Infrastructure Development Cluster media briefing

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1 March 2010

Colleagues
Members of the Media
Ladies and Gentlemen

In an effort to catalyse economic growth and development Government has embarked on the largest infrastructure investment programme this country has ever seen.

The cluster’s integrated programme includes developing a transport system that ensures effective and efficient ports, roads, rail, aviation and, maritime. A massive build programmes in energy, telecommunications and water infrastructure is underway. The cluster is key to driving the country onto a new developmental growth path in which job creation is a priority.

One of the key deliverables of this cluster is the stimulation of local production through fleet procurement of, for instance, rail rolling stock, or the manufacture of turbines. This year’s infrastructure budget has increased from R784 to R846billion over the medium term expenditure period making it one of the largest expenditure programmes in the history of this country. The accelerated infrastructure programme will allow us to deliver among others the 2010 FIFA World Cup and set our country firmly on the growth path.  So what is the progress so far?

Water infrastructure for human consumption and economic sectors

Water - a scarce resource in South Africa- remains a key requirement in the country’s growth and development strategy. In this regard government has identified key projects to provide the water resource.
 

• Some R195m over 2009/2010 and 2010/11 has been allocated for the upgrade and refurbishment of municipal Waste Water Treatment Works (WWTW) across the country 
• Construction continues on water distribution networks from Nandoni and Inyaka dams for the water supply for communities in Limpopo and Mpumalanga, Hluhluwe and Middle Letaba regional water distribution at a cost of R410 million

In the 2009/2010 financial year the DWA spent R350 million on its Dam Safety and Rehabilitation Programme and will spend R850 million in the 2010/2011 financial year.  The construction of the permanent abstraction works of the Vaal River Eastern Sub-system Augmentation Project will provide a sustained supply of water to Eskom and Sasol in the Secunda after commissioning and completion. Preparations for the augmentation of water supply to the Duvha and Matla power stations are on track to commence by August 2010.
 

• Planning and implementation are on track for the Mokolo-Crocodile Water Augmentation Project for the provision of water to ESKOM’s Medupi Power station and to the town of Lephalale. This will cost R10.1 Billion. The construction is projected to start during September 2010
• Preparations are on track for the implementation of the Nwamitwa Dam in Limpopo Province in the 2010/2011 at a cost of R1.1 billion

New water resources infrastructure projects 2009 – 2014

It must be noted that South Africa is reaching the limit of its fresh water resources and therefore a concerted effort towards water conservation is needed quite urgently.
 

• The Vaal River Eastern Sub-System Augmentation Project (VRESAP) in Mpumalanga will provide more water specifically to SASOL and Eskom. Paid for by the users the system is more than 95% complete and will be finalised by the end of 2010/2011.
• The Komati Water Augmentation Scheme (KWAS) in Mpumalanga is planned for the Mpumalanga province to provide more and better water for energy generation (Eskom). It is awaiting environmental authorization and contractors have been pre-qualified. Some 50 km pipelines will be constructed and more than 500 jobs created over a 5 year period. The project will commence in the second half of the current financial year. In the current recession the cost of borrowing may impact negatively on water tariffs.
• The Mooi-Mgeni Transfer Scheme (MMTS-2) in KwaZulu-Natal involves the construction of the Spring Grove Dam for domestic water supply in Ethekwini and Umgungundlovu. The project will create between 400-500 job opportunities over 5 years. In addition the construction of a transfer pipeline from Mooi River to Mgeni River will commence by the end of 2010 and the first water delivery will take place by 2013.
• In Limpopo the Olifants River Water Resource Development Project (ORWRDP) involves the construction of the De Hoop Dam which commenced in 2007 and is progressing well. The dam is about 40% complete. There are currently 752 employed in the project.
• In the Limpopo Mokolo Crocodile Water Augmentation Project (MCWAP Phase 1) arrangements are advanced to provide water to Medupi power station and Lephalale.  On average about 500 jobs will be created over the next 5 years.
• In the Western Cape plans to construct the CLAN WILLIAM DAM are at advanced stage. After detailed design construction will commence towards the end of 2010/2011. It is anticipated that 500 jobs will be created when construction starts.
• Environmental authorization has been received and the department has commenced with the process to acquire the land for the raising of Hazelmere Dam in KwaZulu-Natal. The project is scheduled to take place over 2 years and in that period 100 jobs would be created.

