MTHATHA - AMABELE RAILWAY

CONCESSION PRESENTATION

JANUARY 2024
TABLE OF CONTENTS

1. Company Overview
2. Business Proposition
2.1 General Freight
2.2 Fuel
3. Key Success Factor - Stakeholders
4. Key Outstanding Matters

Appendix 1 – Details of Rail Upgrades

 COMPANY OVERVIEW
SBHEKUZA WOMEN INVESTMENTS (PTY) LTD (“SBHEKUZA”)

Sbhekuza concluded a 20 year concession with Transnet on the 281km Company shareholding and management
Mthatha – Amabele branch line, which entails: Provision of Rail Freight and § 100% black women owned; all from the
Passenger Services, Rail Infrastructure Upgrade and Maintenance and Eastern Cape; 3 of whom are operational in
the business
Development of the Land and Real Estate along the concessioned line.
§ Company shareholding:
§ Thandi Hillie – 26.5%
§ Asanda Tshishonga – 26.5%
§ Anele Khunou – 15.5%
§ Unathi Conjwa – 10.5%
§ Fungelwa Conjwa – 10.5%
§ Zikhona Conjwa – 10.5%
§ Executive Management:
§ Thandi Hillie – CEO
§ Asanda Tshishonga – CFO
§ Anele Khunou – Corporate Services
Director
§ Mandla Hillie – Projects Executive
 BUSINESS PROPOSITION – GENERAL FREIGHT

Sbhekuza Women Investments (Pty) Ltd t/a Sbhekuza Rail (“Sbhekuza”) The business operations of Sbhekuza started in 2017, and through
is a 100% women owned company founded by six (6) black women. beneficial occupation, the company commenced with minor
Sbhekuza concluded a 20-year concession with Transnet on the 281km maintenance on the railway infrastructure. Subsequently, the real
Mthatha - Amabele branch line to operate freight and passenger rail estate portfolio associated with the concession was handed over by
services with access to the entire Transnet Freight Rail (“TFR”) network, Transnet to Sbhekuza. Sbhekuza is in the final stages of negotiating
as well as optimizing, developing and letting the real estate associated haulage rates with TFR to enable the commencement of rail
with the concession. operations with approximately four (4) customers at first, covering
timber and cement. These potential customers have expressed
An assessment of the significant potential of hauling freight (initially written interests and some have committed freight to be moved on a
cement, timber and beverages) on this line was conducted and test train basis. Upon successful execution of test trains, long-term
feasibility of rescuscitating rail operations on this line was determined. commercial agreements will be secured.
The concession was approved by the Department of Public Enterprises,
which is the shareholder ministry of Transnet, on 7 November 2017. This It is anticipated that rail operations will commence with 20 606 tons
authorised Transnet to commence negotiating concession terms with per annum, growing to 426 584 tons in year 2 and to 644 553 tons in
Sbhekuza, leading to the signing of the Concession Agreement and its year 5, with gross revenues of R6.9 million, R200.1 million and R379
Ancilliary Agreements on 9 October 2019. million in years 1, 2 and 5 respectively. The company is expected to
start generating profits in year 2 with projected positive cash flows in
Currently, all freight moving along where this branch line is transported year 4, while returns (IRR) are expected to be at 18% over the
by road and Sbhekuza sees an opportunity to migrate a significant part duration of the concession. The capital expenditure programme
of this freight to rail at a lower cost than road. The concession and TFR (excluding real estate portfolio) is expected to be rolled out in the
infrastructure will enable Sbhekuza to positively contribute to the early years as follows:
economic development of the Eastern Cape through job creation, skills § Year1: R45.3 million
and rural development. § Year 2: R135,1 million
§ Year 3: R103,4 million
 BUSINESS PROPOSITION – REAL ESTATE

The real estate portfolio comprises mainly of property leases to

SMMEs in Butterworth, Dutywa and Mthatha stations. Plans are are
being developed to upgrade the premises and develop a mall along
the railway line in Butterworth that will accommodate the SMME
trading outlets under improved conditions, working with Mnquma
Municipality. The mall concept will be later rolled out to Dutywa and
Mthatha stations.

There is also a potential to develop student accommodation on the

land attached to the Butterworth station, focusing on NSFAS
supported students. Take off agreements will be negotiated with
Walter Sisulu University (“WSU”) and NSFAS.

Initial design plans have been completed, which will be finalized to

cater for changing student needs e.g. demand for single bed units.
The environmental impact assessment (“EIA”) is also underway.

The real estate portfolio capital expenditure could be a minimum of

R75 million over a two year period with expected IRR of at least 15%
over the duration of the 20 year concession.
 BUSINESS PROPOSITION – FUEL

There is significant amount of fuel that is transported between East London and Mthatha on a weekly basis, which presents an opportunity for
Sbhekuza Rail, and the Eastern Cape government in terms of moving some of the bulk fuel transportation away from road, improving road safety.

Sbhekuza Rail has prepared a draft business case that would initially run a daily train of 13 wagons of 34 tons each, which would replace 13
trucks. Over a six day week, this means 156 truck journeys (13 trucks * 2 trips * 6 days) would be removed from road to rail.

The single train a day would still leave the majority of fuel still being transported by road. However, rail volumes will be increased once the initial
business case has been implemented over a period a period of time.

Economics of the business proposition

The concession profitability works only if Sbhekuza is able to transport goods not only on the Mthatha – Amabhele concessioned line, but across
the Transnet main lines as the following costs of leasing rolling stock, rail maintenance and labour are fixed irrespective of freight kilometers. This
is why Sbhekuza is currently negotiating rates with Transnet for the use of their main railway lines.

