Transnet on strategy to increase capacity in Durban harbour & Port of Ngqurha 7 moving freight from road to rail

Meeting report

Apologies were received from Mr Pravin Gordhan, Minister of Public Enterprises, Ms C Labuschagne (DA, Western Cape) and Ms M Mokause (EFF, Northern Cape).

Dr Popo Molefe, Chairperson, Transnet, greeted everyone present in the meeting, gave apologies for board members who were absent, and introduced the Group Executives of Transnet.

Transnet on Durban hub port, road-to-rail and port of Ngqura developments

Dr Andrew Shaw, Chief Strategy Officer, Transnet, briefed the Committee on Transnet’s hub port strategy and the Durban hub port development . In addition to creating an integrated hub port system that increased attractiveness and capacity -- vessel size and TEU (Twenty Foot Equivalent Unit) handling -- it was starting with the Ngqura Container Terminal (NCT) as a transhipment hub for supporting South Africa-China trade. The NCT would work in unison with the significant expansion to take place at the Port of Durban, and would augment the expansion plans at the Port of Cape Town. 18,000 TEU vessels were already on the water. Positioning the Port of Durban by creating a hub-status port had the opportunity to substantially increase the handling of transhipment volumes destined for ports in the broader South African Development Community (SADC) region. He further explained the challenges and opportunities with the layout and the end state of the Port of Durban.

Mr Pepi Silinga, Chief Executive: National Ports Authority, Transnet, presented Transnet’s 2020s renewal programme on the Port of Durban, which included the key activities and insights and consultations with stakeholders. He further briefed the Committee on the Transnet freight rail initiatives and the CapeCor rail line capacity development and road to rail initiatives, which included the desired end state of the rail network and enabling the back of port facilities.

Ms Sizakele Mzimela, Chief Executive: Freight Rail, Transnet, briefed the Committee on the Port of Ngqura development. She explained the positioning of the Ngqura container terminal as a transshipment hub, and the Transnet segment strategies with a focus on East London. She covered the migration of the PE bulk ore terminal, the liquid bulk terminal and independent power producers (IPPs) long-term combined proposal.

[See presentation attached for details]

Discussion

Mr M Nhanha (DA, Eastern Cape) said he had missed critical comments by the Transnet executive, as he had logged in after the presentation due to network problems. He was pleased that consultation had been done, and key role players were on board with the relocation from Durban to East London. This move made sense and was beneficial to Port Elizabeth and East London. The name of Port Elizabeth would not be changed soon.

The non-availability of board members for Committee meetings was a concern. State-owned entities  (SOEs) were currently in a bad situation, and all hands must be on deck and all board members should be present at meetings. Strategic objectives would not be met if all stakeholders were not present in meetings.

For how long must Parliament hear about the plans? The Committee had heard these strategies before. It was refreshing to hear Mr Silinga being honest about it, saying it had been 19 years since Transnet had planned this. Did Transnet have an implementation plan, in order to do the right thing? Moving from road to rail had been on the agenda for a while now, and few specifics had been given on how it would happen. The presentation had spoken largely on increasing capacity to handle goods as they left the port. No details had been given on how the movement of freight from road to rail would happen.

The issue on the number of trucks on the roads had been raised in the previous year with Minister Gordhan. There were many trucks in the Northern Cape, causing destruction to the roads and infrastructure in the small towns. The amount of manganese going to Port Elizabeth by truck posed a danger to the road infrastructure and other road users. There had been two bad accidents in the last two months between Port Elizabeth and Cradock, and both had involved trucks loaded with manganese. There was not much detail given on what exactly Transnet was going to do. It was encouraging goods to be moved from East London to Port Elizabeth, but there was a lack of specifics to ensure that customers used rail rather than road. 

