Inside the US$400m NRZ deal – US$100m for wagons, locomotives – Talks over US$348m debt – New centralised control system

AS the National Railways of Zimbabwe gears for a US$400 million tie-up with Diaspora Infrastructure Development Group (DIDG/Transnet), details emerged last week that the parastatal intends to roll out a three-year strategy premised on acquisition of new locomotives and wagons, and a revamp of operational efficiencies.

Source: Inside the US$400m NRZ deal – US$100m for wagons, locomotives – Talks over US$348m debt – New centralised control system | The Sunday Mail Aug 20, 2017

DIDG/Transnet is a consortium of Zimbabwean businessmen in the Diaspora, and South Africa’s state-controlled integrated freight entity.

Last week, NRZ chair Mr Larry Mavhima told The Sunday Mail Business that the US$400 million figure came from a thorough appraisal by the company’s transaction advisors, Deloitte.

Of the resource envelope to be availed by the new partners, US$150 million will be spent in the first year to buy 24 mainline locomotives and 13 rail shunters or shunting locomotives.

Twenty locomotives that are part of the current fleet will be refurbished. Of the 160 locomotives the NRZ has, 60 are running. Overall, only 20 are reliable.

“In the first year, we have allocated US$150 million that will be directed towards the purchase of locomotives and rolling stock. We are talking about at least 24 mainline locomotives and 13 shunting locomotives . . . and refurbishment of about 20 current locomotives that we have.

“They just need to be rebuilt, refurbished. We have the capacity and technical expertise in our workshops in Bulawayo and Mutare to be able to completely break down a locomotive and put it back together,” said Mr Mavhima.

The NRZ’s workshops are the among the biggest in Africa.

New wagons

Not only will NRZ refurbish 700 wagons that are in stock, but it will also purchase 1 000 new ones.

Out of the 7 500 wagons that form part of the assets, 2 500 are online, among them 30 that were bought last year.

Experts say refurbishing the wagons will add 10 years to their life.

In the interim, management is exploring the option of leasing locomotives and refurbishing the current fleet to ensure the business gets back on the rails.

Industry sources say delivery of new locomotives usually takes between 18 months and 24 months, and the lead time for refurbishing locomotives ranges from three to six months.

The scope of works within the first year will entail attending to the rail network. But only 150km of the 2 770km rail network needs to be fixed.

Control system

A huge chunk of money — about US$100 million — will be used to modernise and refurbish the centralised train control and signalling system.

US$30 million will be deployed to equipping workshops and revamping the processing system through information communication technologies.

Mr Mavhima said: “Most of our systems are fairly manual; well, pretty much manual. We can computerise that and auto process transactions once we implement this programme, SAP (System Applications Programme), that is used by most Government departments.

“It’s a very robust system that takes care of your marketing, your operations, technical, your real estate . . . It has several modules that one can be able to implement that will then result in a reduction of staff, especially where you move from batch processing to automated processing.”

Government laid the ground for the widespread use of SAP — an enterprise resource management software — after acquiring 51 percent of Portnet Software in 2015.

Portnet is the preferred provider of SAP software to Government, its parastatals and enterprises.

The second and third phases of the NRZ’s rehabilitation will involve additional projects to modernise the railway, and exploring new routes, particularly in the northern corridor.

Studies are underway to assess the feasibility of establishing a shortened rail route from Chinhoyi to Zambia.

Perhaps the sternest test will come in the realignment of staff in line with the modern demands.

The current staff-to-revenue ratio, at 69 percent, is considered untenable. An ideal ratio is thought to be between 35 and 37 percent.

Though underperforming, the NRZ has 4 700 workers in its books.

“It’s a sensitive issue, but I think that Government has realised that (employing idle staff) cannot be done at the expense of the taxpayer,” said NRZ chairman last week.

Growing economic activity, especially in agriculture and mining, is slowly beginning to impact positively on the NRZ’s business.

Traditional clients like Ziscosteel and Hwange are understood to now be moving a lot of goods through the rail network, which last year moved just 2,7 million tonnes.

The local network has capacity to move 18 million tonnes yearly.

Debt warehouse

To make the business attractive, discussions between Government and NRZ are underway to warehouse the US$348 million debt weighing down operations.

In essence, the liabilities will be removed from NRZ’s balance sheet and put under a special purpose vehicle.

There is belief that the debt can be serviced as the freight business is still viable, and the deal is understood to be close to being finalised.

This week, there will be meetings between stakeholders after which a submission will be made to Cabinet.

Much work has already been done by the Office of the President and Cabinet, the Ministry of Finance and Economic Development, the Ministry of Transport, the State Enterprises Restructuring Agency and the Attorney-General’s Office.

DIDG chairman Mr Donovan Chimhandamba was bullish last week.

He noted that NRZ was a good deal as it would be able to “neutralise the bypass threat posed by the rail infrastructure being developed in Botswana”.

There was also an opportunity, he said, to harness Diaspora investment into something that had a far-reaching impact.

DIDG’s partner Transnet held US$27 billion in assets by March 31, 2017 and generated more than US$5 billion in revenues during the period.