http://www.engineeringnews.co.za/article/too-early-to-review-r300bn-capex-plan-despite-poor-economic-outlook-2012-07-10

Too early to review R300bn capex plan despite poor economic outlook

Published 10 Jul 12        By: Terence Creamer
State-owned freight logistic group Transnet says it is too early to say whether the current poor economic outlook will force it to review its R300-billion capital expenditure (capex) plans for the seven-year period to 2019.

CE Brian Molefe stressed, though, that the investment plan would not immediately respond to cyclical changes, owing to the fact that the programme was designed to cater for the growth of the business over a 30-year horizon.

Therefore, even under a worst-case scenario Transnet would continue to invest, with a “stress test” having indicated that, at most, R50-billion would be lopped off the capex plan should there be a period of sustained low growth.

In 2011/12, the group spent a record R22.5-billion, which was 3.7% up on the R21.5-billion invested in 2010/11. However, it was below the budget of R25-billion set for the period.

Molefe said the group still planned to invest a record R31.2-billion on railways, ports and pipelines during the current financial year, notwithstanding weaker market conditions in a number of areas.

Under the plan, capex was poised to rise steadily to a peak of R56-billion in 2016/17 and be funded through a combination of internal cash flows, as well as debt funding of about R85.5-billion.

“Whether we revise it as a result of market conditions it is still too early to say,” Molefe said, adding that, should conditions change materially, it would respond by either decreasing or adding to the programme.

“But what you must remember is that this capex programme is not about short-term cycles in markets. It’s a long-term capex programme, a 30-year capex programme, that we will try and execute in seven years.”

Transnet Freight Rail (TFR) was poised to absorb the lion’s share of R201-billion, followed by Transnet National Ports Authority (R47-billion), Transnet Port Terminals (R33-billion), Transnet Pipelines (R11-billion) and Transnet Rail Engineering (R4-billion).

The objective was to facilitate a dramatic increase in volumes across its businesses as well as support a transition from road to rail.

During 2011/12, rail volumes breach the 200-million-ton level for the first time on the group’s history, with general freight volumes rising 9.9% to 81-million tons, export coal volumes increasing by 8.8% to 67.7-million and iron-ore volumes surging 13.2% to 52.3-million tons.

The number of containers moved by rail increased 21.5% to 762 760 twenty-foot equivalent units (TEUs), from 627 825 TEUs, which allowed TFR to growth its market share to 34% from 30.9% in 2010/11.

At the ports, Transnet Port Terminals increased average moves per gross crane hour (GCH) by 8.1% to 26.6 GCH from 24.6 GCH in the previous period, which Molefe likened to a golfer improving his or her handicap by one stroke. “It may look trivial . . . [but] it takes a whole lot of activity to play just one shot less than the last time.”

Group revenue rose 20.9% to a record R45.9-billion, while earnings before interest, taxes, depreciation and amortization increased by 19.8% to R18.9-billion. However, profit for the year was lower at R4.12-billion, from R4.2-billion in the previous financial year, owing to higher depreciation, taxes and finance costs.

Molefe said the performance set a solid platform for Transnet to execute its R300-billion market demand strategy.

MINISTER CRITICAL

However, Public Enterprises Minister Malusi Gigaba called on the group’s board to address the area of customer service as a matter of priority, saying it impinged on the country’s global competitiveness.

“Notwithstanding the positive financial results I remain concerned about the enduring efficiency challenges within ports and rail, most notably the General Freight Business,” Gigaba said in a statement.

“It would be a fair expectation that considerable gains in efficiencies and volumes should have been achieved following the substantial R94.7-billion capital expenditure programme over the last five years.”

Significant emphasis should be placed on the area of customer service, with Gigaba describing the current quality of service as “unsatisfactory”.

He said customers remained unsatisfied about “high tariffs, unreliability, unpredictability and operational inefficiencies”.

“As the shareholder representative of this company, we have once more reiterated and underscored Transnet’s mandate to lower the cost of doing business,” Gigaba said.