Fuelling economic growth and empowerment
Fuelling economic growth and empowerment Editorial: Lauren Grey Production: Chris Bolderstone
South African logistics giant, Transnet has announced that its largest ever services contract –a staggering R15 billion- has been awarded to nine black and womenowned companies. The company says that this will be a positive influence on the country’s transport and logistics industry whilst contributing to its own ambitious growth plans.
South Africa’s Transnet, is the largest and most crucial part of the freight logistics chain that delivers goods across the country; delivering thousands of tons of goods every day through its pipelines and both to and from its ports. However, with the South African government running as its sole shareholder, Transnet’s responsibilities extend far beyond logistics, as it is also responsible for ensuring that the country’s transport industries operate according to world-class standards and contribute towards the overall economy. Transnet is not only vital to South Africa’s development, but it also combines forces with other businesses in order to expand transport operations across Africa and beyond. By doing so, Transnet assists in creating valuable business opportunities that extend far beyond the borders of South Africa.
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TRANSNET REBRAND Transnet’s roots can be traced back as far as 1850, when railway transport was first proposed for the harbours in the Cape and Natal. The company has since developed rapidly alongside the evolution of the country’s transport system, and continues to do so today through strategic investments and business ventures. One of Transnet’s turning points came in 2007, when it announced plans for a four-point turnaround strategy, prompting the company to completely rethink its business structure. The strategy aimed to optimise the equity embedded in the Transnet brand but to also communicate the revitalisation of the company, its new corporate structure, its people and its emerging service culture. As a state-owned company, Transnet plays an important role in supporting and positively influencing South Africa’s
freight logistics network, and it was therefore important that the transformation created a coherent set of business units and operations that functioned together efficiently. One of the main objectives of the turnaround strategy was to bring the company’s five divisions, formerly known as Spoornet, Transwerk, NPA, SAPO and Petronet together under the Transnet name, in order to transform the company from a multi-brand organisation into one single brand. To achieve this goal, the divisions have been renamed: Transnet freight rail, Transnet rail engineering, Transnet national ports authority, Transnet port terminals and Transnet pipelines, with each division now operating under the same ethos, “delivering on our commitment to you.”
MARKET DEMAND STRATEGY After successfully completing its four-point turnaround strategy set out in 2007, Transnet is now embarking on one
of its largest investments to date; a R307.5 billion project set to be rolled out over a seven year period. This project, known as Transnet’s Market Demand Strategy (MDS), was introduced by President Jacob Zuma in his State of the Nation Address on 9 February 2012. The MDS is aimed at expanding South Africa’s rail, port and pipelines infrastructure, resulting in a significant increase in freight volumes, especially in commodities such as iron ore, coal and manganese. The MDS will also lead to a significant modal shift from road to rail, which will propel Transnet Freight Rail, which has the largest share of the investment programme, into the fifth biggest rail freight company in the world. The increase in rail freight will have a major impact on reducing the cost of doing business, as studies conducted by Transnet show that rail in South Africa is on average 75% cheaper than road transport. In addition, the large scale shift from road to rail will
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company profile address costs, congestion and reduce carbon emissions. As custodian of ports, rail and pipelines, Transnet’s primary objective set out in the MDS is to optimise the freight logistics system, as this will improve the competitiveness of the country’s supply chains, and thus promote additional economic growth.
FUNDING THE MDS The R307 billion investment will see Transnet building new ports, expanding existing ports, buying locomotives, wagon and other rail assets and improving infrastructure. The seven year strategy is supported by a comprehensive funding strategy focussed on raising cost effective capital from a diversity of sources. The company plans to raise a third of the R307 billion from a variety of funding sources, including domestic and international bond markets, bank loans and export credit agencies among others. The rest, it says, will be funded through cash generated from its operations. In a press release, Transnet announced that it is on track to raise R15.6 billion of its annual requirement, and over the last six months it had raised R9.4 billion from the following funding initiatives: • R1 billion of commercial paper issuance • R1 billion of bank loans • R5.7 billion of domestic bonds • R1.7 billion from the African Development Bank
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Commenting on the infrastructure investment, Public Enterprises Minister, Mr Malusi Gigaba says that the investment will not only contribute towards Transnet’s growth strategy, but also the country’s logistics and transport infrastructure as a whole. “Over the next seven years, including the current year, Transnet is spending R307 billion on its infrastructure – building ports and expanding them, buying locomotives, wagon and other rail assets and infrastructure and assets while at the same time spending almost a similar amount on its operational expenditure over the same period. “Not even a cent of these billions will be spent without taking into consideration this government’s developmental goals.”
EMPLOYMENT OPPORUNITIES Furthermore, Transnet’s MDS is expected to create up to 588,000 new job opportunities across South Africa. The company itself will also be increasing its staff numbers by 25% to support the growth of the business over the seven year period. The MDS is the centrepiece of government’s growth strategy through investment in infrastructure and a key component of enabling the aspirations of the New Growth Path (NGP), including skills development, youth employment and efficiency targets.
