The Auditor-General (AG) Tsakani Maluleke has spotlighted Transnet, drawing attention to critical operational failures and alarming financial liabilities that threaten its sustainability as a going concern.

Presenting audit outcomes to the Parliament’s Portfolio Committee on Transport in a physical session earlier this week, Maluleke declared that Transnet has now received its third consecutive unqualified audit opinion, albeit with significant material findings that could have dire implications for its future.

Transnet’s financial woes are underscored by a staggering debt load of R137 billion, with annual service costs exceeding R14bn.

According to the AG, this reliance on debt, coupled with operational inefficiencies, raises serious concerns over Transnet’s ability to maintain crucial infrastructure.

“Our observation indicates that Transnet is heavily reliant on debt… This funding model is unsustainable,” the AG warned, highlighting the risk of default and the severe implications it poses for future borrowing.

The audit report, part of the Budgetary Reviews and Recommendations (BRR), outlines numerous operational challenges that exacerbate Transnet's financial strain.

Persistent shortages of locomotives and wagons, coupled with a significant maintenance backlog leading to equipment breakdowns, derailments, and product spillages, have hindered the State-owned logistics utility’s efficiency.

Decreased demand, rising energy costs, and rampant crime contributing to the vandalism of critical infrastructure have further crippled Transnet’s operations.

In a particularly concerning statistic, the AG reported that Transnet achieved a mere 28.6% of planned targets for 2024, a slight increase from the previous year's 26.32%.

This marks a disturbing trend, indicating that operational performance is stagnating and failing to meet the pressing demands for improved service delivery.

Irregular expenditure has also reached R1.76bn, primarily attributable to non-compliance in procurement processes.

To add to the turmoil, the net current liabilities have surpassed assets by R61bn, signalling an inability to meet short-term financial obligations.

Some might say that such financial indicators, including a staggering current loss exceeding R7bn and continuous breaches of loan covenants, show that Transnet is teetering on the edge of insolvency.

Despite these grim realities, there remain aspects of cautious optimism.

The AG noted that Transnet ended the financial year with cash and cash equivalents of R13bn, unchanged from the previous year. This stability is partly attributed to successful fundraising efforts, including securing R15bn in domestic bonds and a R14bn loan, backed by a R47bn government guarantee in December 2023.

Nevertheless, the AG cautioned that current events created uncertainties about Transnet’s ongoing viability.

“The current loss position and operational challenges undermine its ability to generate sufficient cash flows,” the AG remarked, calling for a comprehensive overhaul to enhance cash generation and self-sustainability.

Transnet’s operational division, particularly Transnet Freight Rail, finds itself ensnared in a web of inadequate asset management and escalating security issues.

There has been an alarming rise in the theft of critical infrastructure, with an increase in cable losses amounting to nearly R250 million annually. This insecurity not only disrupts operations but also leads to substantial revenue losses, estimated at R2.1bn over the current year.

Looking ahead, the AG emphasised the urgent need for a focused recovery plan, noting that improvements must not solely rely on debt funding but also involve government intervention and sustainable operational enhancements.

“Effective measures and initiatives are crucial to achieving self-sustainability. The ongoing financial and operational challenges of Transnet pose a significant risk not only to its future but also to South Africa’s economic welfare,” the AG concluded.

BUSINESS REPORT