Mozambique Coal Conference 2013 Infrastructure Development Support for Mozambique Coal

Published July 2013 © Transnet Engineering (TE) a division of Transnet SOC

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Contents

TE - Who are we?

The Mozambique coal mining expansion

Opportunities for strategic partnership

Conclusion

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South Africa has embraced the challenge

“Regional and continental infrastructure development is

of fundamental importance to the realisation of Africa's

economic growth and development imperatives.” […] As

regional leaders, we carry a particular responsibility to

serve as champions in driving industrial and

infrastructure development both at the regional and

continental levels.”

President Jacob Zuma - on Infrastructure Development

“Our foreign policy prioritises the building of

relationships in the African continent, the focus of which

is to promote development, contribute to the resolution

of conflicts and to build an environment in which socio-

economic development can take place”.

Minister of Public Enterprise: Malusi Gigaba – Reiterates SA’s Foreign Policy on 28 June 2013

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Transnet Structure

TE summary and overlay within Transnet

1 SOC – State Owned Company

SOURCE: Team analysis

TE - WHO ARE WE?

National Ports Authority

Freight Rail

Port Terminals

Pipelines

Transnet SOC1

Engineering

Rolling Stock Manufacturing: ▪ Manufacture ▪ Assembly ▪ Rebuilds ▪ Refurbishments ▪ Upgrades &

Conversions ▪ Maintenance &

Service

National Ports Authority: ▪ Responsible for

the safe, efficient and effective management of South African Ports

Port Terminals Operator: ▪ Monitoring and

executing port terminal operations within South African Ports

SA Rail Line & Freight Operator: Rail Operator

responsible for rail freight logistic solutions

Serve the mining, manufacturing and industrial sectors

Pipeline Operator: ▪ Transportation

of petroleum products via a pipeline network within South Africa

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Continuous technology advancements and improvements

Running Maintenance

Refurbishing & Conversions

Locos, wagons, coaches, components

Heavy Maintenance

Upgrades Locos, wagons, coaches,

components

New Builds Locos, wagons

Leasing

1859 – Landing of the first railway locomotive in South Africa at Cape Town Running maintenance was first established

TE brings over 150 years of experience in the rail engineering sector and has built substantial expertise...

TE’s evolution and transformation of the SA transport industry1

1950s – Koedoespoort plant established to refurbish steam locos 1970s – Started refurbishing electric locos

1999 – Expanded capability to upgrade locos starting with 6E1 to 17E 2007 – Upgrading of diesel locomotives

2008 – Entered the new build market

TE - WHO ARE WE?

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TE began its journey in 1860, and is currently a leading Rail Engineering & Manufacturing firm

TE journey to date

TE - WHO ARE WE?

REVENUE

R15bn

DEPOTS

132

EMPLOYEES

~13,0001

ASSET VALUE

R8.4bn

FACTORIES

6

OFFERINGS

9 PRODUCTS

TE Today

Coaches Wagons Locomotive

Foundry Auxiliary Rotating machines

Ports Rolling stock Equipment

Wheels

1850 2009 1916 1892 1990 1994

First railway in South Africa established – Natal Railway Company

South African Railways and Harbours was born under the Union of SA

Transwerk branded as a separate entity within Transnet

Links between various Railway Companies started to develop

SA infra-structure management became a company entity, and Transnet was born

Transnet rebranding and structuring completed – Transwerk became TE

First locomotive arrived in SA – beginning of TE

Arrival of the first train at Johannesburg from Cape Town via Bloemfontein

TE produces

the worlds

most advanced

health train

(Phelopepa 1)

TE partners with

leading

international

OEM’s to create

world class

products for Africa

Official opening of the first public railway in South Africa, from Point to Durban

Today Transnet Engineering is the backbone of South Africa’s railway industry with

nine product-focused businesses, 132 depots, six factories and ~13,000 employees

countrywide. The organization is dedicated to in-service maintenance, repair,

upgrade, conversion and manufacture of freight wagons, mainline and suburban

coaches, diesel and electric locomotives as well as wheels, rotating machines,

rolling stock equipment, castings and auxiliary equipment and services

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Contents

TE - Who are we?

The Mozambique coal mining expansion

Opportunities for strategic partnerships

Conclusion

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Coal Production (mtpa) Mozambique Share of Mining Sector Value by Segment %

7 SOURCE: BMI

Mozambican Coal Mining Growth

Company Mine

Estimated Production

(mtpa) Year

Vale Moatize 22 2014

Rio Tinto Benga 20 2015

Beacon Hill Resources

Minas Moatize 4 2012

Nippon Steel Corp

Revuboe 5 2015

ENRC Estima 20 2016

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Mozambican Transport Coal Corridor Projects

•The Sena railway line is Mozambique's only existing route for coal exports, linking the Moatize region with the port of Beira. The railway can carry 3.5mtpa, which is insufficient. Delays in upgrading the project have seriously dented the country's ability to ramp up coal exports and this was exacerbated by flooding in February 2013 which cut off part of the line temporarily.

Beira Corridor

•Vale is investing significantly in a railway line to link the Moatize basin with the port of Nacala via Malawi. The project includes construction of a 900km railway line and upgrades to the deepwater port of Nacala.

Nacala Corridor

•Kazakh mining company ENRC has also announced plans to build a railway and coal export terminal at the port of Nacala. Construction is due to start in 2014 and be completed in 2016. The project, which would run adjacent to Vale's Nacala corridor, is envisaged to carry 40mtpa in the initial phases.

