STUDY ON PRIVATE-INITIATIVE INFRASTRUCTURE PROJECTS IN DEVELOPING COUNTRIES IN FY2011

STUDY ON HIGH SPEED RAILWAY PROJECT BETWEEN AND IN THE REPUBLIC OF

SUMMARY

February 2012

Prepared for: The Ministry of Economy, Trade and Industry

Prepared by: Japan Railway Technical Service Mitsubishi Research Institute, INC. (1) Background of Project and Needs for the Project

This project aims to introduce a high-speed railway to the Johannesburg–Durban section, which is a main corridor in the Republic of South Africa.

South Africa has the largest economy in Africa. It is also one of the emerging economies experiencing high economic growth in recent years. It has an average GDP growth rate of over 4%, except in 2009, which was affected by Lehman’s fall. The per-capita nominal GDP of South Africa in 2010 ranked No. 3 among the BRICS countries, after Brazil and Russia. While the emerging economies and developing countries in the world are drawing up high-speed railway plans, the intercity passenger transport in South Africa is still relying on airplane and automobile. From the perspectives of socio-economic development and BEE policy, the high-speed railway plan has become an important topic in transport infrastructure that holds the key to sustainable economic development.

In the policy speech given by President Zuma at the National Assembly in February 2010, the development of infrastructure, including railway, has already been designated as a priority area. The Department of Transport (DOT) in South Africa has also proposed the development of three high-speed railway corridors in NATMAP, the national transport master plan with 2050 as its target year. It has also taken up review of the Johannesburg–Durban High-speed Railway Project as a priority among the strategic issues. In May 2010, the South African National Assembly approved to solidify the high-speed railway project and put forth a plan to establish HSRDA, an organization under DOT to take charge of high-speed railway projects.

Japan also designated the export of systems, including transport infrastructure, as a strategy for economic growth. High-speed railway is identified as a priority area. Railway-related industries and railway operators have also started to turn their attention to overseas markets. Therefore, there is high expectation for these railway-related businesses, which have superior technologies in rolling stock, signaling, telecommunication, to expand overseas.

It is necessary to look into a combined passenger and freight system for South Africa since it will be difficult to ensure profitability based solely on income from passenger transport service in the Johannesburg–Durban section.

Under such circumstances, this project formation study was conducted to identify areas in which the Japanese high-speed railway technology can be utilized, to appeal the technology’s superiority to the concerned parties in the South African government, and to deepen the understanding of South Africa in the Japanese high-speed railway technology.

Summary-1 (2) Basic Principles in Determining Contents of the Project

The project’s basic principles for planning the high-speed railway for the Johannesburg–Durban section are based on NATMAP, which is being formulated by the Department of Transport of South Africa, the intent of concerned government officials, and the outcomes of local surveys. They are as follows:

1. Objectives 1) Combined Passenger and Freight High-speed Railway This high-speed railway system will be based on the Japanese Shinkansen. It will provide not only high-speed passenger transport but also freight transport. The freight transport will not cover bulk cargoes but the freight containers that are being handled at the Port of Durban.

2) High-speed Railway System Matching the Conditions in South Africa In our search for a specific high-speed railway system for South Africa, we considered the local conditions and designed technical specifications to match them.

3) Travel Time between Johannesburg and Durban The passenger trains will run at a maximum operating speed of 300 km/h, linking Johannesburg and Durban in less than three hours. The freight trains will basically run at night at a maximum speed of 160 km/h. It will link Johannesburg and Durban in about five hours.

2. Conditions in South Africa that Require Consideration The following points shall be fully considered when planning the high-speed railway for South Africa:

1) Socio-economic Development (Job Creation, Technology Transfer, etc.) South Africa is promoting socio-economic development through job creation, technology transfer, and so on. The Johannesburg–Durban High-speed Railway needs to be planned in line with those intents and purposes. Technology shall be transferred with the objective to facilitate localization.

2) BEE (Black Economic Empowerment) Policy The policy (BEE policy) was enacted in 2004 to give preferential treatment to historically disadvantaged South Africans (HDSA) who were discriminated during the Apartheid era, to enhance their social status, and to promote their participation in social activities. Specifically, the government set standards for hiring black people at companies, universities, and various other companies and organizations in South Africa in order to improve the economic level and living standard of the black people. The BEE policy will also apply to the construction and operation of high-speed railway.

