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Transnet has confirmed the establishment of an interim rail Infrastructure Manager, which will oversee the initial process of ensuring that the rail network is opened to private train operating companies (TOCs) from April 2024.

The network has hitherto been monopolised by State-owned Transnet Freight Rail, which is in the process of being vertically separated into the Transnet Rail Infrastructure Manager (TRIM) and the Transnet Freight Rail Operating Company (TFROC).

Acting Transnet CEO Michelle Phillips said in a statement that the interim Infrastructure Manager would carry out all required activities to facilitate third-party access ahead of the creation of a permanent operating division, or TRIM.

In unveiling a recovery plan for the embattled group in late October, Transnet said the TRIM would manage, operate and maintain the rail network infrastructure and would initially be led by Bessie Mabunda.

TFROC, which would be led by Russell Baatjies, would remain the dominant TOC on the network when it was opened to third-party operators next year, but would begin having to compete with private operators for slots on the network.

Phillips said the interim Infrastructure Manager would engage with the Interim Rail Economic Regulator Capacity (IRERC) and manage access until a permanent operating division was in place.

It would also lead consultations with the Department of Public Enterprises, the Department of Transport, the IRERC and other stakeholders on the draft network statement, the draft access agreement and proposed tariff methodology.

"On 1 April 2024, the interim Infrastructure Manager will publish the final draft network statement, conditions of access, and the access tariff; and TOCs applications for slots will commence.

"If a requested slot is available (not run by TFROC), that slot can be provided by May 2024 for trains to run, provided all the necessary conditions and approvals are met," Transnet said in a statement.

The separation was in line the White Paper on National Rail Policy, which envisaged structural reforms intended to facilitate private sector investment and more efficient use of the rail system, the performance of which had declined markedly in recent years.

Access would ultimately be regulated by the yet-to-be established Transport Economic Regulator, which would set prices for the sale of train slots and regulate access.

The reform was also being aligned with the Freight Logistics Roadmap, which was close to being finalised, which Finance Minister Enoch Godongwana said would have to be reflected in Transnet's corporate and operational plans if the group aimed to secure any support from the fiscus for its turnaround plan.

"The Roadmap sets out a clear path for enhancing efficiencies, facilitating the introduction of competition and leveraging the financial and technical support of the private sector," the Minister said in a recent address to lawmakers.

Transnet has reportedly requested relief covering R61-billion of its R130-billion debt, as well as a R47-billion equity injection, but Godongwana indicated that the National Treasury would not step in until there had been further engagements and Transnet could prove that it was doing its bit to improve efficiencies and cuts costs.

The separation between rail operation and infrastructure was in line with the Economic Regulation of Transport Bill and the National Rail Policy and would differ from the National Ports Act in that there would be no 'grandfather rights' for TFROC.

Under such a scenario, the rail system would be expected to transition to a free open system of allocated train-access slots.

Separately, Transnet was also pressing ahead with a plan to establish a rail rolling stock leasing company by way of a private sector partnership.

The group had rolling stock that it no longer used, and which could be repurposed to help facilitate third-party access.

The absence of rolling stock for lease emerged as a key constraint for companies that expresse...

Engineering News editor Terence Creamer discusses the main talking points in this year's Medium-Term Budget Policy Statement, which was presented to Cabinet by Finance Minister Enoch Godongwana on November 1.

Finance Minister Enoch Godongwana has not "closed the door" on Transnet's move to secure a reported R100-billion in balance-sheet support to assist with its recently released turnaround plan. However, in a Medium-Term Budget Policy Statement (MTBPS) briefing, he insisted that far more engagement was required by the troubled State-owned freight logistics utility to build trust with government on whether it was was ready to cut costs and improve efficiencies before "presenting an invoice".

He also indicated that he was not interested in negotiating with the group through the media.

In unveiling the recovery strategy days ahead of the MTBPS, Transnet chairperson Andile Sangqu said the indebted State-owned enterprise would not be able to deliver on the turnaround plan without a capital injection from the shareholder.

Media reports indicate that Transnet has requested relief covering R61-billion of its R130-billion debt, as well as a R47-billion equity injection.

