Infrastructure Development Cluster media briefing

Minister of Transport, Sibusiso Ndebele

A very good morning to you all, and welcome to this post-State of the Nation (SoNA) media briefing to articulate the delivery programme of the Infrastructure Development Cluster, as outlined by President Jacob Zuma on 10 February 2011.

The work of the Infrastructure Development Cluster emanates from Outcome 6: An Efficient, Competitive and Responsive Economic Infrastructure Network. On 29 October 2010, the Infrastructure Development Cluster Ministers signed their Delivery Agreement with President Zuma.

Key responses by the infrastructure cluster to SoNA

In his address on 10 February 2011, President Zuma referred to the expansion of digital services, water, electricity and transport infrastructure as essential to drive economic growth and provide jobs for all our people. Through Outcome 6 of the 12 Outcomes of government, we seek to devise corrective measures and interventions to enable government to ensure maximum impact of infrastructure investment in economic growth.

In order to address its mandate, the Infrastructure Development Cluster sectors have a responsibility to focus on the following identified key challenges:

• Insufficient and inadequate infrastructure network
• Uncompetitive environment and weak regulation
• Lack of infrastructure maintenance and refurbishment
• Operational inefficiencies.

Last year, we announced an infrastructure budget increase from R784 to R846 billion over the medium-term expenditure period, making it one of the largest expenditure programmes in the history of this country. The accelerated infrastructure programme allowed us to deliver a successful 2010 FIFA World Cup and set our country firmly on the growth path. This expenditure is credited with shielding South Africa from the worst effects of the economic crises that hit the world a few years ago.

Several urgent projects in the Infrastructure Cluster are being rolled out in order to place South Africa on a sustained growth path.

1. Securing electricity supply for jobs and economic growth

• Eskom has spent over R75.5 billion on the capital investment programme since 2005, and has delivered some 5 031 Megawatt of new electricity generating capacity into the system as well as thousands of kilometres (3 051 km) of high voltage transmission lines to transport electricity across the country.
• Eskom’s approved build-programme, including the completion of Kusile Power station in 2017, will spend another R549 billion. The timely completion of Eskom’s build programme up to 2017 is critical in ensuring South Africa’s security of electricity supply. Up to 2017, the country will however need additional investment in new electricity generating capacity by the private sector over the next few years up to the delivery of the first unit of the Medupi Power Station.
• Eskom, through its Medium Term Power Purchase Program (MTPPP), has signed agreements with three Independent Power Producers (IPPs) since April 2010, totalling some 277MW with a number of contracts in the final stages of completion, which will bring the contracted power purchases to around 400MW this year.
• Eskom has embarked on returning to service it’s previously “mothballed” coal-fired power stations, Camden (located near Msukaligwa/Ermelo), Grootvlei (located near Dipaleseng/Balfour) and Komati (located near Middelburg) after a period of approximately 20 years in long-term storage. The total RTS (return to service) portfolio will add 3 800MW nominal capacities to the national electricity supply system. The Camden Power Station was officially launched by President Zuma in October 2010.
• Eskom has taken measures to increase its coal stockpile average stock days to ensure that the targeted 42 days average across its power stations is met. South Africa’s longer-term electricity supply needs will be directed by the Integrated Resource Plan for electricity that is being finalised.
• The plan will determine the energy mix and associated funding requirements for the next 20 years. Energy Efficiency will play an increasingly important role in our country going forward, and is crucial if we are to see the next 2-3 years through in the context of a constrained electricity supply-demand balance.
• The prudent use of electricity by all South Africans, including households, industry, government and business, will assist Eskom in its resolve to keep the power on. All of us need to abide by the rule, “If you’re not using it, switch it off.”

