Transnet fluffs its bid for private partners
State-owned Transnet Freight Rail (TFR) insists that the auction of its slots to private players is a success even though only one out of an initial 19 interested companies made the shortlist for the bid-evaluation process.
The private sector’s muted response to the project, which sought to entice private players to operate trains on TFR’s network, is seen as a blow to President Cyril Ramaphosa’s reform agenda for state-owned enterprises announced earlier this year. Bringing private operators into SA’s rail network is one of the key areas of structural reform the government has identified in its overhaul of the economy, to boost investment and job creation.
TFR said the objectives of the pilot phase have been achieved.
The project has been criticised by potential bidders for requiring an investment of hun
dreds of millions of rand by third parties, which would go to waste because bidders were unlikely to invest in equipment that would last 30 years for a two-year contract.
To achieve commercial success and to secure financing for potential projects, banks and other financial institutions require seven to 10 years’ certainty that third parties will have access to TFR’s rail network, says Mesela Nhlapo, the CEO of the African Rail Industry Association.
“This proves that Transnet’s onerous terms and conditions are not appealing to private investors,” Nhlapo says.
TFR, the largest division of the railway enterprise, announced last year that the 16 slots along its container corridor (Gauteng to Durban) and south corridor (Gauteng to East London) would be sold to thirdparty operators for a period of two years on a take-or-pay basis. In other words, the buyer of the slot would have to pay the minimum portion of the agreed payment whether or not it made use of the slot.
The auction marks groundbreaking reform in the government’s approach to state-owned companies, including Transnet, in which private investment has not previously been possible, except in rare circumstances.
It also aims to improve the movement of cargo to and from ports.
TFR believes the project is on track. “We deem it as a success because of the objective we were pursuing,” CEO Sizakele Mzimela said on Wednesday.
“Transnet will continue to engage with relevant stakeholders on third-party access where
THE BUYER WOULD HAVE TO PAY THE MINIMUM PORTION OF THE AGREED PAYMENT WHETHER OR NOT IT MADE USE OF THE SLOT
appropriate, aligning with the work that the [department of transport] continues to undertake towards the implementation of the white paper on rail policy.”
The tender briefing on April 8 attracted 90 interested parties, Mzimela said, but by the time TFR required the submission of formal expressions of interest a few months later, only 19 of the initial number of companies submitted the documentation required.
This was whittled down to two successful applicants and then one company, Traxtion Sheltam, which won the bid for the Cape corridor’s Kroonstad to East London slot.
CORRIDOR
The private freight operator will move agricultural produce along the container corridor but may later be allowed to move any other goods to “optimise” the slot. Traxtion Sheltam will have to undergo more evaluation before being allowed access to the TFR network by April 2023.
“Traxtion will be required to complete the rest of the application process, which entails fulfilling the Rail Safety Regulator requirements and other operational readiness requirements.
“Upon successful completion of the second stage of the evaluation process, it will enter into final negotiations and commence operations on the route in the new financial year 2023/2024,” Transnet said.
Mzimela suggested that the stringent criteria for the project may have been the reason some of the bidders were unsuccessful in their applications.
She also admitted that the rail company is set to “lose out” because of the minimal uptake on the project because of the stringent requirements that bidders were unable to meet.
“If we had got more people that would’ve been able to take up the slots, what we would’ve been testing is the movement of different commodities on our line,” she said on Wednesday.