TRANSNET CEO, Ms Portia Derby, says that South Africa’s state-owned freight operator needs to reduce the size of its 20,000km network by at least 35% in order to focus on more profitable traffic.

“At this point we can’t justify operating something which actually causes us to make a loss and so that’s why there’s this revision of certain flows across the network,” Derby told Bloomberg earlier this week.

“We can operate more effectively with a slightly smaller network,” said Transnet chief strategy and planning officer, Mr Andrew Shaw.

“It still serves the economic interest of the country and it still allows additional operators,” he said. The final decision for closing routes or offering them to another operator would rest with the government.

As it looks to focus on more profitable flows of coal and ore, Transnet has announced its intention to offer the private sector a 20-year lease to operate the Container Corridor between Johannesburg and Durban.

Transnet operations have been hampered by a shortage of locomotive parts and theft of catenary cable, and the new strategy would make more locomotives available to move export coal on its North Corridor serving the port of Richards Bay.

Traffic on this route fell to a three-decade low in 2022 and deliveries have slowed further since the start of the year, according to Bloomberg.

Derby said that a shortage of spare parts meant that 164 locomotives of one type were out of service during the current financial year, up 23% from the year before.

“That can’t improve until we solve the problem with the Chinese,” she said, adding that resolving the locomotive shortage was Transnet’s top priority.

Transnet has been unable to reach agreement with supplier CRRC E-Loco to enable the repair of non-operational class 22E electric locomotives, intended for use on the North, Northeast and Cape corridors that account for 50% of Transnet revenue.

The freight operator has now issued an open tender for the supply of spare parts for the CRRC E-Loco fleet, as well as for the repair of other locomotives supplied by Wabtec, Mitsui and Alstom.

Last month also saw Transnet launch a $US 6bn bond sale programme, successfully issuing a $US 1bn five-year bond at a coupon of 8.25%. This was Transnet’s first international bond issue in over 10 years.

This bond is listed on the International Securities Market of the London Stock Exchange under Transnet’s Global Medium Term Note Programme and was 2.9 times oversubscribed.

According to Transnet, “this demonstrates investor confidence in the company, their appreciation of its role in the economy as well as expectations that implemented strategies will improve operational performance and consequently ensure positive financial outcomes.”

The proceeds of the bond will go towards repayment of debt, capital investment and operational requirements as the company rolls out its strategy.

Following this initial bond issue, Moody’s Investors Service lifted its outlook on all Transnet debt from negative to stable.

Raising the new debt “buys us five years of peace and quiet,” Derby said. “It doesn’t take away from the fact that the financing pressures, the need to generate revenue from our operations and hence the thing of stopping loss-making flows is absolutely crucial for us to start putting to bed some of our old debt.”

The January 2023 edition of IRJ includes analysis of South Africa’s policy to introduce open-access operation on the country’s rail freight network. Digital subscribers can read the article here.