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Phillips confirms 193Mt ‘stretch target’ for rail amid criticism that recovery plan lacks ambition

Transnet CEO Michelle Phillips delivering Transnet's 2024 results

Transnet CEO Michelle Phillips delivering Transnet's 2024 results

2nd September 2024

By: Terence Creamer

Creamer Media Editor

     

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Transnet CEO Michelle Phillips has acknowledged criticism over the pace at which it plans to recover rail volumes and has reported that an internal “stretch target” of 193-million tons has been set for 2024/25 against an official target of 170-million tons.

Speaking during the State-owned group’s results presentation, she said the 170-million-ton goal had been set conservatively in line with what Transnet felt it could deliver leveraging its own resources. It could be lifted, however, “with help” from customers and private partners.

The stretch target still falls well short of the record 226-million tons railed in 2017/18 and is also below contracted volumes. Nevertheless, meeting it would represent a material improvement on the 152-million tons railed in 2023/24, and a marked recovery from the volume collapse to149-million-tons in 2022/23.

Transnet’s “lack of ambition” came in for stiff criticism during the first high-level meeting between Cabinet members and business leaders since the formation of the Government of National Unity in August, where Transnet revealed that it had not met its volume-recovery targets during the first half of its financial year

It was also revealed at the meeting that only at rail volumes of between 200-million and 220-million tons yearly was Transnet’s contribution supportive of the country’s economic recovery and job creation.

“If you ask me if it's doable in this year, I'm going to say to you, not without help. We need a lot of help,” Phillips said in response to it meeting a target of close to 200-million tons.

Volumes could be supported, however, by deals with original-equipment manufacturers (OEMs) to return locomotives to service that have been idle for a protracted period, owing to inadequate maintenance plans and the unavailability of spare parts.

While a settlement had not been reached with Chinese locomotive supplier CRRC, a ‘Step-in OEM’ would help Transnet Freight Rail (TFR) return 77 locomotives this year and another 88 next year. Likewise, 11 long-standing Mitsui locomotives would resume service in 2024/25 and 30 more the following financial year, alongside 34 43/44Ds this year and 54 more in 2025/26. Another 111 Class 23E units would be returned over the coming three financial years.

Phillips also saw potential to strike specific deals with key commodity customers along the lines of the five-year partnership agreement between Sasol and TFR, where Sasol is funding the maintenance and repair of a dedicated fleet of 128 ammonia tankers.

Moving beyond the 226-million-ton level, however, would be possible only through direct private sector participation (PSP) in rail operations, which would be made possible only once the Network Statement and tariffs were approved by the Interim Rail Economic Regulatory Capacity.

Internally, TFR has been vertically separated to create a rail operating company and a rail infrastructure manager to prepare for the entry of private rail operators. However, chronic underinvestment in the network, along with tariff uncertainty, could prove to be key hurdles for third-party train operators.

Chairperson Andile Sangqu stressed that the repair of the rail network was being prioritised with a view to ensuring that third-party operators could participate on a network that was “safe and dependable”. He also said that the board was advocating for the development of greater capacity within Transnet to accelerate PSP projects across the rail and port systems.

That said, Transnet’s “huge debt burden” was hamstringing the ability of the company to generate the cash it needed to stay afloat, notwithstanding the R47-billion government guarantee extended in late 2023.

“We are exploring several solutions, which include enhancing our revenue through operational efficiency and enhanced asset optimisation through disposal of non-core assets, as well as maximal utilisation of existing assets.”

It emerged that Transnet aims to realise some R4-billion from the sale of non-core properties and still had R25-billion of a R47-billion government guarantee available to raise further finance and it made no further public appeal for a shareholder bail-out.

CFO Nosipho Maphumulo announced that the group had set itself a target of returning to a R1-billion profit in 2024/25, after the group posted a R7.3-billion loss in 2023/24.

The slump from the R5.1-billion loss of 2022/23, was attributed largely to R4.8-billion in provisions made as a result of adverse legal outcomes, including a judgment ordering Transnet to pay Sasol and TotalEnergies for overcharges in relation to a Natref contract. 

Edited by Creamer Media Reporter

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