James Holley, CEO of Traxtion, Africa's largest private rail operator, says Transnet's announcement that the network will be opened to private operators could be a game-changer for the economy, but his company won't invest until there is more certainty over third-party access rights.
Transnet Freight Rail announced last week that the private sector would be invited to bid for 16 slots on the national rail network, but only for a two-year period.
“To make the investment we would need long-term security over the access rights,” says Holley, who has been calling on the government for years to open the rail network to private operators.
To fill just one of the daily slots that have been made available would require a R600m investment.
“For a 50-wagon trainset which would operate on the container corridor from City Deep [Johannesburg] to Durban you're looking at an investment of R200m, and you'd need three train sets,” he says.
The latest generation locomotive from one of the blue chip original equipment manufacturers is around R60m, and each wagon costs between R1m and R1.5m.
“The rolling stock we'd be investing in are assets which if properly maintained should last for 30 years.” Making that kind of investment for what might only be a two-year period would be impossible regardless of whether Transnet sees it as a pilot project or not.
“It is absolutely impossible to raise the kind of capital you need without having long-term visibility into the deployment of those assets and long-term security over the access rights.
“These really are very robust, very high capital cost items that last for a long time. In order to be able to provide commercially viable solutions to customers you need to raise long-term debt. To raise long-term debt you need to have long-term security over your ability to operate those assets.”
To raise long-term debt you need to have long-term security over your ability to operate those assets
— James Holley
Holley says Traxtion celebrates the fact that a 160-year monopoly is finally allowing competition, and that after 14 years of development a national rail policy was approved in March.
“Now what we need to do is get the implementation of the reform aligned with the policy.”
The African Rail Industry Association (ARIA), of which Holley is the nonexecutive chair, recently made the point that Transnet's approach, announced with much fanfare on April 1, is in contravention of the national rail policy in several respects.
Transnet says it will retain grandfather rights on all current slots. This is in contravention of government rail policy, which clearly states all operators will have equal rights and should operate on a level playing field.
“We've been operating mainline services across Africa for 34 years, and what we have experienced in similar types of operations is that it is fundamental that the rights of all operators are equal when it comes to these types of access arrangements,” says Holley.
“In SA this would very much include Transnet. It is imperative that all operators enjoy the same rights in terms of operations.”
He says Traxtion will wait to see what the detailed terms and conditions are before deciding how many slots, if any, to bid for.
One of the things it doesn't know yet is the pricing of the tariff.
“What we do know is that the rail policy says the pricing must be published, the terms & conditions must be common to everybody, and the tariffs must be calculated in a transparent manner which will enable industry to interrogate the basis on which the tariffs have been calculated and get a good assessment of their reasonableness.”
He says he has no problem with Transnet being the owner and manager of the infrastructure as well as an operator.
“This is a nation's core infrastructure and to have the state managing it is in line with international precedent and in many cases best practice.”
ARIA says another misalignment with the rail policy is Transnet's announcement that it will sell the right to operate slots on a “voetstoots” basis, which implies it won't accept responsibility for the condition of the infrastructure.
“According to the rail policy, fixing and maintaining and upgrading the infrastructure will remain the sole responsibility of Transnet as the infrastructure manager and owner,” says Holley.
“Third-party operators will be paying significant access fees which are an extremely material income stream that is now going to be available to Transnet to assist them with the maintenance of the network.”
The rail policy also says there should be performance obligations on both the operators and the infrastructure manager, Transnet.
“This gives us comfort that there are service levels to be attained,” says Holley.
Cable theft won't be a major issue for Traxtion because most of its locomotives will be diesel and not reliant on overhead lines. And in-cab signalling eliminates reliance on track-side equipment.
An ARIA study says 58-million tons of freight (73-million according to a university study), excluding coal and iron ore, are ready to move from road to rail the moment capacity exists.
“Every month we lose now is another month that we don't get this freight onto rail, and that is obviously problematic for the upstream economy,” he says.
The most exciting part of this structural reform for him are the benefits to the upstream economy, especially jobs.
Every month we lose now is another month that we don't get this freight onto rail, and that is obviously problematic for the upstream economy
— James Holley
“When we invest in train sets to service a new mine we could employ 100 people to put on train services for the mine. One hundred highly skilled jobs, which is brilliant. But that mine could create 5,000 jobs.”
A 58-million ton freight market in SA would require an investment of R45bn into locomotives and wagons, “and that's before you unlock any upstream new capacity that comes online as a consequence of unlocking this structural bottleneck to the economy”.
“If third-party access is rolled out in accordance with the national rail policy you're going to see massive investment in this sector.”
Traxtion is targeting R15bn to invest in locally assembled and manufactured train sets over eight years. “That's predicated on securing access rights on terms and conditions that we believe support that long-term investment.”
If the terms of access are concluded in 2022, procurement will start at the end of the year, the first train sets will be delivered in 2024 and SA will start feeling the economic benefits in 2025, he says.
“Enhancing the competitiveness of this sector will be a game-changer for the economy.”
