Founder: Turnaround Talk
On Wednesday, Turnaround Talk published an article detailing the fact that President Cyril Ramaphosa has cancelled his participation in the WEF meeting in Davos to address the loadshedding crisis that South Africa is currently battling. One of the other main drivers of the South African economy is mining and exporting commodities. This has been steadily declining since the challenges faced by Transnet overwhelmed the company.
In an effort to try and salvage this important economic driver, the Minerals Council South Africa is calling for urgent intervention within Transnet and for Portia Derby to be removed from her position as CEO.
Urgent action needed
The News24 article pointed out that, the Minerals Council South Africa demanded in December that Transnet take urgent action – including firing CEO Portia Derby – to arrest the decline of the state-owned freight and logistics company.
In a confidential letter sent by the council’s president Nolitha Fakude to Transnet chairperson Popo Molefe on 4 December, seen by News24, the council called for the board to take over management of Transnet as part of its calls for drastic action to arrest an operational decline.
Transnet’s poor rail performance is causing billions in lost revenue for bulk commodity miners, while issues at certain Transnet ports are also adversely affecting mining and other industries.
The article points out that the council, in its letter, called for both Transnet group CEO and CEO of Transnet Freight Rail – Derby and Sizakele Mzimela – to be removed and replaced with properly qualified and experienced rail freight leaders.
“For more than 24 months, we have given the benefit of the doubt to the Transnet management team, who have aptly demonstrated, through several bizarre decisions and statements and in particular the ongoing tragic decline in the performance of Transnet, that they cannot resolve the crisis and are not capable of turning around the performance. We are insisting on the critical need for urgent change,” the council’s letter said.
Photo By: Transnet
Avoid liquidation
The News24 article pointed out that the mining body also warned that action must be swift as Transnet could soon face liquidation.
“Given that Transnet SOC’s operating performance is deteriorating, we cannot see how the company will avoid breaching its debt covenants early in 2023, at which stage the directors of Transnet SOC will need to place the company into liquidation or risk being sued for trading recklessly,” said the letter. “The bulk commodity mining companies that are members of the Minerals Council are now demanding urgent action on this crisis, as it is now posing an existential crisis for Transnet and for the mining companies.”
The council’s letter also called for industry experts to be brought in to help stabilise the situation on each of the four bulk commodity lines where there is “a critical shortage of suitably skilled technical leaders”. The organisation said the industry is prepared to parachute in real capacity to assist in resolving the short-term crisis issues, including previous experts who Transnet retrenched.
The article adds that the council also said “war rooms” must be established for each rail corridor, comprising experts from the industry and Transnet to take urgent short-term steps to address critical constraints to performance.
Such steps would include the development of a detailed short-term plan to stabilise the performance of each rail corridor channel and problematic ports; addressing critically urgent maintenance backlogs; accelerating access to critical spares; potentially applying Treasury emergency funding to specific critical maintenance issues; urgently bringing back to service the necessary locomotive and wagon fleet; and urgently addressing security challenges.
Fakude’s letter implored the Transnet Board to play a critical leadership role in addressing the crisis and warned that failure to act “with the necessary urgency and based on proper interventions is putting our industry and country in an existential crisis”.
She said the Council would also write to President Cyril Ramaphosa to demand an urgent ministerial intervention in the crisis”. It noted it has already written to Public Enterprises Minister Pravin Gordhan to call for, among other things, the establishment of a government-led war room to tackle the Transnet crisis and for “real” private concessioning discussions for each commodity corridor.
Establishing collaborative structures
The News24 article points out that, on 19 December, two weeks after the confidential letter was sent, the Minerals Council and the Transnet board announced they would establish collaborative structures to ensure that “all possible actions are taken to stabilise and improve the throughput of South Africa’s rail and ports systems to enable inclusive growth and maximise the movement of commodities in the national interest”.
The two agreed to establish an oversight panel, a recovery steering committee and channel optimisation teams for major commodities.
Responding to News24’s query about the 4 December letter, the council said it would not comment on the contents of a letter clearly marked confidential.
“The Minerals Council is working in close collaboration and in a spirit of cooperation with the Transnet board and management to urgently resolve deep-seated problems and constraints in the rail and port logistics to the benefit of bulk commodity companies, Transnet and the fiscus,” it told News24 on Wednesday. “The Minerals Council and Transnet have established joint teams to address constraints on bulk commodity export channels. The Minerals Council and its members are committed to finding urgent, pragmatic and lasting solutions to the problems curtailing mineral exports.”
The article added that Transnet also declined to comment on the letter.
Photo By: News24
Rampant cable theft
In response to News24 the SOE said it is a well-known fact that Transnet is recovering from a significantly challenging period marked by rampant cable theft and infrastructure vandalism and the “extremely damaging” impact of state capture. “It has resulted in, among other things, the unavailability of locomotives and spare parts, impacting both Transnet and its customers negatively. These are challenges that Transnet has been upfront about, and the company is implementing measures to address these,” the SOE said in an email.
“Transnet has a strong working relationship with the Minerals Council, and is in regular discussion with the mining sector, and other customers, around suggestions for ongoing improvements to our service. Where there are challenges, these are addressed jointly, in the interests of all parties.”
The News24 article added that Transnet said it was confident the newly established recovery steering committee will soon begin to yield the desired results.
As announced on 19 December, the five-a-side recovery steering committee, will be made up of Transnet board members, the Minerals Council CEO and CEO representatives of the bulk commodities and will drive solutions that are cross-cutting to the rail and ports.
The oversight panel will be jointly chaired by the Minerals Council president and the chair of the Transnet board. It will guide the work of the recovery steering committee as well as spearhead the rebuilding of good ongoing relations between their respective teams.