National Treasury officials confirmed with Engineering News separately that there had been some initial engagements with the freight logistics utility on the plan, but said that any support could arise only after a "robust and rigorous process", which had not yet been undertaken.

The officials noted that it had taken nearly one-and-a-half years to conclude the R254-billion Eskom debt-relief plan, which Godongwana announced in February, and which was promulgated in the form of the Eskom Debt Relief Act in July.

The National Treasury had now also proposed amendments to the Act to convert the Eskom loans form non-interest-bearing to interest-bearing, as well as to ensure that the Minister could withhold funding if certain conditions were not met, including those related to the sale of noncore assets.

Such stricter conditionality enforcement would be broad-based across all State-owned company bail-out beneficiaries, with Denel having received only a portion of its R3-billion bailout, owing to a lack of progress on the sale of noncore assets.

Any relief would also only arise once there was evidence of "self-help" at Transnet aimed at reducing costs and bolstering efficiencies, as well as initiatives to crowd-in private sector participation on the ailing rail network and at the ports.

Crucially, Godongwana said government would want to see evidence that Transnet's corporate and operational plans were aligned with the Freight Logistics Roadmap, which was close to being finalised.

"The Roadmap sets out a clear path for enhancing efficiencies, facilitating the introduction of competition and leveraging the financial and technical support of the private sector," the Minister said in his actual address.

However, the speech also indicated that the National Treasury was working with Transnet and the Department of Public Enterprises to ensure that Transnet could "meet its immediate debt obligations".

The National Treasury also acknowledged that Transnet continued to experience weak profitability and deteriorating liquidity owing to operational challenges, a high debt burden and low cash flows. Nevertheless, Transnet's issued guarantee remained at R3.5-billion.

The MTBPS does reflect, however, on the damaging economic impact that Transnet's deteriorating rail performance and underperforming ports are having.

"The cost of rail inefficiencies last year is estimated at R411-billion," the statement reads, adding that the performance also reduced tax revenue.

It highlights the formation of the National Logistics Crisis Committee, which it says aims to improve the operational performance of freight rail and ports, restructure Transnet to ensure it is financially sustainable and implement reforms to create an efficient, competitive and modern freight logistics system.

"This work will be integrated with interventions under way within Transnet, including rehabilitating the rail network to improve service delivery, deploying digital solutions to improve efficiency and responsiveness, improving ...

Eskom's head of distribution Monde Bala reports that Eskom and the National Treasury are hoping that the number of municipalities participating in the Eskom Municipal Debt Relief Support Programme could rise to 67 from the 28 already approved at the start of October.

The deadline for applications was extended to October 31, from an initial deadline of the end of September, to allow for further voluntary applications.

Speaking at the group's results presentation, during which it was confirmed that arrear municipal debt had increased from R44-billion in 2021/22 to R58.5-billion at the end of March and had climbed to above R65-billion since, Bala said 39 additional applications were currently being assessed.

The programme, which was announced during the February Budget, is designed to enable Eskom to write off municipal debt, with 136 of the country's 257 municipalities having been in arrears to Eskom at the end of March.

In return, municipalities committed to keeping their current accounts with Eskom up to date, which would help improve the lossmaking utility's liquidity.

The State-owned utility reported a R24-billion loss for the 2022/23 financial year and warned of a further R23-billion-plus loss for the current financial year to the end of March 2024.

The writedowns will be implemented over three financial years should the participating municipalities meet the scheme's 14 conditions, including minimum collections stipulations, a ringfencing of the Eskom account which should be paid first and a restriction on borrowings.

There is also the potential for a revocation of a municipality's electricity distribution licence should it fail to comply with the conditions.

The National Treasury has confirmed that the collective debt owed to Eskom by the 28 municipalities approved for participation under the Programme represents R26.69-billion of the R58.5-billion owed to the utility as of the end of March.

Bala said that if the remaining 39 applicants were approved it would represent 95% of the arrear debt owed to Eskom.

After 12 months of compliance with the conditions, Eskom, in consultation with National Treasury, writes off one-third of the arrear debt balance as of March 2023.

Municipalities have to comply for all 36 months for the balance to be fully written off.