The current rail lines were not conducive for the faster movements of goods. To be competitive, one needed to have wagons that moved faster. To what extend had the developments in ports in African countries impacted local business and South Africa's positioning? The reopening of the branch line to Cookhouse had been good, and would ensure a good economic spin-off for smaller towns. There was a problem if the branch was opened, because it meant nothing would be done concerning the port of East London. One of the major investors in the country was situated in East London. The port that Transnet was supposed to be using was East London; instead it was being treated like a stepchild. No efforts were being made to improve the port of East London. The theft of fuel illegally from the Durban-Gauteng pipeline posed a safety hazard -- did Transnet know about this, and how would they manage it?

Ms W Ngwenya (ANC, Gauteng) sought clarity on timelines regarding the introduction of international terminal operations in Ngqura, and when Transnet was planning to start these initiatives. The timelines would assist the Committee to monitor the strategic plans. Were there challenges prohibiting Transnet from opening all the closed terminals and multipurpose terminals? If so, were these challenges related to capacity, and how soon could they be opened?

The business community in Durban and the KwaZulu-Natal (KZN) provincial government were unhappy with the decision to relocate the Head Office. Was this a good decision as part of the strategy? The maintenance of rail was a competence of Transnet -- what was the current state of the rail tracks used by goods and passenger trains? Was Transnet operating at a limited capacity, and if so, which operations were affected? As part of the responsibilities of the priorities of the government with regard to achieving a better Africa and world, did Transnet have the capacity to implement strategies that were aimed to accelerate the achievement of sustainable development goals?

Ms L Beebee (ANC, KZN) said her main concerns had been covered by Ms Ngwenya. She sought clarity on the procurement of 1 064 locomotive in 2016, which was a matter still under investigation. Had this impacted on the capacity on the expansion programme? Had the disputes with the Passenger Rail Agency of South Africa (Prasa) been resolved, and had money been paid?

Ms T Modise (ANC, North West) said her challenges had been covered by members, but she would like to know if Transnet had received money with regard to irregular contracts and tenders?

Responses

Mr Weekend Bangane, Acting Deputy Director General, Department of Public Enterprises, said the Committee needed a comprehensive response, and asked Transnet to provide responses its questions.

Dr Molefe addressed the absence of Transnet board members by stating that they were not full-time employees. Apologies had been given, and this demonstrated their respect to the Committee. The question that should be asked was if the board was effective enough, and not if all board members were present in meetings. The board worked hard, and had more meetings than any other board. The tasks were important, specifically on Transnet activities. It was ideal to participate in all meetings and for all directors to be present. The directors had sent apologies and they should be received favorably. The board was satisfied with the work of its members, but noted the concern of the Committee. There were executive and non-executive members present. It was important to note that the reporting and briefing were not about numbers or 100% attendance, and did not reflect the performance of the board.

Ms Portia Derby, Group Chief Executive, Transnet, said that the various chief executive officers (CEOs) would respond. Transnet was more than just a logistics service provider. It looked at every single base as stewards to ensure the drive of competitiveness and economic activity in the country. She had noted the comment on East London, and said East London remained an important part of the system. East London had an important investor, namely Mercedes Benz, and there were several projects that would happen in the province. Alternatives were being looked at regarding the roads to the port.

Ms Nonkululeko Dlamini, Group Chief Financial Officer, Transnet, said engagements had been conducted with the leadership and management of Prasa. In total, 95% of the debt had been reconciled in terms of the agreed amounts owing. Prasa had been dealing with their liquidity requirements to pay Transnet. Significantly, the issue of disputed amounts had been resolved.

Adv Sandra Coetzee, Chief Legal Officer, Transnet, said on 9 March, Transnet had filed its review and set aside an application in respect of all four original equipment manufacturer (OEM) transactions. The notice of motion sought to recover all of the irregular payments, inclusive of kickback amounts, advance payments and excessive profits. In addition, it sought seeks to retain those locomotives that were not defective, to ensure operations continued with the deliveries to date. They had also recently settled with McKinsey for the amount of R870 million, and money had also been recovered from a former employee, Mr Herbert Msagala.  Transnet continued to review and set aside recovery applications, to recover irregular expenditure determined through investigations.

