South Africa: Troubled state-owned Transnet gets $2.5 billion to meet debt obligations

The South African government announced on Friday that it would inject 47 billion rand (2.3 billion euros) into the troubled state-owned Transnet group, which manages the port of Durban, the country’s largest, and which is suffering from massive container congestion.

The aid will take the form of a guarantee mechanism to help Transnet meet impending debt repayments, said the National Treasury, recalling the company’s “central role” in the South African economy.

Transnet “has experienced significant operational, financial and governance challenges in recent times and is struggling to fulfill this strategic role”, Treasury continued.

Some 15 freighters carrying 40,000 containers were still waiting to dock on Friday, compared with a peak of over 70,000 containers last week, Mike Walwyn, director of the South African Association of Freight Forwarders (SAAFF), told AFP.

The improvement was partly due to ships being redirected to Port-Louis on Mauritius, he said.

“What’s urgently needed is new equipment,” Walwyn stressed, hoping that government funding will help resolve the situation.

Transnet recently blamed congestion at the port of Durban, which handles around 60% of the country’s container traffic, on bad weather, which has exacerbated breakdowns, and ageing equipment.

The company, which in addition to managing South Africa’s ports also manages the rail freight network, will have immediate access to 22.8 billion rand to meet its repayments and other urgent needs, the National Treasury said.

“Strict collateral conditions” will have to be met to access the remaining funds, the statement added.

Transnet has long struggled with corruption scandals, theft, maintenance problems and its 130 billion rand debt. The company posted an annual loss of R5.7 billion in its last financial year ending in March.

The main opposition party, the Democratic Alliance (DA), described the situation at the port of Durban as “disastrous” for the economy, while the port of Richards Bay (east) is also in difficulties.

“No guarantee mechanism can tackle the root causes of this inefficiency and fiscal irresponsibility,” said Dion George, finance spokesman for the Democratic Alliance, criticizing the government’s decision.

“The government’s safety net will ensure that the chaos continues while placing a substantial burden on our already strained national budget and further increasing our growing debt bubble,” he continued.

Transnet’s huge debt means that it cannot borrow independently on the capital markets and is in desperate need of a lifeline, recalls Daniel Silke, analyst at consultancy Political Futures.

As South Africa heads towards general elections next year, the company’s problems can no longer be “swept under the carpet”, he felt, and additional funding is “the only way for Transnet to get there”.