**Require financial accounts to be prepared and audited according to International Financial Reporting Standards (IFRS)** —and require that they be published. To assess the financial performance of rail companies, systematic and comprehensive financial accounts need to be prepared according to IFRS and audited by independent audit companies on a line‐of‐business basis (i.e. ring‐fenced by operating division).

_Source: “Railway Reform in South East Europe and Turkey: On the Right Track?” World Bank (2011a)_ The National Rail Policy Green Paper argues that the core railway network should remain vertically integrated and operated by TFR, who will also provide access to PRASA for regional and long distance passenger trains as well as private operators, subject to third party access and regulation by the STER. This may indeed be the most appropriate policy. However, it must be complemented by an analysis of the financial structures that underlie the system so that these are made clear and transparent. Only then can the implications of vertical integration or alternatives be understood properly.

_5.1.2_ Leveling the playing field between road and rail South African freight rail cannot compete effectively because it is operationally inefficient, has to overcome a legacy of underinvestment and faces a road transport sector that enjoys a favorable regulatory environment (Department of Transport, 2015). It is the role of government transport policy to place rail and road transportation on an equal footing: the legal provisions and the level of financial contribution of the state for railway and road infrastructure should be equivalent, which will allow users to make the socially optimal choice between the two modes (World Bank, 2011b). As long as the financial support of the state is reflected in an unbiased manner in the transportation tariffs for competing modes of transport, the market will generate enough resources to cover infrastructure operation needs. Strategies to level the playing field with rail include stricter enforcement of the country’s traffic laws, full cost recovery from road freight operators who are generally believed to pay less than their share of road use and related external environmental costs, and major improvements in rail services (Department of Transport, 2015).

A major challenge in addressing the imbalance between road and rail usage is ensuring competitive neutrality between road and rail pricing. This means that neither mode of transport is subject to a competitive advantage relative to the other by virtue of pricing structures which do not account appropriately for costs. Current road and rail access charging regimes provide an artificial price advantage to road freight, which undermines the use of more fuel efficient and sustainable rail transport. In many countries, heavy goods vehicles (HGVs) are effectively subsidized by other road users and do not pay appropriately for the maintenance costs arising from the negative externalities that they inflict on the road network (The Australian Railway Association, 2010).

Another challenge is the timing and short‐term effects of a strategy to level the price discrepancies between road and rail. Stricter regulation and a more cost reflective pricing of road users without concurrent improvements in rail reliability will result in road users continuing to use road rather than rail, but at a higher cost. This will further erode the competitiveness of exporters and therefore would undermine the fundamental objective of this note. Therefore, in the South African case road pricing reform cannot occur in isolation to wider transportation reforms that genuinely deliver more a more competitive overall transport and logistics environment.

There are several methods to generate funds for building and maintaining road networks. Roads can be treated as part of the general obligation of government and funded from general revenue sources. Alternatively, they can be funded from user fees on road users, or by some combination of general taxes and user fees on road users. User fees are broadly viewed as being the more equitable way to fund roads. From an efficiency perspective, such fees are also a more efficient method to generate road funding. However, the efficiency effects can be generated only if costs are distributed appropriately across road users.

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