2025-w179 - 21 February 2025

1. The Guarantee Framework Agreement (as amended) which regulated Transnet’s compliance with the R47 billion government guarantee issued in favour of Transnet debt obligation include the following conditions. Transnet has 32 conditions (including sub conditions) attached to the guarantee. To date, Transnet has met 23 of the 32 conditions while six (6) of the conditions are currently in progress and three (3) are at risk of not being achieved.

1. Submission of a comprehensive board-approved turnaround plan which is aligned to the “Roadmap for the Freight Logistics System in South Africa” by 29 February 2024.

2. Appoint an independent financial advisor to assist with building the balance sheet optimization framework and a comprehensive financial model. Submission of the balance sheet optimization framework and a comprehensive financial model that supports the underlying assumptions of Transnet’s financial forecasts including milestones and timelines by 31 May 2024.

3. Establishment of the Infrastructure Manager:

1. interim Infrastructure Manager (with own management, dedicated staff and assigned functions by 30 September 2024.
2. as an operating division with its own management by 01 April 2025; and
3. as a wholly owned subsidiary with a board comprising a majority of independent non-executive directors who are not also members of the Transnet board by 30 September 2025.

4. In consultation with the relevant structures, implementation of a code of conduct for all staff allocated to the Infrastructure Manager as well as a transfer pricing regime to ensure that all commercial arrangements between the Infrastructure Manager and Transnet Freight Rail are conducted on an arms-length or market related basis. (due by 30 September 2024).

5. Transnet, in co-operation with the Department of Transport, will timeously respond to information requests received in the development of the National Rail Master Plan and will conform with the Private Sector Participation Framework and the establishment of the Private Sector Participation Unit.

6. Development of a network statement for the rail network:

1. The draft statement must be published for public comments by 15 March 2024.
2. The final network statement must be published within 30 days of receiving a final recommendation from IRERC. The final network statement should include a standard access agreement as well as a longer-term framework agreement for rail operators.
3. Allocation of capacity within 3 months of finalisation of network statement.

7. Establishment of the National Ports Authority as a wholly owned subsidiary by 30 April 2025:

1. Submission by 30 June 2024 of Board Approved TNPA’s MOI and other key governance documents including amendments to Transnet’s MOI, delegation of authority, Significance and Materiality Framework and other related documents.
2. Submission by 30 June 2024 of the initial due diligence report regarding the financial impact of the corporatisation of TNPA. The report should include (but not be limited to) the impact on cashflows, balance sheet, solvency and liquidity positions, and apportionment of liabilities and assets.

• 8. Submission by 31 July 2024 of pre-notification of Section 54(2) of the PFMA in respect of the corporatisation of TNPA.

1. 9. Submission by 01 September 2024 of Sectional 54(2) and Section 51(g)(a) requesting approval to establish TNPA.

8. Submission of a Board Approved plan for the disposal of Transnet’s non-core property portfolio by 31 May 2024. Full implementation of the disposal of the non-core property portfolio should be effected by 31 March 2025.

9.. Submission of a board approved plan for the establishment of a Rolling Stock Leasing Company by 31 March 2024. Establishment of the Rolling Stock Leasing Company with appropriate governance and transfer pricing arrangements, incorporating ownership by the private sector to commence implementation of the Container Corridor Operating Lease Project by 31 March 2025.

10. Transnet’s submission of a report, on the planned utilisation of the cash injection from the Durban Container Terminal Pier 2 Project as soon as the transaction is finalised. Transnet is required to obtain approval from the Minister of Finance prior to utilisation of funds.

11. Transnet’s submission of a board-approved business case, incorporating ownership by the private sector, for the development and operation of a chrome and magnetite terminal in the Port of Richards Bay and a new bulk Manganese Terminal in the Port of Ngqura by 30 April 2024.

12. Provision by Transnet of a report by 29 February 2024 on the planned capital expenditure (split between maintenance and expansionary or new capital expenditure).

13. Transnet’s submission by 30 April 2024 of a list of all non-core assets for disposal with milestones and timelines with a focus to dispose of them in financial years 2023/24 and 2024/25.

14. Design by Transnet of appropriate performance management system with clear KPIs and financial and non-financial incentives as well as consequence management for non-performance across the business by 31 March 2024 and submit to National Treasury. Adherence to these guarantee conditions should form part of the shareholder compact and should form part of the KPIs for the executive management of Transnet. Non-adherence to these conditions should therefore result in the non-achievement of the KPIs of the executive management.

15. Reduction by Transnet in operational expenses (before EBITDA) as reported for the financial year ended 31 March 2024 by 4% and aim for additional savings for the financial year ended 31 March 2025.

16. Any transactions undertaken in terms of Section 54 of the PFMA to be subject to approval of the Minister of Finance as well as the Minister of Public Enterprises.

