Privatization Of South African Rail Services: Report by South African Chamber of Business

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03 April 2001
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

April 3 2001

Mr J P Cronin (ANC)

Documents handed out
A SACOB view on the Privatisation of South African Rail Services (see Appendix)

SACOB panel: Peggy Drodskie (Director: Policy), Colin Shultz and Ken Warren (Parliamentary Liaison for SACOB).

The South African Chamber of Business represents approximately 40 000 companies within the South African economy. Regardless of the type of business, transport has an important affect on each company and especially rail transport. It is thus a concern to SACOB that the South African Government has embarked on a programme of privatisation of the South African railway system. SACOB believes that this process is too slow and wishes the government to motivate the programme. SACOB therefore supports the restructuring of rail transport in South Africa. At the same time, however, SACOB expresses concern over the monopolistic tendencies if ownership should be vested in one organisation, and thus calls for stringent regulatory procedures to be upheld within the process. The report outlines the proposed regulatory procedures to the Transport Committee.

Mr Shultz read through the SACOB report, with only one interruption. Mr Cronin asked for clarification on the use of the term 'railway police' in Point 2. Ms Drodskie replied that in the late 1800s South Africa had a railway police force that had the power to halt and remove road traffic if the vehicle was too heavy for the road. The point was made that the railway police force mentioned in the report had a different focus than more recent railway policing.

Mr S Louw (ANC) asked if SACOB would support measures to reduce the tonnage on South African roads. He added that South Africa had some of the heaviest road tonnage internationally, causing much damage to the roads.

Ms Drodskie replied that SACOB would indeed support the reduction in vehicle weight. This would bring South Africa in line with international trends. Ms Drodskie stated that she was talking only on behalf of SACOB at this point and not for the Road Transport Freight organisation.

Mr Cronin interjected that the Road Transport Freight people had previously indicated their cautious support for this issue at an earlier meeting.

Dr Odendaal (NNP) asked what should the SA government do about the infrastructure of rail within the SADC region, and how should that be funded. [Many of SA's neighbours rely on rail to get their goods to port.]

Ms Drodskie's reply was that SACOB had not had an opportunity to assess the State's responsibility to the rail network within the SADC region, but would now do so.

Mr S Farrow (DP) asked how SACOB saw the stakeholders involvement in the privatisation process described in the document. Also how did SACOB see the different sectors, that would be in competition with each other if the privatisation plan was followed, interact with each other?

Ms Drodskie replied that the existing rail infrastructure should remain the responsibility of the state, not the stakeholders. A levy should be introduced for maintenance purposes much the same way that a toll operator has the responsibility of maintaining roads through the funding from road tolls. There was a need for standards to be set and a regulator to be appointed to maintain those standards. In terms of cutting up and parceling out of operations, an appointed regulator needs to supervise the cutting up of operations to be given to different service providers. A stage would eventually be reached where each operation is accounted for, so that another business would only be able to come on board once a service provider dropped out.

A separate and dedicated police force was needed for maintenance and safety of rail operations and goods. This would be funded from the levy.

Mr Farrow pointed out that the SACOB report was correct in stating that rail transport of goods caused a delay to industries compared to the convenience of road. Did SACOB envision an intermodal model [a combination of the two] whereby road goes onto rail [delivery vehicles being loaded onto trains themselves]. Also, he asked for SACOB's views on the issue of subsidising rail commuters

Ms Drodskie replied to that there is indeed a need for commuter subsidies. In addition, the railway commute must be efficient, and must allow for commuters to get to work on time.

Mr J Slabbert (IFP) stated that he believed the report was a very good document and that an effort must be made to reverse the swing to road transport. The model in the document will work but it must be under one authority.

Mr Cronin welcomed Mr Slabbert's comments and agreed that a workshop must be held as the report suggests. He stated that the committee is meeting separately many different stakeholders involved with the railway but realises that there is a need for all of them to be brought together. The importance of rail to South Africa is recognised and a consensus is needed.

Ms Drodskie added that Spoornet had been approached by SACOB for information but had it had refused to impart its opinion on privatisation because Spoornet felt that it had a responsibility to first consult with its stakeholders, that is, Spoornet employees. Ms Drodskie felt that Spoornet was inward looking and did not recognise external stakeholders, such as SACOB.

