TransnetÔÇÖs budget unaffected by weak market

South Africa’s Transnet will push ahead with its vast — and countercyclical — investment strategy despite the gloomier outlook for the commodities that have fuelled the recent spectacular revenue growth at the state-owned port and rail operator.
This week, Transnet reported revenue of R30.3-billion for the six months to September, a 6.4% hike, boosted, it said, by a 14.3% surge in automotive and container volumes.
“The context in which we have been operating in the last year is one of global economic slowdown,” Transnet chief executive Brian Molefe said, pointing to a decline in the iron-ore price to $82 (R896) a ton from $102 a ton a year ago, and a fall in the price of thermal coal from $80 a ton to $67 .
While total rail volumes were up 4.4% to 110.5 million tons, port container volumes dipped 4% to 2.3 million 20-foot equivalent units.
Net profit for the period fell 25% to R2.14-billion, thanks to higher finance and depreciation charges, as well the cost of retiring older locomotives. Transnet spent some R18.7-billion on capital projects during the period.
Fear of a global slowdown has not altered Transnet’s R312-billion market demand strategy, under which the company will boost track capacity and acquire another 1 400 new locomotives by 2019.
In March, Transnet signed a R50-billion deal for 599 electric and 465 diesel locomotives, which will start entering service next year.
New locomotives are being supplied under previous deals, but this has not been enough to avert an engine shortage as Transnet’s rail unit retires older locomotives.
“We have locomotives that are 48 years old,” Transnet Freight Rail chief executive Siyabonga Gama said this week. Some of the retired engines have been refurbished and sold while the rest will be stripped for parts.
To plug the gap, Transnet has bought 34 second-hand diesel-electric locomotives from Australian rail operator Aurizon which also uses the 1067mm track gauge. The locomotives, which arrived last month, had been “earmarked for several commodities” and would enter service after minor modifications, Transnet said.
Transnet said the purchase price was between A$180 000 (R1.7-million) and $230 000 each but independent sources suggested the landed cost could be as high as $500 000 apiece — still cheaper than a new locomotive.
An Aurizon spokesman said the terms were confidential.
Transnet also recently leased locomotives from Grindrod Rail. A relatively new player, the private rail logistics group builds mainline and shunting locomotives at its vast works in Pretoria.
The company is building its 88th mainline locomotive, one of four destined for Colombia. The rest of the fleet is at work on mining and state railways across Africa.
Grindrod, whose rail division operates in 13 countries, recently unveiled a new shunting and short-haul locomotive which it hopes to sell to operators seeking affordable replacements for elderly engines sourced from Transnet.
“If you try to bring the world’s Rolls-Royce solutions to African railways, you’re not going to succeed,” Grindrod Rail chief executive James Holley said. “We are focusing on bringing cost-effective and fit-for-purpose solutions to the African environment.”
At $750000 apiece, two of the new locomotives cost a third less than one 3000HP mainline locomotive, “but they perform the same role”, Holley said.
• This article was first published in Sunday Times: Business Times