By Mesela Nhlapo
The South African mining sector – a backbone of the economy and major contributor to the country’s GDP – is facing an existential threat due to the continued deterioration of Transnet’s rail freight volume capacity.
Over the past year, mining production has slumped by 9% year-on-year, and the mining industry lost an estimated R50 billion in exports in 2022, all due to logistical and energy constraints. In addition, mining could have brought in more than R150 billion extra if Transnet had operated at nameplate capacity.
It does not have to be like this.
We have draft legislation on the table – the White Paper on National Rail Policy – which was approved by the Cabinet in March last year. The legislation outlines steps to revitalise rail infrastructure and enable third‐party access to the freight rail network.
Speaking at the launch of the White Paper last year, Transport Minister Fikile Mbalula said it would create policy certainty but also introduce radical structural reforms in the sector.
This, he said, was intended to open up space for private sector investment and effective economic regulation that enables equitable access to both the primary and secondary rail network.
Onerous restrictions on private sector participation and investment effectively render the whole reform process meaningless. African Rail Industry Association (Aria) believes that the provisions in the national rail policy need to be implemented correctly for the revival of South Africa’s rail network.
The national rail policy takes a holistic view of the trajectory of the development of the South African rail network – setting the foundation for structural reform in the sector, with enormous benefits to the country, and the mining sector specifically. The failure of the third-party access plan that Transnet has implemented highlights so clearly the massive problem mining is facing in South Africa.
Third-party freight operators hold the key to unlocking the full potential of the mining industry.
The National Rail Policy, which has opened the door to private third-party freight operators on the South African rail network, holds the potential to resolve the problems mining houses have in moving their product from pit to port.
Economists have already warned that ongoing logistical constraints will continue to undermine the mining industry – highlighting regulatory uncertainty, infrastructure inefficiencies and theft as key influences in South Africa’s attractiveness for mining exploration investment, they said.
In addition to the proper implementation of the rail policy, the track quality of South Africa’s 20 000-plus kilometre rail network is in an appalling condition and needs significant investment in infrastructure.
Transnet’s balance sheet is fundamentally constrained and there is already a material covenant breach requiring lender waivers. With the national fiscus also constrained, the solution clearly and obviously lies with the private sector.
The time for intransigence is long gone, the proper implementation of the national rail policy must happen now.
Aria recommends the following five things should happen immediately:
1. The acceleration of the Regulation of Transport Bill through Parliament.
2. The interim regulator should oversee the next phase of slot sales in line with policy.
3. The process of vertical separation of infrastructure and operations at Transnet must be expedited.
4. The PSP framework for investment into the Transnet track infrastructure needs to be fast-tracked by the DOT.
5. The implementation of rail reform as required by the government should become an important KPI of senior management at the SOE.
We need to align our interests to find a solution. Aria has always put its hand up to engage with the mining industry and key stakeholders to assist in finding improvements that are so urgently needed. “Together we can go far.”
Mesela Nhlapo is the African Rail Industry Association (Aria) CEO. He was speaking at the start of the 2023 Mining Indaba in Cape Town.
** The views expressed do not necessarily reflect the views of IOL or Independent Media.
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