Name and Location
Transnet’s Market Demand Strategy (MDS), South Africa.

Client
Transnet.

Project Description
Transnet will shift its capital expenditure (capex) focus over the coming seven years from maintenance expenditure to expansionary investments on rail and port projects across South Africa.

The expansion of the country’s rail, port and pipeline infrastructure is expected to result in a significant increase in freight volumes, especially in commodities such as iron-ore, coal and manganese.

It will also lead to a significant modal shift from road to rail.

The bulk of the capex, R201-billion, will be allocated towards railway projects, which have been designed to increase freight volumes to 350-million tons a year, from the 202-million tons achieved in the year to March 31, 2012.

Supporting the rail-volume growth aspiration is a plan to materially increase the capacity of Transnet Freight Rail’s (TFR’s) key commodity lines, which include:
• increasing coal volumes by 44%, from 68-million tons in 2013 to 98-million tons by 2018/19, which will be more than the 92-million-ton-a-year nameplate capacity for the privately owned Richards Bay Coal Terminal, in KwaZulu-Natal;
• raising the capacity of the iron-ore export channel from Sishen, in the Northern Cape, to Saldanha, in the Western Cape, by 57%, from 53-million tons to 83-million tons; and
• increasing the capacity of the general freight business by a material 113%, from 80-million tons a year currently to 180.3-million tons a year.

This includes a package for 1 064 locomotives – 599 electric and 465 diesel.

The capital to be invested in the port system (R47-billion for the Transnet National Ports Authority and R33-billion for Transnet Port Terminals) should also enable Transnet to increase its container handling capacity by 76%, from 4.3-million twenty-foot equivalent units (TEUs) to 7.6-million TEUs.

Value
The cost of the MDS is estimated at R312-billion.

The MDS will primarily be funded by Transnet’s own balance sheet. However, Transnet will still need to raise about R100-billion from domestic and international debt capital markets, development finance institutions and export credit agencies, as well as in the form of corporate paper, between now and 2020.

Duration
Seven years until 2020.

Latest Developments
Transnet has signed a R30-billion loan facility agreement with China Development Bank (CDB) for the funding of hundreds of locomotives to be manufactured by China South Rail (CSR) and China North Rail (CNR) as part of Transnet Freight Rail’s (TFR’s) 1 064 locomotives acquisition programme.

The loan agreement formed part of a $5-million bilateral memorandum of understanding signed in December between President Jacob Zuma and his Chinese counterpart President Xi Jinping.

The proceeds of the loan will be used to fund the acquisition of 232 diesel and 359 electric locomotives it is procuring from CNR and CSR.

Transnet will draw down the first tranche of R18-billion over four years and the second tranche of the loan subject to market conditions and funding requirements, based on the projects included in the group’s R337-billion Market Demand Strategy (MDS).

The repayment term of the loan is 15 years, with a grace period of four-and-a-half years while the locomotives are under construction. It is also a significant milestone in Transnet’s funding strategy as it represents 60% of the more than R50-billion required for TFR’s 1 064 locomotives acquisition programme.

Transnet has now secured 92% of the required funding for the programme, which includes the loan agreement.

Transnet announced in March that it had secured separate funding agreements with the Export-Import Bank of the US and Export Development Canada, worth a collective R13-billion, to fund the acquisition of locomotives from General Electric and Bombardier Transportation.

The acquisition is at the heart of Transnet’s MDS to increase volumes while reducing the average age of the company’s locomotive fleet. The 1 064 programme is designed to reinforce TFR’s plans to increase volumes from the current 210-million tons to more than 350-million tons in seven years.

CSR and CNR have complied with the minimum local-content criteria for rolling stock of 60% for electric locomotives and 55% for diesel locomotives.

Key Contracts and Suppliers
CSR Zhuzhou Electric Locomotive and Bombardier Transportation South Africa (supply of 359 and 240 electric locomotives respectively) and GE South Africa Technologies and CNR RSSR (build and supply 233 and 232 diesel locomotives respectively).

On Budget and on Time?
Too early to state.

Contact Details for Project Information
Transnet spokesperson Mboniso Sigonyela, tel +27 11 308 2458, cell +27 83 463 7701 or email mboniso.sigonyela@transnet.net; or group corporate and public affairs, Viwe Tlaleane, tel +27 11 308 2384, cell +27 83 979 0707, fax +27 11 308 2465 or email Viwe.tlaleane@transnet.net.