PREMIUM from the FT: How SA’s state rail network Transnet came close to the brink

What Ramaphosa describes as "catastrophic" problems at the freight company mirror those of SA's stricken power monopoly Eskom.By Joseph Cotterill of The Financial Times .The 20,000km of railway that criss-cross South Africa once symbolised the nation's mining might, carrying trains loaded with coal and iron ore destined for India, China and other markets under the state's Transnet freight monopoly..___STEADY_PAYWALL___.But the volume of cargo carried by Africa's biggest rail network has collapsed by a third in the past five years, in a crisis described by President Cyril Ramaphosa as of "catastrophic proportions" and highlighting the dysfunction at the heart of some of the country's most critical state-owned companies..In a mirror of the disarray at the Eskom power monopoly, officials and business leaders are working to turn around the management turmoil and alleged corruption that has left Transnet beset by train line vandalism, cable theft and blockages at ports. The crisis has throttled crucial commodity exports in the continent's leading industrial nation, threatened thousands of mining jobs and hit badly needed tax revenues..One symbol of the dysfunction, according to people familiar with the network, are so-called ghost or unscheduled trains that operate without proper tracking of revenue. Transnet has said it is investigating the claims..In an effort to tackle a threat to the economy rivalled only by Eskom's rolling blackouts, Ramaphosa this week announced that his government was finalising a plan to "enable greater public and private investment" in Transnet, which is burdened with R130bn ($6.9bn) of debt..The reforms, which still need cabinet approval, would not privatise the rail operator altogether but shift the state's role to owning and managing infrastructure.."We've been clear that South Africa's port, rail and electricity infrastructure are strategic national assets and will remain in public ownership," Ramaphosa said at a meeting of the ruling African National Congress..Transnet was also seeking government support for a short-term turnaround plan, its board said last week..The monopoly's chief executive Portia Derby and its head of freight rail — the biggest division in an empire that also spans ports and pipelines — have both resigned in the past month. The ANC's union allies joined business calls for their departure after miners warned of job losses because of missed export opportunities. Transnet's board was replaced in July, and its chief financial officer has also quit..Lower mining taxes and royalties caused in part by the Transnet crisis have contributed to an increase in South Africa's budget deficit to nearly 6 per cent of GDP in the past 12 months, ahead of initial projections. .Transnet's growing losses and debt are further risks for Ramaphosa's government, which is already juggling higher borrowing costs and bailouts for Eskom.."We are losing a billion rand a day because of where we are. The fact that Transnet lost over R5bn [in the last financial year] is absolutely nothing compared to what our treasury has lost in terms of revenue," said Jan Havenga, professor in logistics at Stellenbosch university..Ahead of national elections likely to be held next April or May, balancing plans for private investment with government ownership of infrastructure will test the ideological bedrock of the ANC, which has long favoured state companies such as Transnet and Eskom..At the same time, Transnet's crisis has exasperated the mining industry, including some of South Africa's biggest black-owned businesses. Exports via one key coal rail line last year dropped to their lowest since 1993, and analysts estimate the route could deliver only 50mn tonnes this year, far below its 90mn tonne capacity..Companies say they are missing opportunities, such as last year's rush by European power operators to replace Russian coal following Moscow's full-scale invasion of Ukraine. Exports to Asia are also under threat.."It's all well and good for me to say that Japan needs my coal, China needs my coal, India needs my coal," said Mike Teke, chief executive of coal miner Seriti Resources. "I need to be able to know if I mine the coal . . . a train will pick it up tomorrow and take it to the port.".Coal miner Exxaro has forecast it will export less than half of its 10mn tonne capacity during its 2023 financial year, and said it was also being hit through a stake in iron ore operations that depend on a separate Transnet line.."That is a huge loss of opportunity for us," said Exxaro chief executive Nombasa Tsengwa. There was scope for more private sector involvement on critical lines, she added..Transnet's outgoing management blamed a lack of locomotives for the decline in its service, particularly since the collapse of a Chinese supply deal that was marred by corruption under Jacob Zuma, the former president..But this was not the full story, Havenga said. "It's the turnaround time of the locomotives that's the problem. We don't sweat them enough." The "ability to run trains properly" had been lost, he added..Miners say efficiency gains and other basic measures, such as satellite tracking to halt the ghost trains, are vital alongside long-term plans for private sector involvement..However, Transnet's recent experience suggests marrying private capital to South Africa's failing state monopolies was easier said than done. Last year the company offered several trial slots for private companies to operate trains on two container corridors. Of 19 interested bidders, only two submitted proposals and just one received a slot. .Many investors were put off by slots being available only on short-term contracts despite requiring rolling stock investments that might take decades to pay off..Mesela Nhlapo, chief executive of the African Rail Industry Association, a business group, said any planned reforms would need a strong regulator to ensure Transnet negotiated future private access in good faith.."South Africa has more than 150 years of experience with the railways . . . we should be leading and integrating the continent," she said. "We've not stepped up.".Read also:.READ IT AGAIN: Rob Hersov on ANC's misguided asteroid called Transnet that's about to smash SA's economyUNDICTATED: Summers's challenge exposed by Pick n Pay's "truly awful" results, shares drop 14%Saffer Steyn key man in FT's sensational expose' on deranged bitcoin billionaire

PREMIUM from the FT: How SA’s state rail network Transnet came close to the brink

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