The DoT’s private third-party access is a game-changer, but Transnet’s version is meaningless
Johannesburg. 06 June 2022 – The African Rail Industry Association (ARIA) has welcomed the launch of the National Rail Policy (NRP) by Transport Minister Fikile Mbalula, describing it as a game-changer for South Africa’s freight rail industry.
At the launch, Minister Mbalula said the ambitious nature of the policy choices made within the NRP was done to bring about a “rail renaissance”.
“The White Paper creates policy certainty that introduces radical structural reforms, which enable broader participation and open new avenues for investment and competitiveness. A key element of this is the opening up of space for private sector investment and effective economic regulation that ensures fair and regulated access to both primary and secondary networks.
“This means that the rail market will be open for other operators to compete and improve operational efficiency needed to improve service quality and competitive pricing in freight rail,” Mbalula said at the launch in Kempton Park.
ARIA CEO, Mesela Nhlapo said her organisation has been instrumental in lobbying the government to develop policies and regulations to enable this important evolution in rail policy. Its adoption after 14 years of extensive consultations is a key milestone with the support of Operation Vulindlela.
While welcoming the launch of the NRP, Nhlapo said serious concerns have been raised repeatedly because of the restrictive terms and conditions Transnet has imposed on private third-party freight operators.
Earlier this year, Transnet pre-empted the launch of the NRP by releasing its conditions for private third-party access to the country’s freight rail network.
Nhlapo said Transnet’s approach to slot sales will see absolutely no private investments made because inter alia, two-year contracts have been offered; slots have been offered on a voetstoots basis; Transnet has reserved special ‘Grandfather rights’ for itself; and only a portion of the network is being offered with no transparency in fees calculation among other issues.
“This approach offers no long-term prospects for potential investors,” she said. “We know from our research that private third-party rail access - as it is currently being touted by Transnet - has no hope of success as there are no existing trainsets ready to roll onto the tracks. A 50-wagon trainset costs about R200 million to produce and each slot will require three to four trainsets.
The private industry has, of course, not invested hundreds of millions of Rands in trainsets in advance of structural reform becoming a reality, so there are NO trainsets ready to be deployed today.”
She said locomotives and wagons last for 20 years and more, and in order to provide commercially viable freight rates, long term funding has to be raised. In addition, it takes about 18 to 24 months just to procure a trainset. Despite this, Transnet’s offering is only for two-year slots.
“The complete lack of existing trainsets on one hand, and the un-investable nature of the approach together render the current proposal by Transnet fundamentally meaningless.
“Preventing willing and able private companies from investing is counter to what Policy and Government are promoting. As ARIA represents the four largest private operators in South Africa, we can confirm that there is no existing capacity,” she said.
She said this lack of existing capacity is not due to an absence of investment appetite or customer demand, but simply because no private operator will make the material investments into train capacity before the implementation of third-party access structural reform when rates, terms and conditions remain undefined.
In stark contrast to the Transnet approach, the terms of third-party access in the new National Rail Policy (NRP) are balanced, well-considered, and fundamentally investable.
We urge Government, as Transnet’s shareholder, to encourage Transnet to reconcile its current third-party access process with the cabinet-approved policy and commit to enabling the structural reforms outlined by Operation Vulindlela, Nhlapo said.
The Interim Rail Economic Regulatory Capacity (IRERC) as set out in the NRP should be made responsible for overseeing negotiations between Transnet and the private operators, for setting the process and procedure for the acceptance of private operators and implementing access agreements. This would include making the slots available for a period that is aligned to the lifespan of the assets being invested in, appropriate service level commitments and setting a level playing field.
The National Rail Policy stipulates that third-party access should happen in a way that promotes investments and creates an equal level playing field for all players in the industry.
Just recently both President Ramaphosa and Finance Minister Enoch Godongwana stated that true third-party access will boost the economy, create massive employment opportunities, and allow South Africa to regain its foothold as an investment opportunity.
Minister Godongwana said the successful implementation of third-party access to the freight rail network can “spur additional investment of R58 billion”. President Ramaphosa said, “We understand very clearly the need to significantly improve the functioning of our railways and ports. These tasks are at the forefront of our economic reconstruction and recovery efforts. The publication of the White Paper on National Rail Policy outlines our plans to revitalise rail infrastructure and to enable third-party access to the freight rail network. We have heard the calls from the industry for private operators to be allowed to operate the country’s dedicated coal, iron ore, and manganese lines,”
The lack of rail capacity is causing significant and unnecessary damage to the South African economy. Rail reform represents an opportunity for investment, competitiveness, growth, and significant jobs. As things stand however, it will achieve none of these ambitions, Nhlapo said.
The African Rail Industry Association (ARIA) represents companies that are Original Equipment Manufacturers (OEMs), Rail operators, or Rail Services Companies in the rail sector and associated industries. It is a fully-fledged Export Council acknowledged and supported by the Department of Trade, Industry and Competition. The Export Council is committed to creating opportunities for the South African business industry on the continent and globally. All of the major private rail operators in South Africa are members of ARIA.