JOHANNESBURG (miningweekly.com) – The CEO of State-owned freight logistics group Transnet Brian Molefe said on Thursday that it would be “disastrous” to split the group’s rail unit into separate infrastructure and operational entities and to house the infrastructure assets in a new Rail Infrastructure Utility.

Such a move would undermine the balance sheet of Transnet, the size and strength of which was critical to enabling it to raise the debt finance needed to modernise and expand its rail, ports and pipelines infrastructure and assets.

Molefe was responding to reports that such a vertical separation was back on the policy agenda, following a presentation by a Department of Transport (DoT) official to lawmakers earlier in the week.

DoT acting deputy director-general for integrated transport planning Clement Manyungwana argued that such a split, which had been considered in previous policy documents, might be considered again to improve the efficiency of the rail system and of Transnet Freight Rail (TFR), which had lost significant market share to road hauliers over the past three decades.

But neither Transnet, nor the Department of Public Enterprises (DPE), which is the utility’s shareholder Ministry, supported the policy, which DPE spokesperson Mayihlome Tshwete insisted was “not on the cards”.

In fact, Tshwete told Engineering News Online that the Public Enterprises Minister Malusi Gigaba and Transport Minister Sibusiso Ndebele had held discussions subsequent to Manyungwana’s presentation and had concurred that a restructuring of TRF was not the immediate priority.

Instead, the focus would be on ensuring that Transnet delivered on its R110-billion investment programme over the coming five years and added the rail capacity required to ensure that South Africa could improve its trade performance, while moving freight from road to rail.

It was also agreed that, while the DoT was the overall policymaker, the two departments should intensify their bilateral engagements so that such “misunderstandings could be avoided in future”.

DoT director-general George Mahlalela added that any decision on the restructuring of the country's rail operations would be dealt with by Cabinet.

He stressed that, in line with the Infrastructure Development Cluster delivery agreement, the current focus was on ensuring a significant shift of the movement of freight from road to rail. “However, any restructuring of current rail operations, whether pertaining to the Department of Transport, the Department of Public Enterprises, or even private operators, is a policy consideration that will be dealt with by Cabinet and communicated accordingly by Cabinet," Mahlalela added.

POOR TIMING

Molefe said the timing of the presentation was unfortunate, as it had the potential to undermine the image of Transnet as a stable entity in the eyes of domestic and foreign bondholders.

Transnet would borrow R25-billion over the coming five years to fund its investment plans, with cash from operations accounting for R96.4-billion. The money has so far been raised on the domestic and foreign capital markets as well as from development finance institutions, export credit agencies, bank loans and commercial paper. Transnet aimed to increase the size of the Domestic Medium Term Note programme from R30-billion to R60-billion to fund its 2012 capital projects.

“Over the last five years, we have spent R85-billion investing in both maintenance and additions of new capacity. Over the next five years, we will spend a further R110-billion and I think at this point it is inappropriate to be talking about vertical separation,” he said.

“To give [bondholders] the impression that government is about to split up Transnet and take away Transnet assets needs to be challenged. Because if it is indeed so, it will create alarm in the bond markets with respect to Transnet bonds. So the timing is inappropriate and the comments, I think, were insensitive to where we find ourselves.”

Equally, they did not fairly reflect the efficiency improvements that were being achieved as a result of recent investments including the lowering of transit times for containers between Johannesburg and Durban from 38 hours to 16 hours. “On the coal line, we recently achieved a weekly record of 1.6-million. Export iron-ore is up to 1.1-million, manganese from 2-million tons per annum to 5-million tons per annum and export coal via Maputo is up to 37 trains per week from 14 trains previously,” Molefe added.

He also said that work was progressing on various public sector participation (PSP) programmes as well as various partnership models, from build-operate-transfer schemes, to opening access to privately owned locomotives and wagons, to private wagon ownership and lease agreements.

PSP projects could also be pursued to expand coal, iron-ore and manganese exports, as well as to equip the remaining two berths at the Ngqura container terminal and in building new inland terminal capacity in Johannesburg and Pretoria.

Molefe was also particularly displeased with the media’s reportage of and editorialisation on the matter.

He indicated that the Business Day had not attempted to provide a balanced view of vertical separation and noted that its editor, Peter Bruce, had responded antagonistically to Transnet when it had earlier criticised the way it had edited and reproduced a story on Transnet written by Reuters.

He quoted Bruce’s emailed response to its criticism as stating “if you think it appropriate to declare war on Business Day . . . I will give you one”.

“In my view, this is a matter that needs to be debated in an open environment, without anybody threatening anyone with war,” Molefe concluded.

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