Founder: Turnaround Talk
The sorry state of Transnet has been spoken about extensively this year. Things have been unsettled at the country’s logistics giant, from a company barrelling towards collapse to one planning a significant privatisation campaign.
One of the major root causes of financial distress is mismanagement. We have seen this become a major issue in Eskom, and we are seeing the impact of an absent board at the SABC, which went six months without any formalised senior leadership.
Hoping to avoid this being replicated at Transnet, Public Enterprises Minister (Pravin Gordhan) recently announced that a new board will steer the logistics giant. And this board has some headline acts.
Subheads were included by Turnaround Talk.
Transnet top heavy with critical skills and vast experience
The Moneyweb article points out that, in December last year, a confidential letter leaked to the press from the Minerals Council addressed to Transnet chair Popo Molefe highlighted the level of frustration with the logistics operator’s operational decline.
The letter called for the removal of CEO Portia Derby and CEO of Transnet Freight Rail Sizakele Mzimela, and for drastic action to reverse the “tragic decline” of Transnet.
Minerals Council vice-president Andile Sangqu as chair. He was previously the Executive Head at Anglo-American and has significant experience when it comes to the challenges miners have faced with Transnet in the past.
The Moneyweb article points out that the new board is now top-heavy with other specialist skills. These include Lebogang Letsoalo, a global supply chain consultant and CEO of Sincpoint, and maritime expert Martin Debel who brings extensive knowledge of ports, terminal operations, shipping and waterborne logistics and technology to the Transnet board.
Refilwe Buthelezi, current president of the Engineering Council of South Africa, is another appointee, as is the former head of legal services at Stanbic and later the Industrial Development Corporation, Mosadiwamaretlwe Zambane.
The Moneyweb article points out that the labour movement is represented by Elias Monage, a 20-year veteran of the National Union of Metal Workers of South Africa (Numsa).
Portia Derby (the current CEO), Chief Financial Officer Nonkululeko Dlamini and non-executive Directors Molefe and Sydney Mufamadi will remain on the expanded 13-person board.
“These appointments will put Transnet on a firm strategic path that provides critical expertise, experience and acumen for Transnet to optimally and strategically execute on its roadmap, business plan, improve governance and optimise performance,” said Gordhan.
Image By: Anglo American
Addressing two key points
This move addresses hopes to achieve two objectives. The article points out that, given that roughly 80% of Transnet Freight Rail’s business and 50% of overall revenue comes from miners, it is no surprise that Sangqu has been brought in to address the bottlenecks that have crippled minerals exports.
Second, the move will hopefully directly impact economic growth in the coming years. The article adds that the Minerals Council reckons inefficiencies at Transnet may have cost the country R150 billion in lost sales last year. Further, Stellenbosch University logistics professor, Jan Havenga, estimates that 2022 economic growth would have been closer to 10% than the actual 2% that was achieved had Transnet been operating at nameplate capacity and without load shedding.
Welcome appointments
The Moneyweb article points out that, following the announcement, the Minerals Council said it welcomed the new board.
“The Minerals Council looks forward to establishing a working relationship with the new Board as Transnet, business and the government strive to stabilise rail and port performances and grow the capacity of these export channels to provide a cost-effective and efficient logistics platform for the mining industry and the broader economy,” it said in a statement, adding that it would collaborate with the new board to take forward and implement urgent resolutions to the challenges that Transnet is experiencing.
The African Rail Industry Association (Aria) also welcomed the appointments, saying in a statement that it hopes the new board will hit the ground running in addressing the challenges facing the rail industry. We hope that the board focuses attention to the grassroots rail operational efficiency and performance of Transnet. That it focuses on modernising the network operating systems and signalling systems and that, most importantly, it brings transparency into the true state of the national railway infrastructure, which has suffered from years of poor maintenance,” says Aria in a statement.
“It is only when the true challenges that face the freight rail sector are completely understood that real solutions can be found. We urge the new board to fast-track the implementation of the rail reform agenda according to the National Rail Policy (NRP) which was gazetted in 2022. We urge government to encourage Transnet to reconcile the planned limited scope of third-party access with the cabinet-approved policy and to commit to an expedited timeline for enabling the structural reforms outlined by Operation Vulindlela [a government programme aimed at accelerating structural reforms to support economic growth],” Aria added.
Skills aplenty, but what about security Transnet?
Leadership, or lack thereof, is a significant root cause of financial distress. Particularly when it comes to State Owned Enterprises. Including board members from the mining industry is a welcome addition as is a new board member to focus on logistics. Innovation can only be encouraged by a diverse board.
However, leadership is not the only root cause of financial distress. Reports point out that Transnet Freight Rail (TFR) has said that it will need around R24 million to replace more than 12km of electric cables it lost due to vandalism and theft during a 12-day workers’ strike.
Image By: Transnet Freight Rail on Facebook @TransnetFreightRail
Another article points out that The 688-kilometre (428-mile) line from the Port of Durban to Gauteng province only operated for 36 hours over six days, Transnet, the state-owned entity that runs the line, said in a letter to its customers seen by Bloomberg. The company confirmed the document.
“Over a week-long period in May, there have been a total of 39 security-related incidents targeting critical areas on the mainline resulting in the closure of the line,” Transnet said in a statement.
Criminals, often working in armed gangs, are targeting South Africa’s state-owned infrastructure, ranging from freight-rail lines to electricity-generating plants, contributing to longer power cuts and curbed shipments of crucial exports such as coal.
We cannot address one area and ignore another. This will be a critical issue when it comes to getting Transnet back to optimal efficiency. Address the security issue as well, and the 10% economic growth predicted earlier in the article could become 12% or higher. This growth would place South Africa among some of the fastest-growing economies in Africa, if not the world.
