SA to invest billions in upgrade

29 October 2004

South Africa’s government is to invest a massive R121-billion in the country’s energy and transport infrastructure over the next five years, in what it calls a “major phase of construction” of the economy and a decisive moment for private sector investors, who have been told to take the plans “very seriously indeed”.

Earlier this year, Parliament was told that South Africa’s rapidly dwindling coal reserves meant that it might need a source of cleaner, better energy by as early as 2008 – and that state electricity utility Eskom could not keep up with growing demand.

Minerals and Energy Minister Phumzile Mlambo-Ngcuka said then that the future of the country’s energy would involve private-sector investment in the construction of power stations and nuclear power facilities.

On the transport front, South Africa’s rail infrastructure – much of it already decommissioned – has long been in need of an overhaul to reverse local industry’s dwindling reliance on rolling stock, which has placed a heavy burden on the country’s roads.

Throughout Africa, high tariffs and the inefficiencies of monopoly rail utilities are considered the core reasons why rail has lost out to the more competitive road transport sector.

Similarly, South Africa’s ports have bottlenecked an increase in trade activity in the region. Due to delays at ports, a number of shipping lines have recently taken South Africa off their routes, reducing the country’s ability to compete internationally.

Now the government, in an unexpected move – Public Enterprises Minister Alec Erwin admits that it has not invested as much as it should have over the last 10 years – it has approved a massive five-year R165-billion package to upgrade Eskom’s infrastructure and that of transport parastatal Transnet.

The two utilities are expected to spend some R121-billion over the next five years, with the remaining R44-billion coming from the private sector.

Erwin has described the move as a “major phase of construction in this economy” and a decisive moment for private sector investors, whom he has told to take the government’s plans “very seriously indeed”.

Eskom, which has been given the green card to invest some R107-billion in new power stations, transmission and distribution, will receive the lion’s share of the investment – a move that will cement its place as the continent’s dominant power supplier.

The reinvigoration of the new power utility comes after delays in finding financial backers for South Africa’s nuclear energy options: a demonstration nuclear plant at Koeberg outside Cape Town in the Western Cape, and a fuel plant at Pelindaba, west of Pretoria, Gauteng.

A US$1.2-billion cash injection is needed to get the projects – involving the controversial pebble bed modular reactor – up and running.

In a fresh show of faith in Eskom, the utility will be expected to meet some 70% of the country’s future power needs, with the remaining 30% to be provided by the private sector. Tenders for three new power stations are expected to be issued in January 2005.

Immediate transport needs are estimated at R37-billion, which will include building a multi-purpose pipeline from Durban to Gauteng, also with private sector participation.

Phase two will involve what the government is calling “blue sky” projects. These may include a new railway line from Durban to Gauteng, new container terminals and the expansion of the Cape Town and Ngqurha harbours. These could involve an extra R58-billion capital injection over five to 10 years.

Alan Finlay is a freelance journalist and researcher