Transport

The key deliverables of the Transport sector broadly include the following:
 

• reduction in transport costs;
• improvement in safety; reduction in the backlog of road and rail infrastructure;
• accessibility to and affordability of quality public transport in both rural and urban areas; and
• optimisation in freight logistics improving energy efficiency.

In this regard Transnet’s R93.4bn investment in ports, rail and pipelines infrastructure aims to improve efficiencies in these sectors, thereby lowering the cost of doing business. Transnet spent R53.4bn between 2005/06 and 2008/09.

Major projects to be completed in the current financial year include the widening and deepening of the Durban entrance channel as well as the Port of Ngqura, which is on the way to becoming operational during 2009.

Transnet Freight Rail received the first six 19E dual voltage locomotives as well as 18 EMD diesel locomotives as part of a major replacement programme (172 locomotives over the next two years). With more than 25 years of inadequate infrastructure investment, infrastructure supplier industries have been significantly undermined.

The purpose of the DPE macro-economic impact study, which began in February 2009, is to measure the impact that Transnet’s five-year capital investment programme will have on the National and Provincial economies in South Africa. This impact is just over R115.4bn which will be added to the national economy by 2018.

This Gross Domestic Product impact (GPD) will amount to just over 4.8% of national GDP by 2018. The investment programme has a major direct impact on the economy (34%). Transnet has had its greatest impact in the KwaZulu Natal province, followed by Mpumalanga and the Northern Cape Province. This is to be expected, given the fact that Transnet has large operations in those provinces. Calculated as a percentage of provincial GDP in the Northern Cape the positive impact of Transnet investments is 54% of provincial GDP, and an additional 57 463 employment opportunities will be created.

In KwaZulu-Natal the positive impact of Transnet investments is 18% of provincial GDP, and an additional 143 704 employment opportunities will be created; In Mpumalanga the positive impact of Transnet investments is 15% of provincial GDP, and an additional 46 016 employment opportunities will be created; In the Eastern Cape the positive impact of Transnet investments is 14% of provincial GDP, and an additional 62 435 employment opportunities will be created. Further details of this study will become available during the first quarter of the 2010/11 financial year.  

Building a public transport legacy out of the world cup

The DOT has been working closely with all World Cup host cities to ensure the rollout of infrastructure and preparation for the operationalisation of integrated public transport networks. In Johannesburg, Cape Town and Nelson Mandela Bay the Bus Rapid Transit system forms a core part of the public transport system.

In JHB the first ever BRT in Africa commenced its phase1A in August last year with 17000 passengers daily and with the expansion of feeder systems due in the next weeks.  In Cape Town and Nelson Mandela Bay, BRT infrastructure construction is well under way.  In addition other cities including Ethekwini, Mbombela etc have invested in public transport infrastructure. Overall the commitment has been R4billion up to 2010/11

Airport infrastructure

On the airport infrastructure side Airport Company South Africa(ACSA’s) R20bn airports development programme has been completed. The major projects are OR Tambo Airport – Central Terminal Building(R2285m), OR Tambo Airport – Golf Apron Development( R424m), OR Tambo  Airport – Multi-Storey Parkade( R496m), Cape Town Airport  Terminal(R1522m), Cape Town Airport Multi-Storey Parkade(R394m), Bloemfontein Airport – Run way rehabilitation ( R121m), Bloemfontein Airport (R46m), Durban La Mercy Airport Development( R6724m).  More than 3 000 jobs were created as a result of these projects

Road infrastructure network

Our road network is benefiting from government investment of R70bn in a 3-year funding period. In this regard here are some of the major projects:
 

• The project includes the R23bn Gauteng Freeway Improvement Project
• The estimated total proclaimed road network in South Africa is standing at 535 000KM
• The  optimal road network that SANRAL can maintain is 20 000KM which has been identified and will be amalgamated into the network
• Rural development on Expanded Public Works Programme on roads throughout the country has R3billion budget allocated to it.

