Transnet southern rail corridor upgrade taking shape

Transnet Freight Rail is making progress with its more than R1 billion plan to upgrade its southern rail corridor, which is vital to the automotive industry and other sectors.

The upgrading and development of the high-capacity southern rail corridor to Gqeberha, formerly Port Elizabeth, is regarded as strategically important to South Africa because it will take pressure off the KwaZulu-Natal corridor and the port of Durban as largely the sole port for imports and exports.

Read: Transnet unlikely to develop southern rail corridor anytime soon [Nov 2022]

Neale Hill, president of the Ford Motor Company Africa region, warned in November last year that the company anticipates it will have 79 trucks a day transporting its next-generation Ranger from its Silverton plant to the Durban port in 2025 if the challenges with the rail network are not fixed.

The rail link to the Silverton plant was an integral part of the development of the Tshwane Automotive Special Economic Zone (TASEZ), which was developed in tandem with Ford’s R15.8 billion investment in its SA operations and supplier tooling in preparation for the production of the next-generation Ranger.

Read:
Ford and its suppliers invest R20.13bn in South Africa [Feb 2021]
Ford SA makes further multi-million rand investments in Silverton plant

The new Ranger went on sale in South Africa in mid-2022, and exports of the model to more than 100 global markets began in February this year.

Bids being evaluated

Transnet confirmed to Moneyweb that a feasibility study on the southern rail corridor was completed in December 2021 to determine the scope, cost, schedule, and other key technical and commercial requirements that would inform the project.

The rail parastatal said it went out to market on a request for proposals in May 2023 to solicit the services of a turnkey engineering, procurement, and construction contractor to implement the project, and the tenders closed on 29 September 2023.

“The bids are in the process of being evaluated. In parallel to this, the funding arrangements are progressing with government,” it said.

Transnet said it anticipates awarding the contract for the execution of the rail work early in 2024, subject to the funding being secured.

It was previously estimated the project would cost about R1.6 billion, but Transnet stressed that the market will dictate the final cost of the project through a competitive process.

“This process is in progress, and details relating to costs are confidential,” it said.

Timelines

Transnet said its internal planning indicates that this project will take approximately 24 months to construct and commission.

“The forecasted completion date is anticipated to be in the 4th quarter of 2026.

“This, however, is exclusively dependent on the proposed implementation schedule of the preferred bidder, to which we are in the process of evaluation,” it said.

Transnet added that some detailed technical work and the environmental authorisation and procurement of long lead materials are required before the commencement of construction activities.

It anticipates that construction activities will commence in the third quarter of 2024.

It noted that the enabling port re-engineering and related construction work commenced in 2022, and certain components will be completed towards the fourth quarter of 2023.

“Phase 1 of the terminal expansion project at the Port of Port Elizabeth has been finalised, expanding capacity from 150 000 fully built units to 220 000 units,” it said.

“When complete, the project will increase capacity to 450 000 units.”

Funding issues

The government’s well-publicised constrained finances might pose problems in obtaining the necessary funding for the project.

Transnet confirmed that due to financial and funding constraints and related challenges, it is closely collaborating with national government and the Industrial Development Corporation (IDC) to finance and fund the implementation of the project.

“Transnet requires government support to augment tariffs, which will not allow full cost recovery,” it said.

“The IDC is one of our key financing and funding partners and has worked with Transnet in the validation of the business case as well as improving the commercial structuring of the project.”

Transnet has also made a submission to the National Treasury for funding support for the project through the Budget Facility for Infrastructure but indicated it was unable to provide any further commentary on the quantum of the funding contributions by the IDC and other funders “as these are still subject to internal governance processes”.

‘Meaningful engagement’

Ford South Africa corporate communications manager Dudu Nxele said the company has engaged with the IDC and Transnet on the Gauteng-Eastern Cape rail corridor project, known as Project Ukuvuselela.

“The project is underway, and stakeholders are committed to ensuring its success. We look forward to further engagement with the IDC and Transnet for clarity on the next steps,” she said.

Hill confirmed that there has been very meaningful engagement, particularly with IDC and Transnet, on the way forward.

“That is progress that we are seeing that we haven’t seen previously,” said Hill.

“And it’s been coming over a series of months that [we] have been working and having meaningful engagement. [It’s] not only Ford. I know VW has been having similar engagements with Transnet and the IDC.”

He added that Ford is looking at this project not only as a Ford solution but as an industry solution.

“The country has a strategic vulnerability being solely reliant on Durban as our import and export port.

“We need to be aware of minimising risk, and minimising risk is diversification, and we see an opportunity that says the southern corridor is the ideal opportunity, and that is why we and the industry continue to promote it.

“We are seeing progress. I’m looking forward to the day when it becomes meaningful progress where spades go into the ground,” he said.

Slot cancellations

Meanwhile, Transnet Freight Rail (TFR) and Traxtion Sheltam confirmed on Monday that they have both agreed to the cancellation of the conditional award of slots between Kroonstad and East London on the Cape Corridor.

As part of the process leading to the implementation of the National Rail Policy (NRP), Transnet initiated a project to sell slots on its rail network where excess capacity was available under Phase 1 of the initiatives to open access to third parties.

On 1 April 2022, Transnet advertised slots on the Container and Cape Corridors through a competitive open market process and the conditional award of slots to Traxtion Sheltam was announced by Transnet on 25 November 2022, subject to the completion of the application process.

Read:
Transnet opens up freight rail network to private operators [Apr 2022]
Transnet Freight Rail deems first stage of slot sales successful [Dec 2022]

This included fulfilling all conditions precedent before the planned start date of 1 April 2023.

Transnet and Traxtion Sheltam added that given the above scenario and the reform work that the Department of Transport and the Interim Rail Economic Regulator Capacity have embarked on, which informs Phase 2 of third-party open access regime, Transnet and Traxtion Sheltam have jointly agreed to terminate the current slots awarded under Phase 1.

“TFR and Traxtion Sheltam jointly recognise the increased speed of the Government’s Rail Reform agenda and acknowledge that the Government’s Rail Reform process will establish the infrastructure owners, infrastructure managers, and operators’ rights and obligations within an independent legislated framework, and it would be beneficial to align as soon as possible with those principles, requirements, and objectives,” they said.

Read: Urgent action is needed to fix SA’s crumbling rail network

Traxtion Sheltam said it is looking forward to participating in Phase  2 of the implementation of third-party access and the realisation of rail reform in South Africa.

Transnet said it is continuing to engage with all relevant stakeholders on third-party access where appropriate.