Rail industry welcomes National Rail Policy, but Transnet’s approach has ‘no hope of success’

The rail industry has welcomed the National Rail Policy (NRP) launched last week, but say Transnet’s approach to the process will not result in any private investment in the sector, despite the policy specifically being meant to ensure a balanced, well-considered and fundamentally investable approach to third-party access.

The African Rail Industry Association (ARIA), that represents Original Equipment Manufacturers (OEMs), rail operators and rail services companies in the rail sector and associated industries, is urging 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.

Minister Fikile Mbalula said at the launch the NRP creates policy certainty, that introduces radical structural reforms to enable broader participation and open new avenues for investment and competitiveness.

“A key element is opening up 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.”

Fikile Mbalula

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Serious concerns about Transnet’s restrictive terms

However, Mesela Nhlapo, CEO of Aria, says serious concerns were repeatedly raised about 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.

“Transnet’s approach to slot sales will see absolutely no private investments made because two-year contracts are offered, slots are offered on a voetstoots basis, Transnet reserved special ‘Grandfather rights’ for itself, and only a portion of the network is offered with no transparency in fee calculation among other issues,” Nhlapo says.

She says ARIA knows from its research that private third-party rail access, as it is currently 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.

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Trainsets can only be ready in 18 – 24 months

The private industry of course did not invest hundreds of millions of Rands in trainsets before structural reform became a reality, and therefore no trainsets are ready to be deployed. Long term funding is required to provide commercially viable freight rates and it takes about 18 to 24 months to procure a trainset.

Despite this, Transnet only offers two-year slots.

“The complete lack of existing trainsets as well as un-investable nature of the approach render Transnet’s current proposal fundamentally meaningless. Preventing willing and able private companies from investing opposes what the NRP and government promote. ARIA represents the four largest private operators and we can confirm that there is no existing capacity,” 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 in train capacity before the implementation of third-party access structural reform when rates, terms and conditions remain undefined.

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Recommendations

ARIA recommends that:

• government encourages 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
• the Interim Rail Economic Regulatory Capacity (IRERC) set out in the NRP should be made responsible for overseeing negotiations between Transnet and the private operators, setting the process and procedure for the acceptance of private operators and implementing access agreements to include making the slots available for a period aligned to the lifespan of the assets invested in, appropriate service level commitments and setting a level playing field
• 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 as stipulated in the NRP.

President Cyril Ramaphosa and finance minister Enoch Godongwana both stated recently 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.

“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. However, as things stand, it will achieve none of these ambitions,” Nhlapo said.