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 includes:
• increasing coal volumes by 44%, from 68-million tons last year to 98-million tons by 2018/19, which will be above 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.

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 secured a R6-billion funding guarantee with US export credit agency US-Exim to fund the acquisition of diesel locomotives from General Electric (GE).

In March this year, Transnet announced an agreement to buy 599 electric and 465 diesel locomotives from four original-equipment manufacturers, including GE. The guarantee is mainly intended for GE’s share of the locomotives, which is 233 locomotives and other acquisitions from the manufacturer.

The guarantee from US-Exim enables Transnet to raise funds in the markets for the financing of the GE locomotive transaction. It allows for Transnet to negotiate favourable repayment terms, including the tenor and interest rates.

The required funding will be raised through bank loans supported by the US-Exim guarantee. The terms of funding to be supported by the guarantee will depend on several factors, including market conditions, pricing and investor appetite.

The facility will be drawn over a three-year period, in line with the delivery schedule for the locomotives. The repayment period is 14 years. The term will extend Transnet’s debt maturity profile while improving the match between assets and liabilities.

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 Rolling Stock South Africa (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.