Transnet tariffs seen as predatory
Proposed fees for private operators to access rail network ‘are excessive’
In a sweeping policy overhaul aimed at opening the floodgates of private retail operators to its railway network, Transnet has proposed a multiyear tariff structure that was met with dread from industry experts.
In a tariff discussion document, released for public comment at the weekend, Transnet Freight Rail (TFR) proposes the establishment of a framework under which Transnet’s rail infrastructure manager — a role created as part of breaking Transnet’s monopoly in the sector — would set tariffs for three to five years with provisions for minor annual reviews and significant reviews every five years.
Under the proposed system, additional charges, including the costs of incidents such as accidents, security breaches and operational failures, or the so-called occurrence management charges, will be adjusted annually in line with the producer price inflation index, starting from the second contract year.
The framework, which Transnet pitched as a predictable recovery of costs for both the infrastructure manager and third-party train operators, also proposes a stringent policy on non-utilisation penalties. Thirdparty train operators, or train operating companies, that fail to use their allocated slots on a 24hour integrated train plan without a valid force majeure will face cancellation and fee retention by the infrastructure manager. In contrast, should the infrastructure manager fail to provide the contracted slots, train operating companies would be entitled to a full credit.
The tariff discussion document is part of President Cyril Ramaphosa’s structural reform agenda to revive the economy that has hardly grown for more than a decade. It comes amid an outcry from Transnet’s biggest customers, mining companies, that they are unable to get their minerals to ports due to dysfunctional logistics infrastructure.
But the proposals have raised worries among industry players, who said the pricing model was predatory and would impose longerterm constraints on the SA mining and logistics industry.
Should the proposed fee structure be implemented, it would generate R9.2bn in toll fees for the infrastructure manager, who is responsible for managing the project along the coal line and R11bn in toll fees along its iron ore line.
“Adding in all the various bulk commodity lines and container corridors it’s not impossible for the infrastructure man
ager to be earning close to R30bn in toll fees per year. Again consider this fee against Transnet’s current revenue of R35bn,” said Brendon Hubbard, fund manager at Clucasgray Investment Management.
In a note confidentially shared with leading mining companies, including Glencore, Thungela Resources and Grinrod, Hubbard warned the “excessive fees” were likely to have an impact on jobs in the mining sector as train operating companies would have to deal with additional costs of accessing TFR’s rail network.
“Mining is a cyclical industry where the industry needs to plan for cyclical lows. Having an expensive toll fee only adds risks of mines being forced into care and maintenance when coal prices dip into the $70 a tonne range,” Hubbard said.
“Industry talk was for 8c/t per kilometre of net weight for bulk commodities against the 19.79c/t per kilometre gross weight (including wagon weight) published in the draft. This cost falls directly on the rail users and not the rail operators which is why the rail industry is unlikely to fight and Transnet will likely add the access fee to the existing rail costs.”
The draft network statement would be gazetted in the next few days by the interim rail economic regulatory capacity for public comments, TFR said.
The third party access programme is scheduled to begin in April and is expected to increase competition, boost efficiency and reliability and reduce costs for customers.
‘BALANCE’
In the draft tariff methodology discussion paper, TFR said the proposed tariffs for train operating companies, “attempts to balance the interest of the market demand (expectations of network access seekers), readiness of market players, current state of the infrastructure, capital investment affordability and funding, the role of the state, existing legal requirements and investor requirements”.
The proposed tariff structure for network access also takes into consideration legislative requirements set out in the National Rail Policy and the Economic Regulation of Transport Bill which empowers the transport economic regulator to a fee structure depending on the type of access requested, and the size and complexity of the access request.
The proposed fee structure for train operating companies also takes into consideration the security risks along TFR’s rail network, which has seen a 300% increase in securityrelated incidents over the past decade, as well as the interim’s infrastructure manager’s R39bn debt burden.
Traxtion, the sole bidder which participated in Transnet Freight Rail’s first phase to allow private sector access to its rail network, cautiously welcomed the draft network statement.
“If the terms and conditions of the network statement render investment into the various sectors of the freight rail economy feasible, we will see a major boom in rail that will stimulate real economic growth across the whole economy. Until such time that the conditions make sense for private sector participants, it’s too early to pop the champagne,” Traxtion said.