Transnet Says its Best Placed to Run S. African Ports

Transnet SOC Ltd., South Africa’s state transport company, defended its monopoly of the country’s eight ports and said it would make no sense for private operators such as France’s Bollore SA (BOL) to enter the market.

“We are sitting on natural monopolies” as the ports don’t compete with each other, Transnet’s Chief Executive Officer Brian Molefe, 46, said in an interview at the company’s headquarters in Johannesburg on April 15. “Is a natural monopoly better in private or state hands?”

Transnet owns and operates all eight commercial ports and 16 cargo terminals across Africa’s largest economy, including the biggest container terminal at Durban and Africa’s largest coal port at Richards Bay. One port, Ngqura, is still being built. Ultimately the government and regulators will decide whether private participation would be allowed.

“The country isn’t big enough to have anything else than what we have,” Molefe said. “The ports handle what a country of our size can handle.”

Income from ports and terminals accounted for about 42 percent of Transnet’s earnings before interest, taxes, depreciation and amortization in the six months through September, the company said in a statement last year. Revenue from that area of its business climbed 1.3 percent to 15.3 billion rand ($1.7 billion) and came to a about third of the company’s total sales.

Refrigerated Goods

In addition to Durban and Richards Bay, Transnet operates a port in Cape Town that mainly handles refrigerated goods such as fruit. Saldanha ships iron ore, Port Elizabeth handles manganese and cars while East London serves a nearby plant owned by the Mercedes-Benz unit of Daimler AG. (DAI) Mossel Bay is primarily a fishing and oil products port.

French billionaire Vincent Bollore’s investment company wants to increase its number of African ports under management to 19 from 14. The group is investing 250 million euros to 300 million euros in Africa each year, Bollore Africa Logistics (SDSC) Managing Director Philippe Labonne said in an interview last month. The company would particularly like to expand into South Africa, he said.

“Private sector participation in ports management can be complementary to Transnet’s internal program, in terms of sharing risks and investments,” Goolam Ballim, chief economist and global head of research at Johannesburg-based Standard Bank Group Ltd. (SBK), said in a phone interview yesterday. “So, partnerships can be especially fruitful.”

Trading Relevance

Transnet, which has shed loss-making airline and passenger train units, is becoming more profitable, Ballim said.

“Transnet appears to be piloting toward a more commercially functioning entity,” he said. “It is emphasizing major hubs stretching from Richards Bay to Cape Town. The Durban port is crucial to South Africa’s external trading relevance, and success here can be catalyzing.”

As Transnet presses ahead with a 300 billion-rand investment plan to upgrade and expand port and rail infrastructure, the company is charging different prices for bulk and container goods because of a tariff structure set many years ago. South Africa’s ports regulator didn’t fully approve a Transnet proposal to alter the tariffs to cut prices for containers and increase costs for bulk goods, according to a statement on its website earlier this month.

“We will not appeal,” Molefe said. “That debate really is not about how much money comes to Transnet.” The aim was to encourage manufacturing in South Africa, he said.

Transnet’s expansion plans include new rail services to the agriculture industry, Molefe said. South Africa is the continent’s biggest producer of corn, and may harvest 11.5 million tons this year, according to the median estimate of seven analysts surveyed by Bloomberg.

Corn, Coal

About 18 percent of corn was transported by road in 2012, down from 34 percent in 2004, according to data from the South African Grain Information Service.

The operation of rail lines for dedicated businesses will probably lead to the increased transportation of crops. Molefe said. The company is also seeking to export Botswanan coal via South African ports.

“We see a huge opportunity there,” he said.

The number of trains the company operates daily has risen to 1,200 from 700 two years ago. Transnet will start building a new line to Richards Bay that will run through Swaziland “certainly” by 2014, the CEO said.

That will allow it to boost coal shipments on the Richard’s Bay line to a terminal that has bigger capacity than the lines it is served by. Within two to three years more than 9O million tons of coal may be railed to the port, he said. The port has the capacity to export 91 million tons of coal annually and shipped 68.3 million tons last year.

Still, the Swazi rail line faces challenges.

“The terrain is very hostile. It is mountainous,” he said. “They have to find the straightest routes through the mountains.”

To contact the reporter on this story: Kamlesh Bhuckory in Johannesburg at kbhuckory@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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