Say goodbye to Transnet as you know it

Private South African freight-rail operator Traxtion will invest R3.4 billion in locomotives and wagons, almost doubling its fleet as the country’s more than century-old state rail monopoly comes to an end.

The acquisition of 46 locomotives will allow the Johannesburg-based company, which operates in nine other African countries and is the continent’s biggest private rail firm, to run freight trains on Africa’s largest network of rail lines. State logistics company Transnet has struggled to meet demand, holding back economic growth. 

Since 2022, when the government approved a new national rail policy to reorganise the country’s ailing freight industry, South Africa has been moving toward allowing privately owned trains to operate on the state network.

That came after coal exports fell to a 30-year low and iron ore shipments declined to their lowest in a decade as Transnet’s service deteriorated.

Mining companies including Glencore and Kumba Iron Ore have struggled to get their commodities to port and industries including automobiles and agriculture have also been affected. 

“We are a 38-year-old South African company that has never operated one kilometer of South African main rail and that’s about to change,” James Holley, the company’s chief executive officer, said in an interview.

“We are making this investment because of our confidence and our belief in government policies and because of the demand from our big blue chip mining companies.”

For the deal, Traxtion raised equity from its largest shareholder Harith General Partners, and debt from Standard Bank and Absa, Holley said. The majority of the funding came from Harith, he said. 

While the government has set a target of moving 250 million tons of freight by rail by 2030, Transnet is currently only railing about 160 million tons.

Traxtion’s investment will only meet 5%, or about 4.5 million tons, of that 90 million-ton gap, opening the way for further expansion by the company and rivals such as Grindrod.

While Traxtion’s current shareholders may support two more rounds of fundraising, the company might need to look at alternatives, he said. 

“There does come a point where every business becomes constrained in its ability to raise equity, and at that stage we will engage with our shareholder body and decide what is the long term capital strategy for the business,” Holley said in Johannesburg.

“Certainly an initial public offering at that stage would be an option,” potentially in four to five years time, he added.

The company is considering a further R2.4 billion investment, he said at a later press briefing, without giving details. 

Growth of private participation in the rail industry will also depend on Transnet and the government committing to partnerships with private companies to improve and modernize the most important routes on the country’s 23,000-kilometer rail network, he said.

Those include lines to move coal to the eastern port of Richards Bay, iron ore to Saldanha on the west coast and manganese to ports in the Eastern Cape province. The freight rail line between the port of Durban and the economic hub of Gauteng, which includes Johannesburg, is also key. 

Guinea, Zambia

Under the agreement, Traxtion will spend R1.8 billion buying diesel-electric locomotives from New Zealand’s Kiwirail and another R1.6 billion on wagons.

The locomotives will arrive between May next year and August 2027 with the first ones being conditioned to start service within 12 months.

South Africa uses a narrow rail gage similar to that used in parts of Brazil, Australia and New Zealand.

The company, which currently operates about 55 locomotives in countries including Guinea and Zambia, will add at least 662 jobs, more than doubling its staff numbers. 

While the firm currently earns about three-quarters of its revenue outside South Africa, the implementation of the rail reform and injection of the planned fleet will, “flip that on its head,” said Holley. “This will be the largest private freight rail investment in the history of the country,” he said.