PTMN301 - Port and Terminal Management Assignment

Assignment Task

Background

Transnet’s Market Demand Strategy

As late as 2012 it was revealed that there is a 30-year reinvestment gap in South Africa’s ports finances. This gap, among other factors, is believed to have been a contributor to the generally poorly performing ports sector (TIPS, 2014). In that same year, Transnet launched the Market Demand Strategy (Transnet, 2012). The Market Demand Strategy (MDS) is a document that speaks of ongoing investment in the ports sector. This is a capital expenditure program undertaken by Transnet to finance infrastructure and expand capacity ahead of anticipated demand – hence the name. Capital is raised through a syndicated loan involving multiple financiers internationally. The planned CAPEX is R307 billion over seven years since 2012 and of this amount, R87 billion is earmarked for the ports system with zero contribution from the government.

Adapted and compiled from TNPA

It is worth mentioning that such a downward trend in reinvestments into ports has coincided with the Market Demand Strategy (now known as Transnet 4.0) that proposed a total planned capital expenditure of R300 billion over 10 years from the year 2012. Of this planned expenditure, R87 billion was earmarked for ports, a capex that proved to be above TNPA’s Regulatory Asset Base at that time and was going to be funded through an amalgamated loan from various international financial institutions. Notwithstanding this, the Market Demand Strategy was introduced as a response to the need for the development of SOE infrastructure to promote economic growth, reduce the cost of doing business and, among other things, enhance the country’s competitiveness. The Market Demand Strategy was short-lived, being replaced only about 5 years later by the Transnet 4.0 Long-term planning framework.

According to Transnet (2018), the Market Demand Strategy “is and potentially always was, a longterm planning blueprint from which to create future growth, rather than simply a medium-term counter-cyclical investment strategy… it would be short-sighted to lock the MDS's guiding principles into a time-based seven-year strategic cycle, given that there was no guarantee that another global commodity boom would transpire during the seven-year MDS period from 2012 to 2019. While our investment aspirations to create capacity ahead of demand materialised during the seven-year period, the anticipated commodity growth and associated volumes did not. As a SOC it is irresponsible to continue to invest in national infrastructure when anticipated economic growth – both domestically and globally does not materialize.

Long-term planning framework (LTPF)

Driven by freight demand projections for the next 30 years, the LTPF provides the capacity development and investment opportunities that are needed to ensure Rail, Port and Pipeline capacity is developed in an integrated manner ahead of demand. The LTPF is not an operational planning blueprint, but rather a long-term unconstrained framework that identifies the movement of freight locally and regionally and considering this demand, projects the infrastructure and capital requirements needed to meet that demand. As a framework, the objective of the LTPF is to guide strategic investment decisions and offer an impartial view of capacity requirements not impacted by affordability, profitability and other business constraints. The LTPF thus provides guidance, direction and context within which Transnet’s short term seven-year business plan (Corporate Plan) is prepared alongside the Market Demand Strategy (MDS). The Corporate Plan differs from the LTPF in that it considers business risk, capital availability, implementation constraints and market commitments in determining what will be executed in the next seven-year period. Further, the LTPF is extensively shared with Transnet’s Shareholder, thereby acting as an important link between national developmental strategies, policies and corporate capital plans. The LTPF is then positioned to provide Government with sound future projections, which may then inform strategic country wide decisions.

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