At the recent South African Heavy Haul Association (SAHHA) conference, Michelle Phillips, Transnet Group Chief Executive Officer, outlined Transnet’s vision for the future. In her address, Phillips emphasised that the focus should not solely be on the challenges facing the state-owned enterprise but rather on the strategic steps being taken to transform and revitalise the organisation. Transnet, as the custodian of South Africa’s transport and logistics network, is pivotal to the country’s competitiveness and economic growth. Phillips highlighted the critical role Transnet plays in reducing the cost of doing business in South Africa, a mandate that guides their strategy and operations.
Transnet Freight Rail (TFR) contributes R37.8 billion to Transnet’s revenue, with a vast rail network of nearly 30,000 kilometres ( not all operational) across South Africa. Transnet Engineering, which primarily supports TFR as well as the ports, contributes nearly R9 billion to the group’s revenue. Transnet National Ports Authority (TNPA), which serves primarily in a landlord role while also supporting various terminal operators, including both Transnet Port Terminals (TPT) and private operators, contributes R12.5 billion to the overall revenue.
Transnet Port Terminals, although facing recent operational challenges and public scrutiny, manages 16 terminals across the country with 68 berths located in seven ports along South Africa’s coastline. Despite these challenges, Phillips emphasised the ongoing efforts to improve the efficiency of these terminals and reaffirmed Transnet’s commitment to fulfilling its mandate of supporting South Africa’s logistics and transportation network.
A Two-Pronged Approach to Transformation
Phillips detailed Transnet’s adoption of a two-pronged approach to address both immediate operational challenges and align with strategic, long-term goals. The first prong focuses on what Phillips referred to as the “bread and butter” issues—critical everyday concerns that have been sources of frustration for customers, such as the need to move higher volumes of goods efficiently and consistently. This includes day-to-day recovery efforts aimed at meeting and exceeding customer expectations, which are essential for stabilising Transnet’s operations and restoring stakeholder confidence.
The second prong involves aligning Transnet’s strategic plans with the freight logistics roadmap approved by the South African government in December 2023. Prior to this approval, Transnet faced financial constraints, as highlighted when the finance minister’s midterm budget revealed no allocated funds for Transnet. The government made it clear that financial support would only be provided if Transnet’s plans were aligned with the newly established logistics roadmap. This prompted a thorough introspection within Transnet, recognising its role as a public asset designed to provide public good by ensuring customers can move their products to market on time. In doing so, Transnet not only supports economic growth but also contributes to poverty alleviation by enhancing overall economic efficiency and reducing the cost of doing business in South Africa.
Transnet faces significant operational challenges, from equipment and infrastructure issues to procurement constraints. Phillips highlighted the need for urgency in addressing these problems, describing Transnet’s current state as necessitating ‘wartime’ measures rather than routine processes. In collaboration with the government, Transnet has made progress in streamlining procurement policy to accelerate critical projects.
Key to Transnet’s strategy is transforming the organisation to focus on its core competencies and become more efficient. Phillips stressed the importance of moving away from trying to be “everything to everybody” and instead concentrating on their strengths—moving goods reliably and on time. This transformation is not just operational but also cultural, with an emphasis on shifting the mindset of Transnet’s workforce to fully embrace the organisation’s purpose and responsibilities.
Phillips also emphasised the importance of expanding and repositioning Transnet to better enable the South African economy. The goal is to enhance competition, improve operational efficiency, and increase capacity across the network. Achieving these objectives requires close collaboration with all stakeholders, including customers, the National Logistics Crisis Committee, government, and other key partners.
Several key policies and frameworks are guiding these efforts, such as the National Road Policy, the Freight Logistics Roadmap, and the Transport Economic Regulator, recently endorsed by the President. Additionally, the Private Sector Participation Framework is crucial for fostering collaboration and investment. While there is still work to be done, Phillips expressed optimism about the joint efforts of government, Transnet, and various stakeholders, including international partners like the World Bank, to accelerate market access and operational improvements.
The Role of Private Sector Participation in Transformation
A recurring theme in Phillips’ presentation was the critical role of private sector participation (PSP) in Transnet’s transformation. She acknowledged that with the current resources, Transnet cannot meet the anticipated demand of 226 million tonnes of freight. To address this, private sector involvement is essential to expand capacity and drive growth. This strategy includes opening the rail network to private operators sooner than initially planned, aligning with broader policy reforms aimed at modernising infrastructure and enhancing efficiency.
