Inside the collapse of Transnet

Current and former Transnet employees describe a grim situation at the state-owned rail and ports
company

10 September 2023 - 00:02BY DINEO FAKU AND CAIPHUS KGOSANA

Transnet
Image: Supplied

A critical shortage of skilled personnel. Inexperienced executives. An abrasive leadership style.

Extremely low staff morale.

That is the picture which emerges from conversations with current and former Transnet employees,
who spoke on condition of anonymity on the crisis afflicting the state-owned rail and ports company.

They told Business Times that while a shortage of locomotives and spare parts, cable theft, vandalism
and poor maintenance contributed to crippling Transnet, inexperience and a shortage of technical,
financial, operational and project management skills also played a role.

An executive who left shortly after Portia Derby was appointed group CEO in 2020 said it was far from
ideal that all the current executive committee members were appointed after she took the reins.

The leadership team includes former SAA chief Sizakele Mzimela as CEO of Transnet Freight Rail (TFR),
the entity’s biggest and most important division whose poor performance has weighed on the entire
group.
Former Coega Development Corp CEO Pepi Silinga came in as head of Transnet National Ports Authority
in October 2020, while Jabu Mdaki was named CEO of Transnet Port Terminals (TPT) in January 2021.
Kapei Phahlamohlaka, who heads the property division, was appointed in September 2020. Ralph Mills,
CEO of Transnet Engineering, assumed the role in April 2020. Michelle Phillips, who heads the pipelines
division, has been with the company since 1999 but moved from TPT in 2021.

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Group CFO Nonkululeko Dlamini joined Transnet in July 2020 and group treasurer Andre Pillay in May
2022.

Two former senior executives and another senior manager still employed by the company — who all
asked not to be identified — said Derby’s decision to offer voluntary severance packages (VSPs) to more
than 450 experienced managers in 2021 had crippled the organisation.

Business Times understands that engineers, financial managers, project management specialists and up
to 200 train drivers — all with decades of experience — opted to take early exit packages. They were
either replaced by inexperienced people or not at all.

Having taken over the parastatal just as the extent of the state capture rot was being revealed —
including a damaging locomotive procurement deal that ballooned to R54bn — Derby is alleged to have
accused senior managers and executives when she arrived of either being incompetent or complicit in
the corruption that happened under her predecessors.

“She put out a VSP [notice] and said everyone who is here either is incompetent or corrupt. In a short
period, she told four of the long-standing financial directors and the group treasurer to pack their bags
and leave. She pushed out deep-skilled old guard who were there for 20 to 30 years who were never
part of corruption and just wanted to get on with their jobs. She cleaned house in a very poor way, and
they lost a huge amount of technical skills,” said one former executive.

She put out a VSP [notice] and said everyone who is here either is incompetent or corrupt. In a short
period, she told four of the long-standing financial directors and the group treasurer to pack their bags
and leave

Former executive

The former executive said running Transnet requires strong technical people who know and understand
the intricacies of supply chains, maintenance routines and other specialised tasks. A practical example of
the collapse of systems, said the source, has been the deteriorating performance of the Wood Owl train.
It transports timber from Mpumalanga and KwaZulu-Natal to processing mills in Richards Bay and the
forestry industry is heavily dependent on it.

It used to do the round trip in three or four days, but now its turnaround time is 14 days.

“She blames cable theft and says we don’t have locomotives, but what’s hiding behind that is
efficiencies of systems. You need seamless handovers, maintenance, operations, drivers. This has to
happen seamlessly for the rail system to work and make money. She cleaned out all this experience,”
the former executive said.

Transnet said in an e-mailed response to questions from Business Times that VSPs were offered to all
employees, not just management.

“It was a necessary step and was implemented with great care and consideration for the potential
impact on the business. The primary aim of the initiative was to reduce Transnet’s wage bill, which made
up more than 66% of the company’s running costs,” the e-mail reads.

Total VSPs across the group came to 5% of the total staff complement, it added.

“Of these, 51% were in the age bracket between 55 and 62. Of the total number of approved
applications, 2.8% of the company’s engineers took VSPs, as did 9.5% of the company’s technicians,
1.9% of the company’s project managers and 4.7% of the company’s train drivers.”

