Transnet signals turnaround as private operators enter rail and ports

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JEREMY MAGGS: Ongoing this week in Cape Town is the annual Mining Indaba and a prominent attendee is Transnet, which in the past has had a tense, even an adversarial relationship with the broader mining sector. That, though, seems to have thawed as the utility is slowly getting its business right.

I sat down at the event with group chief executive officer Michelle Phillips, who began our conversation with how high the stakes really are for Transnet, and then what has changed and where work still needs to be done.

MICHELLE PHILLIPS: Before the Mining Indaba itself, we have the Coal Conference, so it’s almost preceded by the Coal Conference. Absolutely positive reception. The customers are very happy, talking about how can we help you? Completely different from where we’ve come from.

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We’ve had to really go back to customers, rebuild the relationships, rebuild relationships with our funders. Our funders are beginning to see the good work and our customers are beginning to feel the good work.

The reception is a lot more positive and I’m so proud of that because this business is about relationships.

We can solve and resolve any problem if you have a relationship with your customers and your stakeholders and they are able to say, okay, let’s do this together. I’m really pleased with how far we’ve come.

Just the openness of the business, the fact that we are so transparent and we’re engaging so meaningfully.

JEREMY MAGGS: How do you think you’ve done that? And perhaps more importantly, how do you sustain that relationship?

MICHELLE PHILLIPS: We have people, who are our greatest asset, in Transnet. We needed them to really understand how they contribute to what it is that we do in Transnet.

JEREMY MAGGS: I guess a lot of them had given up hope.

MICHELLE PHILLIPS: Fifty thousand people, yes, a lot of them had given up hope. They needed to remember the purpose of being part of this organisation.

Number two, we had to go back to customers. I really focused on the commercial relationship. Talking to customers again, getting them to understand that we need their help and we want to collaborate and work with them.

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But on the people side in particular, we worked on how do we create this culture of excellence and bring that back. In comes the group chief operating officer, Solly Letsoalo, he really structured what it is that we want from our people.

If we are able to meet the service levels that our customers require from us, it creates that balance that works. So these are the things that we need to sustain going forward. The customer pays the cheque. The employees are the ones who do the work. We need to keep them both happy.

JEREMY MAGGS: Quantifiably, what does a culture of excellence actually mean?

MICHELLE PHILLIPS: We look at everything in terms of numbers and the numbers need to speak for itself. So we see the movement, I think we still have a way to go.

JEREMY MAGGS: Doe the word tonnage keep you awake at night?

MICHELLE PHILLIPS: It keeps us awake at night. The minister (Barbara Creecy) says I want 250 million tonnes from you by 2030, and I’m saying, okay, so how do I do this?

When we took over this business, we were at 149 million tonnes. So I say to my people, once they reached the 150 million, don’t look back. We’re never going back to the one-forties.

So we are now into the one-sixties and the message again is don’t look back, move forward. We’ve surpassed the one-fifties, and we want to get to the one-seventies and get into the one-eighties and into the two hundreds.

Then you’ll see us getting back to the excellent organisation that we know we can be. So that’s the push.

JEREMY MAGGS: Two fifty by 2030 is a big ask.

MICHELLE PHILLIPS: Yes, 250 million tonnes by 2030 is the country target and SA Inc target.

You’ll recall we’ve invited private train operators to join us onto the network. We’ve granted 11 of them conditional award. I signed one of the agreements the other day, so we will see these private operators also making use of the network.

We’re hoping that as a country, we can get to the 250 million tonnes by 2030.

JEREMY MAGGS: Do you think that private partnership collaboration, which is so critical to your success, is happening quick enough?

MICHELLE PHILLIPS: I think so. We’ve recently closed on the (Durban Container Terminal) Pier 2 transaction. Pier 2, from 1 January, is operating as a private terminal, essentially. We have a 50% shareholding in that, but the operation is being run by a private operator. That’s good because it also helped us on the financial side.

Then we’ve identified a number of other private sector transactions or participation transactions. We’ve got about four to five for this next year that we will go to market with.

People talk to us about the time that it takes and that we are slow. I’d rather be slow and deliver quality than rush and then spend my time in court fighting as to whether I’ve done the right thing or not.

JEREMY MAGGS: But you’ve got to find that balance between taking the right amount of time and the imperatives that the economy demands, and that’s a difficult one to balance.

MICHELLE PHILLIPS: Yes, it is a very difficult one to balance and there are so many interests that you also need to be mindful of.

Again, the conversation is be transparent, be open, this is where we are, and that’s why we’ve been taking people along with us. We tell them exactly where we are, what the status of certain things are and where we will be and when we will go to market.

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These are the messages that we’re trying to put out there. Our strategy, reinvent for growth, is exactly that. But what it means is whilst we are changing, let’s take the time also for people to understand where we are going. It will be a growing organisation.

JEREMY MAGGS: How would you describe your relationship with government right now and particularly the minister?

