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) RSZ TAZARA (Cap: 6 mn tpa) (Cap: 5 mn tpa) Total Traffic o/w CU

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$ million to 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!