Archive for Africa

Coal Industry Seeks Unusual Partner in the UN Green Climate Fund for poorer nations’ energy needs

If you cannot beat them, try to join them… …in order to help the poor nations achieve desperately needed energy supply.

Yes, from environmentally harmful coal.

The coal industry, viewed as a key contributor to global warming, is seeking a once-improbable collaborator They are trying to work with a fund set up under United Nations climate negotiations.

With more than 2,000 new coal power stations planned or being built in Asia to Africa, the UN Green Climate Fund should help finance making the plants more efficient, according to Mick Buffier, the chairman of the World Coal Association.

New coal technology can cut climate-warming gases by about a third per unit of power, though it adds about 50 percent to the $315 million cost of a 500-megawatt plant in China, the group said.

The Green Climate Fund is meant to channel climate-related aid from industrial nations to developing countries. Bangladesh alone said it needs $16.5 billion in the 20 years through 2030 to ensure its plants will use so-called “super-critical” clean technology.

At the same time, older funding sources like Citigroup Inc. announced on Monday that it will cut back on financing for coal projects.

To read the entire article, go to bloom.bg/1N1eoA3

Stunning graphs on resource capital project spending is a “wake up call” for planners

From mines around the world to the dependent rail and port projects, the changing global economics commodity cycle suggests a downer “Bear” market for projects that add to global capacity and output.

This down cycle could last from a short 2 to 3 years OR AS LONG AS 7 or more years. Strategic Planners to to rethink their now outdated assumptions from supporting logistics projects in diverse places like Mozambique, Botswana, Mongolia, Brazil, and even in the Canadian/Alaska Yukon region.

What ever capital plans for building the supporting ports and railways they had developed by big engineering companies — the underlying due diligence economic assumptions are now likely “under water” so to speak.

Billions and billions of proposed dollars in drawing board completed project engineering can no longer pass an economic feasibility test for recovery of he rail project capital P&I.

Instead these industry planners should brace themselves for at least another two years of shrinking budgets and outlays. The earliest signs of a “subdued” resource recovery might not be until early in 2018 say some experts.

But even this prediction might be too bullish. Why? Because metal prices have already fallen 12% further than they did during the bear market in the 1990s. In that bear market, capex only recovered to its pre-crash (1997) level after seven years (2004),” according to Mark Fellows.

Mark Fellows, director of consulting for a mining research firm reports that “while sustaining capital expenditure is down 13% since the peak in 2012, capital expenditure on new developments has been even harder hit.” “Spending on brownfield expansions is down 25% while greenfield project expenditure has plummeted by nearly one third” on a global basis.

Mr Fellows concludes this by comparing the current 2013-2015 downturn to the previous bear market in mining which ran from 1997 to 2002. He therefore argues that the current witnesses global capex cutbacks are far from over.

The report is published by SNL Metals and Mining. DOLLARS OF PROJECT EXPANSION PLANS AT RISK

The report finds that total capital spending across all mining companies has declined by around $70 billion since the 2012 peak to just over $150 billion forecast for this year. As one business case example, the project investment at BHP Billiton this year will be $10 billion below its 2013 peak. The world’s number one miner only has four projects in the works, two of which are almost complete, compared to 18 mine and infrastructure developments just two years ago.

In a Mining.com press story by Frik Els on 21 September 2015 titled: “This is the scariest mining chart you’ll see today”, the investor alert numbers are brought out visually.

This is another piece of economic trend evidence in my blog’s strategic theme of changing times for traffic that feeds the dreams of massive new rail freight projects.

“a Bridge Too Far” analysis?

Only the strongest as low cost per ton-kilometer cost new rail projects might be competitive.

Too many rail projects on the drawing boards are simply under designed as to the necessary competitive productivity to prosper as investment grade scenarios. Trains would be too small because they often lack big train technology design features of the most successful resource rail carriers. Axle loads too small. Train lengths too short. Clearances too shallow. Net to tare wagon rates are too low

Too many are now ill advised rail schemes. “Schemes” in North American business language generally means a buyer beware concept plan”.

In Africa alone, I estimate that as many as two thirds of “announced” rail line freight projects may be too risky to build as currently designed around old market demand and old post World War-2 rail engineering standards. That could mean as much as $25 to $34 billion of “schemes” seriously require a second due diligence look just in Africa.

Africa is not alone. The billions in proposed rail engineering in the Canadian Yukon/Alaska region also need serious market demand re-examination. If not by the project sponsors, then certainly by the investors they will approach. Brazil, Mongolia, Swaziland, Senegal — all of their rail design and expected market traffic assumptions need serious review for their current planning.

