Privatising railways is uphill most of the way

THE locomotive building and leasing sectors may be booming, but it is a long leap from there to actually running a railway in another country.

THE locomotive building and leasing sectors may be booming, but it is a long leap from there to actually running a railway in another country.

Just ask Henry Posner III, a man the US press once dubbed "the Indiana Jones of African Railroads" for his willingness to operate in places other American railroad companies would not go.

Posner's Railroad Development Corporation, a small Pittsburgh-based company, has an enviable record of taking over moribund railways in far-flung parts of the world and, along with suitable investors, operating them back to health.

In the late 1990s, the company won the concessions to operate Malawi's rail network and Mozambique's Nacala corridor, the country's northern line which runs from the deep-water port of Nacala to link up with the Malawi network 872km to the west.

At the time, Posner noted that railroad privatisation had not been attempted before in Africa. "Normally the first people to do it end up being the lightning rod, carrying the costs and making the mistakes," he said.

It took his company nearly seven years to get funding for the Mozambican part of the concession. Financing a railway on which he did not own any of the equipment was "very difficult", Posner said.

Tim Schweikert, president and chief executive of General Electric South Africa, agreed that raising finance may be the hardest trick of all.

Getting the funding usually means first going to the offtakers, those who will be buying the service.

"But the off takers want the railroads up and running before they make any commitment. It's a chicken and egg thing," he says.

Railroad Development Corporation eventually raised a $29.6-million (about R328-million) loan from the Overseas Private Investment Corporation, which allowed it to get the Nacala corridor on track.

It worked out well. In 2008, after getting both the Malawian network - now called Central East African Railways - and the Nacala corridor back on their feet, the company sold its stake to local investors.

The next big challenge is the poor state of much of Africa's rail network, said Schweikert.

"There is at least 20 years of work that needs to be done on the continent to get to the right level of rail infrastructure," he said.

Then there's the government: "It's not easy negotiating with governments and railways particularly because they are monopolistic by nature and they hate sharing," said Roy Puffett, MD of Port Elizabeth-based Sheltam, which hires out diesel locomotives.

"It's almost a historic thing - they've been the provider and they don't like admitting that they've failed and letting private operators into their domain."

That may have been a factor in the protracted negotiations between mining group Exxaro and rail and government officials in the Republic of Congo over rail and port access agreements for the miner's proposed Mayoko iron ore project. Exxaro planned to ship ore from Mayoko to Pointe Noire port on the state-owned Congo-Ocean Railway and had bought locomotives from Grindrod and acquired a large fleet of ore cars.

By early 2014, however, the project was on hold. Business Day reported in March that Exxaro had taken a R5-billion impairment on the project and its rolling stock was for sale.

Exxaro declined to comment, saying negotiations were at a sensitive stage. One observer suggested that Exxaro's discussions with the Congolese government had been hampered by political naivety and the lack of a French-speaker on the negotiating team.

Posner is not as bullish as some would-be operators. "I regret to conclude that most countries are not serious about privatisation as we would recognise it," he said.