A poorly performing Transnet has a direct impact on the economy and national revenue collection.
Minerals Council South Africa estimates the inefficiencies have cost bulk commodity miners and the
fiscus R150bn. Last year the coal line to Richards Bay transported just 50Mt, compared with installed
capacity of 91Mt — its worst performance in 50 years.

The company has debts of R130bn and is paying R1bn a month in interest, a situation that makes
another call on the government for a bailout almost inevitable.

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Public enterprises minister Pravin Gordhan has given the board three weeks to develop a financial
performance turnaround plan and report back to him. He instructed the board to conduct a thorough
review of the executive management “with a view to establishing whether persons with the right skills
are optimally utilised to deliver on the mandate”.

Gordhan described the auditor-general’s findings that only 26.3% of annual targets were achieved in
2022/23 as “unacceptable” and had a “detrimental impact on our economic growth and global
competitiveness”.
In December, the Minerals Council wrote to the then board, headed by Popo Molefe, demanding Derby
and Mzimela be axed.

Last week Transnet announced it had swung to a R5.7bn loss for the year ended March on the back of
an extremely poor performance by TFR. Rail volumes dropped by 13.6% from 173Mt in 2021/22 to
149Mt in the period under review.

Under Derby and Mzimela, the strategy at TFR was changed from a commodity-focused one to
concentrate on corridor performance. Its extensive rail network was divided into six corridors, each with
an executive in charge.

Theo Johnson is managing executive of the iron ore corridor, an 861km line between the Western Cape
and Northern Cape. Ali Motala is managing executive of the north corridor, the heavy-haul export line
between Ermelo south and Richards Bay.

Mashudu Makatu manages the central corridor between Krugersdorp and Mahikeng. Thozama
Mokoena is in charge of the northeast corridor that stretches from Beitbridge through Komatipoort to
Richards Bay. Rudzani Ligege looks after the troubled container corridor which connects the Durban port
with Gauteng. Siyanda Mba is acting managing executive of the Cape corridor, the primary export
channel for manganese.

Engineering skills have been lost — 200 of the highest-level train drivers have left; people who worked
at critical corridors — the iron ore and coal lines

Insider

All six were appointed by Mzimela when she took over at TFR.

An insider who spoke to Business Times on condition of anonymity as they are not authorised to speak
to the media blamed inexperience for operational weaknesses at TFR.

“Engineering skills have been lost — 200 of the highest-level train drivers have left; people who worked
at critical corridors — the iron ore and coal lines,” they said.

The insider blamed an “abrasive management style” throughout the group for low staff morale. “People
don’t feel appreciated, they are talked down at.”

Atenkosi Plaatjie, spokesperson for the United National Transport Union, said the decision to offer VSPs
was not well thought through, and it had damaged the organisation.

“These VSPs were offered to all employees. Unfortunately, the employees with critical skills and a lot of
experience were the ones that took up the VSPs. There was no concrete plan to ensure that the skills
were transferred before these employees left.

“As can be imagined, when a number of your experienced employees leave an organisation, it leaves a
major skills gap and subsequently impacts the operations as new employees have to be trained,
upskilled or retrained to fill the gap,” Plaatjie said. “Adding to the frustration, Transnet then had to hire
contractors to do the same work as the employees [it] had offered VSPs to.”

Transnet said the executives appointed for the six corridors have an average rail experience of 23 years,
and have experience at executive management leadership level of 15 years.
“The executives also possess the relevant postgraduate qualifications in leadership and technical areas.”

Transnet said it was expected that morale would be low given the challenges the business has faced in
recent times and the company’s performance.

“Transnet is engaging with organised labour and employees through this current phase. The company
has embarked on a refreshed culture journey that has resulted in a new set of values, culture traits,
leadership credo and behaviours being adopted, and we are confident that employees are fully behind
this,” it added.“The leadership is committed to ensuring a culture of high performance and inclusivity,
while embracing the values of respect and care.”

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A former senior manager who left the company shortly after Derby took over said her leadership style
alienated skilled and experienced personnel. He said she did not tolerate disagreement. “Executives
tried to stand up and say: ‘You are doing the wrong thing.’ She showed them the door.”

