High hopes for R17bn Swaziland rail

[miningmx.com] — THERE’S a lot of excitement about Transnet SOC and
SwaziRail’s R17bn Lothair rail project, unveiled earlier this month.

For starters, it’s the first new freight railway line to be built by South Africa in about
a quarter of a century. Secondly, it cuts through Swaziland in a way that could
stimulate economic activity there.

An economic resurgence in Swaziland might be ambitious, although ironically
Swaziland’s GDP is so small that its R5bn capital contribution to the project actually
meets the World Bank’s criteria for developing economies: that they invest
4% annually of GDP in infrastructure in order to avoid poverty.

Public Enterprises Minister, Malusi Gigaba, did much to spin the railway as a regional,
SADC-inspired outreach.

Speaking at Lothair Junction in Mpumalanga, where the first sod on the project was
ceremonially turned, he told the local mayor and other dignitaries that the rail would
finally link Swaziland with Botswana and Mozambique, not to mention South Africa.

“Development of infrastructure will help reposition African economies and alter the
patterns of change with the developed markets,’ he said.

Certainly there’s truth to the aspiration, but one knows the momentum for the
Lothair development is firstly about accommodating more coal haulage on Transnet’s
Ermelo to Richards Bay coal line, currently at a 70 million tonnes/year (Mtpa)
capacity.

If Lothair really does help stimulate economic activity, one suspects this will be a
happy by-product.

“It’s a subsistence, feudal society,’ says Investment Solutions’ senior economist,
Chris Hart. “It doesn’t really have the resources to run its government.’

This raises the question as to whether SwaziRail can shoulder the R5bn capital
burden on the project, especially as it’s seeking a bailout loan from another
country after refusing to accept a condition-heavy offer from South
Africa.

Transnet spokesperson Mike Asefovitz says default has been factored into the risk
profile of the Lothair project. “SwaziRail has the money,’ said Molefe in an interview
with Finweek last year.

There are other headwinds, technical in nature, to consider. In a flyover of the
proposed 46km greenfields part of the rail, the terrain becomes increasingly rugged,
therefore requiring tunnels.

In order to build them – two are required – Transnet “blows up the mountain,’ then
rebuilds the tunnel roof. That’s the way Brian Molefe, Transnet Group CEO explains.

“It’s not cheaper, but it’s easier to do it that way,’ he says.

For now, the task is to address the environmental issues that building a railway
through rolling hills presents. Then there’s also land that needs to be bought.

Again, this is a vexed matter. Gone are the days when Transnet could simply
expropriate land for economic development.

It now has to buy up the property – each and every lot, farmhouse and henhouse –
requiring negotiations with farmers and private landholders.

The railway is projected to be completed in 2016.

WHAT IS LOTHAIR?

Lothair is the name of the junction that was established specifically for the logging
industry. Timber was transported from the town to Johannesburg’s gold mines,
where it was used as underground supports.

Transnet and SwaziRail’s plan is to upgrade the Davel to Lothair line for general
freight at a cost of R2.2bn, and then build an entirely new rail from Lothair to
Sidvokodvo in Swaziland.

Two other upgrades of the line to Maputo in Mozambique, and on part of the line
heading south to Richards Bay, are also planned at a cost of R1.8bn and R4.6bn
respectively.

All in all, the new and upgraded Lothair line will handle 16Mtpa and 35Mtpa of general
freight in its first and second phases; freight that’s currently carried on through the
busy Ermelo junction and on the line to Richards Bay.

The spare capacity that Lothair will free up would allow coal haulage on the Richards
Bay line to eventually reach 100Mtpa, according to Molefe.

– The article first appeared in Finweek. If you want to subscribe to the digital
format of Finweek visit www.zinio.com.