Challenges facing rail infrastructure and road to rail strategy: DoT briefing

Meeting report

Chairperson Magaxa explained that the Committees' view was that the process of building infrastructure for rail transport to relieve road congestion caused by trucks needed to be fast-tracked. The briefing was intended to help the Committee understand what the Department was doing to deal with this problem.

Department of Transport briefing
Mr Ngwako Makaepea, Acting Director-General, Department of Transport (DoT), summarised some of the highlights of the White Paper on National Rail Policy which Cabinet had approved in March 2022. The main thrust of the Policy was to revitalise the country’s rail sector through substantial investments and institutional repositioning that would allow third-party rail operators to use state-owned rail infrastructure for freight and passenger rail.

The DoT’s priority would be to establish a rail planning component to undertake centralised strategic rail network planning. It would promote the country as a manufacturer of rolling stock in Africa. The market structure would be split into three distinct functions -- infrastructure owners, infrastructure managers and train operators. The Department would take various measures to secure rail infrastructure against vandalism and sabotage.

Short-term objectives included completing the National Rail Master Plan and enacting the National Rail Bill, while medium-term objectives included the implementation of the Master Plan on priority corridors. Long-term objectives included rail's rightful place in an integrated national transport system.

Mr Makaepea also discussed the development of the freight road to rail migration plan. He provided detailed annual tonnages for land surface transport of various commodity types. The plan would aim to migrate 19.8 million tons of freight per year from road to rail, of which grain (6 million tons) and domestic coal (3.5 million tons) comprised the largest fractions.

Transnet

Ms Portia Derby, Chief Executive Officer (CEO), Transnet, summarised the implementation of road-to-rail migration from Transnet’s perspective. She said 24.6 million tons of a targeted 33.1 million tons of freight had been moved to rail since 2015. There had been a significant under-investment in rail over the years, and an under-supply of locomotives and security incidents were the three principal challenges facing the sector. Addressing the last of these, in particular, would break the back of rail’s present disadvantage. The net cost to Transnet of security incidents in 2021/22 was over R4bn. The number of available locomotives declined from 2 215 in 2017/18, to 1 656 in 2021/22, while the cost of non-addressed maintenance increased from R3bn to R6bn in the same period.

Transnet would divide its network into three tiers:

Tier A, comprising the coal and iron ore heavy-haul lines, which would be self-funding;
Tier B, comprising the general freight network used by Transnet and third-party operators, which would be funded through tariffs and subsidies from Tier A; and
Tier C, comprising branch lines that would be operated through concessions.

She discussed a large number of established and planned partnerships and collaborations, the protocols and principles of third-party rail access, and an opportunity for future growth in the container corridor.

Passenger Rail Agency of South Africa (PRASA)

Mr David Mphelo, Acting Group CEO, PRASA, said that PRASA faced a triple challenge of rebuilding and recovery, security and funding. As infrastructure was recovered, it needed to be secured. Ten priority corridors in Gauteng, the Western Cape and Kwazulu-Natal (KZN) have been identified. The flooding had disrupted the recovery of those in KZN in April 2022. Once the existing network was secured, modernisation could begin.

The number of incidents had declined over the last few months, but much remained to be done. PRASA would require approximately R1bn per year over the next three years to keep its infrastructure secure. Other funding requirements were R2.6bn for operations (expected to decrease as revenue was restored) and once-off sums of R1.8bn and R1.767bn to settle debts with Transnet and other creditors, respectively.

Discussion
Mr G Cachalia (DA) reported that the International Monetary Fund (IMF) had said the day before that South Africa was missing out on a commodity price boom because of slow reform, policy integration and implementation from government. The IMF drew attention to the gap between policy statements and implementation, which undermined the confidence in these statements, and had insisted that the finances, operations and governance of Eskom and Transnet needed to be improved decisively and quickly.

He did not see this happening. The situation was being made worse by the state’s appalling inability to secure its infrastructure. The industry demanded proof of the claimed volumes of freight transferred from road to rail. The fact that plans continued to advocate a greater role for the state in transport needed to be addressed. The way to increase efficiency was through competition, which implied that subsidising certain routes using profits from port monopolies had to be stopped. The private sector also could not be expected to bear the cost of failing infrastructure, but where was Transnet planning to find the money to maintain infrastructure? Would it come from subsidies?

