Bongani Mankewu from the Infrastructure Research Development Centre. Picture: Karen Sandison/African News Agency(ANA)
Bongani Mankewu from the Infrastructure Research Development Centre. Picture: Karen Sandison/African News Agency(ANA)

Concessions for the revival of railways in SA requires astuteness

By Opinion Time of article published Oct 15, 2020

Share this article:

By Bongani Mankewu

JOHANNESBURG - African countries hoped that concessions could lead to improved rail services and relieve the governments of costly subsidies to state-owned rail companies.

The astuteness of the negotiators is indispensable as the relatively low amount of equity put into the concessions is in most cases exceeded by the value of the rolling-stock transferred to the concessionaire.

As a result, though much of this stock can be in poor condition, such transfers must not shift the financial risks associated with railway infrastructure investment from the private to the public sector.

If the risk is not negotiated adequately to allow the investment to spillover to the local industry then the concessioning practice reflects a weak financial basis with business fundamentals though justified and despite the projections made during the bidding process - insufficient to support major investment on a commercial basis and are all too prone to significant liquidity problems.

The Academia and the Industry must be encouraged to police the practice common to government and their interest groupings when they propose infrastructure megaprojects. The machiavellian formula turned to be the norm which follows this pattern, to get an infrastructure project built: under-estimate costs, over-estimate revenues, under-value environmental and social impacts, over-value wider economic development effects, or spillover effects that will lead to winning project approval.

Gautrain Rapid Rail Link System project (Gautrain) is not prone to this practice, though the engineering success must be recognised, as already accented by some industry experts, the cost overruns on our major infrastructure projects are due to contractual ineptitudes.

Reference to Gautrain in Gauteng must never be taken from the uncritical adulation of the engineering success of that project. That being said, the sheer scale of the costs involved, set against the larger and more pressing national transport shortages, invariably prompts questions about the rationale behind the construction of the Gautrain.

Besides engineering success, the Gautrain as a mega-project needs to be understood as signalling South Africa’s pre-eminence as the modern African state. Therefore, the Gautrain project symbolically buttresses the country’s quest to punch above its weight in international affairs. With the trend of mimicking the international norms without aligning them with our conditions, we risk the already chronic economic situation in South Africa.

It is, therefore, judicious for the Academia and the Industry to assist the government on concession type of schemes for political risks, such as the discontinuation of concessions, tax increases, inappropriate tariff implementation and increases and framing of new government policies. Concessioning is not a panacea and it requires originality from the host country perspective, albeit institutions like South African state-owned enterprises call for alternative options for their sustainability and that of the country’s economy.

Railways, similarly to other network infrastructure, are critical for the economic advancement of the South African economy and the building of value chains for the attainment of the African Continental Free Trade Area objectives for Africa.

Careful thought process must be applied without recklessly replicating the international norms with no consideration of the South African industries as already happened in the case of both Prasa and Transnet recent rolling stock.

Bongani Mankewu is an associate of the Infrastructure Development & Engagement Unit at Nelson Mandela University.

BUSINESS REPORT

Share this article: