Training for rail travel – all aboard!
In the age of ‘clean and green’ there is a growing need to develop rail transport links globally. And on the African continent some recent rail projects show that miracles can happen, despite the numerous limitations
When you are brought up in the age of steam rail the sight and experience of travelling on those awesome locomotives is certainly something that stays with you. So when in my wandering youth years travelling the Indian sub-continent it was a real pleasure as there were so many steam trains to enjoy. However, the irresistible urge to stick one’s head out of the window though usually either meant a face full of smoke or at worst some painful spark on the cheek!
Being a bit of a rail nerd, nowadays the luxury of experiencing steam locos comes through seeking out restored historic steam rail routes around the UK and other places with rail enthusiasts. Beyond that my passenger train journeys these days in Europe and the UK are all aboard electric trains – one region of the world where most countries continue to invest heavily in their rail networks.
Some of my most recent exciting rail journeys have been in Asia – particularly aboard the Japanese shinkansen bullet trains which can reach speeds of 200mph (320kph). Perhaps one of the most unusual though is the concept of Maglev – electromagnetic propulsion - trains which in Japan have reached speeds of 375mph (603kph). In China, the Maglev train from Shanghai airport into Pudong for instance runs at around 268mph (311kph) – worth taking just for the experience!
In an era when we are looking at increased mobility and interconnectivity on a clean and green basis rail travel for both passengers and freight has to be a priority policy. But rail development whether newbuild or the revitalisation of existing systems is patchy across the world.
The African continent is one region where an expansion of rail systems could make a massive difference. However, the sheer scale of many countries let alone the continent itself, the physical obstacles and the overall lack of electric power are major limiting factors to the development of viable rail projects. In addition, the lack of basic infrastructure and the existence of creaking legacy rail systems in certain countries are other limiting factors. Nevertheless, rail developments are taking place and some key recent projects financed with export credit agency (ECA) backing shine a light on what can be achieved.
One crucial aspect which makes rail development across the African continent all the more exciting is the founding of the African Continental Free Trade Agreement (AcFTA) in 2018 and the commencement of that agreement as of 1 January this year. The further development of intra-African trade is now seen as a vital component for strong and sustainable regional economic growth and rail links – primarily for freight, but also for passengers - will be essential to help promote this.
Unsurprisingly, South Africa has the most developed rail system on the continent. And through manufacturing and assembly development, in conjunction with GE for example, there is the potential for cooperation with other African countries. And such activity could of course involve the South African export credit agency ECIC.
Ghanaian rail projects take off
Most recently Ghana's Ministry of Finance (MoF) signed a landmark €600 million ($712 million) ECA-covered financing for the construction of a 100km section of the country’s Western Railway Line running from Takoradi Port to Huni Valley.
Deutsche Bank acted as mandated lead arranger for both loans. The first, backed by EKN and fully arranged by Deutsche Bank, is a €523 million loan covering the bulk of the cost. The second is a €75 million commercial loan arranged and structured by Investec to cover the downpayment on the EKN-backed financing. It is backed by South Africa’s ECIC and funded by a syndicate of Investec Bank, Rand Merchant Bank, Nedbank (London branch) and Sanlam life Insurance.
The link will play an integral part in Ghana’s initiative to expand and develop its rail network infrastructure. Ken Ofori-Atta, Minister of Finance of Ghana, stated: “This project is part of Ghana’s railway infrastructure plan and will be the single biggest railway investment by the country, post-independence. The Western Railway line is key to the haulage of agricultural produce and minerals from the middle belt to Takoradi Port in the south of Ghana. The completion of the line will boost economic activities along the corridor and will reduce cost and time of transporting goods and passengers between the two ends.”
The EPC contractor for the project is Amandi Investment with Bluebird Finance & Projects acting as lead financial advisor for the EPC. Given South Africa’s expertise and established trade flows in rail projects, Investec and Bluebird Finance & Projects - alongside Amandi, discovered that a multitude of South African rail suppliers could be sourced for this project and in turn reached out to ECIC to support the commercial facility, a first for the South African ECA.
Working with Investec on the commercial loan, Mandisi Nkuhlu, COO ECIC, said: “ECIC is delighted to support Investec in arranging the finance for this transaction and in doing so secure significant export contracts and jobs for South Africa as well as intra African trade.”
The involvement of EKN and SEK reflects the significant number of Swedish sub-suppliers participating in the project, with the ECAs’ backing helping secure a highly favourable borrowing rate. Malin Tegner Larsen, senior underwriter at EKN commented: “EKN's mission is to enable financing of the purchase of Swedish high-quality service and equipment. It is particularly rewarding that EKN has participated in this important project.”
