All eyes will be on the Eskom crisis when Finance Minister Enoch Godongwana presents his budget today, but there is another SOE significantly constraining South Africa’s economy and urgent action is needed to resolve the crisis facing Transnet.
In advance of the budget speech the key question facing the railway industry, as well as the vast upstream economy that relies on railway services, is who is going to resolve the Transnet funding shortfall?
Over the next 5 years Transnet has R70 billion of debt that is maturing and needs to be refinanced. In addition to that, Transnet has a R111 billion capex requirement of which, Transnet state, R80 billion is unfunded.
This means that Transnet need to raise between R150 billion and R181 billion in the next five years.
Transnet is already in breach of its cash interest cover ratio and requires waivers from its lenders. By its own admission it is not able to raise the capital needed to roll out its capex plan.
ARIA predicts that Transnet will achieve a maximum of 160 million tonnes of freight moved in the year-ended March 2023, a 29% drop from the 226 million tonnes moved in 2018.
“If there is not an urgent investment into the underlying rail track infrastructure the continued slide in performance will persist. We could have 100’s of new trainsets delivered to South Africa but if track conditions are not addressed they will be of no benefit”.
The second source of funding for Transnet is then its shareholder – the South African Government.
“In the context of the detrimental impact Transnet’s reducing rail capacity is having on the South African economy it is vital, therefore, that National Treasury provides clarity on whether it will fund the Transnet capital expenditure shortfall,” says African Rail Industry Association (ARIA) CEO Mesela Nhlapo.
If National Treasury does not plan to commit to the R80 billion bailout, or given the competing demands for capital can only fund a portion thereof, then the only remaining source of capital is the private sector, Nhlapo says.
If that is case then ARIA calls on the Government to establish an inter-ministerial crisis committee, along the lines of NECOM established for Energy, to focus on and expedite the implementation of Governments National Rail Policy to ensure this private sector capital is unlocked.
The upstream economy simply cannot afford any uncertainty nor to wait for direction.
BUSINESS REPORT