Tag Archive for african railways

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.

Can China finance Eurasia Railway One Belt & One Road Strategic Plan?

The mid year 2015 Chinese stock market fundamentals and the overall Chinese structural debt may put a crimp in this debt financing of proposed rail/road foreign projects.

This cited Journal of Commerce report remains extremely optimistic about China’s willingness to write the necessary big foreign investment checks.

Time will tell. Time is always the acid test of any strategy.

Even if financed, these Chinese sponsored rail projects may not see the first trains until well after my death.

But the maps look “cool”.

See the map and JOC story at http://www.joc.com/international-trade-news/investment-floods-china%E2%80%99s-one-belt-one-road-strategy_20150703.html?mgs1=b66dkpfYOY

South Africa Consumer Confidence Index Slumps to 14-Year Low

From Bloomberg, Jul 2, 2015

Consumer confidence in South Africa dropped to the lowest level in 14 years in the three months through June. The consumer confidence index slumped to minus 15 in the second quarter from minus four in the first three months of the year according to FirstRand Ltd.’s First National Bank unit.

The sub-index sentiment on the economy’s outlook hit the lowest level since the 1992-93 recession.

Will investors continue to support aggressive mining and rail projects in such a statistical environment?

What is the Strategic Plan B for infrastructure when confidence drops?

“Business as Usual” is now a bit riskier.

Who will step up and lead the change?

Is the current maket demand driven Transnet Rail set of commercial assumptions still valid?  If not, how do leaders change to meet the new competitive reality? Who has such an experience to help adapt to the new railway commercial market changes?

To read the entire article, go to http://bloom.bg/1KuWF3C

Delayed Swazi Rail project — discussion held in Africa

Part of the rest of story not covered in the speeches.

Requires a bit more due diligence to attract private investor real interest.

The basic news report found here: http://www.observer.org.sz/business/73799-e150-million-injected-in-swazi-rail-link-so-far.html     From a 19/06/2015 report by Nomthandazo Nkambule

SO far, Swaziland has injected only E100 to E150 million in the multibillion proposed rail link spearheaded by Swaziland Railway and Transnet Freight Rail (TFR).

Speaking in an interview after the opening session of the first Southern African Railways Association (SARA) 2015 board meeting, Swaziland Railway CEO Stephenson Ngubane said this amount, amongst other things included environmental impact assessment.

The proposed line that would start from Lothair in South Africa and run to Sidvokodvo. Ngubane said the project has seen a pre-feasibility and a feasibility study so far. No solid funding yet. They are still looking for calculated project financials that might demonstrate ability to pay expenses and capital debt from projected freight revenues.

The Minister of Public Works and Transport Lindiwe Dlamini also spoke. Dlamini concludes that “Railways are the engines of economic growth, they enabled industrialisation in the past and they are even more relevant today.”

However, there is a logical mistake in that assumption. The mistake is that most industrialization railways were built to compete against horse and wagon and waterways. Swazi railways competes against trucks. That is a huge difference! Competition matters.

To beat the truck, the proposed new railway will have to employee big train technology. Will it?

Kenya announces plan to buy land for standard gauge railway

A recirculated news report originally by Reuters points out the land acquisition economic issues as Kenya seeks to build a huge multi billion dollar Chinese loan funded standard 1435mm gauge rail netwok

Land Acquisition Issues   —  http://m.engineeringnews.co.za/article/kenya-announces-plan-to-buy-land-for-standard-gauge-railway-2015-06-11/rep_id:3182

Kenya says it will pay 4.4-billion shillings ($45-million) to acquire land for its standard gauge railway network.  The $13.8 billion rail project, will eventually link Kenya’s Indian Ocean Mombasa port to the capital Nairobi, then on to Uganda.

However, land acquisition is still a construction roadblock.  Kenya’s National Land Commission is overseeing the compensation, involving up to 1,500 local land owners with land along the railway path.  They need to receive compensation to vacate their properties.

Not everyone is satisfied. On Tuesday, some land owners held protests to say they were being offered too little. “They are offering me only 28 000 shillings ($288.51) for my two-room house, which they will demolish. How do I build another one elsewhere with that little cash?” Peter Ashimosi, one of the protesters, told Reuters.

How might China react to African inability to pay loan fees on time?

The ability to repay generous Chinese loans is setting up an interesting strategic issue.

Most Chinese infrastructure funding for projects like railways are as loans. Not grants.

Bloomberg reports that Angola has just asked China for a moratorium of two years or more on repaying loans.

To read the entire Bloomberg report, go to http://bloom.bg/1I3JBNL

ECONOMIC BACKGROUND

China is Angola’s largest trade partner. Angola is sub-Saharan Africa’s 3rd largest economy.  China buys about half of Angola’s crude production, which was ~ 1.8 million barrels a day in May.  Chinese state banks are funding projects such as a new airport for the capital and railways and roads

Some of this may be as a barter deal.

