[miningmx.com] — STRIPPING Transnet of its rail infrastructure assets would be “disastrous’, while the idea was sending the wrong message to the state-owned logistics group’s bondholders, CEO Brian Molefe said on Thursday.
Molefe was responding to a report published on Wednesday in Business Day, on a submission made by the Department of Transport to the National Planning Commission, suggesting Transnet should become an operator which competes with private-sector companies.
The suggestion was made on the basis that Transnet’s inefficient freight operations have been a constraint on the economy, halting the growth of exports and accelerating the degradation of South Africa’s road network.
In terms of the proposed plan, according to the report which quoted the department’s acting deputy director-general Clement Manyungwana, Transnet’s assets would be housed in a separate state-owned Rail Infrastructure Utility which would manage them on behalf of the government. A Transport Economic Regulator would level the playing fields between Transnet and other rail operators to promote competition.
Molefe said it was necessary to consider this with the challenges which such a move might face.
“SA’s single-custodian state ownership of ports, rail and pipelines is unprecedented globally,’ said Molefe. “Single custodianship facilitates integrated planning and operations, optimal financing for infrastructure, and avoids network fragmentation.’
Molefe said the idea of separating rail operations and infrastructure might look attractive, but that it has failed to achieve all of its goals where implemented elsewhere in the world.
He said that, for example, in the UK, separating railway operations from network planning and infrastructure had diluted accountability, and resulted in a cost structure that complicated both operational and maintenance planning.
Molefe said the proponents of such a system for South Africa failed to acknowledged that Transnet’s assets suffered from two decades of under investment.
“.approximately 60% of our projected investments are necessary to maintain the system. Such investment does not contribute to creating additional capacity,’ he said. “Nevertheless, our (R110bn) investment plan for the next five years, which is unprecedented in this country, will allow us to increase capacity to meet growing demand.’
He said turnaround programmes of the last three years have already improved export coal volumes from 935,000 tonnes per week to over 1,6 million tonnes; export iron ore up to 1.1 million tonnes and manganese from 2 million tonnes per year to five million tonnes. Export coal via Maputo was up to 37 trains per week, from 14 trains previously.
“This is a discussion we should have; perhaps there is some merit to it,’ said Molefe. “Our view is it would be disastrous.’
Molefe also said the proposal was creating anxiety in the bond markets, where Transnet has so far found the most of the funding for its capital expansion projects. Transnet requires R41bn in funding over the next five years, of which in excess of R22bn has been raised through export credit agencies, domestic and international bonds, bank loans and development financial institutions.
Molefe said part of Transnet’s covenant with bond holders was that gearing would not exceed 50%. The company’s current level of gearing was 41%, but would be lifted to 70% should the rail assets be removed from its balance sheet.
“This discussion is insensitive to the situation we find ourselves in,’ Molefe said.
