Should the Zambian Government Invest in Railways? Alan Whitworth ZIPAR
Railways played a key role in Zambian history • ZR / RSZ line from Copper Belt – Lusaka – Victoria Falls – Joburg – Durban built early 1900s to transport minerals • Lusaka was originally a rail junction • TAZARA to Dar es Salaam built in 1970s following UDI in S. Rhodesia • All copper and most trade transported by rail until 1990s
Zambia International and Regional Trade Estimated Freight Transport Flows 2005/2006 (million tonnes pa)
Rail Economics fundamentally transformed since 1970s • Decline of the railways • Competition from trucks • Rail is no longer competitive
Rail’s vicious circle of decline • Collapse in CU exports following nationalisation (from 712,000 MT in 1976 to 255,000 MT in 1998) slashed revenue • Excess capacity once Zim border / Durban route re-opened • Lack of maintenance & investment led to deterioration in speed & reliability • Privatisation of mines ended rail transport monopoly • With low volumes, tariffs needed to cover fixed costs (x 2) increased sharply
Competitive trucking industry developed from scratch • End of apartheid opened up trade between RSA and Zambia (& region) from 1990s • Zambian trunk roads rehabilitated under RoadSIP from 2000, lowering times / costs • Increased RSA exports to Zambia (eg Shoprite) transported by truck • Trucks allowed to compete for CU traffic & able to offer low ‘backhaul’ rates
RSA – Zambia truck rates among lowest in Africa, because they are full in both directions and economies of scale
Rail is no longer competitive • With low volumes, minimum tariffs needed to cover costs are much higher than trucking rates • Speed, reliability & security are all inferior to trucks (& deteriorating) • Rebound in CU production to 850,000 MT has not benefited rail • CU exported as cathode (3 times value / 1/3 volume of concentrate) • Mines do not need rail to export
GRZ plans investment in both existing & new rail lines- but where is economic appraisal? • Rehabilitate TAZARA • Rehabilitate RSZ • Chingola – Solwezi • Solwezi – Namibia • Solwezi - Benguela • TAZARA – Petauke – Chipata (- Nacala) • TAZARA - Mpulungu • Kafue – Lions Den
How can rail compete? • Substantial investment needed to improve speed & reliability on RSZ & (particularly) TAZARA • Need for return on investment (profit) means tariffs must rise – unless traffic volumes increase sharply • With trucks already cheaper than rail, why would mines switch back to rail?
Increasing road traffic means increased maintenance, congestion & environmental costs. Should GRZ force mines to use rail? • Mines are privately owned and free to decide • Kansanshi & Lumwana > 200 km from nearest rail • Costs should be recovered from taxes & road user charges (RUCs) • Are congestion costs significant? • No estimates of environmental costs
Do trucks pay for road damage? • RDA does not know cost of CU truck damage • RDA claims weighbridges have nearly eliminated over-loading, reducing damage • International transit fee of $10 / 100 km ($117 for DRC – Chirundu return) • Fuel taxes for DRC – Chirundu return in 2009 were $95 (Fuel Levy $24), but easily avoided by refuelling outside Zambia (blame Indeni!) • Unclear whether trucks cover costs
RSZ & TAZARA Traffic Trends (‘000 tpa) RSZTAZARA (Cap: 6 mn tpa) (Cap: 5 mn tpa) Total Traffic o/w CU Total Traffic o/w CU 2007 863 161 538 152 2008 892 238 528 148 2009 691 188 383 107 2010 754 114 523 202
RSZ Prospects • 20 year concession with NLPI of RSA signed in 2003 • NLPI to invest $14.7 million • GRZ relieved of financial losses • Modest recovery in traffic (sugar, maize, fuel, coal) • Can probably survive
TAZARA Prospects • Jointly owned and managed by Zambian & Tanzanian governments • Massive maintenance requirements • In financial crisis (‘TAZARA requires an investment of US$ 208.999 millionto sustain its operations’ - annual income $37 million) • Dar es Salaam harbour congested • Cut losses now?
DRC to the rescue? • In 2009 DRC exported 437,000 MT of CU through Zambia, almost entirely by road • Much of DRC exports is CU concentrate, not cathode • Production to double by 2012 • Equivalent of up to 100 extra trucks daily • What about Benguela line? • Studies, long term contracts & inter-governmental agreements needed to justify investing in Zambian rail
Conclusions 1 • Support for rail based on faith, not facts • Rail cannot compete with low truck rates • Low trucking rates should be welcomed • Costs of road maintenance, etc can be covered through smarter taxes, RUCs • Estimate actual costs imposed by trucks • Room for more than one rail system? • TAZARA beyond rescue?
Conclusions 2 • Can not assume railways are viable • Vital to undertake sound economic appraisal before investing in rail • Encourage private sector investment • Do not pour good money after bad!