Transnet’s MDS: a model for global railway development

South African rail company Transnet Freight Rail (Transnet) recently announced a $36bn (R300 billion), seven-year capital investment programme aimed at revolutionising South African rail and creating up to 588,000 new job opportunities across this emerging economy.

"Another critical aspect of the MDS for South Africa is the development of skills currently lacking in the country, with efforts being focused on the training of artisans, engineers and engineering technicians."

The strategy will enable growth in key commodities, positioning South Africa globally in a number of ways including, according to Transnet spokesperson Mboniso Sigonyela, as "a key thermal coal exporter, the world’s leading manganese exporter, the leading logistics hub for sub-Saharan Africa, an increasingly important fourth-largest supplier of iron ore to China and a globally recognised benchmark for container and heavy haul operations".

Brian Molefe, Transnet CEO, backs this up, noting: "Globally, rail infrastructure is undergoing a major renaissance as an investment and a vehicle for the upliftment of citizens in an environmentally-friendly and cost-effective manner. We are proud to be part of this revolution."

The current railway network in South Africa will need major upgrading for this to be achieved. This has led Transnet to allocate R205 billion towards rail projects, along with R151 billion to general freight to support the projected growth in volumes to 170 million tons a year.

Encompassing rail, ports and pipelines, Transnet is backing the MDS to be instrumental in positioning South Africa as the integrated hub into sub-Saharan Africa, via several rail expansion projects, such as the export of wagons, locomotives and rail maintenance services and the growth of the Maputo Corridor – a major trade corridor connecting the South African areas of Gauteng, Limpopo and Mpumalanga with the Mozambican capital, Maputo.

The project also involves a proposed rail link with Swaziland – a building block towards an integrated regional rail system and a catalyst for further development of industries in the corridor.

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By GlobalData

According to Molefe, the 146km line between the two countries, combined with upgrading the adjacent networks in both countries, is vitally important for a number of reasons.

"When complete, this new line will create additional capacity of 15 million tons, which will predominantly be general freight volumes from the existing coal export line."

Container volumes handled through South African ports are expected to increase from 4.3 to 7.6 million twenty-foot equivalent unit containers (TEUs). The recent opening of the state-of-the-art deep water Port of Ngqura just outside of Port Elizabeth, meanwhile, is the culmination of a 12-year, R10 billion development project.

The port will promote South Africa as a regional trans-shipment hub, while the New Multi-Product Pipeline (NMMP), running between Durban and Gauteng, is aimed at developing the North-South corridor and positioning the country as a skill development hub for the rest of Africa.

Commissioned in January, the 712km pipeline network represents one of the country’s most significant capital investment programmes – a legacy asset – with an economic lifeline which will last more than 75 years, says Sigonyela.

"This is designed to enhance Transnet’s capacity to service the transport needs of refined petroleum products such as petrol, diesel and jet fuel along the Durban-Gauteng corridor."

South Africa’s modal shift from road to rail

The plan is for the MDS to catapult Transnet, which has the lion’s share of the investment programme, into the world’s fifth biggest rail freight company.

"Efficiency risks in rail will be addressed via a ‘Gold Standard’ operating model which Transnet will roll out to all the rail business units."

According to Sigonyela, rail volumes will increase from approximately 200 million tons to 350 million tons by 2019. He added that TFR plans to increase its container traffic market share from 79% to 92% in this time, significantly reducing the cost of doing business: "Studies conducted by Transnet show that rail in South Africa is on average 75% cheaper than road transport. The large scale shift from road to rail will ultimately address costs, congestion and carbon emission reductions, while removing trucks from the road will enhance road safety and reduce road damage."

Efficiency risks in rail will be addressed via a ‘Gold Standard’ operating model which Transnet will roll out to all the rail business units. Transnet has already begun investing in modern technology as part of its fleet renewal programme. Sigonyela points to the recent agreement to purchase 43 additional C30ACi locomotives from General Electric’s (GE) local arm, GE South Africa Technologies (GESAT), as just one example.

