R500 billion Transnet mess to be handed over to the private sector

The South African presidency has a plan to reverse the collapse of a state-run ports and freight-rail sector that’s cost the economy at least $26.7 billion since 2010: hand over most of the responsibility for fixing it to the private sector.

The plan is encapsulated in a 124-page Roadmap for the Freight Logistics System in South Africa seen by Bloomberg. It sets out timelines for everything from setting up port and rail regulators, allowing private companies to access rail lines and concessioning ports and rail routes to private operators.

Even the lucrative coal and iron-ore rail export lines — the poor operation of which is slashing exports by companies including Anglo American Plc and Glencore Plc — may be operated privately, the presidency said. That suggestion has long been opposed by state logistics company Transnet SOC Ltd. 

The plan is the latest evidence that South Africa’s ruling African National Congress has been forced into backtracking on one of its core tenets — that state companies and investment will lead economic growth — and instead rely on the private sector to arrest the decline of services. Private companies are also investing in power and water provision, two services that were once the near-exclusive purview of the South African state.

The need for South Africa to take action to fix its broken logistics system is urgent. Volumes on the coal-rail line to the export terminal at Richards Bay are at their lowest since 1993, iron-ore railings are at the weakest in a decade, and general freight volumes have fallen even further, the authors of the report wrote. South Africa’s container ports are the least efficient in Africa, they said. 

“The inability to export goods via rail is the most severe constraint on economic growth after the electricity supply shortfall and requires urgent intervention,” the authors said. “Since 2010, South Africa has forfeited an estimated $26.7 billion in iron ore and coal export trade.”

Plunging Volumes

In the five years to the latest operating year, the amount of goods transported by the wholly state-run freight rail system has plunged to about 150 million tons from 226 million tons, forcing much of the national freight onto roads where heavy trucks are snarling traffic and damaging infrastructure. 

That poor performance, which has been blamed on a shortage of locomotives and cable theft, led lobby groups representing miners and businesses in the key port city of Durban to demand that Transnet’s management be removed.

Over the past two weeks, the company’s chief executive officer and head of its freight rail division have resigned.

The plan, the production of which was overseen by the office of the president, will be implemented by the Department of Public Enterprises, which has oversight of Transnet, the Department of Transport and the National Treasury. 

Vincent Magwenya, President Cyril Ramaphosa’s spokesman, declined to comment on the plan, which has been circulated to business and labour leaders and has yet to be released publicly. The Department of Public Enterprises didn’t respond to queries made outside of normal office hours. 

An implementation program included in the document envisages detailed plans for an improvement in performance on key rail lines to be formulated this month, making significant progress in concessioning two container terminals to private operators by April and allocating third-party access to freight rail lines by July.

By the end of this year, the possibility of concessioning the coal and iron ore line, both of which are about 900 kilometres long, will have been explored. 

The plan calls for setting up an independent port and rail regulator, a rail infrastructure manager and a rolling stock leasing company, which will be a venture with a private company.

Transnet will be turned into a holding company with various subsidiaries in which stakes may be sold to private companies, the authors of the report said. The state will keep majority control of its infrastructure businesses, it said.

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