Phillips stressed the urgent need to modernise Transnet’s infrastructure, highlighting the state of the network, rolling stock, and port equipment. She admitted that Transnet has lagged in timely fleet renewal, leading to a significant maintenance backlog that must now be urgently addressed. Improving efficiency, increasing capacity, and ensuring long-term sustainability are crucial objectives. By embracing private sector participation and accelerating these reforms, Transnet aims to catch up on its infrastructure challenges and drive sustainable growth, ensuring the network can support the country’s economic needs effectively.
Phillips outlined Transnet’s recovery plan, which involves significant effort to optimise the company’s balance sheet amid financial constraints. She acknowledged that Transnet is heavily debt-constrained, necessitating actions such as swapping short-term loans for long-term financing to improve the company’s financial stability. The key to overcoming these financial challenges, she stressed, is by driving revenue through increased freight movement.
Transnet established the Interim Infrastructure Manager in October 2023 and successfully published the initial network statement, with work ongoing to finalise it. Phillips noted that while there are still issues to address regarding pricing, she does not view these as barriers to expediting the opening of the rail network to private sector operators ahead of initially planned timelines. She emphasised the need for clear separation (or “Chinese walls”) between Transnet’s infrastructure management and freight rail operations, similar to previous separations between TNPA and TPT, as a step toward full corporatisation.
Phillips highlighted the importance of streamlining Transnet’s focus by disposing of non-core assets, including approximately 3,700 non-core properties, a significant portion of which are residential. Plans are underway to issue requests for proposals to dispose of these assets swiftly, aligning the company more closely with its core mission of supporting rail operations. Additionally, Transnet is exploring developmental leases for around 30 properties to maximise their value.
Enhancing Private Sector Readiness
In terms of private sector readiness, Phillips raised the question of whether the private sector is prepared to utilise the rail network if opened immediately. To support this transition, Transnet is considering leveraging its existing B-Fleet, which could be refurbished in partnership with private entities to provide locomotives and wagons through leasing arrangements, facilitating quicker integration of private operators onto the network. (The tender to establish a leasing company went out to market some time back and was recently cancelled. It is anticipated that this will go out to market again in the next quarter.)
Phillips noted that there are potential initiatives under consideration for the iron ore and coal lines, aimed at enhancing collaboration with customers to ensure the network delivers on its intended purpose effectively. She stressed the importance of working with private sector partners to bridge capacity gaps, ensuring that Transnet can meet both current and future demand. This collaboration includes ongoing discussions about the leasing of specialised rolling stock that might be better managed by private entities, thereby reducing Transnet’s operational burden while fostering sector-wide efficiency.
Key PSP Initiatives
One notable PSP initiative is the LNG Gas Terminal at Richards Bay, developed in partnership with Vopak, a global leader in LNG infrastructure. In this project, Transnet is a minority shareholder, demonstrating a successful collaboration model that could be replicated in other areas. Additionally, Phillips highlighted potential pipeline projects, including moving jet fuel directly from Durban to OR Tambo International Airport and repurposing the Lilly Pipeline to support LNG operations.
Phillips discussed the UKUVUSELELA project, a high-capacity automotive corridor aimed at enhancing rail connectivity to the Eastern Cape. Currently, efforts are underway to secure funding for this initiative, which is expected to boost rail volumes both to and from the Eastern Cape, particularly by leveraging the corridor for automotive original equipment manufacturers (OEMs) between the Eastern Cape and Gauteng.
Phillips acknowledged the need to adapt to market feedback, such as the re-evaluation of the Ngqura Container Terminal tender, where the initial volume guarantees were seen as overly stringent by potential bidders. Transnet is committed to revisiting these criteria to better align with market expectations and ensure successful engagements.
The container corridor from Durban to Gauteng is another area of focus, with market feedback prompting a pause in bidding processes to allow reforms around access pricing and open access to mature.
Phillips also mentioned other potential concessions, such as agricultural branch lines, reflecting Transnet’s comprehensive approach to enhancing service delivery across its network. The ongoing review of the Ngqura Manganese Export Terminal, which could include both port and rail solutions, further illustrates Transnet’s commitment to exploring full-service offerings in collaboration with the private sector.
The transformation of Transnet is not just about internal changes but about contributing to the broader economic landscape. By enhancing operational efficiency, expanding capacity, and embracing private sector partnerships, Transnet seeks to fulfil its role as a cornerstone of South Africa’s logistics and transportation sector.
