South Africa's State-owned freight logistics group Transnet, which plans to materially expand and modernise its diesel and electric locomotive fleet over the next 15 years, has been set a target of more than doubling the level of local content in these vehicles - hitherto, the local content levels for locomotive procurement projects has been modest at between 20% and 40%.
Public Enterprises Minister Malusi Gigaba foresees particular opportunity for partnerships with suppliers of heavy-haul electric locomotives and says Transnet, which has a R110-billion capital expenditure programme for the coming five years (much of which will be directed towards rail), will enter dialogue with original equipment manufacturers (OEM) to explore localisation prospects.
"Our plan is to partner with the relevant OEMs to build South Africa's own locomotive manufacturing capability," Gigaba said in an address to the South African Chamber of Commerce and Industry. "Our aim is to more than double the quantity of local content embodied in the locomotives."
He has highlighted the recent R2,4-billion deal between Transnet and General Electric (GE), whereby Transnet Rail Engineering (TRE) will assemble 90 of the 100 diesel locomotives being purchased in South Africa.
The first locomotives are to be delivered this year and the last during 2012.The GE deal is also the biggest commitment by Transnet under the government-led Competitive Supplier Development Programme.
The idea will be to position South Africa as a niche engineering hub for specialised rail solutions and as a global manufacturing centre for OEM locomotive components.
There is also a near-term prospect of offering these products and services to other African countries that are also looking to expand their rail infrastructure. Further, there is potential to transform TRE, which currently mainly services Transnet Freight Rail, into a maintenance and repair centre for African rail utilities, as well as private operators.
Gigaba reveals that there will also be a concerted programme to unlock new sources of finance for the expansion of the country's freight rail network, particularly those corridors that could stimulate mining investment and expansions.
He acknowledges that Transnet's balance sheet presents an obstacle to tapping the post-crisis commodity revival, and reaffirms that a task team has been established to find ways to liberate developmental and commercial finance, as well as to enable miners themselves to share project risk as coinvestors. The team includes directors-general from the Departments of Mineral Resources and Public Enterprises, as well as representatives from the State-owned enterprises and the Chamber of Mines.
"We need new sources of finance to enable a quantum jump in the rate of investment in the capacity of these [iron-ore and coal] export corridors," he asserts, adding that equity and quasi-equity arrangements are being explored.
The immediate thrust, however, is on lowering the average age of Transnet's locomotives from over 33 years, as well as ensuring that sufficient locomotives and wagons are available to raise daily train movements from 680 to the network's potential of 1 700 trains a day.
No private sector participation deals have been struck, with the Minister indicating that these are still in the "planning" phase. He also indicates that the initial developments will probably focus on branch lines, partnerships designed to shift freight from road to rail and initiatives to reduce congestion around South Africa's key ports.
PRIVATE SECTOR & POWER
Gigaba also stresses that localisation, as well as private sector participation will increasingly feature in the electricity milieu, still dominated by State-owned Eskom, which is spending R549-billion on generation, transmission and distribution investments.
Private participation will initially be focused on the deployment of renewable-energy solutions and Gigaba assures that government is committed to ramping up the role of independent power producers (IPPs).
At present, there are only five IPPs operating in South Africa, but South Africa’s stated policy is for 30% of all new generation capacity to be delivered by private developers.
However, there are still several regulatory and legislative impediments, notwithstanding the recent publication of the integrated resource plan for electricity, which outlines a substantial role for IPPs in the roll-out of 37 300 MW of new capacity between 2010 and 2030.
Gigaba assures that the National Treasury and the National Energy Regulator are making independent progress on dealing with the constraints to investment, while work is also advancing in the creation of an independent system and market operator, which will evolve over time and will eventually be separated entirely from Eskom.