South Africa’s “Back to rail” strategy is well on track.

Transnet’s chief executive, Brian Molefe, in briefing Parliament’s portfolio committee on economic development on the parastatal’s R300-billion market demand strategy, said that the planned capital expenditure over the next seven years will develop a locally driven manufacturing industry. The parastatal intends to purchase 62% of the goods and services required for its new infrastructure projects locally.  This figure has already been achieved with the 141 locomotives acquired from General Electric, and South Africa now manufactures and exports wheel parts for locomotives as a result.

Investment

Over the next seven years, Transnet will acquire 1 317 locomotives and manufacture 25 000 wagons in South Africa, to be used to ship cars and minerals, said Transnet Freight Rail chief executive Siyabonga Gama. Molefe said the parastatal had invested R118-billion in infrastructure in the last seven years, but will almost triple this to R300-billion in the next seven. The parastatal will also expand the tonnage of iron ore and coal for export transported, from 53-million to 83-million tons and 59-million to 74-million tons respectively, while moving the number of containers handled from 4.3 million to 7.6 million. Last year Transnet invested R24.6-billion, as part of the R300-billion programme, and will invest R31.2-billion this year, with investments peaking at R56.3-billion in 2016/17. A total of R4.2-billion will be spent on small business promotion over the next seven years, and the parastatal will work with suppliers to meet the government’s transformation and empowerment objectives, he said.

Job creation

About 99 000 jobs are expected to be created in this year, peaking at 136 000 in the 2016/17 year and totalling about 588 000 jobs over the next seven years. The majority of jobs will be created in KwaZulu-Natal, backed by developments in the Port of Durban, the biggest port in Africa, where R38.5-billion will be spent, and Richards Bay, the biggest coal terminal in Africa and the Middle East, where R49.9- billion will be spent. A total of R3.9-billion will be invested in expanding the container capacity at the Cape Town harbour, and the Ngqura Container Terminal at the Port of Ngqura near Port Elizabeth will also be expanded by adding four container berths. Transnet’s other major programmes include expanding rail capacity to meet market demand by increasing the export of coal, iron ore and manganese and completing a new multi-product pipeline.

Infrastructure

Molefe said about 58% of the R300-billion infrastructure spend would go towards new infrastructure and new rail and locomotives, while among Transnet’s divisions, general freight and freight rail would get R151-billion. The investments in rail and freight include updating a line from Sishen to Port Elizabeth as part of the R25.9-billion to be spent on a South Corridor linking the Eastern Cape to the rest of the country. The line is necessary for South Africa to increase manganese production, particularly as the country has 80% of manganese reserves, but only 20% of market share. The rail line from Sishen to the Port of Ngqura will be routed from Sishen to Kimberley, where the existing Cape Town to Johannesburg line will link it to De Aar; from there it will then route to Port of Ngqura, via Cradock and Alicedale. The 232km stretch of line between Kimberly and De Aar will be doubled.

 

Upgrades

A further R28.6-billion will be spent upgrading the railway line between Sishen and Saldanha, while a proposed 146km new line between Lothair via Nerston to Sidvokodvo will help link Gauteng to Richards Bay through Swaziland. Existing rail networks in the Waterberg region, which contains 40% of the country’s coal reserves, will also be upgraded. Molefe said the new 555km-long, 24-inch thick, multi-product pipeline, which will replace the existing Durban to Johannesburg pipeline, was on track to be completed by the end of 2013. The new pipeline will increase nearly double capacity from 4.4-billion litres to 8.4- billion litres. The trunk line between Durban and Jameson Park was commissioned in January, and 348-million litres of diesel were transported through the pipeline between January and March. Three 16-inch pipelines in the northern network were commissioned last year and up to March this year, 1.2-billion litres of product had been transported through the pipeline. Other countries were already approaching South Africa to learn from the mistakes Transnet had made in rolling out the pipeline, according to Molefe. These mistakes included the cost of the pipeline more than doubling and environmental hitches when frogs were found in swamps and mountain rocks, which meant engineers had to expand the circumference of the pipe.

Funding

Molefe said 70% of capital investment would be funded from operating cash flows, with the remainder to be raised on the domestic market. This would mean Transnet would have to borrow R14.1 billion this year – peaking at R20.5-billion in 2015/16 – before cash flow turns positive in 2018/19 and returns R7.1 billion. Molefe said one of the biggest risks going forward for Transnet’s infrastructure programme was the financial situation in Europe, which could affect borrowing from capital markets.