ALTERNATIVE MODELS FOR FREIGHT RAIL CONCESSIONS:
A Comparative Analysis

Africa Investment Forum - TransAfrica21   |  London  |  May 2001   (continued)

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...Producing a Wide Range of Strategies

As a result, a wide range of strategies have evolved.  Deregulation is the prime strategy in North America, de-monopolization is the prime strategy in Europe. There are additional strategies in other parts of the world that are driving restructuring. In Southern Africa, many initiatives are driven by the desire to have more international flows of traffic among railways, resulting in integrated international concessions, like Sitarail in West Africa and the Nacala Corridor, which are market-driven processes.

...But, Results to Date Have Consistently Been Driven by Market Forces

Now compare how the Exclusive Franchise model of North and South America has held up against the Open Access model in terms of financial performance.  To the extent that this conference covers how we can finance our way out of the problems that exist in Africa, it is worth considering the reaction of the financial markets to what is occurring in the Open Access environment as opposed to the Exclusive Franchise environment.

In the Exclusive Franchise area, there has been a consistent investment in equipment and infrastructure rehabilitation, etc. Substantial prices have been paid in the last decade for railways in North America. In contrast, consider the experience in the UK with the freight business. Investment has been made in freight wagons, however, a very low valuation has been placed on the freight business. For example, there was a low valuation of UK trainload freight businesses (despite their being divided into three units) even after they were put back together and became a so-called "monopoly." In fact it is not a monopoly because there have been other operators that emerged to cannibalize that business. The freight business in the UK brought a purchase price of approximately 20% of what it would have gained in an Exclusive Franchise environment. And history has now proven that even that price was too high.

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Let's now discuss the transportation market because after all, the prime beneficiary of railway restructuring is supposed to be the customer and not the financial markets. With the Open Access environment the European railways so far have stagnated at best, with their traffic being cannibalized by trucks and even by barge movement of containers. Looking at the freight business in 2001 in the UK, which is primarily a passenger railway, its growth is constrained by capacity. What business there is, is mostly business that has always moved by rail. Freight operators are cannibalizing each other's business. I am an avid reader of UK's Modern Railways and recently there was an entire page devoted to freight traffic flows that had been lost by EWS to other operators, namely GB Rail Freight and Freightliner. This is not about taking trucks off the highway; this is about taking business from one railway company and giving it to another.  It would be very interesting to know whether the so-called explosive freight traffic has been partially driven by the fact that ballast trains, which in any other country would be considered non-revenue traffic, are now being counted as freight loads and if ballast trains are thus considered an area of freight growth.

The primary focus of Open Access is political, and the secondary focus is on the customer. I do believe that Open Access has created value for the customer; in fact, most of the margins of the freight business have been given to the customer. However, if most of the margins have been given to the customer, then why invest in railways?  

In the Exclusive Franchise environment the primary focus is on the customer. Yes, we are a railway monopoly; however, because the customer always has other choices like trucks, that prevents us from acting as a transportation monopoly. There is a secondary focus on the investor because capital is needed for a successful business. The Exclusive Franchise model satisfies both needs -- it provides value for the customer and rewards the investor, therefore the business gets financed.

To summarize, both the financial and the transportation marketplaces have repudiated Open Access.

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Since there are more small railways in Africa than large railways, let's review a case study proving that even the smallest and most difficult railway can have a future -- the railway in Guatemala.

(click here)

In closing, everywhere RDC operates we have joint ventures. We feel that cultural skills and knowledge of the local economy are more important than railway skills. RDC has gone out of its way to ensure that we have local partners. We have local partners in Mozambique and Malawi, not because it is a government regulation, but because our business strategy is based on integration of ourselves into these various countries. The vision of the Nacala Corridor is to be a truly African company.

One inspirational slogan that RDC draws strength from is: "A luta continua!"; this quote from Samora Machel, the first President of independent Mozambique, means “The struggle continues!”  The railway business is very difficult no matter where you go.  The best way to deal with difficulty is to not be alone in the business.

Thank you very much.

"A LUTA CONTINUA!"

(click on photo to enlarge)

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