"The agreement took the total number of locomotives we have bought from GESAT to 143, as part of Transnet’s fleet renewal programme – a key element of the overall capital investment programme.

"Improving the average age of our assets is crucial in Transnet’s efforts to improve reliability, efficiency and the company’s ultimate goal of running a scheduled railway," he related.

The C30ACi is the first AC diesel-electric locomotive to be introduced in sub-Saharan Africa. These extremely powerful heavy-haul locomotives will be used to haul freight and coal. Equipped with electronic fuel injection engines, they will give superior fuel efficiency and lower operating costs, simultaneously reducing life-cycle costs and emissions. The C30ACi is the first locomotive in South Africa to meet the UIC2 emissions standards of International Union of Railways (UIC) for brake-specific nitrogen oxides, unburned hydrocarbons, carbon monoxide and particulate matter.

Transnet Rail Engineering (TRE) will support Transnet Freight Rail’s locomotive and wagon fleet plan to ensure assets are of a high quality, resulting in an improvement in operational efficiencies. Along with asset utilisation, this is key to Transnet achieving the road to rail shift.

Highlighting other key elements of the rail turnaround plan, Sigonyela says: "Central to our strategy is the improvement of operational efficiency and customer service delivery, supported by a new organisational model with customer-facing business units. A scheduled railway and an appropriately resourced train plan will be vital, as will a revised fleet plan an improved network."

South African railway skills development

Another critical aspect of the MDS for South Africa is the development of skills currently lacking in the country, with efforts being focused on the training of artisans, engineers and engineering technicians. "Our commitment is to train more people than we need through our specialised schools of rail, ports and pipelines," says Sigonyela, adding that of the R7.7 billion allocated to skills development up to 2019, R4.6 billion will be spent on bursaries and grants.

While this is a more than substantial investment, there is also a pressing need to ensure the effective delivery of promises, which Transnet will seek to ensure by prioritising skills development in order to promote a high performance culture.

This has already begun, with Sigonyela citing the fact that in the financial year to 2011, Transnet produced 500 newly qualified artisans. "Two hundred of these artisans were employed by Transnet, while the remaining 300 were made available for the market," he noted.

"While in 2009/10 we enrolled 1,100 artisan apprentices, 284 technicians and 377 engineers in the engineering skills pipeline."

Risk mitigation via a comprehensive implementation plan

"Encompassing rail, ports and pipelines, Transnet is backing the MDS to be instrumental in positioning South Africa as the integrated hub into sub-Saharan Africa."

As with any future strategy, there are certainly risks involved – some controllable and others not.

To back up the significant investment in the MDS, Transnet has devised an execution plan which Sigonyela maintains will be flexible enough to respond to external shocks from uncontrollable risks. "Moreover, we are building internal capabilities to build sufficient buffers in the plan to absorb changes," he says.

Transnet identified and assessed various risks including operational efficiencies, volumes and capital execution in the rail business, as well as the necessary associated governance to ensure delivery on schedule, to cost and of a high-quality.

There is also a need to achieve the volumes required to secure operational cash flows, but Sigonyela was quick to add that Transnet’s plan is capable of mitigating these and other risks and addressing all areas critical for the plan’s success.

"Overall capital risks will be mitigated through superior capital execution and improved procurement performance," he states. "The admittedly lower risks associated with volume growth will be mitigated through take or pay contracts on, for example, general freight business; these type of contracts with 12 of the top customers will secure a significant percentage of the volumes needed."

In conclusion, Sigonyela reflects that the MDS can only be built on a solid foundation, with the rail service supplier looking inwardly to develop this platform: "Transnet intends to build a strong performance culture and secure future funding cost-effectively while maintaining our credit rating without government guarantees," he asserts.

"Ensuring that whatever we do is sustainable and in line with policies and procedures will be critical, as will improved safety across all operations."