VZCZCXRO5055
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTN #0052/01 0741138
ZNR UUUUU ZZH
R 141138Z MAR 08
FM AMCONSUL CAPE TOWN
TO RUEHC/SECSTATE WASHDC 2620
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLO/AMEMBASSY LONDON 0147
RUEHFR/AMEMBASSY PARIS 0167
RUEHSA/AMEMBASSY PRETORIA 5968

UNCLAS SECTION 01 OF 04 CAPE TOWN 000052 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
SIPDIS 
 
DEPT FOR AF/S AND EB/TRA/OTP 
 
E.O. 12958: N/A 
TAGS: ETRD EWWT ELTN EIND EINV SF
SUBJECT: TRANSNET RESTRUCTURING AND CAPE TOWN PORT EXPANSION PLANS 
 
REF:  STATE 0386 
 
This cable was a collaboration between Consulate Cape Town and 
Embassy Pretoria. 
 
¶1. (SBU) Summary.  Transport Officer and Special Agent for 
Department of Defense Force Protection met with Transnet and 
maritime industry officials in Cape Town to discuss Transnet 
restructuring, port expansion projects, and investments to increase 
port security.  The National Port Authority (NPA) Bill of 2002 
called for a restructuring of the South African port system and the 
establishment of an independent port regulator.  Officials described 
Transnet restructuring and plans for addressing port capacity 
constraints.  They acknowledged limitations to the current expansion 
program and outlined Transnet's long-term, integrated infrastructure 
development framework.  Industry representatives and analysts 
stressed that additional political will and investments will be 
required to address long-term capacity constraints and to create an 
independent port regulator.  In January 2008, Transnet Port 
Terminals launched a R4.2 billion ($545 million) expansion program 
to address short-term capacity constraints at the Cape Town Port 
Container Terminal.  Transnet also plans to spend R54 million ($7 
million) over the next two years to implement the second phase of 
its security infrastructure investment.  End Summary. 
 
¶2. (U) Transport Officer and Special Agent for Force Protection met 
with officials from Transnet National Port Authority (TNPA), 
Transnet Port Terminals (TPT), Council for Scientific and Industrial 
Research (CSIR), and the maritime industry in Cape Town during the 
week of February 25 to discuss Transnet restructuring, port 
expansion projects, and investments to improve port security. 
Transport Officer informed officials about a follow-up Coast Guard 
International Ship and Port Facility Security (ISPS) Country Visit 
in July 2008 and discussed logistics for the visit.  Transport 
Officer also attended the Port Liaison Forum hosted by the Cape Town 
Chamber of Commerce. 
 
-------------------------------------- 
Transnet Restructuring and Re-branding 
-------------------------------------- 
 
¶3. (U) The National Port Authority (NPA) Bill of 2002 called for a 
restructuring of the Transnet port authority and operations and the 
establishment of an independent regulator.  Transnet is a 
state-owned enterprise that was established in 1990 and completed a 
round of restructuring and re-branding in 2007.  Transnet officials 
provided an update on restructuring achievements under Transnet CEO 
Maria Ramos and described current plans for addressing port capacity 
constraints.  The National Port Authority was separated from the 
port operators; however, the National Port Authority (TNPA) and its 
regulatory functions still remain a division within Transnet.  TNPA 
Cape Town Port Planner Billy Cilliers stated that transportation 
infrastructure underinvestment was "part of the apartheid legacy 
that Transnet inherited and it is now playing catch up."  He stated 
that Transnet's CEO had a goal to "transform Transnet into a focused 
freight transport and logistics company comprising ports, rail and 
pipeline assets." 
 
¶4. (U) CEO Maria Ramos has divested Transnet of all of its non-core 
activities.  Transnet divested its holdings in commuter rail 
operations as a part of this restructuring and re-branded all of its 
remaining divisions to include the Transnet name.  Cilliers added 
that "Transnet is now a leaner entity with five big players."  The 
new divisions are: Transnet National Port Authority (formerly the 
National Port Authority), Transnet Port Terminals (formerly South 
African Port Operators), Transnet Rail Engineering (formerly 
Transwerk), Transnet Pipelines (formerly Petronet), and Transnet 
Freight Rail (formerly Spoornet).  However, an independent port 
regulator has not been created yet since the port authority and 
operators remain "sibling" divisions within the Transnet family. 
TNPA owns and performs landlord functions at all six South African 
commercial ports (Cape Town, Durban, East London, Mossel Bay, 
Richards Bay, and Saldhana).  The majority of South African port 
terminals and all of the container terminals are operated by TPT.  A 
few terminals such as the Fresh Produce Terminal in Cape Town are 
operated by the private sector. 
 
