BUSINESS MAVERICK 168
South Africa’s ports – Slowly chipping away at Transnet’s destructive monopoly
President Cyril Ramaphosa’s announcement that Transnet’s National Ports Authority will be corporatised is a move that is 16 years too late and has cost the economy enormously.
First published in the Daily Maverick 168 weekly newspaper.
In 2008 Siyakhuphuka Investment Holdings was offering port terminal services to blue-chip clients such as Highveld Steel, Xstrata and Glencore from its premises outside the port of Richards Bay.
It recognised that these exporters of breakbulk and bulk commodities were moving towards containerisation for the cost and efficiency advantages, but that they could not do this from Richards Bay. So it set about developing a solution.
Maersk, one of the world’s largest container shipping lines, agreed to include Richards Bay as a node in its worldwide network of container terminals, instantly connecting the region to prime export destinations around the world.
Maersk’s container handling arm, APM Terminals, a giant in global logistics, joined a consortium put together by Siyakhuphuka as an investor. The majority shareholders in the consortium were five local communities from around Richards Bay.
It should have been a slam dunk. Except Transnet rejected the offer 15 months after it was proposed, arguing that Richards Bay was not suited to container cargo. Yet three months later Transnet allowed its own Transnet Port Terminals to offer the same service from its multipurpose terminal there. This didn’t go too well and in 2012 Maersk stopped calling at Richards Bay after Transnet would not heed its call for proper container terminal equipment.
Transnet’s actions should not have surprised anyone. After all, in its 2012 annual report the state-owned enterprise stated that its strategy was to utilise all of its assets “to protect volumes against new entrants and to grow its market share”.
The irony is that South Africa’s National Ports Act of 2005 was designed to foster precisely this type of competition. The Act makes provision for an independent port authority that sits outside of Transnet, the Transnet National Ports Authority (TNPA), and acts as the landlord, overseeing port operations to the benefit of public and private participants.
The fact that this had not happened was pointed out by the Ports Regulator of South Africa (PRSA) in a confidential report addressed to the minister of transport in 2016. The regulator noted that there is very little private sector involvement in port operations, which is “against the very purpose of the legislation”.
The problem, the PRSA said, was that TNPA functioned as a division of Transnet alongside Transnet Port Terminals, which led to “undesirable conditions that have detracted from the primary purpose of ports, skewing prices, misallocating port revenues and creating suspicion in the maritime and transport industries about the impartiality of the port entity”.
The report also noted that in terms of the applicable legislation TNPA could not exist in its current form; that Transnet was in conflict with the Ports Act by being both referee and player in the ports industry; and that, because of the absence of a board for the TNPA, as required by the Act, the decisions of Transnet on its behalf were challengeable in court.
The 25-page report concluded with seven recommendations on the way forward, failing which the eighth noted that the “High Court will be approached by the PRSA to interdict any continued non-compliance by the NPA if the above-mentioned endeavours are unsuccessful and the matter is sufficiently important to protect the interests of the economy and the public at large”.
Needless to say, the report ended up in File 13, only coming to light in 2018 after it was subpoenaed by Siyakhuphuka, which had the energy and financial resources to challenge the Transnet decision after the regulator took five years to rule on the original complaint.
It has been a long and arduous road. Siyakhuphuka is asking that the minister be compelled to comply with the Ports Act and corporatise TNPA outside Transnet (the president’s announcement has partly but not wholly settled this) and that an arbitrator be appointed to consider the Siyakhuphuka proposal.
As a result of delays in the filing of an answering affidavit by the minister of public enterprises, a court date has only been set for May 2022.
Competition authorities get involved
The Ports Act requires that the port regulator, in complaints involving competitive matters, refer these to the Competition Commission. When the regulator failed to do so, Siyakhuphuka laid a complaint with the commission itself.
This process has also run through the various courts, with Transnet challenging a Competition Appeal Court decision that the tribunal does have jurisdiction in the matter in both the Supreme Court of Appeal and the Constitutional Court. Transnet lost.
Siyakhuphuka is asking the tribunal to find the Transnet actions to be in breach of the Competition Act and to grant its consortium access to the essential facility at the port of Richards Bay.
It is expected that the hearing on the merits of the case will be heard before the end of 2021.
Meanwhile, says Jan Scheepers, CEO of Siyakhuphuka: “For the last 13 years Transnet has succeeded in preventing Siyakhuphuka and the poor communities around Richards Bay from unlocking growth both at the port and in the region, and has thus prevented economic growth, job creation and poverty eradication.” Siyakhuphuka’s story is not isolated. Many private operators have attempted to establish commercial container handling operations within SA’s ports and have failed. No one wants to talk on the record for fear of earning the wrath of Transnet.
The economic cost to South Africa is unquantifiable, one individual told DM168. “But by way of example, consider that South Africa is a net importer of wheat… The vessels that bring the wheat to our ports can, in a worst-case scenario, wait weeks to offload their cargo. Each day they wait the importer is charged; this can be up to $40,000. These costs are passed on to the consumer. You need to bring a private operator into all the areas where Transnet Port Terminals is dominant,” he says.
For these reasons, the president’s announcement on 22 June has been welcomed by the industry. “There have been constant calls from the industry to implement the provisions of the Ports Act,” says Mike Walwyn, vice-chairman of the South African Association of Freight Forwarders. “South African ports are among the most expensive and inefficient in the world and professional input from local operators as well as global players like DP World and APM would make a difference.”
Of course, establishing TNPA as an independent entity does not automatically resolve the port problems. “TNPA is still owned by Transnet; that is a big issue,” says another industry insider. “The independence will only happen if that board is truly independent.”
Questions were submitted to Pepi Silinga, CEO of Transnet National Ports Authority, but a response had not been received at the time of publication. DM168
This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.
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