Address by Mr. Sibusiso Ndebele, MP, Minister Of Transport, During Prasa’s Market Engagement With Manufacturers and Financiers of New Rolling Stock

Gallagher Estate, Johannesburg, 5 April 2011

Deputy Minister of Transport, Mr. Jeremy Cronin;
Director-General of the Department of Transport, Mr. George Mahlalela;
Group CEO and Executives from our Passenger Rail Agency, PRASA;
Government Officials present;
Representatives of Local and Global Manufacturing firms and Financing Houses;
Members of the Media;
Distinguished Guests;
Ladies and Gentlemen,

Today marks a significant milestone in the history and development of passenger rail transport in South Africa. The market engagement we are launching today is a major step in the rollout of our rail modernization strategy. It forms an integral part of the development of a feasibility study for the acquisition of new and modern rail rolling stock for South Africa.

Today we stand on the brink of a major overhaul of our rail system in a way that will radically change the way South Africa travels. The acquisition of R97billion new stock for Metrorail and long-distance rail services will serve as the catalyst for the implementation of a major rail investment plan.

Today’s historic event also provides a solid platform for cementing the role of rail as the backbone of our public transportation.

Many of you have travelled from all corners of the world to express your willingness and commitment to partner with us in this historic journey. I would like therefore to take this opportunity to extend a special welcome to those manufacturers and financiers who have travelled across oceans to make this engagement a success.

We welcome you to our beautiful country and hope that the few days you spend here enable you to enjoy the hospitality of our people as well as give you an opportunity to understand our transport and railway systems.

To the local manufacturers and financiers, thank you for your commitment and the support you have already shown to the people of South Africa.

MARKET ENGAGEMENT PROCESS

As you are aware the Department of Transport, through its Agency the Passenger Rail Agency of South Africa (PRASA), is embarking on a bold and ambitious programme to invest in new rail rolling stock over a period of eighteen (18) years at an estimated cost of R97billion.

This programme will enable PRASA to procure new rolling stock and locomotives for the Metro service and the long-distance rail services. This will enable us to significantly increase the country’s passenger rail transport network, offering new routes and destinations throughout South Africa.

e cannot over-emphasise the fact that this will create opportunities for business, stimulate the rail engineering industry and related suppliers in the value-chain as well as contribute to our industrial policy objectives, especially the revitalization of our own industry, employment creation as well as development of new skills.

TAPPING INTO FIFA WORLD CUP LEGACY ON PUBLIC TRANSPORT

Government’s public transport plans are not a promise for the next millennium. Government is already implementing key elements of our rail investment strategy.

Many of you who witnessed the performance of our public transport system during the recent 2010 FIFA World Cup will confirm that we out-performed ourselves.

In fact, we should say unequivocally that the history of the 2010 FIFA World Cup will never be written without an acknowledgement of the enormous contribution of our modern upgraded road network, airports, municipal buses, Autopax’s new bus fleet, Bus Rapid Transit (BRT) system in cities like Johannesburg, and of course, the massive movement of fans and passengers to the soccer games on our refurbished trains and upgraded stations.

The Transport Family played a significant role and made South Africa proud. South Africa used the 2010 FIFA World Cup to create a lasting legacy for its people!

Today, we have transport infrastructure and modern systems that never existed 5 years ago.

• Through its commitment to FIFA and its Guarantees, our Government invested over R100 billion in our public transport system over the past five years.
• Passenger rail received over R25 billion to upgrade, among others, over 2000 commuter coaches, to enhance capacity on key corridors, improve the infrastructure and stations and implement relevant operational plans in preparation for the 2010 FIFA World Cup.
• The commuter route of the Gautrain Rapid Rail Link will open in June 2011. It will enhance passenger comfort between Pretoria and Johannesburg carrying over 40000 passengers each way in under 38minutes. The Gautrain signals a major beginning where rail is the backbone of our transport system.
• The Gautrain represents the first significant introduction of new rail technologies in our environment and we intend to build on this and extend it further to the east to ensure that through modern and reliable transport, the commuting masses of the former KwaNdebele area are able to participate meaningfully in the economy whilst bringing up their children in viable and better communities.
• Government has allocated R30.2 billion to PRASA over the next three years, with R19.5 billion earmarked for capital spending to further upgrade existing infrastructure, signaling system and rolling stock.

CASE FOR REFURBISHMENT OF RAIL

Today’s market engagement, however, comes against the backdrop of massive historical underinvestment in the sector, and is only one step in a series planned for the retooling and revitalisation of rail in our country.

To this end, we plan to engage further with the domestic and international market in June this year when we host an International Investors’ Conference in Cape Town. The Investors’ Conference is meant to attract investment into the broader transport sector and through partnerships place our sector as the true engine for economic growth and development.

