The Future of Rail
Opening Address - Railways & Harbours Conference
6th April 2011, Johannesburg
Jeremy Cronin, Transport Deputy Minister
This year marks the 150th anniversary of rail in South Africa. It started, humbly enough, on a short track in
Durban in 1851. 50 years later, at the time of the formation of the Union of South Africa, a relatively
extensive strategic railway system had already developed. With Union, the railways were established as an
official organ of the new unitary state and a political agenda was set that largely focused on servicing the
mining and agricultural sectors.
For the better part of six-and-a-half decades after 1910, the rail sector was carefully nurtured and
handsomely resourced by successive administrations. Growing competition from road was kept at bay by
tough regulatory practices that ensured rail freight of a virtual monopoly.
From the mid-1970s, however, rail's pre-eminent position in SA began to come under scrutiny. A series of
National Transport Policy Studies reviewed trends in transport deregulation around the world. The findings
reinforced a growing belief that an over-protected rail industry and an over-regulated road freight sector
were detrimental to the overall South African economy. This was undoubtedly true - but as often happens in
these matters, in following decades, and indeed, right up to the recent present, the stick was then bent
excessively in the opposite direction.
In 1977, for instance, the Road Transport Act increased the maximum permissible net payload for road
trucks to 22 tons - this exceeded the 20 tons carrying capacity of the ES-type rail wagon widely in use at the
time. Subsequent amendments have increased permissible road payloads to between 42 and 45 tons.
Total deregulation of road transport was implemented with the promulgation of the Transport Deregulation
Act in 1988.
In theory, this deregulation of road freight was meant to be counter-balanced by a new set of road
regulations. A Road Transport Quality System was formulated and enacted with the Road Traffic Act (1989).
Specific guidelines were given to regulate road transport operations and to guide law enforcement on issues
such as vehicle and driver fitness, driver hours behind the wheel, speed, etc. The implementation of these
measures was, however, done very haphazardly and never regarded as a priority by the majority of
provincial and local traffic authorities.
All of this resulted in rail's rapid loss of market share to road. Already, by 1986, about 21,000 wagons (12%
of the total fleet) were idle, and about 60% of the rail network was being used at less than half of its
practical capacity.
Late apartheid's economic crisis
The rail sector in South Africa was then dealt a second whammy in the latter half of the 1980s, with the
apartheid state now confronting a deepening financial and broader economic crisis. International sanctions
and a burgeoning defence budget led to an acute capital shortage in particular. In this environment, the
capital spending habits of government and state enterprises came under scrutiny.
In the latter part of the 1980s, Minister De Villiers was charged with restructuring state owned enterprises.
The ensuing De Villiers report made a series of major recommendations. The parastatal SATS (formerly SA
Railways and Harbours, and since 1990 Transnet) was urged to cut back new rail investment and to focus
on increasing utilisation of existing assets. In the period prior to the financial crisis, the apartheid
government regularly allocated through Parliament capital expenditures for SATS of up to R2bn a year.
Infrastructure was maintained and replaced on schedule. However, from the mid-1980s things began to
deteriorate dramatically. In 1986, expenditure on fixed assets fell to R1,4bn.
By 1988 the figure was down to R699 million. It is a trend that was to persist into the post-apartheid period,
with expenditure on fixed assets in 2000, for instance, down to some R500 million.
Initially, market demands could still be met with surplus capacity from assets, but these assets increasingly
reached the end of their economic life as the decade of the 1990s advanced. With investment down, the
overall condition of freight and passenger assets was deteriorating whilst the investment backlog was
increasing steadily.
The net result is that, on the freight side, rail has massively lost market share to road over the past 20 to 25
years. Road transport has been allowed to grow but without the implementation of an effective road
transport quality system. This imbalance in the modal split has been a key contributing factor to high direct
logistics costs throughout the economy. The disproportionate shift of freight on to road has had many other
perverse and costly impacts - the road freight industry (unlike Transnet Freight Rail) does not directly carry
the cost of building and maintaining the public infrastructure it uses. The disproportionate shift of freight
onto road has seen road construction and maintenance costs soar, deteriorating road conditions, congestion
problems, and road collisions. We have also neglected inter-modal solutions.
In 2008 just over 935 million tons of freight was moved in SA at a cost of R171bn. Rail freight share of this
tonnage was down to a mere 23%. However, rail was carrying this 23% at less than 10% of the total cost
(reflecting rail's much greater energy efficiency). This figure becomes even more impressive if we add
average transport distance to our calculation, in other words if we measure not just tonnage, but actual
effort (i.e. ton kilometres) - then rail's contribution climbs to some 39%, but at 10% of overall cost.
What is more, the R171bn total cost for freight movements in 2008 excludes an estimated R34bn in
externality costs (in carbon emissions, noise pollution, infrastructure damage, congestion and accidents).
Most of the R34bn in externality costs (96%) was for road transport. These costs further highlight the
greater role that rail should be playing in the logistics industry and the wider economy.
