EDITORIAL: Rail’s regulatory bridge will come
http://www.bdlive.co.za/opinion/editori ... -will-come
September 18 2012, 06:30
IT APPEARS that when the Department of Transport’s green paper on SA’s rail future is finally published next week, the mini fracas that broke out between the department and Transnet will have been won by the parastatal and Public Enterprises Minister Malusi Gigaba. At issue was the proposal to split Transnet’s freight business into two entities: a network operator and separate network customer.
The department’s argument was that this system was the progressive option, gradually being adopted worldwide, that would clarify the role and mandate of each. The system would, among other things, allow competing train services to operate on a single track. And it was particularly relevant in SA, where much of the rail network is unused and Transnet does not appear to have any inclination to outsource any portion of "its" network.
The opposition from Transnet to this notion was extreme. CEO Brian Molefe claimed such a move would be "disastrous" and would threaten Transnet’s ability to raise capital on the bond markets. In some ways, his response was understandable. Transnet’s income is dominated by its rail operation, and income is dominated by two lines — the steel line from Sishen to Saldanha and the coal line from Mpumalanga to Richards Bay. It is nowhere stated, but it can be assumed, that these two operations cross-subsidise the rest of the rail network in SA. Remove them from Transnet’s balance sheet and the operator would be in deep trouble.
Further, splitting the operations would take Mr Gigaba into ideological terrain he prefers to avoid. He has spoken out aggressively against the notion of private-sector involvement in transport infrastructure. His objection is based on the conviction that this would undermine the government’s plan for a "developmental state".
However, the notion that Transnet would be crippled if it lost freight services is arguably an overstatement. If the organisation’s responsibilities to bond-holders were split proportionately, there is no reason bond-holders would necessarily be concerned, outside of the risk of poor implementation. It is also a fallacy that private-sector involvement would compromise development — on the contrary, it almost certainly would boost efficiency and reduce costs.
It seems all of these issues were debated and the department backed down, partly because of the complexity of developing a comprehensive rail policy, at least at this point. The argument was framed as a choice between institutional reform and clarity on the one hand and a system that encouraged development and investment on the other. Framed this way, it is easier to understand. The biggest risk involved in splitting the rail network from the network customer is trying to decide who is responsible for what, and what the cost will be. The controller of the network suddenly becomes extremely powerful and the network customer becomes a price-taker. Establishing an effective, fair and judicious network regulator becomes a critical part of the process. Safety issues are difficult to assign and maintenance is also tricky.
The main argument in favour of keeping the current system is that it is simpler. What the decision means is that years of haggling about the policy framework have been avoided and Transnet can get on with the job. If it were a truly effective operator, this argument would easily win the day. Unfortunately, it is not. For all the bold talk about improving services, there is scant evidence for this outside of the benchmarks Transnet sets itself. For example, coal received by the Richards Bay Coal Terminal has been static for the past four years, although the state of the coal market plays a role too, of course.
If Transnet is to remain a state-controlled monopoly operator, then the public deserves a much clearer and more transparent measure of its efficiency, including regular, independent international comparisons. At some point, the government will discover that efficiency is much more effectively achieved through competition than by regulation. And, at that point, the regulatory bridge will have to be crossed.