Transnet secures funding for South African locomotive programme

Transnet said it concluded agreements on 2 March for the combined funding from various funders and financial institutions from Canada, the US and South Africa.

The first agreement is a ZAR 6bn funding guarantee from the Export-Import Bank of the United States for 293 locomotives to be built by General Electric South Africa Technologies, Transnet said. The funds in terms of the guarantee are ZAR 2.25bn ($191 million) from Barclays and South Africa’s Absa bank, ZAR 2.25bn from South Africa’s Standard Bank and ZAR 1.5bn ($127m) from the international investment, savings, insurance and banking group Old Mutual.

The second agreement is a ZAR 6.99bn loan facility for the funding of locomotives from Bombardier Transportation South Africa. The funds raised will be ZAR 5.24bn ($445m) from Export Development Canada and ZAR 1.75bn ($148m) from South Africa’s Investec Bank Limited.

Transnet said: “The US Exim–backed loan is a 14-year facility and will be drawn over a three-year period in line with the delivery schedule for the locomotives. The Export Development Canada and Investec facility is 13 years.”

Transnet group chief executive Brian Molefe said: “The locomotive build programme is critical for the implementation of our ‘market demand strategy’ and is proceeding according to plan. It is intended to modernise our fleet in a decisive drive to improve the reliability of our service. More importantly, this programme is critical in our pursuit of the crucial goal of migrating rail-friendly cargo off our roads.”

Molefe said: “All the bidders have committed to stringent local content. Even though the threshold for supplier development in the tender documents was 40%, we are proud to announce that all of the winning bidders have so far exceeded 60% and we are still pushing for a little more.”

Funding for the programme follows Transnet’s announcement last March of what it said was the biggest locomotive supply contract in the country’s history to Chinese and South African firms. Transnet said the ZAR 50bn ($4.2bn) contract to build 1,064 locomotives is South Africa’s single biggest infrastructure investment initiative by a corporate to date and is designed to support government efforts aimed at ‘road-to-rail migration’.

Under the terms of the contract, China South Rail Zhuzhou Electric Locomotive and Bombardier Transportation 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.

All the locomotives, with the exception of 70, are being 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.

According to Transnet, 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 roughly 50% of Transnet’s revenue and capital expenditure requirements, will grow its volumes to 350 million tonnes from the current 207 million tonnes,” the company said. “Just over 60% of the growth will be from the GFB.”

The African Development Bank’s ‘Results-based Country Strategy Paper for South Africa’ (34-page / 384 KB PDF) for 2008-2012 said major investment plans by state-owned enterprises such as Transnet presented opportunities for further involvement by the private sector in supporting greater investment in the nation’s infrastructure.