Transnet back on track

SA’s rail gi­ant is aim­ing to play catch-up with a huge in­vest­ment in its in­fra­struc­ture spend­ing

Financial Mail - Investors Monthly - - Special Report Infrastructure - Stafford Thomas

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.

Freight trans­port: Transnet has planned a huge re­vamp of its rail lo­gis­tics ser­vices coun­try­wide

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