On The Right Track: South Africa’s Rail Reform Revolution

South Africa’s freight and passenger infrastructure is in dire need of an overhaul. With public debt having skyrocketed and state-owned companies’ finances too weak to handle the load, the government no longer has the capacity to fund major infrastructure projects on its own. In response, South Africa’s rail sector is undergoing a transformative shift as the government is now actively pursuing private sector involvement to breathe new life into the country’s ailing transport networks. 2026 is shaping up to be a watershed moment as the first train operating companies (“TOCs”) are being introduced, the Luxembourg Protocol has been ratified and significant port concession deals are anticipated in the near term. This strategic pivot builds on priorities articulated in President Cyril Ramaphosa’s 2026 State of the Nation Address, which emphasised collaborative partnerships between government and the private sector.

Background

Years of underinvestment and operational constraints have left South Africa’s rail network struggling to meet the demands of a growing economy. The country possesses Africa’s most extensive rail infrastructure, yet rail freight transport has been on a decline for years, with volumes falling by approximately 34% between 2018 and 2023. This deterioration has been characterised by delays, poor maintenance, equipment shortages, cable theft and vandalism, fundamentally undermining the system’s reliability and output. Mining and agricultural exporters have borne the brunt of the country's deteriorating rail infrastructure, with some industry estimates placing the annual economic cost of freight inefficiencies in the billions of rands. The financial consequences have been severe for Transnet itself, which collapsed from posting an estimate of ZAR6,000,000,000 profit in 2019 to a net loss of around ZAR5,100,000,000 in the 2023 financial year, while accumulating debts of around ZAR130,000,000,000. Private sector involvement has become increasingly necessary to restore rail and port infrastructure, given the shortage of government funding for upgrades. To read more on our thoughts of how South Africa’s proposed Credit Guarantee Vehicle could help unlock private capital for infrastructure investment, click here.

Private sector participation in rail operations

President Cyril Ramaphosa’s 2026 State of the Nation Address positioned public-private partnerships as central to revitalising ports and rail corridors, stating that the government would “initiate major public-private partnerships in our port terminals and rail corridors through a concession model that preserves public ownership while mobilising private investment and expertise”.

The reform push is already yielding results as the government announced the first 11 TOCs, which have entered into negotiations with Transnet Rail Infrastructure Manager (“TRIM”) to secure access rights to the national freight rail network. Transport Minister Barbara Creecy emphasised that the reforms are designed to establish a freight rail system characterised by greater efficiency, reliability and sustainability - one capable of driving inclusive economic growth, fostering job creation and safeguarding existing employment. This initiative is grounded in the National Rail Policy, approved in March 2022, which provides a framework for private access to state-owned rail infrastructure while promoting investment and equitable access. According to TRIM, the new operators are expected to contribute an additional 20 million tonnes annually from 2026/27, which forms part of the broader target to reach 250 million tonnes of rail freight by 2029.

Before commencing operations, TOCs must obtain the necessary licences and conclude access arrangements with TRIM, which has already released a template access agreement to guide negotiations. These agreements play a critical role in setting out the allocation of access rights, responsibilities, indemnities, and tariffs, while also providing a benchmark for operators entering the market in the future. The terms concluded will also set parameters for addressing the condition of Transnet’s network, a key concern for TOCs and their funders alike.

Financing considerations

The Rail Policy aims to encourage rolling stock investment from TOCs and the establishment of rolling stock leasing companies, potentially unlocking over ZAR100,000,000,000 in new investments. The substantial upfront costs associated with rail operations, particularly the acquisition of locomotives and rolling stock, mean that incoming train operators will depend heavily on private capital given the limited availability of public funding for the sector's turnaround. TOCs face the difficult task of navigating a shifting regulatory landscape while contending with deteriorated infrastructure and limited access to capital.

Prospective funders will need to conduct careful due diligence on TOC ventures. Among the primary concerns are the legal domicile of the TOC or borrowing entity, the mechanisms available for perfecting cross-border security over financed rolling stock, and whether the underlying access agreements provide sufficient tenure certainty to support long-term investment.

Funders will need to focus on two critical areas: whether security granted under the Luxembourg Protocol can be effectively enforced, and whether the access agreements underpinning TOCs' revenue streams are sufficiently robust. In a positive development, the Export Credit Insurance Corporation of South Africa has indicated that it will offer a discount on its risk premium of up to 20% when underwriting rolling stock financings in jurisdictions where the Luxembourg Protocol is in force, benefiting both debtors and lessees.

Financiers should also begin preparing for the domestication of the Luxembourg Protocol into South African law and its implications for security enforceability, as discussed below.

Luxembourg Protocol

One of the most significant developments in railway financing has been the ratification of the Luxembourg Protocol, which became effective on 1 May 2025. This international treaty extends the application of the Cape Town Convention on International Interest in Mobile Equipment to railway rolling stock, creating a global framework for registering security interests in rail assets. These interests are recorded in a publicly accessible International Registry, operated by Regulis S.A., in Luxembourg, which is searchable around the clock and assigns each asset a permanent unique identifier through the Unique Rail Vehicle Identification System (“URVIS”).

The Protocol’s ratification has been described as a “game changer” for Africa’s rail industry, with the Rail Working Group noting it opens new avenues for private sector financing of rolling stock at a reduced rate.

Legislative alignment and practical steps

The Luxembourg Protocol has not yet been fully incorporated into South African law. This will require the legislature to make targeted amendments to the Companies Act 71, 2008 where the two instruments are inconsistent. Although this domestication remains incomplete, financiers and TOCs can already commence with preparations to leverage the Protocol’s benefits. Funding agreements will need to include tailored provisions to ensure that the Luxembourg Protocol is properly applied. These must also cater for the registration of the rolling stock on the International Rail Registry through the use of URVIS numbers.

Looking ahead

Taken collectively, the ratification of the Luxembourg Protocol, combined with the introduction of the first 11 licensed TOCs, and the ongoing negotiation of access agreements with TRIM represent a watershed moment for South Africa's rail industry. Despite the reform momentum, significant challenges remain. The condition of Transnet’s infrastructure is a cause for concern for freight operators and cargo owners alike, with access provided on an “as is” basis without warranties as to the network’s fitness for purpose. Security issues continue to plague the network, with substantial obligations imposed on TOCs to develop their own security plans. Critics have also warned that the timeline for expected additional freight volumes is “dangerously slow” for exporters already facing high logistics costs, and that infrastructure maintenance backlogs remain a major hurdle.

Beyond freight, Creecy has signalled that there may be investment opportunities in commuter and rapid regional rail, noting that her department is evaluating demand for projects such as high-speed rail connections. Financing models are still being worked out, but these proposals form part of broader efforts to turn rail into an engine for economic renewal and closer ties across the region.

Conclusion

South Africa's rail sector stands at a pivotal juncture. For an economy burdened by logistical bottlenecks and constrained public finances, these reforms offer an alternative pathway to unlocking billions in private investment, restoring freight volumes, and ultimately enhancing export competitiveness. What happens in the coming months, as the first access agreements are finalised and TOCs commence operations, will determine whether this reform agenda delivers on its promise or becomes another chapter of unrealised potential. For financiers, operators, and policymakers alike, the stakes could not be higher.

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