Portia Derby, CEO of the Transnet group.
- Transnet group chief executive Portia Derby says the entity needs R2.9bn to help recover from flooding this year and get locomotives running again.
- Derby says Transnet is making progress with locomotive and component producers, although CRRC is encountering challenges.
- Minister Pravin Gordhan says the funding for Transnet should be seen as a repayment rather than a bailout or recapitalization.
- For more financial stories, go to News24 Business Cover.
Transnet group chief executive Portia Derby told Parliament on Wednesday that a R2.9 billion allocation was urgently needed to help the entity improve its locomotive capacity and continue its recovery from the flooding that occurred in KwaZulu-Natal in early this year.
Derby briefed Parliament’s Standing Committee on Allowances on the required allowance and the challenges Transnet’s leadership has faced in upgrading its locomotive capacity amid growing customer demand.
Finance Minister Enoch Godongwana allocated R5.8bn to Transnet when he presented his Medium-Term Budget Policy Statement in October. This amount was intended to help Transnet with its recovery from the floods and construction efficiencies.
As an example of Transnet’s locomotive capacity challenge, Derby said national coal demand is equivalent to 198 trains, compared to Transnet’s capacity of 138 available trains. He said Eskom’s Majuba coal-fired power plant has a demand equivalent to 42 trains, but Transnet only has a capacity equivalent to 21 trains.
READ | Transnet receives R5.8bn in state support to ‘build efficiency’
Derby said Transnet was in the advanced stages of winding up with its original equipment manufacturers (OEMs) with whom it had unsuccessful contracts for 1,064 locomotives, including General Electric (GE), Bombadier (which merged with Alstom) and CRRC, which was formed from a merger between China South Rail (CSR) and China North Rail (CNR).
Derby said there were “mergers across the board” including GE’s locomotive business, which was sold to Wabtec. An agreement has been reached with GE Wabtec, he said. “[T]they have turned over all the locomotives on their side, and this is in the process of reaching a court order.
“We have signed all of the settlement documents and, in our opinion, have reached a fair and equitable settlement,” Derby said.
Derby said Transnet was making progress in securing material reliability and support agreements with each OEM, although CRRC was experiencing some delays.
“Hopefully, by January of next year, we’ll have reached an agreement. To be honest, I think it’s much more hopeful.” [for] all other OEMs except CRRC. There is definitely some support and there is still hard work to be done,” Derby said.
Derby said CRRC still needed to receive a valid tax certificate from the Revenue Service SA, while Reserve Bank SA needed to lift restrictions on CRRC accounts to allow Transnet to import its components and allow the company to repatriate the profit to China.
CRRC has been used before on Transnet, with two other contracts prior to 1064.
READ | Transnet reopens second coal line in the North Corridor
Derby said as well as tackling flood damage, the R2.9 billion was also a critical part of maintaining and repairing locomotives that had been out of service for a long time. Derby said Transnet had 315 long-standing locomotives at the start of this week, although this number fluctuates depending on the entity’s ability to source components and spare parts.
In terms of the KwaZulu-Natal floods, Derby said Transnet suffered significant damage, with total losses estimated at R7 billion and lost revenue estimated at R1.5 billion, which cannot be claimed as they are uninsured.
Transnet faced replacement costs of R5.5 billion and cleanup costs of R72 million, it said.
“We are insured at R2.3 billion. However, we have to take the first loss of R500 million, so the claim we had to make with the insurance is R1.8 billion, which is currently under assessment. What We’ve made pretty good progress, in fact, on the assessment, working with the assessment to get closer to the R1.8 billion owed to us,” he said.
Public Enterprises Minister Pravin Gordhan said the Transnet funding should be seen as a repayment rather than a bailout or recapitalization.
“The word bailout has been used and, Chairman, you used capital activation. But I don’t think any of the 2.9 billion rand equates to a bailout or a recapitalization of Transnet. As we explained, it’s about recovering from the floods, which were quite devastating in terms of rail and port infrastructure,” Gordhan said.
Gordhan said lawmakers needed to give due consideration to the damage state capture caused to state entities, from which it will take a long time for each affected institution to recover.
