THE railway business in Africa is not for the faint of heart. Just ask mining giant Exxaro which last March announced it had taken a $US 450m hit on its proposed Mayoko iron-ore project in the Republic of Congo after failing to finalise rail and port access agreements with the Congolese government.
There are undoubtedly many reasons why Exxaro did not get the access it needed to the Congo-Ocean Railway - the company declined to comment on the matter, saying only that negotiations with the government are continuing and that its South African-built mainline locomotives and ore wagons were for sale.
A simple matter of national pride may have been one of the issues as Mr Wes Kruger, operations director for Sheltam, a private South African company that leases locomotives and crews to railways across Africa, can attest.
"The governments in Africa are proud - you don't just walk in and provide a grand scheme," he says. "You have to understand the culture of the governments, the railway and the people. You have to walk with a limp first."
Africa is full of such hurdles for would-be rail operators. Along with difficult governments, there also are the scourges of delinquent maintenance, decrepit rolling stock and decayed track. Markets are usually fragmented and there is cut-throat competition from truckers who, in the decades of poor or absent rail service, have forged an almost unbreakable grip on the continent's land transport.
Yet rail, along with electrification, holds the key to Africa's economic development, says Mr Tim Schweikert, president and chief executive of GE South Africa.
"If you had two bullets in your gun, one of them would be rail infrastructure and the other would be electrification," he says. "But there is at least 20 years of work that needs to be done on the continent to get to the right level of rail infrastructure."
These obstacles have not deterred a host of rail operators, financiers and rolling stock suppliers from seeking their fortunes in Africa. The global commodities boom has driven spectacular growth on the continent and helped rejuvenate some of its ailing rail networks.
Many of the contenders are South African firms who believe they have the edge both on traditional suppliers in Europe and the US, and new players in China and India.
One such company is Grindrod Rail, a division of Mauritius-based logistics group Grindrod. The company's rail division refurbishes track and installs signalling, leases rolling stock and operates short-haul systems for private clients. It has 1166 employees working in 13 countries.
Grindrod's locomotive division started out rehabilitating ex-Transnet locomotives for further use on mines and in neighbouring countries such as Mozambique. Now it builds its own 110-tonne, 3MW mainline diesel-electric locomotives, at its 25,000m2²plant in Pretoria.
The factory, which is capable of producing 100 locomotives a year, has built 88 examples of the mainline type. The locomotives - which Grindrod claims are the world's lowest-cost diesel-electrics - are now operating throughout Africa, from Sierra Leone to Mozambique and four 914mm-gauge versions will soon enter service in Colombia.
"We are bringing cost-effective and fit-for-purpose solutions to the African environment," says Grindrod Rail chief executive Mr James Holley at the recent launch of the company's new shunting and short-haul genset locomotive - which it hopes will find a ready market among African operators looking to replace elderly and inefficient mainline locomotives on short-haul operations.
Grindrod's structure makes it possible for the company to maintain the locomotives it sells or leases. "It's quite easy to deliver a locomotive into Africa," Holley says, "but it's very difficult to keep that locomotive running. And that's what we do."
Grindrod also has ambitions to operate railways on a bigger scale than it does now. In December 2013, it acquired the majority shareholding in listed rail engineering firm Racec Group, and in February the rail division signed an agreement to work with Zambia's Northwest Rail Company to build a new 590km railway from Chingola in the Zambian copperbelt to the Angolan border.
Grindrod may heed the lessons learned by Sheltam - with which it had a short-lived partnership - on the difficulties of running a railway in Africa.
Sheltam, which has 420 employees and a mixed fleet of 40 former Transnet locomotives supplemented by new C30 locomotives built by GE-Brazil, was part of the Rift Valley Railways consortium which in 2005 was awarded the concession to operate the railways of Kenya and Uganda.
While Sheltam's core business is short-haul mining and shunting operations in South Africa, it has proved itself in tough environments - hauling coal, general freight and food relief in Mozambique and operating trains in the Democratic Republic of Congo, one of Africa's toughest neighbourhoods.
But the Rift Valley Railways concession proved tricky from the start and after years of battling for finance, Sheltam withdrew. Managing director Mr Roy Puffett would not comment on Sheltam's decision, saying only that funding was a major constraint.
While Africa flirts with rail privatisation, Puffett says Sheltam will only be interested in managing concessions or railways under a different format. "It's unlikely that we would go in and invest a huge amount of money like we did in Kenya," he says.
