19 February 2010 CASE STUDY: TRANSNET More or less on track By Matthew Hill

Wind the clock back 10 years. Then president Thabo Mbeki outlined in his state of the nation address how he had assembled a team of high-flying international advisers, including financier George Soros, to advise SA on privatising parastatals, including Transnet. The plan was a grand one: package the businesses and either sell them to private firms or list them on the JSE. Jeff Radebe, who was public enterprises minister, said government would finalise its blueprint on the sale of assets by the end of March and complete the process by 2004. Government believed it could net over R21bn from offloading Transnet, Eskom, SAA and Denel. But none of these sales ever saw the light of day. If they had, Eskom, with a net asset value (NAV) of R200bn in March last year, would certainly be ranked on the JSE's top 10 if it had been listed. Chris Wells - Doing a good job By comparison, MTN's NAV was R170bn at December 2009. Transnet's assets were worth R118bn in March last year. Back to the present: last week again government was talking big about the parastatals - which are all still parastatals. President Jacob Zuma admits these companies are teeming with trouble, and says they will be reviewed. It could be argued, though, that freight transport group Transnet has been one of the better-performing state-owned companies of late. This is surprising, seeing it hasn't had a permanent CEO since Maria Ramos left in March last year and there's been no permanent chair for six months. But while Eskom is on the funding ropes, Transnet is doing okay. Acting CEO Chris Wells has been doing a decent job. Transnet has raised the money it needs so far for its R93,4bn capital expansion programme, which admittedly is a lot smaller than Eskom's R400bn. Last week it took the proactive step of setting up a US$2bn global medium-term note programme on the London Stock Exchange. This allows it to tap global bond markets when it requires. Already, the parastatal has raised R24bn to fund its expansion, R8bn coming from local bond markets. It has also done well in securing loans from other governments in the countries it is importing equipment from for its capital expansion programme. The one gripe that some of Transnet's customers have raised is the issue of tariffs. While it's understandable that any client would rather pay lower fees, some concerns seem legitimate. Transnet wants to make a profit from its port, rail and pipeline businesses. Instead, it should be aiming to provide services to its clients at the lowest possible cost, while not making a loss and still having money to grow its business. A chicken-and-egg situation has also emerged on the coal export line, where Transnet says it won't invest in expanded capacity until coal exporters sign long-term rail contracts. The miners are reluctant to build their mines until they know they will have rail capacity. In situations like this, Transnet should be the one that makes the first move, which would open the way for job creation and increased export earnings.