Transnet Needs Empowered Leadership

It is depressing reading of retrenchments taking place in the resources sector as commodity prices slide, but also because mining companies are unable to get output to their markets. Stockpiles have been building up because of problems with the rail and port services that Transnet provides, but they can’t grow any more. The only option is to reduce production, which means there is excess workforce.

The logistics crisis is a very serious challenge for the economy, and that is why business and government have pulled together with unprecedented speed to work on solutions. Through Business for South Africa, we have partnered with government, mobilising resources to rapidly resolve the most pressing issues while supporting wider reforms to improve the functioning of the system. The National Logistics Crisis Committee (NLCC) was set up as a coordinating mechanism and has been functioning for six months with over 45 private sector experts and CEOs involved with deep experience in rail, port and road. Five workstreams are already in place to improve operations in rail, ports, road, border crossings and security. Government is leading three workstreams focusing on policy, regulation and legislative reforms.

There are already successes from this process, with a 45% reduction in vessels anchored outside Durban port and a 36% reduction in the waiting time to anchor for container vessels. Security patrols and other resources funded by business have already helped reduce incidents on rail and therefore the number of trains being cancelled. Interventions at the Lebombo border post have resulted in an increase in vehicles processed from 1,600 to 1,900 per day.

The short-term interventions can help reduce the negative impact, but the critical work is in resolving the long-term outlook for the sector. As we’ve learned with the electricity sector, it is only deep structural reforms that can sustainably shift the performance of the system. The good news is that the NLCC has already produced an excellent guide to the required changes in the Freight Logistics Roadmap and the Private Sector Participation framework that has been approved by cabinet. This envisages a change from a monopolistic system almost entirely managed by Transnet to an open and competitive system with multiple operators.

The key challenge is to maintain momentum. On that front, we are waiting for the appointment of new leadership at Transnet. The operator has been without a permanent CEO and other key positions for almost six months. There has been a process under way to appoint particularly a new CEO and some news reports last week suggested the board was facing political interference in the process. This is unfortunate – if Transnet is to regain its role as an efficient and effective operator of rail and port infrastructure, it must have a board and executive team that are in sync and accountable. One deeply problematic feature of the way SOEs are run is that the board can be overruled by the minister in the department of public enterprises when it comes to appointing top executives. This basically renders the board unable to function as it cannot properly hold the executive to account, a problem we have seen in the Eskom context before. It is important therefore that the political processes focus on how to support and empower the board, and not undermine it. Government, after all, as the sole shareholder, can appoint the board members and it should then empower them to act.

The next major challenge is Transnet’s finances. There was some surprise at how little mention was made of Transnet in the budget speech last week. Treasury has provided Transnet with a R47bn guarantee, which enables it to raise new debt, but that guarantee has been made with strict conditions, including that Transnet introduce private sector partnerships as called for by the roadmap. The guarantee ensures Transnet can meet its immediate obligations, but it is critical that it also deliver the reforms to enable the next step of its financial repair. Treasury’s approach seems to be to keep the pressure on for sustainable reforms, as well it should given its custodianship of the country’s finances and the negative impact Transnet has historically had on them.

The reform process has been quick in gathering resources and developing a plan. There have also been effective short-term interventions to improve performance. But that momentum is at risk if we don’t see strong appointments at Transnet who are empowered to drive reform in the utility under the direction of the board. I look forward to an announcement soon so that we can then get to work.