[Letter] SA is not getting the basics of reliable trade infrastructure right

In a note accompanying Thungela Resources’ 2022 interim results, CEO July Ndlovu writes: “Thungela’s ability to fully take advantage of the strong price environment in the first half of 2022 was hindered by TFR’s (Transnet Freight Rail's) continued underperformance.”

He adds that a well-run logistics corridor from Mpumalanga is “crucial … for the SA economy with coal exports generating billions of rand in tax and royalty revenues.”

That SA is not getting the basics of reliable trade infrastructure right means the country’s fiscus will be more fragile in future. Global events, specifically elevated commodities demand and prices, have boosted the economy and government’s coffers over the last two years, but we are now possibly at the tail end of this wave.

Unfortunately, government’s persistence with keeping Transnet’s market dominance in place means the urgently-needed work in improving rail and port maintenance, operations and performance has not been done. The proposed pilot project announced by Transnet a few months ago, to bring in private sector investment, is at risk of being reform in name only.

As part of the plan Transnet will remain as custodian of infrastructure. Would investors be willing to part with serious capital outlays in infrastructure upgrades and maintenance if said investments remain the de facto property of a state-owned entity that has severely underperformed?

Ndlovu highlights that, “In response to TFR’s inconsistent and poor rail performance we have curtailed production … the level of rail performance has not improved sufficiently to warrant confirmation of our original guidance for export saleable production.”

Thungela has cut its 2022 thermal coal export forecast to between 13-million and 13.6-million tonnes, from an initial projection of 14-million to 15-million tonnes. The company also indicated that it has started to use trucks to move its product — meaning more pressure and traffic on key SA roads.

Thungela will also need to factor in the risks posed by future blockages on the routes it uses.

Letter originally appeared here.