2. Securing funding for electricity

• Budgets for infrastructure projects remain a challenge across the cluster and not least in financing mega projects for electricity. Government has come to the table and provided needed support to Eskom with a R350 billion guarantee framework. This will minimise the impact on electricity tariffs by enabling greater levels of borrowings from capital markets at the lowest possible interest rates.
• Government has also provided Eskom with much-needed equity in the form of a R60 billion subordinated loan to shore up its balance sheet, which has also served to improve its access to debt funding. Work is ongoing to find sources of funding to further strengthen Eskom’s balance sheet without placing undue pressure on the fiscus.
• Eskom has submitted a US $350 million loan application to the World Bank, African Development Bank and other co-financiers through the Clean Technology Fund (CTF), to finance a 100MW Concentrated Solar Power Plant and a 100MW Wind Power Plant. The CTF appraisal team was in South Africa (7 February to 12 February 2011) and the final outcome is expected in June 2011 at the very latest.
• Eskom intends to play a very significant role in the realisation of the targets set in the New Growth Path till 2015.A youth programme that supports about 5 000 young people to find their way into employment (up from 200) will be implemented.Eskom will provide apprenticeships to 10 000 young people in its pipeline (up from 4 500). Furthermore, it is estimated that 100 000 people will be employed or find employment through direct and indirect jobs in the new build programme.

3. Water services and infrastructure

• The Department of Water Affairs has identified seven (7) new augmentation water resources infrastructure projects to support the domestic, industrial, agriculture and energy sectors. Preparations are on track for the completion of the Vaal River Eastern Sub-System Augmentation Project (VRESAP) in Mpumalanga as per the plan (i.e. May 2012). Also, preparations are on track to implement the Komati Water Augmentation Scheme (KWAS) in Mpumalanga; Mokolo from Crocodile Water Augmentation Project (MCWAP Phase 1) in Limpopo and raising Hazelmere Dam in KwaZulu-Natal.
• The Department of Environmental Affairs led a process of formulating an effective and comprehensive national response to climate change through the Green Paper on a National Climate Change Response, which has now been gazetted for public comment.
• Upon receiving comments and suggestions on the Green Paper, the department will lead the drafting of the White Paper which should be completed by June 2011. The policy outlined in the Green Paper serves as the embodiment of the South African Government’s commitment to a fair contribution to the stabilisation of global greenhouse gas concentrations in the atmosphere, and the protection of the country and its people from the impacts of climate change.
• It presents Government’s vision for an effective climate change response, and the long-term transition to a climate resilient and low-carbon economy and society – a vision premised on Government’s commitment to sustainable development and a better life for all. Over the period 2011/12, 2012/2013 and 2013/2014, the DWA will create 20 792, over 23 000 and 21 909 jobs respectively through Water Augmentation, rehabilitation and refurbishment.

4. Communication infrastructure

• Broadband Infraco continues to invest in its national backbone fibre optic network with R243 million spent in the 2009/10 financial year. Broadband Infraco’s fibre optic cable network now covers approximately 12 250km country-wide, which enables the country to extend connectivity to the SADC Region to countries such as Lesotho, Namibia, Botswana, Mozambique, Zimbabwe and Swaziland.
• The 2010 Legacy Implementation plan was developed in June 2010 and is ready for implementation during February and March 2011. The two legacy projects are:

(a) The 2010 FIFA World Cup equipment that will be redeployed to two host cities (Cape Town and Tshwane). Telkom will also redeploy some of the equipment to exchanges in rural areas and utilise some of the remaining funds to connect the remaining 125 Dinaledi schools. The implementation of the project will roll over into April and May 2011.

(b) The Sentech Second Teleport, which was established for the 2010 FIFA World Cup, scope is now treated as a separate project, and we are awaiting the renewed 2nd Teleport proposal with costs and timelines.The remaining funds/savings of the 2010 Sentech project will be utilised for this purpose.The implementation of this will commence before March 2011, but will roll over into April and May 2011.

4.1.  Digital Terrestrial Television (DTT)

• Cabinet recently endorsed a decision by SADC to adopt the DVB-T2 technology standard for the implementation of the Digital Migration process.
• Cabinet further adopted December 2013 as the switch-off date of the analogue signal to the digital signal. This process will contribute to government’s job creation programme in manufacturing, packaging, distribution, installation, maintenance and content production.
• The migration process will result in the creation of more TV channels, therefore increasing the demand for more content. Government intends utilising the migration process as a catalyst for the resuscitation of the electronics manufacturing industry and to create more opportunities for the content production industry.

