By Larry Claasen
South Africa is about to radically transform its transport sector with the establishment of a Transport Economic Regulator (TER), which will regulate the pricing of accessing roads, airports, ports and rail in the country.
The change will see the new regulator operate in a similar manner to NERSA, the energy regulator, which sets electricity tarries and issues licences to generate and transmit electricity.
The goal of the TER is to ensure there was “a level competitive playing field,” specifically when it came to ports and rail, according to the Department of Transportation’s Roadmap for the Freight Logistics System in South Africa, which was released in December 2023.
The creation of TER will effectively mean that an independent regulator will soon determine the cost of using the country’s rail and port infrastructure, which is largely controlled by Transnet.
This means Transnet will no longer have a free hand when it comes to setting rates but will now have to go through a regulator to determine what they should be.
Aside from price controls, TER, which will take over from the Ports Regulator, will also have more of a say over its predecessor when it comes to “terminal operations and concessioning and service licencing agreements,” according to the roadmap.
The roadmap says the government’s goal of bringing in more competition into the South African transport sector will require a level competitive playing field in ports and rail, but this would require the monitoring regulations by an independent regulator like TER.
Difficult balancing job
The mandate of TER will see it balance out the need for state transport entities like Transnet to cover its cost but also ensure that the services it offers are priced at a point that is affordable to businesses.
For example, the roadmap notes that rail is a high fixed-cost network and will only fully cover its costs if the network moves a high volume of goods. However, many potential rail customers can instead use the road network and will only switch to rail if prices are competitive.
It could then be a case that if every customer is charged the same price, these price-sensitive customers will switch to the road.
But this means that without these price-sensitive customers, the network may not move high enough volumes to cover its overall costs.
The roadmap sees a scenario where not all users are paying a price that covers the fixed costs (in order to maintain volumes on the network,) and price-insensitive customers are, in effect, subsidising the more price-sensitive ones.
This treatment could be seen as “unfair” on the part of the regulator, but price-insensitive customers will gain in the long-term, as it will improve the financial sustainability of the network.
The establishment of TER is set to happen quickly with the Economic Regulation of Transport (ERT) Bill, which creates the new regulator expected to be promulgated before March 2024.
The changes this legislation will bring will be sweeping as it will see TER take over the functions of several state entities.
“In road and airports, economic regulation functions which are currently largely entrusted to the Minister of Transport, as per the South African National Roads Agency Limited Act, the National Roads Act and the Airports Company Act, will now be conducted at arms-length by an independent regulator, with the aviation Regulating Committee rolled into the TER,” said the roadmap.
The TER will eventually regulate rail, but this will only be after the Interim Rail Economic Regulatory Capacity (IRERC), which will set up rail regulations, has been set up and completed its work.
The introduction of the TER is part of major changes being pushed through by the government on the transport sector. Transnet for instance, is setting up a new entity which will house its infrastructure under an interim Infrastructure Manager.
The goal is to have the Infrastructure Manager become a permanent fixture that operates independently inside of Transnet.
“The Infrastructure Manager will be responsible for the operation, maintenance, renewal and development of the [rail] network through a number of strategies, including crowding in private investment through concessions, leases, joint ventures and other mechanisms,” says the roadmap.
Aside from the creation of the Infrastructure Manager, there are also plans to establish a rolling stock leasing company through a joint venture with Transnet Engineering.