Opening rails to private operators could drive the nation’s growth

Opening South Africa’s rail infrastructure to private operators would see significant investments in the sector, and unlock huge economic benefits and upstream job creation across a range of industries.

Introducing private operators to South Africa’s mainline rail network is one of the proposals contained in a discussion document released by National Treasury last month, which outlines steps that could drive economic transformation and address unemployment. It is also included in the draft white paper on national rail policy.

Any move to grant private companies access to South Africa’s core rail network would be potentially transformational for sectors such as agriculture, heavy industry and mining, and would position rail as an enabling sector for general economic growth.

South Africa is home to 75% of Africa’s installed rail infrastructure.The cost to replace this 36 000km of track would be in the region of R1.5 trillion. It is an incredible potential resource for our country, yet, despite Transnet running one of the world’s largest railway networks, by our estimates, only a third of its capacity is utilised.

Like any key infrastructure, a nation’s railway system is a key enabler of growth. The rail industry has the ability to create upstream jobs by enabling industries to become internationally competitive and viable. Similarly, rail corridors into Africa would create cost-effective gateways to take South African goods into these markets.

In this context, the question is not how many jobs the rail industry will create, it’s to what extent the currently constrained rail capacity and pricing is limiting investment and job creation in other industries. However, the benefits for South Africa of government implementing its proposed plans will in itself still be significant.

• Firstly, multiple operators would generate additional revenue for Transnet through toll or “access fees” that will provide it with a new revenue stream to materially improve its financial position. The access fees will allow for investment back into the network to improve its condition and to further enhance the national competitive advantage our railways should have.
• Secondly, the foreign direct investment will also be significant. The rail industry is extremely capital intensive. A potential investment of $1 billion (R14.6 billion) would cover 175 locomotives, the required rolling stock and associated investments in supporting infrastructure. To put that number of train sets in perspective, Transnet currently has a fleet of more than 2 500 active locomotives, so $1 billion would just be the first step towards what is needed.
• Thirdly, opening the rail infrastructure to private operators will have no adverse effect on Transnet, which will retain control over its key cargo flows, including coal, iron ore and manganese. The role of private sector operators should be to source incremental volumes currently moved by road to rail, or to unlock new upstream investments. This would not diminish Transnet’s existing flows, but would bring significant additional flows – such as containerised cargo, agricultural and forestry products, and hazardous chemicals – to rail.

For an open rail infrastructure to work, operators need to be competent and safe. You also have to ensure the terms of access are equitable – not only from a pricing point of view, but also in the allocation of slots on the infrastructure.

Fortunately, there are numerous international learnings and benchmarks around this, with most developed and developing nations having already allowed private operators on to their networks. In addition to this, and importantly for regional trade, many of our Southern African Development Community neighbours have already rolled out open access.

Read: How a local train builder lost billions as Transnet awarded massive tenders to Chinese company

The draft rail policy calls for the separation of railway infrastructure into a new state-owned enterprise independent of Transnet. This desired outcome follows from international best practice, however, it will take significant time to implement. Transnet is within its regulatory rights to immediately conclude access agreements with competent private operators. In so doing, it will in the short term unlock the benefit of existing national infrastructure that is lying partially dormant. It will also create jobs, unlock growth and attract significant foreign direct investment.

Holley is the CEO of Traxtion, Africa’s largest private rail operator

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