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Monday, 17 September 2012

Rail vs Road

The Chartered Institute of Logistics and Transport (CILT)recently expressed concern over the unfair competition between rail and road via Daily Mail :
Mr Chipuwa explained that the road transporter does not meet the full cost of the infrastructure and is able to charge lower transport rates to the shipper or traveller, whereas the railway operator who meets the full cost of the track maintenance is forced to charge high tariffs compared to road users in order to recover costs. "Roads are constructed and maintained by Government with very little contribution from road users in form of road user charges. On the other hand, railway infrastructure is funded fully by the railway operator. In the Zambian context, this is further exacerbated by the fact that the railway operators pay the road levy for the fuel consumed by locomotives. This is indirectly subsidising the competitor who is the road transporter. The two factors mean that the railway operators namely Railway Systems of Zamia (RSZ) and Tazara become artificially expensive and, therefore, uncompetitive compared to road transport", Mr Chipuwa said.

The association President further said the unfair competition has led to loss of traffic, decline in the market share and revenues which has seen Tazara traffic drop to less than 500,000 tonnes per year while RSZ traffic has dropped from 1.3 million tonnes to between 800,000 and one million tonnes per year and only a dismal three percent of copper shipments move by rail to Dar es Salaam.

Mr Chipuwa added that the declining market share and revenue is compounded by the business challenges faced by the railway operators such as RSZ as the company is required to fund maintenance and rehabilitation of a railway track which is over 100 years old. RSZ also has to meet the bills of security against vandalism of infrastructure, which the road transport does not. He has since called on Government to level the playing field between rail and road by distributing investment between competing modes in a manner that transport requirements of the economy are met at minimum cost to society. Mr Chipuwa said so far, the investment in the transport sector has been skewed towards road transport at the expense of other modes in particular the railway sector and that there was need to create a dedicated railway fund for the maintenance and rehabilitation of the railway infrastructure from sources of funds such as concession fees, fuel levy from railway operators, licence fees paid by the railway operator and toll fees from foreign trucks.
There are three separate questions here that have been conflated : are railway users more disadvantage than road users users;  would rebalancing the assumed "disadvantage" eliminate the problem with railways; and, should we prioritise rail over roads. A recent paper by Raballand and Whitworth is very useful in actually addressing all three questions. 

On the first question, they helpfully observe :
It is often suggested that....trucks do not pay for the full cost of the damage they inflict on Zambia’s roads (or environmental, congestion and safety costs). If the extra costs to government of maintaining trunk roads exceed the taxes and user charges collected from trucks this would represent a government subsidy to the industry. This is sometimes used as an argument for government intervention – either to invest in the railways or to force the mines to use them.

While there is a strong suspicion that trucks loaded with mining products are failing to cover their costs, there is no hard evidence available. Because of the inefficiency of importing fuel through the TAZAMA pipeline and the Indeni refinery, Zambian fuel costs are significantly higher than in neighbouring countries. International trucks can avoid these high costs – and Zambian taxes – by refueling outside Zambia. As a result, the value of fuel taxation paid by trucks is not known. Nor is it known how much of the revenue collected from trucks is actually used to repair the damage they cause (and how much is spent on other roads). The Road Development Agency claims that damage to the roads due to overloading has been greatly reduced as a result of recent investment in weighbridges. However, there are no estimates of the damage caused to the roads (let alone the environment) by mining loads, which can be significant even without overloading.
So we can take that to mean that whilst in practice road users do not pay the full cost, this "disadvantage" is not as substantive as it looks particularly in relation to trucks and also given the fact that the road damage is being moderated. 

On the second question, they make further important observations regarding the state of Zambian railways:
The situation at TAZARA, which is still jointly owned by the Zambian and Tanzanian Governments and operated as a parastatal, appears to be worse than at RSZ. It has never made a profit. Despite a rebound in 2009/10, freight volumes have fallen precipitously (Table 2)to a point where the operational viability of the system is in doubt. While financial data is not publicly available, TAZARA is believed to be in financial crisis and largely dependent on (tied) grants from China. ‘TAZARA requires an investment of USD 208.999 million to sustain its operations’ (TAZARA 2010:19). With annual turnover averaging just USD 37 million between 2007/08 and 2009/10, there is little prospect of recapitalization on this scale. To avert collapse the two governments approached the Chinese Government – which financed and built the railway - about the possibility of concessioning TAZARA to a consortium of Chinese enterprises (TAZARA 2010:6). The outcome is not known. TAZARA’s fundamental problem is that, even if it were well capitalized and managed, the rationale for its existence largely disappeared once sanctions against Rhodesia / Zimbabwe were lifted and the border re-opened. With RSZ itself having substantial surplus capacity, it is doubtful whether there is sufficient traffic for one railway, let alone two.
That highlighted line is key. With Beira, Nacala, Walvis and other regional ports it is not clear why heavy investment in TAZARA is needed. Zambia is not yet in major demand for railway capacity. Which brings us to the final question. Where should we prioritise our investment - road or rail?  Clearly roads - but roads are important not because rail is bad, but because roads are necessary - rural roads in particular.

We have often mentioned that Zambia suffers from a "landlocked trap". By its nature, Zambia is heavily dependent on its neighbour for road and rail access to sea (and also susceptible to the political and economic situation prevailing in those countries). However, even in terms of internal road network, Zambia has not invested significantly enough compared to other aspirational African countries. In other words, its okay that we have neighbours with poor road or rail network or insufficient port capacity, but there's no reason why cannot do our bit, to get road network in order! Its no surprise therefore that evidence appears to suggest that Zambia's lack of adequate infrastructure is acting as a constraint on the expansion of trade and economic activity. The World Bank's Logistics Performance Index, ranks Zambia's transport infrastructure below the average of other sub-Saharan African countries and low-income countries.

Many of our areas are isolated an in much need of good accessible rural infrastructure. With good roads accessibility improves in terms of delivery of services and local commerce. Without proper rural roads it becomes impossible make make serious efforts in improving market development and reduces local market failures in critical sectors such as agriculture and tourism. These areas require increased commitment to investment in rural goods to promote the functioning of markets. The government needs to prioritize investments in rural roads over rail because roads have a greater potential to directly affect the poor and enable them to become players in the market. This decision of course must come with carefully designed cost-benefit analysis so that the right roads are being built. We have all seen the shambles of the Mongu-Kalabo road.

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