3) Comfortable and Safe High-speed Railway (Ensuring Security) Public transport means in South Africa, represented by and mini-buses, lack safety. The user

Summary-2 classes are limited. The Johannesburg–Durban High-speed Railway aims at providing safe and comfortable high-speed railway service, as seen in .

Figure 1 and Table 1 show the discussion flow and image of the Johannesburg–Durban High-speed Railway. As shown in Table 1, the high-speed railway will focus on the operation of passenger trains. Freight trains will operate during the night and the number of freight trains will be limited to a certain number.

Figure 1 Proposed High-speed Railway for South Africa

Japanese Shinkansen

South African Factors - Optimization of technical - Socio-economic development specifications (Job creation, technology - Cost reduction transfer, etc.) - Technical Collaboration - BEE Policy (Note) - Ensuring security

High-speed Railway Designed for South Africa (Objectives) - Combined passenger and freight transport - Localization - Industrialization - Maximum speed: Passenger: 300 km/h Freight: 160 km/h - Travel time for Johannesburg–Durban section Passenger: within 3 hours Freight: about 5 hours

(Note) BEE = Black Economic Empowerment Source: Study Team

Table 1 Image of Combined Passenger and Freight High-speed Railway Item Open for full service (2025) 25 Years after launch (2050) Passenger 1–2 trains per hour Operation focused on passenger trains (6:00 – 23:00) (increased transport capacity) Freight Operate Super Rail Cargo during the Freight train operation limited to a night (container freight train) certain number (10 trains/one-way/day) (Same as left) Train Parallel single tracks Parallel single tracks operation Maintenance 2 days (Saturdays and Sundays) a week Same as left when the freight trains are not in operation. Maintenance is carried out at night. Source: Study Team

Summary-3 3. Comparison with Other Alternatives 1) Comparison of High-speed Railway Systems The high-speed railway systems operating in the world today include the distributed traction system (multiple-unit system) represented by the Japanese Shinkansen and the concentrated traction system represented by the French TGV. In comparing the two systems, the distributed traction system has many benefits. Its light axle load makes it possible to keep the infrastructure cost low. It has high performance in acceleration and deceleration and is capable of negotiating the continuous steep slopes that exist on the route of this project. Therefore, it is assumed that the Shinkansen system using distributed traction system will be used for this project.

2) Route Plan A comparison study was conducted on the three high-speed railway route options for the Johannesburg–Durban section: Route A running along the rail freight line via Richards Bay, Route B running along the conventional line via Newcastle, and Route C running along highway N3 (Figure 2).

Figure 2 Map of Three Route Options for the Johannesburg–Durban High-speed Railway

Source: Study Team

Table 2 shows the comparison results of the three routes. In the comparison of travel time between Johannesburg and Durban, demand forecast (passenger, freight), and project cost, routes B and C are better than Route A, which is the longest. Route B is the best option in terms of social and environmental considerations.Its impact on the wetlands and areas of the indigenous people is small.

Summary-4 Although the demand forecast method used in this Study did not bring to light the difference in demand between Route B and Route C as a result of difference in the distribution of big cities along the routes, it is assumed that Route B has higher demand due to the big cities on its route. Therefore, Route B is assumed to be the route for this project.

Table 2 Comparison of Routes

Item Route A Route B Route C (1) It runs along the conventional rail (1) It runs along the conventional (1) It runs along highway N3. freight line through Richards Bay. line through Newcastle. (2) It passes through mountainous (2) The topography is relatively flat and (2) It passes through mountainous areas. Route overview there is no long tunnel. areas. (3) Pietermaritzburg is the only (3) Except Richards Bay, there is no (3) There are several intermediate intermediate city along the line. major city along the line. cities along the line.