5. Transport infrastructure

The cluster is today reporting to you on three critical interventions in the transport sector. These are Road Maintenance, Rail Modernisation programmes and the Modernisation of our long-distance passenger and freight services.

5.1. Road maintenance programme

• In this regard we are rolling out the S’hamba Sonke (walking together) Programme, a new and innovative nation-wide drive to focus on the maintenance of our secondary road infrastructure using labour intensive methods of construction and maintenance. We have set aside R6.4 billion in 2011/12, R7.5bn in 2012/13 and R8.2bn for 2013/14, amounting to a total of R22.3bn in the medium term. At least 70 000 jobs will be created in 2011 through this programme.
• Historically as a country, we have invested mainly in the construction of roads without striking the balance between maintenance and construction. The international benchmark is a 60/40 split between maintenance and construction. In South Africa, the reverse applies and this programme is aimed at matching the international benchmark.
• S’HAMBA SONKE includes a massive pothole patching programme that will be rolled out nationally with immediate effect. Potholes will be patched nationally. We will launch a Pothole Hotline for road users to report potholes. S’HAMBA SONKE will no doubt arrest the decline of our infrastructure and create thousands of jobs.
• Roads Engineers and Superintendents will be deployed all over our network with the responsibility to address potholes. They will be charged with driving up and down stretches of road every morning in order to determine the daily condition of our road network. In this way, potholes will be identified and repaired early.
• We will streamline the procurement process so that the necessary skills and inputs are sourced through a specially designed procurement regime to ensure provinces are ready to implement, including setting up project management units in all provinces and nationally to ensure we are ready to roll by the beginning of the financial year.
• We will also explore the use of alternative technologies for the patching of potholes and the maintenance of roads.
• The question of roads financing is a challenge we face as a country. We have therefore decided to host a roads funding conference in March in Durban to which we will invite the roads sector to debate and recommend future funding options. We will look at options such as public partnership, user pay principle and other potential sources of funding so we avoid overburdening the user.
• The Johannesburg OR Tambo Airport Tshwane radius is a good example of the questions we face when having to build necessary and urgent road infrastructure. Congestion on Gauteng roads, especially between the OR Tambo International Airport, Tshwane and Johannesburg, cannot be resolved only through building new roads. A more sustainable approach is to increase the number of choice alternatives to the road user.
• As a result of recent interventions by DOT, the user in Gauteng now has more choices. They will be able to choose between the GAUTRAIN, the Gauteng Freeway between Johannesburg-Tshwane and ORTIA, the PRASA Commuter and Business Express as well as alternative routes. Both the Johannesburg-Hatfield route and the Gauteng Freeway Improvement Project increase viable options for the road user in Gauteng. All these projects, totalling about R60bn, come at a cost. The question South Africa must ask is where should this cost be located?

5.2. Rail modernisation programme

Gautrain

• The Gautrain forms an integral part of our rail modernisation programme. It provides our country’s busiest road network, the heart of Africa’s largest economy Gauteng, with a viable alternative to driving. The first phase of the Gautrain, consisting of the section between Sandton and OR Tambo International Airport, opened for service on 8 June 2010, in time for the FIFA Soccer World Cup.
• Starting in June 2011, the Gautrain will move at least 40 000 people hourly on the commuter line between Johannesburg and Tshwane stress-free and in less than 40 minutes! The system includes 125 feeder buses operated by a consortium that includes taxi operators. The cost will be less than that of driving to work, but more than the cost of existing public transport systems such as the taxi.

