Transnet: How the state’s rail infrastructure manager will work

Transnet: How the state’s rail infrastructure manager will work

Transnet could soon get a new entity charged with initiating private investment into the state utility’s rail lines.

Plans for the infrastructure manager (IM) — set to be established as an operating division of Transnet any day now — are outlined in the 124-page Roadmap for the Freight Logistics System in South Africa.

The document, which has reportedly been circulated among business and labour leaders, sets out various reforms which will be undertaken to rehabilitate Transnet. 

The beleaguered state rail and port operator has found itself at the centre of South Africa’s economic malaise, with the Minerals Council putting the cost of its dysfunction at R150 billion in 2022 alone. 

Transnet has also seen a series of resignations in recent weeks — as the entity’s chief executive, Portia Derby, and others have been made to pay for the economic pain it has inflicted.

The IM forms part of Transnet’s unbundling, which was initiated with the establishment of the Transnet National Ports Authority (TNPA) as an independent subsidiary. 

Just this week, Transnet’s board chair, Andile Sangqu, announced the TNPA’s inaugural board — a development which brings the entity closer to opening private access to South Africa’s ports.

Transnet’s unbundling has been criticised in the past by trade union federation Cosatu. In a statement addressing the establishment of the TNPA as an independent subsidiary, the ANC’s labour ally noted: “Over the last two years, there has been a fixation with rolling back the state’s role in the economy, trimming down the state and opening doors for the private sector to take over.”

Cosatu further noted that the method of unbundling state-owned entities flies in the face of the ruling party’s commitment to a developmental state.

Though the October deadline for establishing the IM has been set for some time now, the roadmap gives further detail on how the entity will operate, its governance structure and its financing capabilities.

The IM will assume ownership of state rail infrastructure and be responsible for its operation, maintenance, renewal and development. In doing so, it will facilitate third-party access to the freight rail network.

According to the document, the IM initially will be established as an operating division of Transnet separate from Transnet Freight Rail (TFR), which lost its chief executive, Siza Mzimela, during the recent resignations. 

The IM will subsequently transition to being a subsidiary of Transnet, with a separate board, within a period of six months. At a later date, the IM will be established as a standalone state-owned company.

Transnet, with supervision from the department of public enterprises, will determine the personnel, assets and systems to be transferred from TFR to the IM. According to the roadmap’s implementation schedule, by November 2023, a code of conduct should be developed and implemented in order to establish a “Chinese wall” between the two entities.

As is the case at the TNPA, the IM’s board should contain a majority of independent non-executive members who are not also members of the Transnet board.

Earlier this year, the African Rail Industry Association (Aria) — a body representing private rail operators and manufacturers and a strong proponent of third-party access — expressed concern over the extent to which the IM will be able to assert its independence.

Independent, competent and well-funded infrastructure managers “will attract private sector investment into South Africa’s failing rail infrastructure and ensure equitable private sector participation”, Aria chief executive Mesela Kope-Nhlapo said.

The roadmap outlines how private investment in rail infrastructure might work.

“Where an access seeker identifies a project to provide additional capacity on the network, and the infrastructure manager indicates that it will not fund the project (or will not fund it fully), the access seeker may notify the infrastructure manager of its willingness to fund the project,” the document reads. 

“Where a private investor makes a capital contribution, while the infrastructure manager will own the assets created, the investor will make a return on its assets via a discount in the access fee it is charged.”

In April 2024, the IM must develop a mechanism for private investment in rail infrastructure to be recouped through the discounted access charge, according to the roadmap. 

Then, in July 2024, the entity must release a prospectus of low-density lines identified for closure and publish a request for offers to purchase or subsidise those lines.

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