For more, log onto Mining.com

Chart Sources: SNL Metals & Mining

Greenfield cap ex spending chart

Bear market recovery projection for commodities chart

Update on Ethiopia’s Light Rail System as it starts operating // Sept 2015

Multiple reports confirm the start of light rail service in the capital of Ethiopia on 20 September 2015.  The start of service on Line #1 is actually relatively close to the promised service date.  Funding approved in 2011 assumed a two year construction timeline.

The 16.9 km north-south Line 1 line links Minelik Square with Kality and has 23 stations. A 17.4 km east-west line from Ayat to Tor Hailoch is also due to open soon. The two routes share a 2.7 km section between Lideta and Stadium.

This light rail service which includes elevated sections and tunnels, runs from Addis Ababa’s main industrial area on its southern fringe, through the trading district of Merkato to the historic center of Piazza.

I had a chance to review the affidavit Addis Ababa light rail construction process in the capital back in the summer of 2013.  Project construction and the logistics handling of imported rail materials was well organized by the Chinese company.  The track ballast section and some early rail laying were substantial as to the engineering design and initial construction delivery of product in the field.

One of the tunnel projects was a huge physical undertaking.  Well done when I inspected it.  No question that the Chinese companies can build rail projects very well according to plans.

PLANTING THE C”AN DO” FLAG IN FRONT OF AFRICAN RAIL PLANNERS

The east-west light rail line skirts the African Union’s headquarters.  This location marks a great advertising opportunity of the Chinese capabilities with this line placement in front of the African wide headquarters.

Both light rail lines are built by China Railway Engineering Corporation (CREC).

CNR Changchun (now part of CRRC Corporation) has supplied a fleet of 41 low-floor vehicles, which have a maximum speed of 70km/h.

DEAL FINANCING TERMS

China is financing 85% of the $US 475 million project. It is a loan. Not a grant.

The government agreed to borrow the funds in June 2011 from the Export-Import Bank of China.  The to be paid back rate was at the 6-month Libor interest rate plus 2.6 percent and a grace period of three years.  This from Ethiopian Finance Ministry data.

State-owned contractor China Railway Engineering Corp. was the recipient of the export financing.

The financing of the remaining 15% is arranged from other sources by the Ethiopian government.

ON-GOING MAINTENANCE

The 39-station network will be maintained by CREC and Shenzhen Metro Group under a $US 116m five-year contract.

The Ethiopian client for the continuing rail service is the Ethiopian Railway Corporation (ERC).  The ERC rail company is a government corporation with a very small staff.

TRAIN OPERATIONS

The first three to five years of light rail train operation will also be by the Chinese and not the ERC.

At one point back in 2013 the Ethiopians sent out a global request for a  consultant team to build up the Ethiopian internal organization into becoming a world class operating management team.  Then they could take on train operations management themselves.  But that internal skill building process so far appears to not have happened.

Instead of internal managers inside the  Ethiopian Railways Corp, the light rail service will be run day to day by Shenzhen Metro Group.  For at least five years.

LIGHT RAIL TRAFFIC FORECAST

The light rail total system may eventually carry 60,000 passengers an hour, according to project manager Behailu Sintayehu.

Passenger FARES will be subsidized

The maximum one-way fare on the network is about $US 0.29 to $0.30 (cents).

The light rail line operating costs is projected to be about 1.5 billion birr a year to run. Fare box revenues will not cover all of that annual operating cost.

“The government is subsidizing this transportation system. This is not for commercial purpose, it’s for the public” said a local official source to reporters.

Sources also reported that the subsidy to allow such low passenger fares will in the long term have to come out of “expected” freight operating profits from the not yet completed new standard gauge international railroad line.

This cross subsidy practice might be a logical strategy if trucking companies subsidized the passenger buses on highways But they do not.  In the long term of daily rail to truck competition, this creates an advantage for truckers.  It is incredible how state planners historically are blind to this integrated transportation fact of competition economics.  The Ethiopians are no exception to such economic flaws in policy thinking. As the become better trained in economics, this may change their thinking.

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MORE INTEL about this light rail system

THE LONG DISTANCE LINE

The freight and intercity passenger train new railway construction underway will connect the Ethiopia capital city with the port of neighboring Djibouti.

Service there may begin sometime in 2016 say current reports from Bloomberg.

Trains on this inter-nation line might also be operated by a Chinese contractor instead of by the local Ethiopia rail organization.  Too early to tell yet. There is no published report on the success or timeline of building such skills inside the Ethiopian Rail Corp organization.

The long distance line will be standard gauge (1435mm) track.  But not 33 metric ton or doublestack container train capable.

The Ethiopians have settled for a lesser freight train capacity that they received from the Chinese builders rather than adopting the North American commercial and engineering big train technology standards — and having the Chinese contract companies modify their engineering build to standards. The result will give the Ethiopian rail company a rail freight haulage capability equivalent to a 40 to 50 year old post WW-2 North American operating performance. This means missing their chance to become the best of class within the African world of freight railroads.

