Ladies and Gentlemen
We are profoundly honoured to address you today on South Africa’s infrastructure programme and investment opportunities.
Australia is an important partner for South Africa in advancing the socio-economic interests of developing nations.
This is specifically evident in multilateral forums where the two countries have shared positions on the World Trade Organisation (WTO), United Nations (UN) reforms, and transformation of the international financial architecture.
The President of Republic of South Africa, His Excellency Mr Jacob Zuma, in his State of the Nation Address on 9 February 2012 introduced the government’s infrastructure plan that represents a bold, strategic and integrated platform to mobilise the state, private investor and the South African public behind a clearly articulated narrative of investment opportunities in South Africa.
The South African infrastructure investment programme will dramatically transform our economic landscape.
An additional 11719 MW will have been added into the electricity system and 6596 KM of transmission network installed to support security of supply.
Existing logistics corridors will have been expanded upon and new corridors will have been built.
1317 new locomotives and 25 000 new wagons will have been procured in a manner that puts in place a world class, export oriented, rail manufacturing sector.
6405 KM of rail will have been replaced for the general freight, coal and iron ore lines, thus increasing rail network capacity by 149.7 million tones and,
13125 KM fibre optic cable would have been refurbished and strengthened to ensure carrier grade status and our broadband network would have been expanded to include the Metros and under-serviced areas.
Three of our State Owned Companies in South Africa, Eskom, Transnet and Broadband Infraco are an integral part of the implementation of this plan.
Eskom is one of the top 20 utilities in the world in terms of its generation capacity. It has a net maximum capacity: 41,194 MW. It generates approximately 95% of the electricity used in South Africa and more than 40% of the electricity used in Africa.
It operates 27 power stations which are predominantly coal power stations with a mix of nuclear, open cycle gas turbine, hydro and pumped storage plants and has 395,582 KM of transmission power lines and cables.
Transnet is a public company, wholly owned by the Government of the Republic of South Africa and is the custodian of rail, ports and pipelines.
Transnet contributes to the competitiveness, growth and development of the South African economy through reliable freight transport and handling services that seeks to satisfy customer demand.
Broadband Infraco is a licensed State Owned Company in the telecommunications sector. It is intended to improve market efficiency in the long distance national and international connectivity to Metros and previously under-serviced areas.
South Africa’s infrastructure programme is complementary to the New Growth Path (NGP) and Industrial Policy Action Plan (IPAP2) which aims to address the challenge of high unemployment by developing local manufacturing capacity.
The infrastructure programme is intended to meet the New Growth Path objectives, which include skills development, youth employment and efficiency targets.
We are of the opinion that, in uncertain economic conditions like those that prevail at present, the State Owned Companies and the private sector have a heightened responsibility to invest in the economy and create jobs.
This is key to SA’s growth objectives to deliver lasting economic, social and environmental value to society.
A combination of strategic partnerships and the successful execution of the infrastructure programme will stimulate economic growth in SA. This remains a huge challenge for the delivery of these projects.
In response to this plan, Transnet through its Market Demand Strategy (MDS), this is aimed at expanding SA’s rail, port and pipelines infrastructure.
It intends to significantly increase freight volumes, speedier turnaround times and efficiencies, especially in commodities such as iron ore, coal and manganese.
This paradigm shift will also lead to a significant modal shift from road to rail.
As part of its expansion programme, Transnet will be accelerating its investment to R300 billion over the next seven years and improving reliability and operating efficiencies, which are expected to create about 588 000 new job opportunities across the economy.
Eskom’s contribution to the New Growth Path is central to the socio, political and economic goals of Government.
Eskom will strive to achieve global competitiveness through a series of integrated socio-economic interventions that improve the country's vital infrastructure, human resources and its global strategic alliances.
In the process over 42 000 direct jobs will be created through the implementation of the R390 billion capital expansion programme.
Our State Owned Enterprises are committed to using their significant capital investment programmes to advance government’s economic development objectives, including skills development and transfer, job creation, Broad-Based Black Economic Empowerment (BBBEE) and Competitive Supplier Development Programme.
Companies seeking to partner with SOCs must comply with government laws and SOC procurement policies.
Transnet Capital Expenditure Programme
Furthermore, the Transnet capital expenditure programme of R300 billion will be allocated as follows; 68.2% to rail, 26.6% to ports and 5.2% to pipeline and other infrastructure projects.
The capital investment programme will allocate 58% to capacity expansion projects and 42% towards the replacement or refurbishment of existing assets.
Some of the major projects include:
(a) the increase of export coal line from 68 million tons to 97.5 million tons,
(b) increase in export iron ore line from 53 million tons to 82.5million tons,
(c) increase in general freight business rail capacity from 79.7million tons to 170.2 million tons,
(d) increase in export manganese line from 8 million tons to 16million tons,
(e) the increase in container volumes handled through the ports from 4.3 million to 7.6 million twenty-footequivalent unit containers (TEUs), and
(f) also the completion of the New Multi-Product Pipeline (NMPP).
The successful implementation of the Market Demand Strategy (MDS) will see Transnet’s revenue almost triple from R46 billion to R128 billion over the next seven years. Driven by strong volume growth this will position Transnet as a top-tier logistics and transport provider.
The rail division of Transnet, Transnet Freight Rail (TFR) which will take up the greatest proportion of the investment programme, will become the world’s fifth biggest rail freight company.
Rail volumes are projected to increase from approximately 200 million tons to 350 million tons during the period. By 2019, Transnet Freight Rail will increase its market share of container traffic to 92% from 79% currently. The increase will have a major impact on reducing the cost of doing business.
In addition, the large scale shift from road to rail will address costs, congestion on road and reduce carbon emissions.
