Is Transnet another Eskom? Government to offer financial support

The Citizen

22-05-2025

Transnet's profits declined from R5 billion in 2019 to a net loss of R5.7 billion in 2023, and in 2024, it carried a staggering debt burden of R120 billion. Which means it was R1 billion per month to service its debts.
Many state-owned enterprises (SOEs) rely on the government as a constant safety net, stepping in with financial support whenever things fall apart, just like teenagers counting on their parents to fix their mess.
But unlike some parents, who eventually say 'enough is enough' and teach tough love, the government keeps bailing SOEs out. Will it ever stop? How else will SOEs learn to stand on their own?
The cash-strapped logistics company Transnet is increasingly resembling Eskom — South Africa's bulk electricity supplier — as it continues to rely on government financial support.
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Transnet to be bailed out
Finance Minister Enoch Godongwana delivered the third budget speech on Wednesday in Cape Town, where he said little to nothing about lending a hand to struggling SOEs.
The only struggling SOE he mentioned was Transnet, which government is considering providing financial support to.
'The government will also consider government guarantee support to Transnet, to enable the entity to refinance maturing debt, and to enable the execution of its capital investment programme,' said Godongwana.
The South African Broadcasting Corporation (SABC) is another struggling SOE that the public expected the minister to mention after it reported being technically insolvent.
Transnet in trouble
Moody's Ratings Agency recently reviewed Transnet for a downgrade last week, as it believes the cash-strapped entity might run out of money within the next three months. This view supports the notion that the government should provide additional support to the embattled entity.
This additional support can be used to refinance upcoming debt maturities and secure funds for its expanded capital expenditure programme.
'We believe the government remains supportive of Transnet and will provide additional guarantees or other assistance to prevent default on its upcoming debt maturities. However, the lack of a formal announcement so far creates uncertainty and heightens default risk,' said Moody's.
Recovery plan
Transnet's profits declined from R5 billion in 2019 to a net loss of R5.7 billion in 2023. In 2024, it carried a staggering debt burden of R120 billion, which means it was R1 billion per month to service its debts.
Therefore, the company had to develop a recovery plan, which CEO Michelle Phillips believed would meet its 170 million tonne target by the end of its financial year.
In 2024, she said she has always been clear that Transnet, under her leadership, will never ask the government for a bailout.
'In my tenure at Transnet, we were always very clear that we would not approach government for a bailout to ensure that we are never a drain on the fiscus.'
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What went wrong?
Transnet's challenges are due to a lack of maintaining infrastructure, failure to invest or under-investment in necessary infrastructure and not focusing on generating revenue.
Moody's acknowledged that Transnet's operational performance has improved under the recovery programme launched at the end of 2023. However, progress remains slower than planned, to some extent due to the continued high occurrence of theft, vandalism, and adverse weather conditions.
However, Transnet's debt burden remains excessively high, resulting in unsustainable interest payments.
Bailouts result in poor service delivery
In late 2024, the Standing Committee on Appropriations was informed by Treasury that poor service delivery was attributed to the decision to bail out struggling state-owned enterprises (SOEs).
SOEs have received R456.5 billion of taxpayers' money in bailouts for nine years. By the end of the current financial year, this amount is expected to increase to R520.6 billion.
The bulk of that money went to Eskom. By the 2025/2026 financial year, the power utility would have received R496 billion in bailouts since 2008/2009.
The power utility is owed billions by private and public entities, municipalities, and government departments.
Government guarantee or bailout
In the budget speech, Godongwana did not specify whether Transnet will receive a government guarantee support or a bailout in this current financial year.
In 2023, the Government awarded Transnet a R47 billion guarantee as part of its involvement and commitment to the recovery and transformation of the SOE.
'The R47 billion is a guarantee which will merely allow Transnet to borrow more money,' said Phillips.
What is Transnet?
Transnet is the largest freight logistics chain in South Africa, delivering goods. The entity delivers thousands of tons of goods throughout the country, via its pipelines and to and from its ports. It moves cargo onto ships for export while unloading goods from overseas.
There are Transnet Freight Rail, Transnet Rail Engineering, Transnet National Ports Authority, Transnet Port Terminals, and Transnet Pipelines.
In 2023, it was estimated that Transnet's performance would negatively impact South Africa's economy, with studies estimating a loss of around 5% of GDP.
This translates to a potential GDP loss of approximately R353 billion, or around R1 billion per day, due to inefficient logistics and increased transport costs for businesses.
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