Reforms ‘could signal investment boom’
CEO says SA is moving away from the state monopoly extremely fast
The rapid rollout of SA’s rail system reforms could open the way to enormous, “transformative” private investment in rail infrastructure, as well as into rolling stock, says Africa’s largest private sector train operator.
Traxtion, which operates trains in seven countries in Africa, has seen first-hand the enormous benefit from the rollout of rail reform.
“It seems quite strange in SA to have private freight trains operating on our network ... but SA is moving away from the state monopoly extremely fast,” Traxtion CEO James Holley said at a recent conference at the Gordon Institute of Business Science.
Over the past two years the cabinet has approved a new national rail policy which calls for sweeping changes to the system as well as the Economic Regulation of Transport Bill and, in December, a new road map for the freight rail industry. Transnet last month released a network statement outlining technical requirement for private sector trains to operate on Transnet’s lines, as well as the access tariffs to be charged tariffs which rail experts, including Stellenbosch University’s Jan Havenga, have said are too high to be viable. Holley said that the rollout of reforms had been so rapid that it was too early to tell how this would play out.
However, he said: “It does suggest we should start to believe in rail reform and the enormous transformative impact it will have on the economy. I believe there is a rail boom coming in SA.” He emphasised that in order for the private sector to operate trains efficiently, significant investment would be required to uplift the infrastructure, which includes the lines as well as the signalling and scheduling that is required.
That is especially so in Transnet’s general freight business, where rail is at a significant disadvantage to road and efficiencies would be crucial for any private sector operators. By contrast, Transnet’s bulk rail business iron ore and coal have a significant price advantage over road, so could price for some level of inefficiency. It is estimated that about R150bn of investment into the track infrastructure is needed.
However, the government’s recent policy documents have opened the way to private investment in the infrastructure as well as to private trains (rolling stock).
The freight logistics road map estimates there is a R31bn maintenance backlog on Transnet’s infrastructure, and details the extent of the slide in performance as well as the huge investment that is required to reverse this. And it recommends concessioning out parts of the network to the private sector, or forming joint ventures, given that the government doesn’t have the fiscal resources to support the infrastructure investment that’s required.
“Concessioning has considerable potential to help utilise private sector funds to reinvigorate the rail sector,” the road map says, though it cautions of “network fragmentation” that will have to be managed if parts of the network are concessioned out.
That’s less of a risk on the bulk mineral lines, which could therefore be a strong case for concessions or joint ventures with the private sector, helping to raise much needed capital for Transnet, the road map says. “There may also be efficiency advantages to concessioning the bulk mineral lines,” it says.
About 85% of Africa’s rail track sits in SA and it would cost about R1.5-trillion to replace that infrastructure. But the evidence suggests that by no means all of it should be replaced. Holley said that of SA’s 21,000km of lines, about 9,500km was viable in the sense that there was upstream freight demand to justify investing in it. But SA can do more with less, he said, as North America did when it lifted about half of its track but doubled volumes on the track that remained.
Market players are hoping that new leadership at Transnet will be more open to implementing the government’s private participation plan than the previous leadership, which offered slots to private sector operators on one of its lines but only for two years. Transnet also last year issued a request for proposals to concession out the key Durban to Johannesburg rail corridor, but withdrew this in December.
Havenga has warned, however, that Transnet on its own can’t fix the problem and that unless the government addresses Transnet’s R130bn of debt, Transnet will have no choice but to impose excessive access charges for private train operators.
CONCESSIONING HAS CONSIDERABLE POTENTIAL TO HELP UTILISE PRIVATE SECTOR FUNDS TO REINVIGORATE THE RAIL SECTOR