Category: Economic Regulation of Transport

267 | In transport, private sector participation is not privatisation

Privatisation, the “P” word in South African politics and media strains our ideological debates against all practicality—especially in the transport sector. 

One sticking thought about intuition is that: “if intuition conflicts with analysis, analysis seldom wins”. In other words, even with the best explanation, wherever the private sector begins to participate an automatic assumption is that this is “privatisation”, or at least a foot in the door for the transfer of assets. 

However, I have come to terms with the fact that private sector participation (PSP) is not only possible for State Owned Enterprises, but it is also happening all the time.  

State Owned Enterprises are inherently designed for private sector participation 

The Passenger Rail Agency of South Africa (PRASA) has the legislative capacity to explore and indulge in private sector participatory frameworks. On paper, it takes the form of joint ventures and other forms of agreements with the private sector—to some extent beyond the “tenderprenurial” framework.  

To the same extent, but in a different form, the Road Traffic Management Corporation (RTMC) also has a similar legislative vein through which different types of law enforcement can flow. Private and hybrid (a mix between public and private) road traffic enforcement platforms are plausible at a policy level, but this has not manifested entirely. 

It does make me wonder at least why the agency does not serve the broader transport market rather than only focusing on roads. I mean, by leaning on the existing capacity to enforce the traffic laws, they could apply the same framework to other modes like rail transport (by latching onto the Railway Safety Regulator) and aviation (by latching on to the South African Civil Aviation Authority). 

When we observe Transnet Ltd., they have embraced the idea of PSP in many respects. But the opportunity costs to their cross-subsidised balance sheets might be high in the process if they do not structure the right deals. The long-term strategy to facilitate the shift from road to rail is dependent on private sector participation, in the form of open access to rail infrastructure and the marketisation of ports. This is in principle a critical component of the R100bn in port investment over the next two decades. 

Private Sector Participation is common practice in South Africa

On the other hand, the South African Road Agency Limited (SANRAL) has demonstrated time and time again the value of shifting some of the management of road infrastructure to the private sector. 

Although the Toll Concessions account for a small share of the road network, and SANRAL’s network in general, they do enable a substantial amount of traffic to move without so much as a roadway maintenance issue (i.e. potholes etc.). The N4 Bakwena, N3TC, and TRAC (to Mozambique) all show how private sector participation does not mean that ownership is transferred, just the management, maintenance and operations of the infrastructure. 

The word is thrown around scandalously, and loosely as if every form of private sector participation means the transfer of ownership from the state to the private sector. 

There are so many other forms of private sector participation in the transport sector. For practitioners in project meetings and stakeholder consultations, the different forms tend to mean the same thing to the audience. 

Look at aviation: where middle to high income households tour and business travel can occur, the state still participates, but private operators are permitted to use state infrastructure (airports) at a fee. The Airports Company South Africa serves as a custodian for the international airports, and SAA and Mango compete with other players. This is not by accident. SAA’s near monopoly of the market eroded rapidly, and the state recently spent almost 80% of the annual allocation to the Department of Transport the save the airline. 

Whereas, for markets that serve the low to middle income households we have also allowed the market to operate freely in the hands of the bus companies, minibus taxi operators, metered taxis ride-hailing companies. Not only do they use public assets like stations, transport interchanges and taxi ranks; they also use state owned road infrastructure to serve the commuting needs of the public. These are not State-Owned Enterprises, but instead multiple private businesses using state infrastructure—they do not own it. 

Yet for some reason, private participation is habitually confused with the transfer of state assets to the private sector. This must stop. 

We cannot continue to limit the public’s logic to “nationalisation” or “privatisation” extremes—there are so many forms of private sector participation that transferring ownership is usually not on the cards in general. 

Embracing the complex grey areas of private sector participation may unlock hidden opportunities and risks in unexpected ways. There is a structural issue holding this economy back, and it is as simple as knowing that there are many options between zero and one. 

Thank you for reading.