Privatisation is a dirty word in government circles, which is probably why it is music to my ears.
As an adherent of the “taxation is theft” school of economics, the elimination of government involvement in anything is enough to make me reach for a champagne glass.
It was therefore with great joy that I awoke to a Tuesday headline from a rival news outlet Fin24 proclaiming that Transnet was launching its biggest privatisation drive since 1997. Unfortunately, it took only a few minutes for that joy to evaporate.
That’s because Transnet, or more precisely its subsidiary Transnet Freight Rail (TFR), isn’t privatising anything at all. What it’s trying to do is outsource its own job of running SA’s rail network — or at least a major part of that job — to the private sector.
At the crux of the matter is a request for qualification (RFQ) — essentially a tender invite — Transnet issued at the end of January asking private participants to bid for a 20-year lease to operate its container corridor between Johannesburg and eThekwini (Durban).
That involves running and maintaining 670km of rail line — 1,621km if you consider it’s a double line running both ways that includes marshalling yards and enabling lines. It’s also the country's most economically important goods trade corridor thanks to the Port of Durban handling more than 60% of all containers passing through SA’s ports.
The economic significance of the corridor is probably why Transnet’s RFQ shows no plan to cede any ownership of the asset, which is what privatisation would entail. Instead, it’s opting for a public-private partnership model that will see the successful bidder operate the corridor for 20 years before handing it back to Transnet with zero guarantee the lease will be extended.
But the plan gets even more audacious. During that 20-year lease period Transnet wants the successful bidder to assume responsibility for the salaries of 3,573 TFR staff and stump up R5.5bn to invest in the asset, which will continue to be owned by the state.
During that time the successful bidder will have to successfully manage and maintain the rail corridor, a task that includes providing security on a rail line that experienced 143 security incidents in the six-months to end-September 2022 (down from 160 in the corresponding period the year before). Oh, and labour unions are vehemently opposed to the plan, roughly half of which will have to be implemented in SA’s most volatile province: KwaZulu-Natal.
Among the many questions this cunning plan conjures up is: who in their right mind would want to take on such a task? And what exactly will TFR’s well-paid executives be doing in their corner offices for the next two decades?
Why not just privatise the line and be done with the process?
Yet the chutzpah of Transnet’s plan has at least one strong advocate: Professor Jan Havenga of Stellenbosch University’s department of logistics.
Havenga says that while Transnet’s public-private partnership might not amount to privatisation, it may be a step in that direction.
“A significant portion of SA’s economic future is at stake here,” says Havenga. “The container corridor between Johannesburg and Durban is critically important to our economy — we simply have to get it working.”
Havenga estimates Transnet’s dysfunctional rail system costs SA’s economy about R1bn a day, largely in the form of lost coal and iron ore exports as well as additional expenditure needed to transport goods by road. In that context he says a R5.5bn investment in the container corridor is mere “peanuts” that big businesses — particularly those reliant on trade between Johannesburg and Durban — would be happy to pay for.
“There are dangers to the plan,” Havenga concedes. “But I also see a lot of positives — if you can get the right people together to implement it.”
Havenga says there are at least two SA companies that would make ideal candidates to run the corridor: Traxtion Africa, which runs one of the largest privately owned mainline locomotive fleets on the continent; and JSE-listed logistics group Grindrod.
A successful public-private partnership on the Johannesburg to Durban rail corridor could also pave the way for further private-sector investment in other critical rail lines. More specifically, Havenga points to the coal export corridor between Mpumalanga and Richards Bay and the iron ore line between Sishen and Saldanha Bay.
Without private investment in these lines, Havenga says Transnet may eventually be forced to sell them. While that may be politically difficult to imagine, the financial woes of SOEs — and their state shareholder — may eventually force the issue.
He also describes the potential of developing the Johannesburg to Cape Town rail corridor as a “huge economic opportunity” for SA. But considering Transnet owed creditors R128bn at end-September 2022 and just last week issued another $1bn (R17.65bn) in offshore bonds, that too would require private-sector investment.
As a self-confessed advocate of Nordic-style socialism, Havenga is hardly a proponent of laissez-faire capitalism. However, he is economically astute enough to realise that without private-sector involvement, Transnet is eventually going to run out of other people’s money (to borrow a Thatcherism).
“I don’t know how else Transnet will be able to repay its debt,” says Havenga.
Let’s hope the socialists in the government are listening.
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