to bring in new locomotives out of Durban.
“We have entered into long term OEM agreements for ports and rail. In ports, equipment is being delivered over the next 18 months so that we can continue improving,” she said.
“Then we have some other private sector participation transactions that we need to go to market with. We completed the pre-feasibilities of the Ngqura Manganese Export company in the Eastern Cape, completed the pre-feasibility studies, now have to go to market so we can find a partner who can help us to build that facility because we have to decommission the current Port Elizabeth facility and build a new 12 to 16 million tons facility for manganese.
“On Richards Bay, the idea is to go on market with the Richards Bay Bulk Terminal to find a partner to help us with the mordenisation of that facility.”
Phillips said although Transnet had fallen 2m tons short of its 154m tons target for 2023/24, it was confident it would achieve the 170m tons target set for the 2024/2025 year.
She said there was misconception about the utility losing cargo business to the Maputo Port in Mozambique, saying Transnet did not have a demand problem but had to figure out how best to get the cargo on rail.
“Maputo is there, Namibia is there, our customers prefer to not have a single port strategy because then they are able to mitigate their risks themselves. We been operating for years between Maputo and South Africa,” she said.
“When you are talking about reclaiming, right now, we are struggling to move commodity already signed to us, we need to fix all the things, that way we can actually move the commodities the customers have signed to us out of the country.”
BUSINESS REPORT