The announcement by transport minister Barbara Creecy that Transnet has chosen 11 new third party operators to run trains on 41 routes on Transnet’s lines is to be welcomed.
It is, as the minister says, a significant step in SA’s long-promised rail reform journey. The move will dent Transnet’s rail monopoly and will for the first time bring competitors on to operate private locomotives on its lines. It is in line with best practice internationally. And crucially for the economy, it has the potential to boost Transnet’s rail volumes as well as attract billions of rand of new investment into the rolling stock the new operators will need, so contributing to economic growth and job creation.
Transnet’s ailing freight rail and port network have cost SA a fortune in lost export volumes, tax revenue and jobs and investment. The government has long promised reforms to open up the sector to private participation. The announcement of the third party rail slots is the first tangible sign that this is actually happening at last.
The transport ministry’s media release said 25 third operators had applied of which 11 met the requirements and would proceed to the next stage of negotiations and contracting. The new players will operate across all six Transnet corridors, transporting coal and chrome, iron ore, manganese, magnetite, containers and sugar.
Transnet’s Rail Infrastructure Manager (TRIM) estimates they will carry an extra 20-million tonne (Mt) of freight by next year. That will boost Transnet’s 160Mt to 180Mt, which is still far below the levels of five years ago and even further below Creecy’s 250Mt aspiration. But it’s a big first step, with promises of more to come.
For all that, there are some big and worrying questions about the process. First is that the ministry’s media release is the only document that has been made available so far. There is zero transparency on who these operators are, how many slots each has, how much they paid for the slots, and what criteria Transnet used to judge their bids. We don’t even know how long the slot allocations will run for, other than the vague mention of “from one to 10 years”. That’s a concern in itself given that investments in new rolling stock would typically have a 25 year time horizon.
The absence of transparency so far is particularly concerning given that this was an entirely internal process conducted by Transnet, through TRIM, without the benefit of external transaction advisers. Nor is there any recourse for the new operators given that the new permanent Transport Economic Regulator doesn’t yet exist.
An even more fundamental concern is with the rail infrastructure — the lines and the signalling — on which these new operators will run their trains. Linked to this is the question of who will carry the risk if that infrastructure doesn’t work efficiently — as it probably won’t, given how broken Transnet’s rail infrastructure is. It is almost impossible to see how new private operators can achieve an extra 20Mt running on the same ailing lines as Transnet’s own locomotives, which struggle to deliver the required volumes in the required time because of the state of the infrastructure. Putting new trains on old lines will not solve the problem.
Worse, the new operators have to agree to take the infrastructure “as is” — absolving Transnet of the responsibility of ensuring the infrastructure is sound and potentially posing big financial risks to the new operators. It remains entirely unclear how soon the infrastructure will be repaired and upgraded and how this is to be paid for.
Transnet has applied to Treasury for funding. Creecy has put out a request for information to see what could get private infrastructure investors to come in as concessionaires or partners.
Meanwhile it feels much like a case of putting the cart before the proverbial horse. Welcome as this first step might be, we wait for signs that SA is genuinely en route to improving its freight rail performance.
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