Thomas Konditi, ceo GE Transportation Africa, discuss Africa’s rail sector renaissance.
Which regions are you currently operating in?
We assemble and manufacture locomotives just outside of Pretoria, here in South Africa. The majority of those go to Transnet for their freight operations but we also export to other countries, Mozambique being one of them. And then we have a physical presence in Angola, in Nigeria, Kenya, Mozambique and in Zambia and Ethiopia.
How do you see the transportation sector performing in the next few years?
For Africa, the last ten years or so have been a renaissance for the rail sector. The commodity depression of the last couple of years has put a little bit of a slowdown in that investment pace but you continue to see the realisation that for Africa to industrialise and to diversify the economy you really do need to have a rail network that can move heavy goods as well as bulk goods long distances at a low cost. So I think if you look forward you’re going to continue to see in places like southern Africa continued growth of the rail networks. Transnet continues to invest in their new locomotive fleet, Angola is going to get a substantial number of locomotives over the next couple of years to build up their capability and then Mozambique continues to use a fairly new fleet to drive production of coal and move other freight.
In Eastern Africa, places like Kenya, you should see the opening of the standard gauge rail line that is newly built, I think that’s going to give a whole new life to moving freight to and from the port of Mombasa, and then Ethiopia is launching their rail lines between Addis Ababa and Djibouti, and having those runs will be of immense benefit to Ethiopia.
And I think if you go maybe to the west there are a number of interesting projects there. Nigeria is looking for an effective way to revitalise and grow their rail business.
It’s a fairly obvious no-brainer to take heavy freight off the roads and put it on rail but I’m just wondering why there is not more attention to passenger traffic.
I think, Stephen, it’s really due to probably two things. Number one is economics, moving freight you are moving a revenue generating asset and that tends to give it a fair amount; your cost to move one tonne is based into the cost of selling that one tonne and usually that ends up getting borne at the end by the end-user of that product, so freight pays for itself in terms of the transportation side. Passengers on the other hand have alternatives and passengers can fly, they can drive, they can walk in some cases and they take public transpiration so you then have competition that reduces the amount that a passenger is willing to pay, whether it’s rail or otherwise, and so not only is the pricing depressed but then you’re really only going to get a little bit of revenue for each passenger, which means you need mass volumes [of passengers] unless you try to do the business class traveller maybe you get more per passenger but even then it’s a more expensive proposition. So first of all it’s a matter of economics.
I think the other thing is passenger rail works well when you have an underlying freight revenue model to support the infrastructure, so if I have a line from point A to point B and it’s carrying a lot of freight then the infrastructure’s essentially covered by that freight and then you can put a passenger train on that and you don’t need to cover a lot of the underlying costs, but if you try to put a rail line in just for passengers you’ll hardly ever be able to make that justification from an economic standpoint, so it just comes down to a business model.
And presumably passengers may not want to go where freight is going. But what about just simple commuter traffic?
So commuter traffic I would categorise that into the world of light rail. It makes sense from a public standpoint but in most cases you do need to have the government support or subsidise at least part of that cost and sometimes that’s what the government wants to do and then it makes sense.
Your focus is really just on heavy freight. And you build the components, you build the actual engines that move the trains, do you have any other involvement other than the locomotive?
No, that’s the technology platform that we invest in. We used to be in the signalling business which is the communications along the rail line.
Can you talk us through you product offering?
The way to think about the locomotive transportation world is really what type of environment it has to operate in, so typically there are, you think of it first of all in terms of the width of the rail, so there’s a standard gauge rail and there’s a narrow gauge rail. Narrow gauge primarily driven by what the old colonial standards were, so present in former British colonies. Standard gauge rail is a wider rail, it enables you to move faster, carry more weight and has become the more accepted standard. So that’s the first thing we look at in terms of narrow and standard gauge and that’s the first product separation.
Then the next thing is how heavy are the loads that rail network can carry. And here you need to consider the bridges and other types of infrastructure that hold up the rails. There are light loads (16 tons per axle is an industry metric) all the way up to heavy ones (40 tons per axle), and so our locomotives kind of span those two axis. And then you have to consider the power of the locomotive, 1,000 horsepower up to 6,000 horsepower, which as you can imagine pulls more freight faster.