Mr L McDonald (ANC) observed that the road-to-rail strategy called for rail to be affordable, competitive, effective, integrated, reliable and safe. Presently, the rail sector is failing on all of these criteria. The rail system had been declining for 20 years. Transnet buildings at small stations from Cape Town to Johannesburg were all broken and dilapidated because of bad management decisions, such as replacing the railway police with unreliable outsourced security services. He said that PRASA and Transnet should be combined into a single entity to improve coordination, the railway police should be reinstated and rail infrastructure should be designated as a national key point to allow for stiffer penalties for its destruction.

There did not seem to be any plan for fixing things. Mr McDonald recalled when there had been 14 people at Transnet in Bloemfontein handling grain transport, but there was only three today. Fewer trains were running, and the costs were increasing, so it was now unaffordable to transport grain by rail. It was also more expensive to transport fuel from Durban to Gauteng via Transnet’s pipeline than via truck. He asked PRASA exactly how many security guards it had employed since it had announced in 2020 that it would hire 3 000 security guards. During recent oversight, the Committee had discovered that the actual numbers were much lower.

Mr C Hunsinger (DA) said that the planning was saying all the right things, but what was needed now was action -- on theft and vandalism in particular. The current situation in which there were 300 000 trucks on the roads had come about because of government’s reluctance to drive a road-to-rail programme. A gap in the market had been there, and truck operators had filled it. Since around 2010, there had been a 40% increase in container activity in Durban harbour, but Transnet had secured just 12% of it.

The main problem remained the ridiculous separation of Transnet and PRASA, which resulted in unnecessary cross-invoicing adding up to over R1bn because they had to use each other’s infrastructure. It was ridiculous because the state owned all the infrastructure. If the idea was to separate responsibility for passengers and freight, why did Transnet run the Blue Train? Why was PRASA responsible for transporting private vehicles by rail? He would have liked to have heard more about freight terminals in planning the road-to-rail migration. He called for a combined in-person political discussion to discuss the outstanding issues, including the legislative environment and the devolution of passenger rail to the cities.

Ms J Tshabalala (ANC) observed that neither Transnet nor PRASA had any indication of how they planned to respond to the President’s Economic Reconstruction and Recovery Plan (ERRP). She noted that the State-Owned Enterprises (SOE) Council had identified areas of opportunity for private sector participation in the ports and rail supply chain and asked where exactly these opportunities were. She also wanted to know exactly how private sector participation would increase transport volume growth of strategic commodities such as coal, iron ore, manganese and chrome. How many tons of these commodities have been shifted from road to rail?

She also asked when the Naledi rail corridor in Soweto would be operational again. What was the maintenance plan, what lessons were learned, and what mechanisms had been implemented to ensure it was not vandalised again? What was government planning to do at Booysens informal settlement, where foreign nationals had built shacks inside the rail reserve?

Ms V Malinga (ANC) asked for clarification on separating the rail market structure into infrastructure owners, infrastructure managers and train operators. Did this imply that rail infrastructure was being unbundled? She confirmed Mr McDonald’s observations about dilapidated buildings, adding that in some places, Transnet-owned buildings were occupied by inhabitants who became a burden because they did not pay municipal rates. What was Transnet’s plan for these buildings? She also asked for clarity on who would be responsible for railway line maintenance, given that third-party operators would be responsible for their own rolling stock.

She recalled that coal used to be hauled by rail in the Standerton area but was not any more, resulting in towns such as Greylingstad/Nthorwane becoming virtual ghost towns. Using rail lines like this would contribute to the freight migration strategy and revitalise these towns. She asked how many PRASA and Transnet employees had been arrested for cable theft.

Ms O Maotwe (EFF) accused the officials of wanting to sell SOEs to the private sector. They had talked about private participation, but none of them had indicated how the state could assist in providing the transport volumes that were missing. The state should not share its bread with the private sector, and yet the heads of state entities were here, advocating for the private sector. Ms Derby had said nothing about the closure or scaling down of Transnet Engineering factories across the country. In fact, she had not mentioned Transnet Engineering at all. How did PRASA’s order book today compare to the past, and how much of that work was now going to the private sector? The presentation made it clear that the government was looking at privatising Transnet and PRASA.

Responses

Department of Transport

Mr Makaepea noted that the presentation had focused on challenges and the implementation of the freight migration strategy in response to the Committee’s invitation, which was why some of the Members’ questions had not been addressed. He explained that the rail policy responded to some of the challenges to the sector to which Mr Cachalia had drawn attention. Investment and institutional reforms were two key components of the policy.

He noted that security and cable theft were issues running through all the Members’ questions. Work was being done in collaboration with the Justice, Crime Prevention and Security (JCPS) cluster and the Department of Trade, Industry and Competition (DTIC).

