http://www.businessday.co.za/articles/C ... ?id=139321
Call on business to fund rail revamp
State unable to finance ambitious passenger railway upgrades looks to private sector partnerships
By ALISTAIR ANDERSON
Published: 2011/04/06 06:40:13 AM
THE Passenger Rail Agency of SA (Prasa) is imploring private investors to help fund SA’s biggest investment in the rail industry in almost three decades. Prasa said yesterday the state would be unable to fund the most ambitious modernisation and expansion of rail in 30 years, but wanted a minimum level of 65% local content.
CEO Lucky Montana and Transport Minister Sibusiso Ndebele were among government officials who yesterday addressed potential manufacturers and financiers in the programme, worth R97bn over 18 years. Mr Ndebele said the initiative could create between 72000 and 100000 job opportunities.
SA has not invested in passenger rail for about 30 years. Limited new stock has been purchased primarily from foreign companies, which has meant that SA lost the capacity and skills to make rolling stock for rail.
Prasa’s Piet Sebola, who is overseeing the project, said an interdepartmental task team — including the departments of transport, public enterprises, the Treasury and trade and industry — wanted a minimum level of local content of 65% to be achieved.
Prasa group executive of strategic asset development Dries van der Walt said it would investigate local capacity. The levels of production foreign investors regarded as being profitable would also need to be understood so that the correct balance of local and foreign involvement could be established.
Mr Montana said there were pockets of skills and capacity which could make the changes needed to run a world-class transport system. He admitted that Prasa and the companies involved in servicing passenger rail had weakened over the many years that investment had been scarce.
Passenger trips numbered 700-million annually in SA 20 years ago, but had shrunk to about 600-million today.
Mr Montana said the state needed private assistance to compete with German and Chinese rail standards. He believed SA had many people who could maintain trains, but could not design them to Prasa’s specifications.
Prasa decided to approach investors months before the conclusion of its feasibility study for the project is finished in June.
"Prasa cannot fund this project on its balance sheet alone, so we are starting early to ensure things work well," Mr Montana said.
Procurement should begin by March next year and Prasa expects a bidder to be chosen by August. The first 6600 coaches are to be delivered during 2015.
Investec head of asset-based finance in its capital markets division, Reagile Moatshe, said the project would involve a complex funding process. "Prasa is a primary provider of mass transportation …. It relies on subsidies and support from government to continue providing its primary service and this is expected to continue to ensure the successful rollout of this project." Prasa would have to implement an appropriate transaction structure and find an optimal mix of capital (equity and debt) to ensure the project was financed adequately, Mr Moatshe said. "The end result of taking on the debt obligations arising from the capital expenditure programme should ensure that Prasa continues to provide transportation at affordable prices to its target market," he said. "Investec understands the magnitude and importance of such a project and is considering the extent of its appetite to participate in the project."