Debate brews over Transnet’s proposed reforms

Transnet’s draft ‘Network Statement’, which is intended to ready the logistics provider for private investment, has received a lukewarm reception from the transport sector.

Off-the-record discussions are more frosty, in part because Transnet appears intent on retaining its monopolistic control of rail and setting tariffs that could lump miners with a 65% increase in rail transport costs, according to some estimates.

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In December 2023, National Treasury decided to stump up a R47 billion guarantee facility, nearly half of it to settle maturing debt, under certain preconditions.

The Network Statement is one of those preconditions dealing with Transnet’s proposed recovery plan.

“[Finance Minister Enoch] Godongwana is positive that the necessary reforms needed to put Transnet back on track can be achieved if the entity commits to meeting the strict conditionalities attached to the guarantee and quickly implementing the reforms informed by the National Logistics Crisis Committee,” said Treasury in a statement in December.

The network statement details the functions of the newly created infrastructure manager and the contractual arrangements for private sector operators seeking access to its rail network. Also covered are the scheduling of rail services and proposed charges.

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This is a discussion document that is certain to get some pushback, some of it angry, from Transnet customers and private operators.

But some see it as a step in the right direction.

James Holley, CEO of Traxtion, the continent’s largest private rail operator, says: “While we celebrate this progressive move, we are examining the draft statement to ensure that the conditions align with the implementation of rail reform as laid out in the National Rail Policy, adopted by Cabinet in 2022, the Freight Logistics Roadmap and the Private Sector Participation Framework, adopted by Cabinet in 2023.

“Traxtion remains fully committed to and believes in the potential of rail to revitalise the upstream South African economy. To this effect, we will be formally commenting on the draft Network Statement once gazetted by the Interim Rail Economic Regulatory Capacity.”

Writes David Taylor of rail consulting firm Taylorail: “The Private Sector is poised to address part of the estimated R200 billion backlog in infrastructure spend, to bring our network back to the world-class level that it should be.”

Transnet letting go but holding on …

The proposed reforms at Transnet, at the instigation of government, signal a philosophical shift away from state ownership of key infrastructure while still retaining the right to exercise monopolistic behaviour.

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The private sector is asked to cough up capital for route and service concessions that will pump up Transnet’s balance sheet.

According to one source, the proposed reforms make no real effort to trim Transnet’s cost base or make job cuts.

Hence tariffs are loaded with many of the same inefficiencies National Treasury has promised to cure.

The result is a tariff that bears little resemblance to competitive price setting, which is one of the stated aims of government’s reforms.

The Organisation for Economic Cooperation and Development (OECD) identified this problem in its report, The Regulatory Asset Base Model and the Project Finance Model: A Comparative Analysis.

“When infrastructure managers are state-owned companies, they will continue to operate as long as the marginal cost is covered or as long as workers get paid,” according to the OECD report.

“The ‘savings’ are manifested in a slowly deteriorating condition of the infrastructure. Persistent lack of renewals can eventually lead to excess current maintenance requirements (a graveyard spiral), which entail even higher manpower or expenditure requirements than before.

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“Moreover the burden of the deferred costs of replacement or maintenance investment is now transferred to the next generation of taxpayers or users. The optimisation of the infrastructure lifecycle cost becomes impossible.”

The problems evident at Transnet are also visible at Deutsche Bahn (DB), the German railway operator and once a source of national pride. By 2023, just 70% of trains were on time.

“DB’s woes are the result of poor management, a bloated bureaucracy, political interference and years of underinvestment,” wrote The Economist in 2023.

Theft running rampant

The Transnet network statement offers a comprehensive overview of the SA rail network and its challenges. What jumps out is the scale of theft and vandalism that has hobbled rail services.

The North Corridor connects Ermelo in the north-west of the country to Richards Bay on the KwaZulu-Natal coast, and is a crucial route for coal exporters seeking access to the European and Asian markets.

“The Rail Infrastructure is significantly impacted by theft and vandalism and ageing infrastructure,” says the Network Statement. “The Corridor’s traction and distribution have substations that are offline due to theft and vandalism.”

Sections of the route have endured severe theft of overhead track equipment (OHTE) for five years, while deterioration of track conditions along some parts of the corridor require speed restrictions.

A total of 1 162 security incidents – about three a day – were reported on the North Corridor last year.

The Ore Corridor between Sishen in the Northern Cape and Saldanha Bay in the Western Cape got off considerably better with just 28 security incidents last year, due to the length (861km) and remoteness of the rail line.

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The Northeast Corridor, which connects Zimbabwe, Mozambique and Eswatini with Gauteng and Richards Bay, had 842 security incidents – averaging two a day – over the previous year.

The Cape Corridor connects Cape Town to East London, Kimberley and Upington, as well as Namibia, and provides the largest coverage of all the corridors. It had to contend with 1 615 security incidents over the last year, about four a day.

The Central Corridor links Botswana via Mafikeng to Krugersdorp and Vryburg, and links to the five other corridors operated by Transnet. It had 2 021 security incidents over the last year, about six a day.

“Incidents in the Central Corridor include OHTE and signal cable theft, robberies, vandalism and theft of Perway [‘permanent way’] components such as fastenings and wooden sleepers,” reads the document.

Then there’s the Container Corridor, the primary route for container traffic to and from KwaZulu-Natal and Gauteng.

Some 52% of substations along this route are offline, and 18% of the relay rooms are not operational due to theft and vandalism.

A further 3% of relay rooms are not functioning following the 2022 floods in KwaZulu-Natal.

Security incidents for the past year include community encroachments, community unrest and work stoppages by business forums, many of them no doubt construction mafia.

What’s being done about all this crime?

All this raises the question – what steps have been taken by Transnet to combat this crime?

The boilerplate response is in the document: “Security service providers will enforce a mix of physical guarding, armed response teams, and interventions to address organised crime groupings behind the illicit copper market.”

One transport expert contacted by Moneyweb, who asked not to be named, argues that this is nowhere near enough.

“It needs an intelligence-led crime prevention strategy, but without disclosing too much detail so that you stay one step ahead of the criminals,” says the expert.

“Look at the business-led initiative under [former CEO] André de Ruyter at Eskom. He had a number of people ready to be arrested and National Prosecuting Authority didn’t pitch up.

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“Instead we have Transnet using drones to monitor the infrastructure, but all that does is give you an aerial view of the criminals at work.”

No one promised the road to reform was going to be easy. But at least now the public discussions can begin.

This article was republished from Moneyweb. Read the original here