/ 24 June 2011

Transnet’s rolling mass action

Transnet's Rolling Mass Action

Is Transnet’s rail division — Transnet Freight Rail — failing the South African economy?

There have been overt mixed feelings about this question lately, which prompts questions about the state-owned rail enterprise’s present situation. Coal of Africa (CoAL), the coal mining and development company, said back in 2009 that it was discussing a public-private partnership on the Maputo rail corridor with Transnet Freight Rail.

It said the discussion was designed to ensure rail capacity to match the port capacity CoAL had secured through agreements with South African logistics company Grindrod. Grindrod and Dubai-based DP World together hold a 49.4% share of the Mozambique Ports Development Company. The Mozambique government has 49% and local partners 1.6%.

Transnet Freight Rail has been complimented for “sweating” its assets and reducing turnaround by more than 50% on the corridor. The expansion of South Africa’s iron-ore corridor to handle 60-million tonnes of ore a year was poised for “flawless transition”, said Kumba Iron Ore chief executive Chris Griffith.

Griffith was talking at the opening of the new high-technology iron-ore sampling plant at the port of Saldanha. He said that the Saldanha port was already able to accept the next tranche of additional iron-ore from Kumba’s new Kolomela mine and Assmang’s Khumani expansion. Transnet last year began providing new locomotive and wagon capacity for the iron-ore railway line.

The mining industry and Transnet are working on increasing the capacity of the corridor by another 30-million tonnes a year, from 60-million to 90-million tonnes a year. Transnet expects to spend R110-billion in the next five years and has indicated that it may not be in a position to fund all of the expansion and may need private-sector participation.

The port’s 60-million-tonne capacity was in place from an asset perspective and the rolling stock required in providing matching rail capacity lent itself to being introduced incrementally. Wagon and locomotive build programmes would bring in rolling stock in line with demand from industry.

According to statistics from the South African Chamber of Mines, quoted in April in the media, “South Africa’s mining industry would have been 87% larger than it is today had it grown at the same pace as the rest of the economy since 1994”.

Heading the list of reasons for slow growth is “a lack of infrastructure, particularly electricity and rail”. “Transnet’s inability to increase rail capacity sufficiently has led to significant underutilisation of the Richards Bay Coal Terminal, where nearly 30-million additional tonnes of coal could be exported annually if it got there via rail.”

The chamber’s chief economist, Roger Baxter, said three months ago that the situation meant that South Africa was unable to take advantage of the commodities boom. “If you look at electricity, for example, even if Eskom gets everything 100% right, we will still have an electricity shortfall until 2018,” he said.

The rest of the chamber’s list probably applies to both Eskom and Transnet themselves, explaining much of their inability to deliver. It includes “regulatory framework challenges; policy uncertainty; human-resources constraints; stagnant productivity and escalating costs; a lack of exploration and research; and challenges to the industry’s social licence to operate”.

Iron-ore exports are predicted to increase by 40% to 69-million tonnes by 2015, according to research by investment bank Citi, provided that Transnet’s rail capacity from the Northern Cape to Saldanha is upgraded sufficiently to carry the additional output. By comparison, Kumba, by far South Africa’s biggest iron-ore miner, last year exported 36.1-million tonnes of iron ore, and production totalled less than 44-million tonnes.

Its Kolomela expansion is expected to come online at the end of 2012 and will add nine million tonnes more a year. South Africa’s mining costs, which “continue to rise too quickly”, are one of the industry challenges to be addressed, according to Baxter. Average annual price increases in the period between 2008 and 2010 were 24% for electricity, 15.6% for wages, 13.4% for reinforcing steel and 11.9% for diesel.

PricewaterhouseCoopers warns of the impact of high labour costs and electricity increases on mining margins, saying that the nationalisation debate, as well as safety, regulatory and political issues, have made for “somewhat shaky” growth.

Transnet is endeavouring to embark on a “catch-up” modernisation and expansion programme to meet the economy’s export demands. It plans to invest R4.91-billion in the 580km coal-export line from Blackhill in Mpumalanga to Richards Bay in KwaZulu-Natal, including R2.27-billion on locomotives, R1.51-billion on wagons and R824-million on infrastructure, according to the parastatal’s spokesperson, Sandile Simelane.

An order for 110 class 19E dual-voltage electric locomotives dedicated to the coal line is being delivered. The class 19E locomotives are being built at Union Carriage & Wagon workshops in Nigel. Since 1976, when trains comprised 50 wagons carrying 3?724 tonnes of coal, the picture has changed dramatically.

Today, 200-wagon trains more than 2km in length pull in to the revamped coal terminal at the port. In 1996, following several upgrades to infrastructure, throughput of about 60-million tonnes of coal was achieved, a figure that rose to about 66-million tonnes in 2007.

Transnet aims to boost capacity to 81-million tonnes. Recently, the freight rail division awarded a $230-million contract for 32 additional, potent class 15E electric locomotives to Mitsui subsidiary Venus Rail Solutions. The 4.5MW locos are due to be delivered between May 2012 and August 2013 to supplement motive power on the iron-ore corridor.

This construction contract tops up a previous award for such locomotives, which are currently rolling off the production floor at Union Carriage & Wagon. The award of this extra batch of locos to the Mitsui subsidiary caused media reaction in early June,because a formal tender process was reportedly not followed. The lack of transparency was said to be a definitive sign of “a contract award for the politically connected”.

It was reported by the Sunday Times that Khulu Mbatha, the special advisor to ANC deputy president Kgalema Motlanthe, was the chairperson of black economic empowerment company African Sky Innovative Solutions, which owns 20% of Venus Railway Solutions. It does indeed seem a little odd that there has been such reaction to the run-on order of class 15E units and no huge questions about Venus Railway Solutions landing the original contract for these heavy-haul locomotives.

Transnet Freight Rail’s increased frequency of its 75-wagon “Anaconda” container-train service on the Johannesburg-Durban corridor from three to five times a week is a positive move. It is all part of the rail utility’s efforts to maximise capacity with limited resources as demand continues to exceed supply, particularly on the busy Natcor (KwaZulu-Natal) corridor.

The Anaconda has the capacity to clear 150 containers on one train and is therefore able to move 600 containers?on the four Anaconda slots per day and 1 800 on the weekly schedule between Johannesburg and Durban. Siyabonga Gama, Transnet Freight Rail’s reinstated chief executive, would like to extend the concept to other transport routes.

Meanwhile, in Cape Town this past fortnight, about 700 investors and delegates attending a transport-oriented investors’ conference were told by Public Enterprises Minister Malusi Gigaba that new ways had to be found “if South Africa is to achieve the levels of investment in infrastructure we hope to achieve”.

He said partnerships between state-owned enterprises and the private sector were essential to unlock the level of investment required. Private participation does not, however, mean privatisation.