African infrastructure opportunities
By Chris Sleight09 November 2010
The pace of construction in South Africa has slowed after five years of preparations for the 2010 Fifa World Cup, over and above the normal levels of activity. Add to this the construction agenda of the massive Gautrain Rapid Rail Link project, a large section of which was completed just in time for kick-off in June, although this was never categorised as one of the so-called '2010 Glory Projects'.
The World Cup has come and gone. The South African National Road Agency's (SANRAL) massive Gauteng Freeway Improvement Project and other strategic national road upgrades are drawing to a close. Transnet, the government-owned freight and logistics company, is reaching the end of its ports and harbour construction cycle and a large question mark hangs over power company Eskom's ability to drive more power station construction programmes after its commissioning of two large coal-fired power stations and a pumped-storage scheme.
So what now for the country's construction industry?
The fact remains that the South African government will have to continue investing in infrastructure to drive South Africa's economy.
As such, Henk Langenhoven, an economist of the South African Federation of Civil Engineering Contractors (SAFCEC) argues the recent downswing in construction activity can be considered a cyclical decline around a long-term upward trend rather than a structural break in construction activity.
However, he does note that the backlogs in important construction contracts are growing bigger because South Africa's government is not responding fast enough to the country's expanding population and economic needs. "The country has replenished its stadia and airport infrastructure to such a degree that expansions will be very little or much slower in the future but, we have a long way to go regarding the rest of our infrastructure," maintained Mr Langenhoven.
The dire state of water in the country has become even more of a concern than Eskom's ability to keep the lights on. The Department of Water Affairs (DWA) deputy director-general: national water-resource infrastructure, Dr Cornelius Ruiters, puts the immediate investment need at about ZAR 10.1-billion (US$ 1.43 billion) over the next five years.
Ruiters notes that a clear distinction must be made between the mega infrastructure associated with bulk-water storage and local-government infrastructure for water services. However, he says, the latter is not in a very good state at the moment.
The existing infrastructure comprises mainly dams, canals, pipelines, tunnels and measuring facilities with a replacement value, excluding land, of around ZAR 123 billion (US$17.4 billion) and a value of ZAR 59-billion (US$ 8.3 billion).
While he agreed that water and sewerage are two of the key areas of opportunity for the civil engineering sector, Mr Langenhoven said the positive effects could take time to filter through to the contractors on the ground. This is because even once a preferred bidder has been chosen for a public project, the financial negotiations take about a year before being finalised. Other disruptions from events like elections can also delay contract awards.
Langenhoven also cautioned against painting a bright picture of opportunities with broad brushstrokes. "There are definite categories of contractors. Some of the larger companies might see results sooner because of priority given to national infrastructure. However, the smaller contractors, dealing with those tenders at local-authority level, may still wait a while before any results develop," he said.
In late March, the Department of Transport announced that South Africa's roads had a repair backlog that would cost ZAR 75 billion (US$ 10.6 billion) to fix over the next five years. South Africa has a vast road network, estimated at 606978 km, which is managed on three independent tiers: national; provincial and local government levels.
Jowie Mulaudzi, the Department of Transport's acting chief of the directorate of Integrated Infrastructure Network Management, clarified the definition of 'backlog' in specific relation to road maintenance in South Africa.
"International standards state that ideally the road network should not have more than 5% to 10% of its total distance classified as poor to very poor. The latest analysis put the percentage of South Africa's local and provincial road network in poor to very poor condition at approximately 38%."
Graham Pirie, chief executive officer of Consulting Engineers South Africa (CESA), advocates tackling the skills shortage aspect of the problem. "We simply cannot afford to rebuild our roads, and it's not necessarily money that's always a problems but lack of capacity, especially at a local level," he said.
Pirie points to the fact that there has recently been a migration of skills from the public to private sectors. CESA's aim is to recreate the job title of 'official' in government and encourage long careers by doing away with the standard five-year contract currently being implemented in the public sector.
While South Africa grapples with the problem of poor service delivery on the local and provincial fronts of government, SANRAL continues to drive a seemingly smooth national roads upgrade programme. The more recent exciting announcement proposes the closing of the missing link on the N2 national road from Cape Town in the Western Cape to Richards Bay in KwaZulu-Natal, up the eastern coast of South Africa. The project, budgeted to cost ZAR 6.4 billion (US$ 905 million) in 2007 took another step forward with approval from the Department of Environmental Affairs in April.
