Transnet: Big and getting bigger

2014-11-02 15:00

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Transnet’s colossal expansion of the state-owned rail network is finally gaining traction as capital expenditure hits record levels and freight volumes mostly move in the right direction.

Presenting interim results this week, the parastatal’s chief executive, Brian Molefe, was eager to highlight the R18.7?billion in capital expenditure done in the six months to September.

Half of that was for expansion instead of keeping current assets intact, which is new for Transnet.

The biggest chunk of the expansion spending was R6.3?billion for locomotives and another R1.3?billion for train wagons.

The procurement of 1?200 new locomotives was meant to happen far earlier. The tender process was delayed by 18 months and Transnet is lagging more or less two years behind the targets set out in its grand 2012 market demand strategy, which governs much of what the company does.

Over seven years, the strategy involves R300?billion in expenditure, most of that on rail capacity for South Africa’s bulk coal, iron, manganese and chrome ore commodities.

The heart of the strategy is a set of projections about how much demand there will be for rail transport from these major customers by 2019. But since the plan was set, commodity prices have taken a knock.

Transnet Freight Rail chief executive Siyabonga Gama said: “The commodity price impact is real but there is no demand problem.”

The general economic malaise is visible in lower volumes of steel and cement making their way on to trains.

But overall, Transnet is moving more material than before and the expected growth in volumes is not constrained by economic growth because the point is to displace the use of inefficient road haulage.

Transnet is unlikely to find itself with idle trains after the multibillion-rand expansion, Gama told City Press.

Most of the demand is being locked in up front with Transnet pursuing “take-or-pay” deals with coal mining companies. A 20-year deal with Kumba Iron Ore is already in the bag.

Transnet’s next series of big projects include the Swazi rail link, announced in 2012.

The R17?billion plan involves creating a direct rail route from Gauteng through Swaziland to Maputo. It will carry general freight that currently takes up space on the Richards Bay line, which primarily takes coal to the export market.

Richards Bay itself needs an upgrade to handle the longer trains Transnet is beginning to use. The R26?billion plan to create a new manganese export terminal at Ngqura is also set to begin soon.

The company’s net profit fell by 25% to R3?billion in the half-year, but that reflects replacing and expanding the fleet of locomotives, according to Molefe.

The hit to profit comes from the write-off of old locomotives, higher depreciation on new ones and higher finance costs as the company begins borrowing billions to fund the expansion drive.

Revenue was 6.4% higher at R30.3?billion.

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