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New Economic Regulation of Transport Act Marks Rail Reform and Privatization Era

On 11 June 2024, President Ramaphosa signed into law the Economic Regulation of Transport Act 6 of 2024, heralding a new era in the economic regulation of transport and rail reform. The commencement date of the Act is yet to be determined.

The Act introduces significant changes to the transport sector by establishing the Transport Economic Regulator (Regulator), a pivotal step in rail reform following the draft Network Statement by Transnet SOC Limited (Transnet) on 19 March 2024. This was previously discussed on 2 May 2024.

Consolidated Regulation for Transport

The Regulator will serve as a unified economic regulator for road, rail, shipping, ports, and aviation. Consequently, the Act amends several existing laws: the National Ports Act 12 of 2005, the Airports Company Act 44 of 1993, the Air Traffic and Navigation Services Company Act 45 of 1993, the National Land Transport Act 5 of 2009, and the South African National Roads Agency Limited and National Roads Act 7 of 1998.

If effectively implemented, this streamlining of regulators is expected to enhance the efficiency and cost-effectiveness of the transport system. The Act’s broad scope and potential challenges in its implementation have been noted previously.

The Minister of Transport may extend the Act’s reach to include other public and private entities under certain conditions, particularly in sectors where private entities hold monopolistic positions.

Key Provisions: Price Regulation and Infrastructure Access

Price Regulation:

The Regulator will have the authority to control prices across the transport sector, similar to the National Energy Regulator of South Africa (NERSA). It will approve price tariffs for regulated entities, such as Transnet, to prevent monopolistic pricing and inefficiencies while promoting fair competition. The Regulator can tailor price controls for each sector, considering factors such as operating efficiency, investment needs, opportunity cost of capital, cost of debt, and the economic impact on various stakeholders.

The process involves regulated entities submitting tariff proposals for approval, which may be accepted, modified, or rejected. The Regulator must consult with industry players and the public before approving proposed tariffs. Existing sector price regulations will remain in force until new controls are published.

While there is no provision for an internal review or a general period for price controls, the Regulator can conduct extraordinary reviews and adjust price controls following investigations or complaints. The Transport Economic Council can review any adverse decisions made by the Regulator.

Access to Rail Infrastructure:

Chapter 2 of the Act provides for third-party access to Transnet’s rail infrastructure through standard terms or bilateral agreements. This development paves the way for privatization in the rail sector, allowing private entities to use Transnet’s rail network, subject to an access agreement approved by the Regulator and payment of an access fee.

The draft Network Statement proposed a minimum access fee of 19.79 cents per gross ton per kilometer, a proposal that has been met with criticism. The Regulator has the authority to approve or revise this fee based on industry feedback, which may delay implementation.

Ambitious Goals for Rail Reform

The Act aims to eliminate market abuse by monopolies, increase competition, and enhance transparency in the transport sector. It aligns with the National Rail Policy (adopted by Cabinet in 2022) and the Freight Logistics Roadmap, promoting liberalization and private investment in rail infrastructure. Successful implementation could reduce Transnet’s debt, increase freight volumes, lower public transport costs, and boost the economy.

The Economic Regulation of Transport Act represents a bold step towards comprehensive rail reform in South Africa.

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