Increased ECA collaboration has long been touted as the key to leveraging a more holistic approach to project and export finance deals in emerging markets such, and here the involvement of EKN/SEK and ECIC has worked extremely well.
The government of Ghana has even more ambitious plans for three rail developments worth a combined $12.9 billion which it outlined earlier this year in a brochure for the UN’s 2021 SDG Investment Fair in order to try and generate interest among investors and attract private financing.
The first project is valued at $5.8 billion and involves the development of a light rail transit (LRT) network comprising seven corridors in Kumasi, Ghana’s second largest city. The economic growth of this fast-growing city is currently being hampered by severe congestion. The project is due to start in 2025 and is expected to be funded 70% by debt and 30% equity.
Another key rail project is the $3.3 billion development of the 672km Central Spine line, which will run from the centre of Kumasi to Paga, near the Burkina Faso border. Construction is expected to start in 2023 with the line opening in 2029.
In addition, the Trans-Ecowas railway line is also earmarked for development. This $3.8 billion project is expected to start in 2022 and be completed in 2025. The proposed 550km east-west, mixed-traffic line will run from Aflao on the Togo border to Elubo on the border with Côte d’Ivoire with a branch line to Keta.
MoF Ken Ofori-Atta commented: “As a developing country, the government continues to play a major role in the planned socio- economic transformation of the country. However, partnership with the private sector is critical in the mobilisation of adequate resources both technical and financial to drive the implementation and attainment of the SDGs, the AU Agenda 2063 as well as national development aspirations.”
The need for mass urban transport
Throughout the African continent there are numerous fast-growing major cities getting clogged up with traffic, but perhaps none more so than Cairo. Anyone, who has spent time driving regularly in the city will know how difficult it can be. The need to improve mass rapid transport through rail is obvious.
One such transaction which will significantly help in this regard is the Cairo Monorail deal which was closed in December 2020. This $2.57 billion ECA-backed multisource transaction went ahead with lead ECA UKEF and was also backed by Italy’s Sace and Spain’s Cesce. Mandated lead arranging banks on the transaction were: Caixa Bank, Credit Agricole, KfW IPEX-Bank, JP Morgan, Societe Generale and National Westminster Bank. The deal was TXF’s Transport Deal of the Year for 2020.
The financing will allow an unconsolidated consortium comprising Bombardier Transportation UK, Bombardier Egypt, Orascom Construction and Arab Contractors to build the new infrastructure which forms part of Egypt’s plans to build a sustainable transportation infrastructure that can cope with its growing population while reducing climate change impacts.
The New Capital City Monorail, running from Central Cairo (Stadium Street) to New Capital City with 21 stations, 40 four car trains (including four spares), one depot and an approximate length of 54km. This monorail will be used by the population of west and south of Greater Cairo.
The October 6th City Monorail, running from Central Cairo (Boulkak El Dakrur District) to October 6th City with 12 stations, 33 four car trains (including four spares), one depot and an approximate length of 42km. This monorail will be used by the population to the east of Cairo. Each of these will have a capacity of 20,000 passengers per hour, reducing the number of cars on the roads of one of the Africa’s most congested cities.
This was a complicated transaction in which UKEF was the lead ECA. The single EPC contract was split between different scopes of work for each consortium member who therefore have procurement plans pertinent to their individual scope and local content restrictions. UKEF therefore sought ECA support from Sace and Cesce to provide reinsurance which has been important in providing the amount of support required to finance the project.
In another urban mass transit example, in 2019 the €1.36 billion ($1.61 billion) financing of the Abidjan Metro was finalised. This is a particularly interesting financing as it was initially launched as a PPP way back in 2013, only to eventually emerge as a facility granted by the French Treasury and a classic export finance facility insured by Bpifrance on the condition the 37-km railway (serving 18 stations) will be built by French companies.
The Star consortium – comprising Alstom, Keolis (O&M contractor), Colas Rail and Bouygues Travaux Publics – is EPC contractor. Alstom is providing the rolling stock, and trains will be able to travel up to 80km per hour. The metro will also be equipped with a sophisticated signalling system.
With an average economic growth rate of 7% each year over the coming years, according to a World Bank report, the Abidjan Metro project is central to ensuring these ambitious economic projections are realised. This is especially the case given travel in the capital, which is home to around 4.7 million people (around 20% of the country's overall population), is largely limited to road use – like most African cities.