Mr Cronin noted that the people at the meeting supported the idea of moving away from road transport, back to rail. He asked SACOB if any comparative studies had been completed on how other cities coped. He noted that there was a general perception that other countries were moving towards privatisation of rail, but that this is not always the case. France still supplies rail infrastructure, the Government of Hong Kong is still very involved in its rail network, and in the US the major rail lines are still state owned.

Mr Cronin believes that a study of global trends is necessary and that no assumption should be made that everyone is moving towards privatisation. He noted that the UK seems to be running into problems with its model.

In terms of funding, on the one hand the SACOB document is pushing for privatisation but with the infrastructure remaining in public hands. The state paying for rail infrastructur is the real burden, and it must be noted that this is an important qualification, as is the issue of commuter concessions.

Another important point is where does the government get the money from? No investment has been made in rail transport for over 20 years. These dimensions must be incorporated into discussions.

Mr Cronin also noted that the report mentions the importance of examining branch lines. Rail traffic to major cities comes from branch lines. If these branch lines were to be closed then the profitability of major lines goes down. Some small branch lines are very important for the agricultural industry. Investigation may reveal further opportunities for branch lines.

Mr Slabbert (IFP) stated that the current public perception of the railways is a very bad one, and this has to be changed.

Mr Cronin stated that SACOB makes a correct point in that business requires an effective commuter system. If the rail system is run well then it is a better system than the road system in South Africa. The ANC has recently been discussing the idea of a railway police service. Other major cities internationally have this service. He suggested that SACOB may wish to explore this.

Mr Cronin noted that there had been no input from Forestry.

Mr G Schneemann (ANC) mentioned the issue of trains running late that had arisen out of the Committee's recent visits to rail lines and stations. He said he was speaking on behalf of people that have to use trains because of where they were moved to many years ago, and have very few alternative modes of transport. Many people had mentioned that because of problems of trains running late they were often late for work and had received written warnings because of this. Mr Schneemann asked if SACOB was sympathetic to this, and were they able to do anything about this issue.

Ms Drodskie replied that Metrorail had previously informed SACOB of all rail problems on a regular basis, which enabled SACOB to inform the appropriate businesses. This relationship had been disrupted recently but that they would move to reinstate the communication.

Mr Ken Warren (SACOB) stated that in terms of railway policing, there was a general theme in the report on effective policing, in order to stop vandalism and overloading. There is a perceived lack of adequate law enforcement on the railway, which relates directly to the SAP and local government. Local government is not doing its job, notably, Cape Town. There is a need for more adequate law enforcement generally.

Mr Cronin concurred.

Ms Drodskie said that although she did not have a mandate to support the introduction of railway police, she was sure that SACOB members would agree and support its institution.

Mr Cronin pointed out that this requires careful handling and effective training. There is apparent training in the protection of railway property (although not in Pretoria), but no training was apparent in the safety of commuters.

Mr Farrow (DP) asked if there was any interest out there and if there was a model on the table.

Ms Drodskie replied there was not yet a model on the table but that one would be completed and brought before the committee.

Mr Odendaal (NNP) asked if transport was a social AND economic service, such as healthcare. Is transport therefore an important part of the social system of South Africa?

Ms Drodskie that it is both a social and economic service but that each service should be individually sustainable. Certain sectors are very dependent on transport, and certain communities are more vulnerable and therefore require subsidisation, such as pensioners and the disabled.

Mr Cronin pointed out that it seems as if "we are moving towards subsidisation".

Mr N Magubane (ANC) asked who does SACOB think will be potential stakeholders if they are concerned about a monopoly.

Ms Drodskie replied that rail is actually not a monopoly because of the different modes of transport in direct competition with it. But the rail infrastructure is a monopoly as it is very costly to put down tracks, not to mention environmentally hazardous. Rolling stock must be open to private operators who can compete on the open market. Ms Drodskie envisions that it would affect the tourist traveller more than the day to day commuter.

Mr Farrow mentioned that road had received a subsidy in the latest budget and had SACOB examined the impact of this on rail?

Ms Drodskie replied that there had been several attempts to understand this impact, but that it had proved difficult to gain figures on infrastructure.

Mr Cronin thanked SACOB and said that he looked forward to their next meeting.


The South African Chamber of Business (SACOB), through the chamber of commerce network, represents approximately 40 000 companies operating in all sectors of the South African economy. In addition, more than 150 of the largest corporations are directly affiliated to the Chamber, as are some 60 national associations. No matter what type of operation the member is involved in, transport plays an important role, be it the movement of people or freight, including bulk minerals and general cargo.

