Bloomberg | 8 April 2024

South Africa has asked companies to help it set up an office to facilitate the entry of private operators onto the continent’s biggest rail network for the first time. 

In a letter sent to Business Unity South Africa last month, the Department of Transport asked the country’s biggest corporate lobby group to help set up a private-sector participation office.

It also asked BUSA to “support concessions and investment in freight and passenger networks.”

The department asked whether companies would “be in a position to help them set up a unit,” said Khulekani Mathe, chief executive officer-designate at Busa. “We will produce the capacity to populate it and then have nothing to do it.”

The transport department didn’t respond to a request for comment.

The overture to the private sector over reviving the moribund rail industry is the latest attempt by the South African government to rope in corporate skills to kick-start collapsing government services ranging from electricity to water supply. 

South Africa’s freight rail services, run as a monopoly by state-owned Transnet, have deteriorated to the point where iron ore is piling up in stockpiles at mines, and coal railings to ports are at a 30-year low.

That has slashed earnings for companies, including Anglo American and Glencore units. It has also resulted in a lower tax take for the cash-strapped government. 

The government has produced a strategy — the Freight Logistics Roadmap — to reform rail and port services. Transnet published a document last month detailing how it envisages private companies operating its network. 

That document, open for public comment, has attracted criticism from miners and other companies reliant on rail as it aims to allow private operators to book slots for one year, which need renewing, rather than having access for longer periods. Longer access would encourage infrastructure investment.

Late last month, BUSA wrote to its members asking them to submit proposals on how the rail network—or segments of it—could be run and seeking help starting the PSP office. The deadline for the proposals is April 19. 

The Department of Transport said in its earlier letter that a number of unsolicited bids “have been submitted to Transnet.”

“These PSP initiatives need screening and prioritizing but can be made market-ready within a year through the establishment of a sector-specific PSP unit.”

Bankable opportunities

The transport department said the unit will need transaction advisers as well as legal and technical experts to set up “bankable PSP opportunities.” 

Mathe said the government envisages the unit running along the same lines as an office that’s run bids for private power provision and secured well over R200 billion in investment.


When a state run enterprise runs out of road, they always turn to the private sector to rescue it but the privates would always want to cherry pick the viable sections only.

This has been long in coming and should have happened a long time ago. Monopolies always come acropper at the end of the day. Complacency and corruption eventually erode any advantages that it had from whence incompetence and mismanagement flow. Competition is that impetus needed to compel players to innovate and thrive. If you can’t compete, you die. If in doubt, check out our NRC. In the case of Transnet, it is threatening to bring down the SA economy with it.

With rail export volumes collapsing by 30% in the last 5 years from about 210m tons to 150m tons in the last year. The writing was on the wall though some of the challenges have been beyond Transnet. Covid, criminal vandalism, floods, cyber terrorism have contributed but the management failings have been mind boggling. The absence of basic controls and its antiquated systems have brought this once thriving behemoth to its knees.

When organised labour whined that “We are witnessing the collapse of Transnet because of endemic levels of corruption within it, the explosion of cable theft, years of neglect of infrastructure investments and skills development, and a management team that is woefully out of its depth that must now go.” It was only a matter of time.

What is scary is that we were literally begging Transnet to take the narrow gauge railway concession in Nigeria in 2019 after GE/Wabtec walked. Heaven knows what would have become of the concession had it not fallen through. Suppose the railway would be no worse than it is today in the hands of the NRC.

Again this speaks to the opacity of State owned enterprises. So much is hidden that most times you are engaging with them on a perception of soundness rather than cold hard data. For an investor, such could be the difference between life and death.

Of importance will be the attitude of Transnet management which may choose to be obstructive and sabotage any effort to take away its prized monopoly privileges usually borne out of an entitlement complex. Again, checkout the NRC experience.

The saving grace is the new management team at Transnet. Michelle Phillips, its new CEO is a market savvy professional having run its pipelines business. The organised private sector has welcomed her appointment with open arms as have labour.

Market reforms are necessary but we must be careful not to over dose. Open access is controversial but the pivot will be the regulator and government resolve to allow market forces unfettered.

With Portia Derby on a deserved retirement with a rumoured sizeable golden handshake, and with Sizakele Mzimela sacked from Transnet Freight Rail, the decks are clear for a credible reform journey to commence in earnest