Short- to medium-term focus
Going forward, we will continue to develop opportunities in the port, rail and pipeline sectors, supporting Transnet’s geographic expansion revenue driver: creating a footprint for the Company beyond the borders of South Africa.
Our Capacity Creation Programme focuses on five core strategic areas, with projects and programmes grouped together based on the business outcomes. These five mega-programmes constitute 85% of the portfolio:
|Coal and mineral system|
|General freight business and rolling stock|
Coal and mineral system
Transnet has embarked on a programme to sustain and create rail infrastructure capacity to unlock the Waterberg and Mpumalanga coal reserves for Eskom power stations, domestic industrial users and export markets. In addition, various other mineral developments are being pursued in Limpopo for domestic and export purposes.
The Waterberg region has 40% of South Africa’s remaining coal reserves and is regarded as the next strategic growth node of the coal sector. The availability of infrastructure is critical to unlock the region’s potential and is a prerequisite for current and future mining developments. The investment will secure rail transport capacity from Waterberg for the export market and for domestic (Eskom) consumption. This project will be rolled out in a phased approach to align with validated demand.
General freight business and rolling stock
In the rail sector, the General Freight business presents the greatest opportunity for growth, with potential volumes increasing to 137,0 mtpa by 2024. Present market challenges have compelled Freight Rail to review the delivery of planned MDS rolling stock in line with the reduced capacity required. All rolling stock requirements are being prioritised for the areas where the much-
needed capacity is required and not affected by the changes in market conditions. Although locomotive shortages have historically been the main bottleneck to grow general freight volumes, the delivery of new locomotives must be adjusted in line with reduced business requirements. This still allows Transnet to retire the current aged fleet of locomotives (some exceeding 40 years), resulting in a reduction in locomotive capitalised maintenance.
The New Build Wagon Programme has not been left unscathed by market conditions. The need for efficient delivery of the New Build Wagon Programme, combined with the economic downturn, means that Freight Rail has a higher wagon capacity than volume demand. Going forward, Transnet has the opportunity to enhance efficiencies and increase wagon utilisation in line with Gold Class Railways internationally.
Freight Rail will continue to seek volume growth by serving existing and new customers, particularly in as much as Transnet’s regional strategy opens up new market prospects. As growth in Africa unfolds, the need for a modal shift in freight transportation from road to rail will become more urgent and the demand for new or refurbished rolling stock, together with associated maintenance services, will continue to increase. Engineering is already operating in this space and is well positioned to take advantage of the increased demand. It has extensive manufacturing facilities and the capacity of these facilities is easily increased through the introduction of additional shifts.
South Africa holds more than 80% of the world’s medium- to high-grade manganese ore reserves, making it a sustainable, lucrative supply market to Europe and China. Transnet is fully committed to developing a new, expanded manganese bulk ore terminal in the Port of Ngqura, fulfilling its promise to terminate operations at the current manganese bulk terminal in Port Elizabeth due to environmental challenges.
The demand trends and the goal for container trade is to maintain an efficient intermodal supply chain. The National Ports Authority has developed a strategy for port infrastructure development for container handling. South African ports currently handle a throughput of 4,5 million TEUs. Container movement through the east coast (Durban) comprises 65% of total container volume, which makes the east coast the leading region for container flows. The majority of these containers are utilised within the Durban, Pinetown and Cato Ridge area. Over the next 10 years, demand along the Durban–Gauteng corridor is expected to grow from
3,0 million to 4,2 million TEUs. Vessel technology is also forecast to change over the next 10 years, which will place demand on the ports for longer quays, deeper berths and channels, larger outreach equipment, higher efficiencies and state-of-the-art operations.
There is sufficient break-bulk capacity in most ports and, as a result, both Cape Town and Durban will convert break-bulk berths to cater for alternative commodities based on validated demand. In the ports of Ngqura, Mossel Bay and Saldanha Bay, break-bulk berths are planned for commercial reasons as these ports are strategically placed to harness oil, gas and other potential energy-related industries, and to support the fishing industry.
Dry bulk strategy
Dry bulk development is heavily export driven, with 82% of the total volume being made up of coal, iron ore and manganese. The balance comprises ferrous metals, magnetite and chrome.
Port of Durban
The Port of Durban is South Africa’s premier multi-cargo port and is counted among the busiest ports in Africa, handling over 80 mtpa of cargo. This is the leading port in the Southern African Development Community region and the premier trade gateway for South-South trade, Far East trade, Europe and the United States, East and West Africa regional trade. It is the international commercial gateway to South Africa and is strategically positioned on world shipping routes. The Port of Durban occupies a focal point in the transport and logistics chain with 60% of all imports and exports passing through the port. It therefore assumes a leading role in facilitating economic growth in South Africa. The main capacity focus for the port is ensuring safe berths and the protection of current and future revenue streams and the construction of berths that will cater for long-term future-generation vessels together with the flexibility to accommodate future changes in types of cargo handled in this port, including deep-water container handling.
The discovery of new oil and gas reserves in Africa has resulted in a significant demand for new refining, storage, pipeline and marine terminal infrastructure capacity, which translates into a broad list of new-build project opportunities. However, oil and gas commodity prices remain low and in some instances below project hurdle rates, and are placing a damper on new-build infrastructure development plans.
It is envisaged that numerous new-build opportunities will progress to final investment decision in 2018 and 2019, and will be issued to the private sector on a Build, Operate and Transfer concession. These projects signal a strong political desire to drive oil revenues and provide frontier economies an opportunity to enter the global oil and gas sector. Transnet is well placed to participate in such concessions given the sound operational and recent new-build experience that resides within Pipelines and Group Capital. This experience and the depressed development activity in this sector offers Transnet an opportunity to focus on developing strategies, partnerships and relationships with prospective developers. Pipelines is working closely with Freight Rail to offer an integrated pipeline and rail solution as an alternative to volumes presently being transported by road. This model can be replicated to service neighbouring countries such as Botswana and Zimbabwe.
Transnet has identified Ghana, Nigeria, Ethiopia, Djibouti, Kenya, Mozambique, Botswana and Tanzania as prospective markets.
In addition to geographic expansion, Pipelines will embark on a service offering development strategy to broaden its current service offering in oil and gas to a full supply-chain offering from ship to refinery/storage depot to field depots; and full supply-chain service offerings for liquefied petroleum gas and liquefied natural gas.
To safeguard capital value created in the short to medium term, we must adapt to changing market conditions in an agile way to protect important ratios until growth returns in earnest. Current market conditions continue to temper Transnet’s expectations while strengthening the Company’s resolve regarding its strategy. The MDS has been tailored to respond to market dynamics through employee dynamism, financial agility, operational unity and perpetual innovation. In implementing the MDS, the Company will focus on volumes, safety and capital optimisation in the new year and take advantage of available growth opportunities to ensure that the overall objectives of the MDS are ultimately achieved.