Third-party rail access: can it work?

November 14, 2024

Since the 1980s, allowing private train operators access to previously monopolised, state-owned railway networks has been a cornerstone of railway reform worldwide. ELVIN HARRIS says that, if it happens in South Africa, we should proceed with caution.

The rationale for this opening up of the railway networks has been consistent across countries and regions: government-owned and operated railways were placing too much of a financial burden on the state on the one hand, whilst on the other hand the state and society were not receiving sufficient value (real or perceived) from the government’s substantial investment into the railways.

The solution seemed quite obvious – and in many respects remains true:

– Separate the network ownership/management from train operations in the traditional railway.

– Introduce competition on the train operations side, by allowing mainly private sector train operating companies (TOCs) onto the network.

– Establish a regulator to monitor and control behaviour of all participants in this “new” expanded railway supplier market.

– Crowd private sector investment onto the rail system to either supplement or replace dwindling public sector investment.

This core set of responses to the common challenges faced by traditional railway systems has worked particularly well in the UK and the EU, but has also found favour in Asia, Australia, New Zealand, Canada, and South America. Although the results of these rail reform policies, measures, and implementations have been mixed across the various jurisdictions, it is clear that the reforms have yielded many benefits that were simply not possible in traditional railway systems.

South Africa still functions as a traditional railway system. Thankfully, policy development processes since the 1986 report on the strategic planning, management practices, and systems of the South African Transport Services (SATS) has finally led us to the approval of the National Rail Policy 2022 and the Logistics Roadmap of 2023, which clearly outline government’s plans for reforming the railway system. A draft Network Statement has also been published for comment in early 2024 to pave the way for engagement on the “rules of the game” for accessing the rail network. This Network Statement is set to be published as an approved framework by government shortly.

While we may be several decades late in launching a rail reform process in South Africa, the moment has finally arrived. Given the present state of both freight and passenger rail and the acceleration of decline in recent years, one would hope that the moment of reforming the system has not arrived too late. It would seem that the country cannot wait for the expansion of the railway market through the introduction of third-party train operators onto the rail network and the expected resultant ‘hockey-stick’ curve of increase in tonnages conveyed by rail. Whether or not there will be price or service benefits to customers remains to be seen, although this, too, is expected (or at the very least hoped for) by industry.

The collaboration between the public and private sectors to rise to the occasion and deliver the Logistics Roadmap and draft Network Statement in record time must be applauded. However, as urgent as the current need for reform may be, there also lurks real danger in moving too swiftly or haphazardly in our desire to accelerate this much-needed change. This urgency has, for example, led the Logistics Roadmap to outline some very ambitious timelines for certain objectives and actions of its implementation plan.

It is precisely at this juncture that South Africa should take a collective breather and revisit policy, legislative, and implementation timelines of rail reform processes in other countries over the past four to five decades. International experience has shown that the liberalisation of rail markets has been much more complicated, and taken much longer, than the liberalisation of air transport or electricity and gas markets. In some countries, it has taken a decade or more from the first piece of legislation being passed to the opening up of the rail market to a third-party train operator running services on a network.

Successful implementation of third-party access in a smooth and manageable fashion requires a number of critical success factors to be achieved:

A policy framework needs to be in place to set the direction for future railway development, broadly supported by industry and the public.
Legislation must be enabled to provide the appropriate legal framework for implementation of the policy.
A regulator must be appointed to oversee fairness of access allocation and charging within the newly expanded competitive market.
Detailed regulations are required to support both the primary legislation in (2) and the functioning of the regulator in (3) above.
A Network Statement must be issued that provides sufficient commercial incentives for the private sector to enter the market, whilst simultaneously supporting the sustainability of the infrastructure manager/network owner. This could (or should) include an agreed plan for funding of maintenance, upgrading, and expansion of the network.
Risks must be shared appropriately between the public and private sectors, as well as between train operating companies.
Pricing to users should be aimed at encouraging greater use of railway services.
The rail network (rail infrastructure) must provide the required levels of safety, efficiency, availability and spare capacity (slots).
Fair, open, and transparent mechanisms (concessions, auctions, etc.) must be put in place, through which to invite third parties into the system.
A penalty regime must be applied to cater for operational failures and delays.

Rushing ahead without the majority, if not all, of the above factors in place and workable could do a great deal of damage to the rail system, even as we’re trying to improve it. This is a real danger that should not be underestimated.

While several essential elements are in place, I believe that some critical areas still require resolution to enable a smooth transition for private-sector involvement. A brief pause to assess our readiness for this complex task, rather than charging full steam ahead, could prove invaluable at this stage.