High-speed trains in South Africa: a dream too far…

Posted in Transport Southern Africa Blog post

High-speed trains signal an exciting new era in rail. These modern trains have captured the attention of operators, passengers, governments and environmentalists worldwide. A well-designed network can compete with air travel over short-to-medium distances and in doing so provide an increased level of connectivity. Increased network capacity can also free up existing lines for increased freight usage or allow more options for local and commuter services. The theory is that this will increase inter-city mobility, reduce regional divides and help drive economic growth.

In 2007, the Transport MEC in Gauteng, Bheki Cele mooted the idea of a high-speed train between Johannesburg and Durban. In 2010, this high-speed train project was listed as one of the 18 national strategic infrastructure projects. It was expected to cost R530 billion and cut travel time between Johannesburg and Durban to only three hours at a speed of 350km/h.

At the time, this project was expected to materialise by 2017 with a team involving Transnet, PRASA, KwaZulu-Natal, Gauteng and the Free State with funding from both private and public sectors. Job-creation was to be just one of the benefits of building this new railway between Johannesburg and Durban.

Some countries, like France and Japan, have had true high-speed networks in place for many years, and China has been developing its high-speed network at an impressive pace, although not without accident. A number of other countries are actively procuring high-speed rail mega-projects, most prominently the HS2 project in the UK and the cross-border Kuala Lumpur-Singapore HSR project (both of which our firm has been advising on). Canada and USA also have significant high-speed rail projects in the pipeline.

Perhaps unsurprisingly, as 2017 ends, there has been no real movement with the Johannesburg-Durban high-speed rail project. Phillippe Roch of Alstom Transport South Africa warned in 2012 that no high-speed trains are profitable anywhere. In the case of greenfield transactions, this is probably true. Mega-projects like those listed above typically run to tens of billions of dollars, and even at low government borrowing rates it is difficult to imagine that a new transport mode will be able to attract enough passengers with a sufficient fare box to be able to meet the borrowing costs of the infrastructure spend, let alone be profitable. From our experience on these projects they tend to be structured differently, with government splitting the procurement of infrastructure and operations, so as to separate the traffic risk from the vast infrastructure cost.

Even when having done so, operational margins can be brittle and external competition can have a material impact: budget airlines can scale their services up and down or change destinations to take advantage of competition between airport operators keen to win their service. This flexibility does not exist for the high-speed rail operator, which ultimately means that government needs to expect to share some of the fall-back risk if the operations business fails.

With that in mind, it may not be any surprise that the South African high-speed rail dream will have to wait longer to become a reality, as it would require a financially-squeezed government to fund a substantial capital investment for the benefit of future economic growth, which may be difficult to quantify or justify. This is ultimately a political decision which the other countries above have decided to take.

There is also a tendency, particularly in Africa, for governments to be tempted by external developers to “upgrade” their colonial network to standard gauge lines. Rail experts do their best to advise governments that – as far as freight is concerned – there is no good argument to change gauge, and even in terms of passenger transport a broader gauge only becomes a factor at the highest speeds. On this basis it would seem more appropriate for the South African government to devote its investment to an overhaul of the existing network and rolling stock to maximise freight usage as part of a comprehensive transport policy. In doing so, as experts such as Pierre Pozzo di Borgo from the IFC has noted, government also needs to have regard to existing logistics interests such as trucking businesses, to ensure that the policy is implemented successfully.

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