The Budget has been postponed to March 12 after a deadlock within the Government of National Unity coalition partners over VAT. This was part of the proposed Budget that is now under review:
The Treasury said in its 2025 Budget Review that Transnet needs to stabilise and reduce its debt. In 2023/24, Transnet reported a net loss of R7.3 billion after a R5.1bn loss in 2022/23, largely due to increased finance costs.
Additional debt and higher interest rates pushed finance costs to R14.3bn in 2023/24, placing further strain on cash flows. Transnet’s earnings before interest, taxes, depreciation and amortisation declined from R22.8bn in 2022/23 to R22bn. Revenue gains were offset by rising net operating expenses.
The series of volume losses since 2018 has meant that Transnet has shifted funds from capital expenditure to debt servicing. While this prevented default, the shift has come at the expense of maintaining and expanding critical infrastructure. The government provided a R47bn guarantee in December 2023, which Transnet used to refinance maturing debt and take on new debt.
Treasury said that since 2018, Transnet Freight Rail has consistently transported fewer volumes than targeted. This resulted in rail transport payload declining by 12.0% in 2022 after a 6.9% fall in 2021 and a 11.1% drop in 2020, while road transport surged by 25.0% in 2022 after growing by 10.4% in 2021. This meant that the percentage transported by rail fell to 15.6% of total land transport payload in 2022 from 20.6% in 2021 and 23.5% in 2020. Transnet’s strategic plan was to have a 30% share of land transport.
The government is now providing direct support to critical infrastructure projects, such as the expansion of the land-side container terminal in Cape Town, while avoiding debt relief or general balance sheet support. Total borrowing increased by R7.6bn to R137.7bn between end-March 2023 and end-March 2024, underscoring the need for better debt management.
Although Transnet can access capital markets, its ability to raise more funding is constrained by accumulated debt levels. These in turn have led to unsustainable interest costs and refinancing risk, resulting in liquidity pressures.
Optimising the entity’s capital structure and returning it to profitability will require Transnet to shed non-core assets, reduce its current cost structure and explore alternative funding models for infrastructure and maintenance, such as project finance, third-party access, concessions and joint ventures.
The Treasury noted that with the support of Operation Vulindlela, Transnet is addressing a years-long financial and operational decline. Rail volumes fell from 226.3 million tonnes in 2017/18 to 151.7 million tonnes in 2023/24 due to derailments, inefficiency and infrastructure damage. Transnet has made some progress in implementing its recovery plan, and estimates indicate that rail volumes will reach 165.4 million tonnes by the end of 2024/25.
In December 2023, government granted Transnet a R47bn guarantee facility to secure new funding to implement its recovery plan in line with the Cabinet-approved Roadmap for Freight Logistics.
To effect the roadmap, Transnet is working with the National Logistics Crisis Committee, composed of government departments, rail and port users, and independent experts. Key areas identified to improve operational performance in the short term include accelerating capital spending on operational equipment, allocating capital for the rehabilitation of rail infrastructure and returning old locomotives to service.
Two priority infrastructure projects involving Transnet assets were the Ukuvuselela Gauteng-Eastern Cape High-Capacity Rail Corridor, which would upgrade the South Corridor railway line and expand port infrastructure for automotive handling and the Cape Town Container Terminal Expansion Phase 2B to expand landside capacity at the terminal. This project includes rehabilitating and upgrading the container stacking pavement, expanding the truck staging area and building new rail sidings so that export volumes of table grapes, citrus and deciduous fruit can be expanded.
BUSINESS REPORT