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Transnet: Radical operational reform

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TRANSNET’S recovery strategy, presented to the media last week, is based on operations reform which is very simply getting more trains to run more efficiently with fewer breakdowns and the same for the ports. Transnet’s board and managing executives tackled the mission of formulating a credible plan to stabilise the state-owned logistics company and position it for growth.

Behind the scenes, the high-level National Logistics Crisis Committee (NLCC) seems to be sharpening the state-owned company’s focus on customers, revenue and performance for radical operational change. Transnet board chair, Andile Sangqu, said that Transnet requires support from its shareholder – National Treasury – to implement the plan. Transnet reported a R5,7 billion loss for 2022/3 and is hamstrung by R13 billion a year in finance charges. The board is reportedly asking for R61 billion to assist with debt relief and another R47 billion to help execute the plan over the next two years. Parts of the plan are already in motion. Acting group chief executive officer, Michelle Phillips touched on focus areas – all of which have action plans with accountable managers and deadlines, she said.

The board is ‘crowding in’ the private sector to bring investment, skills development and to help modernise Transnet’s operations. Sangqu reiterated the plan’s principles and outlined a few key initiatives within the organisation to create a productive, efficient environment.

Digitisation and autonomy

Through a digitisation strategy, Transnet will do away with manual documentation. By running a single information system – ‘One Version of The Truth’, the SOC is aiming to eliminate the manipulation of data. Real-time information and dashboards will assist managers with resource planning and performance management. As part of on-the-ground execution, chief planning and strategy officer, Andrew Shaw, said that ‘war rooms’ had been renamed in the positive to ‘operational excellence centres’ and that a number of these already exist. The plan is to increase autonomy and empower decision-makers to reach key performance indicators at, for example, corridor level.

A new era for rail

As the largest of Transnet’s six operating divisions, Transnet Freight Rail (TFR) also brings in the most revenue and its improved performance is a prerequisite for higher volumes through the ports.

The recovery plan has set a target of 154 Mtpa for the current financial year ending on March 31, 2024. To achieve this, TFR will need to improve its performance from the first half of the year and deliver higher volumes than the 149 Mtpa achieved in the 2022/3 period.

Shaking things up to accommodate private sector access and to improve TFR’s performance, the rail division will be vertically split. Russell Baatjies, who has been appointed TFR’s acting CE from November, said that the framework document for access, including tariff modelling would be ready by November.

The framework includes the vertical separation of Transnet Rail Infrastructure Management (TRIM) and Transnet Freight Rail Operating Company (TFROC). Each entity will have its own budget and the TFROC will run TFR’s train service while the TRIM, managed by Bessie Mabunda, will keep the tracks and infrastructure maintained for the TFROC and private operators to use.

Shaw said that the degree of independence of the TRIM is essentially established through the Economic Regulation of Transport (ERT) Bill, introduced to Parliament in June. An independent regulator, in the form of the Interim Rail Economic Regulatory Capacity (IRERC), has been established to develop the necessary capacity and skills to implement the regulatory approach in the rail sector. Private rail operators will be able to approach the IRERC if they believe they have been unfairly treated.

Shaw said that rail access regulation is very different from the National Ports Act, as there are no grandfather rights established in the same way there are for Transnet port licences. “In the case of rail access, it’s a free open system of allocating train access slots. There’s much greater transparency than in the port system.” Once allocated slots, successful bidders will be able to operate across the network.

Regarding the effect that third-party access will have on TFR’s revenue, Shaw said Transnet had identified where the volumes would be and modelled out the impacts which would not be significant in the early years. “Although the private sector in South Africa has shown considerable interest, they don’t have a significant degree of rolling stock that is capable of operating on our unique network.” He said Transnet was refurbishing under-utilised rolling stock to be made available through a new leasing company which should assist third-party access.

Transnet is planning to introduce third-party operators by the start of its next financial year in April. Shaw said Transnet believed that third-party operations will probably grow from a relatively slow base and increase over the next five to ten years.

Clarification from the Presidency

Changes in the logistics sector are ruffling feathers, where there are many vested interests and the stakes are high. Earlier this month the Presidency issued a statement clarifying “misleading media reports based on a leaked draft version of the Freight Logistics Roadmap”.

“Work is underway between The Presidency, the Department of Transport, the Department of Public Enterprises, and National Treasury to finalise the roadmap, which will follow established processes for stakeholder consultation and deliberation and decision-making by Cabinet,” the Presidency said.

“South Africa’s port and rail infrastructure are strategic national assets, and government has taken a clear stance that they will remain in public ownership.

“The NLCC has been established to address the immediate challenges in the freight logistics system which have severely constrained exports and undermined investment and job creation in affected sectors.

“The NLCC is overseeing a range of interventions to achieve this objective, including upgrading equipment and infrastructure, improving operational performance, increasing the availability of rolling stock, and securing the rail network.

“In the long term, government is reforming South Africa’s logistics system to enhance efficiency and competition and enable private investment. These reforms are outlined in the National Rail Policy and other Cabinet-approved policy documents and will result in massive new investment to revitalise South Africa’s logistics system,” according to the statement.

Replacements

Sangqu said that the process to replace top executives at Transnet was underway and that the board was hoping to have new managers in place by December or, at the latest, by February 2024.
Transnet’s GCEO, Portia Derby is leaving the position at end of October, GCFO Nonkululeko Dlamini left at the end of September. TFR chief executive, Sizakele Mzimela also steps down at the end of October after three years in the position.

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