POWER SUPPLY

Electric power to supply these light rail and intercity train sets in a more dependable manner is to come from the Chinese financed Gibe III hydropower dam’s reservoir set for operation in 2016.  The reservoir has started filling, with its 1,870 megawatts capable of almost doubling Ethiopia’s generating capacity. This will presumably allow for a dependable service day to day performance using straight electric locomotives rather then modern diesel-electric locomotives.

MISSED DOUBLESTACK CONTAINER OPPORTUNITY

With electric power from overhead wires catenary systems, the overhead clearance for doublestack container trains could be restricted.  This overhead wire electric system as currently designed as to height above the top of the rails is another rail marketing (commercial business competition) flaw that could have improved.  How? By increasing the wire height to more than 6.7 meters above the top of the rail.  That would allow doublestacking container trains to have a far superior cost per container advantage in direct competition with highway trucking.  In the US that rail rate advantage can be as large as 50 cents to $1.40 per container moved kilometer.

These simple manmade engineering design changes would have given the resulting rail line a superior economic advantage against long haul trucking.

S. Africa Rail Gauge Conversion Policy Change Announced by Government

Sep 22, 2015 report…

South Africa now has a government transport policy to plan out a widening of the country’s existing railway tracks to international standard gauge. The geographic scope covers as much as 20,000 kilometers (12,427 miles) of track just in South Africa.

This scope would take decades to physically complete. It might cost as much as 1.5 trillion rand ($110 billion),

Cape Gauge existing track width between the inner sides of two rails is 1067mm as a design. Standard gauge design width is 1435mm.

South Africa Transport Minister Dipuo Peters announced the policy to reporters on Tuesday. The gauge conversion would bring the network in line with about 60 percent of other countries, boost capacity and reduce transportation costs, she said.

In response, Transnet Acting Chief Executive Officer Siyabonga Gama said that while the company supports a move to standard gauge, the policy “needs further investigation” to determine its viability. “We did an assessment and we found out that if we had to create 15,000 kilometers of track, we would need up to 1.5 trillion rand,” he said in an interview after the announcement. “It would be a very expensive exercise.”

STRATEGIC FLAW

The assumption is so far that almost all tracks would be converted to 1435mm. Economically, it is more likely that only the strategic high traffic volume density routes and some feeder lines would financially justify the expense of conversion. .

The economic benefits come from more stable train operating wagon movements and possible high clearance doublestack container train economics. Containers stack two high on rail cars cut the expense by as much as 35% to 45%. Stack container trains have been operating successfully in the United States for 30 years. Two decades!

Stack trains cannot physically be operated on Cape Gauge or Meter gauge tracks.

Regardless of the eventual network size, the project could take decades to fully complete. A place to start might logically be between one of South Africa’s premier container sea ports and the Johannesburg regional market.

Meanwhile, much of Africa’s rail planning is already focused on standard gauge 1435mm track for all new railway projects. Ethiopia and Kenya just as two eastern African examples.

Minister Dipuo Peters strategic announcement is simply acknowledging a prudent rail modernization approach for South Africa.

Bravo!

To read the entire article, go to http://bloom.bg/1KxjCiS Sent from the Bloomberg iPad application.

Transnet 7 year capital plan. Is it behind schedule?

Transnet Expects Capital Expansion To Cost R336.6 Billion

South Africa’s State-owned logistics firm Transnet expects its capital expansion plan will now cost R336.6 billion. This is an increase from R312.2 billion estimated year ago.

Transnet is 4-years into a 7-year plan to expand railways, pipelines and ports in South Africa. The increase is partly due to higher costs as the rand loses value against major currencies.

Reports are that in the first 3 years, Transnet spent R92.8 billion.

So at about 43% of the 7 year timeline, the capital plan is at about 27% of the 7 year target. Will the pace of Transnet’s capital execution quicken in the face of the 2013-17 expected global commodities slowdown?

What is your opinion?

Reports are that Transnet now channels about 45% of its investment into maintaining existing assets and the rest to increase its capacity.

Recent government reports confirmed that there is quite a bit of differed rail maintenance to catch up with.

According to published sources, Transnet’s total capital expenditure spending over the last 3-years now stands at R92.8 billion with the rail mode accounting for 74% of the total spent.

Does a Management Vacuum Hobble South Africa’s State-Owned Companies?

Published in Bloomberg, Aug 13, 2015

Rudderless and cash-strapped. Inadequate, Unstable is the assertion.

“To a large extent the ability of South African industries to compete globally is influenced by the effectiveness of our SOEs,” Mark Cutifani, the CEO of Anglo American Plc, said in a July 30 speech in Johannesburg.

“We are being constrained by expensive, yet inadequate and unstable electricity supply and by capacity limitations on state-run rail links.”