In common with many African states, South Africa has embarked upon a privatisation programme. It is SACOB's view that progress has been too slow, and in the past we have made several calls on government to speed up the process. SACOB therefore sees the restructuring of rail services in appositive light, and believes that the process should be one of privatisation.

However, SACOB recognises that often-state owned enterprises are natural monopolies, and privatisation of such enterprises does not automatically lead to an improvement in service and efficiency. SACOB believes that the rail infrastructure could be regarded as a monopoly if ownership is vested in one organisation. One of the characteristics of monopolistic behaviour is to prevent competitors from participating in the same field. Hence there is a need for natural monopolies to be regulated. Regulatory systems must encourage efficiency and service improvements. Rail is a vital component of the South African logistics chain.

The global trend towards just in time deliveries makes it an imperative that the privatisation of South African rail services contributes to improvements in the reputation of South Africa exporters as reliable trading partners.

Privatisation objectives relate to benefits to be gained from rebalancing the roles of the public and private sectors so as to improve the productive capability of the economy. Thus the private sector is expected to provide greater vitality and productivity in the use of the resources assigned to it. Vitality and productivity will be enhanced where the activities of the organisation are subjected to the incentives and disciplines of market forces, in other words where deregulation permits competition. To a large extent road transport, and to a lesser extent air transport, are in competition with rail. The ability of rail to entice a movement from road and air, and thereby making the best use of the existing infrastructure will be an important factor in successful restructuring of the rail transport sector.


SACOB regards the following general principles as important considerations in the restructuring of rail services in South Africa:

· Transportation through whatever mode, but specifically rail, is of vital importance to almost every individual person in the country, and to every South African business enterprise. Any inefficiencies, non-performance or uneconomic service in this sector will have a myriad of negative impacts.
· The 'Domino effect' is important in that inefficiency of one transport mode will invariably cause problems in another. It is therefore imperative to look broadly at all transport sectors in addressing transport issues, even if the specific brief is rail transport.
· Given the importance of transport in a business enterprise, any ineffectiveness in the system, as an integrated whole, will cause transport costs to rise unnecessarily. Mitigation of these has to be of primary importance, given the current high and ever escalating costs of transport.
· An over regulated transport sector results in transport costs being set according to administrative dictates, rather than market dictates. These are normally over inflated and bear little resemblance to the actual cost of conveyance. Deregulation of the transport sector, and in particular, rail transport, must therefore be supported, although it has to be done in a manner that is equitable with a 'level playing field' approach relative to competing transport alternatives. Privatisation/commercialisation of parastatal transport operations especially as it relates to the conveyance of goods is therefore a correct approach to addressing some of the problems that are inherent in the existing transport system.
· The South African rail system comprises a comprehensive 'permanent way' infrastructure capable of providing a service to most operations. The fact that over the past 10 years or so there has been a major swing from rail to road is not therefore caused by a lack of infrastructure, but by an inefficient and as such costly, utilisation of this infrastructure.
· For many reasons (e.g. overuse of roads, lack of road maintenance, safety etc.) rail transport, particularly of bulk commodities and general freight, rail is an appropriate mode of transport. Every endeavour should be made to reverse the swing to road transportation. It is however, irresponsible to try and address this through administrative interference in competing transport sectors (i.e. road), which is solely aimed at reducing their competitiveness as this precludes focusing on the real problem, namely the low efficiency of rail. Some critics have said that such actions are tantamount to "robbing Peter to pay Paul". SACOB is thus opposed, for example, to the reintroduction of a permit system for road transport, or to a reversion to the old "Railway Police" type of operation.
· The Statement in the Policy Framework document dealing with the Restructuring of State Owned enterprises under the transport sector, that "it is Governments' view that these goals (i.e. an increase in service at a decreased cost) can best be met by ensuring competition in the provision of infrastructure and operations" is absolutely correct and is therefore supported.
· SACOB believes that any moves to restructure Spoornet will be complicated significantly by the debt created by the Pension Fund and Medical responsibilities. We therefore urge that this be taken out of the restructuring process, and treated as a separate and distinct issue with Government. In other words this cannot be allowed to hold up the process. The longer term gains to be reaped by the country, for example: reduced pressure on road infrastructure, and hence a lower imperative to invest in improved road infrastructure, increased profit of the rail operator and hence tax payments and more competitive exports and hence Foreign Exchange earnings, through timeous privatisation will far surpass the short-term cost of Government meeting the pension fund and medical obligations.

