Stops to Infrastructure Boom

FUNDING: REGULATORY REFORM IS WELL ON ITS WAY, BUT NOW COMES THE HARD PART

- Adriaan Kruger

South Africa's rail network needs about R300 billion invested in trains and track infrastructure to boost freight volumes from the current 160 million tons (Mt) to 250 Mt, according to James Holley, CEO of private rail operator Traxtion.

The last time state logistics operator Transnet came close to this volume was in 2018, when it shipped 226 Mt. Eskom needs about R350 billion over 10 years to expand its transmission network and transformer capacity.

On the logistics front, regulatory reform is well underway, with the separation of the rail infrastructure from Transnet itself being placed under an independent manager. This will allow private operators like Traxtion to compete for business on key corridors.

Any discussion of reviving the South African economy must start with electricity and logistics—two chokepoints that have robbed South Africa of upwards of 10% in GDP. The recovery of even part of this will make a huge difference to job creation and business investment.

Holley outlines some of the difficulties facing private entrants: a train set completing eight train trips in a month instead of six means a 33% jump in revenue.

"This cannot be achieved without high-quality track, signaling and scheduling infrastructure."

"The national network is in poor condition, and with the fiscal constraints the private sector participation projects are our only route to efficiency," he said.

Private investors in rail infrastructure will want to earn a decent return from access fees charged to train operators. If volumes are low, access fees will have to increase, and rail will become unaffordable. Government lacks the budget to fix either Eskom or Transnet, so private sector funding will be key.

Anyone ploughing money into rail wants policy and regulatory certainty. If not, the cost of capital goes up, hence access agreements and concession terms must be designed to reduce risk for investors and lenders.