 Addressing road infrastructure backlogs

Let us address an issue which has dominated headlines recently- the matter of potholes on our road network. It must be said that as early as 2001 the Department of Transport reported to Cabinet that funding for roads had “fallen to a level where it cannot fully finance the maintenance needs of the existing network”. While subsequent Medium Term Expenditure Framework allocations for roads have been growing, the growth was from a small base.

There is no maintenance backlog on the national network. We need to move towards a provincial emphasis where we replicate the systems that at national level allow for a maintenance and construction programme which is world class. Nationally for instance we have a system which addresses potholes within 48 hours. On one hand the issues of potholes reflects a lack of funding to address projected backlogs and identified gaps. Even though this year we are investing R18billion on roads and R23billion on the Gauteng Freeway Improvement scheme, this is not enough.

The 2000/01 - 2007/08 National Treasury’s Trends in Intergovernmental Finances said aggregate expenditure on roads grew from R8.2billion to R9.2billion. In contrast the investment requirements for the roads sector were calculated to be in the order of R64billion over 5 years starting with the 2003/04 MTEF. This means that we have been underfunding our own requirements and projections.

Strides have been made towards improved funding of roads through the user pay principle. This has resulted in the road sector spending R9.7billion without relying on the fiscus. Other interventions to protect the road network include the overload control strategy. This has seen an increase in the number and operations of weighbridges on the country’s busy corridors and the establishment of industry self-regulation in the form of the Road Traffic Management System. The system targets freight that moves mainly on the secondary road network.

We are gathering of information on the extent, condition and investment requirements of all roads authorities in the country so that a composite picture can be drawn and effective plans and strategies implemented. Additional allocations of R3billlion (2007/08 MTEF) and portion of R4billion (2009/10 MTEF) for the roads sector in the Expanded Public Works Programme (EPWP) and the implementation of a rural transport strategy will go some way towards improve access and mobility in rural areas.

Passenger Rail Agency of South Africa (PRASA)

Government is investing R25 billion over the Medium Term Expenditure Framework (MTEF) period to stabilise and upgrade rail passenger transport services in our country. Of this R14 billion is being spent to upgrade rail passenger infrastructure and rolling stock whilst the balance will be funding for rail operations. South Africa has gone a long way in arresting the decline in commuter rail services over the past few years. PRASA has since the 2006/07 financial year accelerated the rolling stock investment programme. This has resulted in over 1 500 coaches being refurbished to the tune of R5 billion. An additional 700 coaches will go through this programme this year at an estimated R2 billion. PRASA is on course to eliminate the historical backlogs in the General Overhaul (GO) and Upgrades for Rolling stock.

Freight logistics

Freight logistics is the backbone of the country’s economic development and to that end we are busy developing interventions to bring about the necessary efficiencies in the freight system to enhance the role that freight logistics plays. Currently our freight system is fraught with serious performance challenges brought about by a number of reasons.  The one single most important reason is historical under investment in infrastructure, rolling stock and operating equipment.

These historical under investments have resulted in serious system unreliability and underperformance.  As a result of this the system is unable to meet current freight demand. To deal with this, Transnet has embarked on a massive infrastructure and operational investment in order to improve service levels, reliability as well as increase capacity across the freight system.

Some of the immediate interventions that Government, along with Transnet, are implementing include the revitalization of the railway branch lines by introducing private sector players to operate and invest in them whilst Transnet focuses on investing in the main railway lines, ports and pipelines.

Transnet will in the next five years invest about R93.4bn into ports, rail and pipelines infrastructure and operations to improve efficiencies in these areas of the freight logistics sector.  In the last five years Transnet has invested R75,3bn between 2005/06 and 2009/10.

To increase freight system capacity, Transnet has undertaken the construction of the Port of Ngqura which is 84% complete.

We have also widened the Durban entrance channel which is 87% complete, expanded the Cape Town container terminal and other port expansion programmes which are underway. This will help increase volume throughput through our major ports and will improve flexibility and capacity of the national ports system.

