Out-Law News 2 min. read

South Africa’s road-to-rail plans on track with ‘historic’ locomotives order

South Africa’s state-owned freight transport and logistics company Transnet has awarded what it said is the biggest locomotive supply contract in the country’s history to Chinese and South African firms.

Transnet said the 50 billion rand (ZAR) [$4.7bn] contract to build 1,064 locomotives is South Africa’s single biggest infrastructure investment initiative by a corporate and is designed to support government efforts aimed at ‘road-to-rail migration’.

Under the terms of the contract, CSR Zhuzhou Electric Locomotive of China and Bombardier Transportation South Africa will supply 599 electric locomotives, while General Electric South Africa Technologies and CNR Rolling Stock South Africa (Pty) Ltd will build and supply 465 diesel locomotives. The last locomotive under the deal is scheduled to be built within three-and-a-half years.

Once all the locomotives have been delivered, Transnet will have met all its rolling stock requirements outlined in its ‘market demand strategy’ – which the company said represents a “record-breaking” infrastructure investment programme worth ZAR 307bn [$30bn].

Transnet group chief executive Brian Molefe said: “This marks a significant milestone in the company’s history together with substantial socio-economic benefits for South Africa. The drive to modernise our fleet is intended to improve reliability and availability of locomotives. This will improve customer satisfaction, ultimately leading to our crucial goal of road-to-rail migration of cargo in line with government’s objectives.”

All the locomotives, with the exception of 70, will be built at Transnet Engineering’s plants in Koedoespoort, Pretoria and Durban, in line with commitments to boost domestic manufacturing capacity. Transnet Engineering is the company’s engineering, manufacturing and rolling stock maintenance division.

Transnet said the suppliers have complied with and exceeded the minimum local content criteria for rolling stock of 60% for electric locomotives and 55% for diesel locomotives. According to Transnet, its role in the agreement will ensure that it gradually transforms into an original equipment manufacturer.

Transnet said it will share around 16% of the total build programme – about a third of which “will be outsourced to local emerging engineering and manufacturing firms”. Transnet said this would enable it to “create export capability for locomotives and related products”. In total, local works are expected to contribute more than ZAR 90bn [$8.5bn] to the economy.

Molefe added: “This transaction is intended to transform the South African rail industry by growing existing small businesses and creating new ones. We are going to create and preserve approximately 30,000 jobs.”

The majority of the locomotives will be deployed in Transnet Freight Rail’s general freight business (GFB), which is all cargo – excluding dedicated heavy haul lines for iron ore and coal. Freight Rail, which accounts for about 50% of Transnet’s revenue and capital expenditure requirements, will increase its volumes to 350 million tonnes from the current 207 million tonnes. Just over 60% of the growth will be from the GFB, Transnet said.

Transnet’s freight demand forecast published in 2013 projected that freight handled in South Africa would grow from 789 million tonnes per annum (mtpa) to 2,157 mtpa by 2042, with mining and minerals comprising the largest components of the growth over the 30-year period. The forecast said: “This elaborates the importance of South Africa as a mining giant and depicts the potential importance of Transnet in enabling the supply chain of the mining industry in South Africa.”

According to the National Planning Commission (NPC) of South Africa, the country’s logistics industry handled 1,530 million tonnes of freight over 363 billion tonne-kilometres in 2009, at a total cost of ZAR 323bn [$30bn]. In 2008, 14.7% of the country’s gross domestic product went towards logistics costs.

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