Route length Approx. 720 km Approx. 610 km Approx. 560 km Travel time of passenger Approx. 3 hours (one stop) ~ 3 hours Approx. 2 hours 30 minutes (one Approx. 2 hours 15 minutes (one trains 40 minutes (stop at every station) stop) ~ 3 hours (stop at every stop) ~ 2 hours 40 minutes (stop at station) every station)

Demand Passenger 33,000 trips/day 38,000 trips/day 38,000 trips/day forecast (Year2050) Freight Lower than Route B 4.2 million tons/year 4.2 million tons/year High estimate Project cost Approx. 169 billion R Approx. 158 billion R Approx. 155 billion R Social and environmental (1) Impact on road transport (1) Impact on road transport (1) Impact on road transport considerations companies small companies huge companies huge (2) Impact on wetland highly possible (2) Impact on wetland unlikely (2) Impact on wetland highly possible (3) Impact of fewer traffic accidents (3) Impact of fewer traffic accidents (3) Impact of fewer traffic accidents small huge huge (4) Highly possible to pass through (4) Unlikely to pass through areas of (4) Unlikely to pass through areas of areas of the indigenous people the indigenous people indigenous people Economic Construction 370,000 people/during construction 350,000 people/during construction 340,000 people/during construction ripple period period period effect (job Service Slightly higher than Route B 7,600 people/year 7,600 people/year creation) Assessment C A B

Exchange Rate : 1 ZAR (South African rand) =12 yen, 1 USD (US dollar)= 81.01 yen (July 7, 2011) Source: Study Team

Summary-5 (3) Overview of Project Plan

The project plan is formulated based on the basic principles for determining the contents of this project, which is to build a combined passenger and freight high-speed railway based on the Japanese Shinkansen system that matches the conditions in South Africa. The following is an overview of the plan:

1. Technical Specifications 1) Construction Standards Table 3 shows the major construction standards.

Table 3 Major Construction Standards of the High-speed Railway Item Standards Gauge 1,435 mm Design maximum speed 350 km/h Maximum operation speed Passenger train 300 km/h Freight train (freight containers) 160 km/h Minimum horizontal curve radius Main line: R=6,000 m Minimum vertical curve radius 25,000 m Steepest gradient 15‰ (20‰ at some areas) Track center distance 5.0 m Width of track foundation 12.1 m Track structure Ballasted track （ slab track for certain sections） Operation method Parallel single-track Complete grade separation No grade crossing at ground level Source: Study Team

2) Route Plan a. Selection of Route Upon reviewing the horizontal alignment and vertical alignment, we made every effort to secure straight sections, large curved sections, and low gradient sections when planning the route in order to facilitate high-speed operation. From the viewpoints of ease of construction and control of the construction period, the alignment was reviewed with the goal to keep the tunnel length under 20 km. b. Selecting the Locations of Passenger Stations Locations of the passenger stations were determined by considering passenger demand, connectivity with other transportation modes, including the conventional lines, future prospect of the city where the station

Summary-6 is located, and so on. The stations are basically divided into two types: the main stations that will have turn-back operation (Johannesburg, Pietermaritzburg, Durban, and King Shaka International Airport) and the intermediate stations (Heidelberg, Standerton, Volksrust, Newcastle, Ladysmith and Mooi River) for passing through only (Refer to Figure 2). c. Selection of Passenger Terminal Stations The location of the Johannesburg Passenger Terminal is supposed to be at the Metrorail Johannesburg Park Station. However, from the perspective of construction cost and environmental and social considerations, the new station ( Station) is the first candidate and it shall be structured to make it possible to extend to the Johannesburg Park Station and the existing Germiston Station in the future. It is hoped that the freight line that intersects the station will be used as an access line to the urban areas.

On the other hand, the Metrorail station (Durban Station) and a new station (Durban North) were compared for the location of the Durban passenger terminal. From the perspectives of connection with the freight terminal and car depot, and social and environmental considerations, the proposed Durban Station is the number one candidate. The route near the station will run parallel to the Metrorail. d. Freight Terminal and Car Depot Tambo Springs, located at approximately 30 km southeast of Johannesburg, will be the candidate site for the freight terminal on the Johannesburg side, in light of ’s plan to set up a new container terminal. Ease of acquiring land for the car depot is taken into consideration. Therefore, similar to the container terminal, the candidate site will also be near Tambo Springs.

On the other hand, the former Durban International Airport site, situated at approximately 15 km south of Durban, will be the candidate site for the freight terminal on the Durban side, in light of Transnet’s plan to set up a new container terminal. Similar to the container terminal, the former Durban International Airport site will be the candidate site for the car depot and workshop, in consideration of the procurement of materials using ocean transport.

