Taking rail and port transformation forward

The rail sector in South Africa has existed for many years now without an overarching rail policy in place. Various rail initiatives have been launched by various stakeholders, leading to the possibility of conflicting objectives in the utilisation of rail infrastructure.

The Department of Transport (DoT) is currently in the process of developing a National Rail Transport Policy. This policy will formalise the policy position of the government and provide an overarching governance framework for the rail sector.

The eventual policy will, among other things, need to:

• provide certainty regarding the institutional arrangements and roles and responsibilities of various rail stakeholders;

• guide future investment in the rail sector;

• enable the integration of rail with other modes of transport, including the broader public and private transport environment; and

• facilitate the efficient movement of passengers and freight.

We envisage completing this policy process relatively quickly so that it can lay the basis for a new Rail Act, which needs to be in place within the next two-and-a-half years.

However, we are not waiting for the policy to be completed before beginning a major rolling-stock acquisition process.

Acquisition of new rolling stock

On the commuter rail side, services have experienced continuous decline, primarily due to the condition of rolling stock. The design and technology of the rolling stock currently in use dates back to the 1950s. This is a major cause for the challenges we experience with delays and cancellations in the scheduled daily commuter rail service.

Railway industry norms and standards are that coaches should be overhauled every nine years, and upgraded when they reach 27 years. Of the total number of 4 638 commuter coaches in the Metrorail fleet, 2 200 coaches are now older than 36 years.

Since 2004, investment in upgrading and the general overhaul of the existing Metrorail rolling stock has succeeded in stabilising and recovering the service somewhat, but we have reached a point at which it is increasingly uneconomical.

A similar picture emerges when looking at the long-distance passenger services of Shosholoza Meyl. The average age of the long-distance passenger rail coach fleet operated by Shosholoza Meyl on all its routes nationally is in the order of 33 years.

A significant investment in our passenger rail services is now required – involving rolling stock, infrastructure and signalling. The Passenger Rail Agency of South Africa (Prasa) now plans to acquire new metro service coaches over an 18- to 20-year period, starting from 2012.

A detailed needs and feasibility study will be conducted to determine the numbers that should be procured and the associated costs.

Prasa has issued a Request for Proposal for a detailed needs and feasibility study, which covers engineering, economic, legal and financial analysis for the procurement, financing, operating and maintenance of the new rolling stock for Prasa.

Furthermore, Transnet is in the process of preparing to purchase freight wagons and locomotives to address its requirement for new rolling stock. This provides the opportunity for collaboration between Prasa and Transnet to leverage economies of scale in the rail engineering industry in South Africa.

The procurement programme for rail rolling stock will follow the fleet procurement process as set out in the government’s Industrial Policy Action Plan (IPAP2). The objective of the fleet programme is to develop long-term procurement plans that meet the needs of Prasa and Transnet, and at the same time create predictable demand that will make investments in local supply industries attractive.

A predictable and sustained long-term demand will give rise to maximum local content and create platforms for development of local industrial capacity and capability.

Establishing a local manufacturing base for the new rolling stock of Prasa and Transnet will have the benefit of creating a substantial number of local jobs and the redevelopment of rail engineering capacity and skills lost over the decades, as a result of underinvestment in the local rail engineering industry.

Freight rail

The rail sector has experienced steep declines in freight tonnage, losing out to road freight. For some years now, the government has announced its intention to reverse this trend, but there has been little, if any, progress.

The loss of customers to road freight has many problematic consequences: accelerated deterioration of many roads, congestion, heightened carbon emissions and an increased occurrence of road fatalities and serious injuries.

While road freight obviously will always have an important role to play in our freight logistics system, we urgently need to reverse the decline of rail freight. The Transnet rolling stock procurement, noted above, is part of this process.

South Africa has an extensive rail network of some 30 400 kilometres of track (of which 20 953 are route kilometres), but parts of this network are seriously under-utilised or simply closed as a result of declining volumes and backlogs in investment over the past decade and a half.

The DoT is currently engaged in developing a Road Freight Strategy, and as part of the consultative process we have asked stakeholders their reasons for not choosing rail over road transport. We received the answers we expected:

• Poor, inefficient and unreliable rail services were rated as the principal reason. Slowness, delays and no-shows were all mentioned;

• Lack of infrastructure and capacity were rated second; and

• No door-to-door mobility, double-handling charges, and the absence of intermodal options were rated third.

