Transnet Freight Rail: privatisation programme endorsed in SONA and accelerates as rail system collapses

Transnet Freight Rail’s (TFR) recent invitation for tenders to operate a 20 year lease on South Africa’s busiest rail corridor from Gauteng to Durban reflects the implementation of the White Paper on National Rail Policy approved by cabinet in 2022. This move indicates that TFR accept that they do not have the capacity or finances to resuscitate this critical corridor. Whether the private sector will respond remains to be seen, but it is a potentially very lucrative contract which, while facing many challenges, should alleviate the massive problems caused by heavy trucks on our roads. President Ramaphosa identified TFR and the rail network as one of the priority projects in the 2023 SONA.

The invitation follows the award of a two year lease to a private company for the Kroonstad to East London corridor, the invitation from TFR to mining houses to invest in the Sishen-Saldanha Bay iron ore, the Mpumalanga to Richards Bay coal lines, the claims of sabotage by the trucking companies of the latter line, and the recognition that heavy freight should not be transported by road.

Rail lines are ideally suited to the carriage of heavy cargoes and containers and rail corridors are recognised as prime drivers of development in developing countries, particularly the many landlocked Sub-Saharan countries. The development of a unified standard gauge freight rail network in Sub-Saharan Africa would stimulate both our economy and those of our neighbouring states in line with the ambitions of the African Free Trade Agreement.

The Gauteng-Durban rail corridor used to be responsible for the carriage of 80% of the containers between these two areas. TFR now carries, on average, 13% of container traffic. TFR has reported numerous problems relating to criminal activity in respect of both the cargoes and the infrastructure which has resulted in the line operating at less than 50% capacity. The new operator will have to deal with these challenges and repair long neglected infrastructure, locomotives and wagons in order to improve delivery time which has degraded from 28 hours to 37 hours on average. This will be necessary in order to lure the large shipping lines, logistics companies and forwarders back to the rail system.

The operator and TFR would also have to fend off political opposition. In a presentation to the National Assembly on 1 December 2022 regarding a Special Appropriation Bill to provide Denel with R3.4 billion, Transnet with R2.9 billion and Sanral with R23.7 billion an EFF MP stated that “the madness of port [and presumably rail] privatisation” needs to be reversed. They argued that more money must be given to Transnet.

As reflected in our previous pieces, it is generally accepted that investing in infrastructure generates the highest return on GDP compared to any other investment. South Africa’s role as gateway into Africa remains under attack from neighbouring countries with Maputo recently announcing the launch of its citrus facility to handle exports from Mpumalanga and Limpopo. That trend will continue unless the SOEs in South Africa’s logistics chain improve their performance. If this requires the participation of the private sector in the form of public private partnerships or direct concessions, this can augur well for our country’s economic and employment prospects.

From a legal perspective the Gauteng-Durban concession will require the re-negotiation of long-term contracts between TFR and the major container operators. It will also require engagement with the unions who understandably will want to protect their members’ employment contracts which will be transferred to the new operator. Significant retrenchments would not be agreed to which means the new operator will be acquire the existing work force and management team who have not run the line profitably. Given the scale of the project it will also require finance to be sourced and contracts concluded to protect the investors’ interests.

Finally, the new operator is going to have to invest heavily in new technology to meet South Africa’s carbon and other emission targets which we committed to at the recent COP27 conference in Egypt and in the cabinet approved white paper on transport. This in turn should create opportunities for our local locomotive, rolling stock and rail infrastructure manufacturers like Gibela, Alstom and Bombardier who will no doubt face competition from manufacturers in China and Russia who appear to be politically well connected. The Just Energy Transition Investment Plan will allegedly invest R1.5 trillion in green energy projects over the next 5 years and local locomotive and engine manufacturers will hopefully benefit from this.

In the 2023 SONA, President Ramaphosa recognised the problems in the rail network and referred to the National Rail policy allowing third party operators. He also committed the government to create, by October 2023, a separate corporate entity responsible for rail infrastructure that is necessary to allow third party operators to use existing rail lines in competition with TFR and PRASA. Having multiple operators will require a significant increase in the capacity of the Rail Regulator given the increased risks of having a number of operators using the same lines.

Despite the challenges ahead, the fact remains that it is in the national interest to have the majority of cargo carried by rail, whether it be containers or bulk commodities such as coal.Although this is not a quick fix, the concession, green investment and the creation of separate rail infrastructure company rail should result in improved supply chain efficiencies, further foreign direct investment, more employment, less damage to our roads and more opportunities for the train spotting brigade.