The commuter rail service (Metrorail) provides over 2.4 million passenger trips daily, with passenger trips growing at an average of about 7.1% over the past 3 years and is expected to average 5% over the medium term.

The Metrorail service is affordable to low-earning workers who travel to and from work. Metrorail also enables many of the unemployed masses to access areas of economic and job opportunities.

These are mainly South Africans who are captive to rail transport and do not have the choice to switch to other available public transport modes.

Elsewhere, on the Moloto Road between Tshwane and the former KwaNdebele, over 40000 commuters are ferried in over 500 buses every day. They are subsidized to the tune of about R400million by the taxpayer.

Most commuters leave home at 3am and only get home after 9pm with destabilizing effects on family and society.

Both means of travel, by public rail and by the Moloto Road bus service, have been with us for many years prior to and since 1994. Both the Moloto Road example and that of Metrorail remind us of the extent to which we operate inefficient publicly funded transport systems.

In the case of Moloto, in 2009/10 we spent about R200million on bus subsidies on the Moloto Road. Put differently, we are spending per passenger more than the average wages of the commuters we transport every day.

The economic benefits of investment in rail transport are immeasurable. The benefits of an efficient transport system are many in terms of improved safety, reliability, productivity, employment creation and increased economic activity.

JOB-CREATION THROUGH RAIL PROGRAMME

key element of long-term investment in the New Rolling Stock Programme is to create new employment in the rail sector. It is expected that through this programme, between 72 000 – 100 000 “job opportunities” for skilled and semi-skilled labour force will be created over an 18year period.

Stimulating local rail industry will facilitate the up-skilling of South African engineers – training of mechanical and electrical engineers, technologists and technicians.

There are enormous benefits from the Industrial Policy perspective as outlined by the Department of Trade and Industry. The nature and size of the Acquisition Programme will enable South Africa to leverage on these initiatives to stimulate various industries, especially Rail Engineering and related industries in South Africa and within the SADC region.

The long-term benefits of developing rail infrastructure will advance Government Policy to promote local manufacturing capacity.

Manufacturing and vehicle systems technology upgrade is critical to the modernisation of South Africa’s and Southern African railways.

ROLLING STOCK ACQUISITION TO REVITALISE RAIL INDUSTRY

I am pleased to announce that PRASA has begun to rollout its National Signalling Upgrade Programme, with the 1st Phase commencing in the Gauteng Province this April and the rest to be implemented in the Cape Town Region and eThekwini region.

There must be effective coordination and sequencing of our strategic interventions under these programmes so that the modernization of rolling stock and infrastructure goes hand in hand. At the moment, the current rolling stock is old and dilapidated, with the majority of the current fleet built between the 1960s and late 1970s and still driven by 1956 technology.

• The major challenge we face today is that the current fleet and our entire rail system has reached the end of its design life. The system (technology, operations and service design) is no longer able to meet effectively passenger and economic demands and reached a stage where it must be replaced.
• The current fleet remains largely unreliable and characterized by overcrowding and poor on-time performance.
• It is therefore vital that we embark on this replacement strategy by 2013/14. There is an obligation for Government to act and to act now.
• South Africa procured a limited set of trains during the mid 1980s, which were bought from the Japanese and manufactured through a local company Dorbyl. This fleet, consisting of about eight train 8M sets, is still running effectively in the Cape region.
• Accompanying the effects of so many years of under-investment, we have seen how the fleet has deteriorated over the years, how its level of reliability has declined due to deferred maintenance and poor maintenance practices.
• This means that our commuter rail service continues to under-perform, to under-service the commuting public, undermine productivity in the workplace and restrict new business prospects throughout the country and region.

In order to deal with the historic under-investment in passenger rail, Government implemented a number of interventions, some of them already mentioned, which include amongst others:

• The Accelerated Rolling Stock Programme – which have already upgraded over 2000 coaches and improved on availability of trains;
• The Preventative Maintenance Programme on existing Rolling stock to deliver greater levels of reliability; and
• The Station Upgrade and improvement Programme.

Government has, in the recent Budget Speech of the Minister of Finance, made an additional allocation of R350 Million for the Accelerated Rolling stock programme, and an allocation of R1.1 billion for the signaling upgrade programme in the current financial year. These are major drives to ensure that our people enjoy better public transport in their lifetime.

It is one of the essential foundations to the continued growth and economic development of our country. There is no other way around this.