--------------------------------------------- ----- 
Increased Container Shipping Strains Port Capacity 
--------------------------------------------- ----- 
 
¶5. (U) Increased container shipping has led to a call for increased 
port capacity worldwide.  Maritime industry officials stated that 
container shipping volume is estimated to double in the next eight 
 
CAPE TOWN 00000052  002 OF 004 
 
 
years and that the global container shipping fleet will grow by 60 
percent over the next decade.  However, industry experts noted that 
lack of port infrastructure capacity inhibits further growth in this 
sector.  Safmarine Chairperson Eivind Kolding said most major ports 
including those in South Africa are experiencing bottlenecks. 
Transnet officials concurred that container shipping demand is on 
the rise and port capacity needs to be expanded to accommodate this 
growth.  Transnet Port Terminals encouraged carriers to adopt 
around-the-clock operations and to be more flexible in their pick-up 
and delivery times to include off-peak, non-daytime slots to reduce 
bottle-necks.  However, discussions at the Port Liaison Forum 
highlighted the difficulty of getting shippers and their land 
transport contractors to adapt to off-peak schedules at the Cape 
Town port facilities. 
 
-------------------------------- 
Constraints to TNPA Independence 
-------------------------------- 
 
¶6. (SBU) CSIR Supply Chain Analyst Emma Maspero stated that the 
parastatal nature of Transnet has thwarted infrastructure investment 
in the past.  She noted that TNPA is the only profit-making arm of 
Transnet.  In 2005/2006, Transnet National Port Authority increased 
its operating profit by 18 percent from R3.2 million ($415,000) to 
R3.8 million ($493,000).  According to Maspero, the South African 
Government (SAG) has historically redistributed TNPA's profits to 
other Transnet divisions and there have been no real infrastructure 
investments since 1976.  Key Accounts Manager Jos Willemse added 
that the Cape Town container terminal expansion and other similar 
projects will only address current capacity constraints.  Willemse 
commented that the project was not a good way to address long-term 
capacity needs.  He added that Transnet should develop plans that 
will address capacity needs at least 20 years into the future 
instead of expansion projects that address only short-term needs. 
Maersk Shipping Line National Operations Manager Kees Van Welie also 
welcomed the investment in Cape Town, but commented that it was "not 
a watershed, unlike expansion programs in China and Dubai." 
 
¶7. (SBU) Maspero said Transnet's financial situation provides a 
disincentive for the SAG to fully implement changes recommended in 
the NPA Bill.  Cilliers concurred that TNPA is the "cash cow for 
Transnet" and its transfer into an independent authority would be a 
difficult transition for Transnet.  He noted that no country in the 
world has a structure for a port authority or port operator that is 
similar to South Africa.  Van Welie commented that the maritime 
industry in South Africa is dominated by the Transnet monopoly since 
it is the land owner, port operator, and regulator in most cases. 
Cilliers stated that "these are interesting times for the maritime 
sector since no one knows what the final port regulator will look 
like."  He added that there is also a question as to whether TNPA 
would keep its current land holding if it were to be transferred 
into an independent authority.  The share-holding Minister for 
Public Enterprises has final say over the timetable for the transfer 
of TNPA or the creation of a separate regulatory authority. 
 
------------------------------ 
Long-Term Port Expansion Plans 
------------------------------ 
 
¶8. (SBU) TNPA Officials noted that Ramos' restructuring goals 
included linking Transnet's infrastructure maintenance plans to its 
long-term investment plans.  Transnet Project was created to 
harmonize investment processes across all ports and divisions. 
However, Cilliers noted that Transnet Project is still fairly new 
and adjusting to its mandate to facilitate corridor transport 
planning.  Transnet is planning on expanding capacity at existing 
ports and invested R 3.2 billion ($416 million) to develop the Port 
of Ngqura in the Coega Industrial Development Zone, which is 
expected to come on-line in 2009.  Maersk officials noted that 
either Maersk or MSC shipping lines will have to move their 
operation to Coega to make the new port viable.  Van Welie stated 
that SAG wants the shipping lines to promise certain volume levels 
at Coega, but the companies are waiting for assurances of land 
transport availability from Coega to the major trade hubs before 
finalizing any decisions to relocate. 
 
¶9. (U) Cilliers stressed that Transnet has also made an effort to 
create harmonized long-term infrastructure development frameworks 
for all of its ports.  All of the ports agreed to use the same 
methodology for these planning documents, which Cilliers described 
as a revolutionary step.  According to Cilliers, these development 
frameworks include econometric modeling and forecast port 
development needs until 2035.  Cape Town prepared its draft 
infrastructure plan in December 2007 and Cilliers believed a final 
 
CAPE TOWN 00000052  003 OF 004 
 
 
version would be ready for ministerial approval in the next month or 
two.  He admitted that this type of framework has never been 
approved before by the SAG and hoped there would be enough political 
will to move the plans forward in 2008 to address long-term capacity 
constraints. 
 