Ms Mzimela said the plan on how to move from road to rail was being tracked closely, and significant work was being done. 26 000 truckloads had been moved from the roads on the Cape corridor. There were still challenges, because the demand for the movement of manganese was still too high to move those commodities to rail. They were fully utilising the slots on the corridor by running the five manganese trains per day. They were planning to grow the rail capacity on that line, and that required them to undertake work on the infrastructure. It was about creating more loops and lines on the infrastructure in order to have additional slots, with the ability to run more trains. That plan was under way, and required significant investment, as it addressed the current upgrades that were in place.

The rail tracks were maintained in respect of the Transnet portion, and Prasa took responsibility for their portion. They did collaborate to ensure the rail networks were maintained. It was an ageing infrastructure and required a significant amount of investment, but they continued to maintain the rail network as best as they could to ensure safe operations. Transnet puts plans up front regarding what should be moved and what they were able to move in terms of capacity.

A large factor responsible for affecting its level of capacity was the theft and vandalism experienced on the lines. 25% of the cancellation of trains in the last financial year had been due to theft and vandalism. The 1 064 locomotives that were procured had had an impact on operations, and was mainly as a result of the unavailability of the spare parts required to repair the new locomotives. This had forced them to continuously use the B-fleet locomotives, which was an older fleet. The B-fleet had been parked and not to be utilised once the new locomotives came into place. However, it was continuing to be used, although it was not reliable. This all had a negative impact from an operational perspective, but they were finding ways to mitigate these challenges. 

Mr Silinga said there was confirmation that East London was part of the bigger plans, with the deepening and widening of channels. There was expansion of the bulk terminal to accommodate the increasing volumes, and there were projects regarding the roads in collaboration with the local municipality and the Buffalo City Development Agency. There was upgrading of the railway line for the increased volume of manganese, as well as for automotive exports. This all formed part of the road to the Port of East London. They were focused on the maintenance of the Port of East London to ensure it looked much better.

The head office had always been in Parktown, Johannesburg, and had been relocated based on managers being in close proximity of operations and by providing shared services. Transnet had to spread its existing assets before it could spend money. This would lower the cost of conducting business by using the existing buildings in the areas.

Even though there was a good proportion of professionals in the built environment in the headcount, Transnet did not have the capacity to implement all its plans. It needed a lot more than people to ensure an efficient, functioning and fit for purpose delivery mechanism. Transnet also did not have a system to respond to particular demands. Support systems, training and tools of trade were also needed.

Dr Shaw said African countries were growing substantially in terms of competitiveness, like the ports of Mauritius, Dar es Salaam and Mombasa. The West African countries like Nigeria and Ghana were growing and investing, and performed better than South African ports. The benefit South African ports had was that there was considerably more volume because of the size of the economy. If performance was done and the physical characteristics of the ports were correct, they would have the ability to attract all of that traffic back. That was the key element of Transnet’s strategy. This would ensure domination in the south of the Africa trade, as Transnet had done before.

There was a real drive to from road to rail. Transnet’s strategy was to look at the value chain of the large commodity segments, how it was positioned competitively, and whether it could be positioned more effectively in order to attract traffic away from road and to increase its capacity to deliver more products. The partnership strategy was to drive the private sector in to uplift the amount of volume that was moved along the key corridors, which would have a fundamental impact on road versus rail.

Ms Derby said the timelines for the Ngqurha terminals had been planned with the intention of going into the market by the end of July, and advertising to get partners. The commitment of Transnet did not lie with the moving of the head office -- it lay with the operations. The relocation showed that the executive and most senior members were part of operations and in close proximity to customers. This ensured responsiveness. 

Committee matters

The Chairperson thanked all present in the meeting, and appreciated the work done by Transnet. If Transnet did not perform, the economy did not perform. The economy needed to recover and create jobs.

Members would send written questions to Transnet, which would require written responses. The Committee needed to know the current state of its finances. Oversight visits would be conducted at the Durban harbour and the Port of Ngqurha. The date and time would be communicated.

The minutes of the Committee's meetings on 26 May 2021 were adopted.

The meeting was adjourned.