Transport Minister Barbara Creecy, this week, approved a R51 billion guarantee facility for state-owned Transnet.
Image: Ayanda Ndamane / Independent Newspapers
TRANSPORT Minister Barbara Creecy, this week, approved a R51 billion guarantee facility for state-owned Transnet, with the concurrence of the Finance Minister Enoch Godongwana.
This guarantee facility is effective immediately in support of Transnet’s capital investment programme and enables it to meet its debt obligations.
Transnet plays a central role in the South African economy and the government’s goal of inclusive growth. The entity is engaged in a wide-ranging reform programme to improve operational performance in the short and medium term.
The programme aims to overcome operational, financial, and governance challenges hampering its ability to fulfil its strategic role, according to a statement by the GCIS on Thursday.
At the end of March this year, Transnet had succeeded in moving the equivalent of 161 million tonnes of freight on its rail network. In December last year, the entity released the 2024/25 Network Statement, which facilitated private sector operators on freight rail. Announcements of the first successful bidders are expected by the end of July.
In March, the Transport Department issued a Request for Information (RFI) for private investors on five key freight corridors and associated ports to promote private investment in the Transnet infrastructure while the network remained state-owned. The RFI closes on May 31, and Transnet is expected to issue requests for proposals by September this year.
Transnet plays a central role in the South African economy and the government’s goal of inclusive growth.
Image: Supplied
According to GCIS, interim solutions to meet capital investment needs by the entity included project-based applications to the Budget Facility for Infrastructure. Transnet was also working with Treasury and the Presidency to develop a collaboration and funding policy to support immediate capital improvements by the private sector in priority freight corridors.
In recognition of the progress made to date, the National Treasury and the Department of Transport have been working with Transnet to find a solution to the company’s immediate needs, and the decision to grant the guarantee facility is a result of these discussions, the statement read.
The financial support package provided for the entity is a R41bn guarantee facility for its funding requirements over the 2025/26 and the 2026/27 financial years. This package also includes a R10bn guarantee that Transnet will have to utilise for its liquidity management as it relates to the servicing of its maturing debt and capital investments.
In December 2023, a guaranteed support facility of R47bn was announced. This enabled Transnet to execute its Recovery Plan over the 2023/24 – 2024/25 financial years, which has seen increased capital investments and improved liquidity.
A Guarantee Framework Agreement between the Transport Department and Treasury will include guarantee conditions that will be continuously reviewed and amended when deemed necessary. Any drawdowns will be subject to Transnet meeting these conditions. These conditions will again focus on certain operational requirements and logistics sector reforms.
Creecy expressed confidence that the additional support provided to Transnet in the form of guarantees would enable the entity to continue to drive operational improvements in the business and implement reforms in line with the Freight Logistics Roadmap, according to the statement.
Meanwhile, recent assessments by Moody’s underscored the urgency of government intervention: “Moody’s has issued a stark warning that Transnet could deplete its funds within three months unless the government intervenes with a bailout.” This highlights the gravity of the entity’s liquidity constraints and the risks posed to the broader economy if support is not forthcoming.
The government, however, acknowledged that Transnet’s difficulties were symptomatic of deeper sectoral issues: “Government continues to pursue deep-running, broader reforms of the company and the logistics sector as a whole. Without a comprehensive reform of the sector, rather than that of a single entity, we risk being faced with similar challenges in the future.”
Transnet’s operational challenges have been compounded by underinvestment, theft, vandalism, and the lingering effects of the Covid-19 pandemic. The state-owned entity swung from a R5bn profit to a R5.7bn loss for the year to March 2023, as freight rail volumes dropped 13.6% from 173 million tonnes to 149 million tonnes.
The government and Transnet leadership remain optimistic but acknowledge the scale of the challenge. Minister Enoch Godongwana said recently: “The necessary reforms needed to put Transnet back on track can be achieved if the entity commits to meeting the strict conditionalities attached to the guarantee and quickly implements the reforms informed by the National Logistics Crisis Committee.”
The R51bn guarantee facility is a critical intervention to stabilise Transnet, but its success hinges on strict adherence to reform commitments, operational improvements, and broader sectoral transformation. The stakes are high, as both domestic and international stakeholders have highlighted the centrality of Transnet’s recovery to South Africa’s economic future.