State-owned rail operator Transnet is finally going to let private enterprises operate on some of its lines. But the short-term nature of contracts could stand in the way of investment.

From Dwarsrivier to De Aar and elsewhere on South Africa’s 20,000km rail network, it was eerily silent at the peak of summer.

Between Touws River and Laingsburg, where the N1 runs side by side with the main line, the contrast was obvious: the one heavy with road traffic, the other dead quiet. A passing train could become the weeks talking point.

At the once bustling 14-track junction of Springfontein, in the FreeState, goats have the run of the place. Kgosana Subin, a station guard on duty early in January, says he last saw a train pass through “before Christmas”. Residents in railway cottages agree, but Transnet says 30 trains a week run there. The Kroonstad-East London line that passes by regularly carries manganese, grain and general freight.

Still, independent statistics show traffic has dropped by more than half in the past decade, so trainspotters often wait in vain — and the goats remain untroubled.

Springfontein will become a little busier once the governments experiment with private enterprise gets on the rails, possibly before the end of the year. Traxtion, one of the biggest private rail companies in Sub-Saharan Africa, is close to winning the right to run trains from Kroonstad to East London, a rail path where the main line branches off at Springfontein to the coast.

It’s almost a done deal, but Traxtion CEO James Holley isn’t counting his wagons. The company needs to extend its safety permit, something Holley is not concerned about — but completing the contracting process with Transnet presents “the bigger hurdle”.

When the Traxtion locomotives and wagons begin rolling, it will be the first break with a state monopoly that has existed since trains first ran in South Africa. In that sense it’s a big deal, says Holley. In another— the volume of freight that it will move — it’s not. Traxtion moves alot more in the other eight African countries where it operates.

The contract with Transnet will be a pilot, and will run for only two years. With such a short-term deal, “we certainly can’t invest in new equipment”, says Holley, whose company owns 60 locomotives and will deploy one or two to run on the offered rail path.

“Traxtion is very brave,” says Jan Havenga, an emeritus professor in industrial engineering at Stellenbosch University who is an authority on rail economics. 

The brief period of the contract is a concern, especially in dealing with a state that has been reluctant to concede much to private enterprise in any field.

Jackie Walters, a professor at the University of Johannesburg who is an expert in transport economics, says of the many issues around the concession, the time frame has been a source of major criticism. “You cannot expect the private sector to invest about R200bn in trains over two years and then perhaps not get [the concession] again.”

Another worry is the rail infrastructure, which has been a target for vandalism and theft. It’s a topic of sang-froid or scepticism. Holley is among the former. “We are concerned,” he says. “However, we have been running trains for more than three decades outside South Africa and we are well versed where the infrastructure is not of the standard we’d ideally like it to be.”

Transnet says that after a “thorough inspection” it found the line to be safe and in good condition. However, last year Havenga and his colleagues did an evaluation of rail for the South African Institution of

Civil Engineering and found that none of the infrastructure was in a good state. “All of it is going backwards very fast,” he says. “There’s a huge maintenance backlog and that piece of line [Kroonstad to EastLondon] is not brilliant.”

Walters says if the track is not able to “facilitate movement, its problematic”.

The concession requires the private sector to supply the rolling stock while Transnet will maintain the rail infrastructure and invest in it. Holley hopes the state-owned company will be true to its word.“We’re going to have to see significant investment in the infrastructure to allow the efficiency for private operators like ourselves [or] any internationals that I hope will come to South Africa… to justify enormous investment into this very heavy capital equipment,” he says.

Though the government white paper on rail insists that Transnetwon’t be railroaded, the implication is clear: it wants to get more freight off the roads and onto rail. The likely Traxtion venture is part of that.

“We exist as a company to try to change the way freight moves in Africa, to move away from this extraordinary road dominance that

you see across Africa,” says Holley.

The extent of the imbalance between road and rail is evident in the number of trucks on the N1 and the congestion of coal-carrying lorries in northern KwaZulu-Natal. It is also reflected in Transnet’scapacity. Last year South African trains carried the lowest amount of general freight since World War 2, according to Havenga. He says the highest point for freight was 140Mt, reached in 1981. In 2022 it was just 50Mt.

This also applies to bulk cargo carried on the Richards Bay coal line. Ina good year the line should be carrying about 75Mt — the volume it’s designed for, says Havenga. Last year it carried only 54Mt, the lowest since 1993. And with the coal price averaging $292 a ton in 2022, mainly because of the war in Ukraine, South Africa missed a bonanza.

Transnet’s problems are a “combination of stuff”, says Havenga. One of the worst was the scandal in the state capture years when it overpaid by about R10m for 1,000 locomotives from China, and the subsequent refusal by the Chinese to supply spare parts when South Africa suspended the deal.

“It’s also poor management and poor scheduling of trains,” saysHavenga. “If you can turn around locomotives faster, you need fewer to do the same job.” 

The Minerals Council South Africa seems to agree. Last December it took the radical step of calling for the sacking of Transnet’s two most senior executives. It was a sign of desperation by a conservative group representing South African mining companies, which would prefer to see its products go by rail.

The African Rail Industry Association, which represents companies in the rail sector, says its recent study reveals that there is a huge freight body that wants to move from road to rail.

“Rail is extremely bad at handling small cargoes but very good at handling big bulk cargoes,” says Holley. “Rail is outstanding at running coal, manganese, iron ore, big agri volumes, liquid bulk and intermodal [container] freight. You can run two containers per wagon. On a 50-wagon train, that’s 100 containers and 50 trucks off the road.”

Nevertheless, he sees a bright future for trucking. “There is freight that is suited to rail and freight that is suited to road.”

Holley says container freight by rail makes sense if it naturally consolidates. Individual containers, he says, are better suited to road, and road and rail can operate “hand in glove, especially in a modern economy”. In Europe, rail has about a 40% share of container cargo; in South Africa it has less than 10%.

Traxtion’s potential customers will be Free State farmers who produce most of South Africa’s maize and the second-most amount of its wheat. 

“We’re refining the operational model with the agricultural companies,” says Holley. Traxtion’s plan is to run consolidation points that will be largely served by road and it will then take the cargo to East London, where an old grain terminal has been revitalised at the port.

If Traxtion gets the go-ahead it will be a small step in fixing a broken railway system. Unlocking new mining, agriculture and industrial capacity will require extra rail capacity.

“We’re looking at an investment into new trains, new train capacity that runs to the tens of billions that’s needed to service the available market, just in South Africa,” says Holley. “New trains are an extremely expensive, capital-intensive asset that have a 30-year life. For private operators in South Africa to justify the investment, raise the equity, raise the debt and earn the required return, you need a very high degree of efficiency in not only your own operations, but also the efficiency that the infrastructure allows.”

He says the country’s rail reform agenda cannot succeed unless there is a huge investment in new trains. “How many mining opportunities would be unlocked as a consequence of having extra rail capacity? How much agricultural capacity can we add on? How much industrial capacity can we unlock? How much more efficient would a company like ArcelorMittal be? This could make an enormous difference to growth and the efficiency of the upstream economy.

“That’s the exciting thing about our business,” he adds. “If we put on R1bn of trains for a new mining complex, we would, say, employ about 100 people to run that service — highly trained people. People like that would have long and respectable employment. But the 100 that we employ, the R1bn that we invest, can unlock the mining complex that could create 5,000 to 7,000 jobs.”