Hosting the 2010 World Cup proved that building infrastructure quickly and efficiently is something South Africa can do. Airports got most of the attention in the run-up to the event, and now it is time for railways and ports to receive similar treatment, albeit without the deadline pressure. Transnet, the parastatal in charge of rail and ports, is embarking on a major capital expenditure plan. A total of R300bn ($37bn) is to be spent over the next seven years, with two-thirds going to rail.
Rail freight volumes have been declining for years, to the extent that commercial traffic is now crowding roads. Revitalising the railways is seen as a key part of the solution to what is widely regarded as the country’s biggest problem: unemployment. South Africa believes that a revitalised manufacturing sector is the path to job creation. However, while there is plenty of ability to build, staff and operate factories, getting their products to market has been more difficult. Rising costs and delays are common, and rail freight can help.
SPENDING BOOST: Transnet had been planning to spend R110.6bn ($13.5bn) over the next five years, but in the latter months of 2011 it became clear that this would not be enough. The minister of public enterprises, Malusi Gigaba, said in November 2011 that an increase was possible, and, just in time for President Jacob Zuma to trumpet it in his State of the Nation speech in February 2012, a boost in spending commitment to R300bn ($37bn) over seven years was announced. Transnet had spent R86.8bn ($10.6bn) in 2006-11, and the original plan implied a 27% rise in the coming five-year period, which would not quite measure up to the rhetoric and perceived needs.
While the details had yet to be released as of March 2012, Transnet’s “2011 Annual Report” outlined specifics for the first version of the plan. Most of the attention will be directed at KwaZulu-Natal, south-east of Gauteng, the country’s manufacturing heart. The province has the ports to go with Gauteng’s manufacturing – a majority of shipping freight goes through Durban and another major port is located at Richards Bay.
CORRIDORS: The plan identified seven strategic corridors to address, with two of them providing links between Gauteng’s factories and Durban, where the new King Shaka International Airport is also seen as an exit point for exports. Under the old plan R31.1bn ($3.8bn) had been earmarked. The corridor from Gauteng to Richards Bay is used primarily for the delivery of coal, magnetite, chrome and other resources for export, and was to receive R16.4bn ($2bn). About R11.4bn ($1.4bn) was planned for another mining route, from the iron ore mines near Sishen to the port of Saldanha. The corridor running from Gauteng to Cape Town was to get R3.4bn ($416m). Several rail spurs heading to the ports on the central coast at Port Elizabeth, Ngqura and East London were to see R3.1bn ($379m) in upgrades. Spending on a corridor going east from Gauteng to the port at Maputo, the capital of Mozambique, was included with general national upgrades, which were earmarked at R39bn ($4.8bn).
BREAKING IT DOWN: Overall, the plan called for 63% of the spend to go on replacing current assets, and 37% of it on new ones. Freight rail would have received R63.7bn ($7.8bn) and ports R23.2bn ($2.8bn). Of the target of R300bn ($37bn), around R200bn ($24bn) will be earmarked for railway projects. That is roughly in line with rail’s contribution to Transnet’s bottom line. Of its five major divisions, freight rail accounted for the majority of activity in FY2011: 59% of external revenue, 52% of earnings before interest, taxes, depreciation and amortisation, and 58% of capital investment.
PRIVATE OPPORTUNITIES: Because Transnet is a self-funding agency that does not get money from the national budget, it would like to partner with private firms. Although plans are not yet finalised, it is expected that the Department of Public Enterprises, which oversees Transnet, will be the agency private participants consult and agree contracts with. It has said that it will seek partnerships with large mining companies.
Specific projects highlighted as candidates include the further development of the new port at Ngqura, converting the old airport at Durban to a sea port, and adding rolling stock to help boost shipping capacity. Other key port and rail activities on the old list include upping capacity at Cape Town Container Terminal to 1.4m twenty-foot equivalent units and reengineering Durban Container Terminal. Transnet is also responsible for pipelines, and a new one is on the list.
UNTAPPED POTENTIAL: Not mentioned in the old plan but highlighted as areas of focus by President Zuma are Limpopo and Mpumalanga. Both are mineral-rich but relatively untapped. The state’s overall plan is to increase mining activity and use the output for export as well as to generate electricity and raw materials for manufacturing and industry. “Using the developments in Limpopo as a base, we will expand rail transport in Mpumalanga, connecting coalfields to power stations,” Zuma said. “This will enable us to decisively shift from road to rail the transportation of coal.” Most of the area’s coal is used for electricity generation.
There has been criticism from some quarters of the local business community regarding Transnet’s priorities, however. Denzil Nair, CEO of DB Schenker, told OBG, “The automotive sector is very dependent on rail for transport and distribution. However, Transnet appears more interested in increasing capacity for coal transport, which provides higher returns, as opposed to providing sufficient capacity for automobile transport.”
CONSISTENT PLANS: In his address, President Zuma mentioned three other rail themes as well: the Durban-Gauteng freight corridor, the iron ore export line to Saldanha and a manganese line to Coega, near Nqgura. An industrial zone has been developed at Coega, on the south-central cost, and manganese could be used there as a raw material in manufacturing, or exported.
None of the above are new ideas. Some had been specifically addressed in Transnet’s old plan, and other surviving aspects from the original, smaller plan include the targets for rail-shipped ore. Transnet expects to move 51.6m tonnes of iron ore for export in 2012, all on the line from Sishen to Saldanha Bay, with a goal of 60.7m tonnes by 2016. Coal for export is projected at 70m tonnes in 2012, with a goal of 81m by 2016.
ROLLING STOCK: In addition to track maintenance and expansion, the plan includes the first upgrades to rolling stock since the 1970s. Transnet has signed a contract with General Electric Africa for 143 new locomotives. Engines are to be imported from the US, and some parts will be domestically sourced. Assembly will take place in Koedoespoort.
Plans to invest in rolling stock have the government thinking broadly about how to maximise its investment. Costs will not be the only imperative. To boost employment, Transnet’s plans will include local sourcing where possible. For its original five-year plan, Transnet estimates that 88% of what is needed can be procured locally. Gigaba told media in May 2011 that a secondary goal will be to establish South Africa as a niche for rail industry manufacturing, with exports a goal for the future.
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