Now that the decade-long spectrum auction fiasco has finally reached a conclusion, the focus of the nation shifts to SA’s railways.
State-owned logistics company Transnet controls the country’s rail infrastructure and has by all objective measures done a remarkably poor job of managing it. In the 2020 container port performance index, compiled by the World Bank, SA’s ports dominated the lower rankings. In the 351-port list SA occupied four of the bottom five spots.
The consequence of such inefficiency has been a strangulation of freight activity that has left many businesses in the export sector incapable of responding to the changes in demand for their products across global markets. Thungela Resources, the thermal coal-focused spin-off from Anglo American, has estimated that the Transnet strangulation effect cost it R2bn in lost export revenues for 2021 alone.
As the world experienced a commodities boom after the lifting of the Covid-induced hard lockdowns, demand for commodities soared and would have boosted the profits of all SA commodity players — if Transnet had not made it all so difficult.
For the public purse the consequences of Transnet’s flux have been indirect but more pervasive. The Durban-to-Johannesburg trade corridor suffers from heavy road freight traffic since any business that wants to ensure continuity of supply is better off using expensive but more reliable road infrastructure. As a result, the maintenance requirements on the road infrastructure and the ultimate cost of goods are negatively affected by Transnet’s inefficiencies.
The genesis of the Transnet fiasco is reminiscent of so many sectors of the economy under the influence of government control. Poor management, lack of skills and a fixation with controlling the commanding heights of the economy — despite market fundamentals dictating otherwise — has relegated Transnet to the long list of state entities that are failing to live up to their purpose, both ideologically and commercially.
The shift towards “opening up” the infrastructure to enable private players with capacity and resources to use underutilised network is an important step towards addressing the crisis. Under this model Transnet has proposed releasing up to 16 slots on its infrastructure for the use of private players.
If this materialises the businesses that participate may well shift more goods to the rail network and away from road networks in the medium term. Transnet could generate additional revenue if the business model is appropriately structured.
However, a concerning point that has already emerged is the intention by Transnet to enforce minimum operational usage, which means private operators must use up at least 75% of slots or lose them. The problem with this idea is that it conveniently forgets that a driver of the usage will be the reliability of the rail infrastructure. In light of the high levels of cable theft and general unreliability of the network, Transnet can surely only demand minimum usage commitments if it can guarantee there will be no disruptions that affect operations.
That seems rather ambitious. Second, the threat to withdraw and reallocate underutilised slots seems to suggest that there is a market ripe for this secondary trade. Transnet’s own contradictions are worth noting. The current proposal states that slots will be sold for a two-year period only. Yet Transnet must surely have a better understanding than most of the lead times and capital costs associated with freight infrastructure.
The idea that a large number of serious players are going to engage with an unreliable partner under such short-term contracts and under the persistent threat of contract termination due to usage patterns suggests that even this iteration of Transnet has a lot to learn about the mechanics of modern business.
• Sithole (@coruscakhaya) is an accountant, academic and activist.
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