He emphasised that privatisation of the rail sector was not government policy, but it was looking at creating an enabling environment for working with the private sector. He undertook to raise the issue of the separation of Transnet and PRASA and the possibility of merging them with his political principal. He explained that making private operators responsible for funding their own rolling stock was another funding stream. Transnet would retain some capacity to provide rolling stock to third parties, including new entrants. This represented a new paradigm for the rail sector. He said that there was a strategy for using branch lines to revive rural economies.

PRASA

Mr Mphelo said that one of the lessons learned from the deterioration of rail corridors was that the absence of traffic HAD opened a gap for vandalism and theft. Vandalism hot spots had been identified across the network and were being walled or fenced off. Control rooms had been established, and dog units were being deployed.

Concerning the ERRP, PRASA’s general overhaul contract would inject R7bn into the economy over the medium term and about R500m worth of routine coach maintenance. An international company that supplied door components to the Gibela Rail Transport Consortium recently had localised 97% of its component supply. PRASA would continue to monitor contributions to economic recovery.

R1.7bn had been allocated over the medium term to the recovery and upgrade of stations on three key lines -- Naledi-Mabopane in Johannesburg, Kwamashu-Umlazi in Kwazulu-Natal, and the Central Line in Cape Town. About 5 000 police dedicated to the railway network had been appointed, even though it was not a named police unit anymore. This force was complemented by an outsourced security force. The integrated security plan was starting to bear fruit in Mabopane and elsewhere. He agreed that the designation of rail infrastructure as a national key point should be considered.

Transnet

Ms Derby agreed with Mr Cachalia on most points but noted that the cost of cable theft should not ideally be borne by Transnet either because that would put it at a disadvantage relative to private sector competitors. Theft was a national problem that should be dealt with at that level. Boots on the ground were the best way to prevent theft, and Transnet needed to work more closely with PRASA on security.

She agreed with Mr McDonald that rail transport was neither affordable, competitive, effective, integrated, reliable, nor safe, but pointed out that concerning affordability, Transnet was in a slightly unusual position in that it had to fund infrastructure through its own balance sheet rather than through state funding. The possibility that the state would put money into rail infrastructure for the first time since the 1980s was regarded by Transnet as a real step forward. Transnet also supported the designation of rail infrastructure as a national key point but observed that this would increase the cost of securing it.

She disputed that pipeline transport from Durban to Gauteng was more expensive than road transport. It was, in fact, 55% cheaper on average, and anyone paying more for road transport was most likely paying for transporting stolen fuel. She conceded that rail might be more expensive for small parcels of grain, even though it was subsidised. Transnet was looking at ways to rationalise the division of passenger and freight between itself and PRASA.

She explained that the area near the station at Booysens belonged to Transnet, which had engaged with the community itself and the city of Johannesburg, but the community had ultimately refused to leave. Transnet was now building a wall between the residential and station areas to ensure that the trains could pass through. It had discussions with the Department of Human Settlements on the possibility of transferring the adjacent land to that department. The problem of encroachment ultimately had to be solved through urban planning because the cost of walling off the entire rail network would be exorbitant.

The 24.6 million tons of freight migrated to rail since 2015 included coal, chrome, steel, and containers, but minerals and steel comprised 90%.

Transnet was gradually selling its housing to occupants at rates negotiated with unions, and it was mindful of the vagrancy risks associated with vacant lots and empty dwellings. A Transnet employee had recently been arrested for cable theft, but she suspected that most cable theft was not an inside job.

She also emphasised that there was no policy of privatisation. Privatisation led to the exclusion of emerging players, and there were important discussions to ensure that funding for infrastructure did not lead to the exclusion of small and black-owned businesses. She noted that Transnet Engineering needed to be fed sufficient demand to prevent it from having to lower its capacity. While talking to PRASA about coach orders, the private sector should also not be ignored as a potential supplier. Transnet was working hard to ensure that private sector participation was leveraged as an opportunity for growth.

Follow-up discussion
Ms Tshabalala observed that her question about the Naledi rail corridor had not been completely answered. When would it be operational?

Mr Mphelo replied that it was scheduled to be online by August 2022.

Mr McDonald asked for precise figures on the number of security guards deployed, not the same vague estimate of 3 000 that had been circulated to the media. He wanted an explanation for why the Committee had found only 873 guards when it did oversight.

Mr Mphelo replied that all told, the number of security guards on the ground was 4 922.

The meeting was adjourned.