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S&P downgrade exposes Transnet's operational crisis as reform efforts stall

S&P downgrade exposes Transnet's operational crisis as reform efforts stall

IOL News2 days ago
The decision by S&P Global to downgrade Transnet's credit rating was disappointing news.
Image: File
The decision by S&P Global to downgrade Transnet's credit rating was disappointing news for those of us in business eager to see the utility performing better. This downgrade is not just a reflection of Transnet's financial distress – it is a damning indictment of years of failed leadership, union militancy and a government that continues to bail out state-owned enterprises without demanding fundamental reform.
S&P believes that Transnet is burning cash without the prospect of turning around its operating performance and that Transnet Freight Rail will fail to reach its volume targets. The business has high fixed costs, major capital expenditure requirements and significant debt. S&P's downgrade reflects its concern that its ability to service that debt is weakening.
The rating agency's assessment is that Transnet is 'entirely dependent on state support' and faces 'sizable negative free operating cash flow'. When a company burns through R13.5 billion annually in negative free cash flow while its workers receive 6% pay increases – double the inflation rate – we are witnessing a textbook example of unsustainable economics enabled by government guarantees.
S&P is calling out what has become clear to many of us – Transnet is seemingly resisting change and moving too slowly. This compares to Eskom, which has been able to stabilise its operating performance and is pushing forward deep and fundamental reforms.
The solution is not more bailouts or government guarantees. It's time for National Treasury to attach strict conditions to any future support – conditions that enable the private sector competition that Transnet desperately needs. The recent progress in separating rail infrastructure from operations, driven by Operation Vulindlela is a start, but we need to move much faster.
Private sector partnerships in ports and rail concessions must be accelerated. Companies are ready to invest in our logistics infrastructure, but they need certainty that political interference and Transnet's resistance won't undermine their investments.
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Fixing the logistics crisis is one of the focus points of the business-government partnership. Through the National Logistics Crisis Committee there has been some progress – ports have reduced backlogs and key rail corridors have seen some volume improvements. But the fundamental issues remain and the pace of reform has slowed just when it needs to be accelerating.
When business met with a senior government delegation led by President Ramaphosa in January, there was a strong commitment to accelerating reform to deliver economic growth. When the logistics workstreams fell behind on key targets, we met again in May and agreed to a focused three-month sprint to catch up. That sprint needs additional impetus.
There are critical structural reforms that must be advanced, particularly enabling third party participation in rail and ports and operationalising the economic regulator that will regulate the logistics system for all. Also, as S&P makes clear, there is an urgent need to improve the operational performance of Transnet, from improving security to ensuring the availability of rolling stock, to fixing infrastructure. The plans to do all this through a partnership between the public and private sectors are in place, but either through intransigence or coordination failures, we haven't been able to implement them.
The S&P decision should be a wake-up call – Transnet is going in the wrong direction and we need to act urgently. Transnet cannot continue as if it is business as usual and President Ramaphosa needs to act to get the agreed reforms implemented fast.
Road Accident Fund
I welcome the decisive action taken by Transport Minister Barbara Creecy in disbanding the Road Accident Fund board. This bold step represents the kind of leadership we desperately need to confront institutional dysfunction head-on. The RAF serves a critical function as our safety net against the devastating financial impact of road accidents, yet its track record of mismanagement has become a national embarrassment. With the Special Investigating Unit now conducting a broader investigation at the minister's request, we have an opportunity to root out the rot that has spawned endless litigation and operational chaos. South Africa deserves an RAF that operates with transparency, maintains clean books and delivers efficient service to those who need it most.
This same no-nonsense approach must be extended to other state insurance entities that continue to fail our people. The Unemployment Insurance Fund and Compensation Fund have become synonymous with bureaucratic incompetence and public frustration. When Business Unity South Africa called for the UIF to be placed under administration late last year, it was because workers were being denied timely access to benefits they had rightfully earned. Similarly, the Compensation Fund's failure to adequately support workers suffering from occupational injuries, illnesses, or workplace fatalities represents a betrayal of our most vulnerable citizens. While Labour Minister Nomakhosazana Meth has initiated necessary leadership changes, these institutions remain far from delivering the world-class service standards our people deserve.
Every successful reform sends a powerful signal that we are serious about creating institutions that serve with integrity, efficiency, and accountability. The private sector stands ready to support this transformation, but government must lead with the courage to make hard decisions and the commitment to see them through. All South Africans depend on getting this right.
Business Leadership South Africa CEO Busi Mavuso.
Image: Supplied
Busiswe Mavuso is the CEO of Business Leadership South Africa.
*** The views expressed here do not necessarily represent those of Independent Media or IOL.
BUSINESS REPORT
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S&P downgrade exposes Transnet's operational crisis as reform efforts stall
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S&P downgrade exposes Transnet's operational crisis as reform efforts stall

