The African Development Bank (AfDB) has revealed that it was in talks with South Africa’s State-owned freight and logistics firm, Transnet, to revive plans to establish a rolling-stock company that would supply the southern Africa region and the rest of the continent from as early as next year.

This comes as the AfDB today released the first tranche in a series of four payments of the $1 billion (R18.85bn) loan, which was granted to Transnet earlier this year to support the company's turnaround plan, which includes allowing private sector participation in its operations.

Solomon Quaynor, vice president for private sector, infrastructure and industrialization at AfDB, yesterday said they were looking at the structural reforms implemented by the South African government “very positively”.

Quaynor said part of their dialogue in supporting Transnet has also been about how Transnet can harness the private sector to deliver transport and logistics services at its best for South Africa and the Southern African region.

“Transnet doesn't have to do everything on its balance sheet. The private sector brings innovation, they have the ability to bring capital and sometimes more efficiently,” Quaynor said.

“One of the things we are working on with Transnet, but also supporting the rest of Africa, is to create a rolling stock leasing or rental company. So in the future, Transnet doesn't have to own its own rolling stock, it can actually lease.

“And then in addition, the government and Transnet plan to really have open access on the railway. So some of the private sector players who would emerge don’t have to really buy their own rolling stock. They should be able to rent from this future company, which we hope to seed with some Transnet rolling stock. But the plan is to grow it beyond the initial fleet that Transnet may contribute.”

The concept of a rolling stock leasing company is not a novel idea as the AfDB in 2014 granted Transnet a $250 million loan for a capital expenditure program, rolled out over a 7-year period, to finance the acquisition of rolling stock in a bid to increase freight capacity from 80 million tons to 176 million tons per annum, thereby migrating freight from road to rail.

In response to Business Report yesterday, Transnet said South Africa’s rail reform programme aimed to enhance the competitiveness of the South African freight system by working to ensure competitive industry supply chains and crowding in private sector investment.

Transnet said that central to this reform was the “separation” of rail infrastructure management from operations, which aims to level the playing field for both public and private sector operators.

“Work is well underway in this regard within Transnet, with the process to open access to the private sector gaining momentum,” it said.

“The rolling stock leasing company to be established is part of the rail reform agenda, and aims to drive the acquisition, management and leasing of rail rolling stock to domestic and regional markets. Transnet intends to go to market for a private partner for the establishment of a leasing company early in 2025.”

Bongani Mankewu, director of the Infrastructure Finance Advisory Institute, expressed cautious optimism about the program to establish a rolling stock leasing company.

Mankewu highlighted the important role of governance and infrastructure in this process, acknowledging AfDB’s role as a potential catalyst for facilitating private sector investment, which Transnet has struggled with on its own.

“I like the fact that their focus is on rolling stock. There is nothing wrong with the rolling stock that runs for State infrastructure and I have no real problem where the rolling stock is being released or is privatized,” Makewu said.

“But the circumstantial conditions of each country’s sovereignty must be considered. For example, we purchased or procured 1 064 (locomotives) for Transnet and in essence, the whole investment was just a mess. It was managed badly. So what the AfDB is trying to do at Transnet is welcomed.

“However, the governance at Transnet is something to be considered. The case that we are having now and what is happening at the Port of Durban is something of concern when we deal with this private sector participation. That case demonstrates to us that there are gaps as to what Transnet understands about the private sector participation. Besides that, the rolling stock privatization is a cash cow for a whole lot of people. If that rolling stock is leased or privatized recklessly, it would have a detrimental effect on the economy.”

BUSINESS REPORT