ENRC Project (Tete-Nacala)

•The recent project to be proposed is a railway line and port project that would carry coal 525km from the Moatize basin to Macuse in the central coastal Zambezia province. The tender was released in early 2013. The winning bidder is due to be announced shortly. It is hoped that the railway will carry 20mtpa. It is unclear which port it would use as its end destination, as Macuse lies between Beira and Nacala. There are some indications that a new port will be built to service this rail line.

Moatize-Macuse

•China has announced it is in negotiations for US$1.5bn in financing for the construction of a deepwater terminal at Nacala. The project would be able to handle 20mtpa.

China Nacala Port Project

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Growth in Coal Mining

SOURCE: BMI

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Mozambican Coal Mining Growth

The Tete province has the largest under-developed coal basin in the world. Coal production exports from Tete are expected to reach 40Mtpa by 2017 and 100Mtpa in the longer run. There are several new rail lines and ports under development and upgrade. These are desperately needed to alleviate the transport bottleneck as the freight volumes increase. It is an absolute imperative to support the this coal sector rail infrastructure with safe, reliable and efficient rolling stock and rail related products for sustainable, effective and efficient operations. 9

Growth in Coal Mining

SOURCE: Team analysis

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Contents

TE - Who are we?

The Mozambique coal mining expansion

Opportunities for strategic partnerships

Conclusion

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4

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Key Stakeholders

11

100 MTPA

of COAL

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Benefits of Partnership

Transfer of rail engineering skill from its relatively mature engineering and operational skills pool to key stakeholders including the people of Mozambique

Jointly established state of the art maintenance facilities with modernized machinery and equipment to support the current and future rolling stock demand.

The supply of products and services by Mozambicans in Mozambique

Reduction in the cost of doing business in Mozambique, as localized support will not incur cost due to delayed maintenance support and services

Financial benefit from DFI as well as synergies created during the acquisition and during the life cycle support phases of the rail logistic chain.

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South Africa’s Heavy Haul Coal Operation

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Key Consideration for Rolling Stock

1067mm

Current Future?

18 tonnes/axle

50 tonnes

30 years

Track gauge

Axle weight

Payload

Standard Air

Brakes

Operating life

Brake System

Brake Rigging

Maximum operating speeds

1435mm

22-36 tonnes/axle

68-120 tonnes

40 years

ECP

Conventional Bogie Mounted

Brakes

80 km/h 100 km/h

Fleet Management

Rolling stock Regulations

Adhoc

Source: Team analysis, tender documents

OPPORTUNITIES FOR STRATEGIC PARTNERSHIP

895mm

Current Future?

34”

32-35

Wagon

Non-steering

Coupler Height

Wheel Sizes

Train lengths

Steel

Bogie Type

Body Material

Wheel Profiles

Maintenance

> 895mm

36”

>35-200 wagons

Steering

SS/Aluminium

Conventional New

Time/Use

Based Condition

based

Strategic Sourcing

Standardization

Company

Approach

Fleet Plan

Railway Regulations

Industry

Approach

Customised Industry Norms

and Standards Emergent Mature

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Standardisation Higher standardisation leads to larger demand and lower LCCs

Source: Team Analysis

Capital Cost

Lifecycle Cost Industrialisation Risk

Transformation

Standardisation

Standardisation

Sta

nd

ard

isatio

n S

tan

dard

isati

on

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The initial cost of Rolling Stock

The cost to the company

in lost revenue due to the

non-availability, delay or

cancellation of trains

The ability to compete in

competitive supply chain for

locomotives/ wagon

services

The capability and capacity of

the domestic

locomotive/wagon

manufacturing & service

industry.

The total cost of the locomotive

over its lifecycle including

energy, maintenance and

operating costs

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Strategic Sourcing initiatives hold many potential benefits for the region

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Stimulate regional integration

Build local capacity and capability

Accelerate economic development

Security of supply

Reduction of supply, production

and maintenance costs

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Partner to Achieve

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Lower cost

Ease of working with us

Local supply capability

Reliable Products

Production Capacity

Maintenance & Support

Green conscious

Ease to integrate

Wide network

Training support

Innovation Skills & Capability

Flexible

Product Differentiation

Quality

Modern Production Facilities

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Comprehensive suite of Rolling Stock support

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New product development and design

Product and component

manufacturing

Life cycle maintenance (Heavy and

light)

Cost effective rebuild and

refurbishment programmes

Financial solutions and

purchase plans

Training wrt Maintenance, new product & Lean Six Sigma

TE can customize

complete packages to

meet operational

requirements from

manufacturing and

maintenance to other

supporting functions ...

SOURCE: Team analysis

Obsolete product,

component & technology upgrades

Field service team support

Maintenance and fleet planning

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Transnet’s Support to Mozambique's Coal Infrastructure Development

Group • Supporting Government’s role in the development of the Region and the

Continent • Financial support thro DFI as the opportunity may arise Rail (TE) • Supplier Development • Transfer Knowledge and Skills • Conduct Engineering Development for Mozambique Solutions • Supply of wagons and locomotives • Supply of rail maintenance services

A Solid History

With origins dating back more than a century to the mechanical engineering

department of the former South African Railways and Harbours, this

engineering organization has actively supported railways in the expansion of

the country’s economy.

Our institutional capability will help avoid expensive lessons. African Soul – Global Perspective

Transnet Engineering has committed itself to significant investments in

research and development to service the specific requirements of Africa.

This has led to an ever-expanding range of rolling stock solutions and

products.

We pride ourselves on developing African products by Africans for Africa and

our proximity to Mozambique makes us an attractive partner.

Conclusion

THANK YOU