Transnet on its 2014/15 Annual Report

NCOP Public Enterprises and Communication

16 March 2016
Chairperson: Ms E Prins (ANC, Western Cape)
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Meeting Summary

Transnet presented its annual results for the year ended 31 March 2015, as follows:
- Revenue increased by 8.0% to R61.2 billion
- Gearing ratio was at 40% and cash interest cover at 3.6 times
- Capital investment increased by 5.7%% to R33.6 billion, bringing the spend during the market demand strategy to R92.8 billion
- Cash generated from operations after working capital changes increased by 21% to R30.6 billion
- There was overall growth in rail volumes of 7.7% to 226.6 megatonnes (mt) including export coal volume growth of 11.9% and iron ore and manganese volume growth of 10.7%
- There was a broad based black economic empowerment (B-BBEE) spend of R45.2 billion or 105.1% of total measure procurement spend for the year per dti codes

Slides were presented giving graphic and statistical breakdowns of all these trends.

Members asked about the number of social programmes that Transnet was engaged in to assist the vulnerable, and what it was doing to try to contribute to the revitalisation of small towns. It was pointed out that Limpopo had recently been found to have the most concentrated and most easily extractable platinum belt and therefore in view of the growth in this area, Members wanted to know about any plans to expand the rail network, as the increased traffic was putting strain on the roads. Members asked there were any discussions with the Department of Agriculture Forestry and Fisheries, to link up with agricultural parks in Limpopo, to improve delivery of products. They were concerned about lack of security offered to technicians being sent out to attend to train breakdowns in remote and densely wooded areas. Members asked if it had any plans to diversify when the country adopted the policy of beneficiation, given that at the moment, Transnet was mostly transporting raw materials, and whether there were any special tariffs agreed with Eskom. They asked the effect of the recent downgraded ratings. Members also asked about the effect of announcements by the Minister of Transport to limit carrying loads of vehicles through peak hours, the likely effect on the road to rail policies, and whether developments in Namibia’s Walvis Bay posed a risk to Transnet operations. They appreciated the performance, welcomed the number of women employees, but did comment that despite the fact that it had achieved a clean audit, it would need to ensure that there was not fruitless and wasteful expenditure. They also commented that future briefings should be geared towards giving information about specific provinces. They also wanted to know when the acting appointments were likely to be made permanent. They asked if Transnet had any carbon plan in line with the COP21 agreement, and wanted to know more about the work with the Passenger Rail Agency South Africa and whether locomotives were being assembled locally.

Meeting report

Transnet Annual Results for year ended 31 March 2015: Briefing
Mr Siyabonga Gama, Acting Group Chief Executive, Transnet, set out a summary for the year ended 31 March 2015 of Transnet, as follows:
- Revenue increased by 8.0% to R61.2 billion
- Gearing ratio was at 40% and cash interest cover at 3.6 times
- Capital investment increased by 5.7%% to R33.6 billion, bringing the spend during the market demand strategy to R92.8 billion
- Cash generated from operations after working capital changes increased by 21% to R30.6 billion
- There was overall growth in rail volumes of 7.7% to 226.6 megatonnes (mt) including export coal volume growth of 11.9% and iron ore and manganese volume growth of 10.7%
- There was a broad based black economic empowerment (B-BBEE) spend of R45.2 billion or 105.1% of total measure procurement spend for the year per dti codes
- EBITDA increased by 8.2% to R25.6 billion

The rest of the presentation took the form of a was a diagrammatical and graphical presentation of the above summary (see attached document for full details)

Discussion
The Chairperson commented that the fact that Transnet had obtained a clean audit was good. She asked how many social programmes it was engaged in to assist the vulnerable in this country.

Mr C Smit (DA, Limpopo) said Limpopo had just been discovered with platinum belts that were amongst the most concentrated and cheapest to extract, and asked if there were any plans for Transnet to expand its network, as this growth was likely to put an extreme strain on the road network. He asked if there were any discussions with the Department of Agriculture, Forestry and Fisheries, to link up with agricultural parks in Limpopo to improve delivery of products.

Mr A Singh (ANC, KwaZulu Natal) was concerned with trains that had been known to break down in bushy rural areas and the technicians who were sent out to deal with them would go without security accompanying them, but merely with a cellphone which was no protection.

Mr Singh appreciated the good female presence in staff at Transnet.

Ms C Labuschagne (DA, Western Cape) asked if Transnet had any plans to generate profit, given that most of its products, which were raw minerals, will not be exported when the country adopts the policy of beneficiation. She asked if there was any special tariff agreement with Eskom. She asked if the rating by Moody on the country has an effect on Transnet ratings. She asked if there were any improvements on tipplers' breakdowns in Saldanha Bay. She asked how Transnet planned to avoid the recurrence of fruitless or wasteful expenditure that had been pointed out. She commented that the Minister of Transport plans to limit, through legislation, vehicles carrying loads, to a maximum of 9000 kg during peak hours. She asked how this would affect Transnet operations. She asked how developments in Namibia’s Walvis Bay posed a risk to Transnet operations.

