Cablegate: Despite Leadership Challenges, Transnet Makes Major

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RR RUEHBZ RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHDU #0120/01 3581142
ZNR UUUUU ZZH
R 241142Z DEC 09
FM AMCONSUL DURBAN
TO RUEHC/SECSTATE WASHDC 1535
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE
RUEHDU/AMCONSUL DURBAN 0917

UNCLAS SECTION 01 OF 02 DURBAN 000120

SENSITIVE
SIPDIS

FOR AF/S, INR

E.O. 12958: N/A
TAGS: EWWT ETRD EINV EPET PGOV SF
SUBJECT: DESPITE LEADERSHIP CHALLENGES, TRANSNET MAKES MAJOR
INVESTMENTS TO BOOST PORT CAPACITY

REF: A. 08 CAPE TOWN 5; B. 09 MAPUTO 983

DURBAN 00000120 001.2 OF 002

This cable is a collaboration between Consulate General Durban
and Embassy Pretoria. It is part of a series of reporting on
regional transport infrastructure developments.

1. (U) Summary. South African Government-controlled transport
logistics company Transnet launched a massive investment program
to upgrade transport infrastructure to address capacity
constraints and congestion. These investments follow a
corporate restructuring and rebranding process that was
completed under the reign of former CEO Maria Ramos, who led the
company from January 2004 to February 2009. Despite challenges
in the appointment of new permanent division executives,
Transnet has continued with planned capital expenditure
projects. Projects include initiatives to increase capacity at
the busiest sea port in Africa (Port of Durban) and to develop a
deep-sea port to support the SAG's Coega Industrial Development
Zone (IDZ). The first phase of expansion at the Port of Durban
is already completed and the Port of Ngqura began commercial
operation in October. The capital expenditure plan aims to
accommodate future demand growth and to retain regional
competitiveness as neighboring ports privatize operations and
increase investments. Future demand growth is built into the
current expansion program, but leadership challenges will also
need to be addressed to retain regional competitiveness. The
Coega IDZ has lost its anchor tenant due to national power
capacity shortages, and a new anchor project is being
considered. End Summary.

CHANGES AT TRANSNET

2. (U) Post visited the Ports of Durban and Ngqura in July,
September, and October to discuss progress with the Transnet
upgrades and to promote USG maritime security initiatives.
Transnet completed a restructuring and rebranding process in
2007 (Ref A) and has launched a R80 billion ($10.6 billion)
capital expenditure plan to address years of investment neglect.
The restructuring process was completed under the previous
Transnet CEO Maria Ramos. Ramos left the organization just
prior to the April 2009 national elections and a permanent
replacement has not been named yet. Transnet is also
experiencing challenges in the appointment of officials for its
division leadership posts. Transnet's Freight Rail (TFR)
Division CEO Siyabonga Gama was suspended and faces internal
disciplinary action over allegations of irregularities in
tendering and procurement processes. Some financial
mismanagement of the capital expenditure program is also being
reported in the local press.

BUSIEST PORT IN AFRICA EXPANDS CAPACITY

3. (U) Transnet is in the process of upgrading capacity at the
busiest port in Africa at a cost of approximately R1.4 billion
($190 million). The Port of Durban currently has the capacity
to accommodate 2.9 million TEUs per year and employs 1,500 staff
on a 24-hour shift basis. (Note: One TEU represents the cargo
capacity of a standard intermodal container, 20 feet long and 8
feet wide. End Note.) Ninety-nine percent of container traffic
at the Port of Durban is processed through the Durban Container
Terminal or Pier One. It is a major hub for container cargo
from the Indian Ocean, Middle East, Far East, and Australia.
Sixty percent of the cargo volumes are transported via roads,
transshipments account for 27 percent of the cargo volumes, and
the remaining 13 percent are transported by rail. Port of
Durban officials also noted that trade with the U.S. was
important for the South African economy. The U.S. is one of the
few countries with which South Africa has a positive trade
balance. Six percent of the cargo exported via the Port of
Durban in the first half of 2009 was destined for the U.S.
market.

