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Opinion: Economy heavily dependent on freight rail demonopolisation, passenger rail devolution

Infrastructure Finance Advisory Institute director Bongani Mankewu

Infrastructure Finance Advisory Institute director Bongani Mankewu

15th June 2023


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The pragmatism of the National Logistics Crisis Committee (NLCC) can yield an innovative complementary funding model for freight and passenger rail networks in South Africa, writes Infrastructure Finance Advisory Institute director Bongani Mankewu.

By design, railways serve two purposes – commerce (freight) and social (passengers). Therefore, a complementary funding formula is necessary for these assets' long-term operational sustainability. Despite the Government's continuous oversight of Transnet and the Passenger Rail Agency of South Africa (PRASA) both have not been very efficient in their operations. Therefore, they have not been able to accumulate the efficiency gains needed to grow the economy.

Investment in a railway is generally determined by the amount of traffic. This may be an indicator of cargo discoveries or ridership statistics for passenger trains. To prevent political quirks that can lead to expediency, careful cash flow estimation is needed when evaluating these numbers for the bankability of a railway project to curb any possible rent-seeking opportunity. Governance inconsistencies in railways arise from Transnet's monopolistic nature and PRASA's centralisation under national governments' reckless oversight. At the expense of society and the economy, corruption and inefficiency are fostered by the present situation.

In the midst of these evident governance failures, Transnet signed contracts worth more than R50-billion with four international suppliers to purchase 1064 locomotives for its Transnet Freight Rail operation. Transnet praised this procurement as the largest private investment in infrastructure, only to discover it was a trough for rent-seekers.

As one of the key engines of economic growth, the railway industry is key to the success of every country, so inappropriate contracts often lead to catastrophes. Demonopolizing Transnet would enable heightened competitiveness and efficiency gains from other parties, which is in the interests of all parties. The monopoly of Transnet poses a risk; otherwise, should Transnet be competitive, delivery and finance might not present a problem since traffic demand dictates the cash flow needed to make the railway projects bankable.

The newly formed NLCC must address several challenges. Particularly, they must develop appropriate regulations for public-private partnerships (PPPs) and the structure of concessions for railways.

Devolving passenger rail into a metropolitan system and having it controlled at the metropolitan level is appropriate and essential, with all shreds of evidence the City of Cape Town is ready for such innovations. As of now, PRASA is unsustainable and poses economic harm to society, which compromises any complementary financing formula for freight and passenger railways.

Through the expected NLCC's pragmatism, railway infrastructure must be realised symbolically with rolling stock. This will contribute to seamless logistics given that the City of Cape Town has indicated its readiness for devolution. Railways can thus contribute significantly to industrializing the South African economy through technological developments.

The demonopolisation of Transnet, the structuring of concessions, the appropriate regulation of PPP, and the devolution of passenger rail can all result in an innovative complementary funding model for freight and passenger rail networks in South Africa.

Edited by Creamer Media Reporter



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