Freight Rail received the first six 19E dual voltage locomotives as well as 18 EMD diesel locomotives as part of a major replacement programme (172 locomotives over the next two years). This will improve volumes and efficiencies within the coal and general freight business.

Through the construction of New Multi Product Pipeline (NMPP) Transnet Pipelines will increase fuel carrying capacity by 8.7 billion litres per annum in 2011 and by 12.2 billion litres per annum in the phase 2 of the project and by 26.2 billion litres in the ultimate phase 5 of the project. This investment is in direct aid of our security of supply of energy going into the future.

Eskom's build programme

As is well-known, there was a significant under-investment in electricity generation capacity in the period between 1991 and 2004/5 by Eskom (the 10th largest utility in the world) resulting in the current critical shortage of generation capacity. This was due, amongst other things, to the fact that Independent Power Producers (IPPs) did not come in to fill the gap as had been anticipated, as the right enabling environment did not exist. As a consequence, the country faces a future 40 000MW shortfall which will have to be created by 2025 if this country is going to be able to meet its energy requirements.

Therefore, in 2004/5, Eskom, embarked on a massive build programme, the fifth largest in the world, which will provide the huge, much-needed transmission and generation capacity for the country.

Eskom has a capacity expansion budget, covering the years of the MYPD applications of R385 billion for 2008 to 2013. Out of the capital budget 73% will be spent on Generation, 13% on Transmission and the remainder will be used to strengthen the Distribution networks.

Since its expansion programme started in 2005, an additional 4 653 MW has already been commissioned. The plan is to deliver an additional 16 304 MW in power station capacity by 2017. Of that, 12,476 MW is already under construction (mainly Medupi, and Kusile power stations, return to service stations and the Ingula power station).

Over R48 billion was spent in 2008/09 and R65 billion is planned to be spent in 2009/10 and R96 billion in 2010/11.

To date, Eskom has already expanded capacity of supply to customers through the following projects:
 

• The return to service (RTS) of the previously “mothballed” units of Camden, Grootvlei and Komati a coal fired power plants (totaling 2370 MW).
• Two open cycle gas turbines have been completed, namely Ankerlig (5x148.3MW) and Gourikwa (2x149.2 MW), totalling 2084 MW.
• An increase of the Arnot coal fired power station’s capacity with an additional 200 MW available on the grid.
• Around 2696 km of high-voltage transmission has been built in past 4 years, as well as numerous new transmission sub-stations and transmission network upgrade projects.
• Eskom has electrified more than 3,7 million households since 1991.  About 99% of the municipalities are participating in the Free Basic Electricity programme. Eskom’s electrification projection for FY 2009/10 is 90 000 households.

In addition, Eskom’s current and future capacity expansion projects include:
 

• The return to service (RTS) of additional units at Grootvlei (600 MW), which is scheduled to be in commercial operation by the end of 2010, and Komati (750 MW) scheduled to be in commercial operation by the end of 2012.
• Three new power stations are being planned and built, namely Medupi (4 764 MW), Kusile (with the private sector) (4 800 MW) both coal-fired, and Ingula, a pump storage scheme (1 352 MW). The Medupi project alone is 4 times larger than the Gautrain.
• The addition of another 100MW of capacity to the Arnot coal fired power station is planned for commission in December 2010.
• The Duvha, Matla and Kriel coal fired power stations are at an execution planning phase and are being refurbished to extend their life span.
• The wind energy facility is proposed to accommodate 50 turbines, for a total output of 100 MW

In addition to Eskom’s introduction of renewable energy and its demand-side management initiatives which includes its solar water heating programme, its carbon emission mitigation is further enhanced through carbon capture ready new coal power stations fitted with flue-gas desulphurization whilst existing coal fired power stations have been fitted with electrostatic precipitators and bag filters to reduce particulate emissions.
In support of Eskom’s capital investment programme, Government has provided a subordinated R60bn loan to Eskom over three years as well as guarantees totalling R176bn over the next five years (R26bn for existing debt and R150bn for new debt) in support of the capital expansion programme. Borrowings of R123 billion over the MYPD2 period are projected to run as follows: R40 billion 2010/11, R43billion in 2011/12 and R40 billion in 2012/13. (Figures based on MYPD2 application by Eskom).

