Finance Minister Enoch Godongwana and Public Enterprises Minister Pravin Gordhan have agreed to issue Transnet with a R47-billion guarantee facility with immediate effect.
The funds are meant to support the state-owned company’s recovery plan including meeting its immediate debt obligations.
In a joint media statement released on Friday, the two departments said the struggling ports, rail and pipelines logistics entity plays a central role in the local economy and the government’s goal of inclusive growth.
“However, the entity has suffered significant operational, financial and governance challenges in recent times and is struggling to fulfil this strategic role,” reads the statement.
“In recognition of the seriousness of these challenges, the National Treasury and the Department of Public Enterprises have been working with Transnet to find a solution to the company’s immediate and longer-term problems, and the decision to grant the guarantee facility is a result of these discussions.
“Government continues to pursue deep-running, broader reforms of the company and the logistics sector as a whole.
“Without a comprehensive reform of the sector, rather than that of single entity, we risk being faced with similar challenges in the future.”
The departments said the financial support package is a R47-billion guarantee facility against which Transnet will draw down an initial R22.8-billion to deal with immediate liquidity matters including settling maturity debt.
Guarantee conditions to be reviewed
“Government has not considered an equity injection given that the budget for 2023/24 is closed and is confident that this guarantee facility, alongside swift implementation of the Transnet recovery plan, will be sufficient to resolve Transnet’s challenges.
“A guarantee framework agreement between the National Treasury, Department of Public Enterprises and Transnet will include strict guarantee conditions that will be continuously reviewed and amended when deemed necessary.
Any further drawdowns will be subject to Transnet meeting these conditions, according to the joint statement.
“Minister Godongwana is positive that the necessary reforms needed to put Transnet back on track can be achieved if the entity commits to meeting strict conditionalities attached to the guarantee and quickly implementing the reforms informed by the National Logistics Crisis Committee.”
The statement said Gordhan highlighted that the state-owned entity is critical to the South African economy.
“A well-functioning logistics company is particularly important given the geographical distribution of economic activity in the country, our reliance on commodity and other exports, as well as our distance from key export markets,” reads the statement.
“A guarantee framework agreement must be concluded between National Treasury, the Department of Public Enterprises and Transnet within 14 days of the activation of the guarantee to ensure that any fiscal risks are mitigated and that the conditions of the facility are fully agreed to by all parties.
“In addition, National Treasury will continue to work with Transnet to pursue other initiatives to revive its operations and financial viability.”
It reads further: “Transnet [is] to explore further the divestment of non-core assets, reduction of the current cost structure, and alternative funding models for infrastructure and maintenance requirements.
“The latter includes but is not limited to project finance, third-party access, concessions, and joint ventures.”