-------------------------------------- 
Cape Town Container Terminal Expansion 
-------------------------------------- 
 
¶10. (U) Transnet Port Terminals launched a R4.2 billion ($545 
million) expansion program to increase capacity at the Cape Town 
Port facilities in January 2008.  The five-year plan is designed to 
upgrade capacity at the country's second-largest container terminal 
after Durban.  The Cape Town container terminal upgrade forms part 
of Transnet's R28 billion ($3.6 billion) investment in port-related 
projects.  Transnet's total transport infrastructure investment 
budget for the next five years is R78 billion ($10.1 billion). 
Transnet officials explained that the container terminal expansion 
is expected to relieve mounting pressure by enabling the Cape Town 
terminal to increase its capacity from 740,000 twenty-foot 
equivalent units (TEUs) a year to 1.4-million TEUs a year by the end 
of 2012. 
 
¶11. (U) Cilliers explained that the expansion project includes the 
demolition of nonessential infrastructure, terminal reconfiguration 
to maximize stack capacity, a reefer-point expansion program, as 
well as the procurement of specialized equipment including Liebherr 
ship-to-shore cranes and 32 rubber-tired gantry (RTG) cranes. 
Construction activities planned for 2008 include building a crane 
erection site to assemble the first two Liebherr ship-to-shore 
cranes. [Note: Pier One in Durban is currently the only South 
African terminal using the high-tech RTG cranes.]  The quay line 
will also be extended by 10 meters to accommodate the new gantry 
cranes.  Transnet Port Terminals Cape Town Business Unit Executive 
Oscar Borchards said "initial work will entail refurbishing the quay 
and deepening the berth and the Ben Schoeman container basin/dock to 
15.5 meters."   The dock will also be widened from 180 meters to 
300-500 meters.  At the Port Liaison Forum, Borchards provided 
assurances that port productivity would be maintained during the 
expansion by completing the construction work in sections and 
diverting container vessels to Cape Town's multipurpose terminal. 
 
¶12. (U) Transnet officials noted that capacity expansion was limited 
by the amount of available real estate near the port in Cape Town. 
Additionally, environmental risk assessments have restricted plans 
for further expansions into the sea.  According to TNPA officials, 
the current container terminal expansion project has to move slowly 
because of the environmental conditions near the port.  Unlike most 
ports, which have sandy bases, the Cape Town port sits on the base 
of the Table Mountain. Officials emphasized that the container 
terminal expansion will take at least four years to complete since 
"the project involves drilling under the water and blasting the blue 
rock underneath".  They compared the required construction work to 
blasting underground in the mining sector. 
 
---------------------------------- 
Security Infrastructure Investment 
---------------------------------- 
 
¶13. (SBU) Cilliers stated that South African ports are ISPS 
compliant and Transnet is currently in its second phase of security 
infrastructure investment.  According to Cilliers, Transnet plans to 
spend R54 million ($7 million) over the next two years to implement 
a series of high-tech security solutions including biometric gate 
scans, closed circuit TV monitoring, installation of security 
booms/spikes, and number plate recognition.  However, he commented 
that some of the port areas should have been re-zoned prior to 
implementation of these new security measures to reduce 
unnecessarily adverse impacts on business.  He also added that there 
is a skills shortage among security personnel that is hampering 
security enforcement.  Cilliers stressed that personnel skills need 
to match the level of sophistication of the technical systems for 
the measures to be effective.  Other Transnet and industry 
representatives agreed that security contractors received minimal 
training and were not well-compensated in South Africa. 
 
¶14. (SBU) Comment.  The South African maritime sector is undergoing 
a great deal of restructuring and is making substantial 
infrastructure investments.  However, current expansion plans are 
not likely to adequately address medium and long-term capacity 
constraints, especially with the growth of containerized shipping. 
Industry officials and analysts believe that the current expansion 
programs are late in coming and will have limited impact on overall 
 
CAPE TOWN 00000052  004 OF 004 
 
 
capacity constraints.  SAG approval and implementation of the 
longer-term, integrated port infrastructure expansion plans will be 
necessary to keep pace with GDP and container shipping growth 
expectations.  Additionally, industry representatives and analysts 
are skeptical that an independent port regulator will be created 
(through TNPA transfer or through the creation of a new entity) in 
the near future since TNPA is the only profitable Transnet division. 
 The political will does not exist to disband the Transnet monopoly 
in the maritime sector.  Like power shortfalls, transportation and 
port infrastructure capacity is a critical bottle-neck for the 
maintenance of high levels of economic growth.  End Comment. 
 
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