As the business case stands, the fuel transportation business is not viable given the rates that the current fuel transporters pay in road rates. We
are suggesting that Sbhekuza and the Eastern Cape Government explore ways to collaborate to make the venture viable. Options could include a
subsidy by the department based, for example, on the savings on road safety and maintenance. The aim to make the project viable to funders and
service providers, mainly locomotive and wagon providers, and also to improve road safety and road maintenance costs for the Province.

Sbhekuza is looking forward to exploring this business proposition with the Eastern Cape government.
 KEY SUCCESS FACTOR – STAKEHOLDER INVOLVEMENT AND
OWNERSHIP

Sbhekuza Rail believes that for planned projects to be successful, stakeholders have to be meaningful partners in the development of projects.

The following key stakeholders have been identified:

• Transnet: Agreement of haulage rates and operationalization of concession agreement

• National Departments of Transport: National policy
• EC Department of Transport: Provincial policy
• ECSECC: EC Strategic projects development and implementation and alignment
• DBSA: Debt and equity funding
• Other funders: Debt and equity funding
• Local and district municipalities: Permits, bulk infrastructure and services, facilitation of engagements with communities
and local business
• Local business: Participation in the project in line with local procurement requirements
• Third party rail operators: Provision of rolling stock and initial train operations
 KEY OUTSTANDING MATTERS

The following are the key outstanding matters that need to be resolved to accelerate the implementation of rail operations and real estate projects:

Rail operations:

• Transnet: Agreement of haulage rates for use of Transnet rail infrastructure

• DBSA: Project preparation funding approved. In the process of onboarding service providers
Further funding dependent on successful completion of project preparation process
• Other funders Application processes and discussions underway for start costs funding and equity contribution
• Local Municipalities: Dealing with informal settlements adjacent to the railway line
Partner with Sbhekuza in engagements with local communities and business
• ECSECC: Assist with alignment of the project with EC strategic project pipeline and in
engagements with various stakeholders

Real estate operations:

SMME mall:
• Mnquma Local Municipalities: Continue engagements regarding fencing of rail precinct and provision municipal
services
Partner with Sbhekuza in engagements with local communities and business

Student accommodation:
• WSU and NSFAS: Offtake agreements to unlock funding
 APPENDIX 1 – DETAILS OF RAIL UPGRADES (1/2)

Current Condition of the Line

(Basis of the business case for the first two years of operation)

• 16 ton per axle load - 64 tons gross and 44 tons net (wagon – 20 tons)
• Maximum speed of 30km/h, with maximum speed of 15km/h on Kei cuttiings (15km/h restriction on maximum of 2 kms out of 281kms of line)
• Can only run trains from sunrise to sunset – no night trains
• Maximum of 24 wagons per train
• Maximum 4 locomotives per train
• A trolley requirement in front of train to lookout and and deal with rockfalls and other obstructions
• Operations run from temporary structures – mainly containers

Upgrades
(Based on Transnet estimates at 2018 prices, which have been escalated by CPI at 6% pa)

• Perway infrastructure upgrade

Ø Replacement of slippers – form wooden to concrete and steel
Ø Replacement of missing clips (which attach slippers to rail)
• Refilling of ballast on certain sections of the line
• Removal and addressing of rockfall on Kei cuttings by covering with nets
• Smoothing of gradients and curves on Kei cuttings (less than 1 km in total)
• Test strength of bridges based on 20 tons per axle (currently comfortable but test required by the Rail Regulator)
• Equipment
• Specialised containers
• Handling equipment
• Maintenance vehicles
• Office equipment
• Zamukulungisa Terminal Development
• Building of a fenced terminal for offices, cargo handling and storage
 APPENDIX 1 – DETAILS OF RAIL UPGRADES (2/2)

Upgrade costs - R'm

Year 1 Year 2 Year 3 Year 4 Year 5
Perway infrastructure upgrade - 65,0 65,0 - -
Replacement of slippers - 40,1 40,1 - -
Replacement of clips - 6,4 6,4 - -
Refill of ballast - 2,5 2,5 - -
Removal and addressing of rockfall - 2,9 2,9 - -
Smoothing of gradients and curves - 13,1 13,1 - -
Equipment 20,5 45,9 28,8 27,5 27,5
Specialised containers 13,7 41,2 27,5 27,5 27,5
Handling equipment 4,6 4,1 - - -
Maintenance vehicles 1,5 - 1,3 - -
Office equipment 0,7 0,6 - - -
Zamukulungisa terminal development 9,8 24,2 9,6 - -
Building of a fenced terminal for offices,
cargo handing and strorage
Other 15,0 - - - -
Total 45,3 135,1 103,4 27,5 27,5

Future State of the Line

(Basis of the business case for from the third year of operations)

• 20 ton per axle load - 80 tons gross and 60 tons net (wagon – 20 tons) – and increase of 16 tons (40%) per wagon
• Maximum speed of 60km/h – doubling the current speed
• Can run trains for 24 hours
• Maximum of 24 wagons per train
• Maximum 4 locomotives per train
• No trolley requirement in front of train – reducing operating costs
 THANKYOU

Tel: 087 806 1387 / Fax: 086 224 2230 / Email: [email protected]
Web: www.sbhekuza.co.za / Address: 830 Gregory Street / Vorna Valley / Midrand / 1686