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GE, Bombardier Among Winners of $4.7 Billion Africa Deal

Transnet SOC Ltd., South Africa’s state-owned ports and rail operator, picked four companies to supply new locomotives as part of a $4.7 billion investment to renew its aging fleet and boost capacity.

General Electric Co. (GE) and China’s CNR Rolling Stock will supply 465 diesel locomotives while Bombardier Inc. (BBD/B) and China’s CSR Zhuzhou Electric Locomotive won the contract for 599 electric engines, Chief Executive Officer Brian Molefe told reporters in Johannesburg today. Most of the locomotives will be built in South Africa, he said.

“Ability to stick to an extremely tight delivery schedule was one of the key considerations in assessment of the bids,” Molefe said. “It is our view that no single supplier would have the capacity or resources to deliver within the timelines we had envisaged.”

Africa’s largest economy needs the locomotives to upgrade its transport infrastructure and improve export capacity. Transnet, which owns and manages about 20,000 kilometers (12,400 miles) of rail lines, transports commodities such as iron ore and coal as well as general freight goods.

The train engine contract is worth 50 billion rand ($4.7 billion), Transnet said today. The figure is more than 40 percent higher than a previous government allocation for the commission. By 2019, all the 1,064 units will be delivered, according to Transnet Freight Rail CEO Siyabonga Gama.

Currency Fluctuations

The CSR Zhuzhou locomotives will cost 15 billion rand, those from Bombardier 10 billion rand, those from CNR 7.8 billion rand and those from GE 7.1 billion rand, Transnet Chief Financial Officer Anoj Singh told reporters. The 50 billion rand contract value includes hedging cost, he said.

The rand weakened 0.3 percent to 10.7063 per U.S. dollar by 1:38 p.m. in Johannesburg, extending losses this year to 2 percent.

More than two-thirds of Transnet’s capital expenditure will be used to renew and expand the company’s freight-rail infrastructure. The new locomotives, to be deployed on the general freight lines, will cut the average fleet age to 22 years from 33 years.

Domestic Manufacturing

South Africa has general transportable freight of about one billion metric tons a year, including commodities, Gama said in an interview today. The unit is targeting a freight market share of 25 percent by 2022 compared with 15 percent now.

“It’s a game changer for us,” Gama said. “It is going to assist us tremendously not only in road-to-rail strategy, but also helping with building South Africa’s industrial capacity.”

To create jobs and develop expertise, South African state-owned companies in the past favored suppliers who committed to manufacturing major parts of their offerings domestically. The investment is expected to contribute over 90 billion rand to the local economy and create about 30,000 direct and indirect jobs, Molefe said.

GE, based in Fairfield, Connecticut, already built 143 locomotives for Transnet at a South African factory, according to the rail operator. The Export-Import Bank of the U.S. backed a 1.1 billion-rand loan to Transnet to pay for the engines, the company said in September. Transnet in 2012 also agreed to pay CSR Zhuzhou 2.6 billion rand for 95 locomotives.

The contract awards will help Transnet in being a supplier of locomotives to the African region, according to its CEO.

To contact the reporters on this story: Kamlesh Bhuckory in Johannesburg at kbhuckory@bloomberg.net; Franz Wild in Johannesburg at fwild@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net Kim McLaughlin, Alastair Reed

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