Prasa ready for roll-out

Johannesburg - In two weeks’ time, the Passenger Rail Agency of SA (Prasa) will set the ball rolling for the transfer of R37bn into the hands of black South Africans.

Prasa chief executive Lucky Montana, the architect of South Africa’s modernisation of passenger rail transportation, has left no stone unturned to ensure that South Africa’s largest black economic empowerment (BEE) deal is also the most broad-based.

“Historically, you would find that individuals who have access to money fly to Germany or China to strike a deal. We have avoided this by making it broad-based. What we have done with this deal is to recognise workers,” Montana told City Press.

Prasa will acquire 7 224 new train coaches from a foreign rolling stock manufacturer at a cost of R123bn over 20 years.

The first phase of the project will see the passenger rail parastatal buy half of these coaches at a cost of R40bn over 10 years.

Over 20 years, black investors will receive about 30% of the project’s R123bn value. They will thus benefit to the tune of R37bn.

The rolling stock manufacturer will receive 70% of the R123bn.

In January, Prasa will announce BEE partners for the project while the winning train builder will be announced on December 12.

According to Montana, 145 black-owned companies have expressed interest in participating in the 30% stake, which will be funded by the National Empowerment Fund (NEF). Seven international bidders are vying to build the trains.

In ensuring the project is as broad-based as possible, Prasa has given 10% of the BEE stake to workers from Prasa and the rolling stock manufacturer; 10% to black enterprises operating in the railway industry; 7% to individual black investors; and 3% to an education trust.

Mzi Dayimani, general counsel at the NEF, said a project company had been formed and the NEF would initially warehouse the 30% on behalf of the black investors.

Dayimani said he was happy the BEE deal was biased towards workers and the education trust in terms of ownership structure, which was never the case in old BEE transactions.

He is hoping other parastatals, such as power supplier Eskom, and transport and logistics utility Transnet, will take note as they are the principal drivers of government’s R3.2 trillion infrastructure investment programme until 2020.

Unlike old BEE transactions, black investors will benefit early in the cycle of the project instead of after 10 years or sometimes even longer.

Dayimani said proceeds from the project would be used to pay off debt for the BEE stake, but there would be a portion that would go into the pockets of black investors. However, they would not be allowed to sell their shares for up to three years.

“There will be some financial benefit that will accrue in the initial stages of the project . . . We will try to shorten the funding term,” he said.

Since 1994, roughly R600bn worth of BEE deals have been concluded, but only a few politically connected people have benefited.

Many black investors in BEE have got their fingers burnt by the economic downturn and by borrowing at unsustainable interest rates.

Montana said he wanted to use the project to help the country revitalise the struggling South African rail industry by improving skills and capacity, instead of pandering to the whims of a politically connected business elite.

He said he had ensured that the tender process had been independent and free from lobbying by powerful economic interests.

He revealed that seven transaction advisers - including big accounting and legal firms, as well as commercial banks - gave advice to the Prasa bid committee.

“If you think you can influence Lucky Montana alone, you will not succeed. I don’t have power over this . . . The power is elsewhere,” said Montana.

The Black Business Council, which initially had misgivings about the tender, is now supportive of the project and how it will help empower black people in the railway industry.

“We are very happy . . . Black firms must be involved in the manufacturing of wheels, brakes and upholstery for the trains,” said Black Business Council chief executive Xolani Qubeka.