Open up rail network to private operators or miss commodity boom

70% of it is underutilised. That must change, and fast.
Getting commodities from mine to port is a problem. Image: Bloomberg

Miners were in good spirits at the Mining Indaba in Cape Town this week, their mood lofted by near record commodity prices and an opportunity to meet their colleagues in person for the first time in more than two years.

A spate of excellent mining results has pushed mining from the periphery to the centre of the country’s economic hopes. But those hopes rest on getting commodities from mine to port, and therein lies the problem.

Mining Indaba: For SA it’s about the bottlenecks strangling growth
SA’s freight rail sector poised to attract ‘billions of rands’

One of SA’s greatest endowments is a 36 000km rail network that would cost R1.5 trillion to replace at current market costs. This represents about 80% of Africa’s total rail network.

Rail has always been a government-operated monopoly, a situation that has remained more or less unchanged for more than 100 years.

“Rail’s colonial heritage of low axle load, low speed, short trains, small vehicle profile and monolithic organisational structure set it up for troubles in later years,” according to the National Rail Policy white paper published in 2017.

Read: Transnet Freight Rail force majeure: Thungela sees no ‘material impact’ for FY2022

Rail had to be statutorily protected against road from the 1930s until 1988. Its inherently uncompetitive narrow gauge technology was unable to adapt in a deregulated market.

“Inability to renew equipment resulted in generally outdated, low performance, operationally inefficient, underutilised assets, which are unable to keep domestic traffic or support exports,” says the white paper.

Losses …

Towns that relied on passing rail traffic withered and died, and large sections of the rail network rusted or were vandalised.

The De Villiers Report of 1986 advocated against new rail investments, and for the sweating existing assets which, along with deregulation of the road sector in 1988, pushed large portions of the rail industry into acute decline.

Of the network still in use, some 70% is underutilised, according to the African Rail Industry Association (Aria) CEO Mesela Nhlapo. The Minerals Council estimates SA lost R35 billion because it could not get sufficient volumes to the ports.

Exxaro and Glencore both reported decreased sales last year because of rail capacity shortfalls.

“The mining industry, the fiscus and the rail and port operator will again forgo any benefit from commodity prices by not exporting minerals to South Africa’s full potential,” says Nhlapo, whose organisation, Aria, represents a number of private sector rail operators and suppliers, including Traxtion, Surtees Railway Supplies, SA Freight Logistics (Saflog) and Grindrod Rail.

Value of SA mining production breaks through R1trn mark
Transnet opens up freight rail network to private operators

The chart below, from a presentation by Aria, shows annual tonnage transported by rail returning to levels last seen in the 1970s.

Roads have become the preferred means of transporting freight, which has created challenges of its own in terms of road degradation and backlogged maintenance.

Source: African Rail Industry Association

Now compare SA’s coal and iron ore volumes moved by rail with that of Australia. The Sishen-Saldanha rail link connecting the iron ore mines of the Northern Cape with the port of Saldanha is one line that is well maintained and efficiently operated, in large part because of close cooperation between rail operator Transnet and mines critically dependent on this link, particularly Kumba Iron Ore.

Listen to Moneyweb editor Ryk van Niekerk’s interview with Traxtion CEO James Holley (or read the transcript here):




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