Who will fund port?

2013-12-17 00:00

FEASIBILITY and other studies are well under way for the R300 billion dig-out port south of Durban, which will be one of the country’s biggest construction projects ever, but there is little certainty at this stage about where the money is going to come from.

Although Transnet intends to fund aspects of the new port, the bulk of the project is not in the parastatal’s capital budget.

There has been some speculation, for instance, that the new port will be completely foreign owned by the party likely to finance the construction of the project, but clearly that can’t be, unless the laws are changed.

This is because the National Ports Authority Act states that port infrastructure must be owned by the National Ports Authority.

This may stand in the way of some financing options to fund the new port.

For instance, Grindrod was given a substantial shareholding and stake in the management of the port of Maputo, in exchange for helping to get the port fully operational again.

The South African Federation of Civil Engineering Contractors (Safcec) president Norman Milne said it is possible for local companies and/or institutions to finance the entire dig-out project, but clearly no single lender would want to take on the full risk.

Any financing will likely be syndicated, which could include overseas financing, said Milne in response to questions from The Witness.

“Lenders are happy to finance projects provided they have a guaranteed revenue stream.

“Transnet may look at financing some of the project off their own balance sheet and borrowing the rest,” he said.

Milne said the project could also be carried out as a Public Private Partnership (PPP) where a concessionaire undertakes the financing, design, construction and operation of the port for a period, and then hands it back to Transnet after that period.

During that period the concessionaire collects the revenue to pay off the debt, finance the operations, etc. There can also be variations to this model.

There is also the chance of Transnet obtaining funding in the form of foreign aid at very favourable rates from another country, Milne said.

“Transnet is assessing various funding options, which may include the possibility of PPP’s or fully privatised sections of the port,” said Marc Descoins, programme director for the Durban Dig-Out Port at Transnet.

He said a specialist unit has been established to develop PPP funding models so that the private sector can invest in the infrastructure.

Descoins expects the PPP model to be finished by the middle of 2014 and to be able to go to the market for potential investors by the same time.

In the meantime, Transnet is funding the acquisition of land as well as the work that needs to be done for the environmental authorisation of the dig-out port.

The first phase of the project is expected to involve the construction of a container terminal. This means a breakwater, entry channel as well as the port basin, quay walls and the superstructure of the container terminal will need to be built.

Supporting road and rail infrastructure will also be needed.

Initial estimates are for the first container terminal to provide capacity for an additional two million 20-foot equivalent units (TEU) — container volumes are expected to grow from 2,69 million TEU in 2010 to between nine and 12 million TEU per year by 2040.

Descoins said there has already been substantial interest in the project from various potential investors.

He said it is too early to talk about the potential risk offsets — these are guarantees built into the project so that the constructor does not run into financial difficulty on a project of such magnitude.

Although the dig-out port is included in the government’s Strategic Infrastructure Project 2 (Sip2), at this stage Transnet is driving the efforts to arrive at a final funding model, although its progress is being reported to the Presidential Infrastructure Co-ordinating Commission.

Construction of phase 1 of the dig-out port is expected to start mid-2016, when significant capital will be required.

Does the local civil and engineering industry have the capacity to complete the dig-out port? Milne said yes, except for certain specialist marine works and dredging, if required.

There is not enough specialist harbour work in the country to warrant a local contractor laying out the expenditure required for such work, and for keeping resources that would not be fully utilised.

Nevertheless, SA contractors have carried out significant construction works in all major harbours. Coega, Durban, Richards Bay, Saldanha and Cape Town have all been extended in the last few years.

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