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Transnet outlines how it will use R2.9bn to recapacitate the entity and buy more locomotives

Transnet outlines how it will use R2.9bn to recapacitate the entity and buy more locomotives

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Logistics utility Transnet yesterday told Parliament how it planned to spend the R2.9 billion pledged in the Medium-Term Budget Policy Statement to recapacitate the state-owned entity.

Transnet wants to fix 350 of its locomotives to fill in gaps in capacity, for customers such as Eskom, ArcelorMittal South Africa (Amsa) and the timber industry.

Transnet group CEO Portia Derby told the standing committee on appropriations that in some instances, as with the Majuba power station, it only had 21 trains to service the station when it required at least 42, while the chrome industry needed 35 trains to the available 20 and other sectors needed 198 locomotives against the available 138.

The utility needs the R2.9bn to fix the 315 locomotives which would complete the fleet at 1 971 trains as the utility currently operated with a little more than 1 600 locomotives.

Derby said the ideal, giving allowance to third-party access as the utility had recently started that programme, was to operate with a capacity of 2 320 locomotives.

She said the lack of adequate capacity to service all customers had resulted in lost revenue, which could have been used in infrastructure expansion projects such as the Durban Port where there were plans to increase capacity to the terminal.

The LNG terminal in Richards Bay was also due for upgrades as well as Transnet Freight Rail (TFR), which was expanding the manganese line to handle 16 millions tons.

She said the country had lost close to R185bn in revenue from Transnet not being able to increase its capacity by 10 metric tonnes, which would have helped it to improve revenue generation.

“Transnet could improve the security of supply to Eskom's Majuba power station to help mitigate against load shedding. We could improve the coal quality consistency or predictability to Eskom. We would mitigate against price-seeking due to high demand for transport services and thereby contribute to inflation easing,” Derby said.

The utility also made a strong statement for the revision of the structure of its tariff regime, which as present does not differentiate between containers and cargo by weight.

This has led Transnet to under-recover on its dealings with the agricultural, automotive and manufacturing industries, whose goods were more bulky than weighty.

Derby called on new considerations, or cross subsidies, from the government for crucial sectors like manufacturing, agriculture and the automotive industry, which she said resulted in under-recovery for Transnet as their goods were far lighter than those of the mining industry.

“According to rail economics, we must charge on the weight of the commodities we are carrying. The high-value items such as motor vehicles have low weight, which leads to an under-recovery on our part. In the last 10 years the losses have been about R3bn annually on handling containers,” Derby said.

She strongly rejected the notion that South Africa was losing its market share to alternative ports such as Maputo in the wake of inefficiencies at Transnet, force majeure and labour unrest, which affected performance.

“The Maputo port is important for us to reduce the distance to port of manganese products from Limpopo. The shortest route to port is Maputo. It is not a loss to us and actually a benefit for us not to carry smaller rolling stock,” Derby said.

Transnet chief financial officer Nonkululeko Dlamini said the utility was closely watching its borrowings, though it was critical for finances to get Transnet to operate at its optimal to generate revenue for investment.

“We are trying to keep our borrowing levels at between 40% to 60% of gearing of our balance sheet. We do not want to get to uncomfortable levels,“ Dlamini said.

She said there was also a process to review its insurance outlay after the floods earlier this year went beyond expectations that could be insured for.

“This is an opportunity to reflect on our assets, a process to review the insurability of our assets. We have to look at what we pay as premiums and we have to close the gap and find the correct balance with our insurers. The floods were quite a significant event for the region,” she said.

According to Transnet, the total loss from the floods was R7bn, with R1.5bn in lost revenue which cannot be claimed for. It cost R5.5bn to effect repairs and about R72 million for clean-up operations. The utility is insured for R2.3bn against the disaster but is hoping that the insurance will be closer to R1.8bn.

Sandra Coetzee, the chief legal officer at Transnet, said the utility was now operating in a constrained insurance market because it was seen as being tainted by coal.

“The international insurance market is reticent to talk to us because of our ratio of fossil fuel to the international benchmarks. The market has been unresponsive to our state-owned enterprises because of fossil fuel and state capture. We have seen first cover increasing, the insured events threshold is reducing while the cost of insurance is increasing at the same time,“ she said.

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