Vivien Chaplin | Director | Corporate & Commercial Practice | Head | Mining & Minerals Sector | Cliffe Dekker Hofmeyr (CDH) | mail me |
Recent months have seen significant movement in South Africa’s rail sector. Developments include early stages of rail privatisation and the domestication of the Luxembourg Rail Protocol (Luxembourg Protocol).
South African rail shifts its gears toward privatisation as the government accelerates regulatory and commercial changes.
The government recently announced the first 11 train operating companies (TOCs). These companies are negotiating with the Transnet Rail Infrastructure Manager (TRIM) regarding network access under draft agreements. Each TOC must secure operating licences and negotiate access terms with TRIM.
TRIM published a precedent draft access agreement for conclusion with TOCs. These agreements will establish the balance between access rights, obligations, warranties, indemnities and tariffs. The first agreements will provide a template for future entrants. Their success will determine whether privatisation creates a competitive and sustainable rail environment. These initial arrangements also set parameters for future negotiations about Transnet’s network condition, a key concern for all TOCs and funders.
Financing needs and funding challenges
Rail is capital-intensive, and new TOCs will require substantial funding to acquire locomotives and rolling stock. International mechanisms, such as the Luxembourg Protocol, should help open access to finance. However, private funders are likely to shoulder most responsibility because direct public funding is improbable.
Financiers should consider several critical issues when assessing TOC projects. These include the jurisdiction of the TOC or borrower, the process for international registration of security interests in financed assets and the provisions of access agreements. Particular attention must be paid to the security of tenure over the investment period.
Potential financiers should also prepare for the domestication of the Luxembourg Protocol and the enforceability of security. Early preparation will enable smoother financing and asset registration. Funders must adapt to new legal and operational frameworks.
Luxembourg protocol updates
Alongside rail access negotiations, the ratification of the Luxembourg Protocol was a key development. The Protocol became effective on 1 May 2025. Domestication into South African law is imminent. The Luxembourg Protocol creates an international system for registering security interests in railway assets. It also extends the Cape Town Convention on International Interests in Mobile Equipment to railway rolling stock.
Legislation still needs to align the Luxembourg Protocol with domestic law. Targeted amendments to the Companies Act 71 of 2008 are required where inconsistencies exist.
Even before domestication, financiers and TOCs can begin preparing to leverage the Luxembourg Protocol. It offers improved asset-based financing and cross-border recognition of security rights. Funding agreements will need specific provisions to ensure application of the Protocol and registration of rolling stock on the International Rail Registry using Unique Rail Vehicle Identification System (URVIS) numbers.
In August 2025, the Export Credit Insurance Corporation of South Africa (ECIC) announced a risk premium discount of up to 20% when underwriting rolling stock financing. Discounts apply if the Luxembourg Protocol is in force, subject to ECIC local content rules, compliance with the Protocol, and other underwriting conditions. The Protocol is expected to enhance confidence among investors and operators.
Wider industry impact
Other industry players should proactively review existing agreements with Transnet in light of the Network Statement.
Key areas to assess include:
- Tariff adjustment clauses to confirm alignment with regulated access charges.
- Regulatory change provisions and their implications on contractual obligations.
Taken together, the Luxembourg Protocol, the announcement of the first TOCs, and the negotiation of the first rail access agreements with TRIM signal a profound shift in South Africa’s rail sector. South African rail shifts its gears as stakeholders adjust to new commercial and regulatory realities.
In conclusion
The outcome of the first access agreements will be critical. It will determine whether TOCs can operate commercially and whether financiers commit capital to rolling stock and infrastructure.
For funders, key considerations include enforceability of security under the Luxembourg Protocol and the strength of access agreements underpinning TOCs’ revenue streams.
For TOCs, challenges lie in balancing evolving regulatory requirements, operational realities, network and infrastructure limitations, and financing constraints. Strategic planning and preparation will be essential for success.