3) Civil Engineering Structures and Track a. Civil Engineering Structures Basically, elevated structures will be used in urban areas, embankment and cutting in rural areas where the terrain has little undulation, and tunnels in the mountainous areas. Table 4 shows the types and lengths of civil engineering structures.

Summary-7 Table 4 Types and Lengths of Civil Engineering Structures Type of Structure Length (km) Ratio (%) Earthwork 381 63 Tunnels 127 21 Bridges 3 1 Elevated Track 95 15 Total 606 100 Source: Study Team

b. Track Basically ballasted track will be used from the viewpoint of reducing construction cost and creating jobs, the latter is stipulated by the BEE policy. However, slab track will be used in tunnels and sections of high-speed operation.

4) Electric Facilities Table 5 shows the major specifications of electric facilities.

Table 5 Specifications of Electric Facilities Type Item Specifications Electricity Power supply method AC25kV・50Hz, AT feeding Substation Substation facilities Substation, sectioning post, ATP Overhead catenary Overhead line method Simple catenary method Signaling method Onboard signaling method Signaling Train control ATC continuous curve control Block system Single-line bi-directional method Train radio Space wave digital (tunnel: LCX method) Telecommunication Security facilities Surveillance camera, security monitor, recording equipment Source: Study Team

5) Rolling Stock The passenger train will adopt the distributed traction system (EMU) based on the Japanese Shinkansen train. It will have the functions to operate at a maximum speed of 300 km/h and be able to negotiate continuous grade of 20‰ at high speed.

The freight train will be used exclusively to carry containers. The distributed traction system will be used since the freight train has to cover the Johannesburg and Durban section within 5 hours and be able to negotiate continuous grade of 20‰.

Summary-8 Table 6 Basic Specifications of Passenger Train Item Passenger train Freight train Train type Electric train (EMU Type) Same as left Gauge 1,435 mm Same as left Electrification AC25kV／50Hz Same as left Maximum axle Under 16 t Same as left load Maximum 300 km/h 160 km/h operation speed Trainset: 8 cars at launch of service Trainset: 28 cars (two 14-car Others (occupancy about 600 people) trainsets coupled into 1 trainset) Maximum 12 cars (occupancy about 900 Container weight: 48TEU/trainset people) Source: Study Team

6) Operation Plan To avoid the high-speed train and freight train from passing each other and to resolve the difficulty in formulating a timetable with trains running at different speeds, the high-speed trains will operate from morning to night and the freight trains will operate during the other hours. The freight trains will not operate from Saturday and Sunday to the following mornings. The maintenance works will be carried out during the night on weekends.

Table 7 Travel Time (Johannesburg–Durban Section) Direction Passenger (1 stop) Passenger (local) Freight Down line 2 hours 28 minutes 2 hours 59 minutes 4 hours 17 minutes (going south) Up line 2 hours 30 minutes 3 hours 03 minutes 4 hours 18 minutes (going north) Note Include stopping time Source: Study Team

Figure 3 Hypothetical Timetable (2050: 25 years after start of service)

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Johannesburg

Heidelberg

Standerton

Volksrust

Newcatsle

Lady Smith

Estcourt

Pietermaritzburg

Durban

King Shaka Airport Source: Study Team Passenger Train (stops at only 2 stations) Passenger Train (stops at every station) Freight Train

Summary-9 Table 8 Number of Trains (Johannesburg-Durban Section) and Number of Cars Passenger train Freight train Year Round trip No. of Round trip No. of cars cars 2020 15 40 - - 2025 28 192 10 630 2050 30 312 10 630 Source: Study Team

7) Car Depots and Maintenance Depots a．Car Depots A depot will be set up in Johannesburg to carry out daily inspection and regular inspection and a workshop will be set up in Durban to carry out bogie inspection and general inspection. b．Maintenance Depots The maintenance depots will be set up at intervals of approximately 75 km, assuming that the high-speed confirmation cars will be used. Maintenance works will be carried out during the hours when there is no train operation.

2. Total Project Cost The total project cost is shown in the table below. The total construction cost is approximately 1.3 trillion yen. Including the rolling stock cost, consulting service fee, taxes, general administration fee, reserves, and land acquisition cost, the total project cost is approximately 1.9 trillion yen.

