Germany boosts financing for South Africa’s ‘road to rail’ migration

KfW said the promotional loan, backed by a partial guarantee from Germany’s federal government, will contribute 20% to financing Transnet’s procurement of 240 out of a total 1,064 electric locomotives.

The bank said it approved the loan “to support South Africa's strategy to increase the efficiency and capacity of its freight transport sector, thereby achieving a modal shift from road to rail”. “This will reduce CO2 emissions and make an important contribution to protecting the climate,” the bank said.

KfW executive board member Norbert Kloppenburg said: “This project will play a pivotal role in South Africa's economic development and the creation of new jobs. The efficient transportation of goods will contribute significantly to making South Africa's economy more competitive.”

KfW said that, on behalf of the German government, it has provided around €1 billion to South Africa for projects since 1994, comprising grant funds of around €180m and KfW funds of around €820m, “especially in the focal areas of climate and energy, preventing violence and healthcare”.

Transnet announced in March 2014 that it had signed “the biggest locomotive supply contract in the country’s history” (3-page / 213 KB PDF) with the involvement of Chinese and South African firms. Transnet said the 50bn rand (ZAR) ($4.2bn) acquisition contract for the 1,064 locomotives was South Africa’s single biggest infrastructure investment initiative by a corporate to date and was designed to support government efforts aimed at ‘road-to-rail migration’.

Under the terms of the contract, China South Rail Zhuzhou Electric Locomotive and Bombardier Transportation will supply 599 electric locomotives, while General Electric South Africa Technologies and CNR Rolling Stock South Africa (Pty) Ltd will build and supply 465 diesel locomotives.

Earlier this year, Transnet concluded combined funding agreements (7-page / 108 KB PDF) worth a total of $1bn for the locomotives programme from various financial institutions from Canada, the US and South Africa.

In a separate deal, announced in May, the Development Bank of Southern Africa agreed to provide funding and expertise to help Transnet, boost private sector participation in its infrastructure investment programme.

Transnet’s freight demand forecast (28-page / 1.23 MB PDF), published in 2014, projected that demand for freight transportation is expected to grow from 762 to 1,954 million tonnes per annum over the next 20 years. Transnet said this represented an increase in volume of around 150%. By 2043, manufactured freight will represent more than 64% of all goods transported while mining freight is expected to be about 26%.