Transnet’s rail network repair: A 10-year journey ahead with R80bn investment

It may cost R80 billion and take 10 years to fix Transnet’s core rail network, comprising about 5 000km out of SA’s total rail network of 21 000km.

That excludes the bulk export lines and any shorter connecting rail lines. The core network connects SA’s major cities: Johannesburg, Durban, Cape Town and Gqeberha (Port Elizabeth).

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Getting the core network right will add between 0.5% and 1% to annual GDP, which in itself will create hundreds of thousands of new jobs. It’s a tantalising reward for a relatively modest investment.

Speaking at the Transport Forum’s rail symposium last week, Jan Havenga, professor of logistics at Stellenbosch University, outlined some key steps to get SA’s rail sector back on the tracks.

“The R80 billion it will cost to repair the core rail network is my estimate, but I am confident in the number. What’s interesting about this is we could quite easily find this money from development banks and others at very low interest rates, repayable over 30 years or more,” Havenga told Moneyweb.

“But for that to happen we need to get the policy right. Our rail network has to be managed in the same way that Sanral manages our major roads, with long-term concessions, and the private sector maintaining the roads and charging a toll.”

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The 10-year timeline to fix the network is less daunting once the project is spliced into more manageable outcomes, starting with the repair of the Durban-Johannesburg line, a project that could be done in two to four years.

Transnet funding

The publication of the Rail Network Statement outlining proposed tariffs and remedial action to fix the network was a respectable start, but the tariffs are too high to attract large-scale investment.

Private sector investors are expected to help pay down Transnet’s crushing debt of R130 billion – half of this due to state capture.

Havenga says government will have to assume this debt if it wants to attract serious private money.

The tariffs proposed by Transnet mean it will cost 2.5 times more to use rail than a truck from Cape Town to Johannesburg – a clearly unsustainable position so long as private operators are left to pay Transnet’s debt.

“It’s good that we have the Rail Network Statement, but there are a few prior steps needed,” says Havenga.

“First, we need a proper technical assessment of the network, which National Treasury is currently undertaking. That will give us a better picture of the state of the network, and where we need to prioritise our spending.”

The good news is that there are signs of reversal in Transnet’s collapsing performance under new management, led by new Transnet CEO Michelle Phillips and Transnet Freight Rail CEO Russell Baatjies.

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Speaking at the Transport Forum, Baatjies outlined steps being taken to improve performance at Transnet Freight Rail (TFR), starting with the recovery in volumes shipped by rail, and better execution to improve commercial returns across its operations.

Regulated reform of the rail sector is well underway with the Rail Network Statement and the imminent appointment of an independent infrastructure manager (IM) to referee the use of the network by new private sector operators competing with TFR.

Road/rail imbalance

Gavin Kelly, CEO of the Road Freight Association, told the Transport Forum that road freight had nearly doubled in the last decade, while rail freight has declined 35%.

The South African Reserve Bank (Sarb) estimates that transporting coal via rail to Richards Bay costs about $11 (R202) a ton compared to nearly $70 (R1 288) a ton by truck.

The way out of this lies in creating public-private partnerships and improving modal competitiveness across the logistics chain.

Havenga said in an ideal world the rail network would require multiple infrastructure managers, one for each of the key routes.

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“In this way, the rail network will start to look a lot like Sanral, with private sector concessionaries managing and maintaining the routes and charging an access fee or slot charge which is like toll on road, and which is competitive with road.”

The key rail corridors will be accompanied by multiple ‘nodes’ such as dry port storage and handling, freight villages, fuel terminals and sea and airports.

Havenga estimates that a rail-friendly corridor between Joburg and Cato Ridge outside Durban should be able to handle 37% of the traffic between the two cities, as opposed to 14.1% currently.

Rail’s share of general freight has fallen from a peak of about 150 million tonnes (Mt) in 1982 to less than 60 Mt in 2022.

Iron ore has seen a steady increase in tonnages since the 1970s along the Sishen-Saldanha Bay line, though that too is facing capacity constraints, forcing companies like Kumba to stockpile and cut back exports. Export tonnages of coal and iron ore are now at 30- and 12-year lows, respectively.

Transnet’s future focus?

International experience shows that inter-modal transport, such as containerised goods that can be moved between rail and ship, offers the biggest growth market for rail.

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Havenga pointed to the proposed development of a dedicated freight corridor between Delhi and the eastern port city of Kolkata in India, with an estimated annual saving in transport fees of more than $3 billion (R55 billion).

Mongolia and Uzbekistan are also implementing similar inter-modal transport corridors, unlocking billions of dollars in transport savings and billions more in new economic opportunities.

But for now …

The inefficiencies baked into current operations in SA include speed restrictions and the need for manual as opposed to automatic authorisations for trains to proceed beyond certain points.

Outdated signalling systems, aggravated by rampant cable theft, result in slower speeds and less efficient use of rolling stock.

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Then there are the more labour-intensive requirements for maintaining a rail line, such as the replacement of ballast stones, repairing weak joints and clearing debris from lines.

This article was republished from Moneyweb. Read the original here