Does SA’s transport reforms risk repeating Telkom’s mistakes?

In February, Transnet issued a request for quotations, inviting private investors to bid for 49% of the Richards Bay Dry Bulk Terminal, which handles much of the bulk commodities entering and exiting the country through the port of Richards Bay.

This is not to be confused with the Richards Bay Coal Terminal, which is privately owned and operated, and exported around 58 million tonnes of coal last year.

The strategic intent behind the private sector participation (PSP) process is aimed at modernising the Richards Bay Dry Bulk Terminal by introducing operational expertise, upgrading mechanisation, and attracting capital investment.

The terminal has a current nameplate throughput of about 20 million tonnes a year.

The aim is to find a private partner who will inject capital and expertise and bump up annual capacity to about 26.9 million tonnes.

Here’s the problem: Transnet insists on retaining 51% control to protect its terminal licence, leaving uncertainty over who carries the risks relating to security, rail performance to the port, throughput volumes, and potential credit exposure in an operation whose parent (Transnet) is loaded with R130 billion in debt.

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That’s not all.

Because Transnet retains majority control, any private sector partner will be subject to the Public Finance Management Act (PFMA), with procurement obligations that undermine the commercial viability of the investment.

The new “owner” would have to pay tribute to the state in the form of higher procurement costs and BEE compliance requirements.

While exemptions from the PFMA are possible, they are temporary and not guaranteed, making them difficult to include in a reliable business case.

By some estimates, these additional costs could amount to R1.44 billion a year, sufficient to fire up five or six smelters and generate about R7 billion in extra ferrochrome exports.

This is particularly striking at a time when only one-sixth of the country’s smelting capacity is operational, following a 900% increase in electricity tariffs since 2007, which has effectively deindustrialised the chrome sub-sector. Also bear in mind that 49% of SA’s GDP input costs are logistics.

It is hardly surprising, then, that private sector investors are not exactly queuing to take part in the Richards Bay deal.

“It’s unbankable,” says one industry player who asked not to be named.

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The process is managed entirely within Transnet’s internal procurement unit, without scrutiny from the PSP office set up by cabinet specifically to handle transactions of this nature.

This approach to reform protects Transnet and its balance sheet at the expense of upstream jobs and GDP growth for years to come.

South Africans are left to foot the bill for decades of abuse and theft at our state-owned logistics provider.

Parallels with Telkom

There are clear parallels with the partial privatisation of Telkom in 1997, when government sold 30% of the company to the Thintana consortium (SBC Communications and Telekom Malaysia) for about $1.26 billion.

In return, Telkom was granted a five-year exclusivity period on fixed-line services, with a target to expand the network by 2.8 million lines, mostly in underserviced areas. This was all in preparation for eventual competition.

The results were hardly inspiring.

Telkom satisfied the network rollout targets on paper, but most of these new lines were disconnected due to high installation fees, rental costs and call charges. Fixed line penetration grew to 4.7 million users from 3.9 million over the decade to 2006, while mobile penetration exploded.

Telkom used its monopoly powers to frustrate and block value-added and internet service providers.

Telecommunications academic Robert Horwitz summed it up: “The reform has largely failed. Telkom … has used its monopoly power to thwart competition. It has raised prices so high as to be damaging to the economy.”

High telecom tariffs became “a tax on industry and a drag on economic growth”.

As SA embarks on its long-awaited reform of the transport sector, we risk repeating the mistakes of the past.

SAA could have saved the country upwards of R40 billion in taxpayer bailouts had it been properly privatised in the 2000s, as many advised.

Instead we had Dudu Myeni, former chair and chief meddler at the airline, trashing the place in the name of transformation and allocating multi-million-rand contracts to entities no-one had ever heard of. One could go through the list of state-owned entities and find similar outrages.

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But Transnet is a different beast.

There’s no question it is under much better management than at any time in the last few decades, and Transport Minister Barbara Creecy’s commitment to reforming the sector is both sincere and well-meaning.

Listen/read: Transnet’s revival and its economic impact

Were this not the case, we would not be discussing reform of any kind. We can be thankful for that. As they say in management – never nag a win. Take every incremental success and build on it.

But that does not mean we are headed down the right path. Again, we have a state-owned entity clinging to control which, in the end, it will have to relinquish – as happened at Telkom.

Transnet remains the custodian of South Africa’s rail network, comprising an astonishing 21 000 kilometres, of which 5 000 kms are considered “core”, along with the major ports and 3 000km of pipelines.

Read/listen:
Traxtion kickstarts private SA rail boom with R3.4 billion investment
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The Freight Logistics Roadmap was released in 2023, separating the Transnet Rail Infrastructure Manager, or TRIM, from Transnet Freight Rail. This new manager is responsible for allocating rail routes to private operators, of which 11 have been approved as of early 2026.

While TRIM remains part of Transnet, it cannot be considered fully independent as long as its budgets are approved by the Transnet board and its governance, procurement and strategic decisions are filtered through the parent company.

Creecy is well aware of this and promised in March that a new National Rail Bill, currently being drafted, will “embed in legislation the reforms under way”.

But will this go far enough?

As some in the mining sector have pointed out, a fully independent rail network operator would own the lines and raise capital independently, mirroring the Eskom transmission model, where private bidders have signed on to build and operate 1 164kms of transmission lines.

The exception to the rule?

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What about the recent finalisation of Philippines-based International Container Terminal Services Inc (ICTSI) contract to run the Durban Container Terminal (DCT) Pier 2, SA’s busiest shipping container handling facility?

ICTSI won a 25-year concession – unsuccessfully contested in the courts by Danish shipping giant AP Moller-Maersk – giving it a 49% share in the terminal. The question then arises: if control is so important, why did groups of the stature of ICTSI and Maersk line up for the right to operate Durban’s Pier 2?

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Transnet signs 25-year port agreement with billionaire Razon’s ICTSI
SA is revamping its ports

Talk in the industry suggests that having a foot in the door is better than none, allowing the incumbent to influence future concessions, where the issue of control can be massaged to their advantage – and potentially outside of a competitive bidding process.

No one wants the overhang of Transnet’s R130 billion debt metastasising into a cancerous growth on the balance sheet of these new private-public entities.

Transnet management has a duty to Transnet itself, not the country, and we can already see the outlines of that conflict in the glacial reform process underway.

Returning to the Richards Bay Dry Bulk Terminal bid, Transnet cannot objectively evaluate bids for its own replacement. It needs an independent body to craft concession documents, which should be circulated to financiers before a request for proposals is issued, as cabinet expected would be done in its PSP Framework document of December 2023.

A PSP unit was created precisely to achieve this end, yet neither the Department of Transport nor the PSP unit is referenced anywhere in the Richards Bay bid.

The National Ports Act explicitly empowers Transnet National Ports Authority (TNPA) to manage the issuance, transfer, and retraction of terminal licences.

The Richards Bay tender has been criticised for seeking to circumvent the TNPA’s authority for the benefit of Transnet.

Previous Transnet tenders with unbalanced terms have attracted few or no responses.

Sponsors have already indicated that many of the thresholds for bidding are unacceptably high, requiring R5.2 billion in financing capability and more than R400 million in annual revenue, to name a few.

This narrows the pool to a handful of international players, effectively excluding local entities.

Who will spend upwards of R10 million to prepare a bid with a low probability of success?

Read/listen:

Treasury wants more private sector help around fixed investment
Transnet receives R16.1bn to improve the state of its network
Traxtion kickstarts private SA rail boom with R3.4bn investment

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