Transnet is seeking more than R100-billion from the Treasury over the next two years, according to the turnaround plan produced by the board. 

The R100-billion includes a request that the Treasury take over a minimum of R61-billion of its debt and provide R47-billion in an equity injection or a subordinated loan that can be converted to equity should it meet performance targets. 

The turnaround is dependent on both the equity injection to make investments to boost revenue and the debt relief so that the company can be set on a sustainable path in the medium to long term. Some of the equity funding is required immediately, with R3.4-billion needed before the end of the financial year in March.

However, the government's medium-term expenditure framework tabled in the February budget did not include any allocations to Transnet. The fiscal framework is already under enormous strain, with instructions from the Treasury to all departments to cut budgets for 2024/25. Some adjustments to the in-year allocations are also expected when the medium-term budget policy statement is presented on 1 November.

Over the past year, it has emerged that Transnet was in deep trouble, both in its operations and financially. Revenue has fallen primarily due to falling freight volumes, and costs have risen. It cannot service its debt, and over 2022/23, it breached its debt covenants, resulting in more expensive debt. 

There has been chronic underinvestment in maintenance and capital equipment, rampant vandalism, and infrastructure theft. 

In September, Minister of Public Enterprises Pravin Gordhan asked the newly augmented board to urgently prepare a turnaround plan and review the executive team's performance. This led to the resignation of group CEO Portia Derby, CEO of Transnet Freight Rail (TFR) Sizakele Mzimela, and the head of Northern Corridor coal line, Ali Motala. 

The turnaround plan is broadly compatible with the Freight Logistics Roadmap produced by the National Logistics Crisis Committee, which will be considered by Cabinet soon. The roadmap includes the broader long-term reform of the rail system, while the board's turnaround plan contains more detail on the immediate interventions and investment required in each of Transnet's divisions and specifically its rail corridors.

The plan models two scenarios for the recovery of TFR. On the low road, volumes would rise from last year's 149 million tonnes (mt) (the lowest in five years) to 154 mt by the end of March. On the high road, volumes would increase to 175 mt this year and 190 mt over the next 18 months.

"The turnaround largely depends on the execution of the required capital investment, particularly investment in rail infrastructure and rolling stock," says the document.

But, more than boosting volumes to 190 mt will be needed to relieve Transnet's debt distress. Under all scenarios, the cash interest cover is still below the required 2.5 ratio. 

This implies that Transnet requires immediate assistance with its debt. Transferring R61-billion to the government's own balance sheet is one alternative. Others suggested in the plan are that the government take over all of Transnet's R135-billion of debt in return for an annual dividend payout or that it take over the servicing of all its debt at a cost of about R13-billion a year. 

The turnaround plan also proposes ways that Transnet could raise revenue as an alternative to the bailout through "structural transactions" that are "more cash generative". But, it notes, these transactions usually take 24 to 36 months to reach financial close, and Transnet would, therefore, require bridging finance from the government in the interim. 

The possibilities for structural transactions include:  

• Additional equity investment transactions in port terminals such as that in the pipeline at Durban Container Port 2;
• Equity partnerships with the private sector for smaller terminals, auto terminals or properties in the Transnet portfolio;
• A rolling stock leasing company that could lease locomotives and wagons to private sector operators; and
• The listing of JSE minority stakes in businesses within Transnet that are either profitable (Transnet Port Terminals) or can be profitable relatively quickly (Transnet Properties). There is also a possibility of select parts of TFR being separated to make a minority stake more attractive.

The turnaround plan is cautious regarding reducing the headcount, suggesting that the number of people on fixed-term contracts (3 758) be reduced. An organisational review is also under way that will emerge with an ideal headcount for the organisation.