Restructuring South Africa’s Railways For Competitive Efficiency
In South Africa, the railway moves 215 million tons of bulk cargoes and road freight moves 1400 million tons of breakbulk. The limited use of the extensive rail system in South Africa is the result of the policy of a centralist government monopoly providing only selected services whilst excluding usage of the rail network by competitive private sector industry. This policy makes the railway uncompetitive, maintaining the 20,000km network for the limited tonnage, whilst enjoying the inefficiencies of a monopoly, protected from competition. This may be contrasted with the highly competitive road freight situation where 400,000 trucks share the road network with 12 million other vehicles and pay for more than their usage.
The recommendations of the National Transport Master Plan (NATMAP), the review of the National Freight Logistics Strategy (NFLS) and other studies have recommended revision of the railway policy to permit private train operations on the national track network as the first essential step to creating a competitive railway system as in developed countries around the world. The concept has been endorsed for the first time in the current White Paper on Railway Policy with the result that the Department of Public Enterprises (DPE) and Transnet are now strategising how to retain the monopoly control to limit the potential effects of open competition in a restructured environment. This process is following the usual SOE strategy of appointing appropriate experts to write supportive “studies” for a preferred position, with minimal interaction with the private sector potential train operators, or the commercially oriented logistics specialists with international experience.
The crux of the problem is that the current academic evaluations do not use hard numbers and the realities of commercial freight transport and logistics as the yardsticks for evaluating the situation. The recurring recommendations from commercial level logistics experts are:
Create a government rail network infrastructure ownership and management agency (e.g. SANRAL), institutionally separated from train operators, which allocates slots, and charges for track access and train paths for freight and passenger train operators. Create an independent Economic Regulator which establishes, approves, and publishes the charges from the track and train path supplier to train operators (a division of STER). Expand and upgrade the Technical and Safety regulator to define train specifications and safety requirements (passenger and freight). Allow Transnet and any other compliant private train operators to use the network and pay the regulated charges.
This implies competition for about 100 million tons of breakbulk cargoes which TFR does not handle at present, due to policy decisions and lack of equipment, expertise, logistics facilities and the rigidly centralised operational management structures. If there is later competition for bulk cargoes, it will also be beneficial for the economy.
Failure to introduce the privatisation changes will see the eventual demise of railways as the current bulk monopoly is likely to face reducing cargoes within the next 15-20 years, leaving the railways and some ports underutilised and a further drain on the government finances. This factor also makes further investment in the current Transnet Freight Rail system unviable and supports the urgent need for private investment in a more competitive system.
After over 100 years of SOC railway monopoly, there is now an admission that there is a need for competition to supply the services required for the industrial economy, but there is still the intention to allow Transnet to regulate the market. Private sector investment in transport and logistics is dependent on an assessment of the operating environment and the regulatory framework. If Transnet is permitted to influence costs or control operational conditions, it will be a total deterrent to private operators. If this is allowed to happen, there will be no change to the system, no railway competition, and South Africa will continue to forego the potential benefits of competitive railways and rely on the private sector road freight industry for all industrial logistics.