Mr M Rayi (ANC Eastern Cape) said Transnet was a well performing enterprise and there was no need for people always to talk of enterprises in need of restructuring and privatisation. The NCOP was mainly interested in developments in provinces and this must be noted for future purposes. He asked why Transet was not assisting Passenger Rail Agency South Africa (PRASA) in acquisition of locomotives. He asked how Transnet was contributing to the revitalisation of small towns as part of its developmental mandate.

The Chairperson asked when the current acting positions would be filled with permanent employees. She asked if Transnet had any carbon plan that was in line with the COP21 agreement. She asked how the fall in commodity prices affected the market demand strategy.

Mr Gama replied that he would, in the next presentation, show the distribution of operations in provinces. Transnet spent over R150 million going to deep rural areas, sending out trains where people who were largely destitute and could otherwise not be able to look after their health needs were provided with medical checkups, dentistry and removal of cataracts. He pointed out that Limpopo had a lot of minerals discovered and there would be a lot of generation of profits from this in the future. Limpopo had good yields per hectare, and currently there were seasonal trains going north of Polokwane. The problem with agricultural produce was that it was seasonal. A 460km rail network from Gauteng to Limpopo via Mpumalanga linking Botswana was still at feasibility study stage. Any questions in relation to passengers would be the responsibility of PRASA. He took note of the security needed for technicians dealing with train breakdowns. He pointed out that South Africa was largely an exporter of raw materials and Transnet was looking to diversify by getting into the Fast Moving Consumer Goods (FMCG) to avoid shocks that will come with any export of minerals ban. There was an agreement with Eskom on tariffs, but Eskom charged Transnet more money that the regulator recommended. It seemed the secondment of Transnet staff to Eskom was not working.

In relation to the question on the Moody credit rating, he said that Transnet could not see itself as separate from the shareholder, and cannot divorce “its genetic inheritance” from the shareholder - which was the government. Any rating would obviously have an effect on Transnet. However, he commented that there had been over emphasis on the ratings, and not enough focus on how the economy can be grown by more than 5% annually. The downgrade was being talked about as if it were an enormous problem – he drew an analogy that it was “a small snake”, and the thing to do would be to find its head, and kill it – namely, find a way to overcome it by growing the economy.

Transnet was paying particular attention to Richard’s Bay and Saldanha Bay, but East London port was likened to a second cousin always looking for odd bits of work from elsewhere, since Durban and Port Elizabeth ports were nearby. Oil spillages were not likely to happen in the new pipeline, although leaks happened in the old pipe, which will be decommissioned soon. Transnet welcomed the restrictions on road tonnage during peak hours, but the problem had always been policing. The road transport inspectorate do not have teeth and few companies were punished for overloading. Proper enforcement of such a policy will increase the “road to rail” strategy overall. Transnet was aware of the developments in Namibia, but commented that there would always be competition, and if possible, Transnet would like to participate in investments in Walvis Bay.

Mr Gama added that Transnet was looking at local economic development on revitalisation of small towns and looking to public / private partnerships to help grow small towns. It did not manage to create new jobs because its business went down in cement and steel. P could not come to Transnet on acquisition of locomotives because it did not have capacity to make its own locomotives, but now Transnet can invite the NCOP to come and see the African made trains for Africans. Transnet subscribes to United Nations sustainability pledge on reducing carbon emissions. Members can help by legislation on which commodities do they want to see on the trucks and this will increase Transnet freight business. Lower commodities have an effect as some companies closed down thereby affecting Transnet freight business.
Mr Vusi Nkonyana, Director, Transnet said the position of Group Chief Executive had been filled, and the position of Chief Financial Officer will be made permanent as soon as possible.

Mr Bret Stagman, Director, Transnet, believed its assets were worth more and the strengthened balance sheet will help against any rating downgrades.

Mr Gama explained that typical railway freight was more than 200km distance and tonnage of more than four million tonnes. In such cases, railway economics would work and a line can be built. Transnet was working with the Western Cape Government to resurrect the George Train. It had programmes on sustainability that included not only recycling, but also on waste management, spillages, and transporting dangerous goods, among others.

Mr O Sefako (ANC North West) asked if locomotives bought elsewhere came into South Africa complete or if they were assembled in the country. He felt that borrowings from Bretton Woods institutions came with certain conditions that amounted to economic sabotage and Transnet must not venture into that.

Mr Gama replied that the questions asked would help to focus Transnet's reporting on the next occasion. He noted that locomotives were assembled in Pretoria and Durban. It does not deal with Bretton Woods institutions because they do not understand the business. It will in future deal with the BRICS bank and other development finance institutions.

Ms Labuschagne asked about Transnet's main priorities in the current financial year.

Mr Gama replied it had to be agile and flexible in terms of responding to the economic environment. Transnet had deferred capital investment programs because of low commodity prices in coal and iron ore. It was also looking at cost containment measures and how it could satisfy customer needs to remain relevant. China, which had grown its economy, was focusing on restructuring its economy and Transnet must do what was necessary.

Mr Nkonyana was grateful for the opportunity to present to South Africans through the NCOP and urged the NCOP to visit its facilities.

The meeting was adjourned. 

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