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Transnet chugs on in quest to bring in private sector trains

Transnet chugs on in quest to bring in private sector trains
Transnet plans to open up to private- sector train operations. (Photo: Dean Hutton / Bloomberg via Getty Images)
Bheki C. Simelane
By Bheki C. Simelane
9 Jun 2024
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Transnet is fine-tuning plans in order to open its doors to private sector train companies. This comes at the back of a drastic decline in rail operations in the country.

Transnet has told Daily Maverick that the move to open its doors to the private sector was encouraged by the National Rail Policy, which was approved by cabinet in March 2022.

“It introduces various reforms in the rail sector, which include opening the Transnet rail network for access to the private sector,” said Transnet’s Ayanda Shezi. 

“The department of transport also introduced economic regulation of transport through the Economic Regulation of Transport [ERT Bill], which will guide how access to the Transnet rail network will be managed,” Shezi said. 

Providing clarity on the government’s rail economic policy reforms and the roping in of private sector train companies, Shezi explained: “Transnet published its network statement, which contains proposed access rules and a tariff on its website on 15 March 2024. The network statement is currently under review by the Interim Rail Economic Regulator Capacity [IRERC], which falls under the department of transport. This process included a public consultation process which was finalised in May 2024.”

The rail freight agency told Daily Maverick via email that it has not opened the rail network for private operations as has been reported. Yet… 

A locomotive operated by Transnet, in Ermelo on 10 March 2014. (Photo: Dean Hutton / Bloomberg via Getty Images)


Private-sector trains


“The services will be open once the final network statement, which contains rules for access and the tariff is finalised by IRERC for publication,” said Shezi. 

Transnet did not confirm when exactly the process to rope in the private sector will be finalised. However, the network statement, which contains proposed access rules, is under review by the Interim Rail Economic Regulator Capacity. 

Transnet had already facilitated the handover of the first slots to Traxtion Sheltam, which was announced in December 2022. At the time, Shezi described the transaction as a significant milestone in the revitalisation of SA’s freight rail network and a great prospect for growth.

However, the deal did not go through.

“It was a good deal that was negotiated in good faith from both ends. But ultimately the deal did not go ahead. Because it passed as a pilot project, which was overtaken by the main implementation of railway reform in South Africa,” Traxion Sheltam CEO James Holley told Daily Maverick on Friday 7 June. 

The South African rail industry in its entirety has endured dramatic infrastructure decline in the last few years, with theft and vandalism of infrastructure proving an unshakeable menace. 

The sector is currently on the mend, with passenger rail agency (Prasa) having made significant progress in recovering most of its affected rail corridors. 

Read more in Daily Maverick: Gauteng commuters cheer Prasa’s long-awaited reopening of key rail lines

Speaking at the International Railway Safety Council Conference in Cape Town in 2023, Holley spoke about open access to the network to allow for economic growth. He noted that a huge amount of additional capacity was needed to come on stream in the SA freight rail sector. 

Some South Africans have been sceptical, particularly regarding the issue of privatisation. The argument is that privatisation will enable exposure to private sector corruption, notwithstanding that grand-scale corruption has occurred outside the private sector.

According to Holley, freight density and maintenance are at the heart of efficient railway systems.

“What makes railways succeed is freight density (the volume of freight that you have on a rail system). The volume of freight is very important because railways are a fixed cost business. Therefore, the more freight you have on the rail system, the more ability you have to absorb the fixed costs,” he said. 

Maintenance cutbacks


“In a scenario where there is not enough freight to cover the fixed costs, you cut back on maintenance. And the moment any business cuts back on maintenance, it places itself in a difficult position,” said Holley.

Dating back to 2012, Transnet’s maintenance expenditure was about R3,6-billion. And in 2013, that figure dropped significantly to about R1.3-billion. 

African Rail Industry Association (ARIA)’s research on the historical Transnet’s maintenance overspend put the freight rail agency’s underspend at about R30-billion for the past 11 years. 

The reason for a poor rail network in any country. Holley said maintenance in the rail sector is everything. 

“The moment you are unable to maintain your infrastructure or your assets,  you are bound for failure. Our assets and infrastructure costs a huge amount of money to implement rail track and maintain rail tracks. And it costs a huge amount of money to buy trains,” Holley said. “The moment you cut back on maintenance. If you don’t spend that rand on maintenance today, you will spend R10 in five years’ time because your infrastructure and assets start to collapse.”

Transnet Transnet plans to open up to private- sector train operations. (Photo: Dean Hutton / Bloomberg via Getty Images)


Extra freight capacity


The government’s policy is to supplement train capacity by bringing in extra freight capacity. 

Holley said this will also generate much-needed revenue from the additional freight, and provide a higher freight density to be able to collectively cover the fixed costs of maintenance of the network. 

“Yes, bringing in private sector trains to complement Transnet’s train capacity and create extra freight density is a very good strategy by the government and it’s fundamentally important. 

“You want to look at it in a way of mutually assured success. The private sector can’t succeed in the railways without Transnet, and likewise, Transnet cannot succeed without a high volume of private trains.”

Regarding contractual obligations, Transnet said the train operating companies, both private and Transnet Freight Rail Operations, will buy slots from the Transnet Infrastructure Manager.

Shezi said Transnet has a safety net to prevent contracts-related corruption. “Open access will be managed by the infrastructure manager within the framework created by the ERT Bill. The bill calls for the appointment of an economic regulator, who will oversee dispute management between the Infrastructure Manager and Train Operating Companies [which will include the private sector and Transnet Freight Rail Operations],” he concluded. DM

 

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