“I THOUGHT I was bored for five minutes once,” says the American railwayman as he wanders around the site of the previous night’s train wreck, picking his way over torn sleepers and bent rails, and staring at the freight cars lying on their sides in the Mozambican bush. “But I was wrong.”
Operating railways in Africa is not for the fainthearted, but that has not stopped South African companies from piling into rail projects across the continent as it undergoes a rail and infrastructure renaissance worth billions of dollars.
From Sierra Leone to Ethiopia, Kenya to Mozambique, governments and mining companies are rehabilitating decrepit state-owned railways or building new lines to carry minerals to feed the global commodities boom.
In West Africa alone, some 5 000km of railway track and almost a dozen new ports have been built, or are planned. Closer to home in Mozambique, rail companies are developing rail and port infrastructure to properly exploit the Moatize coalfields near Tete.
Where governments and mining companies would once have looked to Europe or the US for locomotives and rolling stock, now they are doing business with firms in China and South Africa.
One such company is Port Elizabeth-based Sheltam, which hires out mainline diesel locomotives and offers rail operating expertise to railways throughout Southern Africa.
“I wouldn’t call it a boom,” said Sheltam managing director Roy Puffett, “but there is definitely a lot of activity.”
Sheltam, which has a fleet of 40 locomotives and 420 staff, is operating in the Democratic Republic of Congo (DRC), Mozambique and Swaziland as well as pulling ore trains at a number of South African mines. In Mozambique, its engines haul coal for Brazilian miner Vale on the Moatize-Beira corridor.
“There are two sides to the current activity,” said Sheltam commercial director Wes Kruger. “One is commodity-driven, the other is corridor-driven.”
Corridors are in vogue in Africa, he said, because they help reduce the cost of doing business in economies where transport has for decades been monopolised by trucks.
“All countries have ambitions to get rail back to where it should be because the cost of road transport is high,” said Kruger.
“And there are risks with the road infrastructure.”
Sheltam’s model has been to supply locomotives and crews as a package deal to rail operators. In the DRC, however, demand for an alternative transport provider has spurred the company to become more of a logistics operator, said Puffett.
Sheltam has benefited from a long-running shortage of locomotives in Southern Africa where state fleets have been destroyed by war, accidents or shoddy maintenance. The company runs a mixed fleet of locomotives bought new from General Electric’s Brazilian subsidiary along with an assortment of refurbished diesels bought from Transnet.
“African railways don’t have a lot of cash -they can’t afford a $3-million or $4-million [about R44-million] locomotive,” said Puffett.
As a result, a lot of locomotive-leasing companies have set up shop in South Africa to facilitate the supply of locomotives to cash-strapped governments.
Thelo Rolling Stock, 50% owned by the Industrial Development Corporation, arranges financing for rolling-stock deals across the continent. Although young, Thelo is no bit player. T his month, it supplied the first of four locomotives and 75 ore wagons, part of a $17-million deal with Swaziland Railway.
In June, the firm secured financing for a $68-million deal to supply 16 new locomotives from General Electric (GE) for Vale’s Moatize coal operation.
The locomotives are the first of a vast fleet of GE diesels that will be hauling coal in Mozambique by the end of 2015.
“Vale was a very interesting transaction,” said Thelo chief executive Ronnie Ntuli with deadpan restraint.
“Actually it was momentous. It’s a big deal for Vale, South Africa, Mozambique, Transnet, Vale … it’s a Brics story more than anything.”
Thelo also arranged the financing for a $21-million deal for five diesel locomotives and 95 cars for Minas Moatize, near Tete.
The Minas Moatize locomotives were built by South African locomotive builder Grindrod Locomotives, a relatively new player.
Grindrod -which declined to be interviewed for this story -has built about 80 110-ton, 3 000HP diesel-electric locomotives at its Pretoria works and shipped them throughout Africa.
Not all railwaymen are enthusiastic about the “boom”. Henry Posner III, chairman of Pittsburgh-based Railroad Development Corporation, bemoans the fact that rail transport of general freight has not benefited.
“The lack of a programme for branch lines in South Africa is one of the best examples of this,” he said. “A general policy objective of rail use is to develop economies and that means diversifying away from commodities.”
That, said Posner, is not happening, even in South Africa where much of Transnet’s recent substantial largesse has been funnelled into the heavy-haul ore and coal lines, while trucks still dominate the single-wagon load freight business.
Privatising railways is uphill most of the way
THE locomotive building and leasing sectors may be booming, but it is a long leap from there to actually running a railway in another country.
Just ask Henry Posner III, a man the US press once dubbed “the Indiana Jones of African Railroads” for his willingness to operate in places other American railroad companies would not go.
Posner’s Railroad Development Corporation, a small Pittsburgh-based company, has an enviable record of taking over moribund railways in far-flung parts of the world and, along with suitable investors, operating them back to health.
In the late 1990s, the company won the concessions to operate Malawi’s rail network and Mozambique’s Nacala corridor, the country’s northern line which runs from the deep-water port of Nacala to link up with the Malawi network 872km to the west.
At the time, Posner noted that railroad privatisation had not been attempted before in Africa. “Normally the first people to do it end up being the lightning rod, carrying the costs and making the mistakes,” he said.
It took his company nearly seven years to get funding for the Mozambican part of the concession. Financing a railway on which he did not own any of the equipment was “very difficult”, Posner said.
Tim Schweikert, president and chief executive of General Electric South Africa, agreed that raising finance may be the hardest trick of all.
Getting the funding usually means first going to the offtakers, those who will be buying the service.
“But the off takers want the railroads up and running before they make any commitment. It’s a chicken and egg thing,” he says.
Railroad Development Corporation eventually raised a $29.6-million (about R328-million) loan from the Overseas Private Investment Corporation, which allowed it to get the Nacala corridor on track.
It worked out well. In 2008, after getting both the Malawian network — now called Central East African Railways — and the Nacala corridor back on their feet, the company sold its stake to local investors.
The next big challenge is the poor state of much of Africa’s rail network, said Schweikert.
“There is at least 20 years of work that needs to be done on the continent to get to the right level of rail infrastructure,” he said.
Then there’s the government: “It’s not easy negotiating with governments and railways particularly because they are monopolistic by nature and they hate sharing,” said Roy Puffett, MD of Port Elizabeth-based Sheltam, which hires out diesel locomotives.
“It’s almost a historic thing — they’ve been the provider and they don’t like admitting that they’ve failed and letting private operators into their domain.”
That may have been a factor in the protracted negotiations between mining group Exxaro and rail and government officials in the Republic of Congo over rail and port access agreements for the miner’s proposed Mayoko iron ore project. Exxaro planned to ship ore from Mayoko to Pointe Noire port on the state-owned Congo-Ocean Railway and had bought locomotives from Grindrod and acquired a large fleet of ore cars.
By early 2014, however, the project was on hold. Business Day reported in March that Exxaro had taken a R5-billion impairment on the project and its rolling stock was for sale.
Exxaro declined to comment, saying negotiations were at a sensitive stage. One observer suggested that Exxaro’s discussions with the Congolese government had been hampered by political naivety and the lack of a French-speaker on the negotiating team.
Posner is not as bullish as some would-be operators. “I regret to conclude that most countries are not serious about privatisation as we would recognise it,” he said.
• This article was first published in Sunday Times: Business Times