FIFI PETERS: There have been a number of happenings at Transnet of late, perhaps even before the recent events. You’ll remember that they have struggled with cable theft which has affected day-to-day operations. And more recently we had the riots in Durban that hit some operations there at their ports and prevented a whole lot of goods from going out on time – and even coming in on time. And then there was the issue around the cyber attack that was like the cherry on top of the cake in terms of the challenges Transnet is experiencing of late.
My colleague Ryk van Niekerk caught up with Transnet just for a review on how they are managing the situation and what they’re thinking of doing in future to prevent such occurrences. Let’s listen in to his report.
RYK VAN NIEKERK: Earlier this week Public Enterprises Minister Pravin Gordhan announced that Transnet will be looking for private-sector partners to invest around R100 billion in the ports in Durban and Ngqura. Transnet has already issued a request for information, or an RFI, to gauge the interest of potential private-sector companies to participate in such partnerships. These companies may also take up equity stakes in new ventures.
Portia Derby is on the line. She is the CEO of Transnet. Portia, thank you so much for joining me. This is a very interesting announcement and it could even be a blueprint for other state-owned enterprises to also partner with the private sector to this extent. Whose idea was it? The Department of Public Enterprises’ idea, the president’s, or yours?
PORTIA DERBY: As a leadership team, we had to develop a strategy that would be able to support the economy, in providing both efficient and competitive logistics services. As you know, countries compete and not companies. We understand that our remit, in as far as there are certain parts of the logistics system – because we are quite mindful that we are not the totality of it – but in as far as the areas that we are responsible for, was to ask the question that, given the state of our balance sheet, given the opportunities that we see and the need to reposition South Africa, what investments might we be able to make – but how would we be able to deliver that part?
We got that approved by the board and went and had a discussion with the shareholder minister, Pravin Gordhan. Fortunately we found resonance. But I suppose we also found resonance at a time when the National Treasury quite clearly indicated that it had no money to support any new investments by state-owned enterprises.
RYK VAN NIEKERK: R100 billion is a lot of money, but Transnet is also a very, very big company. Can you put this amount into perspective? For example, how much will Transnet invest, from its own resources, in infrastructure over the next 10 years?
PORTIA DERBY: I will separate out the two, Ryk. In our corporate plan we’ve indicated an intention to invest R100 billion. Our corporate plan is a five-year plan, and that R100 billion covers everything that we are responsible for, from Transnet properties to pipelines, port terminals, as well as…
The Durban Port Masterplan on its own, that is increasing the current capacity from 2.9 million TEUs to the 11.3 million TEUs requires us to spend R100 billion.
But now the thing that we’ve tried to do, especially given this whole stimulatory effect on the economy, and also the fact that we’ve really got a catch-up to do, (is) we have front-loaded the development to have everything done by 2032. That means that we definitely have to go into the market. Hence the need for partners to help us to fund it, because we definitely cannot fund the R100 billion that I indicate over the next five years, as well as find the R100 billion that we’ve indicated for developing the whole port.
Part of the R100 billion that is our five-year investment programme covers a few investments that are located inside the port. But to a vast extent we’re either getting partners or we get funding (for) the development of the port. What we’ve also been moving a lot more towards is more project financing and not balance-sheet financing.
RYK VAN NIEKERK: So it is very, very significant indeed. Would this R100 billion be limited to individual projects or, put differently, will you issue tenders for individual projects and then allow for private-sector companies to also take an equity stake in those projects?
PORTIA DERBY: We are quite open in terms of how we’re going to do it, but we are being phased. Let me come back to the RFI that we’ve issued. The RFI we’ve issued for Durban, Pier 2, is to look for a partner for TPT, transit port terminals, so that we can improve operations and efficiencies, and also make investments in equipment. We need about R4 billion-plus just for equipment right now. Now that R4 billion will be part of the R100 billion that I’ve indicated over the next five years. So that helps us sort that problem out.
In the case of NCT (Ngqura) Container Terminal, which is the other RFI that we’ve issued, we are looking for a partner who will co-invest in terms of capacity. On the sea side we’ve got a two million TEU capacity. It’s on the land side that we’ve got a 1.3 million TEU capacity, so we need to up that to get to the two million.
And then, most importantly, we’re looking for a cargo owner, so that we can move utilisation from the current 700 000 or so to the two million TEU. That’s the one side. So I hope you can see the point of private-sector participation.
Then in October/November this year, we’re going to issue another RFI. This RFI is going to be from Transnet National Port Authority, for them to find a partner to help them build the point terminal, which is the first one we will take out. Point is currently 200 000 TEUs. We want to increase that 1.2 million TEUs.
So I hope you can see what will be coming out is a lot in the direction of what you are saying. We will tranche it up. We will come out project by project. We intend to make sure that the procurement cycle is short and tight, and as transparent as we possibly can make it.