On Wednesday, irate lawmakers demanded accountability from top Transnet executives and its board at
a heated meeting of the public enterprises portfolio committee after a presentation on the company’s
performance.

MPs from different parties expressed disappointment at the decline in Transnet’s operational and
financial performance.

ANC MP Nkosinathi Dlamini said the report was no different from those tabled before the committee
over the past three years.

“It largely highlights problems but offers little in terms of solutions. It does not brief us on the progress
made on the previous suggestions to the same problems they are still raising. We are becoming more of
a therapy session where we meet and they lament, we pat them on their back, and they leave. There is
really no change that is visible.”

Dlamini questioned whether TFR will be sustainable in the long run given that historically it contributed
47%-50% of Transnet’s revenues, but its contribution to the group fell to 43% in 2022/2023.

“What is Transnet doing to try and solve these problems?” he asked.

DA MP Ghaleb Cachalia noted that Transnet had reported a R5.7bn loss only a year after reporting a
R5bn profit based on a revaluation of its property portfolio. He said there are no immediate prospects of
an improvement in its performance.
“The previous year’s smoke-and-mirrors profit due to property revaluation has been wiped out by this
year’s loss, and all the talk from everybody about green shoots patently does not exist — there are no
green shoots, there are only weeds,” Cachalia said.“The company clearly needs cash from refinancing,
but delayed financial statements, covenant breaches, the negative sentiment and audit qualifications
will make this unlikely. This is against the background of only 25% of targets in general being met and
material misstatement in operational performance report as stated by the AG.”

Board chair Andile Sangqu told the committee that Transnet needs more money to turn things around.

“The reality is that the company is overstretched in terms of its ability to raise cash,” Sangqu said.

At the presentation of its annual financial results in Kempton Park last week, Sangqu said Transnet might
need to sell assets to raise money.

“We have reached the limit of our gearing capacity. Though we need cash, we do not have a strong
balance sheet to be able to generate more cash. Hence part of the turnaround plan would be to
investigate the possibility of either disposing of some of our assets so we can … raise cash or look[ing] at
ways in which we can inject capital. The conundrum is that the national fiscus does not have the
capacity to do that.

“There are many reasons for that, hence we cannot divorce the fact that the remnants of state capture
still live with us even today.”

Jan Havenga, professor at the University of Stellenbosch’s logistics department, said the loss of skills has
had a severe impact on Transnet operations.

“In the midst of this perfect storm, a management team [was appointed] that lacks specific railway
experience and expertise in rail operations, rail economics and rail engineering and maintenance,” he
said.“To add insult to injury, this leadership team’s first act, incredibly, was to alienate all the skills
necessary to navigate difficult waters and culminated in an expensive VSPs programme that cost them
even more experienced resources. The management dysfunction was recognised by the AG and
referenced by the minister of public enterprises in his very public rebuke of the Transnet management
team.”

Havenga said Gordhan’s announcement on Friday last week was profound and, on the money, and the
minister has shown true leadership. “Let us celebrate that. I believe it is nearly impossible for a team to
produce a plan in three weeks that was impossible to do in three years. That means the board will have
to figure out something different.

“For the first time in the history of the railways, there are more competent skills outside the railway
than inside the organisation. Worse than that, these skills were offered to Transnet in many ways, often
for free, and these offers were declined — until the president stepped in and mandated this assistance
through the national logistics crisis committee. That says it all,” Havenga added.

Aeon Investment Management chief investment officer Asief Mohamed said the government, including
Gordhan, needs to reflect on the poor oversight role it has exercised over failing state-owned entities
(SOEs) and ministers who are tasked with oversight duties. “As a country, we have become a lot poorer,
as reflected in the weakening exchange rate over a long period of time.”
Mohamed said companies the size of Transnet and Eskom do not go wrong overnight.

“It takes many years of mismanagement and poor leadership to get where we find Transnet and Eskom
today. What is more difficult to fix is the bad habits that have set in at these entities over many years,”
he said.“Private sector companies are also mismanaged; however, there have been fewer of them
relative to the number of SOEs with poor leadership and management. Shareholders of private
companies have a vested interest in making sure they do well. The government, from its track record, it
appears … does not care as it is not [its] money being lost but taxpayers’ money,” he added.