Thus from a general perspective, SACOB believes that what the Framework Document outlines relative to the Transport Sector is a step in the right direction. However the fundamentals of how to achieve effectiveness, efficiency, improved utilisation, and competitiveness in the pricing of rail services are the real questions that need to be addressed. It is unlikely that any concessioning, privatisation, equity partnership or other restructuring will be successful if such fundamentals are not addressed.

The impact of the present situation pertaining to rail transport on business can be divided into two areas, namely, the transport of persons, principally commuters, who form a large percentage of the workforce, and the transport of goods.

3.1 Commuter Transport
The document prepared by the Department of Public Enterprises recognises that there has been a significant shift from rail to minibus taxi and scheduled bus transport. There are a number of reasons for this shift, which include:

· Convenience - mini bus taxis and scheduled bus services provide passengers with a mode which is often more convenient than rail. Stops are usually closer to home and work, making commuter transit times shorter. Routes travelled often obviate the need for a modal change during the journey.
· Safety - while mini bus taxis are perceived to be relatively unsafe insofar as accidents are concerned, there is a greater perceived fear of personal safety regarding rail transport. The fears include the possibility of mugging both on the trains and stations.
· Cost - the fare does not seem to play a significant role in the choice of mode

From the perspective of employers, it is important that staff have access to transport, which is efficient and affordable. Long journeys can make employees tired and frustrated. This makes them prone to mistakes in the workplace, which could result in serious accidents. The risk of an accident is particularly great where the employee has to operate a machine. Tiredness also results in reduced productivity, adding to the cost of doing business. This in turn could impact negatively on the global competitiveness of South African goods and services.

Intercity rail passenger service patronage has also shown a decline. Similar reasons have been given for this as have been advanced for the move from rail to road freight transport - namely that air transport and inter city bus operations provide a more cost effective, convenient service which is safer than rail and which have shorter travel times. There is great potential for passenger rail services to be developed into a preferred mode of transport for tourists. This potential should be developed and promoted, not only on the domestic market, but also as a recommended way which international visitors can see South Africa. One only has to look at the popularity of the Blue Train, and of the success of Rovos Rail in this regard. SACOB is not necessarily advocating that the Blue Train or Rovos Rail be replicated, as there is also substantial scope for a more affordable service, particularly for South African travellers.

3.2 Freight Transport
The deregulation of road freight transport has brought with it unprecedented competition for rail. Even freight which is more suited to rail is being carried by road transport, e.g., granite from the Northwest Province being exported through Durban.

Trains are ideally suited to the transportation of bulk commodities, yet often such cargoes are transported by road.

Rail could also provide an efficient and effective mode for the transportation of containers, and should be used to a greater extent by industry. Indeed, industry would use rail if it were more cost effective and efficient.

However, concurrent with any changes which are brought about in rail, practices indulged in by road transport operators, such as blatant overloading, itself one of the manifestations of intra-modal competition, and non-adherence to driving hours, which results in driver fatigue, a prime cause of road accidents, need to be addressed. What SACOB advocates is improved policing and prosecution for road traffic offences so that the propensity for road to compete unfairly with rail is removed. A spin off of this strategy will be a lesser need for road maintenance, and thus reduced costs for all road users. An added advantage to the economy as a whole relates to savings in foreign exchange, bearing in mind the costs of liquid fuels, and the importation of crude oil, paid for in US dollars.

Industry also needs to be reassured that theft from containers transported by rail will be curbed. This is not to say that there is no container theft in road transport. It is well known that trucks transporting containers are subject to hijacking, as well as pilfering, particularly when the consignment comprises goods that can be disposed of easily.

One of the reasons for the preferred use of road transport relates to logistics. Industry requires a seamless logistics chain. Where there is congestion in the ports, trucks can often enter the harbour, load up and leave more speedily than trains. This translates into timesaving for the cargo owner. In addition, the need for modal transfers from rail makes it a less popular mode of transport. (Unless the recipient of the goods makes use of a private siding.)

