Private train operators should have access to SA’s state-owned rail network within three years as part of the government’s plans to revive the economy.
In coming months, Transnet and the government will issue a request for proposals from private train operators to access four as yet unidentified minor railway lines as part of this strategy, says public enterprises minister Pravin Gordhan.
New and efficient use of infrastructure is one of the keys to unlocking SA’s economic potential, according to Business For SA and the Minerals Council SA, whose members export bulk commodities like coal, iron ore, chrome and manganese. SA’s rail network is the largest and most extensive in Africa.
President Cyril Ramaphosa and his government in October 2020 unveiled an economic reconstruction and recovery plan which includes third-party access to Transnet’s 23,000km of railways, which make up about 85% of Africa’s rail.
Speaking at the annual general meeting of the African Rail Industry Association (ARIA) last week, Gordhan urged private train companies to talk to his department about opening access to the railways to streamline work on a new bill to allow third-party operators onto the network and shorten the three-year process.
“There’s an opportunity for role players in the rail sector, be it the government as a substantial player at this point in time, or the private sector, to reposition all of us and the industry in a way to grow the rail sector,” he said.
Rail accounts for a fifth of SA’s freight transport and a tenth of travel.
“A massive capital investment backlog has to be tackled, as does inadequate funding, obsolete and ageing infrastructure, deteriorating rolling stock, and outdated technologies,” he said.
Apart from the regulatory process, Transnet Freight Rail had yet to separate its rail operating and infrastructure accounting processes within 18 months, a process that was complex because the two were integrated, making it difficult for any assessment of what tariffs third parties would pay to use the railways, said Gordhan.
“Full private operator access will be implemented in the next three years, if not sooner,” he said, adding this would boost competition, improve utilisation of the railways, reduce rail use costs by spreading expenses across a larger number of operators and sets of trains using the network.
But the difficulties ran deeper than just accounts, said ARIA chairperson James Holley, who told annual general meeting delegates that a study of industry participants showed 27 of 30 respondents “cited corruption and irregular procurement as the greatest barriers to entry and growth in the rail sector in SA”.
Transnet was one of the big state companies at the heart of corruption and malfeasance during the nine-year presidency of Jacob Zuma, with the procurement of 1,064 locomotives a conduit of looted cash.
One of the immediate questions was who would pay for the replacement of stolen and vandalised rail infrastructure including tracks, signal boxes and cables because of the breakdown in security and maintenance within Transnet for these items.
“The issue of repairs and replacement is included in the private sector participation and is a mutual agreement between Transnet and the bidders,” Transnet said in reply to questions from Business Day.
Gordhan said Transnet would open four branch lines to third party operators. A branch line is a railway that is connected to a main line and serves an industry or town.
Transnet declined to name these four lines, stating the request for proposals would be issued during the financial year to end-March 2022.
“The timelines for granting the concessions will follow and are dependent on the governance processes that need to be followed. Currently, Transnet cannot pre-empt the outcome of the specific branch line until the approval process has been finalised and only then will we be able to share the specifics,” it said.
Gordhan said the request should go out before June for the “resuscitation of four branch lines, which will have an important impact on providing services in the less populated areas.”
“Transnet will work collaboratively with the private sector to invest in the viability of these branch lines to develop enabling policies and access regimes for branch line operators to operate on TFR’s network,” he said.
Branch lines are notoriously difficult for a private operator to run profitably because an effective rail freight business operates best on large volumes over long distances, Holley said. If the operators were not able to extend their services onto the main lines and access ports or major industrial hubs, this too could unfavourably skew the economics.
More broadly, there would be greater private sector participation in SA’s railway industry, said Gordhan.
“In the more immediate future, Transnet plans to allow for much greater ownership of rolling stock, particularly wagons, and more private ownership of terminals and sidings,” he said.
Businesses are relying on trucks despite state-owned Transnet’s plans to move more freight on rail, which should be a quicker and more cost effective transport solution than trucking.
In the year to March 2020, which was just ahead of the severe economic lockdown in SA to combat the Covid-19 pandemic, freight volumes were 212-million tonnes, a 14-million tonnes drop from the previous year.
“There are concerns in the industry of a significant drop in freight volumes in the year to end-March 2021, due to, among other factors, Covid-19,” said Holley, who also heads private train company Traxtion that operates and leases trains used in Sub-Saharan Africa and wants to operate in SA.
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