Manganese export revamp at Ngqura could cost R44bn

The relocation and consolidation of South Africa’s manganese exports at the Port of Ngqura to improve efficiency and reduce costs could cost as much as R44bn, with the private sector set to play a leading role in building the terminal and rehabilitating the supporting rail infrastructure.

The quantum of the investment needed in the project was revealed by Transnet in its request for a qualification (RFQ) document — the first step in the procurement process that will see the private sector operate the terminal for at least 25 years.

To be considered to build and operate the terminal, interested private sector bidders will have to secure financing commitments of at least R10bn from lenders.

The Ngqura manganese export corridor transaction has been identified as a priority private sector participation opportunity due to the scale of investment required, the strategic importance of the corridor, and the opportunity to unlock additional value through the integration of rail and port operations.

Transnet has proposed breaking up the tender process into two special purpose vehicles (SPVs), with the first set to be responsible for terminal development, terminal operations, rail operations, rolling stock management and corridor operations — giving the winning consortium control of the entire value chain.

The second SPV will be responsible for financing, rehabilitating and maintaining the rail infrastructure supporting the corridor, an exercise that might require up to R20bn.

The ownership structure of the two SPVs will also differ, with Transnet set to own 51% of the first SPV and the private sector the rest, while the private sector will own 100% of the second SPV, responsible for the refurbishment of the rail infrastructure.

The second SPV will be remunerated through an availability-based infrastructure service agreement with Transnet Rail Infrastructure Manager and will assume infrastructure rehabilitation, asset performance and lifecycle maintenance risks.

For the second SPV, the interested consortium will have to show at least R3.5bn in financial commitment before being allowed to bid.

Transnet explained the logic in having two SPVs in the project, saying that as planning progressed, it became evident that a terminal investment alone would not unlock the corridor’s full export potential.

“The concentration of manganese exports within the Eastern Cape further reinforced the need for an integrated solution that aligns rail and port investment, operations and performance outcomes,” the RFQ reads.

“The successful consortium will establish a holding company through which it will own two legally separate SPVs. The two SPVs will remain legally, commercially and financially ring-fenced, each with separate governance arrangements, financing structures, contractual obligations, revenue streams and security packages. This enables each SPV to raise non-recourse project finance against its own cash flows while maintaining clear accountability for infrastructure and operational performance.”

The transaction represents one of the most significant freight logistics investment opportunities being developed in South Africa and the broader African market at present.

South Africa is the world’s largest producer and exporter of manganese ore and is estimated to hold about 80% of known global resources and more than 36% of global economically mineable reserves.

Historically, manganese exports through the Eastern Cape have been handled through a combination of facilities located in the ports of Port Elizabeth and Ngqura, supported by an extensive network of back-of-port storage operations.

However, this export configuration has become fragmented and inefficient, resulting in multiple handling points, significant road haulage, increased logistics costs and growing environmental and social effects within the Nelson Mandela Bay metropolitan area.

The consolidation of export activities is expected to reduce road congestion, material handling movements, dust emissions and other environmental effects while improving overall supply chain efficiency.

The proposed corridor will have a throughput of about 12-million tonnes per annum, with the potential to expand towards 16-million, subject to market demand and investment requirements.

“South Africa has increasingly become the preferred supplier of medium-grade manganese ore to key export markets, particularly China, owing to the favourable metallurgical characteristics of its ore,” Transnet said.

“While South Africa’s resource endowment provides a strong long-term competitive advantage, maintaining and expanding export market share will depend on the efficiency, reliability and competitiveness of the rail and port logistics system.

“Continued investment in export infrastructure is therefore required to support future demand, improve supply chain performance and sustain South Africa’s position as a leading global manganese exporter.”

Transnet has this year taken several private sector participation projects to market as it ramps up the steepest reforms to South Africa’s logistics sector in a generation. These include Cape Town’s multipurpose port terminal, the East London LNG port project, and the Richards Bay dry bulk terminal.

The freight and rail group last year concluded the private sector participation at the Durban Container Terminal Pier 2 (DCT2), with the Philippines’ International Container Terminal Services emerging as the preferred bidder in an R11bn deal.

DCT2 is Transnet’s largest container terminal, handling about 72% of the Port of Durban’s throughput and 46% of South Africa’s total port traffic.