Private sector needed to bail out South Africa’s biggest transport company

South Africa’s biggest transport company, Transnet, requires billions in investment from the private sector to complete several critical projects over the next few years.

This is according to the company’s CEO, CEO Michelle Phillips, who told the Gauteng Investment Conference that rail plays a crucial role in the local economy.

She noted that while South Africa is rich in mineral resources, if these cannot be transported, they would go to waste.

“Transnet does not make money if it does not move commodities, so we have to ensure that we have a network that is of the right standard to enable the movement of commodities,” Phillips explained.

For the five years leading up to the 2022/2023 financial year, the entity recorded a drop in its annual freight shipments, falling from 226 million tonnes to 149 million tonnes of freight moving by rail.

To halt this decline, Transnet implemented a recovery plan, which initially sought merely to stabilise the business, but has since led to the entity increasing its freight totals back to nearly 180 million tonnes.

Speaking about how this turnaround was achieved, Phillips admitted that Transnet had to “knock on the doors” of bankers and investors.

“I think that everybody knows that Transnet is a state-owned entity, but we do not get funding from the state; we have to apply for funding,” she said.

“We have been fortunate throughout the last year to have applied through the budget facility for infrastructure. We made 4 applications and were successful in three of the four.”

Thanks to the successful applications, Transnet received R12 billion in government funding, allowing it to invest in its rail network, leading the entity to apply for a further R7 billion investment to upgrade the container corridor.

This corridor, which spans from Durban to Johannesburg, is a crucial avenue and plays a key role in Transnet’s plan to move most of what is being transported on national roads onto rail.

Private sector funding needed for upcoming projects

In Gauteng alone, Transnet will invest over R30 billion in the next five years, including upgrades to the central line and the completion of what is being called Pipeline 6.

This project involves developing a pipeline to supply jet fuel to the O.R. Tambo International Airport (ORTIA) by 2029.

Phillips explained that if this pipeline is not completed, Transnet will run out of capacity to feed the airport, which is why R1.3 billion has been allocated for the project.

“All of those are very important projects. Do I have the money? No. That is why all of these people are important,” she said, pointing to the room full of private investors.

Phillips pleaded with private investors to “put that money on the table”, adding that “without private sector participation, none of this is going to be possible”.

She noted that when Transnet puts out calls for proposals from the private sector, it requires quality bids, as the entity needs to be assured that it won’t have to rescue the projects down the line.

Transnet is looking to rehabilitate the entire South African rail network, but only if it is done right.

Successful public-private rail operations are nearing completion and are almost ready to launch, as Transnet hopes to announce new private rail operators later this month, before they are introduced on the rail network.

“It is history-making, and the first time we have done this in our existence, so it’s very good that we have private operators that will also move commodities on the rail network,” concluded Phillips.