Spoornet is costing us" is becoming the all too familiar refrain of SA exporters. Just when most export-orientated companies should be enjoying new opportunities provided by the weak rand and favourable trade pacts, state-owned Spoornet is tripping up their efforts in a big way.
From orange exporters to the granite industry, steel makers to coal miners, corporate SA is struggling with Spoornet's poor service, lax management and soaring tariffs.
It is difficult to put a price tag on the rail utility's inefficiencies but the granite industry alone has put the figure at R500m, almost a quarter of its sales. Unless a solution is found, SA's customers will look elsewhere for their wares, warn business executives.
Government has frequently acknowledged the problem. But it is a problem of its own making: the restructuring of Spoornet has been an exercise in procrastination and indecision.
The department of trade & industry has set up a commission to investigate the bottlenecks, but there appears to be little urgency at government level to address the structural and management problems at Spoornet itself.
While this week's firing of former Spoornet CEO Zandile Jakavula has stolen the headlines, his departure serves to highlight the management vacuum at the utility (see page 26). By its own admission, Spoornet is losing clients to road haulage, which, in turn, is causing congestion and the overloading of heavy-duty lorries, destroying road surfaces.
Despite this, demand for its rail service far exceeds capacity. Spoornet's general freight business (GFB) has capacity for 82 Mt this year against a market demand of 97 Mt.
The GFB is said to be running at a loss of about R50m/month. Despite this Spoornet has reported a profit of more than R700m for the year to March 2002, as the GFP losses were more than offset by the Orex and Coallink divisions, the two dedicated lines that respectively service the Sishen iron ore mine and SA's large coal operators.
A brief survey of GFP-reliant industries illustrates how its lack of capacity affects exporters:
- Spoornet's failure to meet growing demand is robbing granite exporter Kelgran of 20%-25% of sales, says the company's shipping and logistics manager, Roy Taylor. He says service has deteriorated in the past two years. It used to take six days to transport cargo to the port; now it can take up to three weeks. "If this continues, our clients will go to China for their granite," he says.
- Steel makers Highveld and Iscor also lament Spoornet's poor service. Speaking at Highveld's results presentation this week, chairman Trevor Jones said: "Their lack of ability to provide a level of service to which they have committed themselves within their new commercial focus will impact seriously on our ability to move vital exports to the ports."
- Sasol recently took the unusual step of leasing 40 wagons for ammonia imports because Spoornet could not provide sufficient tanker wagons.
- Logistics companies responsible for moving UN emergency food supplies to the region are using wagons supplied by the railways of Zimbabwe and Zambia to transport maize.
Spoornet has, not surprisingly, been quiet on these issues. But it should be added that it inherited some of the mess from its predecessor, the old SA Railway Services, which let infrastructure degenerate and rolling stock capacity decline and failed to replace locomotives, now on average 20-25 years old.
But legacy is one thing: after more than eight years of responsibility, the new government has yet to map out a workable plan for Spoornet. This is and has been the responsibility of the department of public enterprises (DPE). A number of customers accuse the DPE of blundering in restructuring the utility.
They are calling for increased private-sector involvement in the running of the company, a move the DPE ruled out two years ago when the current structure of Spoornet was introduced.
Sacob policy executive Carol O'Brien supports private-sector involvement but says it should be an overseas investor who could bring in the capital needed to fund Spoornet's capex requirements.
O'Brien also cautions that even if the private sector is involved it will confront the same socioeconomic challenges that plague Spoornet. "People steal copper cabling, rail sleepers and tarpaulins that they use to make up homes in squatter camps. There are cases where thieves put grease on rail tracks to stop trains and rob them of their cargo."
The current malaise at Spoornet can be traced back to three serious policy errors, say analysts.
The DPE's first mistake was that it took far too long to decide on Spoornet's restructuring, allowing further deterioration. Many skilled staff, such as managers, engineers, train drivers and other technical staff, left the ailing parastatal amid job uncertainty and an aggressive affirmative-action policy.
Its second mistake was to accept a restructuring plan, under union pressure, that distinctly excluded privatisation and put on hold large-scale job retrenchments.
Thirdly, the future of Orex, the profitable 860 km iron ore line that links Sishen to the Saldanha port, has been left hanging in the balance.
The DPE once supported the idea of leasing Orex and Coallink but retracted the policy because of political and union pressure over potential job losses.
Spoornet, despite being 100%-owned by the state, does not receive a cent from the national budget. It must pay for costly infrastructure (Spoornet has budgeted R1bn/year over the next 15 years) and make profits while competing against subsidised road hauliers. It's a case of skewed economics, showing distortions in the state's transport strategy.
Compounding all this is Spoornet's responsibility for commuter rail system Shosholoza Meyl, also without a state subsidy. Transnet, which controls Spoornet, subsidises this long-haul service to the extent of R200m/year. While government favours the idea of merging the three commuter rail entities, the other two being Metro Rail and the SA Rail Commuter Corp, as a social service operation, a plan is yet to be seen.
Exporters are fed up and are suggesting that government concessions key export lines to the private sector.
Spoornet has a chronic shortage of skilled staff for scheduling trains, an issue that further complicates GFB's operations since it deals with unpredictable freight volumes.
Despite the bottlenecks, the DPE still appears reluctant to bring in the private sector. Director-general Sivi Gounden says: "It would be inappropriate to argue that privatisation would provide a panacea for the perceived problems with rail. Any private investor would have to significantly capitalise the entity and pass the costs on to the end user." What is needed, he says, is clear prioritisation of urgent infrastructure investment to operate in tandem with Spoornet's efficiency programme.
Spoornet needs the revenue streams from Orex and Coallink, Gounden says. "Separation of Orex at this juncture would not necessarily resolve the need for urgent investment in GFB. But it would likely worsen the situation in the medium term."
Some Spoornet customers have expressed a willingness to invest in the GFB through public-private partnerships, for instance leasing wagons and managing certain lines. Kelgran says it will do whatever it takes to get its exports to the harbours, including buying or leasing wagons.
Allowing private players to run several segments of the GFB line, perhaps through ringfencing as in the case of Orex and Coallink, would make Spoornet's life easier. But GFB is used by a wide range of industries and giving preferential access to one sector could cause a logistical nightmare.
Gounden says the DPE's door is always open but there have been no formal approaches. He says the DPE is willing to meet exporters about their concerns "in any further restructuring in the sector".
Many economists, and even senior sources within Transnet, favour a wider participation by the private sector, namely getting a strategic equity partner to buy a minority shareholding in Spoornet. It is believed that consideration was given to this idea, but abandoned because advisers deemed it unattractive to investors.
If the DPE is to back exporters' calls for privatisation, another union confrontation can be expected. It's doubtful government has the will to fight its union allies with an anti privatisation strike looming later this year.
The longer it delays some of the hard decisions on Spoornet, the worse the situation will become for the country's exporters, which are well placed to provide much-needed sustainable jobs.
