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Dec 14, 2012

Adequate metro rail system vital for South Africans

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It is imperative for a country such as South Africa, which has inadequate access to public transport, to re-establish its rail industry and ensure it offers reliable and safe public transportation, states global professional services firm KPMG South Africa infrastructure projects head De Buys Scott.

“The life of South Africa’s metro system has come to an end,” he notes, adding that the rail industry has been neglected for the past 40 years, with little investment in infrastructure and rolling stock.

He points out that South Africa’s last investment in its passenger rail industry was in the early 1980s.

“The fleet that was installed then has since been constantly refurbished – this speaks volumes about the lack of invest- ment in South Africa’s rail infrastructure. With the sole focus on refurbishment, an industry will eventually be discontinued,” says Scott.

He explains that the life span of a typical metro train is about 40 years, which is why a substantial part of the current metro rolling-stock fleet can no longer be refurbished. This highlights the need for South Africa to improve its rail infrastructure.

Scott notes that the Passenger Rail Agency of South Africa’s (Prasa’s) R123-billion 20-year fleet renewal programme is aimed not only at procuring 7 224 new commuter coaches but also at investing in supporting rail infrastructure.

The fleet renewal programme will comprise two ten-year contracts.

KPMG is the financial and commercial adviser for Prasa’s fleet renewal programme.

“Parallel to acquiring a new fleet of trains, the programme will focus on the re-establishment of the metro rail industry in South Africa, enabling the country to, in future, manufacture its own trains.

“Rail infrastructure in South Africa will be significantly improved through the programme. The rail signalling system will be upgraded, in sync with modern technology. There will also be new depots and existing stations, such as Park station, in Johannesburg, are going to be substan- tially upgraded,” Scott emphasises.

In addition to the R123-billion investment in new rolling stock, about R14.5-billion will be spent on infrastructure upgrades and the construction of new depots.

Procurement Phase
KPMG assisted in the feasibility study of the fleet renewal programme, which was completed in September 2011 and approved by government.

Scott notes that the feasibility study was completed in record time. “A feasibility study of this extent normally takes between 15 to 18 months to complete, but Prasa achieved this in just over eight months.”

This was followed by the start of the procurement phase at the beginning of this year.

Prasa and its transaction advisers evaluated bids from seven companies and consortia that submitted bids at the end of September to build and supply the commuter coaches.

On December 5, Prasa selected Gibela Rail Transportation, a consortium comprising French multinational Alstom and local engineering company Actom, as its pre- ferred supplier for 3 600 passenger trains between 2015 and 2025. The contract is valued at R51-billion.

The procurement phase will be com- pleted by the middle of June 2013. “We are absolutely on track for that deadline,” Scott reveals.

The first trains are expected to be delivered by 2015.

Localisation
KPMG is the lead financial and commercial adviser for Prasa’s manufacturing partner procurement process and the joint lead adviser on localisation.

“When this project unfolds, a high degree of localisation will be required from the winning bidder,” Scott explains.

“Sixty-five per cent of the R123-billion project value will end up back in South Africa through the manufacturing and assembly of parts for the metro rail supply chain system.

“This will be the biggest localisation project completed to date on any South African infrastructure project. It will be strictly monitored and policed by government.

“In 10 to 20 years, South Africa will have the local capability to manufacture these trains and will never have to look a global manufacturer in the eye again,” Scott states.

He notes that the setting of localisation targets has been positively received by bidders and localisation will start at the onset of the project.

“Part of the localisation requirement is to build a local factory for rail infrastructure manufacturing, manufacture trains locally and adhere to the thresholds defined in the fleet renewal programme – all this has to be completed within a certain timeframe.”

At the onset of the feasibility study, KPMG tested some of the fleet renewal programme’s concepts in the global market and asked whether its localisation targets were sensible and realistic.

“We received positive responses from global markets, adding to our confidence of placing a 65% localisation target in the final procurement documents,” Scott states.

He further notes that the rolling stock manufacturer that is awarded the tender will work with Prasa employees to provide maintenance on the new rail infrastructure and, in that way, transfer those skills to South Africans.

“Of course, there are certain aspects of high-tech maintenance that will always be the responsibility of the international manu- facturer, but there is a complete separate arrangement regarding maintenance to ensure the transfer of maintenance capability,” Scott emphasises.

Empowerment
Meanwhile, Prasa has also issued a tender to find black economic-empowerment (BEE) partners to participate in the fleet renewal programme.

The preferred rolling stock manufacturer will hold a 70% stake in a project delivery company, while the BEE participants will hold a 30% stake.

Ten per cent of the 30% empowerment equity is to be held by an employee trust, 10% by black-owned businesses in the rail industry, 7% by passive black investors and 3% by an educational trust.

Fleet Renewal Project Benefits
Once the fleet renewal programme is completed, South Africa will have more reliable public transport capacity than what is currently available. “The upgraded metro system will also be quicker and much safer.”

The metro system will be able to provide transport to double the number of people it currently transports – about two-million people a day, Scott notes.

This will result in increased productivity and a lower environmental impact, as people will have the choice of using the metro system instead of their cars.

Scott further explains that the metro rail fleet will eventually comprise two types of trains – a metro that stops at every stop and the metro express, which will be a no-stopper between Pretoria and Johannesburg.

“The fleet renewal programme, together with the Gautrain, can make a tremendous impact on South Africa’s traffic patterns and carbon emissions and will be more affordable, as it will always be subsidised by government.”

Improvements in the freight rail pro- cess will also reduce the number of trucks on South Africa’s national highways. “We can lessen that burden on the national highways and put freight back on rail,” Scott stresses.

State-owned freight logistic group Transnet Freight Rail (TFR) is planning to invest R201-billion up to 2018/19 to increase its rail capacity and prevent further migration of freight from rail to road.

TFR aims to increase the volume of goods transported by its general freight business to 170-million tons by 2018/19, a 113% increase on the estimated 80-million tons transported in 2011/12.

Engineering News reported in April that, if the general freight business achieves this volume growth, its market share compared with that of road hauliers would rise from about 15% currently to 35% by the end of the period.

In October, TFR awarded a R2.6-billion contract to CSR’s Zhuzhou Electric Locomotive subsidiary, working in a consortium with local BEE consortium Matsetse Basadi for the supply of 95 electric locomotives to be delivered by September 2014.

It has also issued tenders for the pro- curement of a further 599 electric loco- motives and 465 diesel locomotives by 2019.

Meanwhile, Scott says the key chal- lenges of the fleet renewal programme are that everyone involved should have proper priority and conduct investments smartly. “A feasibility study looks at every aspect of a project and if all questions are answered properly, a degree of prioritisation will follow.

“The feasibility study for the fleet renewal programme was thoroughly conducted and given the highest priority by government. On the back of a proper feasibility study, not much can go wrong,” he concludes.

Edited by: Chanel de Bruyn
Creamer Media Senior Deputy Editor Online
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