In order to ensure that the process of restructuring is successful, certain basic parameters need to be adhered to. These include a communications plan, a public policy plan, a sale plan, a legislative plan and a public offering. These plans should provide transparency, a regulatory regime, the method of sale, the introduction of necessary legislation, details of the type of sale and an invitation to bid.

In short, what the successful restructuring of rail services in South Africa needs is:

- Political commitment
- A clear set of policy objectives
- A well defined strategy to provide for -
· Popular support
· A clearly defined and transparent implementation process
· Sufficient implementation capacity
· The appropriate legal, institutional and financial framework

The players also have specific interests and needs, briefly:
- Government - with macro-economic objectives
- Management - with power and freedom
- The workforce - seeking security of conditions and participation
- Customers - requiring good service at reasonable tariffs
- Suppliers - needing fair dealings
- Investors - looking for a good return and stable environment
- The public - wanting satisfaction

The deregulation of road transport and technology improvements in the aviation and pipeline industries provide substantial inter-modal competition for rail monopolies. Thus shippers and customers have access to competitive sources of supply.

Large and sunk costs, namely tracks, stations, etc, are characteristic of the rail transport industry. Such costs constitute a barrier to entry to this market. Furthermore, duplication of this infrastructure to bring about intra-modal competition would be economically inefficient and environmentally undesirable.

Rail freight transport carries a significant volume and is very important to the South African economy. However, the movement of freight is concentrated on corridors between Gauteng and the major ports, in particular Durban. The Richards Bay and the Sishen-Saldanha lines carry significant volumes of mineral exports. Many of the branch lines are currently of light density and as operated today are no doubt unprofitable. However, they have the potential to be profitable, particularly where it is possible to include tourism in its operations, as in the Outeniqua Choo Choo.

In the rail network, branch lines feed into main lines. Should branch lines be closed, for whatever reason, the feed into the main line will cease, making the main line that much less viable. It would thus make sense to make every effort to retain branch line services. The same can be said of secondary lines, such as that between Alice and East London in the Eastern Cape.

Similarly, SACOB believes that secondary and branch lines carrying agricultural products should become profitable, optimal use being made, for example, of sidings where silos are located for loading of maize and grain. Agricultural tourism is in its infancy, and such lines could be used to transport passengers interested in agricultural tourism as the industry develops.

Rail commuter transport has been subject to intense competition from mini-bus taxis. As a result, passenger numbers have dwindled to about 15% per cent of commuters. We elaborated on the reasons for this earlier.

Similarly, inter-city rail passenger services have experienced increasing competition from buses, mini-bus taxis, private vehicles and air transport.

As can be seen, there are many issues to be addressed in the restructuring of rail services, but if this is done appropriately, the process will be successful.

According to the Department of Public Enterprises, Transnet contributes 3,2% to South Africa's GDP. Its operating assets are valued at approximately R43 billion. In 1998 its turnover was R22 billion, and its profits R2, 2 billion.

Spoornet is the largest division of Transnet. Its divisions comprise a general freight business, heavy haul coal line, (Coallink), a dedicated heavy-haul iron ore line (Orex), an intercity passenger service, the Blue Train, and Rail and Terminal Services, which maintains and operates the system. Metro Rail, which provides the commuter services, is operated by the Rail Commuter Corporation and performs a vital role in commuter transport.

The general freight business of Spoornet operates at a substantial loss - R1,7 billion in the 1999/2000 financial year. Coallink and Orex are both profitable, and through cross-subsidisation have mitigated general freight losses. Portnet and Petronet are also profitable, and also cross subsidise general freight losses. The fact that profits from Portnet are used to shore up losses of Spoornet General Freight Business has resulted in under-spending on Portnet infrastructure to the detriment of the development of South Africa's international trade.

In addition, the pension fund obligation relating to South African Transport Services (the forerunner to Spoornet) pensioners is substantial, there being outstanding debentures of approximately R8,74 billion, with an addition liability of approximately R3,44 billion in respect of medical aid costs for the pensioners.

The pension fund obligation, the operating losses of the general freight business and its cross-subsidisation by other Transnet operating units are impediments to the successful restructuring and privatisation of rail services in South Africa. This obligation should be taken out of the process, and become a government responsibility, as was done with the South African Post Office when corporatisation took place and Telkom and SAPO were established.

In the introduction, SACOB referred to the fact that its membership was drawn from all sectors of the South African economy. Some of the members have made separate submissions to the portfolio committee. In this regard SACOB refers to the concerns of the forestry industry, which we believe, are amongst those submitted to the Committee. We understand this industry's views, but wish to point out that other industrial sectors have similar reservations.

