Molefe’s open letter explains Transnet stand on privatisation

“We have received a flurry of queries following a front page story in Business Day, arguing that Transnet’s rail operations should be split vertically. The article was based on a Department of Transport submission to the National Planning Commission, Business Day claims. The article was followed by an editorial in the same publication advocating vertical separation of rail as the panacea for the country’s transport problems. However, the editorial does not attempt to balance this view with challenges that may face such a step. South Africa’s singlecustodian state ownership of ports, rail and pipelines is unprecedented globally. Single custodianship facilitates integrated planning and operations, optimal financing for infrastructure, and avoids network fragmentation which can lead to suboptimal system-level performance. In this respect, South Africa has an institutional structure for its port, rail and pipeline network that is internationally envied. As the custodian of the port, rail and pipeline network, Transnet strives for this goal. A world class logistics network suggests a network that provides users with world class logistics services at prices that are globally competitive. In technical terms, Transnet is obliged to maximise the utility of the network for this purpose, specifically to maximise the network’s capacity and connectivity. Although we do not think it is appropriate to respond to these policy discussions via the media, we think it is fair to clarify our position. Vertical separation of rail operations and infrastructure is not a new concept. Structural separation was originally conceived as a solution to the natural monopoly of incumbent state-owned railways in Western Europe, with the associated aim that liberalisation would reduce the financial burden of governmentowned railroads on the public sector. While superficially attractive, governmentimposed rail open access has failed to accomplish all of the goals set for it anywhere in the world. International experience has demonstrated that separating operations from network management and infrastructure generally has not produced desired results. Economic theory recognises the importance of the public sector sometimes playing a monopoly role in the economy, especially in instances where network infrastructure requires a total overhaul and a massive extension of the capability and reach of networks. South Africa is fortunate in that the ownership of the port, rail and pipeline networks remains firmly in the control of government. This means that any reform undertaken can benefit from prior experiences, avoid costly and longlasting mistakes and assist in leapfrogging stages of development so that a world class logistics network can be achieved in South Africa within the shortest possible timeframe.”