In a conversation with STANLIB’s Chief Economist, Kevin Lings, Holley said Traxtion was eager to invest in SA’s freight rail and has been engaging with Transnet and the South African government for several years to find ways to implement public-private partnerships.

Traxtion, which is 37 years old, operates and leases a fleet of wagons and locomotives in nine African countries in Africa. It pays most of those governments a fee for third-party access on their rail networks. The company services its fleet at a workshop in Rosslyn, Pretoria, has held a rail safety permit in SA for 20 years and runs a government-certified rail training centre which has trained more than 700 drivers and produced at least 55 Diesel Electrical Fitter Artisans.

To illustrate the scale of the opportunity in SA’s freight rail, Holley said Traxtion transports copper and related products in and out of the Democratic Republic of Congo and Zambia to various ports, representing 8-9 million tons (Mt) a year total potential freight market. South Africa has a current rail freight demand shortfall of approximately 90 million tons (Mt) a year. “The freight opportunity in SA is larger by multiples than anywhere else in the region,” he said.

The prerequisites for private sector investment

Lings asked Holley what he needed before he would commit billions of rands of investment to SA.

Holley said Traxtion was highly encouraged by the efforts of SA’s Department of Transport to structure rail reform in a way that makes economic sense and enables third parties to invest sustainably. This has been enabled by the Cabinet approving a rail policy that sets a clear direction for rail reform.

On October 1, 2024, Transnet was separated into two operating divisions, Transnet Infrastructure Manager (TRIM), responsible for the network; and TFR, the operations company using the network. TRIM has been established as a separate company within Transnet, with a mandate to provide access on the same terms to both the TFR Operating Company and private operators.

Critically, Holley said, the department has established an independent regulator to ensure that rail policy is applied fairly. On December 19 last year, there was another significant breakthrough when the Network Statement was released, establishing that, from April 1, 2025, SA’s rail monopoly will be over.

Unfortunately, there are still issues to resolve in the Network Statement, Holley said.

Initially, it permitted private operators only five slots a week. To put this into context, the Johannesburg-Durban line has the design capacity to run 144 trains a day or 1008 a week. In the latest version of the Network Statement, government concedes that, as the total 21 000km network has about 200 Mt/year of capacity (in the current state), of which TFR is only using about 156 Mt/year, there is spare capacity. But it still does not provide the service level protections required for investment in new train capacity to be unlocked.

Holley said private rail operators are dependent on long-term debt to make capital investments, but debt is relatively accessible because rail assets have a long life and maintain their value. The two most important considerations for lenders are the strength of agreements with customers and the rail access agreement. The current Network Statement does not require TRIM to make any service level commitments at all. This means private operators have no viable base case to prepare business cases and absolutely nothing to hold the TRIM to account for poor service level provision.

“For the last three-and-a-half years we have been developing various investment cases with our potential customers,” Holley said. “We believe there are sectors where despite the poor track network condition, if trains run to the tempo TFR Operating Company is running now the business case will work, but we would be foolish to invest until we have a rail access agreement that gives us protection.”

Infrastructure remains a concern

Holley said he was extremely worried about the current state of Transnet’s infrastructure and operations, and a turnaround will be difficult to achieve.

“Any business that cannot maintain its infrastructure, it is assigning itself to failure,” he said.

In 2013 Transnet cut back on its maintenance budget by approximately two thirds, and 12 years later spending has still not recovered to historic levels. The cumulative underspending on maintenance for the past 12 years is now approximately R33 billion.

Transnet says it needs R65 billion to restore the network to its previous condition, but Holley said it was hard to know if this was an accurate estimate, as it was done internally. He said it was known that the iron ore and manganese lines from the Northern Cape alone needed approximately R25 billion, but this represented only 7% of the total network.

The maintenance backlog on the full 12 000 km economically viable network is in Holley’s view probably closer to R200 billion.

Reason for optimism

Holley said he was optimistic about the future of South African rail for three reasons. The first was the size of the freight opportunity and the second was that rail reform has been structured in line with international best practice and the third is that an independent regulator is now in place. The full responsibility for South Africa’s railways has been moved to the Department of Transport, creating alignment between Transnet and the new national rail policy and its implementation. Already, there have been encouraging moves in adjusting steep tariffs that were initially demanded.

“I believe we will find solutions in the next 6-12 months because the country needs it and we have the right reform structure,” Holley said. “There are good knowledgeable rail people in Government in place who know what needs to be done.”