Eskom has warned that it is likely to report another R23-billion-plus loss for its current financial year to the end of March 2024, having belatedly confirmed a loss of R24-billion (R12-billion) for its 2022/23 financial year, during which loadshedding was implemented on a record 280 days.

Acting CEO Calib Cassim confirmed the dismal outlook during the release of the group's results presentation, held seven months after the group's official year-end. As with several previous reports, the statements were also qualified by the State-owned utility's auditors.

The outlook remains clouded by loadshedding, which intensified at the start of the current financial year, with more than 200 days of rotational power cuts having already been implemented since April 1, at times at levels as high as Stage 6.

Cassim indicated that it would be a tall order for Eskom not to breach the 280 days of loadshedding declared in 2022/23 during the current financial year. In 2021/22, 65 days of loadshedding were implemented.

The poor generating performance was reflected both in a decline in sales volumes and a surge in the cost of running both Eskom's diesel-fuelled open-cycle gas turbines (OCGTs) and those operated by independent power producers (IPPs).

Acting CFO Martin Buys reported that sales fell 5% to 188 401 GWh from 198 281 GWh and that sales were expected to fall again in the current financial year to about 185 300 GWh.

He reported that OCGT costs across the Eskom and IPP fleet had increased to nearly R30-billion during the period to produce some 4 100 GWh, up from about R15-billion to produce about 2 700 GWh. The average diesel price increased from around R18/l in April 2022 to R23/l by March 2023.

Eskom insisted, however, that it would not exceed its R28.5-billion OCGT budget for the current financial year.

The sales slump was offset on top line by the fact that Eskom received a 9.61% tariff hike during the year, which supported an increase in revenue to R259.5-billion from R247.5-billion in the prior period.

Unit costs of production rose across the board, however, apart from the unit costs of Eskom's renewable-energy purchases, which fell 2%, as the lower-cost plants procured in the more recent public procurement rounds began contributing energy.

The group's overall primary energy costs rose to R154.9-billion from R132.9-billion, while production slumped to 217 918 GWh (230 161 GWh), raising overall unit costs to R711/MWh (R578/MWh).

Cassim said the tariff award of 18.65% on April 1 this year would not be sufficient to offset the decline in sales and the poor operational performance of the coal fleet for much of the current year.

The group's energy availability factor (EAF) fell to 56% during the 2022/23 financial year and until recently breakdowns across the aged coal feel had resulted in an EAF of below the 60% target set for the end of March 2023. A target of 65% has been set for the current financial year.

"The financial outlook for 2024 continues to be negatively affected by poor operational performance," Cassim said, while insisting that the Generation Recovery Plan approved by the board at the start of the current financial year was starting to yield improvements.

DEBT RELIEF & RESTRUCTURING

New chairperson Mteto Nyati said the operational recovery was one of six priorities being pursued by the current board, with the others being: the stabilisation of the leadership team, including the appointment of a new permanent CEO; intensifying the fight against fraud, corruption and criminality; implementing the restructuring of Eskom, including operationalising the National Transmission Company South Africa (NTCSA) by the start of the new financial year; strengthening the balance sheet further following the R254-billion debt-relief package extended by the National Treasury; and intensifying stakeholder management.

Nyati reported that the names of three appointable CEOs had been handed to the Public Enterprises Department "last week" and th...

Transnet National Ports Authority (TNPA) has published an expression of interest (EoI) document to determine market appetite for small- to medium-scale liquefied natural gas (LNG) imports through the ports of Durban, Cape Town, East London, Saldanha Bay and Mossel Bay.

The EoI seeks to explore areas that include the market size, technologies, and overall operating model for small- to medium-scale LNG.

The EoI aims to benefit the gas market, says the ports operator, including potential users that are secluded from current gas infrastructure such as pipelines.

"TNPA's LNG programme is meant to support the gas-to-power industry, industrial users and the transportation sector."

The EoI market opportunity is supplementary to the earmarked large-scale LNG terminals at the ports of Ngqura, Richards Bay and Saldanha Bay.

The existing large-scale LNG terminals focus on large-scale floating storage and regasification units.

"The small- to medium-scale LNG importation market has the potential of supporting South Africa's overall energy mix ambitions and positively contributing to lower carbon emissions," notes TNPA.