Containers handled, will grow from 4,3 million Twenty-Foot Equivalent Unit Containers to 7,6 million Twenty-Foot Equivalent Unit Containers, while petroleum products through pipelines will increase by over 3 billion litres to more than 20 billion litres by 2018/19.
Regional Integration in Africa
Transnet is currently working in partnership with a number of African countries on key transport infrastructure such as ports, railways and pipelines.
Given the reality that intra-Africa trade is only 12%, Africa needs to prioritise improving its logistics infrastructure, in order to increase the volume of trade amongst African countries.
Transnet has and continues to supply locomotives, wagons, coaches, and offer port rail solutions and technical advice to several African countries.
Transnet is a self-funding company that operates without guarantees or subsidies from the fiscus. The portion of capital expenditure which will be funded from operating cash-flows is 70%, and the balance of 30% will be funded externally.
Transnet is diversifying its sources of funding to include commercial paper, domestic and international bonds, bank loans, development funding institutions and export credit agencies.
Transnet’s investment programme is closely linked to transformation agenda coordinated through the Competitive Supplier Development Programme (CSDP) and BBBEE Programme to ensure localisation, skills development, skills transfer and job creation.
In this regard, 50% of the R78 billion set aside for locomotives will be spent on local suppliers.
The overall target for the infrastructure spent for Transnet is 66% local content of the R300 billion.
Central to the implementation of this capital infrastructure programme is the role and strategic partnership with the private sector.
Private sector investment in rail, port and pipeline businesses is essential for the development of South Africa’s freight system.
Potential private sector participation (PSP) can be in the following business areas; rolling stock, port terminals, inland terminals, the Durban dig out port, the Ngqura container terminal, bulk terminal operations, marshalling yards and an import fuel terminal in Durban.
Eskom Capital Expenditure Programme
South Africa is embarking on an unprecedented energy capital investment programme and Eskom will play a critical role in the implementation of the Integrated Resource Plan (IRP) 2010, which articulates South Africa’s energy mix for the next 20 years.
The IRP 2010, which was promulgated in May 2011, is the South African Government’s plan which outlines what South Africa’s electricity demands are, how this demand will be supplied, and also provides an estimate of how much capital will be required to build the supply capacity.
Eskom's committed capital investment programme up to 2017 is approximately R390 billion. The current capital expansion projects will increase generation capacity by 12 000 MW and its transmission lines by 4700 kilometres.
The capacity expansion programme aims to both meet increasing demand and to diversify Eskom’s energy sources.
Eskom will provide South Africa with the required power capacity and power lines including refurbishing operation plants and distribution networks to support SA’s growing economy.
Its current mega infrastructure projects include the Medupi coal power plant. The Medupi power plant is the first of the two new coal-fired stations currently under construction. The plant is expected to add 4800MW into the grid after completion. The first unit is expected to come online by the middle of 2013. The total project cost to completion is approximately R98.8 billion including transmission integration
The second coal power plant is the Kusile Power Station. Eskom has resumed construction and contracting on Kusile and it expects the first unit to be commissioned by the beginning of 2015.
The power plant is expected to add 4800MW into the national grid. The total project cost to completion is approximately R121 billion including transmission integration.
The third mega project is the Ingula Pumped Storage, which is expected to add 1333MW into the national grid. The plant is scheduled to come online during 2014. The total project cost to completion is estimated at R22 billion.
The other mega project is the transmission line projects of 4 700 km from inception of the build programme since 2005.The total cost to completion is approximately R23, 5 billion.
Other projects include the Return to Service projects (RTS) power stations which comprise of Camden, Grootvlei and Komati power plants. The total cost to completion for these projects is approximately R25, 24 billion.
Most of the funding for these projects has been secured from various funding sources such as Export Credit Agencies, domestic and international developmental funding institutions as well as local and international bond markets. Approximately 75% of the funding for these infrastructure projects has been secured, 25% still needs to be secured.
Eskom continues to explore various funding sources with favourable funding terms and conditions for its build programme planned to be completed by 2017.
Eskom’s investment programme is also linked to transformation and co-ordinated through the Competitive Supplier Development Programme (CSDP) and BBBEE Programme. Eskom’s development goal is to use procurement to transform its supply chain.
Through the Competitive Supplier Development Programme, we have set targets by stipulating specific key performance indicators for Eskom. The targets are 52% local content and 70% BBBEE is envisaged.
The Integrated Resource Plan 2010 will require significant funding and strategic partnership. The allocation decisions are yet to be made by the Minister of Energy.
Eskom as a state owned company will have a significant role to play in the implementation of Integrated Resource Plan 2010.
At the core of the Integrated Resource Plan is South Africa’s need to diversify its energy generation capacity to take cognisance of new renewable energy sources without compromising security of supply.
The objective of the Integrated Resource Plan 2010 is thus to strike a balance between gas emissions, the cost of electricity generation, and to ensure security of electricity supply for sustainable economic growth, and the creation of sustainable jobs.
The role and participation of the private sector will be enhanced and Eskom is exploring mutually aligned and beneficial strategic partnerships with the private sector.
In conclusion, I should like to attest that South Africa presents an opportunity for investors and technical partners to work with our State Owned Companies in the successful implementation of the R690 billion infrastructure programme which is catalytic to the integrated New Economic Programme for Africa’s Development (NEPAD).
In the implementation of this programme it is essential that jobs are created locally and that local manufacturing industry is stimulated. It is our expectation that our prospective partners will support us in realising this vision and ensure that there is skills transfer and development, as well as providing funding on equitable terms.
South Africa and all other countries on the African continent abound with investment opportunities.