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Aria proposes interventions to arrest Transnet’s rail network decline

10th August 2022

By: Donna Slater

Features Deputy Editor and Chief Photographer

     

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Rail industry body the African Rail Industry Association (Aria) suggests several interventions to help State-owned Transnet address its prevailing inefficiencies, including re-introducing systems it used in the past and the prioritisation of maintenance of currently disabled locomotives, besides others.

Despite declaring a profit of R5-billion for the 2022 financial year, Transnet cannot “hide” the fact the South African rail industry is in trouble, with massive maintenance backlogs threatening the sustainability of Transnet, Aria states.

The association notes that while Transnet reported a profit of R5-billion, compared with a loss of R8-billion in 2021 financial year, the results include a revaluation of the company’s investment property portfolio of R10-billion.

However, if this accounting adjustment is removed, Aria points out that Transnet effectively made a trading loss of about R5-billion in the 2022 financial year.

Aria also notes that Transnet was able to meet its key debt covenants of cash interest cover and its gearing ratio owing to a large increase in creditors of R3-billion in March, in addition to the revaluation of property, plant and equipment – up by R13.2-billion, and investment properties – up by R10-billion. 

The trading loss and tight debt covenants mean that “Transnet is facing severe cash constraints now and into the foreseeable future”, Aria says in a statement.

“Aria is concerned about the massive cutbacks in essential maintenance by Transnet Freight Rail (TFR) over the last ten years,” says CE Mesela Nhlapo.

In 2012, she says, TFR spent R3.4-billion in maintenance expenditure, while this year TFR spent R2.7-billion – R750-million less. “To put this into perspective, over the same period, the salary bill has increased by R6.1-billion, to R13.6-billion and the workforce has decreased by about 3 800 people.”

OPERATIONAL PERFORMANCE

Aria’s analysis shows that, over the last decade, there has been an accumulated backlog of maintenance expenditure of at least R27-billion. The association describes the nature of the maintenance backlog as exponential. “If you do not spend [R1] on maintenance today, that infrastructure degrades exponentially, to the point where that R1 becomes R5 in a few years’ time,” explains Aria.

A further analysis of TFR’s disclosed operational key performance indicators reveals the gross tonnes per kilometre for the general freight business (GFB) sector of TFR (measuring how effectively each locomotive is used) reduced each year from 2017 to 2021. “That means that, in 2021, TFR was moving 33% less tonnage with the same number of locomotives as it did in 2017,” Aria says.

As there are a minimum of 1 500 locomotives allocated to the GFB sector in Transnet, Aria says this translates to about 500 locomotives worth of inefficiency.

A decade ago, Aria says, Transnet was running an “internationally respected” dynamic network planning system called MultiRail. However, Aria points out that MultiRail was “inexplicably cancelled” in 2010, and since then has relied on manual operation of the network using spreadsheets.

“Every time a train fails, or is delayed, the spreadsheets have to be manually updated. This results in suboptimal decisions, wastes time, opens the system up to manipulation and, most importantly, delays trains,” Aria says.

The association says it understands that there are now hundreds of active locomotives standing for 24 hours every day across the domestic railway network. In addition to this, Transnet disclosed that it has 300 locomotives awaiting maintenance interventions.

Taking these considerations into account, Aria says it cannot justify Transnet wanting to raise a further R44-billion in debt to buy more locomotives and wagons as has been budgeted for and set out in Transnet’s integrated report.

“I have some sympathy for the position that the current Transnet leadership finds itself in. These problems were largely not of their making. What concerns me now, however, is that we are running out of time to implement solutions and they need to move fast. South Africa has seen this before with Eskom,” says Nhlapo.

To arrest inefficiencies at Transnet and boost its locomotive uptime, Aria suggests that the Stated-owned company should reintroduce a dynamic network planning system and improve the efficiency of the trains across the network, instead of buying more trains.

The association also suggests Transnet secure funding to reintroduce the 300 stabled locomotives into service, as this is a small fraction of the cost to build new.

Aria also suggests Transnet concession out the railway infrastructure of the heavily loss-making lines – such as the container corridor – to the private sector, thus securing investment to address the backlog maintenance, to upgrade signalling and improve efficiency.

Further, Aria suggests Transnet implement the National Rail Policy and work with the government and private sector to introduce a third-party access framework, which will result in a massive investment by the private sector into new trains, generating a material new income stream in access fees.

Aria also requests government drop the fuel levy from the diesel price so that rail does not cross-subside road transport.

“. . . Transnet’s inability to meet the requirements of the South African economy equates to R385-billion . . . about 10% of national gross domestic product, costing tens of thousands of jobs.

“The National Rail Policy provides a credible blueprint for the future of our industry. The private sector is ready to respond as we have seen it respond to the country’s power needs,” she says.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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