Financial Mail - Investors Monthly
Transnet back on track
SA’s rail giant is aiming to play catch-up with a huge investment in its infrastructure spending
In April 2012 Transnet threw down the gauntlet to the road transport industry when it unveiled its seven-year Market Demand Strategy (MDS) aimed at luring general freight traffic back onto rail.
This followed over two decades of underspending on rail infrastructure on the back of deregulation of land transport in 1988, which had devastated Transnet’s general freight traffic market share. It had left road hauliers responsible for moving 72% of the over 780Mt transported annually.
Transnet is now aiming to play catch-up with an infrastructure spending programme that calls for the investment of R300bn between 2012 and 2019. This is almost treble the R118bn spent on infrastructure in the seven years to 2012.
“The capex is all about increasing efficiency,” says Michael Asefovitz, Transnet Freight Rail’s senior communications manager. Transnet is aiming for big returns as ambitious volume growth targets set by its MDS in 2012 indicate. Targeted for the biggest increase is general freight business, with volumes projected to rise 117% between 2012 and 2019, from 80 Mt to 170Mt.
This was followed by container traffic with projected growth of 76%, from 4.34m containers annually to 7.65m containers. Of the total R300bn to be spent, general freight and container services are to receive the lion’s share: R151bn.
In Transnet’s stronghold, commodities, a R50bn capex was earmarked to up coal export traffic by a projected 44%, from 68Mt to 98 Mt, and up iron ore export traffic by 57%, from 53Mt to 83Mt. Total revenue wise, an increase of 178% from R46bn to R128bn was projected.
A crucial step in Transnet’s traffic growth strategy was taken in 2014 when orders worth R50bn were placed for 1,064 new electric and diesel locomotives. Transnet took delivery of the first locomotive in April 2015 with the last locomotive due to be delivered in late 2018. All but 70 will have been assembled by Transnet Engineering’s facilities in Pretoria and Durban. The biggest portion of the purchase went to two Chinese stateowned companies: China South Railway and China North Railway, for the supply of 591 electric locomotives. An order for a further 240 electric locomotives was placed with Canadian group Bombardier while 233 diesel locomotives were ordered from US group General Electric.
Transnet, following department of trade & industry (DTI) guidelines, set demanding local content requirements: 60% for electric locomotives and 55% for diesel locomotives. Not all, it seems, has gone to plan.
In a study published in late2016 by the University of Johannesburg’s Centre for Competition Regulation & Economic Development, its authors note: “Transnet’s contracts did not match the DTI’s local content expectations.”
Initiatives including Transnet’s locomotive fleet upgrade and an almost complete R6.5bn upgrade of its signalling system, contracted to Siemens, are delivering positive efficiency gains.
“PwC was brought in to measure efficiency gains so far,” says Asefovitz. “The figures must first go to the board but what I can say is that efficiency gains being achieved with the new locomotives are unbelievably good.”
Transnet has also launched new services since 2012, including a dedicated service targeting motor manufacturers. To provide the service, 350 specialised enclosed wagons built by Transnet Engineering’s Uitenhage facility in 2013 and 2014 are serving motor industry players including BMW, Volkswagen, Ford, Nissan and Toyota.
“The service has proved a big success,” says Asefovitz.
Also set to take to Transnet’s rails is RailRunner, a new approach to container train operation, which Transnet group CEO Siyabonga Gama has termed “disruptive technology”. It also marks an important step towards bringing private sector participants on board. Transnet is actively seeking partnerships as a way of broadening funding sources and gaining access to skills and expertise.
Brought to SA by local firm Kaleida Project Management Company, the US-developed RailRunner enables a trailer to be converted rapidly from road wheels to rail wheels to form part of a locomotive-hauled train. At the end of the journey the process is reversed.
“We have a 20-year, US$400m agreement with Transnet in place,” says Mike Daniel, MD of RailRunner SA. “We are now finalising negotiations with funders.”