4. (U) Transnet originally planned to increase capacity in
2009-2010. However, due to the global economic downturn, it has
decided to increase investment incrementally to reach its
expansion goals by 2010-2011 instead. Phase one of expansion,
substantially completed, entailed reconfiguration of stacking
capacity to increase it from 1.98 million TEUs to 2.3 million.
Security upgrades and the installation of optical character
recognition technology are part of the overall upgrades. The
container scanner at the Port of Durban is being deployed at a
temporary site until upgrades are completed.

5. (U) Phase two will involve the relocation of non-essential
facilities outside the port operations area utilizing the
freed-up space inside for additional stacking. This will
increase capacity from 2.3 to 2.9 million TEUs. The new
buildings for the relocations are expected to be completed by

DURBAN 00000120 002.2 OF 002

February 2010. An eight lane toll-like structure was
constructed to facilitate truck staging and document processing.
Up to 300 trucks can be staged in this area at a time.

PORT OF DURBAN STATISTICS

6. (U) Container traffic at the Port of Durban increased six
percent from 2007 to 2008, but decreased 13.3 percent in the
first half of 2009 due to the global economic slowdown. While
cargo volumes are beginning to recover slightly in the second
half of 2009, transshipment volumes have increased 23 percent in
the same timeframe. The Port of Durban processed 1.1 million
TEUs in the first half of 2009 and transshipments represented 27
percent of the total cargo flows. The increase in transshipment
volume is mainly due to the piracy threat in the Gulf of Aden,
which has led to an increase of bunkering services and
transshipment processing through the ports in Southern Africa
instead of Eastern Africa.

NEW DEEP-SEA PORT LAUNCHED

7. (U) Transnet has spent nearly $500 million to develop the
Port of Ngqura, a new deep-sea port in the Eastern Cape
Province. Construction began in 2002 as part of the Coega
Industrial Development Zone (IDZ). Commercial operations began
on October 4. The depth of the entrance channel depth is 18
meters and the basin depth is 16 meters. The Port is located in
close proximity to many of the South Africa-based automotive
manufacturers. General Motors and other international companies
have begun construction on logistics facilities at the Coega IDZ
to take advantage of the new port. Meanwhile, Coega IDZ anchor
tenant Rio Tinto cancelled its aluminum smelter project at Coega
due to power sector capacity shortfalls and price increases.
The SAG may push the PetroSA Refinery project as a potential
substitute anchor.

8. (U) The new port will handle mostly container traffic.
Transnet hopes to develop the Port of Ngqura into a container
hub for Africa. Two container berths are already completed and
two more are expected to be completed by January 2010. Two
berths for dry bulk and break bulk cargo and one for liquid bulk
cargo have also been completed. A total of 32 berths have been
identified for future port development. Transnet is still
developing refueling capacity at the Port of Ngqura to
accommodate bunkering services.

COMPETITION STIFF

9. (U) Sea port infrastructure is being upgraded throughout
Southern Africa and some neighboring countries have begun
privatizing port operations (Ref B). Some South Africa-based
manufacturers have started utilizing the Port of Maputo to
reduce overall transport logistics costs and to avoid congestion
experienced at South African ports.

COMMENT

10. (U) South Africa's comparative advantage lies in the fact
that Transnet also controls most of the rail infrastructure in
the region and has better rail rolling stock capacity than its
neighbors. Transnet Freight Rail provides some rail stock to
neighboring countries that do not have sufficient capacity (Ref
B), but prioritizes for the needs of South African ports first.
The capital expenditure plan launched by Transnet aims to
accommodate future demand growth and retain regional
competitiveness. The global economic slowdown gave Transnet
some breathing space to catch up on its capital expenditure
programs; cargo handling capacity was a constraint in 2008.
Leadership challenges will also need to be addressed for SA
ports to remain competitive with others that are privatizing in
the region.

11. (U) Loss of the Rio Tinto aluminum smelter project at Coega
may impact the long-term development of the Coega IDZ. The SAG
remains committed to the success of Coega to boost economic
growth in a province that has historically faced difficulty
attracting foreign investors.
DERDERIANJ

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