The poor performance of bulk logistics is costing the South African economy at least R1 billion per day. In the mining sector, many companies are switching to road transport, increasing costs four-fold compared to rail.
Our national roads are buckling under the strain, just a drive along the N4 highway to Mpumalanga or the N3 route to Durban reveals a sea of cargo trucks that now dominate these routes, putting communities at risk of accidents.
Years of underinvestment in maintenance have also left South Africa’s ports among the worst in the world when assessed on vessel time in port, according to the World Bank.
These issues have had a significant impact on our economy. Between 2021 and 2023, South Africa lost out on an estimated R98 billion in coal and iron ore exports due to freight logistics constraints, according to a Minerals Council report. In agriculture, issues at Cape Town’s port cost apple and pear producers close to R1bn per year.
Although the near- and long-term impact of Transnet’s renewal project on the economy remains uncertain, new opportunities are emerging for mining sector players. But tough choices have to be made to get back on track.
Unlike public-private partnerships in the energy sector – where the state takes on the role of investor or buyer of private services — Transnet’s approach is firmly focused on private sector participation (PSP).
This model creates a space for private players to invest in and contribute to the rail and port network, offering stakeholders a real opportunity to deliver meaningful change.
South Africa’s total rail volumes have dropped nearly 7% since 2019, while total mining production only decreased by 1.4% during the same period, indicating that the system is struggling to meet demand.
Key lines have been impacted by external factors like theft and vandalism, further exacerbated by irregular maintenance and equipment shortages, specifically locomotives.
Although port terminals have performed better than railways, they face similar issues, as ageing infrastructure and equipment hinder efficiency, resulting in delays for ships and trains waiting to be loaded and offloaded.
Financial challenges at the parastatal further constrain its ability to invest in infrastructure and carry out its transformation plans.
The latest Network Statement is the clearest sign from the Transnet CEO and Board that PSP will be key to rebuilding the entity so that it can better support South Africa’s economic growth.
The announcement to divide Transnet Freight Rail into a Transnet Rail Infrastructure Manager (TRIM) and a Transnet Freight Rail Operating Company (TFROC) supports this rebuilding by maximising network utilisation to revive rail transport in the country.
TRIM will manage, operate and maintain the rail infrastructure while “opening the market to third parties” alongside TFROC, thereby generating revenue to fund the necessary rehabilitation of the rail network.
Embedding these operating divisions and processes must quickly gain the participation of the third parties to be effective. A good start is the proposed tiered system of access tariffs that are aimed at making access more affordable to private operators.
The proposed tariffs will be differentiated based on commodities and corridors, taking into account kilometres travelled or gross tonnes per kilometre. This will further open the network up to a range of players.
Additionally, those who invest in infrastructure can recover costs through differentiated tariffs based on usage and service levels. Over time, this strategy to promote infrastructure investments could stimulate broader economic activity by enhancing connectivity between key economic regions.
Change won’t happen overnight. New private trains are not expected to hit the rails until 2027. With the terms and conditions of access now established, we have a solid foundation for private investment to enter the picture.
Now is the time for government reforms to eliminate wasteful spending and enhance efficiency in logistics and transportation. This process has already started.
The auditor-general recently called on the board of the Passenger Rail Agency SA (Prasa), which incurred R3.8bn in irregular expenditure, to fast-track its infrastructure modernisation programme that aims to improve service delivery.
Government efforts to reduce fragmentation and duplication of processes across sectors will be crucial for success.
With the Transport Department's establishment of a new unit equipped with the skills and expertise to design, negotiate, and manage projects, as well as ensure efficiency in public-private agreements, the sector appears to be moving in the right direction.
South Africa has a strong historical precedent for successful public-private partnerships (PPPs), most recently demonstrated in the energy sector.
Since South Africa introduced PPPs in 1998, over 35 large-scale projects worth more than R90m have been initiated. Notably, the transport sector has seen the largest PPP projects, accounting for an estimated R65-70bn in spending on initiatives like the Gautrain Rapid Rail Link.
Recent partnerships with Transnet have already made collaborative projects more feasible. For example, a five-year agreement is already in place with Sasol to deliver ammonia to customers, with Sasol funding the maintenance of the fleet for Transnet.
However, where these improvements came about through partnerships, the new Network Statement and Transnet’s ambitions now call for companies to invest in and operate parts of the rail network, a distinct departure from what has been done in, for example, the energy sector.
Transnet’s renewal approach leaves it up to freight-dependent sectors – like mines – to decide just how involved they would like to be.
These positive shifts in the rail sector mean mining companies have a pool of emerging opportunities to leverage.
They must now consider an appropriate level of participation in the rail revival, which applies to both financial contributions and operational involvement needed to achieve the desired results. Participation can come in the form of individuals or forums for the good of the corridor or industry.
On the lower end of the spectrum, companies can start affecting ancillary railway services; with increasing investment, they can impact critical operations or decide to become an end-to-end provider.
The more involved mines get, the easier it becomes to mitigate risk from an underperforming network. This deeper involvement will require specialist expertise and large-scale investment.
For these players, rail investments will also impact various stakeholders, some of whom may have conflicting interests. This emphasises the importance of consensus and buy-in when getting involved in rail through finances or operations.
Mines need to consider how their ambitions align with the national objectives of job creation and economic growth as they participate in the revival of the rail network with Transnet.
Overall, PSP has the potential to revitalise South Africa's rail transportation sector and boost economic growth. With a supportive legal framework, effective governance, and operational models, along with public sector investment and stability, the payoff could be significant.
But before success is declared, mines must tread carefully; balancing their appetite for investment with the need to build consensus with stakeholders and use collaborative approaches to minimise exposure.