In many instances significant volumes are transported on rail, which are important not only to the industry concerned, but also to Spoornet. For example, the forestry industry states that some 7 million tons of timber are transported annually on rail, which represents about 40% of total forest production. Where products are of high bulk, low value, such as timber, and possibly other agricultural products, transport costs are critical, and can be as high as 40% of the raw material input costs. Such rail users will welcome the restructuring of Spoornet resulting in a more efficient and cost effective mode.

It has been mentioned earlier that since the deregulation of the road transport industry, there has been a significant swing to road transport. Some industries estimate that between 40% and 50% of the freight previously carried by rail is now carried by road transport. This swing can probably be attributed to several factors such as the overall costs of rail transport, turnaround time, truck availability, a door-to-door service offered by road transporters, and such like. However, more important considerations in the choice of a transport mode are the service levels and flexibility offered by the operator. Turnaround time for road transport is usually significantly lower than for rail. In some instances rail transport can take twice as long as road to affect the same service. Road transport is also more flexible with regard to the type of load carried. Road transport operators clean their vehicles after delivery, making it possible to carry a return load without contamination; rail rolling stock is usually dedicated to one product, resulting in an empty leg return. This inflates the cost of rail transport.

Furthermore, the frequent inability of Spoornet to provide rolling stock, and concomitant delays has also resulted in significant additional costs to the client, and even in the cancellation of international contracts.

A large proportion of agricultural tonnages transported, emanates and is conveyed over branch lines. The concessioning of such lines in the future is of the utmost importance to agriculture. It is therefore imperative that full disclosure and discussion take place with stakeholders on any aspects dealing with the concessioning/privatisation of branch lines. In order to obtain the optimum benefits from branch lines, economic analyses of the potential use needs to be undertaken. A broad based overview could reveal hitherto unexplored opportunities for the use of rail transport in the particular area.

An overriding need of business is to have access to cost efficient transport services. As far as rail transport is concerned, this can only be achieved through improved capacity utilisation and reduction in average cycle times. Industry will support rail and will reduce the proportion of tonnage hauled by road, if rail becomes a competitive transport alternative.

SACOB emphasises that in order to ensure greater efficiency of service, integrated planning and scheduling of services needs to be introduced with full discussion between the clients and Spoornet.

8.1 Transnet debt restructuring is being dealt with.
In the past SACOB proposed that in common with the action taken regarding pension fund obligations existent when the South African Post Office was corporatised, Government should assume responsibility for the pension fund. SACOB believes that it is inequitable that current clients of Transnet services should bear the brunt of this liability. SACOB reiterates that this liability is an impediment to the successful restructuring of rail services and should be taken out of the process.

8.2 Spoornet will be corporatised with its different business units becoming separate corporate entities.
SACOB supports this process as a first step towards privatisation of Spoornet. Each business unit must be financially ring fenced, and cross-subsidisation between the units must be eliminated.

8.3 Coallink, Orex, LuxRail (Blue Train) and LinkRail will be concessioned.
SACOB believes that these units must also be financially ring fenced to prevent cross subsidisation with loss making units. In concessioning, the globally recognised methodology should be used which should comprise a communications plan, a public policy plan, a concessioning plan, a legislative plan and a public offering or strategic equity partnership agreement.

8.4 Spoornet's general freight business will be commercialised and then, either an initial public offering or strategic equity partnership will be entered into.
Considering the substantial losses being generated by the general freight business, specific attention must be given to the elimination of cross-subsidisation. In addition, the pension fund liability must be addressed. A time bound strategy to solving this issue needs to be implemented.

The restructuring of rail services cannot be addressed without taking into account the entire transport logistics chain. Portnet, container terminals, road transport, shipping lines and other service providers all need to be functionally integrated if the South African transport industry is to provide the service required by its international trading community and for it to be globally competitive. Thus the interfaces between modes and other service providers and possible impacts on and between them must be carefully considered when the restructuring of rail services takes place.

SACOB is unsure what is meant by "shadow corporatising", and questions why general freight and Rail and Terminal Services will be corporatised as a single entity. Details on how this will be done are needed. For example, will this corporatised entity be responsible for maintaining the line of the concessioned Coallink, Orex, intercity passenger operations and LuxRail? If so, heads of agreement will have to reached to ensure equitable treatment of all operators using the infrastructure.