The EoI documents can be accessed from National Treasury's e-tender publication portal.

AutoTrader's 2023 South Africa Electric Vehicle (EV) Buyers Survey shows that 63% of respondents believe they would purchase an EV within the next five years, down from 65% in 2022.

Some marginally better news is that 7% of respondents indicated that they would never purchase an EV in 2023. A year ago this figure was 6%.

While EV adoption remains low and slow in South Africa, EV experience, however, has seen an increase, with 12% of respondents having been in an EV last year, compared with almost 20% in 2023, with 18- to 24-year-olds having the most EV exposure.

The survey also reveals that 59% of respondents noted that they were willing to spend up to R500 000 on an EV, down from 64% in 2022, 72% in 2021, and 74% in 2020, which indicates that people are becoming increasingly willing to spend more on an EV.

EVs are, on average, still significantly more expensive than comparable internal combustion engine (ICE) vehicles.

There is currently no battery EV on the South African market priced below R500 000.

Survey respondents noted that an EV's higher price point remained its biggest drawback, along with charging time, lack of charging infrastructure and impact of loadshedding.

Its main advantages according to respondents? Reduced carbon emissions, reduced air pollution and cheaper running costs.

Men, it turned out, were more willing to spend in excess of R500 000 on an EV, while women appeared more concerned with performance, higher resale value, and safety than their male counterparts. They were also more optimistic about an EV's ability to produce a range of 500 km-plus.

Significantly, 82% of respondents said they would consider purchasing an EV if it could be fully charged in under an hour at a fast charging station.

As to charging costs, people aged over 34 remained the most realistic, estimating the cost to charge within the R200 to R500 price range.

The report also notes that respondents viewed BMW as the most trusted EV manufacturer in South Africa (52% of respondents), ahead of Mercedes-Benz (43.3%) and Toyota (37%), while battery efficiency (think charging time and range), safety and price were cited as the top influencing factors when purchasing an EV.

Toyota does not currently have a EV in the local market, as opposed to BMW and Mercedes-Benz, which both have numerous models available.

Respondents were also willing to consider used EVs, with 48.5% of respondents stating they would consider a used EV over a new EV, owing to a lower price point.

Engineering News editor Terence Creamer discusses the background to Transnet's proposed recovery plan; some of the key components of this plan; and if Transnet is likely to get the support it is looking for from government.

State-owned freight logistics group Transnet confirmed that an open and transparent framework for granting private train operating companies' third-party access to the South African railway network hitherto monopolised by Transnet Freight Rail (TFR) will come into operation in April next year.

In unveiling a recovery plan for the embattled group, chairperson Andile Sangqu reported that TFR would be separated vertically by the end of October to create two separate divisions, to be named the Transnet Freight Rail Operating Company (TFROC) and the Transnet Rail Infrastructure Manager (TRIM).

"In support of the recovery plan, the TRIM will focus on protecting and restoring rail network capacity for commercially viable high-volume traffic to assist TFROC in delivering the highest possible tonnage for each of the six-month components of the plan," Sangqu said at a briefing to unveil a turnaround plan that is premised on a material recovery in rail volumes.

TFROC would be headed by Russell Baatjies and TRIM by Bessie Mabunda and the commercial and personnel separation of the entities was well advanced.

In November, a network statement would be published clarifying the group's approach to third-party access, which had hitherto not advanced at a pace in line with the priority that the reform had been given by government.

Last year, Transnet sought to sell 16 slots to private operators on its container and Cape corridors through a competitive process, but only Traxtion Sheltam was conditionally awarded slots between Kroonstad and East London on the Cape Corridor. That award was terminated, however, in anticipation of a new approach to third-party access.

The reform received fresh impetus following the formation of the National Logistics Crisis Committee and the establishment of the Interim Rail Economic Regulator Capacity.

"Third-party access will be opened by April 2024," Sangqu confirmed, while insisting that the rail reform programme remained on track and was a critical part of the group's recovery plan.

Baatjies, who is acting TFR CEO, said once the network statement had been published, a submission would be made to the Interim Rail Economic Regulator Capacity for a rail-access tariff.