While a panel appointed by President Jacob Zuma in 2010 to review their performance recommended a strategy overhaul, new rules for appointing board members and a clearer funding approach for state companies, the government took no immediate action and the management oversight of several of them has deteriorated.

SAA, which last made a profit five years ago and is surviving on government guarantees, has had five CEOs in the past three years. Eskom, battling to plug a 191-billion rand funding gap, has had six CEOs in a decade. Its last permanent leader was replaced in March after six months in the job, while the chairman resigned two weeks later.

Governance Failure

Keeping the companies under state control has given the ruling African National Congress a greater influence over the economy and the appointment of key personnel. The management flux is “a huge governance failure,” Lumkile Mondi, an economics lecturer at Johannesburg’s University of Witwatersrand who served on the state review panel, said.

Transnet may be the exception provided it can adapt in these troubled times.

Are the above assertions true or false?  What do you think?

To read the entire article, go to http://bloom.bg/1J3ezpJ

Do the Most Optimistic People Live in Africa?

Maybe.

That according to a Pew Report Picked up on by Bloomberg on July 23rd. For example, “growth in Ethiopia has beaten every other sub-Saharan country over the past decade.” —

One report says that “when it comes to optimism about the domestic economy, the French have nothing on Ethiopians”. Is that true or false?

As another example, Nigeria tops the Pew Research Center charts, with 92 percent of respondents seeing their economy improving in the next 12 months That contrasts with only a net 5 percent who said it would stay the same or worsen.

Residents in Burkina Faso and Ethiopia were similarly upbeat, with more than 80% of people in each country projecting economic progress.

To read the entire report, contact Pew Research Center for their survey. To read the entire, go to Bloomberg news.

Update — Prasa, Transnet concerns over locomotive height

Update 13 July on the Prasa locomotive clearance problems over parts of the Transnet Rail system

Prasa insisted this past week that the country’s overhead power lines were at least 4.5 metres above the rail tracks and that the new order of the Afro 4000 would pass beneath them comfortably.

City Press now understands that although the power lines are supposed to be no lower than 4.5m, as they many places in the country where overhead wires hang lower than they should be.

Prasa’s own report of February 2014 points out four places where the lines are as low as 4.22m: At such height, the top of the locomotive encroaches too close to the contact wire. This results in a higher driver exposure risk factor.

The normally accepted safe distance between the locomotive roof and cables is at least 150mm.

According to experts, the maintenance on both Transnet and Prasa’s rail lines is in a such a poor state that power lines will have to be raised to provide for the Afro 4000. It is unclear what it would cost who should pay?

http://m.news24.com/news24/SouthAfrica/News/Prasa-Transnet-had-concerns-over-locomotive-height-documents-20150712

New BRICS bank praised as a game changer? True or False?

The launch of the Brics New Development Bank will change global development finance, said Eskom’s  Brian Molefe  on Thursday.   “They will talk about global development finance before and after Ufa,” claims Mr Molefe.

Is this True or False?

Before you answer, recall that his South Africa power utility desperately needs funding.   As the acting CEO of South Africa’s power utility, he wants to be both an organizer and a client of the new bank.  That is not the person one asks for an independent due diligence opinion.

The BRICS are Brazil, Russia, India, China, and South Africa.    The New Development Bank, launched during the Ufa Russia 2015 Brics/SCO (Shanghai Co-operation Organisation) Summit on Tuesday, would be based in Beijing.

Broad Issues:

The new group may succeed.  But they face hurdles.   For starters, the member nations do not yet have standard streamlined visa processes in place among them.   And all are a bit tight on capital .  Each has some dependency upon the World Bank for loans.

The sponsors say they expect the new bank to fund riskier projects.

So is this real, or is this a game plan for questionable geo-political leverage investments?

A bit of due diligence might be a good idea.

For more, see: http://m.engineeringnews.co.za/article/brics-banks-a-global-game-changer-says-eskoms-molefe-2015-07-09/rep_id:3182

Productivity is the key to Maersk’s growth. Railroads please take notice

Jul 9, 2015 A.P.

Moeller-Maersk A/S freight volumes will probably increase by as much as 10 percent in the East African region this year, helped by accelerating economic growth and improved efficiency at major ports.

To read the entire article, go to http://bloom.bg/1KQJV95

A few highlights

Maersk reports as many as 24 berth moves per hour at the Mombasa container terminal, which has potential to double with on-going investment and productivity gains… Productivity in the private terminal at Dar es Salaam has improved to 33 berth moves per hour.

Maersk container shipping moved 380,000 20-foot equivalent units in the region last year, — about 35 percent of the total market.

Productivity

Using HUB Ports, about 65% of Maersk freight in East Africa goes through Mombasa, while Dar es Salaam handles the bulk of the remaining 35%.

Hub ports with dense inland transport connectivity to markets is a key business model.  Not all ports can be hubs.