This would have left a R14 billion shortfall. These figures will now change given the recent ruling by Nersa.

Eskom borrowings to support the Build initiative consist of 3 ECAs (export credit agencies) amounting to R27 billion, an African Development Bank Loan of R20,7 billion, and a World Bank loan of 3,75 billion dollars.

Over the MYPD2 period Eskom will continue its initiatives to improve efficiency and will reduce its overall costs by R12 Billion, by cutting operating and primary energy costs by R6, 9billion and R1, 6 billion respectively.

As a result of Eskom’s build programme it is estimated that 40 000 direct construction jobs will be created. Overall the build programme will create approximately 160 000 new jobs (direct and indirect) which may be sustained over the duration (5 years) of the build programme.

Government is working towards a national target of one million Solar Water Heaters by 2014, and to date more than 1500 plumbers have been trained and a further 10 000 plumbers will be up skilled, re-skilled and certified.

At the same time Government continues to work in earnest to provide certainty for long-term security of electricity supply through the work of the IMC on energy which was established last year. The recent tariff determination by the National Energy Regulator of South Africa (NERSA) has implications not only for consumers, but for Eskom, the security of energy supply and the economy as a whole. The work of the IMC is divided into nine main work-streams which will look at the Protection of the poor from the impact of the electricity price increases, the Country Build Plan , the Macro-economic impact of the price increase on our competitiveness, Demand Side Management and Energy Efficiency, Nuclear Strategy and Implementation, Renewable energy, Private Sector Participation in Power Generation, the facilitation of a strategic equity partner for the Kusile Power Station and  Coal Haulage Logistics for Road and Rail. The IMC is expected to present its findings to Cabinet in June 2010

South Africa’s energy country plan envisages a progressive introduction of renewable energy capacity towards a target of 1445 MW by 2013 of which 343 MW capacity is planned for 2010.  

Telecommunications – lowering the cost of communicating

The Broadband Policy will be adopted in 2010 to strengthen government’s capacity around infrastructure expansion and enhance facilities leasing. It will also facilitate the sharing of infrastructure. This policy will contribute to reducing the cost of communicating as outlined in the Cluster’s detailed Programme of Action.

Beyond 2010 the implementation of this Programme of Action will be accelerated to bring the cost of broadband and telephony (both mobile and fixed line) further down. This will make communication more affordable for the majority South Africans. As stated in the President’s State of the Nation Address, the Department of Communications will also focus on increasing broadband speed and on ensuring a high standard of internet service, in line with international norms.

Broadbankd rollout

The cluster will increase penetration from 2% to 5% increasing access to broadband by 1, 4 million South Africans. The implementation of broadband and voice services will create employment and employment opportunities through the construction, operation and maintenance of the network. The uptake and usage of broadband makes South Africans globally competitive in all spheres of life. The roll out of broadband in rural areas will allow those citizens to compete on an equal footing with their counterparts irrespective of where they are in our country.

Broadcasting digital migration

One of the major impacts of Broadcasting Digital Migration policy is its contribution to the industrial growth in our country. The cluster will be finalizing and implementing the STB Manufacturing Sector Development Strategy this year. The intention is to manufacture 8 million set-top boxes (STB) commencing with 500,000 in the 2010/11 financial year. The focus here will be on providing subsidies to poor TV owning households to enable them to buy STBs.  

This Strategy will also contribute to job creation and job opportunities, with specific reference to the STB value chain, from manufacturing, assembling to installation, repairs and maintenance. Broadband Infraco is a new State-Owned Enterprise (SOE) that will sell high capacity long distance transmission services to licensed fixed and mobile network operators, internet service providers and other value added network service providers.

Broadband Infraco has undertaken investment to date to enable it to sell high capacity long distance transmission services to licensed fixed and mobile network operators, internet service providers and other value added network service providers. At the end of 2009 Infraco’s network assets consisted of 11 800 kilometres of fibre optic cable routes.  This provided connectivity from Gauteng to the major metropolitan centres of Bloemfontein, Kimberley, Cape Town, Port Elizabeth, East London, Durban, Nelspruit and Polokwane.