MICHELLE PHILLIPS: Well, I have an extremely positive relationship with the minister. The minister is approachable, she’s accessible and she’s there when you need her with some difficult interests.

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I prefer to leave all the politics to her, that she does what she’s best at, and I think she prefers it that way. We do what needs to be done for this business to get out of where it was.

JEREMY MAGGS: You talk about reinventing for growth, which is the core pillar of your strategy, what do you think is fundamentally different about Transnet today than, say, two years ago? Just one thing that the mining community here can take some (encouragement) and some solace from.

MICHELLE PHILLIPS: We come from a history where we certainly got used to it, we got very comfortable in being a public monopoly. We didn’t have to necessarily, as much as we accounted to government, it was really a take it or leave it situation.

Where Transnet is now, not only have we embraced the reforms that the country is undergoing, we’ve also embraced and worked on these relationships that we should be having with our customers.

We understand the importance of collaboration. We understand the importance of making the best of the opportunities that arise, and we are not too scared to go and ask for help. I think that’s the change from where we’ve come from.

I try to also remind my people not to become complacent, even if we do better, let’s not become complacent, the hard work continues.

But certainly, from a very comfortable space some years back of running it all, the focus for us is let’s focus on what we are good at, and we do that as best as we can.

And everything else, invite the private sector and let the private sector partner with us and bring their skills and bring the capital.

Because at the end of the day, the country grows.

JEREMY MAGGS: You say you’re not afraid to go and ask for help. What kind of help are you talking about and where is that assistance coming from?

MICHELLE PHILLIPS: Like I said, we collaborate a lot with our customers. For example, if we take the coal corridor and the ore corridor, just two examples,

Solly, fortunately, has set up these very good structures where we are able to engage with the customers. We share everything with them that is a problem on that line. Typically, the state of the network, the state of the line.

On the ore line, we have to do rail replacements because the rail is in such a bad state, but we can’t do it all. I have 10 days in a year during an annual shutdown to repair a stretch of rail line. Now we’re able to say to the customers, okay, can we agree, maybe we want two shutdowns, will that work for you? Yes, we’ll give you more time. So they’ll give us more time.

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At the same time, we can say to them, listen, do you have some resources that we can make use of? Yes, we can. Okay, can we reduce some of the time that we need to take to repair the network?

At the end of the day, they will feel the upside because I’m able to run trains without derailments, which means we are able to move more commodities, and we can get more commodities exported.

On the coal line, as an example, we collaborate with them on the security side. Sometimes my processes take a bit long. The customers will say, okay, but I can help, let me bring in a piece of equipment or some resources and then we’re able to do quick governance and utilise those resources and that helps.

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You can’t hide here because if you hide, the customer is going to feel it because it’s their product moving on the line. The best thing to do is to say, customer, this is the state of the line. You can help me like this. I can help you like this. Let’s make this work.

JEREMY MAGGS: You just used the phrase quick governance. Obviously, governance underpins everything and I understand that. But the question is how difficult has it been for you to accelerate that process, to cut through some of that onerous red tape, which, let’s be honest, Michelle, has been a hindrance in the past?

MICHELLE PHILLIPS: Yes, and still a little bit challenging. But I have to say, the Treasury, you talked about our relationship with government, the Treasury has been very helpful.

We’ve engaged with them and we’ve been able to also secure a number of departures from some of the regulations that make it a little bit more difficult, and that has helped us.

If we look at the rate at which we’re getting equipment into the port system, renewing the fleet, a lot of those processes. Let’s call it fast-tracked processes, but still compliant processes because we don’t want anybody to get into trouble.

But the bottom line is we are allowing private sector onto the network. You can’t operate as a public entity when you have to compete head-to-head with private sector entities.

We have to get to a point as a government to allow Transnet to actually run as an enterprise, which it is. We can’t have these constraints that then serve rather as obstacles than as a means of doing better business.

We’re going to need to figure that out as well, particularly as the private sector is beginning to get onto our system.

JEREMY MAGGS: Just finally, what would you ask from the private sector to make this recovery, that you’ve outlined to me so eloquently, sustainable in the long term?

MICHELLE PHILLIPS: People need to understand what’s in it for them, and you have to make the customer understand and believe that with all of the help that we are getting, that there is an upside, that this is going to be paying off and you need to be believable, they need to trust you.

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That’s another thing that we’ve had to work very hard on, is the trust relationship. I think the important thing is the customers want to be part of the solution.

The other important thing for me is the private train operating companies. We are working with them so that we can also prepare them. I want to fill the gap between where we are and the 250 million tonnes.

But then at a point, once we’ve got the 250 million tonnes, are we going to be competing heavily with each other.

So here’s an opportunity for us to learn from each other, but get South Africa working, and then the competition can start and hopefully the efficiencies go up as well.

JEREMY MAGGS: That’s Michelle Phillips, group chief executive of Transnet, talking to me at this week’s Mining Indaba in Cape Town.

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