Transnet setting itself up to fail and not just — with slots sale

Transnet’s inaugural auction of slots on its railway lines looked from the start like it was set up for failure. Successful bidders were to be awarded contracts for just two years, making it unlikely if not impossible that most would be able to invest the large sums required for so short a tenure.

Transnet imposed all sorts of requirements that could further hamper their profitability, including that they must be members of its own bargaining council with trade unions, and that they run electric locomotives on the line.

Then there was the issue of the ailing infrastructure on which the new private sector operators would have to run their trains, the condition of which Transnet made quite difficult for bidders to determine, as lines are only made available “voetstoots”.

It is hardly surprising then that of the 19 parties that showed initial interest in the 16 slots, just one bidder qualified. But it makes it all the more remarkable that Transnet told journalists this week that the auction was a success.

Even if Transnet were simply inexperienced in these matters — as it seemed to indicate this week — and will learn lessons for next time, the control it was willing to relinquish to new private sector operators was minimal. Even if the auction for the 16 slots were a roaring success, it would have done little to remove the heavy constraints Transnet’s operations impose on SA’s economy. The Kroonstad to East London line, to be made available to private freight operator Traxtion, may be important to some, but is not exactly the backbone of the country’s freight rail system.

The recent strike by trade unions at Transnet served to highlight the state-owned utility’s dysfunction. But it has been evident for a while. In 2021, the Minerals Council SA estimated the industry lost more than R30bn in exports at the peak of the commodities cycle, because Transnet’s trains could not get enough of SA’s bulk export commodities, particularly coal, to port. Automotive exporters faced challenges too, as have many farm produce exporters. Spares for Transnet’s locomotives were the issue. So too was endemic crime and cable theft on the line, even though the private sector invested heavily to try to mitigate it.

Then came floods and the strike, an important sense also a failure of management. Estimates are that the strike prevented the transport of R65.3bn of goods. The Minerals Council SA has spoken of annualised losses of R50bn, up 43% from 2021, reflecting lost export tonnage of iron ore, coal, chrome and manganese.

Clearly, Transnet is not providing an efficient service, and the detail of its recent financial results gave evidence of this. The African Rail Industry Association has pointed to at least R27bn of underspending on maintenance by Transnet over the past decade. On the general freight line efficiency has dropped by 38% over the past five years because of faulty infrastructure — equivalent to 600 locomotives’ worth of inefficiency.

In this context, bringing private sector operators in to run trains on the country’s railway lines is an important reform — one that SA’s national rail policy urges and which the presidency has made a priority.

But while Transnet has paid lip service, it is far from enthusiastic in implementing government policy on this. It has for years refused to contemplate private sector involvement in the dedicated coal and iron ore lines which are so crucial to SA’s export earnings — but also such a cash cow for Transnet itself. It continues to block any such idea.

The slots it finally agreed to auction were in its general freight division, where there has been a huge shift away from rail to road over many years. Estimates are that rail’s share of rail-friendly freight excluding mining is as low as 10% — pretty marginal to SA’s overall fortunes even if it is crucial for particular sectors.

Major changes are needed at Transnet to start removing the freight transport constraints weighing on the economy and indications are that the state-owned utility is in no rush to change. The single slot auction may be a start, but it is a mere fraction, and the government needs to push Transnet a lot harder.

IT HAS PAID LIP SERVICE TO THE REFORM OF BRINGING IN THE PRIVATE SECTOR TO RUN TRAINS