South Africa its own worst enemy written by Rachel Jonker

[Nat Quinn]

South Africa holds the greatest opportunities of all sub-Saharan African freight rails, but the country needs more business-friendly policies to attract private sector investment.

Traxtion CEO James Holley said his company – an independent railway operator – has been discussing ways to implement public-private partnerships with Transnet and the South African government for years.

The efficient operation of South Africa’s extensive logistics network, including railways and ports, can triple the country’s economic growth.

However, the steady decline in South Africa’s rail payload, coupled with the inefficient operation of the country’s ports, prevents exports from reaching the market.

Additionally, the increased use of road freight to transport bulk commodities is extremely inefficient and costly for companies and a significant drawback to economic activity.

These factors all hinder South Africa’s economic growth and are largely attributable to Transnet’s decline.

Holley illustrated the potential of South African freight by comparing Traxtion’s operations in the Democratic Republic of Congo (DRC) and Zambia with South Africa’s.

There is a potential freight market of more than 8 million tonnes per year for copper and other mining-related products in the DRC and Zambia.

In contrast, South Africa faces a rail freight demand shortfall of approximately 90 million tonnes a year.

“The freight opportunity in South Africa is larger by multiples than anywhere else in the region,” he said.

The CEO of this 37-year-old company, which operates and leases a fleet of wagons and locomotives in nine African countries, said he is highly encouraged by the Department of Transport’s rail reform efforts.

These efforts are to structure rail reform in a way that makes economic sense and enables third parties to invest sustainably.

As such, on 1 October 2024, Transnet was separated into two operating divisions – Transnet Infrastructure Manager (TRIM), responsible for the network, and Transnet Freight Rail (TFR), the operations company using the network.

TRIM has been established as a separate company within Transnet, with a mandate to provide railway access to both the TFR Operating Company and private operators.

Additionally, Transnet’s recently released Network Statement stipulated some terms and conditions for private operators to use the railway network and established that South Africa’s rail monopoly will end on 1 April 2025.

However, the Network Statement regulations will still need to be adjusted because they initially only permitted private operators five slots per week.

The low number of slots is odd because some railways, like the Durban railway, were designed to carry a lot more traffic than they currently do.

Furthermore, Holley explained that the current Network Statement does not require TRIM to make any service-level commitments.

This means private operators have no viable base case to prepare business cases and absolutely nothing to hold TRIM to account for poor service provision.

Additionally, he was concerned about the current state of Transnet’s infrastructure and operations, and that a turnaround will be difficult to achieve.

Transnet will need R14 billion annually for the next five to six years to fix its rail infrastructure, which has fallen into disrepair or been vandalised.

However, Holley was less optimistic about the amount of spending that would be required to fix the South African railway system.

In his view, the maintenance backlog on the full 12,000 km economically viable network is probably closer to R200 billion.

“Any business that cannot maintain its infrastructure is resigning itself to failure,” he said.

However, despite the apparent issues that need to be worked through to draw investment, Holley is pretty optimistic about the future of South African freight rail.

He said that South Africans can be hopeful about South African rail transport because of these three factors:

1. The vast business opportunities in a business for freight,

2. Reform has been structured in line with international best practices

3. That an independent regulator is now in place.

Further, he highlighted that train operators’ access to assets is not a hurdle because train assets have such long lives. Instead, the regulatory landscape stands between South Africa and a rail investment boom.

 

source:South Africa its own worst enemy – Daily Investor

[Author]

Posts