Ports continue to fail to optimise capital expenditure for efficiencies and economic development
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Ports continue to fail to optimise capital expenditure for efficiencies and economic development

Analysing TNPA’s capital expenditure strategies

Editor, Colleen Jacka, looks at Transnet National Port Authority’s (TNPA) tariff submission made on Monday last week and highlights some of the statements relating to capital investments as a follow-up to the article Maritime Review published relating to the announced Master Plans for the Port of Durban.

The tariff submission emphasises the Authority’s understanding that capital investment should be the central pillar that “underpins the national goal of creating an optimal freight system for enabling economic growth.”

The graph below, however, illustrates how the Authority has failed to deliver projects based on an inability to spend allocated funds. The latest tariff submission currently before the Ports Regulator lists several reasons for this including delegation of authority, procurement processes, governance, project execution methodology and resource gaps.

The Authority did not spend approximately 42.5% (R125.4m) of the maintenance budget in FY 2020/21, due to amongst others, delays attributable to COVID-19 Lock Down; and deferment of scheduled layup activities due to sourcing challenges.

Against this backdrop, TNPA has announced the Transnet Segment Strategy which presumably replaces the Market Demand Strategy (2012) which morphed into Transnet 4.0 and was then reintroduced as the Game Changer Strategy in 2020.  At the Port Consultative Committee engagements last year TNPA described how the Game Changer Initiative would ultimately align corporate investments with customer needs as well as build in-house capacity for planning.

Now the Transnet Segment Strategy aims to optimise key industry supply chains and to support the growth of Transnet’s key market segments that include iron ore, manganese, coal, chrome and magnetite, automotives, containers, fuel, and gas.

In order to deliver on the Transnet’s segment strategy, and fulfil the mandate of the Authority, significant capital expenditure will be required in the short to medium term. This implies that above inflation tariff adjustments will be required. This is contrary to the guidance provided by the Regulator (past Tariff ROD’s) stating that indicative overall tariff adjustments in future years should be within the inflation target band.

The document notes that the key objective of the strategy is to influence the development and growth through the investment in “adaptable and integrated infrastructure that is fit for purpose, competitively priced and efficiently operated in line with global benchmarks.”

This segment approach, however, could see long-awaited critical maintenance in areas such as ship repair infrastructure for example experiencing further frustrations. Admittedly, most of TNPA’s strategies have missed the mark here and it was only with the advent of Operation Phakisa that non-trade or shipping related infrastructure began to receive the necessary attention. That’s certainly not to say that Phakisa delivered timeously and efficiently.

Launched in April 2012, the Market Demand Strategy (MDS) committed to spend R300 billion on capital projects over the following seven-year period. It acknowledged South Africa’s historical underinvestment in infrastructure that was inhibiting the economic growth of the country.

MDS sought to prioritise the deepening of container berths at the Durban Container Terminal (DCT), in conjunction with the acquisition of a container handling fleet to enable the berthing of new generation deeper draft container vessels. The aim was to create an additional 400,000 TEUs of capacity. In addition, the expansion of Pier 1 into Salisbury Island proposed an additional 1,1 million TEUs of container capacity being created. The expansion plan entailed the deepening of the Pier 1 berths, the acquisition of 8,6 hectares of Salisbury Island, quay wall construction and the acquisition of container handling equipment.

“As the custodian of competitiveness of the country’s transport and logistics industry, Transnet will look at replicating and possibly leading disruptive industrial innovations by consuming new technologies such as AI, 3D printing, Internet of Things (IoT) and robotics, which exponentially increase the pace of change. Transnet’s Digital Transformation strategy is focused on innovation that supports investments in technology, business processes and business model review to create value for customers, employees and the Shareholder.” [SOURCE: Transnet Integrated Report 2017]

In 2018, however, TNPA, admitted their slow response to technology change and in their 2018 Integrated Report highlighted the shift from MDS to Transnet 4.0: “Our customer surveys have shown that we are still slow to respond to their fast changing requirements, which is a combined factor of our systems, customer support structures and our organisational culture, all of which need to undergo a fundamental transformation in the context of Transnet 4.0. We are actively leveraging technological advancements to improve operational efficiency and develop the culture and mindset to be a beneficiary of the changes we are observing,” the document read.

It further projected that the Transnet 4.0 Strategy would aim to grow Transnet to a R100 billion business by 2020. “Consequently, capital investment to modernise and expand the port, rail and pipeline network and operations will continue to be a key priority, as will continued development of our people.”

The submission also notes the outstanding as well as ongoing Operation Phakisa projects dating back from 2014.

Refining the capital investment model

Noting the significant gap in achieving capital investment through the delivery of planned projects and ongoing maintenance within the ports, TNPA has plans to reposition itself “as an efficient capital delivery business”. According to the tariff submission document the restructuring of the Authority is currently underway and a road map has been developed.

Ahead of this process of re-inventing the capital delivery model being completed, the Authority admits that they will be using implementing agents for several projects. According to the tariff document submitted, this process could take up to two years. A delegation has been established, however to approve projects to the value of R500m as well as conclude engineering contracts to the value of R700m.

With the deadline to corporatise TNPA by the 1 April 2022 looming, it will certainly be interesting to attend next year’s PCC Consultative Engagements to see how the Authority’s plans are progressing or simply being re-assessed again.


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