Are there any other parts of your business, are you involved in any other means of transportation?
So there’s some adjacencies, and one of the adjacencies is the mining sector, so if you think of moving heavy material, a locomotive or a large tractor in a mining space, these very large tractors with wheels as high as your house, those are driven by some of the same traction motors that the locomotive has and some of the power units are also locomotive style engines, so that’s an adjacency where it is the mining space.
Then the other area is a space that we call distributed power, so you essentially take the generating capacity of a locomotive, which may be two to three megawatts and you make it stationary, meaning you just take the engine and the generator and that can become; if you add them, maybe two or three of those units you can generate 10 or 12 megawatts for a factory or a mine or a small town.
So it’s basically a sort of mini power station.
That’s the perfect way to look at it, and it’s usually very easy to set up and it uses diesel so even though you’d prefer to maybe use a different fossil fuel diesel is widely available so you can do it really anywhere around the world.
Can you give me some examples?
In Angola there’s a fairly new installation there. Angola does have gas in the northwest but it doesn’t have a network to transport that gas and they do have diesel across the country and so they’re building these basically mini power facilities that powers the nearby towns and grid, so Angola has put in a six unit installation in a place called Malanje in the northeast of the country.
In Ghana mines that are a little far away from the grid and need 10 / 12 megawatts of power found this to be a good solution.
Very interesting. And the locomotive business.
From a locomotive standpoint we’re all over Africa. We’ve had locomotives coming into the region for maybe the last 60 or 70 years, so you’ll find that we have north of almost 1,500 [of our] locomotives [operating] around the region, throughout Africa. Most countries will have some GE’s locomotives running.
Can you tell us about Kenya. Are you supplying them with locomotives for their new rail project?
No not directly, those locomotives are actually coming from China. I think that was part of their deal [to take Chinese locomotives]. However, we are supporting the original rail line which is managed now by Rift Valley Railways (RVR), and they have a fairly strong fleet of GE locomotives and we’re looking to support them with refurbishment as well as new locomotives down the road.
Good. Let’s just talk about after sales, you presumably offer a service provision to your clients.
Where we’re seeing a lot of interest and traction around is the idea of a Managed Service Agreement, and what that means is we know our locomotives inside and out and we know our engines inside and out so the MSA, as it’s called, is to guarantee, as part of the agreement, the maintenance and running of the locomotives. As a result we will guarantee that that locomotive will be running and have a certain availability or reliability, thus guaranteeing minimum downtime and helping the client get more out of their locomotive. We actually have one of these operational in Mozambique; we’re talking to folks in South Africa, Angola and across the region.
It’s a kind of warranty system?
The warranty’s always there for the first couple of years but it’s really these things can go 7 / 10 / 12 years agreements and what we’re doing is using our expertise to work out the optimal maintenance cycle. And what it also means that you don’t have any unplanned failures on the line.
The way that I think about it is if you’re a railroad you have to decide if your business is the service of moving freight from point A to B or if your business is buying locomotives and taking care of them because if it’s the former then something like an MSA makes sense.
And presumably that brings in what you mentioned right at the beginning of our conversation about being able to get data from your units.
Yes, that’s the next frontier but connecting the physical world into the digital space is going to unlock and already has unlocked a tremendous amount of value. If you are able to use your sensors and get data from a locomotive you can tell when it needs the right kind of service as opposed to just doing it every thousand hours or something like that. You can also tell when a part may be getting ready to fail and so avoid an unplanned failure. But interestingly being able to connect the locomotive into your network digitally means that; and here’s an example, if you’re moving goods from point A to point B and in point B your system or your network is not going to be able to unload those goods, say for another five hours, then if you can tell the locomotive to slow down, you know maybe it’s coming in at 50 kilometres per hour to come in at 45 kilometres per hour then that enables you to in a synchronised way save literally 10% of your fuel because if I am moving 10% slower you use less fuel to power, so this just all makes you run your operation more efficiently plus reduce the amount of unplanned issues that happen, and then of course it helps us manufacturers build even better and more resilient equipment because we have data on what fails and the areas we need to focus on.
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