Summary-10 Table 9 Total Project Cost Estimated project cost Domestic Item Foreign currency Total currency million yen million yen Million rand Civil structures construction cost 48,100 49,400 641,400 Track construction cost 40,300 7,000 124,100 Station construction cost 12,200 9,200 122,400 Various buildings 32,800 10,900 163,900 Machinery and equipment cost 20,000 400 25,000 Electric facilities cost 102,700 2,100 128,300 Signaling/telecommunication facilities cost 50,800 1,100 63,500 System construction cost 10,800 100 12,000 Total construction cost 317,700 80,200 1,280,600 Rolling stock cost (passenger cars) 72,000 0 72,000 Rolling stock cost (freight cars) 148,500 0 148,500 Consulting service fee 15,900 4,000 64,000 Taxes (domestic currency) 0 11,800 141,600 Import tax (foreign currency) 26,700 0 26,700 General administration fee (domestic 0 4,000 48,100 currency) Reserves 15,900 4,000 64,000 Land acquisition cost 0 3,900 46,900 Total project cost 596,700 107,900 1,892,400 1 ZAR（South African rand）=12 yen, 1 USD（US dollar）= 81.01 yen（July 7, 2011）

Total project cost: 1,892,400 million yen =158 billion Rand = 23,400 million USD

Source: Study Team

3. Outcomes of Preliminary Financial and Economic Analyses 1) Economic analysis a. In-service Period and Social Discount Rate It is assumed that the construction will start in 2015 and that the railway will open in phases. ・The section from King Shaka International Airport to Pietermaritzburg will open for service in 2020. ・Opening of the entire line in 2025

The in-service period is assumed to be 55 years, from 2020 to 2074 (which is the 50th year from the opening of the entire line).

8% is used as the social discount rate for the standard case, 6% and 10% are used for the sensitivity analysis.

b. Measurement of Benefits We measured the consumer benefits and supplier benefits from the passenger and freight services. Consumer benefits are measured by the reduction in travel time and lower cost by switching from air or

Summary-11 cars to rail. Supplier benefit is measured by the railway operator’s increase in profit. As the premise for the measurement of benefits, the four step estimation method was used to forecast the demand of passenger and freight. First, the interregional traffic values were estimated based on the future forecast values in NATMAP. Next, the railway passenger transport volume was estimated using the parameters of modal share in NATMAP. As for the years of forecast, we selected 2020, 2025 and 2050.

On the other hand, since freight transport does not have the same kind of model as passenger transport, the freight volume was estimated based on interviews with multiple freight forwarders. As for the years of forecast, we selected 2025 and 2050.

The forecast is 38,000 passengers/d for passenger service and 4.2 million t/y for freight service (both are the high estimate case in 2050). In the economic and financial analyses, the benefits and revenues were estimated by supplementing the line shapes derived from the forecast results at 2020, 2025 and 2050. c. Calculation of Cost The project cost estimated in 2. above is recorded as expenditures. d. Economic Analysis The outcomes of EIRR, NPV, and B/C are as follows: When the social discount rate is 8%, the EIRR is 9.8%. From the perspective of social economy, the investment is deemed valid.

Table 10 Economic Analysis Results Social discount rate 6% 8% 10% Benefit (billion Rand) 162 94 58 User benefit passenger 58 33 20 freight 34 20 13 Supplier benefit passenger 29 17 10 freight 41 24 15 Cost (billion Rand) 88 72 60 EIRR (%) 9.8% NPV (billion Rand) 75 22 -1 CBR 1.9 1.3 1.0 Note: High estimate Source: Study Team

Summary-12 2) Financial analysis This project, positioned as the national project in the currently-considered NATMAP, financial involvement of the central government is viewed as inevitable. Also, financial involvement of the state government is expected, since the project will contribute to the development of corridor in the State of KwaZulu-Natal at the advanced operation, as we suggest through this study.

On the other hand, because this project requires a large amount of necessary funds, various sources of funds (both governmental/private) should be utilized, just like the Gautrain case, the South Africa’s first railway PPP project1.

