Portia Derby, group CEO of Transnet.

• The Public Enterprises Minister has promised a radical plan to turn around Transnet.
• The plan includes an extensive review of the parastatal’s executive management.
• Transnet reported a R5.7 billion loss for the year ended in March 2023, from a profit of R5 billion previously.
• For more financial news, go to the News24 Business front page.

Public Enterprises Minister Pravin Gordhan has promised there are plans afoot to tackle Transnet’s deteriorating performance decisively, which come as the state-owned logistics group reported a R5.7 billion loss for its 2023 year.

This represents a swing from a R5 billion profit, and speaking at the results presentation by web stream on Friday, Gordhan said the group was at an inflection point and would now be subject to a rigorous review under the leadership of a new board. This has recently been installed.

“Transnet’s leadership must internalise the gravity of the situation and the extensive repercussions of persistent underperformance,” he said, adding:

Gordhan said Transnet’s performance for the year ended in March 2023, together with the Auditor General’s critical findings, calls for urgent and corrective action, particularly within the Transnet Freight Rail division.

READ | Former top Anglo American exec Andile Sangqu named new Transnet chair 

The minister said the deterioration in Transnet’s operational and financial performance “will be stopped” and nothing will be allowed to get in the way of the effective implementation of a radical plan.

As the shareholder, the ministry has directed the newly installed Transnet board to report back recommendations and decisions within the next three weeks on key areas.

One such area is the thorough review of the executive management, “with a view to establishing whether persons with the right skills are optimally utilised to deliver on the mandate”, he said.

He has also asked the board to identify the root causes of the inability of management and staff to meet the performance targets and to produce a plan to deal with the deficiencies.

Gordhan has further called for a radical transformation of the operational performance of each of Transnet’s business areas to be outlined. This will include the “restructuring of the entity to more effectively and efficiently deliver on its mandate”.

Other areas to be addressed include a framework for transparency and accountability of the turnaround strategy, as well as for a broader culture of accountability and transparency in the organisation.

The minister has also called for a rigorous system to urgently implement the controls identified by the Auditor General reports, while an initiative to curb “superfluous expenses” to boost financial sustainability will also be launched.

Profit crash

Transnet’s annual loss for the year ended in March 2023, follows on from a profit of R5 billion in the previous financial year, which was largely owed to some R11 billion in once-off accounting adjustments. In the 2021 financial year, the group reported at R8.7 billion loss, its first loss in a decade.

The deteriorated performance largely results from severe operational problems on the railways, including a critical shortage of locomotives, which have impacted volumes on critical economic corridors and which, in turn, have hit Transnet revenues.

Gordhan said the findings of the Office of the Auditor General are also of particular concern.

These ranged from operational inefficiencies, which have impacted revenue, to a significant decline in performance targets – with only 26.3% of annual targets achieved. There were, among others, security and criminality challenges; financial reporting concerns, including material misstatements; revenue collection inefficiencies; and an alarming irregular expenditure of R556 million.

Procurement issues, internal control gaps, corruption and IT infrastructure issues have added pressure.

Alongside the dedicated new Transnet board, the partners at the President’s National Logistics Crisis Committee and labour unions, Gordhan said he is to ensure that Transnet makes its rightful contribution to our economy.

“The strength of leadership is tested in its response to challenges,” he said. “The current challenges, though concerning, provide us with a clear opportunity to demonstrate humility, collective action by all stakeholders, and [to] turn around the fortunes of Transnet.”