On 11 June 2024, President Ramaphosa signed the Economic Regulation of Transport Act 6 of 2024 into law, marking a significant development in the economic regulation of transport and rail reform in South Africa.
The act introduces substantial changes to the transport sector by establishing the Transport Economic Regulator, a pivotal step following Transnet gazetting of the draft Network Statement on 19 March 2024, which we discussed previously on 2 May 2024.
A central feature of the act is the empowerment of the regulator to oversee price controls across transport sectors including road, rail, shipping, ports, and aviation. This role mirrors the National Energy Regulator of South Africa (Nersa), approving tariffs proposed by regulated entities like Transnet to prevent monopolistic pricing and inefficiencies, while promoting fair competition.
The regulator is envisaged to act similarly to the National Energy Regulator of South Africa (Nersa), and will approve price tariffs of regulated entities, such as Transnet, for use of the infrastructure in those sectors. This aims to prevent monopolistic pricing by regulated entities and inefficiencies, while also levelling the playing field. Importantly, the regulator has the discretion to tailor the price controls in respect of each sector. The process entails the submission of tariff proposals by regulated entities for approval.
Notably, there is no mention of capacity as a rate determinant as historically applied by Nersa, which has resulted in hiked up tariffs. Importantly, the regulator is also mandated to consult with industry players and the public regarding the proposed price tariffs before approval.
Tariffs will be tailored by the regulator considering factors such as operational efficiency, investment needs, and economic impacts. Public and industry consultations will precede tariff approvals.
Existing and new price regulations set by the regulator will remain effective until revised, with provisions for extraordinary reviews and complaint-driven investigations.
The act also facilitates access to Transnet’s rail infrastructure by third parties through standardised terms or bilateral agreements. This provision opens doors for private sector involvement in rail operations, subject to approval by the regulator and payment of access fees. However, concerns over the proposed minimum access fee of 19,79 cents/gross ton per kilometre, based on gross rather than net weight, have sparked industry criticism.
The act also establishes the Transport Economic Council as the adjudicative body for disputes related to price controls, providing a forum for affected parties to seek redress.
Overall, the act represents a significant stride towards liberalising South Africa’s rail sector, aligning with the National Rail Policy and the Freight Logistics Roadmap.
Ultimately, the principles in the act, if implemented effectively, coupled with the increased regulatory oversight of the regulator, and with due consideration to industry stakeholders, may assist in eliminating market abuse by monopolies and corruption, as well as increasing competition and transparency.
The act is ambitious in its scope and represents a significant step towards achieving rail reform in South Africa, as it is one of three instruments outlining implementation of the reform, in addition to the National Rail Policy and the Freight Logistics Roadmap.
The underlying principle of the rail reform is liberalisation and the opening of the door to private investment, which if achieved, can reduce Transnet’s historic debt, increase freight volumes in the rail network, reduce transport costs for the public and ultimately expand and improve the economy.
