The National Rail Policy White Paper (110 pages / 5.51 MB PDF) is intended to harmonize with existing policies such as the new growth path, the national development plan and the integrated urban development framework. Its ultimate objective is to chart a comprehensive trajectory for the future of the rail sector in South Africa, covering both freight and passenger rail transport.
The document points out that rail has had a steadily declining market share over several decades, and one of the main objectives is how to remedy the lack of competitiveness of the sector compared to other modes of transport and the poor intermodal links between rail and other forms of transport.
The government has identified the necessary interventions at two levels. First, he notes that there is a need for infrastructure investment, as low investment and poor maintenance over several decades have led to the decline in use of the lines.
Second, enabling reforms should be implemented to address institutional and structural problems stemming from the legacy of the railway sector as a monopoly market. The white paper acknowledges that former monopoly SOE Transnet, through Transnet Freight Rail (TFR), has focused in recent years on protecting existing value and maintaining profitability, and therefore has no made no effort to expand its services or capabilities to meet potential markets. request.
In light of these reforms, it is expected that investment opportunities will arise for the private sector. However, it is important to understand the form of such investments that the white paper will allow, and in particular we have also considered whether private ownership of fixed rail infrastructure aligns with the document.
Decline of rail
The white paper identified a number of factors behind the decline of the rail sector in recent years. Railways generally rely on outdated technologies for fixed infrastructure and rolling stock, despite the fact that South Africa is a leader in innovative technologies such as genetic rail coupling technology that allows trains heavy transport vehicles take much longer to travel. In the freight sector, this has resulted in dangerous conditions with a high number of derailments and poor stopping capacity.
The effectiveness of TFR’s capitalized maintenance expenditure is questionable, with large amounts being spent with very little improvement in the production potential of track and related infrastructure expenditure, thus failing to meet potential market demand.
The use of branch lines has dropped dramatically over the years as the road network in rural areas has improved and initial attempts to revitalize branch lines through a concession approach have failed.
Theft and vandalism, along with generally poor security along the railway tracks, reduce the ability of trains to operate, often leading to long delays due to, for example, signaling failures and track damage. This has intensified considerably following the Covid-19 related lockdowns, making normal train services incredibly difficult to achieve.
In terms of rail infrastructure investment, the main policy driver is to focus new investment on high performance standard gauge infrastructure combined with upgrading existing network capacity. The white paper recommends that investment planning be centralized to enable more efficient spending.
Branches identified as “strategic” should receive direct investment to reopen or rehabilitate the line, or introduce private sector participation through concessions. The white paper also identifies the need for locally produced rolling stock that will meet demand across Africa, as well as the use of private sector rolling stock leasing companies to meet additional capacity needs.
Key enabling interventions include: restructuring the rail sector by addressing the monopolistic nature of the market, and in particular by promoting private sector participation and investment; the establishment of an independent economic transport regulator that will promote non-discriminatory access to rail infrastructure and facilities and transparent pricing, and the introduction of more effective cost recovery through closer alignment between user fees and costs; and strengthening the role of the railway safety regulator in terms of oversight of registration and licensing.
In the freight sector in particular, market structure is again identified as a key area for policy intervention. The white paper indicates that the unbundling of vertical integration at TFR is an important imperative, although it only identifies possible alternatives to unbundling without committing to any particular option.
On the contrary, the question of unbundling will be further explored by the economic transport regulator once operational, which will act as a kind of infrastructure manager. The introduction of third party access is also a key step in opening up the freight market, with access fees and conditions to be published by TFR and appropriate oversight exercised.
Ownership of the private rail network
The white paper supports greater private sector participation (PSP) in various aspects of rail freight. The main driver of PSP in the rail freight sector is the liberalization of access to the rail network, which has become necessary in the absence of TFRs providing a service capable of effectively meeting the potential demand for rail freight. Network access includes core lines, non-core lines, branch lines or shared freight and commuter lines.
For open access to work properly, the white paper separates the role of infrastructure manager from that of infrastructure owner, with the infrastructure manager being responsible for the upkeep and maintenance of the line and traffic management, all on the basis of non-discriminatory access.
Policy statements in the rail freight sector also provide clear support for PSP from an investment perspective. The government has said the Department for Transport will spearhead the development of a PSP framework for the rail industry, in recognition of the “important role” PSP can play in transitioning investment and improving operational and managerial efficiency in the railway sector.
The role of the private sector in financing freight infrastructure is noted, with the white paper specifically identifying that “the role of rail operators is to invest in ‘above the rail’ fixed assets such as rolling stock, based strong business cases”.
The use of concessions is encouraged, indicating that in the case of strategic secondary lines, where the government cannot afford to invest in the non-core network, they should be concessioned.
Despite this, the white paper does not directly address the concept of private ownership of rail network infrastructure, which it describes as “fixed rail and lower infrastructure”.
In the section dealing with rail planning policy, the white paper stresses the importance of publishing a national rail master plan to guide investment and for rail investment to be guided by a “rail planning component” within government.
There is no specific mention of whether rail infrastructure could be privately owned and financed, but the white paper says the lack of a coordinated national rail master plan has led to decisions bottom-up investment plans instead of “top-down planning for the national”. good”.
That said, in discussing investment in rail freight, the white paper gives strong indications that investment in rail infrastructure is ultimately a role of government and distinguishes it from the role of the private sector in funding non-fixed infrastructure.
The white paper suggests that government being responsible for investment in fixed infrastructure is most appropriate due to high costs and the importance of “well-planned and implemented projects”. However, the government will let rail operators fund their own rolling stock and the white paper says operators should invest in capital-intensive ‘above the rail’ assets, such as rolling stock.
The white paper discusses more generally the need for the private sector to contribute to infrastructure funding, including that the Ministry of Transport will generally support the identification of funding in addition to that raised by Transnet. However, the white paper puts this in very cautious language, saying: “The government appreciates that, although PSP appears to be a ready source of funding, the modalities of realizing this potential are complex and delicate”.
Although the new national rail policy does not strictly prohibit private ownership of rail and underground infrastructure, the white paper indicates that private participation in rail sector investment should be limited to rolling stock, and to the extent that the rail and rail infrastructure support – below the intended investment, this is secondary to the government as the ultimate driver of investment.
Co-authored by infrastructure law expert Reuben Cronjé of Pinsent Masons