THE association representing South Africa’s rail sector has called for the industry to unite behind the government’s reform policies in order to revive the struggling national network.
Speaking during the Africa Rail Industry Association’s (Aria) annual general meeting, Aria chairman, Mr James Holley, says that considering the two metrics that measure the performance of a country’s railway - the share of passengers and freight moved by rail - the South African network is in “a really bad place at the moment.”
Aria represents operators, manufacturers and service providers in the rail sector, predominantly in South Africa.
While passenger numbers in South Africa have grown, they are still more than 80% lower than in the late 2000s. In the freight sector, national railway Transnet moved 173 million tonnes in 2022 compared with 226 million tonnes in 2018. Aria expects this to fall to between 155 and 160 million tonnes in the 2023 financial year, which ended on March 31, which would represent a 29% decline over five years.
“The implications for the future of the country are significant and we seem to be approaching a critical inflection point with regards to our railways,” Holley says. “If we don’t change direction quickly the ramifications for our industry are very concerning, but perhaps more so are the consequences for the upstream economy. If the economy was a human body, the upstream economy would be our heart. Right now, our heart is under severe strain because we are blocking the blood it needs to survive. Without it, we cease to exist.”
Holley says the problems facing both passenger and freight operations are complex, but that the rail sector has developed strategies to improve this situation. He says firstly, the rail industry and the South African economy in general need to coalesce and support the government's reform plans.
“We have a gazetted rail policy, why then do we still debate policy?” he asks. “The time surely to debate policy was when the green paper and white paper were released for comment. We took 14 years to develop a progressive policy that can ignite the South African economy. Now is the time to implement the policy and no longer to debate it.”
Holley says the primary mechanism for reform in the passenger sector is the devolution of commuter services from the Passenger Rail Agency of South Africa (Prasa) to the cities where they operate. “It is encouraging to see the appetite from cities such as Cape Town and Johannesburg for the implementation of this important policy intervention,” Holley says.
Prasa is also expected to spend its full Capex budget for the first time since 2016, which Holley says might represent the first real signs of progress in passenger rail for some time.
To address the critical maintenance backlog facing South Africa’s rail infrastructure, the Department of Transport (DoT) has embarked on the Private Sector Participation (PSP) framework, which will set guidelines to unlock private-sector funding for track infrastructure. The PSP framework will enable the creation of an independent PSP structure that will manage the process and guide the collaboration between state-owned enterprises and the private sector.
Holley says that track infrastructure investment is potentially the most difficult problem to solve in the rail industry today, with Aria estimating an approximate Rand 26.8bn ($US 1.49bn) track maintenance underspend over the last decade. “For perspective on this, the recently revalued book value of the track infrastructure is approximately Rand 55bn,” Holley says. “Remarkably, the maintenance underspend alone is therefore approximately 50% of the rail network’s underlying value.”
During a National Treasury webinar in February, Transnet said that it required Rand 111bn in capital expenditure to restore operation and indicated a further funding shortfall of Rand 80bn. Delivering the keynote speech at the Aria AGM, independent researcher, professor Jan Havenga, said restoring the integrity of the 5500km of the General Freight core network that experiences strong demand would cost about Rand 60bn. “Bearing in mind we have a national freight network of 21,000km, the task that lies ahead is great,” Holley says.
Holley says that of the three potential sources of capital to fund track renewals, Transnet’s ability to raise further capital is constrained while the National Treasury is not prepared to provide the level of grant funding required.
“This leaves one source of funding remaining, which is the private sector,” Holley says. “The good news - great news, in fact - is that the appetite to do so most certainly exists. The appetite is there because the underlying freight volumes are there.
“What is needed urgently now is the framework to guide its implementation. The vertical separation of railways into the roles of infrastructure owner, infrastructure managers and train operating companies, together with the PSP framework, are critical for this success.”
Holley says there also needs to be a wider discussion over which parts of the network are prioritised for funding and renewal.
“We are at a juncture where decisions like the rationalisation of our core network will soon be considered,” he says. “Is it better to have a smaller, well-capitalised and high-performing railway network than the vast network that we have today? These decisions need to be made with careful consideration and in the context of the realities of our current situation.”
In 2022 Aria obtained two legal opinions from South African law firm Weber Wentzel that confirmed that there is nothing legally preventing the immediate implementation of Third-Party Access (3PA), and that a complaint against preventing access to critical rail infrastructure would, depending on its specific nature, most likely be upheld by the Competition Commission.
The need to implement the critical reform that 3PA represents has never been more important for the rail industry and the national economy, Holley says, but there needs to be investment in new rolling stock for private operators to meet the requirements of South African freight shippers.
With a two-year lead time for the delivery of new locomotives or wagons, Aria says it fully supports the implementation of the Regulation of Transport Bill, the Rail Masterplan, and the Rail Transportation Bill, but does not support the idea that implementation of 3PA is dependent on the introduction of these measures because it does not believe the rail industry or the national economy can afford to wait any longer.
Holley closed his address by thanking the CEO of Aria, Ms Mesela Nhlapo, and asked why there was a need for the advocacy that Aria is providing.
“The answer to that is simple: the only route we can see for the rail industry to recover from the beleaguered position it finds itself in now is through the implementation of our government’s reform agenda,” he says. “It is of critical importance that not only our association, but the industry as a whole, unite behind and support government’s well-considered vision for the South African railway industry. It is not until we address the root cause of the structural problems in our railways that we will experience the economic prosperity our beautiful country deserves.”