Transnet’s network statement signals a significant turning point for South Africa’s rail transport sector and makes a bold call for the private sector to play a leading role in its recovery. If implemented effectively, this initiative could significantly improve operational efficiency and provide a much-needed economic stimulus to a country whose GDP growth rate has stagnated at less than 2% for nearly a decade. But before we start celebrating, we need to examine its transformative potential.
Poor bulk logistics performance is costing the South African economy at least R1 billion a day. Many companies in the mining sector are switching to road transport, with costs increasing four times compared to rail.
Our national roads are twisting under stress and one only has to drive along the N4 motorway to Mpumalanga or the N3 route to Durban to see that seas of freight trucks are dominating these routes, putting communities at risk of accidents.
According to the World Bank, South Africa’s ports are among the worst in the world when measured by vessel arrival times, due in part to years of underinvestment in maintenance.
These issues have a major impact on our economy. South Africa lost an estimated R98 billion in coal and iron ore exports between 2021 and 2023 due to cargo logistics constraints, according to a Minerals Council report. In agriculture, problems at Cape Town’s port cost apple and pear producers nearly R1 billion a year.
While the short- and long-term economic impacts of Transnet’s renewal projects remain uncertain, new opportunities are emerging for players in the mining sector. But getting back on track requires making difficult choices.
Unlike public-private partnerships in the energy sector, where the state takes the role of investor or purchaser of private services, Transnet’s approach is firmly focused on private sector participation (PSP).
This model creates space for private companies to invest in and contribute to rail and port networks, offering stakeholders a real opportunity to make a meaningful difference.
figure out the problem
South Africa’s total rail traffic has fallen by nearly 7% since 2019, while total mining production has fallen by only 1.4% over the same period, indicating the rail system is struggling to meet demand.
Main lines are affected by external factors such as theft and vandalism, which are further exacerbated by irregular maintenance and equipment, especially a lack of locomotives.
Although port terminals have fared better than rail, they face similar problems, with aging infrastructure and equipment hampering efficiency and causing delays for ships and trains waiting to be loaded or unloaded.
Subnational financial challenges further constrain the ability to invest in infrastructure and implement transformation plans.
The latest network statement is the clearest signal from Transnet’s CEO and board that PSP is key to restructuring the entity to better support South Africa’s economic growth.
Mark Evans and Oliver Wyman are partners in energy and natural resources.
Enabling private sector solutions
The announcement to split Transnet Freight Rail into Transnet Rail Infrastructure Management Company (TRIM) and Transnet Freight Rail Operating Company (TFROC) will support this restructuring by maximizing network utilization to revive national rail transport.
Together with TFROC, TRIM will manage, operate and maintain the rail infrastructure while “opening the market to third parties”, thereby generating revenue to fund the necessary repairs to the rail network.
To be effective, incorporating these operational departments and processes requires prompt third-party involvement. As a good start, a tiered access fee structure is proposed, aimed at making access more affordable for private operators.
The proposed tariffs are differentiated based on goods and corridors, taking into account gross tonnage per distance traveled or kilometer. This will open up the network to an even wider range of players.
Additionally, businesses that invest in infrastructure can recover costs through differentiated pricing based on usage and service levels. Over time, this strategy of promoting infrastructure investment could stimulate broader economic activity by strengthening connectivity between major economic regions.
Change doesn’t happen overnight. The new private railway is not expected to open until 2027. With the conditions for access established, a solid foundation is in place for private investment to begin.
Now is the time for government reforms to eliminate wasteful spending and increase efficiency in logistics and transportation. This process has already begun.
The Auditor General has recently called on the Board of Passenger Rail Authority SA (Prasa), which incurred R3.8 billion in fraudulent expenditures, to fast-track an infrastructure modernization program aimed at improving service delivery.
Government efforts to reduce fragmentation and duplication of cross-sectoral processes are essential to success.
With the Department for Transport establishing a new unit with the skills and expertise to design, negotiate and manage projects and ensure efficiency in public-private agreements, the sector appears to be moving in the right direction.
Private sector participation drives solutions
South Africa has strong historical precedent for successful public-private partnerships (PPPs), most recently demonstrated in the energy sector.
Since South Africa introduced PPPs in 1998, more than 35 large-scale projects worth more than R90 million have been launched. The transport sector in particular has some of the largest PPP projects, accounting for an estimated R65 billion to R70 billion in spending on initiatives such as the Gautrain high-speed rail link.
Our recent partnership with Transnet has already made joint projects more viable. For example, we already have a five-year contract with Sasol to deliver ammonia to customers, and Sasol is funding the maintenance of the fleet for Transnet.
But these improvements have come about through partnerships, and the new network statement and Transnet’s ambitions call for companies to invest in and operate parts of the rail network, a marked departure from what has been done to date in areas such as the energy sector.
Transnet’s renewal approach will allow freight-dependent sectors such as mining to decide to what extent they will be involved.
These positive changes in the rail sector mean there are many new opportunities for mining companies to take advantage of.
Governments now need to consider the appropriate level of participation in railway regeneration, and this applies to both the financial contribution and operational involvement required to achieve the desired outcome. Participation will be in the form of individuals or forums, for the benefit of the corridor and the industry.
At the lower end of the spectrum, companies could begin to impact ancillary rail services. Increased investment may impact critical operations or the decision to become an end-to-end provider.
The more mines are involved, the easier it will be to reduce the risks from underperforming networks. This deeper engagement requires expertise and significant investment.
For these parties, investing in railways also affects a variety of stakeholders, some of whom may have conflicting interests. This highlights the importance of consensus and buy-in when engaging with railways through finance and operations.
As mines take part in Transnet’s reinstatement of the rail network, they will need to consider how their ambitions align with national objectives of job creation and economic growth.
Overall, PSP has the potential to revitalize South Africa’s rail transport sector and foster economic growth. Supportive legal frameworks, effective governance and operating models, along with investment and stability in the public sector, can yield significant results.
But before success can be declared, the mine must tread carefully. Balance investment appetite with the need to use a collaborative approach to build consensus with stakeholders and minimize risk.
