https://www.engineeringnews.co.za

Transnet holds R307.5bn investment line despite sluggish economy

Transnet CFO Anoj Singh

Public Enterprises Minister Malusi Gigaba, Transnet CEO Brian Molefe and Transnet CFO Anoj Singh on sticking with the R307.5-billion investment plan despite slow economic growth. Camera Work: Nicholas Boyd. Editing: Shane Williams. Recorded: 27.6.2013

Transnet CFO Anoj Singh

Photo by Duane Daws

27th June 2013

By: Terence Creamer

Creamer Media Editor

  

Font size: - +

State-owned freight logistics group Transnet has made only marginal adjustments to its R307.5-billion Market Demand Strategy (MDS), despite South Africa’s slower-than-expected economic recovery, a modest growth outlook and softening volumes. It has also extended the rolling seven-year investment plan by a further year to 2020.

In so doing, the group – which invested a record R27-billion in 2012/13 (against a target of R31-billion) – reaffirmed its commitment to pushing ahead with a ‘counter-cyclical’ investment strategy, which has the full backing of government, its sole shareholder.

The reaffirmation comes amid concerns over the outlook for commodities, including key bulk commodities transported by Transnet, such as thermal coal, the price of which has fallen sharply over the past few months.

In 2012/13, the group moved 69.2-million tons of coal along the export channel to Richards Bay, in KwaZulu-Natal, and, under the MDS, Transnet expects to be in a position to ship 97.5-million tons a year by 2020.

To raise the line’s capacity, Transnet is pursuing a plan to build a new greenfield rail link through Swaziland, in a bid to unburden the coal corridor of its general-freight flows. The group is even investigating the possibility of building a new 14- to 32-million-ton-a-year open-access coal terminal, which could be developed in stages alongside the miner-owned Richard Bay Coal Terminal.

GROWTH DOWNGRADES

Transnet’s reaffirmation also follows a number of downgrades to South Africa’s growth outlook, with the World Bank having recently cut its growth forecast for 2013 to 2.5%, while Business Unity South Africa cut its outlook from 2.5% to 2.2%. For its part, the International Monetary Fund expects growth to be relatively pedestrian over the medium term, having cut its 2014 forecast to 3.3% in April, from 4.1% previously.

CEO Brian Molefe says that some adjustments have been made to the MDS, but that the focus remains on the execution of the strategy, which is designed to create freight capacity ahead of demand.

The main adjustment relates to the number of maritime containers that the group expects to handle by 2020. Previously, it forecast that it would be moving 7.6-million twenty-foot equivalent units (TEUs) by 2019, but that figure has been scaled back to 5.9-million TEUs. It has also cut back on its expected 2020 employee headcount, from over 67 400 to a new forecast of nearly 66 700.

But the plan remains more or less intact, albeit that it is still being modelled on relatively optimistic growth figures. The forecast is for growth of 3% or better in the first years of the MDS and what CFO Anoj Singh describes as “more aggressive” forecasts during the latter part of the roll-out.

To mitigate the effect of the slower-than-expected growth and softer volumes, Transnet aims to capture more market share, diversify its revenues to include locomotive and wagon sales to the rest of Africa and other countries, while pursuing capital- and cost-optimisation initiatives.

Singh believes that there is potential for the group to secure non-South African revenue of between R10- and R15-billion over the coming seven-year period.

COUNTER CYCLICAL

“This is precisely why we are saying the MDS is counter cyclical. We are going to continue to invest, because we are not investing for demand now, we are investing for the next 30 to 50 years,” Molefe avers.

He is also convinced that the group will be able to raise the debt it requires to part-finance the MDS.  In 2012/13, it raised R14.6-billion, increasing its total borrowings to R73.1-billion and its gearing to 44.6% – it has set a gearing cap of 50%. Transnet plans to raise another R15.6-billion in 2013/14 and is even weighing a pioneering rand-denominated global bond issuance.

The decision to hold the MDS line is strongly supported by the group’s shareholder Minister, Public Enterprises’ Malusi Gigaba.

Speaking at a presentation where Transnet reported recorded revenues of R50-billion and a profit of R4.3-billion for 2012/13, Gigaba said a continued “aggressive spend” by Transnet was also being used to drive “job creation, transformation and localisation imperatives”.

He has, therefore, urged the group to “drastically reduce” underspending so as to maximise its economic and developmental impact. Transnet expects to invest R28.6-billion this financial year, R41.3-billion in 2014/15, R51.6-billion in 2015/16, R55-billion in 2016/17, R50.3-billion in 2017/18, R49.5-billion in 2018/19 and R31.2-billion in 2019/20.

SUPPLY-CHAIN STRATEGY

Gigaba has also requested the group to develop a seven-year supply-chain strategy to define which products will be sourced internally from Transnet Engineering (TE) and which will be sourced from South African private industry or from abroad.

The objective is to consolidate TE as a competitive regional and global supplier of railways and port equipment, while ensuring that its activities crowd-in local industrialists. A number of local companies have already raised concerns that TE has become a competitor, rather than a source of business.

Molefe indicated that the supply-chain strategy should be finalised in the coming six months.

Edited by Creamer Media Reporter

Comments

Latest Multimedia

Magazine video image
Magazine round up | 29 March 2024
Updated 44 minutes ago

Latest News

Magazine video image
Magazine round up | 29 March 2024
Updated 55 minutes ago

Showroom

Goodwin Submersible Pumps Africa (Pty) Ltd
Goodwin Submersible Pumps Africa (Pty) Ltd

Goodwin Submersible Pumps Africa is sole distributors for Goodwin electrically driven, submersible, abrasion resistance slurry pumps.

VISIT SHOWROOM 
Hanna Instruments Image
Hanna Instruments (Pty) Ltd

We supply customers with practical affordable solutions for their testing needs. Our products include benchtop, portable, in-line process control...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.085 0.155s - 157pq - 2rq
Subscribe Now