Private sector companies that provide finance for maintenance and infrastructure upgrades for SA’s ailing freight rail network, which is now the sole responsibility of Transnet, will receive preferential service and rates to transport their goods to and from the country’s ports.
This is according to a road map for the Freight Logistics System, drafted by the government and business. It is a big step towards confronting the serious problems in SA’s rail and ports infrastructure, which are constraining economic output across the economy.
It is also understood to be aligned to the new turnaround plan for the ailing state-owned logistics company, which was completed by the board and is expected to be handed over to public enterprises minister Pravin Gordhan for approval this week.
Private sector participation in SA’s rail network is one of the key areas of structural reform the government has identified in its overhaul of the economy to boost investment and job creation.
A previous attempt to entice private players to operate trains on Transnet Freight Rail’s network through the auction of 16 slots along its container corridor elicited a muted response from business, with only one out of the 19 potential bidders making the shortlist in the bid evaluation process.
The project was criticised by potential bidders for requiring an investment of hundreds of millions of rand, which would go to waste because bidders were unlikely to invest in equipment that would last 30 years for a two-year contract.
The successful bidder, Traxtion Sheltam, which won the bid for the Cape corridor’s Kroonstad to East London slot, has not yet been given access to the slots after being selected in December 2022, partly because Transnet has not yet signed a contract with it.
The government has now conceded that it will have to extend the period of concessions to businesses but said this would be assessed on a case-by-case basis. It would also depend on how much is invested.
The proposed unbundling of Transnet means the state-owned enterprise will continue to own the rail network but would allow private companies to lease or operate their own locomotives to transport agricultural, mining and other goods to and from the country’s ports.
At a high-level briefing led by project management office in the presidency, which included representatives from the department of public enterprises and the national logistics crisis committee, the notion that Transnet is being privatised was strongly dismissed. The head of the office, Rudi Dicks, insisted that the government has decided to follow the German model of ensuring the state continued to own rail infrastructure but would allow for private sector participation through financing in exchange for concessions and increased competition in the freight rail sector.
"We are trying to increase competition. This thing of privatisation is a misnomer.
"Look at the German model: they had one operator on the rail network and that shot up to 470 operators in the 1990s. That is all we are trying to do," Dicks said.
"The private sector will be introduced through the leasing of Transnet [locomotives] or use of their own. Private sector
participation will happen through competition.
"Rail infrastructure [in SA] is a natural monopoly, public ownership of the rails should remain. [But] port and rail operations should be open to competition in some cases through concessions in exchange for financing of infrastructure," Dicks added.
He said this is a response to productivity on SA’s rail networks and ports having plummeted since 2017 because of theft, vandalism and little investment in maintenance and infrastructure.
The preferential rates and services are yet to be determined, but Dicks says the nature of the concession will determine the allocation of risk. "It’s hard to say upfront because each project would have to be designed and assessed on its own merits and unique contract negotiated," he told Business Day.
"For improvements on infrastructure, the road map outlines the mechanism used by Australia as an example where the operator pays for the improvement, but the rate of return is capped as far as infrastructure goes.
"If it is a wholly new piece of infrastructure, then I would assume the regulatory model would apply equally to public and private sectors."
The road map, which was circulated to key role players for comment last week, is expected to be presented to the cabinet in early November.
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