17. Submission by Transnet of a reconciliation of R2,900,000,000 (two billion, nine-hundred million) allocated to Transnet in the Special Appropriation Act No. 18 of 2022 which was provided for the maintenance of locomotives, including milestones and timelines thereof by 31 January 2024.

18. Transnet to require the Minister of Finance approval of the terms of the financing raised against the Guarantee before concluding any agreements.

19.The guarantee provided in terms of this Agreement shall be ring-fenced solely for the purpose of securing new debt. The ring-fenced guarantee shall not be available to cover any exiting obligations of Transnet.

20.Establishment of a monitoring committee, convening monthly and comprising representatives from the National Treasury and the Department of Public Enterprises and Department of Transport to monitor, amongst others, Transnet’s financial performance, progress with developing and implementing the turnaround plan an and compliance with the conditions of the Guarantee. The monitoring Task Team will remain in place until such a time that both Ministers of Finance and Public Enterprises are satisfied with the sustainability of Transnet.

21. Provision of weekly cash flows with explanatory summary note to the Monitoring Task Team commencing on the day that concurrence by the Minister of Finance is communicated to Transnet.

22. Transnet to submit a monthly report to the National Treasury covering the following areas:

1. The utilisation of the Guarantee with regards to working capital, risk adjustments and sensitivities.
2. Tracking mechanism on all conditions, commentary on any outstanding and estimated timeline by when they will be met.
3. Tracking mechanism of key levers from the turnaround plan.
4. Progress regarding the rehabilitation of long-standing out-of-service locomotives.
5. Progress regarding the reduction in operational expenditure against.
6. 12-month rolling cash flow forecast to track material upcoming cash outflows and assess overall cash position.
7. Co-operation with the Interim Rail Regulator Capacity (IRERC) in executing its mandate and timeous compliance with information requests.
8. Annual schedule of debt redemptions and interest payments, demarcated into guaranteed and unguaranteed payments over the medium-term expenditure framework period (3 years), with payments for the first year split monthly.

2. Past equity support and Debt Guarantees Provided to Transnet Since 1994

Transnet received a R5.8 billion government guarantee for euro bonds in 1998.

Additionally, Transnet received in In September 2022 Transnet received R2.937 billion to repair and replace assets and infrastructure damaged by the KwaZulu Natal floods in April 2022. The following conditions were attached to the equity support and were all complied with:

1. Provide the National Treasury with a business cases/project plans for which the funds will be used; Provide detailed costing of the projects to be funded through the fiscus;
2. Demonstrate the areas where the funds have been temporarily shifted to fund emergency projects, and provide a detailed outline of the economic multiplier effects of the projects to be undertaken under the infrastructure restoration by 30 October 2022.
3. Submit monthly progress reports on the repair works and expenditure of the projects through DPE to National Treasury. The monthly reporting will be included as an agenda item for the monthly meetings between Transnet, DPE and the National Treasury; and
4. The approved funds will not be used for any other purpose apart from the projects earmarked for this money.

In December 2022 through the Special Appropriation Bill 2022, introduced in Parliament on 26 October 2022 additional funding in the 2022/23 financial year to Vote 10: Public Enterprises, Transnet received R2.9 billion to accelerate the repair and maintenance of freight rail locomotives​. This funding was subject to the following conditions and to date, Transnet has met 3 of the 11 conditions while five (5) of the conditions are continuously in progress, and two (2) are dependent on the government.

1. An independent review of all freight rail corridors and associated port operations is undertaken with a specific focus on identifying opportunities for operational efficiency improvements. The review will be led by the NT and the outcomes of the review will be implemented by Transnet;
2. Monthly report on the progress regarding the rehabilitation of long-standing out of service locomotives and the impact thereof on volumes;
3. Monthly report to National Treasury on progress made in addressing all the significant operational challenges impacting on the performance of Transnet, including progress on the implementation of the outcomes of the independent review;
4. Monthly update on the status of the Transnet debt and initiatives undertaken to ensure debt sustainability;
5. Transnet to avail the relevant representatives to discuss the monthly reports as and when required;
6. All Public Finance Management Act, 1999 (PFMA) section 54(2) applications to be approved by the Minister of Public Enterprises and enabled through conditions imposed under the Special Appropriation Act, also the Minister of Finance;
7. The DPE to include the NT in the PFMA section 54(2) pre-notification process as outlined in the Transnet Significant and Materiality Framework;
8. The DPE to consult NT and allow NT sufficient time to provide inputs prior to the conclusion of the Transnet Shareholder Compact;
9. Transnet to complete the commercial separation of infrastructure and operations within Transnet Freight Rail by 31 October 2023 and demonstrate meaningful operational independence of the Infrastructure Manager.
10. Transnet to comply with the policy statement in the White Paper on National Rail Policy regarding third party access by making available slots on the freight rail network for private rail operators on terms that are approved by the Interim Rail Economic Regulatory Committee (IRERC); and
11. The above conditions will be reviewed on an annual basis.