Transnet gets serious about infrastructure spending

With all the grumbling that goes on about South Africa's creaky infrastructure, it's refreshing to have some positive news on the topic for a change. Transnet has awarded R50bn-worth of contracts to get 1064 new locomotives onto South Africa's railroads..This is actually really exciting. First of all, it underscores how serious Transnet is about investing in capacity and infrastructure. Second, the new locomotives will be cutting edge. That means they'll consume way less energy than the current 30-40 year-old moving stock on the rail lines. In other words, each new locomotive will reduce the train on South Africa's electricity network – a major win. Transnet is hoping to have the new trains on the lines in three and a half years, which means the electricity saving could start soon. This means lower transport costs (although the price of the new stock will have to be defrayed), and a lighter load for Eskom – a real win-win. – FD.ALEC HOGG: Transnet has awarded a fifty-billion-Rand contract to support the building of one-thousand-and-sixty-four locomotives to four global original equipment manufacturers. It's the largest ever locomotive supply contract in the country's history and then by some margin. Brian Molefe, the Chief Executive of Transnet, joins us now. Brian, it's a huge day: fifty-billion-Rand. You have a three-hundred-billion-Rand expansion project over the next seven years. Are these locomotives also going to be phased in over that period?.BRIAN MOLEFE: The locomotives will be phased in over a five-year period. Our intention is to do them over five years, but we're going to try to do them in three-and-a-half years. Let's see how far we can go. I expect that there could be problems, but we're going to try to accelerate the program because the sooner we can get them in service, the better for all of us in South Africa..ALEC HOGG: You say so. What do they need it for? Are the old ones breaking down or are they new lines that are opening?.BRIAN MOLEFE: The average age of our locomotives on the general freight business is about 32 years. Now they break down all the time, they use old technology and, they're not energy-efficient – they don't use modern energy-saving technology. These ones are new/modern locomotives that use less electricity and less diesel, and the electric ones are able to regenerate electricity. Possibly, up to 25 percent of the electricity we use, we can regenerate and put back into the grid, so these are modern locomotives, which we're putting into service now. As I said, the average age currently is about 32 years. We have locomotives that are up to 40/45 years old in the system..ALEC HOGG: That's interesting, Brian. We often had a look when South African Airways and even Comair were improving their fleet, and they explained that they'd done payback periods, which showed it was really worth their while to buy new ones. Have you done those kinds of calculations?.BRIAN MOLEFE: We have, indeed. This is a long-term acquisition, but you must remember…the way we're going to finance these locomotive is that we have identified a three-hundred-billion-Rand program for infrastructure and these are just going to be financed in terms of that project. This is just bonds that we're going to issue into the market. Of course, we're going to calculate how long each locomotive will take to repay, but this is not just about the acquisition of locomotives; this is about the South African economy..ALEC HOGG: What about costs if you bring a more efficient fleet in, as the airlines have done? They've been able to reduce prices and reduce their profit margins. Is there going to be a similar situation here?.BRIAN MOLEFE: Indeed, there will be and the biggest reduction in costs is these locomotives will be more efficient and they will require less maintenance time, but the biggest impact we hope to make is in the migration from road to rail. These will therefore contribute significantly in our program for this migration. The benefit of the migration from road to rail is not just accounting costs. The societal cost, environmental cost, the cost of the roads that are now being used by the trucks etcetera, to the extent that we can reduce the trucks on the roads: there will be huge societal benefits that are difficult to quantify in accounting costs..ALEC HOGG: Indeed. The decision on who to award the tender to – no doubt, there was quite a lot of competition – I see you've gone with Chinese on the one hand. You've gone with the guys who have the Gautrain – Bombardier and those on the electric side- and then GE are getting a big chunk of the diesel locomotives. How did you come to these decisions?.BRIAN MOLEFE: Look, we had a tender process – a competitive tender process, which awarded points on black economic empowerment and localisation as well as technical abilities and price. These are the companies, which came out tops on the electric as well as on the diesel locomotives. As it happens, they have different strengths. The Chinese are able to deliver very quickly, very rapidly, and the Chinese's technical capabilities have been improving over the last 30 years. The Germans – Bombardier – as I said earlier, one can't argue with the Gautrain, it works well, German precision engineering, and we've worked with the Americans for quite some time now, with GE and we're quite happy with their product..ALEC HOGG: How much of it is going to be done here in South Africa?.BRIAN MOLEFE: Localisation will be up to 60 or 70 percent – up to 60 percent – but some of them say they can go up to 70 percent. The first 70 locomotives of the one-thousand-and-sixty-four will be manufactured in their countries of origin. The rest will then be manufactured here in South Africa. What we will be importing will be the critical components i.e. the locomotives' traction motors and engines, but the rest of the components will be sourced from emerging engineering firms here in South Africa – as I said, up to 60 percent of the locomotives..ALEC HOGG: What does it mean for exports from our mineral sector? We do know that if we had more capacity we could have exported more during the commodities boom. Is this going to close that gap?.BRIAN MOLEFE: No, these locomotives are for the general freight business. The general freight business is everything excluding coal and iron ore. To the extent that you're talking about – magnatide and other minerals – yes, that will improve the efficiencies of the transportation of those minerals through the Richard's Bay terminal. In addition, our general freight business, Automotive and Containers, which are the manufactured products that are actually on the road… It's the Container and Automotive. We do however have other initiatives to improve our efficiencies on the coal line as well as on the iron ore line. We have been making investments in the coal line and the iron ore line. As you know, last year we broke the record and did 35 coal trains in one day, so our operations on the coal line as well as on the iron ore line, have improved significantly. We're quite happy with that. We have now begun running – what we call the Shongololo Train – on the coal line, which bypasses Ermelo because of its ability to switch from AC to DC, so we're quite happy with developments on the coal and iron ore lines. This is specifically for general freight business.

Transnet gets serious about infrastructure spending

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