SA’s National Rail Master Plan: Doomed to derail?

South Africa’s National Rail Master Plan promises reform and renewal, yet critical gaps raise serious concerns. Can rail regain its freight relevance, or will structural flaws undermine this ambitious strategy? NICK PORÉE highlights the major risks…

South Africa was for many years dependent on the railways for long-haul freight and passenger transport due to the political suppression of competition by the private sector. This was achieved by monopolising railways and harbours and regulating road freight through a permit system.

There is now a move to “deregulate” railways to permit commercially sustainable, competitive industrial railway operations on the national track network as described in what is known as the National Rail Master Plan (NRMP). The NRMP is a lengthy overview of government intentions for the partial reduction of the 120-year railway monopoly of Transnet, as successor to various previous versions of the state-owned enterprise (SOE).

For freight haulage, the process is designed to permit Private Sector Participation (PSP) in a range of “concessions” which will allow aspirant Train Operating Companies (TOCs) to complement, or possibly compete with, the operations of the SOE on the national railway network. Statements including that the aim of the NRMP is “to shift from viewing rail as a discrete SOE with a commercial focus, repositioning rail as a national asset” and “an environment where TOCs can flourish where indicated” encourage the belief that the process will be similar to other Department of Trade, Industry and Competition (DTIC) masterplans that smother competition with non-commercial considerations.

The necessary separation of the Railway Infrastructure Manager from Transnet Freight Rail (TFR) will be partially achieved by divisionalising the Transnet Rail Infrastructure Manager (TRIM) function within Transnet and creating a Railway Economic Regulator (and presumably the Railway Safety Regulator) within the Department of Transport (DoT). This will imply the transfer of about 14,000 employees into the infrastructure manager function.

This restructuring aims to correct the collapse of the SOE, with debts of over R130 billion and most assets in such parlous condition that a further R60 billion will be required to rehabilitate or replace infrastructure. Rehabilitation of TFR will also require billions of rand from the fiscus, as current debt and R1 million per month interest costs dwarf the potential R15 to R20 million possible annual earnings from operations, so it will be some time before the SOE can become sustainable. The Passenger Rail Agency of South Africa (PRASA) is in a similar state of decay, with the need for extensive funding by government to resuscitate infrastructure and equipment destroyed by management failure during the Covid pandemic.

Freight volumes

The NRMP document draws on the Railway White Paper and is supported by selected data supplied by Transnet and DoT consultants. Evaluating the potential from the proposed restructuring process is complicated by a lack of detailed information about freight commodities, routes and volumes, 85% of which are currently performed by road haulage. Current road freight volumes are estimated to be as shown in the table below.

The corridor freight, meanwhile – for which there may be competition by road and railway – has the approximate volumes shown in the following table:

Road and rail freight by economic sector

Rail potential tonnage with current systems is approximately 366mtpa, to be shared between all TOCs. The impact on road corridors of a modal switch with current railway systems would be to reduce corridor road freight by about 60mtpa. If the process takes five years, the impact will be negligible except for mineral export corridors.

The Master Plan document contains some contentious broad generalisations about rail freight, such as the possibility to “leverage its unique technological advantages at appropriate points where it provides optimal value”, with no mention of its unique technological disadvantages which incur costs and deter usage by industry. It also states, “one of the primary objectives is to define and quantify these supply chains to identify potential opportunities for improvement, a summary of which is provided in the NRMP.” This assumes that the logistics industry does not understand the need, but the government does.

Gauge considerations

Standard gauge is an impracticable solution. The rail gauge is not the problem; the management and services are. There is insufficient cargo to make investment in a new standard gauge system anywhere near commercially sustainable. The standard gauge lines will be “islanded” with very limited access points within a more extensive Cape gauge system. This will require extensive transfer and cross-haul facilities to effect door-to-door road deliveries onto Cape gauge lines and/or off rail.

The billions of rand of investment required to implement the NRMP, relative to the freight tonnage available on corridors, will make railways more expensive than road haulage for many years to come. South Africa cannot afford to lose billions of rand per year on a railway that has little prospect of a sustainable future.

Missing operational information in the NRMP document

Much of the document is made up of “political jargon” and indicates academic capability but minimal operational experience or appreciation. There is no immediate action plan. There is also no guidance for service in the near term, nor over the next 10 years. There are no references to costs, profitability, markets, commodities or many other considerations relevant to commercial decision-making.

The document fails to mention significant information regarding the proposed operation of the railways, including the following:

* Analysis of future cargo movements, and commodity and sector intentions.

* Little connection between track operations and cargo origin, and both destination and services.

* No justification for upgrading tracks which have little future use.

* Lack of information about government funding for uncommercial sections of track kept open for national use.

* No reference to achieving cargo demands in immediate intermodal action plans (for example, eight-hour transit between Johannesburg and Durban).

* Lack of information regarding future rolling stock categories needed, such as 14-tonne net, air-braked, multimodal flat decks or articulated flat decks.

* No indication of a new tariff structure for track access fees, or uniform terms and conditions for all TOCs.

* No indication of total separation of infrastructure from train operations.

* Insufficient information regarding roles of the Network Manager (i.e., control of train operations); the Railway Economic Regulator (i.e., scope of regulation, publication of regulations); and the Railway Safety Regulator (i.e., scope, applications for TOCs, train operations and infrastructure).

* Insufficient information regarding insurance and liabilities for service obstructions.

* No clarification on interactions of TOCs within existing infrastructure such as yards, ports and terminals, or on staff qualifications required for immediate operational planning.

* Other information essential for future investment decisions.

Summary comment

The NRMP gives a clear indication that the process is not designed to achieve normal commercial business practice in a regulated industry, but is skewed towards the continuance of statist interference in the market. The attempted state planning is evidenced by the data in use and the complicated analyses of a wide range of factors that are TFR commercial considerations but of no consequence to competitors.

The lack of information about the terms and conditions for private access is a primary barrier to investment. This is aggravated by a lack of evidence of demand for railways outside of captive bulk export markets. There is no recognition of the fact that there are very few commodities with a need for point-to-point trainload services, or that load consolidation results in the need for disaggregation to scattered origins and destinations – a process more suited to road haulage. More than 70% of containers are destuffed within 100km of ports.

Conclusion

From the information currently available, there are expressions of interest from 11 different aspirant TOCs. The process of change is veiled, as various state entities cautiously debate the creation of the organisation framework, development of management structures, regulatory conditions and the terms of future open access.

Until there is clarity and some hard numbers are on the table, it is unlikely that investors will make commitments to a strategy that has yet to give evidence of profitability. This means that South African industry can expect several more years of restricted railway development and cost to the fiscus.