If corporatising means simply issuing shares with a government ministry holding all the stock, improvements will not be made. What is needed is a concerted effort to reverse the continuing deterioration of the rail infrastructure, a reversal of the high tariff structure, and improvements in levels of service. This will require more than the reshuffling of management or a change in reporting relationships. SACOB advocates the benchmarking of Spoornet against world best practice in order to determine the best way of achieving these improvements.

SACOB believes that the process for restructuring Transnet should be to separate infrastructure from rolling stock. Maintenance and improvement of infrastructure which is used commonly by both freight and passenger services should remain a state responsibility. The state should have no interest in any operations, and would levy a charge for the use of the infrastructure. Rolling stock operations should be privatised, and open to competition. Consideration should be given to leasing of rolling stock to new operators in order to make if financially easier for new operators to enter the industry.

A South African precedent exists for this type of arrangement in that proposals for the restructuring of the electricity supply industry recommend that the transmission system (the railway line) be maintained by Eskom, a state owned parastatal. Likewise, it has been proposed that a single operator develops and maintains a gas distribution pipeline.

This is not a new concept. Many corporations have entered into agreements with employees to purchase or lease company vehicles, to operate the company's transport for their own accounts. This could open up opportunities for employees of Spoornet who may wish to provide rail services.

The nature of rail infrastructure, and the important role which rail transport can, and should play in the movement of people and goods dictates that the establishment of a regulator must be considered.

A regulator will have to ensure that investors, consumers and operators can be offered a stable regulatory environment free from political interference. Basic functions of a regulator would ensure equitable access to the infrastructure by all users, to protect stakeholders against possible abuses by the infrastructure operator and ensure that the objectives of competition policy are met.

In the fulfilment of these functions, a balance must be maintained to ensure that the client interests are not pursued to the detriment of investment and efficiency goals.

The SACOB policy on regulators is attached as annexure 1.

SACOB believes that the restructuring of state owned enterprises leading up to eventual privatisation is necessary for the economic growth of South Africa. The country needs foreign direct investment, which can be generated through the privatisation of state owned enterprises such as Transnet. For this reason SACOB supports the process of restructuring rail services on the basis that this is the first step towards eventual privatisation. However, the approach must be transparent and consultative. In particular, the business community who are the clients of Spoornet and key stakeholders need to be included in all discussions.

South Africa plays a critical role in the SADC region. Spoornet assists many of the SADC countries in rail operations. In addition, several SADC countries use South African ports for their exports and imports. Thus a efficient, reliable and cost effective South African rail transport system will have benefits not only for the South African economy, but for that of the whole of the Southern African region as well. This is another reason why the transformation of South African rail services should be regarded as long overdue and urgent.

As business SACOB supports the current initiatives in the restructuring process envisaged for Spoornet. However, the need for the focus of such an exercise to be placed on ensuring the fundamentals of efficiency and market orientated decision-making processes must be emphasised. SACOB wishes to work closely with Spoornet to achieve this.

Finally, SACOB urges that a workshop be arranged between stakeholders and the government project team responsible for making recommendations. This would enable a frank and open debate to take place, thus ensuring that the best possible rail service is provided for passengers and rail freight clients.

Annexure 1
Regulatory policies should be guided by the following:

- Operational and policy formulation responsibilities are the prerogative of the government and should be separated from regulatory responsibilities.

- The establishment of independent regulatory bodies can achieve such separation. In this manner a stable regulatory environment free from political interference can be offered to investors and consumers alike.

- A process should be established for the appointment of regulatory bodies. Such a process must be free from any suggestion of partiality.

- It follows that it is important that the regulator be funded adequately and independently.

- The regulatory process should be capable of straightforward and prompt implementation (e g tariff rule procedures). Its procedures must be transparent.

- In order for it to fulfil its function the regulator should have access to the necessary information relating to the parastatal's activity.

- The rulings of the regulator must be enforceable with provision for an appeal procedure.

- Parties affected by regulatory decisions should be given the opportunity to present input to the process.

- Officials in regulatory agencies should be prohibited from being employed by the parastatal, they are regulating, for a set number of years. Enforcement of this guideline would require an appropriate remuneration and training strategy.

- There is a need for balance to be maintained between the interests of the parastatal and the interests of the consumer.


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