Chief of strategy and planning Andrew Shaw said the separation between rail operation and infrastructure was in line with the Economic Regulation of Transport Bill and the National Rail Policy and would differ from the National Ports Act in that there would be no "grandfather rights" for TFROC.

"In the case of rail access, it's a free open system of allocated train-access slots," he asserted. "So, there's much greater transparency in the system than even in the port system."

Shaw also confirmed that Transnet intended pressing ahead with a 20-year lease of the full container corridor between Durban and Johannesburg, but did not provide an update on the process, which had been delayed.

Separately, Transnet was pressing ahead with a plan to establish a rail rolling stock leasing company by way of a private sector partnership.

Shaw reported that Transnet had rolling stock that it no longer used, and which could be repurposed to help facilitate third-party access.

The absence of rolling stock for lease emerged as a key constraint for companies that expressed an initial appetite for the now terminated slot-sale process.

"It creates the opportunity for us to create contracts into Transnet Engineering to repair that rolling stock … and then to use it through a lease company, which we are in advanced stages of setting up, in such a way that it can be a conduit to get that into the market."

Absent an equity injection or debt relief from government, Transnet chairperson Andile Sangqu says the State-owned entity will not be able to deliver on what he described as a "credible" recovery plan for turning around the group's dismal operational and financial performance.

The slump in the group's performance is epitomised by the 77-million-ton collapse in rail volumes over the past six financial years, from 226-million tons railed in 2017/18 to only 149-million tons in 2022/23, as well as a decline in revenue over the period from R73-billion to R69-billion.

The group, which recently shed its CEO, CFO and rail head, reported a R5.4-billion loss last year and will also report a loss during the current financial year. Transnet has advertised the CEO position internally and externally, with a closing date of October 19.

Without being drawn on the specifics, Sangqu confirmed during a briefing that Transnet had approached both the National Treasury and the Department of Public Enterprises with various funding options but that it was the prerogative of the shareholder to decide on the nature and timing of any possible assistance.

Media reports indicate that Transnet has requested relief covering R61-billion of its R130-billion debt, as well as a R47-billion equity injection.

Finance Minister Enoch Godongwana is due to release the Medium-Term Budget Policy Statement on November 1 in a context of a fiscal position that is expected to have deteriorated since the February Budget, which included a R254-billion debt-relief package in favour of struggling State power utility Eskom.

Sangqu acknowledged that government had "many other constraints and that it will be a balancing act" if Transnet were also to be funded.

"What we have been able to present is a credible plan that we believe will be able to turn the fortunes of the company around and also restore confidence in the logistics sector," Sangqu said, likening the request to those regularly made by private companies when in need of a capitalisation when asked whether Transnet was seeking a bail-out.

"So, we are really hoping that on the basis of the case that we have presented, we would be able to get the support from government."

Acting CFO Hlengiwe Makhathini underlined this point, saying that the financial position would improve if volumes increased in line with the recovery plan's targets, but that Transnet's immediate financial constraints meant that it could not approach the market independently to fund the plan.

"We don't want to pre-empt how National Treasury will respond, but what we just want to emphasise is that, for our recovery plan to work, we do need government support in one way or the other."

Transnet's interest payments have climbed to R13-billion yearly and Makhathini described the monthly repayments of more than R1-billion as unsustainable.

Acting CEO Michelle Phillips reported that the recovery plan, which has been divided into 6-, 12- and 18-month periods, was premised primarily on a recovery of rail volumes from the 149-million tons reported last year to between 154-million tons and 170-million tons by the end of March next year.

She described the 170-million-tons goal as a "stretch target".

In the six months to the end of September, volumes stood at 76-million tons, which means that the 78-million to 94-million-tons balance would have to be achieved in the second half, which was traditionally a period when lower rail volumes were recorded.

Given the weak financial position, rail and port operations will focus on the highest-margin traffic, while addressing starting to address a maintenance backlog estimated at R50-billion.

The recovery discounted any possible uplift that might be gained should a settlement be reached with CRRC of China, which stopped supplying parts and locomotives to Transnet after the contract was declared illegal.

A settlement agreement was nearly concluded last year but was thwarted by CRRC's ongoing disputes with the South African Re...