14 July 2017

Zimbabwe: NRZ's $400 Million Ticket to the Future

analysis

Walking into the Harare train station feels like going through a time machine and emerging in the 1980s.

Old billboards hanging above the main platform advertise Callan's Furniture and CAPS' Caprin analgesic. Forgotten brands watching over a moribund giant of a past age. Callan's, once a household name, is no more. CAPS, an integrated pharmaceutical giant which fell ill more than a decade ago, is hoping to recuperate under government ownership.

The marshalling yard with overgrown brush, antiquated locomotives and rusty wagons -resembles a railway museum.

Some of the wagons have recently been painted, but the 41 year old Spanish-made locomotive, pulling away with huge blocks of black granite, needs more than paint.

It needs replacing.

The track appears to be in dire need of repairs.

Nothing about the train station says current.

A couple of fire extinguishers were last serviced in June 2016 and appear to have missed another scheduled repair last month.

The "new" train fares on display are dated March 2013.

Even the NRZ website's history section has milestones ending in 2006, with the re-launch of the Bulawayo-Francistown passenger service on May 19 that year.

The Harare train station, once a hive of daily activity until the 2000s, is eerily quiet on a Monday evening.

The quiet is intermittently broken by guards who pass through the station on their way to the evening shift in the city.

One of the rickety benches, resting precariously on the edge of the platform, is occupied by a man in military uniform and a woman, arguing over the muffled cries of a baby, about child support.

Support

Government, the sole owner of NRZ, has struggled to support the business which badly needs capital and renewal.

After years of dithering, government seems to have finally resolved to take private money on board, in a bid to revive the moribund NRZ, whose value to the country's economy is immense.

Last week, the State Procurement Board accepted bids for the recapitalisation of the NRZ, reported to require $400 million.

Bidders include a consortium of non-resident Zimbabwean professionals, the Diaspora Infrastructure Development Group (DIDG), which has enlisted South Africa's Transnet as a technical partner and SMH Rail of Malaysia.

Whoever eventually wins the bid has their work cut out.

The ailing NRZ has run up cumulative losses amounting to $336 million between 2009 and 2016.

The company registered a $59,8 million loss last year alone and its net current liability position worsened to $219,6 million in December 2016, from $171 million the previous year.

Zimbabwe's railway system has a design capacity to transport 18 million tonnes annually, but this capacity is currently limited to about five million tonnes a year due to equipment, track and speed constraints.

For instance, trains cannot go faster than 20 kilometres per hour on 480 kilometres of the 2 759 kilometre track operated by the NRZ.

The country has a total of 3 077km of rail, 318 km of which is operated by the private Bulawayo Beitbridge Railway company.

Currently, the NRZ is operating at about three million tonnes per year.

The NRZ generates 85 percent of its revenue from freight, but has to contend with competition from road haulage trucks which, despite charging nearly double the rail tariff of $0,06 per tonne per kilometre, provide faster service and often offer discounts for a guaranteed full return trip.

Options

In the past, government has considered creating a new company to provide rail service, while the NRZ retains control of the tracks, which it will operate and maintain while leasing lines to private players for a fee.

Some of the bidders are considering creating a new entity, run as a joint venture with the NRZ, but keeping the infrastructure and introducing urban commuter rail projects, such as the long-mooted Harare-Chitungwiza line.

Funding options explored have included a $650 million loan unsuccessfully sought from the Development Bank of Southern Africa a few years ago.

Government has also flirted with the idea of issuing regulations that would penalise the use of road haulage trucks in what it termed a twin strategy of protecting over-burdened roads and pushing business volumes through the rail network.

The authorities appear to have settled on recapitalising the business in partnership with private investors who bring both funding and technical expertise.

This will most certainly involve a private sector partner taking up equity and helping restructure the NRZ's balance sheet.

Chugging forward

The NRZ's problems are not entirely financial.

The decline in the company's performance coincided with the collapse in agriculture, mining and manufacturing at the turn of the century.

Although full recovery across these key sectors is far off, there have been marked improvements in output, providing potential demand for freight rail services.

However, the NRZ would need to streamline its cost structure -- its 5 000 strong workforce is owed $128 million in unpaid salaries.

With 5 000 workers taking care of a 2 759 kilometre track, including the vandalised 313 km electric line between Harare and Gweru, the NRZ looks overweight with nearly two workers per kilometre of rail.

Transnet's freight department employs 38 000 workers to manage its 31 000km.

The entreprise would also require competent leadership.

Zimbabwe's rail network is strategically positioned to be a major regional hub, linking the Democratic Republic of Congo, Zambia, Botswana, Mozambique and its ports of Beira and Maputo; South Africa and its ports of Durban, Richards Bay, and Port Elizabeth.

Zimbabwe

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