Based on the above, we conducted financial analysis on the premise that this project would be funded not only by the government but also by the private sector and various other sources (including separation of train operation and ownership of infrastructure). We reviewed the percentage of each potential funding source in order for the project to be financially viable. Once we find out from the analysis results what percentage of government funds is needed to ensure business profitability, we can determine whether it is possible for the government to provide such funds. By the way, since it was difficult to determine in advance the amount of funds that the government would be able to provide, we opted to find out in this analysis how change in the percentages of government and private sector funds will affect the profitability of the project.

We analyzed how the percentage of grant aid will change the net present value of each assumed discount rate.

A range from 10% to 90% was used as the percentages of grant aid for the analysis. Gautrain was used as reference since it received a little less than 90% of its initial investment in the form of subsidies from the provincial government. The subsidy ratio of Gautrain was determined based on an agreement between the provincial government and the concession of Gautrain, taking into consideration Gautrain’s social and economic benefits and its financial and economic feasibility. Thus, it makes sense to use Gautrain’s percentage as reference. However, it is also noteworthy that Gautrain and this project are different in scale.

In the case that the real hurdle rate is 12%, the project is assumed to be valid if the ratio of grant aid is over 70%, as shown in Figure 4.

1 During the field study, we heard about financing of the South African government for public projects that ”Hybrid Funding Method” the idea of utilizing various sources of funds, is recently becoming more popular.

Summary-13 Figure 4 Outcomes of Financial Analysis

NPV （Billion rand） Discount rate (%) 15% 12% 10% 8% 40

30 20

10 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% -10 Rate of Grant Aid -20

-30

-40

Note: High estimate Source: Study Team

4. Review of Environmental and Social Aspects 1) Analysis of the Current Environmental and Social Conditions a．Analysis of Current Status The project areas and their surrounding environment have the following general characteristics: ・Geological condition: The ground is generally solid and stable, including the project areas. ・Water resources: The project areas have relatively abundant water resources. ・Air quality: The emissions of transport-related PM10 and NOx have become serious problems. ・Nature reserves: The three route options for this project have the possibility of passing through three Ramsar sites. In-depth study shall be carried out in the next phase.

Impacts of the existing transport conditions on the environment and society are air pollution, emissions of greenhouse gases, and frequent occurrence of road traffic accidents.

b．Future Forecast (if the project is not implemented) From an environmental point of view, if this project is not implemented, air pollution is expected to further deteriorate. From a social point of view, if this project is not implemented, the tremendous increase in road traffic volume is expected to cause even more traffic accidents.

2) Environmental and Social Benefits from the Implementation of the Project a．Benefits to the Environment Assuming Route B or Route C is selected for this project, the annual reduction in the emissions of NOX from the entire highway N3 in 2025, the year when the completed high-speed railway line is

Summary-14 opened for service, is expected to be 3,178 to 7,240 t, the reduction of PM10 75 to 385 t, and the

reduction of CO2 923,497～1,750,575t, as compared to a scenario that does not have a high-speed railway. However, it is necessary to deduct the pollution emissions of polluting gases and greenhouse gases from the increased portion of fossil fuel consumed for electricity generation from the abovementioned results.

3) Benefits to the Society Benefits to the society are three folds: reduction in traffic accidents, increase in transportation modes for residents, and increase in employment opportunities for local residents.

a．Impacts on the Environment and Society from the Implementation of the Project There is basically no problem that cannot be resolved or controlled with regarding to impacts from the implementation of this project, after reviewing the various items related to anti-pollution measures, natural environment, and social environment. Above all, it is necessary to obtain detailed confirmation of the following items in the next-phase study. ・Anti-pollution measures: 3 items including water quality, waste, and noise/vibration ・Natural environment: possibility of the routes’ impact on the three Ramsar sites and mitigation measures ・Social environment: possibility of the need for resettlement, number of households to be relocated, impact on the heritage resources and landscape

(4) Implementation Schedule

According to the NATMAP being formulated by South Africa’s Ministry of Transport, the Johannesburg–Durban High-speed Railway is slated to open in 2020 (including partial service). The South African government is also planning to propose Durban as a candidate site for the 2020 Olympics. Based on the above and in consideration of a realistic construction schedule and a financing plan, the following targets have been set for the start of service: 1) Phase 1 King Shaka International Airport–Durban–Pietermaritzburg section (route length of approximately 100 km): Open for service in 2020 2) Phase 2 Pietermaritzburg–Johannesburg section (route length of approximately 500 km): Open for service in 2025

Summary-15 Table 11 Implementation Schedule

Year Phase 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Major Items Phase1 Phase 2 Opening

1 METI Study

2 Detail FS

3 Financial Arrangement

4 Procurement Prosess of Consultant

5 Detail Design and Tender Document

6 Procurement Process of Contractor

1 7 Land Acquisiton and Compensation 2

1 8 Construction Works 2

1 9 Traial Operation 2

1 10 Operation 2

Source: Study Team

(5) Feasibility for Implementation

It is feasible to implement the project. There are two reasons.