R15BN FUEL CONTRACT As part of Transnet’s MDS, the company recently awarded a R15.5Bn fuel contract to black and women-owned fuel
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suppliers. This is the single biggest contract awarded by Transnet for services or goods to date. Following an open, public bidding process overseen by a committee of the Board of Directors, Transnet appointed nine companies to cover its fuel requirements for the next five years; eight of the nine suppliers are 100% black owned, five of them are more than 80% women owned, and three new entrants have been introduced into the industry. Announcing the award of contract in Johannesburg last month, Public Enterprise Minister, Malusi Gigaba said that it would “go down in history as the day black economic empowerment took a giant leap forward.” The successful bidders, Afric Oil, Borutho Gas Supply, Gulfstream Energy, KZN Oils, Mzumbe Oil, NRW Trading and Logistics, Tlhokaina 21, Women Of Africa Fuels and Oils, and Yem Yem Petroleum were assessed on price, which accounted for half of the scoring, supplier development, B-BBEE and technical ability among others. In addition, Transnet conducted a thorough assessment of the short-listed bidders to ensure that all of them had the required capability and capacity to service Transnet’s operational requirements. Transnet Group Chief Executive, Mr Brian Molefe said that these assessments were important due to the “size and quantum of the contract”, allowing Transnet to feel safe in its decisions. “Given the size and the quantum of the contract, and the central role fuel plays in Transnet’s operations, this assessment meant we could comfortably award the
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contract knowing that security of supply for the company is assured,” Molefe says. The contract covers the supply of fuel primarily across three areas of the company’s operations; firstly its tanks, installed at Transnet facilities across the country, which serve the fuel needs of the company’s vehicles and road equipment. The second component of is the supply of diesel to fuel the 737 diesel locomotives that the freight and logistics parastatal uses to haul goods by rail, and the third is marine fuel that the group uses for its tug boats and dredgers. Minister Gigaba said that when awarding these contracts, the Board had the targets of the MDS in mind, “When the President announced Transnet’s Market Demand Strategy in his state of the nation address in 2012, he said it was intended to revitalise South Africa’s Transport and logistics infrastructure which Transnet has custody of. “Further, he challenged us to use programmes like these to create employment, develop skills and pioneer the creation of a new class of industrialists – especially among black people. Transnet has successfully met the challenge.”
FUEL SUPPLIERS The first of the nine fuel suppliers, Afric Oil is a black-owned and managed fuel distributor situated in Johannesburg. The company markets and sells diesel, petrol, paraffin and lubricants to a client base that comprises leading companies in government, parastatal organisations and industry.
Transnet Already established and fully operational in South African, KZN Oils and Borutho Gas Supply are both involved in the manufacture and resale of fuels, lubricants and petroleum products, whose services will now be used by Transnet in the supply of fuel for its road equipment and transport.
“This day will go down in history as the day black economic empowerment took a giant leap forward.” Gulfstream Energy, a 100% women owned petroleum company situated in Centurion, was awarded the contract for the supply of fuel for Transnet’s marine business. The company has been entrusted with the supply of fuel to all of South Africa’s ports; Richards Bay, Durban, East London, Port Elizabeth, Mosselbay, Cape Town and Saldahna bay. Women of Africa Fuels and Oils is a Black Women Empowered organisation with a 100% Women shareholding, the company forms part of the Women Of Africa Investment Group, and was established with a view of expanding its portfolio into the Fuels, Lubricants,
Minerals and Energy sector of business. WOA Fuels and Oils specialise in the supply and delivery of petroleum and petroleum related products nationally and internationally, sourcing its products from mainstream suppliers within South Africa. The sixth company awarded contract for the supply of fuel is Yem Yem Petroleum, a division of the South African group, Yem Yem Holdings. The 100% black-owned company prides itself on its understanding of the South African fuel, oil and mining industries, as well as its sound grasp on the legislation that governs trade. The company has established relationships with suppliers from the Middle East, West Africa, Eastern and Western Europe as well as Asia, with the capacity to provide large volumes of petroleum. Finally, the three new entrants being introduced into the industry are Tlhokaina 21, NRW Trading and Logistics and Mzumbe Oil. Through their affiliation with Transnet, each of these companies is set to benefit greatly, and will, over the next five years, have the opportunity to grow their businesses.
BBB ACHIEVED Following its ambitious investment plans, Transnet recently received confirmation that its hard work and dedication is already starting to reflect positively on the business.
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On October 30th 2013, the company announced that Fitch Ratings had upgraded its credit rating to ‘BBB’ from ‘BB+’, confirming that Transnet has a robust execution plan and appropriate mitigating strategies for its investment programme. Announcing the upgrade, Fitch Ratings said it had “…. upgraded South Africa-based Transnet SOC Ltd’s (Transnet) Long-term foreign currency Issuer Default Rating (IDR) to ‘BBB’ from ‘BB+’ and its Long-term local currency IDR to ‘BBB’ from ‘BBB-’. “The stable outlook incorporates our expectations that Transnet’s operations will remain strong, despite possible weakening in improving export markets, and that management would scale back its capex in case of weaker demand expectations to maintain the company’s financial profile in line with stated targets,” Fitch said in a statement. The upgraded credit rating confirms that Transnet has the appropriate processes and controls set in place to execute the MDS. It also confirms that the company is in a position
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to raise the R307 billion needed to execute the MDS, without relying on government guarantees. This allows for government to channel the funds towards the country’s other pressing needs. Going forward, Transnet’s ambitious growth strategy looks set to further enhance its business operations and enable South Africa’s transport and logistics industry to thrive; paving the way for more employment opportunities and increased skills development across the country.
“When the President announced Transnet’s Market Demand Strategy in his state of the nation address in 2012, he said it was intended to revitalise South Africa’s Transport and logistics infrastructure which Transnet has custody of”
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