The Transnet turnaround roadmap becomes clearer with Government promising enhanced competition

The news regarding Transnet’s future, whether it is privatisation or not, is coming in thick and fast as Government engages with the media at every opportunity it can.

Whether this will result in a plan that can actually turn the entity around remains to be seen as the latest news points to the fact that Government is prioritising competition over privatisation.

A News24 article points out that, in an overview of the draft roadmap for the country’s freight logistics system, as was presented to a handful of media at the Union Buildings in Pretoria on 16 October, Government officials said the plan sought to help implement existing policy to turn around ports and rail.

A history of frustration

The article points out that South Africa’s deteriorated rail performance is taking a major toll on the economy, with some estimates pegging the impact as high as R1 billion a day. For example, amid record-high coal prices, Transnet’s export coal line railed the lowest volumes in three decades last year.

Several bulk commodity producers have recently embarked on retrenchment processes, with rail constraints cited among the main reasons. The country’s ports are also not faring well and are ranked among some of the most inefficient in the world.

Enhanced collaboration

The article points out that while existing policy – such as the White Paper on the National Rail Policy and the National Commercial Ports Policy – seeks to drive reform of South Africa’s logistics sector, Government’s freight logistics roadmap aims to enhance collaboration across various entities to accelerate the implementation of identified solutions.

“It allows a clear path to address immediate challenges in the short term and the reform of the logistics system in the long term. And this is built on the existing policy decisions that have already been made by Cabinet,” Rudi Dicks, Head of the Presidency’s Project Management Office told the briefing.

“So, it’s not new. It’s developing an inability to implement what we’ve already decided.”

The article adds that, while the draft plan – and the policy from which it draws – seeks to encourage greater private sector participation, this does not equate to privatisation, the officials emphasised.

“It’s not about privatisation. But it’s creating more competition and investment in the various spaces where Transnet participates,” said Dicks.

“The roadmap reinforces our position that these are strategic national assets. We own the infrastructure.”

Enabling mechanisms

The article points out that, rather, the roadmap provides the mechanisms to enable private sector investment into South Africa’s freight logistics sector.

Private sector participation could take various forms, “for example, third-party access or concessioning to various players on different parts of the rail lines”, Dicks said.

This could apply to all rail lines – from branch lines to key lines such as the coal and iron ore corridors, the latter being lucrative lines for Transnet, which was previously not keen to open up to the private sector.

While Transnet recently tried to open up access to private players on branch lines, this was unsuccessful because the terms proved unattractive to private participants, Dicks noted.

The article adds that the draft roadmap, which News24 has obtained a copy of, has been circulated to key stakeholders for input and is expected to be presented to Cabinet for approval in the coming weeks.

The roadmap analyses the immediate causes behind the logistics troubles – with the identified issues ranging from security to governance and operational inefficiency.

In the short term, the document proposes prioritising three areas – a capital investment programme; operational and rolling stock issues; and security of the rail network. In the longer term, the draft plan looks at policy and structural interventions and various ways to encourage private sector participation and investment.

Key timeline

The article points out that the plan includes a long, detailed list of critical actions required to drive implementation, as well as corresponding timeframes.

For example, the infrastructure manager is to be separated from Transnet Freight Rail and established as an operating division within Transnet by the end of October. This reform, which is outlined in the White Paper on the National Rail Policy, is a critical step to enabling third-party access to rail.

On the ports side, the National Ports Authority is expected to be established as a subsidiary in October as well.

By December this year, potential models for the concessioning of bulk mineral corridors and opportunities for availability-based infrastructure concessions should be explored. By March next year, the roadmap expects a longer-term framework agreement for rail operators to facilitate investment in rolling stock to be developed. By July, capacity on the freight rail network is expected to be allocated and a timetable published.

Repositioned

The article points out that Irvindra Naidoo of the National Logistics Crisis Committee told the briefing that the roadmap would see Transnet repositioned in the market.

“The growth markets are likely to be in the areas of manufacturing, agriculture and the general freight market, more than in the mining market. So what this is trying to do is really create an environment where Transnet can rebuild its portfolio towards the growth industries. So, it may lose in some areas, but it should be better positioned [in the] longer term,” he said.

This is not a zero-sum game between Transnet and private operators, said Saul Musker, director of strategy and delivery support in the office of the Presidency.

There is an enormous unserved market and the aim is to grow that market, he said.

“If Transnet carried up about 150 million tonnes on the network last year, you could easily (based on the amount of rail-friendly freight in South Africa) grow that to 300 million tonnes – if the system was working efficiently.”

With private operators who can make investments and capture that market, Transnet’s market share as an operator might decrease to 50%, but its volumes would be the same.

“The aim is to grow jobs, grow volumes and grow the number of operators, not to have more people competing for the same slice of the pie,” Musker said.

Will this approach work?

South Africa is not on news regarding plans to turn Transnet around. However, all of these plans proved to be unsuitable to produce the desired outcome.

Will increased competition prove better than privatisation? It depends on the level of involvement that Government has in the process and the future rail operators. As we know from previous experience, Government’s participation in processes such as these complicates the process and most often produces sub-optimal results.

It is interesting to see that a critical component of the plan is the fact that key assets will remain in Government hands. If this is the case, it will need to improve its efficiencies at its ports as it currently takes three days to turn around a freight container at South African ports as opposed to a couple of hours globally.