Road to rail for a safer South Africa?

Energy, infrastructure, and public-private partnership projects specialist Mongezi Dladla, counsel at the multinational law firm A&O Shearman, explains why road to rail needs to be South Africa’s next just transition.

The South African government has pledged grand revival of the national freight rail network with the help of the private sector, from as soon as this year. Will the long-awaited transition back to a dominant rail freight network finally become a reality? It’s not impossible, but there are some curveballs we need to consider.

There are obvious benefits to the road-to-rail transition, but it is a dizzyingly ambitious undertaking. The government’s Freight Logistics Roadmap states that the shift from road to rail will bring about a “major positive developmental impact for South Africa” through greater efficiency and affordability, boosted industrialisation, reduced greenhouse gas emissions, and lower transport costs. To support the transition, the government has provided Transnet with a R47 billion guarantee facility to support its recovery plan and manage its debt.

Affordability of our transport networks is important to consider. We shouldn’t be under any illusions that only the road system is terribly expensive to maintain; our dysfunctional rail system is currently costing the country up to R1 billion a day to maintain. Current inefficiencies in our logistics networks are costing the taxpayer an estimated 11.3% of gross domestic product (GDP) – much higher than the global average of 7% of GDP for national transport networks.

Very soon third parties from the private sector will be given an opportunity to step in to help accelerate the transition and performance of the rail network through their private finance, project management, and technical expertise. It is proposed that the private sector could be brought onboard from as soon as this year. This shift has the potential to boost economic growth and increase South Africa’s GDP, make our roads safer, and reduce road damage and logistics costs. This will consequently lower production costs for essential products.

The potential downside, however, is the inevitable job and revenue losses in the road freight sector. As the players who stepped in as the rail system collapsed over the past 20 years, the road freight industry has many hard-won gains to lose. This does not, however, outweigh the fact that road freight is simply not ideal for the big-ticket freight logistics items that are so key to our economic growth. Transporting heavy or high-value freight by road is expensive, dangerous, and has a negative impact on the state and safety of our roads.

With these factors in mind, it’s useful to realise that the rail transition is reminiscent of the green energy transition in terms of its human impact. This is why this transition, like the energy transition, needs a solid and well-considered “just transition” roadmap.

How we can make the freight transition work for everyone

To ensure a successful and sustainable transition to rail, we can take guidance from several existing guidelines and lessons learnt from the past. The South African Public Private Partnership (PPP) Manual emphasises the need to develop a consultation plan for all stakeholders (including the public) and the need to continually keep all stakeholders informed.

The Presidential Climate Commission Report on Community and Stakeholder Engagement on a Just Transition in South Africa considers some of the public sentiments towards the return to rail and symbolises an intent to consult with stakeholders and take their concerns into account.

The Presidential Climate Commission engaged the public on the Just Transition and focused on consolidating the views and concerns of affected communities and stakeholders regarding what constituted a just transition. It sought to build trust, understanding, and consensus between stakeholders. We need to build the same bridges between the road and rail freight communities.

New and symbiotic opportunities for the road freight sector are essential in order to position the industry as partners, rather than opponents. Instead of continuing to run the gauntlet on long-distance routes, newer, shorter, safer, and more profitable routes may perhaps be considered. These could function as last mile road solutions and may potentially lower the operational costs of the road freight industry as well as make working conditions safer for their drivers.

In addition, it is imperative that job losses in the road freight sector are minimised. We will therefore need to look at skills development and training opportunities for employees and participants in the road freight industry who want to transition out of the industry or into other verticals in the industry.

Potential private sector participants also need to be extensively consulted. Considering the current fiscal constraints, private sector investment and participation will be critical to enable the rapid expansion of capacity and operational improvements in the rail system. The rail network is currently plagued by problems with network security, the ripple effects of dysfunctional ports, and recent spikes in theft and criminal activities. These issues affect the viability of any potential private sector investments.

To address this, the government requires a robust plan which sufficiently mitigates these risks and gives comfort to private sector operators, investors, and funders. The approach to risk allocation (especially the risks relating to criminal activities) thus needs careful consideration, as the private sector is typically reluctant to assume these risks unless it is worth their while.

As with any other large infrastructure government procurements of this nature, a major focus should be placed on ensuring maximum economic benefit to South Africa, its economy, and its people. The arrangements and agreements with the private sector participants must therefore promote factors such as job creation, local investment, and economic development, whilst also ensuring that any proposed targets set out are achievable and do not discourage foreign investment.

Although the need to transition requires our immediate attention, if we want a successful road-to-rail transition we need to bring all affected stakeholders along and not rush the process. A staggered approach should be adopted so that there is sufficient opportunity to engage all stakeholders and get them on board where possible.

It’s also vital that we use this transition to create new markets and new opportunities for economic participation. This entails job creation, the empowerment of local communities, and the rethinking of South Africa’s entire freight value chain. This includes considering the entire value chain of the road freight sector and not forgetting the critical role played by other stakeholders in the road freight industry, such as truck depots, the fuel industry, and mechanics. They may all have good ideas on how to make the transition work. Their interests, economic or otherwise, should be kept in mind – and they should have a say. Last but not least, we need to involve road freight producers and original equipment manufacturer (OEMs) in formulating the plans, policies, and guidelines for a transitioned industry. Existing PPP manuals may offer excellent guidance for these kinds of processes.

It is well understood that the road-to-rail transition provides immense opportunities to benefit the South African economy, but we must ensure we leave no-one behind and that we do things right. To ignore the interests of affected stakeholders may lead to undesirable consequences and demonstrate a failure to learn from past mistakes. The last thing we want is another e-toll saga.