Apparently, many of these projects are not self sustainable from their core business revenues.  Who did the due diligence before they were funded?

While seeking payment deferral, Angola also may seek to borrow $25 billion this year. Angola may seek much of the new funding from China and Brazil. Meanwhile, Angola is slashing its domestic budget. Some reports say by more than 20%.

New Chinese built Djibouti-Ethiopia rail line almost finished

Multiple source news report today 9 June that the New Rail Line for passenger and freight trains on standard gauge 1435mm track with electrified power supply is almost completed. However, it is NOT double stacked container capable.

Shorter train lengths, lighter axle loadings <33 metric tones with shorter than 6.2 meter vertical clearance for this new East African corridor presents a rail design nowhere near as capable as modern North American freight railroads.

Why go to all of this capital expense for a new national core freight railroad with a plus 50 year life and not be able to handle the most modern current equipment?  That is like building a new international airport that cannot land A380 or B777 and B747-400 aircraft. The track infrastructure here does not match modern freight rail train engineering capabilities.

Is the new rail line an improvement over the previous narrow gauge rail line? Yes,

But as a commercial business model, the new railway leaves significant economic productivity undeliverable by the freight trains.  Probably an example of due diligence missed.

Who did their commercial feasibility assessment?  Did they get a second opinion?

How many times will other African national leaders make the same engineering based smaller freight rail design choices?

MAP - Ethiopia & Djibouti Rail Corridor to begin operation in Oct 2015 China Eng Stds

See the URL for more. http://news.yahoo.com/africa-tracks-construction-key-djibouti-ethiopia-rail-line-033632871.html

South Africa South32 possible slowdown at Samancor Furnaces will hurt Transnet Rail traffic plans

A Bloomberg report on June 9th suggests that South32 Ltd., the mining company spun off from BHP Billiton may reduce the value of its 60 percent stake in a South African manganese venture. To read the entire article, go to http://bloom.bg/1JBmno1 I

t will delay restarting three of the 4 ferro-manganese furnaces in its Samancor venture with Anglo American. Reason for the cutback relates to the recent 20% global price decline.

South32 is reported as negotiating with Transnet SOC Ltd., the South African logistics operator to secure additional rail and port capacity for the export of manganese ore from Samancor’s Hotazel mines in the Northern Cape province.

The future rail movement volume depends on global ore prices and the rail and port negotiated rates per ton. If the global slowdown in resources from manganese to coal and iron ore continues into 2017 or beyond, the result will lower Transnet Rail’s achievement of their current 7-year strategic plan.  How might Transnet respond to these market forces?

CHANGING MARKETS and the need for a Rail Plan B  (hit the more key for added information)

Read more

Rail freight economics history lesson — Where are you on migrating to heavy axle load train technology?

Most of Africa’s railways still can only accommodate light axle loadings of 14 to 18 metric tons. A few lines in South Africa can accommodate 26 to 30 metric ton axle loads

How poor a design standard is an axle load of less than 33 metric tons?

33 metric tons axle loading for rail freight is the North American new engineering standard since around the mid 1970 early 1980- period.

 

Read more

“WHERE IS THE BEEF” as Swaziland proposed rail is still delayed?

A proposed Swaziland rail freight project is still being discussed three years after I was first asked to examine it at a USTSA conference in South Africa.

Proponents are holding another conference about it. But the required economic feasibility assessment report needed to get investors to write checks to fund it — is still missing.

In a news report today that you can read at — http://www.observer.org.sz/business/73142-multi-billion-rail-link-under-spotlight-at-sara-conference.html — many will gather to hear papers delivered. “Multi-billion rail link under spotlight at SARA conference” The news report is by Nomthandazo Nkambule

The proposed multi-billion rail line will be discussed during the Southern African Railways Association (SARA) in South Africa. The line is championed by Swaziland Railway and Transnet Freight Rail. They would operate the rail service.

Funding still remains uncertain.

A detailed market assessment of how much traffic would use the proposed new route and an economic projection of the traffic’s ability to cover all of the operating and capital costs of the investment is “still missing”.

Until this due diligence assessment is available, investors will not write a check.

The due diligence has to assess customer commitment to use the project as the iron ore and coal resource super cycle appears to be declining according to multiple Independant experts.

If no customers (commodity buyers rather than sellers) show up for the conference and speak out, that would be a bad sign for the rail investors.  The railway capital project loan has to be paid back from rail earnings from the traffic bought by the commodity buying customers.

A conference like this may not be worth attending if the ultimate customers of the proposed rail project are not attending.

I have seen too many rail projects were everyone except the paying customer (user) is interviewed and listen to as to her or his requirements. In the profitable North American rail business model, everything about a capital plan revolves around the using customer.

Sent from Jim Blaze’s iPad