Transnet CEO Positive About Obtaining Funding for R127 Billion Capital Expenditure Initiative

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JEREMY MAGGS: Transnet’s leadership suggests that the freight rail and ports operator is in the process of recovery, with a reduction in losses, new private operators joining the network, and governance reforms in motion. Yet, the company has a long-standing history of corruption, inefficiency, and theft, costing the South African economy billions.

The crucial question remains: has anything fundamentally changed, and is this recovery sustainable? I’m now speaking with Transnet’s Group CEO, Michelle Phillips. Welcome, Michelle. While losses are decreasing, can you assure us that Transnet is genuinely heading towards recovery? Might you be overly reliant on temporary fixes?

MICHELLE PHILLIPS: Thank you, Jeremy. I appreciate that question. From the inception of our recovery plan, our aim has been to implement meaningful, sustainable changes within the organization. We believe our ongoing activities and initiatives have strategically positioned us for long-term recovery.

These aren’t just short-term fixes. Our recovery efforts are grounded in both operational initiatives and a wide-ranging transformation of the organization.

We are hopeful that the changes we’ve implemented are sustainable in the long run. Naturally, much work remains, particularly regarding theft, vandalism, derailments, and network standards. However, with support from all stakeholders and our customers, we believe we can achieve our targets sustainably.

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JEREMY MAGGS: Let’s tackle the issues surrounding security and theft, particularly concerning cable theft, which significantly disrupts operations. Would you agree that this has been an ongoing challenge? Why has Transnet struggled to control it?

MICHELLE PHILLIPS: This challenge extends beyond Transnet; it’s an issue requiring national intervention as it reflects the broader crime landscape in the country. Nevertheless, we’ve seen a 23% decrease in incidents, marking a significant step forward from where we began.

I am confident that we are progressing in tackling theft and vandalism, but the losses we incur remain substantial.

Therefore, we need active collaboration from all authorities to help mitigate theft and vandalism on vital infrastructure, which is a critical issue nationwide.

There’s much to accomplish. However, recent arrests indicate increased efforts, and our figures are over 25% lower than last year’s. We view this as progress rather than failure, and we aim for even greater improvement.

Read: South Africa’s rail and power reform relies on addressing cable theft

JEREMY MAGGS: Additionally, what about the corruption that has long plagued Transnet? Are you assured that corruption has been effectively dealt with, or are there still new issues surfacing within the organization?

MICHELLE PHILLIPS: Jeremy, I believe we have largely achieved a clean business model. Since my arrival, I’ve stressed the importance of fostering our organization’s reputation through ethical practices. While we sometimes encounter isolated incidents, we take immediate action, conduct thorough investigations, and collaborate with the police to bring offenders to justice when necessary.

We’ve implemented numerous controls within the organization as well.

While occasional issues may arise, we have established an ethics unit that I personally oversee. This unit actively investigates incidents, educates employees on whistleblowing, and ensures accountability. Although I won’t claim that corruption has been completely eradicated, I can say that employees are now more vigilant, as we have zero tolerance for such behavior.

Read: Transnet’s R60 billion state capture liability impedes recovery [May 2024]

JEREMY MAGGS: Looking ahead, there’s a plan to allocate around R125 billion to R127 billion for rail and port enhancements. How will this be financed, and what can your customers—and South Africans—anticipate as a result?

MICHELLE PHILLIPS: Yes. The government support we’ve received via guarantees has been pivotal in our decision-making regarding the network and ports. I’d like to point out that over 80% of the R127 billion budget is earmarked for maintaining and upgrading existing assets.

It’s crucial to elevate our infrastructure and network to the necessary standards. Many recent improvements, particularly in the ports, focus on upgrading equipment.

On the rail side, we’re introducing new locomotives aimed at achieving the 250 million tons target established by the minister. We will also partner with private operators to accomplish that goal. Substantial efforts are needed to recover the network, as we’ve lost nearly 7 million tons due to derailments.

We must restore and enhance the network and ensure that port workers have the appropriate tools to meet our operational needs.

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We believe that an annual investment of R25 billion is the right figure, and we are committed to securing that funding.

Fortunately, our financiers are eager to work with us. They recognize the potential in investing in Transnet alongside our customers. I do not anticipate any funding issues.

The positive outcomes have rekindled trust in Transnet and our capabilities, leading to interest from financiers who see the organization’s potential.

JEREMY MAGGS: You mentioned private operators in your plans for the next 12 to 36 months. What do you see as the primary risk here? Is it Transnet’s inability to compete with these operators, or perhaps a reluctance to cede control and allow for genuine competition?

MICHELLE PHILLIPS: No, Jeremy. Our main focus should be on the objective: contributing significantly to South Africa’s economy by meeting the 250 million tonnes target. This year, Transnet is aiming for 180 million tonnes, highlighting a need for filling the gap to reach the 250 million target. My recommendation to all, including private operators, is to work collaboratively towards that goal before encouraging competition organically.

Read:
Transnet to issue requests for proposals for private rail partnerships soon
Creecy announces significant progress in SA rail reform: 11 TOCs approved
State struggles to manage ports, pushes for a national shipping company

JEREMY MAGGS: In conclusion, what do you believe poses the greatest risk to Transnet’s survival? Is it corruption, crime, cash flow problems, politics, or a combination of all these factors?

MICHELLE PHILLIPS: [Chuckle] It’s a combination of all these challenges. This is a business, a state-owned enterprise, and what’s vital is that we maintain our focus. We need to operate cleanly, steering clear of the influence of corrupt or criminal elements while prioritizing the nation’s interests. If we remain steadfast, I’m confident we can restore South Africa’s global competitiveness.

JEREMY MAGGS: Thank you, Michelle. That was Michelle Phillips, group CEO of Transnet.

Read: Rail reform milestone sets South Africa’s economy back on track

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