Light on site?
State-owned electricity generator Eskom is driving three power station build programmes at present - Kusile and Medupi, two large coal-fired power stations, and Ingula, a pumped storage scheme. It is doubtful whether the company in its present form will continue to develop power stations after it has fully commissioned Kusile.
Instead the government of South Africa is modifying existing electricity generation legislation to pave the way for the introduction of independent power producers (IPPs). These will be expected to complement the massive role that Eskom plays in the electricity generation sector at present and are expected to stimulate the local civil construction sector.
While a large focus of this strategy will be on renewable energy projects, it will also pave the way for large coal-fired and nuclear base-load generation projects in the country and across South Africa's borders. The former will feed into the Southern African Power Pool, of which South Africa is the largest consumer and generator of electricity.
Work on two coal energy hubs across South Africa's border are already under way to support this strategy. This includes CIC Energy's energy hub in the Mmamabula coal fields in Botswana and Vale and Riversdale's aspirations in Tete in Mozambique, where five coal-fired power stations are being mooted.
Back in South Africa, the need for coal to supply the Medupi and Kusile power stations will drive massive civil-engineering projects in the mining sector. South African coal production profile is going to have to grow by about 100 million tonnes per year to accommodate the expected growth.
"What will have to happen is that the country's replacement mines are going to need substantial investment over the next decade to accommodate the required .,5% per year growth rate in coal production between now and 2020. It counts for both the Witbank coal fields as well as the expansion in production facilities in the northern coal fields," said Roger Baxter, chief economist of the Chamber of Mines. The investment required for this is put at ZAR 100 billion (US$ 14 billion)
Coal mining giant, Exxaro's, executive general manager for business growth, Ernst Venter tends to agree with Baxter's forecasts. "Our company has identified enormous potential in the Waterberg coal fields where our Grootegeluk coal mine is currently producing about 20 million tonnes per year. We are now also looking at building an expansion to that mine which will boost production to 34-million tonnes in order to supply Medupi," he said. "We also have another project developing in the area which will produce a further 9-million to 17-million tonnes for use by four IPPs," he adds.
There has been talk for some time of a 600 km high-speed rail link from the inland economic powerhouse of Johannesburg and the wider Gauteng region to the maritime hub of Durban. It has since been confirmed that the South African government has been negotiating with the Chinese government and its massive state-owned railway contractors to construct the line.
Lanfranc Situma, deputy director-general of the Department of Transport's National Master Plan (NatMAP) 2050, said: "Durban is the socio-economic gateway to the rest of South Africa and the continent. I would estimate that about two thirds of our imports and exports pass through this port."
Mr Situma also said the High-Speed Rail Development Project is essential to stop the deterioration of the country's roads. "In order to arrest, the deterioration of the country's secondary road networks would cost the country anywhere between R55-billion and R80-billion per annum."
The deterioration, he claims, is due of the massive increase in road freight caused by products that should be transported by rail but are being thrown onto South Africa's roads.
Updating South Africa's rail technology is another driving factor in the High-Speed Rail Development Project. Mr Situma said, "If you look at the rolling stock in this country, it is all based on the 1067 mm gauge. Most of it is close to 30 years old. This gauge is virtually disappearing because it is not readily available anymore."
In a broader scope, Mr Situma said the development of the project is in line with recommendations made by the African Union that member states would develop a standard, 1435 mm gauge for any new rail lines because the differing gauges of the colonial-era railways, inherited by African states after independence, have hampered inter-country trade.
Despite the compelling argument for the implementation of this system, not everyone is convinced that it is the appropriate solution to the problems laid out by the Department of Transport. Some of are calling for the construction of a heavy-vehicle lane all the way from Johannesburg to Durban.
Next stop construction
There is also much to be done in the country in terms of housing, other railway lines and harbour capacity. Regarding transport, Transnet is now finalising frameworks to entice private sector participation into an array of necessary 'mega' projects that will only be able to brought about through robust private public partnership models with airtight frameworks. One of these includes constructing a mega terminal at the existing Port of Durban to cater for forecasted growth in trade patterns, as well as railway lines supporting the country's booming coal, iron ore and manganese sectors.
As such, Mr Langenhoven's views that there will be a long wave of construction lasting around 10 years to deliver the fixed assets to support the economy may hold sway. Time will tell!