RYK VAN NIEKERK: But this is not a tender. There must be an upside for the private-sector investors, and there hasn’t been talk about taking equity stakes. I think that is where a lot of media and a lot of analysts and stakeholders have taken note, because this could be seen as really equity-type partnerships – something we haven’t really seen in the past.
PORTIA DERBY: So the RFI, so we don’t know, and we are quite agnostic. What we want, and that’s why the RFI is important, what we will get back is from the market an indication of what the market desires, and on the back of that we will then have negotiations – both with our unions on the one hand, as well as discussions with the shareholder.
Once we’re aligned on that, we then issue an RFP (request for proposal) or RFQ (request for quote) – I can’t quite remember which of the two goals. We are going to make a decision on whether we’re going to merge the RFQ and RFP into one, or we’ll go out with the RFP and then we’ll go out with the RFQ as a second leg once we are absolutely clear about what it is that we’re looking for – are we taking equity or not? But the market will signal to us what it desires.
RYK VAN NIEKERK: Have you been in consultation with private-sector or potential private-sector companies to become involved? And, if so, what was the reaction?
PORTIA DERBY: No, we’ve had no negotiations, because obviously we’re only starting the procurement process now. However, we have been approached by a few entities which are big players in this space, expressing interest in partnering with us in any shape or form going forward. So we’re not worried about whether they will or won’t be interested. We should be able to get interest. There’s no running away from the fact that we are one of the biggest economies on the continent, and there’s a manufacturing base. We have the advantage that you supply us directly ourselves. We are not only a trans-shipment route.
So we have had expressions of interest, but we were not negotiating because we had no project on the table.
RYK VAN NIEKERK: Are those companies South African or international companies?
PORTIA DERBY: International companies. To be honest, with the decimation of the construction sector, for example in South Africa, there’s basically one left, WBHO, which is big enough. We don’t have companies which have experience in building ports. We’re quite clear about the risk for the construction, both in terms of cost and time, and we’re not going to carry that. We want whoever the service provider is to carry that.
(There are) quite interesting opportunities on how we find ways to build the construction industry back up again, which we plan to do and the Durban and the team that’s given the responsibility to deliver on this project. I’ve got that top of mind as the delivery aspect going forward.
RYK VAN NIEKERK: Might you expand this type of project or thinking to the other Transnet businesses, especially the bulk rail side of it, because many of the mining companies have expressed their concerns about Transnet’s ability to export raw materials that limits their ability to increase their mining operations in South Africa.
PORTIA DERBY: The first step, when it comes to freight on the freight rail system, and it’s a project that TFR and the CEO Siza Mzimela and the team are working on, is doing a commercial separation between the operations and the track and rail. We need to have a proper understanding of what it costs to look after the track – and that we’ve never done before. Once we have that, it becomes much easier to understand the types of partnership that may be available.
So we haven’t closed the door, but there’s a piece of work in advance of us being clearer around here are the opportunities that are rail-focused. But, for example, (for) two projects that we’re working on now we have a very tight deadline, which is that by 2026 Ford has been of the view that we should deliver this by 2025 – it’s impossible for us to do 2025 – but we are moving heaven and earth to deliver by 2026, is the expansion of the capacity so we can move cars and export them through the port of Port Elizabeth.
There’s some capacity expansion that we have to do on rail, obviously, for us to be able to make the timeline. That would be a project that we’d have to develop with the private sector. They’re not going to own the track, but we are approaching them to partner in developing the track.
RYK VAN NIEKERK: I think that will definitely make a big difference. Just lastly, unfortunately there has been a lot of corruption within state-owned enterprises, including Transnet. This could be a very, very big deal financially – and politically I would imagine. How will you approach it to make sure that it is transparent, or as transparent as possible, to limit any perception of corruption being involved?
PORTIA DERBY: Well, it’s a big concern for us. I think you would agree with me that as South Africans we have an obligation to ensure that we are working furiously to clean up our image and remove the spectre of corruption from us. So we have a very tight team that’s working on this; we’re going to appoint transaction advisers, which will help with the review and the assessments of it. We are working with the Department of Public Enterprises.
Something that we’ve learned is the longer your procurement process, the more the potential for corruption. And so what we are making sure is that it’s as tight and as short as it possibly can be. But the intent is to be as transparent as we possibly can be on the other side.
Incidentally, Ryk, one of the reasons why we’ve come out and said that the development should cost us no more than R100 billion was to ensure that already there’s a benchmark that we can be held to. The CEO of Transnet National Port Authority, Pepi Silinga, has experience in delivering large projects on time and on budget.
So it’s also about the team that you put to lead these particular projects. In the case of Transnet today, it’s not a few people who have the power and the responsibility. We’ve made sure that there’s a lot more democratisation in terms of decision-making, more team focus. But in the procurement space there’s going to be a lot more automation so that we remove the human hands in the process.
RYK VAN NIEKERK: Portia, thank you so much for your time today. That was Portia Derby, the CEO of Transnet.