The interconnections to Botswana and Mozambique were successfully completed, requiring the installation of an additional 105 kilometres of fibre network and associated long-distance repeater stations. The interconnections to Namibia and Zimbabwe are nearing completion, requiring the incorporation of an additional 350 kilometres of fibre network and the construction of three new repeater stations. The quality of the network has also been enhanced to achieve availability levels of 99.95%. The system also enables the accurate fault location to reduce response times in the event of fibre cable breaks.

Furthermore, to enhance South Africa’s international connectivity and the speed of broadband, INFRACO is co-investing with the private sector in the deployment of the West African Cable System (WACS) project. WACS is a 14000km International marine cable network infrastructure from South Africa to the United Kingdom and Portugal with landing stations in 12 West Coast African countries.  The system comprises four fibre optic pairs with a maximum capacity of 5.12 Terabits per second (Tb/s) and approximately 400 Gigabits per second expected to be lit on launch.

A recent study indicates that the availability of Infraco’s national network has already had a significant impact on wholesale prices of communication and it is anticipated that its investment in the marine cable will continue this positive trend in downward pricing.

International submarine cable project

In order to address the international marine cable connectivity, INFRACO is participating in the deployment of the West African Cable System (WACS) project. WACS is a 14000km International marine cable network infrastructure from South Africa to the United Kingdom and Portugal with landing stations in 12 West Coast African countries.  The system comprises four fibre optic pairs with a maximum capacity of 5.12 Terabits per second (Tb/s) and approximately 400 Gigabits per second expected to be lit on launch.

Climate change

Following Copenhagen in December 2009 we believe an agreement must be concluded within the next year or two i.e. either in Mexico at COP 16 in December 2010 or in South Africa at COP 17 in 2011. Among others the issues raised in the Copenhagen Accord relate to sharing responsibility, commitment and action among all countries”. We need to agree on how to record economy-wide binding emission reduction targets for all developed countries.  How do we measure, report and verify the mitigation actions of developing countries such as Brazil, China, India, Indonesia, Mexico, South Korea, Philippines and Maldives and South Africa. Further required is:
 

• A commitment from developed countries to provide $30billion “Fast Start Finance” from 2010 to 2012 through existing international institutions and to provide $100billion per year by 2020 through a new Copenhagen Green Fund
• A mechanism to finance Reduced Emissions from Deforestation and forest degradation using a fund based approach
• South Africa successfully hosting the Climate Change Conference of Parties at the end of 2011  

Transforming public transport in South Africa

In closing, 100 days before kick off it is all systems go for the World Cup. Upgrades at OR Tambo airport, Cape Town international and Mangaung have been completed to world class standards. On May 1 2010 the first plane will land at the new King Shaka airport. PRASA has ordered 570 additional busses and driver training is underway. There will be 46 public viewing areas around the country.

Additional power substations and generators have already been installed at the stadia to ensure adequate power supply. Six stadiums have already been fitted with 'last mile' fibre optic broadcasting infrastructure and the remaining four stadia will be completed in March 2010.

Public Transport will become one of the sectors to benefit from investments induced by the 2010 World Cup. We are now busy with the contracting of services and ordering fleet services. Services are being determined through demand travel demand management system. We are in the processing of providing overlay services including domestic flights, intercity travelling, fan parks and similar services.

The GAUTRAIN RAPID RAIL LINK is one of our key infrastructure projects to date. We are hopeful that Phase 1 - between OR Tambo Airport and Sandton – will be ready for the FIFA World Cup.  

All of these milestones will be part of the lasting legacy that will be enjoyed by generations of South Africans for many decades, long after the World Cup has come and gone.

Ladies and Gentlemen there is no country in the world that can develop sustainably without providing the necessary infrastructure to grow. We are one such country that has placed growth as the chief goal but in addition ensured that growth benefits the people of this country, the region and the continent.

Enquiries:

Neo Momodu
Cell: 079 562 5081
 

Issued by: GCIS on behalf of the Infrastructure development cluster (POA)

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