Third-party rail access unlikely to unlock private investment, owing to restrictive terms – ARIA

1st July 2022 By: Irma Venter - Creamer Media Senior Deputy Editor

African Rail Industry Association (ARIA) CEO Mesela Nhlapo says the association has serious concerns regarding the restrictive terms and conditions Transnet has imposed on the use of the national rail network by private third-party freight operators.

A key element of the newly unveiled National Rail Policy (NRP) is the acceptance of private-sector investment and participation, as well as economic regulations that ensure fair and regulated access to South Africa’s primary and secondary rail networks.

Earlier this year, Transnet pre-empted the launch of the NRP by announcing its conditions for private third-party access to the country’s freight rail network.

Nhlapo notes, however, that Transnet’s approach to slot sales will see no private investment.

The reasons for this include the fact that only two-year contracts have been offered; that slots have been offered on a voetstoots basis; that Transnet has reserved special ‘grandfather rights’ for itself; and that only a portion of the network is being offered, with no transparency in fee calculation, among other issues.

“This approach offers no long-term prospects for potential investors,” says Nhlapo.

“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 on to 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 the structural reform becoming a reality, so there are no trainsets ready to be deployed today.”

Nhlapo explains that 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 18 to 24 months to procure a trainset.

Despite this, Transnet’s offering is only for two-year slots, she says.

“The complete lack of existing trainsets on one hand, and the uninvestable nature of the approach all together, render the current proposal by Transnet fundamentally meaningless.”

“Preventing willing and able private companies from investing is counter to what the policy and government are promoting,” says Nhlapo.

“As ARIA represents the four largest private operators in South Africa, we can confirm that there is no existing capacity.”

She says this lack of capacity is not due to an absence of investment appetite or customer demand, but because no private operator will make material investments into train capacity ahead of the implementation of third-party access structural reform when rates, terms and conditions remain undefined.

“We urge government, as Transnet’s shareholder, to encourage Transnet to reconcile its current third-party access process with the Cabinet-approved policy and to commit to enabling the structural reforms outlined by Operation Vulindlela,” says Nhlapo.

The interim rail economic regulatory body, as set out in the NRP, should be made responsible for overseeing negotiations between Transnet and private operators; for setting the process and procedure for the acceptance of private operators and for implementing access agreements, she notes.

This includes making slots available for a period that is aligned to the life span of the assets being invested in, and setting a level playing field.

Nhlapo says 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.”

ARIA represents companies that are original-equipment manufacturers, rail operators and rail services companies in the rail sector and associated industries.