If all goes according to plan the first two, SA-built 40 wagon RailRunner test trains will begin operating on the Cape Town to Gauteng route in 2018 between terminals in Bellville and Isando. Beyond greatly improving terminal efficiency, RailRunner also allows 20%-40% more payload to be carried for a given length of train.
Another of Transnet’s unique private sector partnerships is with Ceres Rail Company (CRC). On Saturdays, CRC operates a steam locomotive-hauled tourist train over the 135 km between Cape Town and Ceres (Western Cape), and on weekdays a diesel-hauled service transporting fruit and fruit juice concentrates.
Transnet set the wheels in motion of another major private sector tie-up in 2016 when it called for tenders from SA and foreign logistics service providers for the design, building, and operation of a proposed container terminal in Tambo Springs, east of Johannes-
burg. The firm that is awarded the contract will receive a 20-year concession. “The tender process is far advanced and a preferred bidder will be announced soon,” says Asefovitz. Due to be operational in 2019, Tambo Springs will be capable of handling trains of up to 75 wagons and in its initial phase is set to cost almost R5bn.
Tambo Springs will have the capacity to handle 144,000 TEUs (20-foot equivalent unit containers) annually with Transnet’s long-term strategy calling for its capacity to be increased to as much as 560,000 TEUs. This would exceed City Deep’s current 400,000 TEU capacity. It is not only freight rail where big money is being spent on long-overdue upgrades. Passenger rail, which falls under the auspices of the Passenger Rail Agency of SA (Prasa), is also a focus of attention.
Unfortunately, Prasa has also been responsible for one of the biggest botch-ups ever made by a railway operator. Its blunder was a R3.5bn order placed with Spanish group Vossloh España for 70 diesel locomotives for use on its longdistance Shosholoza Meyl passenger service.
It was only after the first 13 of the AFRO4000 locomotives worth R600m had been delivered that the blunder was revealed: They had a roof height of 4.264 m, well above the maximum of 3.965m permitted by Transnet and agreed by Prasa. However, it is not all bad news from Prasa. Of the agency’s renewal of its aged suburban train fleet, the head of KPMG’s infrastructure advisory division, De Buys Scott, says: “They are doing absolutely the right things.”
Among them, Prasa has just taken delivery of the first 16 of 580 six-coach X’Trapolis MEGA train sets on order from French group Alstom and its SA partner Gibela Rail Transport Consortium. Local production of the train sets will be undertaken in a new R1bn, 31,500 m ² factory nearing completion in Dunnottar in Nigel, east of Johannesburg.
The R65bn, 10-year order will lead to the gradual replacement of Prasa’s existing fleet of suburban trains built between 1962 and 1985. “The new trains will provide far greater safety and comfort for passengers and are capable of speeds up to 160 km/hr,” says Scott.
Prasa has another ambitious project lined up. In 2016 it signed an agreement with China Communications Construction, which will lead to the development of the Moloto Rail Development Corridor, a new 117 km standard gauge (1.435 m) line linking Gauteng and Sekhukune in Mpumalanga.
Gautrain, which has conveyed 80m passengers since its completion in early 2009, is also set for major expansion. 12 new trains will be brought into service by 2019. “It will increase passenger capacity by 50%,” says Scott.
SA could also see the introduction of Futran, a revolutionary form of rail transport. Developed locally by Andries Louw, Futran is an elevated single track system utilising fully automated, motorised units designed to transport a range of passenger and freight pod types suspended beneath them.
The first commercial application of Futran is a 2.7 km line being built at an Mpumalanga coal mine and due for completion in January 2018. But Louw’s big ambition is to see Futran used for passenger transport. This may come soon.
“We are in talks with a number of transport authorities including those in Durban, Gauteng and Cape Town,” says Louw. Overall, when current rail infrastructure projects are complete at least R145bn will have been invested. It can only be of huge benefit to SA in the long term.