And in South Africa there are plans afoot to improve some important sections of the country’s rail network as part of a potential bonanza of infrastructure projects the government says are key to reviving the economy. One such project is the expansion of a high-speed rail network outside Johannesburg and Pretoria.
The Gautrain expansion would add a further 150km (93 miles) of track to the existing 80km network, connecting more remote destinations such as Soweto, which has a population of about two million people. Investment and loans would come from a mix of private investors and state institutions such as the Development Bank of Southern Africa (DBSA). The Gautrain, whose operator has shareholders including French rail group RATP Dev, was initially built as part of South Africa’s preparations to host the 2010 football World Cup.
In Nigeria, where there is a real need for rail improvements and expansion there has recently been much talk about financing for rail projects and loans from China. The country’s Debt Management Office (DMO) recently stated that as of 31 March, 2020 the country’s debt portfolio from China had risen to $3.4 billion. The DMO said loans from China are concessional with interest rates of 2.5% per annum, a tenor of 20 years and grace period of 7 years. But there is concern that any lapse in servicing these loans could lead to China claiming Nigerian assets as it has done in other countries such as Zambia. By all accounts, in the first quarter of 2021 $102.19 million was used to service debt to China.
The loans from China are tied to various projects. These include: the Idu-Kaduna section railway modernisation project, the Abuja light rail project, the Lagos-Ibadan section railway project, airport terminals expansion projects at Abuja, Kano, Lagos and Port Harcourt, and the rehabilitation and upgrading of the Abuja-Keffi-Makurdi Road project.
The DMO recently disclosed that Nigeria had more than $5.83 billion foreign loans that had been approved but not yet disbursed as of 31 December 2020. Out of this amount, $1.25 billion is supposed to come from the Export-Import Bank of China. Apart from multilateral agencies, China has remained the nation’s largest creditor.
For many African countries with extensive debt profiles, the need to diversify borrowing is a crucial aspect. Nigeria is perhaps more fortunate than many others in its external sovereign debt profile.
Earlier this year the Nigerian government approved the creation of a new company that will focus on infrastructure development, with a seed capital of NGN1 trillion ($2.63 billion). The company, named Infra-Co, will be a public-private partnership, and the initial capital will come from the central bank, the Nigerian Sovereign Investment Authority, and the Africa Finance Corporation.
According to President Muhammadu Buhari’s office: “Infra-Co will finance public asset development, rehabilitation and reconstruction as well as invest in cutting edge infrastructure projects for roads, rail, power and other key sectors.”
There are many positives taking place throughout Africa. Let’s hope that this decade will see many more successful rail development projects across the continent come to fruition for the numerous socio-economic benefits that they can bring.
Become a TXF subscriber for unrestricted access to TXFnews.com 365 days a year
Contact us for individual and team rates by firstname.lastname@example.org
Take a look below at a selection of exclusive subscriber articles published last week
Making the right connections
You can count the number of true project financings for European and UK interconnectors on one hand. But following changes to regulation, and more expected to follow in the coming months, the sector is looking increasingly project finance friendly...Read on here
Canadian impact fund debuts new model for financing indigenous entrepreneurs
The $150 million IGF fund—run by and for indigenous communities—reached first close at the end of April. The innovative Canadian social impact scheme uses public sector funds to de-risk private sector investment in indigenous SMEs and could prove a template for similar funds in other countries....Read on here
Sullivan: Payments, problems and practical solutions for trade and export finance transactions
Sullivan's Jacqueline Cook, senior knowledge development lawyer, Amanda Montano, associate, and Mark Norris, partner, present June's trade finance breakfast seminar on payment problems and practical solutions.....Read on here
LS Power signs on Leconte Energy Storage construction loan
LS Power, via special purpose vehicle LeConte Energy Storage, has signed on a $100 million 3.5-year construction term loan and an...Read on here
Gulf Energy mandates InTouch acquisition loan arrangers
Gulf Energy has mandated Deutsche Bank, Maybank, Standard Chartered and SMBC to lead arrange a $2.7 billion 18-month facility to partially fund its...Read on here
Brookfield closes on Shepherds Flat repowering facility
Brookfield Renewable Partners – via special purpose vehicle SF Holdings B – has reached financial close on a construction term loan to finance repowering of.....Read on here
DESRI closes on Utah-Mi solar portfolio construction loan
DE Shaw Renewable Investments (DESRI) has closed construction financing for a...Read on here
Mercuria upsizes oversubscribed $2.1bn European RCF
Mercuria has returned to the debt market for its annual European RCF, which closed at the end of June. Originally launched at $1.55 billion on 20 April, the facility was oversubscribed by circa.....Read on here