REA VAYA

• The delivery of commuter focused passenger services has been implemented no better than in Johannesburg, through the R7.9 billion Rea Vaya Bus Rapid Transit system.
• Since inception in August 2009 Rea Vaya has transported approximately 8 million commuters. Every day 30 000 passengers, some of them previous users of private vehicles, now use Rea Vaya. Early this month, we handed over the Rea Vaya project to a group of former taxi operators for them to run as part of the integration and efficiencies we are introducing to provide better public transport services for commuters. We have also successfully introduced the PRASA/Metro Rail Business Express between Johannesburg and Pretoria. So, in a radius of less than 100km, the state has invested over R50 billion in public transport over the past two years.
• For freight and mass commuter movement, rail is a key mode of transportation for South Africa and the rest of the world. There are three parts to our rail modernisation programme: The recapitalization of PRASA rolling stock, Extension of the Gautrain from Sandton to Hatfield, and the Modernisation of our long-distance passenger and freight services. Currently, PRASA has 4 638 coaches for Metrorail operations in Gauteng, Durban, Western Cape and Eastern Cape.
• About 97.5 % of the rolling stock, currently in operation, dates back to the late 1950s and the last new trains, comprising only 2.5 % of the commuter rail fleet, were purchased in the mid 1980s.
• The systems technology on this fleet is old and inherently obsolete and is therefore costly to maintain or refurbish and upgrade.
• The average age of the coaches is over 40 years.
• The life expectancy of the rolling stock is in the order of an average 54 years.
• The norm around the world is for coaches to be upgraded at 27 years, and overhauled every 9 years. This is to ensure that the structural and sub-systems integrity is not compromised by metal fatigue, age, wear and tear or environmental condition.
• Yet, thirty-three (33%) of our fleet is already above 36 years and therefore would be uneconomical to upgrade and unsafe to operate.

5.3 Modernisation of our long-distance passenger and freight services

• The modernisation and upgrade of our infrastructure is therefore an urgent matter that cannot be delayed any longer. At the same time, as we build congestion free highways in Gauteng, we are also engaging in a comprehensive rail upgrade that looks at placing rail at the centre of our freight and commuter movement. It is rail -not private cars- that is the future of our public transport system. The Gautrain is one significant new part, being completed in June 2011 that will ease commuter movement in Gauteng. But, at this life cycle stage, rail requires yet more investment in this province and elsewhere in the country if we are to move cars and appropriate goods onto trains.
• The average age of the locomotive fleet, operated by Shosholoza Meyl on all routes nationally, is of the order of 33 years.
• Of Shosholoza Meyl’s current locomotive stock of 124, approximately 65% (about 80 locomotives) should have been replaced by 2010 and a further 20% (about 26 locomotives) should be replaced by 2024 on account of age.
• Of the passenger coach fleet, 8% (about 103) of the coaches will have to be replaced in 10 years’ time and a further 14% (about 182) should be replaced in 15 years’ time. It is quite clear that infrastructure across the cluster requires massive investment.

There are generally three sources of funding for transport infrastructure:

• Fiscus
• Private investment
• User pay principle.

As a country, we have accepted that to sustain investments we need a combination of the three. Our initial estimate for the roads sector alone is R75 billion just to deal with the maintenance backlog, for commuter rail services R93 billion, Shosholoza Meyl requires investment ranging from R260 to 300 billion! These are staggering figures by all standards. Some countries including France, Germany, China, USA, Canada and South Korea are ready to finance our rail expansion. To focus on roads does not mean we stop building new roads and maintaining existing infrastructure.

Our ultimate goal is to have an appropriate modal split across modes - commuters moving mainly through rail, appropriate goods on rail and road and using our maritime and aviation transport to move people and goods without stressing one mode through inappropriate cargo or congestion.

Over the next six months, starting with the Roads Conference in Durban in March to our International Investors’ Conference in June, we will be engaging broadly to find financing options for our projects. We must ensure that the projects are funded through an equitable split between private users and funders.

More than any other in South Africa, the Gauteng user today faces choices based on cost and the degree of convenience. The varied the choices the easier the decision. This is the desired end state we want to see in the rest of the country. It is today the turn of the people of Gauteng but tomorrow it must be rural South Africa. The people of Musina in Limpopo, Ulundi in KwaZulu-Natal, and Umthatha in the Eastern Cape also deserve these choices. They need water; they need electricity, digital communications and want to be part of our urban and rural access programmes. It is our responsibility to find best financing options for these projects when it is the turn of the others.

Thank you.

Enquiries:
Neo Momodu
Cell: 079 462 5081

Issued by: Department of Transport