Roy Cokayne
Electro-Motive Diesel (EMD), which established a joint venture with distribution group Barloworld this month, is planning to build rail locomotives in South Africa.
Billy Ainsworth, the chief executive of Progress Rail Services and EMD, the global leader in diesel-electric locomotives, said yesterday that the group’s options included establishing a greenfields plant or joining forces with a partner.
Ainsworth said the group had recently invested $50m (R418m) in a new locomotive plant in the US and was building one in Brazil with less capacity. South Africa would probably need a facility the size of its Brazilian plant.
He did not detail costs related to the Brazil operations.
“Depending on what we decide, we could be building locomotives… relatively (soon). We are not disclosing volumes but it will be substantial over time,” he said.
Clive Thomson, the chief executive of Barloworld, said Transnet was talking about acquiring 1 000 locomotives over the next seven years, which was an opportunity worth about R30bn. The joint venture would be working hard to capture a share of this business.
Ainsworth said EMD had an existing relationship with Transnet, which in 2010 bought 50 reconditioned locomotives from it that were put together in Koedoespoort in Pretoria.
EMD also had a parts supply agreement with Transnet and was working with the parastatal on the localisation and remanufacturing of component parts for EMD’s locomotives.
He said 800 of Transnet’s locomotives came from EMD “so we have got a pretty good presence here and just have to leverage that”.
EMD is a subsidiary of Caterpillar company Progress Rail Services. Barloworld is the distributor for Caterpillar earthmoving equipment and power systems for southern Africa, Iberia and Russia.
Thomson said Barloworld’s power systems business was a combination of electric power, marine and petroleum with rail as the fourth element.
He said the rail joint venture was an aligned acquisition targeting a new segment for the group but where it could leverage its current skills and capabilities.
“These are just engines of a different nature. They are supplied to the railroad industry as opposed to the mining industry. The skills we have in reconditioning, rebuilding and repowering engines are very similar across the different product groups.”
Thomson said Barloworld’s power systems business today had annual revenues of R3bn.
“Over time it’s quite possible we could build the power systems business as a whole, not just the rail segment, into a separate Barloworld division. It’s got that sort of scale,” he said.
Thomson said the venture into rail was consistent with the group’s strategy to invest in identified growth sectors to create value for stakeholders.
Ainsworth said rail, electric power and mining were three areas in which Caterpillar would invest because these sectors were expected to yield growth.
EMD liked Africa and believed there were a lot of opportunities on the continent, particularly in minerals.
It was estimated that iron ore mining should grow 2.5 times by 2030, coal 1.3 times, copper 2.2 times and aluminium 2.4 times.
“A lot of minerals are mined in Africa and to be part of that trend you have to be here. The most efficient way to move those commodities is by rail, so the story ties together very well,” he said.