Add to all these considerations:

the short to medium-term trend for the international oil price to increase as a result of instability in
key oil-producing regions, but also the likely impact of peak-oil; and

SA's long logistics lines and the consequent vulnerability of our trade competitiveness to
international carbon taxes, and to retail and consumer trends in developed countries where the
carbon footprint of products is starting to become a factor.
In the light of all of this, the imperative of achieving a much better energy efficiency in our logistics system
and therefore a better modal balance between road and rail freight becomes glaringly obvious.
Rail Passenger Transport
The plight of rail passenger services has followed a similar declining trajectory over the past decades. At
present the condition of the rolling stock is deteriorating faster than the rate of overhauls and upgrades.
The design and technology of the rolling stock which is currently being utilised date back to the 1950s. The
poor condition of rolling stock contributes significantly to the delays and cancellations of the scheduled daily
commuter rail service.
Of the total number of 4,638 commuter coaches in the Metrorail fleet, 2,200 coaches are older than 36
years, and the average age of coaches is 40 years. Since 2004 there has been an accelerated rolling stock
refurbishment programme, which has succeeded in stabilising and recovering somewhat the Metrorail
service, but it is patently obvious that new rolling stock is desperately required to improve and sustain the
service going forward. It is increasingly uneconomical to simply continue with refurbishments.
A significant investment in rail service is required, involving rolling stock, infrastructure and signalling
upgrades.
A similar picture emerges when looking at the long distance passenger services of Shosholoza Meyl. The
average age of the long distance passenger rail coach fleet operated by Shosholoza Meyl is of the order of
33 years. This implies that the value extension through upgrades may not be fully realised and the
functionality of the fleet needs to be critically re-assessed.
The good news is that there is now a very clear green light from government, indicated by, amongst others,
Minister of Finance, Pravin Gordhan in this year's budget speech that both on the freight and passenger rail
sides we need to proceed as quickly as possible with a major fleet procurement process.
PRASA plans to acquire new metro service coaches over an eighteen to twenty year period, starting in 2014.
A detailed needs and feasibility study is currently underway to determine the numbers that should be
procured and the associated costs. The feasibility study covers engineering, economic, legal and financial
analysis for the procurement, financing, operating and maintenance of the new rolling stock for PRASA
Furthermore, Transnet is in the process of preparing to purchase freight wagons and locomotives to address
their requirement for new rolling stock. This provides the opportunity of collaboration between PRASA and
Transnet to leverage economies of scale for the rail engineering industry in South Africa.
The procurement programme for rolling stock will follow the fleet programme process as set out in the
government's Industrial Policy Action Plan (IPAP II). The objective of the fleet programme is to develop
long-term procurement plans which satisfy the needs of both PRASA and Transnet and at the same time
establish predictable demand which will make investments in local supply industries attractive.
A predictable and sustained long-term demand will give rise to maximum local content and create platforms
for development of local industrial capacity and capability, thus creating long-term employment
opportunities.
Establishing a local manufacturing base for the new rolling stock for PRASA and Transnet will have the
benefit of creating a substantial number of local jobs and the redevelopment of rail engineering capacity
and skills that have been lost over decades of underinvestment in the local rail engineering industry.
It is in this context that yesterday Minister Ndebele addressed PRASA's Market Engagement process
designed to conduct Market Feasibility Studies for the procurement process. In particular, we are testing:
·
Market capacity for the production of at least 300 passenger coaches per year;
·
Market capacity for the ongoing maintenance of manufactured coaches;
·
Prior South African train building and maintenance provision experience, and willingness to
transfer technology to SA.
Rail Policy and Regulatory Development
Concurrently with government's move now towards major rail recapitalisation is a policy and regulatory
development process. The South African rail sector has, over the years, amidst various challenges, existed
without having an over-arching Rail Policy in place. Various rail initiatives have been launched by different
stakeholders, leading sometimes to conflicting objectives in the utilisation of rail infrastructure.
The Department of Transport is currently in the process of developing a National Rail Transport policy. This
will formalise the policy position of government and provide an overarching governance framework for the
rail sector. We are currently in the first phase of this policy process and aim to produce a Green Paper that
will pave the way for an official National Rail Transport Policy and a possible Rail Act. The rail policy will
consider, amongst other things:
o examining the case for and against separating ownership of operations from infrastructure,
particularly in the case of Transnet Freight Rail;
o the establishment of a Rail Economic Regulator;
o Branch Line revitalisation;
o the integration of Metrorail services into city-led Integrated Public Transport Networks; and
o The feasibility of high-speed lines.
We are currently in the Green Paper phase with the primary objective of preparing the way for effective
stake holder engagement.
So, finally, as a country (and in line with many international trends) we are poised to reverse the decline in
our critical rail sector that began in the mid-1970s and gathered pace in the late 1980s. It is not a question
of returning to the past, but of building a modern, vibrant rail sector that is an integral part of our logistics
and public transport reality. It is both a possibility and an imperative necessity.