The decision by S&P Global to downgrade Transnet's credit rating was disappointing news. Image: File The decision by S&P Global to downgrade Transnet's credit rating was disappointing news for those of us in business eager to see the utility performing better. This downgrade is not just a reflection of Transnet's financial distress – it is a damning indictment of years of failed leadership, union militancy and a government that continues to bail out state-owned enterprises without demanding fundamental reform. S&P believes that Transnet is burning cash without the prospect of turning around its operating performance and that Transnet Freight Rail will fail to reach its volume targets. The business has high fixed costs, major capital expenditure requirements and significant debt. S&P's downgrade reflects its concern that its ability to service that debt is weakening. The rating agency's assessment is that Transnet is 'entirely dependent on state support' and faces 'sizable negative free operating cash flow'. When a company burns through R13.5 billion annually in negative free cash flow while its workers receive 6% pay increases – double the inflation rate – we are witnessing a textbook example of unsustainable economics enabled by government guarantees. S&P is calling out what has become clear to many of us – Transnet is seemingly resisting change and moving too slowly. This compares to Eskom, which has been able to stabilise its operating performance and is pushing forward deep and fundamental reforms. The solution is not more bailouts or government guarantees. It's time for National Treasury to attach strict conditions to any future support – conditions that enable the private sector competition that Transnet desperately needs. The recent progress in separating rail infrastructure from operations, driven by Operation Vulindlela is a start, but we need to move much faster. Private sector partnerships in ports and rail concessions must be accelerated. Companies are ready to invest in our logistics infrastructure, but they need certainty that political interference and Transnet's resistance won't undermine their investments. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. 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But the fundamental issues remain and the pace of reform has slowed just when it needs to be accelerating. When business met with a senior government delegation led by President Ramaphosa in January, there was a strong commitment to accelerating reform to deliver economic growth. When the logistics workstreams fell behind on key targets, we met again in May and agreed to a focused three-month sprint to catch up. That sprint needs additional impetus. There are critical structural reforms that must be advanced, particularly enabling third party participation in rail and ports and operationalising the economic regulator that will regulate the logistics system for all. Also, as S&P makes clear, there is an urgent need to improve the operational performance of Transnet, from improving security to ensuring the availability of rolling stock, to fixing infrastructure. The plans to do all this through a partnership between the public and private sectors are in place, but either through intransigence or coordination failures, we haven't been able to implement them. The S&P decision should be a wake-up call – Transnet is going in the wrong direction and we need to act urgently. Transnet cannot continue as if it is business as usual and President Ramaphosa needs to act to get the agreed reforms implemented fast. Road Accident Fund I welcome the decisive action taken by Transport Minister Barbara Creecy in disbanding the Road Accident Fund board. This bold step represents the kind of leadership we desperately need to confront institutional dysfunction head-on. The RAF serves a critical function as our safety net against the devastating financial impact of road accidents, yet its track record of mismanagement has become a national embarrassment. With the Special Investigating Unit now conducting a broader investigation at the minister's request, we have an opportunity to root out the rot that has spawned endless litigation and operational chaos. South Africa deserves an RAF that operates with transparency, maintains clean books and delivers efficient service to those who need it most. This same no-nonsense approach must be extended to other state insurance entities that continue to fail our people. The Unemployment Insurance Fund and Compensation Fund have become synonymous with bureaucratic incompetence and public frustration. When Business Unity South Africa called for the UIF to be placed under administration late last year, it was because workers were being denied timely access to benefits they had rightfully earned. Similarly, the Compensation Fund's failure to adequately support workers suffering from occupational injuries, illnesses, or workplace fatalities represents a betrayal of our most vulnerable citizens. While Labour Minister Nomakhosazana Meth has initiated necessary leadership changes, these institutions remain far from delivering the world-class service standards our people deserve. Every successful reform sends a powerful signal that we are serious about creating institutions that serve with integrity, efficiency, and accountability. The private sector stands ready to support this transformation, but government must lead with the courage to make hard decisions and the commitment to see them through. All South Africans depend on getting this right. Business Leadership South Africa CEO Busi Mavuso. Image: Supplied Busiswe Mavuso is the CEO of Business Leadership South Africa. *** The views expressed here do not necessarily represent those of Independent Media or IOL. BUSINESS REPORT

Transnet faces mounting pressure as R13. 5bn cash burn prompts reform calls
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Busisiwe Mavuso, CEO of Business Leadership South Africa, criticises Transnet's financial mismanagement, warning that its R13.5bn cash burn could threaten South Africa's economic stability. Image: Simphiwe Mbokazi/Independent Media Business Leadership South Africa CEO Busisiwe Mavuso has slammed Transnet's continued financial collapse and resistance to reform, following a damaging credit downgrade by S&P Global. Last week, IOL reported that the global rating agency downgraded the state-owned entity's credit ratings amid rising debt concerns and ongoing cash flow deficits. The rating agency also reduced the company's long-term local and foreign currency ratings from BB- down to B+, while its standalone credit assessment slipped from 'b' to 'ccc+'. In her weekly newsletter on Monday, Mavuso pointed out that the state-owned entity was burning through around R13.5 billion in cash annually and consistently failing to meet its freight volume targets. "This downgrade is not just a reflection of Transnet's financial distress – it is a damning indictment of years of failed leadership, union militancy and a government that continues to bail out state-owned enterprises without demanding fundamental reform," Mavuso said. She also noted that Transnet's financial difficulties are exacerbated by high fixed costs, significant capital expenditure requirements, and growing debt burdens, which have eroded investor confidence. "Transnet is seemingly resisting change and moving too slowly. This compares to Eskom, which has been able to stabilise its operating performance and is pushing forward deep and fundamental reforms," she added. "The solution is not more bailouts or government guarantees. It's time for the National Treasury to attach strict conditions to any future support" Mavuso also added that Private sector partnerships in ports and rail concessions must be accelerated. "Companies are ready to invest in our logistics infrastructure, but they need certainty that political interference and Transnet's resistance won't undermine their investments." IOL Business [email protected] Get your news on the go, click here to join the IOL News WhatsApp channel

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