• The procurement of the rolling stock is a massive undertaking and will cost in the region of ninety seven billion (R97bn) ZAR.
• Such investment decisions cannot be taken lightly and must be done in the interests of the nation while providing long-term sustainable investment opportunities for the private sector manufacturers and financiers.
• Let us be clear, the coffers of the state are not sufficient to fund such a large progamme. Therefore, a significant and sustained commitment from local and international financiers will be required to complete the rolling stock renewal programme.
• To accomplish the goals of the programme, government will ensure that procurement is in line with our industrial policy objectives, such as the National Industrial Action Policy Plan (IPAP2) and the New Growth Path, which seek to enhance the growth and development of industry through local manufacturing and sourcing of local content.
• As important to our industrial policies is our commitment to Broad Based Black Economic Empowerment (BBBEE). This policy is the bedrock of our plan to return previously disadvantaged South Africans to meaningful participation within society in general and the economy in particular.
• This fits in with government’s long standing policy of meaningful job creation to reverse unemployment and to end poverty. Creating jobs and including all South Africans in the mainstream economy is an essential part of empowering our people.
• Through the current programmes such as the Accelerated Rolling Stock Programme, Station Upgrade Programme and the Signal Upgrade Programme, amongst others, we aim to create 5 000 jobs in the short-term. We aim to create 15 000 direct jobs over the next 18 years through the Fleet Acquisition Programme.

INCENTIVES FOR INVESTING IN ROLLING STOCK

We, however, are not unreasonable in our requirements for this programme. In fact, we have sought to achieve a delicate balance between our demand for modern, reliable trains with the commercial interests of rolling stock manufacturers and financiers.

As you may well know, the acquisition of new rolling stock comes a few months after our President, HE Jacob Zuma, outlined his vision on the occasion of his State of the Nation Address in February 2011.

As part of Government plans to promote investment, foster growth and create jobs for South Africans, the President outlined a number of incentives to be implemented this year. Among the key incentives from which our rail investment programme stands to benefit are:

Along with our demands, we offer significant incentives to those who wish to become our partners. Within our industrial polices we offer tax based allowances.

Government has put in place a twenty (R20bn) billion ZAR tax incentive to promote industrial investment through new manufacturing facilities and the expansion and upgrading of existing factories.

In addition, we offer grant-based incentives through the Enterprise Investment Programme for medium to large scale investment projects which exceed five (R5m) million ZAR.

This investment grant, which ranges between fifteen (15) and thirty (30) percent of a project and which cannot exceed thirty (30) million ZAR is also available for qualifying investments.

Furthermore, the Industrial Development Corporation (IDC), a Development Finance Institution (DFI) offers loan incentives for qualifying industrial investments.

These loans come in the form of mezzanine financing and performance bonds which are customized for individual projects. Financing options also include Revolving Credit Facilities, Acquisitions and Equity Transactions and Fixed Interest Rate

Whilst we do anticipate that significant support will need to be solicited through international partners, we have not forgotten about the local capacity within our borders.

For ordinary working South Africans and emerging contractors, this is your programme. You need to use this major initiative to ensure that it opens opportunities for greater participation.

By the time the first train is delivered, I want to see many of our own people involved in the rail engineering industry: they must manufacture, maintain and refurbish wheels, seats, components for propulsion systems, body building and maintenance of trains.

Most of all, we want to see this programme as a major opportunity to produce new skills in engineering, artisans and technologists from among our own people.

Ladies and Gentlemen, of utmost importance is that this intervention will restore public confidence in our public transport system and enhance the mobility of our people to reach their places of employment, enable them to access opportunities and contribute to building better and sustainable communities.

To make sure that all the issues I have raised are properly addressed and realized, Government, through PRASA, has already engaged the services of a professional team of Advisors to undertake a Feasibility Study for the procurement of the new rolling stock.

This is a goal which we intend to achieve within reasonable timeframes. We aim to complete the feasibility study by June 2011, with the Minister of Transport expected to take the matter to Cabinet immediately thereafter and commencement of the procurement process once Cabinet Approval is obtained.

In terms of the draft programme, we therefore expect the procurement process to commence immediately thereafter with March 2012 being the latest for the commencement of this important process. We have decided to engage with the rolling stock industry to determine what kind of new technologies are available.

We are keen to determine which of them are appropriate to provide sustainable services in the South African environment and importantly, how best to finance the preferred procurement option. In short, this is the purpose of the Market Engagement.

CONCLUDING REMARKS

• I cannot express how important your contribution will be over the next couple of days. We sincerely wish that the engagement will add significant value to the contents of the feasibility study and will inform the procurement documentation which will eventually be released to the marketplace.
• We have structured this market engagement such that each of the participants who have requested a meeting can engage with government to exchange ideas and gain further clarity.

In conclusion, I would like to personally wish everyone all the best of luck over the next few days and I am confident that you will have useful and mutually rewarding interactions with one another.

Again, my best wishes for this engagement and thank you for the opportunity to address you on this matter.

THANK YOU!