The African Rail Industry Association (ARIA) has welcomed the launch of a pre-procurement market sounding exercise by the South African government with regard to private sector participation (PSP) prospects on key commodity and general freight corridors, arguing that the consultation should improve prospects for attracting much-needed investment into the rail network and train operations.

However, outgoing chairperson James Holley has also called for immediate attention to be given to prevailing impediments to the introduction of third-party train operating companies (TOCs); especially the poor state of network and signalling infrastructure, which was creating uncertainty about what service level commitments could feasibly be made by new private operators.

Speaking during ARIA’s AGM, Holley described the recent release by Transport Minister Barbara Creecy of a request for information (RFI) for PSP prospects on key freight corridors as a welcome departure from past practice, where projects had been “scoped in a vacuum and presented on a take-it-or-leave-it basis”.

Creecy, who also participated in the meeting, launched the RFI on March 23, to test market-appetite for the following:

• PSP prospects on the Northern Cape-to-Saldanha and the Northern Cape-to-Nelson Mandela Bay corridors, which primarily transport iron-ore and manganese exports respectively;
• a Richards Bay Bulk Minerals Corridor PSP, which is a key export channel for coal and chrome and magnetite from Limpopo and Mpumalanga; and
• an intermodal supply-chain PSP project focused on the container and automotive sectors, including the potential designation of the South African container port system as a regional transhipment hub for major shipping lines.

A closing date of May 9 has been set, and Creecy has promised that submissions will be treated with strict confidentiality and that the information will be used to guide the design of request for proposal (RFP) documentation, to be released into the market by the end of August.

These procurement processes will be overseen by a new PSP Unit, housed in the Development Bank of Southern Africa, and modelled partly on the Independent Power Producer Office, which has overseen the public procurement of renewable-energy capacity and which will also manage the pilot independent transmission project procurement scheduled for later this year.

Holley said the RFI made sense, as it would allow the industry to help sculpt the RFPs such that there would be interest from bidders, arguing that a significant rise in investment in rail would be the true mark of success for the reforms under way in the sector.

ARIA estimated that some R200-billion in investment was required to return the country’s economically viable rail system to design conditions.

“As the private sector we must now respond with robust feedback,” Holley averred, adding that the industry would lose its right to criticise should it fail to engage with the RFI.

PSP STRATEGY & 250MT TARGET

Creecy said the reforms under way to facilitate PSP in the rail network and in train operations were central to the overall strategy of lifting rail volumes to 250-million tons or more by 2030. In 2023/24, only 149-million tons were moved by rail and Creecy expressed optimism that volumes would be above 160-million in 2024/25.

However, increasing volumes to the 250-million target would hinge on attracting private investment in the form of TOCs and infrastructure concessionaires, with the infrastructure to be transferred back to Transnet at the end of the concession period.

The Minister acknowledged the immediate infrastructure-related constraints to attracting TOCs, notwithstanding the release of the Network Statement and tariffs for third-party access, as well as the establishment of the Transnet Rail Infrastructure Manager, as a separate entity from the Transnet Freight Rail Operating Company.

She, thus, urged potential TOCs to use the public processes surrounding the development of a future Network Statement to highlight some of the short-term measures that could be employed to improve prospects for the emergence of third-party operators. The Network Statement will be updated yearly on April 1.

Holley noted that investing in a 100-wagon train would require an upfront investment of R600-million and that an overall investment of R75-billion would be required to secure the rolling stock required to raise volumes to targeted levels. In addition, to guarantee their service, new TOCs would be reliant on the physical rail network being in a far better condition than was currently the case.

Creecy acknowledged the maintenance deficit and stressed that improving the state of the network would not depend on PSP investment alone, with Transnet also preparing to access the National Treasury’s Budget Facility for Infrastructure to secure funding for priority capital projects on key corridors.

“So while we are opening up the possibility of third-party investment in rail infrastructure, we are not giving up on Transnet investing [to improve] the condition of the rail network,” Creecy said.

She also highlighted the cooperation agreements emerging between the State-owned company and some large resources companies that were geared towards immediate infrastructure investments.

Meanwhile Creecy confirmed that an RFI was being prepared for the passenger rail segment, with the Passenger Rail Agency of South Africa also expected to draw on the PSP model to revive its service.