In the DRC, demand for an alternative transport provider has seen Sheltam shift its focus from locomotive hire to becoming more of a logistics operator. "It is more a complementary role that we are providing to attract more traffic onto rail," Kruger says.
For now Sheltam's leasing business is robust. "African railways don't have a lot of cash - they can't afford a $US 3-4m locomotive," Puffett says. The solution lies in rolling stock leases and a number of South African players are getting in on the game.
One local company to watch is Thelo Rolling Stock which in the two years since it set up shop has brokered some impressive deals including a $US 17m transaction to supply four Grindrod-built mainline diesel locomotives and 75 ore wagons to Swaziland Railway - the first rolling stock the operator has owned outright - and $US 21m in financing for five locomotives and 95 wagons for Minas Moatize, a mining company in Mozambique's Moatize coalfields.
However, Thelo's biggest coup to date was June's $US 68m leasing deal for 16 new GE locomotives for Vale's Moatize coal operation - the vanguard of what GE says will be a huge fleet of its locomotives that will be hauling coal in Mozambique by the end of 2015.
"Vale was a momentous transaction," says Thelo chief executive Mr Ronnie Ntuli. "It's a big deal for Vale, South Africa and Mozambique."
Thelo, which is 50% owned by South Africa's Industrial Development Corporation, wants to contribute to Africa's economic development. Local content is vital - the locomotives supplied by Thelo have 40% local content, the wagons as much as 80%.
"We're agnostic in terms of supplier," Ntuli says. "We will source rolling stock from anybody as long as it has South African content."
Thelo is confident that Africa's rail renaissance is real and sustainable. Right now, rail in Africa is still primarily about shipping commodities out and containers in. "If you accept that reality then you accept that rail is the best mode of transport," Ntuli says. "But it's not only a commodities game. There is a big industrialisation drive in Africa. The product that comes out of those industries will still have to be directed somewhere and rail will still be a proposition."
Cautious
Not everyone shares his optimism. Pittsburgh-based railwayman Mr Henry Posner III was one of the first private operators to tackle the challenges of running a former state-owned African railway. In 1999, Posner's Railroad Development Corporation was awarded a concession to operate Malawi's 800km state railway as well as the 873km Nacala Corridor that links the port of Nacala in Mozambique to Malawi's rail system.
At the time, Posner noted that rail privatisation had not been attempted before in Africa. "Normally the first people to do it end up being the lightning rod, carrying the costs and making the mistakes," he says.
It took RDC nearly seven years to get funding for the Mozambican part of the concession with Posner remarking that financing a railway on which RDC did not own any of the equipment was "very difficult." Matters improved dramatically in 2003 when the US Overseas Private Investment Corporation granted RDC a $US 29.6m loan.
After getting both Malawi's railways - now called Central East African Railways - and the Nacala Corridor back on their feet, RDC sold its stake in both to local investors in 2008.
Posner, who watches rail developments in Africa closely, is critical of the current "renaissance" as general freight transport remains neglected in favour of minerals traffic. "The lack of a programme for branch lines in South Africa is one of the best examples of this," he says. "A general policy objective of rail use is to develop economies and that means diversifying away from commodities."
Posner notes that much of Transnet's current Rand 312bn ($US 28.3bn) spending programme has been funnelled into the heavy-haul ore and coal lines, while trucks still dominate the single-wagonload freight business.
Schweikert agrees that raising finance may be the hardest trick of all. Getting the funding usually means first going to the offtakers, those who will be buying the service. "But the offtakers want the railways up and running before they make any commitment. It's a chicken and egg thing," he says.
Still, Schweikert is bullish about GE's prospects: along with huge locomotive orders for Transnet and Vale, the company is also building 200 locomotives for Nigeria, another country which has taken major strides towards revitalising its dilapidated colonial-era rail network.
While South Africa's private sector has benefited most from the boom to date, state-owned Transnet also has its eyes on Africa's riches. Many of the wagons currently rolling into mining projects were built by Transnet Engineering and the company also has a long-term ambition to become a locomotive OEM.
A previous attempt at operating a concession as part of the Railway Systems of Zambia ended in disaster but Transnet would be keen on working with other operators, says Transnet Freight Rail chief executive Mr Siyabonga Gama.
"We think we could partner with the railways of the region and accelerate their development," he says, adding that the company would "not be averse" to the possibility of operating concessions in the region. "But only after we have cleaned up our own house and that it is humming in the manner we want it to be," he says.
