With State-owned freight logistics group Transnet having turned to the market to invest in rail and port infrastructure, and the Department of Transport (DoT) having introduced various reforms to allow for private-sector participation (PSP) in South Africa’s logistics system, questions have arisen about the risks of such involvement, particularly regarding private companies’ commitment to transformation.

During a recent transport-focused webinar hosted by Creamer Media, consultancy Oliver Wyman energy and natural resources partner Mark Evans said the DoT and Transnet’s active efforts to understand how the private sector wants to assist have changed the landscape of the logistics network and how it might be operated.

“However, there remains a lot of uncertainty on regulations, safety and practicalities around the complexity of such an endeavour and ensuring PSP in the logistics sector is a success,” he added.

State-owned enterprises have realised that they cannot rehabilitate their infrastructure – such as Transnet’s freight network – on their own, nor can government underwrite the losses of these entities indefinitely.

The recent requests for proposals issued by Transnet are more than a procurement exercise – they are a redesign of national logistics that will introduce competition in a sector that has long been monopolised, Evans pointed out.

He cited three global examples of how rail networks can be rebuilt and confidence restored when governments include private-sector partners, share risks fairly and enforce transparent performance.

Mexico, for example, has 63% of its freight moved by rail through dedicated commodity corridors run on concessional models.

South Africa has existing workable examples of PSP, such as the public–private partnership (PPP) between government and Trans African Concessions, which operates the 570-km-long N4 toll route. There have also been early successes with PSP in the electricity sector.

According to Evans, investor interest is piqued when the rules are clear, obligations are defined, and returns are predictable.

While government has made it clear that ownership of the rail network and ports will remain in State hands, their operational control and capital participation are open to discussion.

In this regard, Evans believes that consortia will be more effective than solo players, with various stakeholders, including funders, manufacturers, miners, manufacturers and logistics specialists required to make important contributions.

Private-sector involvement has to be structured in such a way as to ensure that efficiency gains do not come at the expense of accessibility or affordability, since South Africa cannot afford to repeat models that solely serve investors while excluding communities or raising barriers for smaller operators.

Therefore, Evans suggested that contracts need to have built-in obligations for open access and fair tariffs to avoid corridors becoming “exclusive highways” for private operators.

“International experience shows that balancing investor certainty with wider access is possible, [but] only if regulators have the authority and capacity to enforce rules consistently, set fair prices and hold operators accountable for full transparency.”

During the webinar, TATA Africa Holdings CEO Jacques Taylor confirmed that the private sector has shown significant interest in rehabilitating the country’s rail network and ports, supported by expertise and technical capacity.

He said companies are cognisant of the impact of inefficiencies in the transport system on exports and competitiveness.

TATA, an existing investor in a terminal in South Africa, believes effective PSP hinges on supportive legal frameworks, clear regulations and strong governance to ensure good oversight. “There is no need to reinvent the wheel. Looking at roads, we can learn from existing PPPs,” Taylor said.

He cited the example of PPPs in Mozambique having enabled South African companies to move goods to the neighbouring country and export from there.

Cost Concerns

Commenting on the risks of allowing the private sector to operate public infrastructure, Taylor said private companies will commit capital to these projects if they see a return and will manage an effective business operation.

The cost of not having an effective logistics solution in South Africa is significant and the country stands to gain by having an effective solution in place, he added.

If the entire value chain of the transport system was more integrated and running effectively, some of the cost issues would naturally “smooth out”, added Railway Safety Regulator (RSR) COO Rirhandzu Mashava.

Mashava and Taylor agreed that the introduction of competition in any market has positive impacts on prices for end-users and customers, to which BDO Nelson Mandela Bay office managing partner Siyabonga Mthembu responded by stating that allowing for competition and doing away with the monopoly model addresses the issue of services being overpriced.

Even if there are some unintended costs associated with the process, many private companies would be prepared to pay more to get goods to market efficiently, as “more predictability on timelines and confidence in turnarounds [are] more important than risking goods being late or never making it to market – as is often the case currently”, added FedEx sales MD for sub-Saharan Africa Leon Bruwer.

From a funder’s perspective, banks would ensure an understanding that the network should allow for efficient and successful locomotive operations, including through a favourable regulatory environment, said Standard Bank sovereign and public sector executive head Zen Dlamini.

“If you are extending loans and train operating companies are not considering efficiency or safety, that is a risk.”

Commenting on whether private operators would ensure social development and responsible operations on the rail network, Dlamini affirmed that funding institutions, such as Standard Bank, would continue to hold private companies to account in respect of environmental, social and governance factors.

Another factor that will determine the success of PSP in logistics is infrastructure.

Nelson Mandela Bay has “worked hard” to ensure infrastructure is in place, since it attracts international investors and reduces the cost of doing business. This includes energy, water and security infrastructure, which allows for a supportive ecosystem for private-sector investment, explained Mthembu.

Dlamini agreed, stating that the biggest threat to infrastructure in South Africa is a lack of security, which results in vandalism, extortion and sabotage.

For Bruwer, a key requirement to reduce the risk for PSP is consistency regarding collaboration in supporting long-term competitiveness for the country’s exporters.

“Exporters need transparent enforcement, open channels for collaboration and consistent export rules,” he noted, adding that collaboration among stakeholders could also help address security issues on the rail network.

Mashava shared this sentiment, saying that collaboration could result in skills transfer between the public and private sectors, which, in turn, could benefit the transport and logistics value chain.

Government Risk Mitigation

In ensuring that PSP is implemented successfully in South Africa, the DoT is drawing on global best practice to promote fair pricing, devise innovative finance models and strengthen the tender process, including complex tenders involving multinational companies.

Mthembu added that the biggest risk is about intent and trust: “South Africa is still run by politicians who need to understand [that] the private sector is not only involved because of immediate profit, but [also] to improve the infrastructure of the country and the workings of the economy.”

Mashava highlighted that government’s introduction of PSP in logistics is a significant shift and the regulatory approach is proactively evolving to adapt to this new reality: “We are undertaking reviews of our framework to be more agile and outcome- focused while making our processes of applying for permits more efficient.”

The RSR is also moving to a more risk-based approach, focusing on operators with higher risks, who will receive more intensive scrutiny.

“The important thing for the RSR is the promotion of a safety culture, rather than just compliance. We will engage with new entrants to the rail network early on in the planning phases to foster a culture of safety from the outset,” Mashava said.

She affirmed that government has started to recognise how a more predictable and practical regulatory framework that enables PSP can revitalise and modernise the rail sector, which will, in turn, allow for sustainable economic growth.

Taylor concluded that effective transport and logistics can benefit the broader economy and accelerate transformation on a broader scale beyond just one sector.