Godongwana warns Transnet is a fiscal risk

File picture: Supplied

File picture: Supplied

Published Nov 1, 2023


Finance Minister Enoch Godongwana has warned that Transnet is posing a financial risk to the economy because of its deteriorating performance.

The National Treasury said the cost of rail inefficiencies last year was R411 billion.

The volumes transported by Transnet through the rail network have declined over the last five years, and this puts pressure on the economy.

In the Medium-Term Budget Policy Statement, National Treasury said the situation was untenable and Transnet had to be fixed.

National Treasury said the poor performance of the logistics company has reduced tax revenue.

“Transnet’s deteriorating rail performance threatens the economy, and the country’s ports are inefficient and uncompetitive. Since 2018, Transnet Freight Rail has consistently transported fewer volumes than targeted or contracted. This collapse stems from operational failures, increased theft and vandalism, reduced locomotive availability, and the poor condition of infrastructure resulting from underinvestment.

“Coal and iron ore exports forfeited as a result of operational failures could have added 1.3 percentage points to the current account balance in 2022, resulting in a current account surplus. The cost of rail inefficiencies last year was estimated at R411 billion. This performance has also reduced tax revenue,” said the MTBPS statement.

The National Union of Mineworkers (NUM) said a few weeks ago that Transnet's failure to fix the railway lines was costing the mining sector, especially the coal industry, billions of rands.

It said 35,000 jobs were now on the line in coal mining because of inefficiencies in rail.

The MTBPS said the National Logistics Crisis Committee, which was set up by President Cyril Ramaphosa to attend to the situation, was hard at work.

The logistics task team wants to improve the performance of rail and ports.

They will also implement reforms and create a competitive freight logistics system.

“This work will be integrated with interventions under way within Transnet, including rehabilitating the rail network to improve service delivery, deploying digital solutions to improve efficiency and responsiveness, improving security, and reviewing cost allocations to improve returns. Transnet Freight Rail has taken the first step in separating its operations and infrastructure management functions. When complete, separation is expected to facilitate competition. The Transport Economic Regulator will be established in early 2024, which will ensure fair access and transparent pricing on the rail network,” said the MTBPS.

With the declining volumes, Transnet has set out on a massive capital investment programme over the next five years.

The MTBPS said the lack of investment in capital projects in the last few years has affected the balance sheet of Transnet.

“A prolonged period of underinvestment in capital infrastructure and maintenance backlogs has combined to limit revenue-generating capacity. Transnet has initiated a five-year R122.7 billion capital investment programme, including R99.5bn for operational maintenance and R23.2bn to expand infrastructure, starting in 2023/24,” said the MTBPS.