We asked stakeholders which commodities they would, in principle, prefer to move by rail if the option were reliable, and again there were predictable responses:

• Bulk freight such as mining, construction and agricultural products;

• Containers; and

• Long-distance hauling.

Finally, we asked stakeholders what actions should be taken to make rail attractive, and the main issues were:

• Improved reliability and efficiency;

• Reasonable and competitive freight rates; and

• Security, and acceptable levels of shrinkage.

The conclusion that we draw from these responses is that there is, indeed, a significant demand for rail freight services, but there is a need for the government to significantly increase investments into rail and provide a transparent and predictable economic regulatory framework.

Branch lines

An important intervention that is urgently required is the revitalisation of branch lines.

Transnet has recently done extensive research on the under- and non-utilised branch lines within its network, and it is proposing to concession out operations to private operators on many of these lines.

It has recently gone on an expression of interest exercise in this regard, and it has received over a hundred such expressions.

Of course, translating expressions of interest into actual and sustainable branch-line operations will be a challenge.

Uncertainty around tariffs and access to main lines is one major issue.

Rail economic regulator

For this reason, the establishment of an independent rail economic regulator becomes all the more important. The DoT is fast-tracking the establishment of such a regulator.

Although it would, in principle, be desirable to have the regulator established within a comprehensive Rail Act informed by a Rail Policy, given the urgency of the matter, we are considering dedicated enabling legislation in the course of next year to establish a rail economic regulator.

I should add that the sense of urgency in regard to establishing a rail economic regulator is not only related to attracting freight back onto rail and the associated imperative of revitalising our branch lines.

The recent dispute between Prasa and Transnet around Shosholoza Meyl is partly related to tariffs and terms of access to the rail infrastructure owned by Transnet.

Ports

Both Transnet Port Terminals and the National Port Authority remain part of Transnet and therefore fall under the Department of Public Enterprises (DPE) rather than the DoT.

There has been significant capital investment over the last several years into our commercial ports and the completion of a new port at Coega.

Transnet and the DPE will provide further detail on port capital investments over the coming years, but what I have seen of their proposals suggests a continued significant commitment to port investments.

In the DoT, we are pleased to note Transnet’s active interest in the old Durban International Airport, with a view to taking forward much-needed port expansion in this city.

On the ports front, DoT responsibilities are essentially policy and regulatory functions.

In this regard, the full implementation of the National Ports Act (2005) continues to be a challenge. The Act, among other things, called for the corporatisation and ring-fencing of the finances of the National Port Authority. Transnet and the DPE have not been able to take forward this aspect of the legislation.

Essentially, NPA port levies are an important source of cross-subsidisation for Transnet Freight Rail. NPA plays an important role in Transnet’s overall credit rating, and therefore its ability to debt-finance its infrastructure construction programme.

We have met several times as the DoT and DPE in order to find a resolution to the challenge. It should be said that, as the DoT, we fully appreciate the dilemma and that it would not be in the interest of our commercial ports for Transnet in general, or its freight rail system specifically, to suffer further financial difficulties.

Under discussion between the two departments is a proposal to proceed with the corporatisation of NPA, while keeping it within the Transnet fold, and to allow cross-subsidisation – but to insist on transparency in regard to the latter.

Another current point of intersection between the DoT and our ports system lies in our department’s present development of a maritime policy.

One issue that we are considering is the development of coastal shipping, and the possible rebuilding of a South African ships register based on coastal shipping, connecting not only our own ports, but African ports up the entire east and west coasts.

One factor opening up coastal shipping possibilities is the potential for Nqura Port to become a major deepwater transshipment hub located halfway between the major emerging economies of Latin America and Asia. Already, two major international shipping lines are beginning to use Nqura as their transshipment hub.

I stress that the coastal shipping proposal is still tentative and we need to explore its viability thoroughly. If, however, it is a useful direction to pursue, then we can consider cabotage-related legislation such as the Jones Act in the United States, and similar European Union legislation.

Conclusion

I started this intervention by acknowledging that there may well have been a temporary slowdown in our government-led, multibillion-rand infrastructure programme.

I hope that what I have said, however, convinces you that the infrastructure construction programme remains very high on the government’s agenda.

There are many critical projects in the pipeline – not least in the rail and ports environment.

Partial speech by Deputy Minister of Transport Jeremy Cronin, presented at the Southern African Institute of Civil Engineers Railways & Harbours Division Symposium in October