1. Legal and Financial Constraints that Can be Resolved Implementation of this project is required to comply with the major laws and regulations in South Africa; however, they are not barriers to the implementation of the project. Decisions of the Ministry of Transport and the National Treasury will play an important role with regard to financial constraints. Deepening understanding of the decision-makers on the significance of this project to the South African economy and society, a reasonable financing scheme, and the appeal of the yen loan are all deciding factors.

2. Positive Stances of Other Stakeholders and Investing/Financing Organizations The stances of the provincial governments, implementation organizations (candidates), investing/financing organizations are generally positive. Provincial government has proposed initiatives to coordinate the project with the province’s Corridor Strategy and to expand employment. Provincial government has also proposed initiatives to coordinate the project with the province’s tourism master plan, select candidate stations to connect to the conventional lines, and share financial burden. A candidate for the implementation organization has shown support for promoting this project and has pointed out that the South African government may consider the loan option if cash flow from the project can cover the financing cost and that job creation and other socio-economic development can be expected from the project.

Summary-16 On the other hand, a representative of the government-run financial agency expressed hope that this project will create an opportunity for complete restructuring and improvement of the railway system in South Africa and indicated the possibility for the government-run financial agency to finance or co-finance the project since such large-scale infrastructure project is in line with the bank’s lending principles. Private financial institutions have also indicated the possibility of funding that premised on political support from the government and the project’s economic/financial/environmental viability.

The following measures are necessary for bringing this project to fruition:

・Initiatives to garner the support of the national government (Department of Transport and National Treasury) and provincial governments ・Initiatives to gain the understanding and support of local politicians and residents in areas related to the project ・Explain the job creation prospect of this project and present an action plan for its realization ・Provide the high, mid, and low estimates for the number of passengers, fare, freight volume, and financing scheme ・In-depth study of anti-pollution measures and impacts on the natural and social environments, and implementation of EIA

(6) Technological Advantages of Japanese Companies, etc.

1. Technological Advantages The Japanese Shinkansen holds the impressive record of zero passenger casualties since its launch in 1964 and the delay per train is less than one minute. This shows not only the technological strength of the railway operators but also the affiliated companies in different fields that are supporting the Shinkansen system, including track, electricity, rolling stock, etc.

Table 12 summarized the benefits if the Japanese Shinkansen system is used for this project. It will benefit the project in various ways, including safety, efficiency, low cost, ability to negotiate continuous steep grade, energy efficiency, and so on. The Shinkansen system epitomizes the technological superiority of the Japanese companies.

In particular, this project requires a continuous grade section（20‰）of approximately 30 km long to get through the mountainous areas on its route. Superiority of the Japanese Shinkansen technology can be fully utilized since the EMU high-speed railway excels in the handling of such continuous steep grades.

Summary-17 Table 12 Strengths of Shinkansen System and Benefits when Applied to this Project Strengths of Shinkansen Benefits when applied to this project Excellent safety and reliability The safest and most reliable service in the world is ・Zero passenger casualties in over 47 years made possible by the excellent element technologies since launch of service of the Shinkansen system. Adopting the Shinkansen ・Average delay per train is less than 1 minute system for this project will provide a high-speed railway that has the same level of safety and reliability as the one in Japan. Efficiency, mass transport Even if passenger demand increases as a result of ・High occupancy and high-frequency greater economic development in South Africa, the operation Shinkansen system can increase transport capacity ・Large vehicle gauge flexibly. The large vehicle gauge makes it possible to operate trains with freight containers mounted onboard. Low-cost ground infrastructure Low axle load of the rolling stock reduces burden on ・Low axle load of the rolling stock the ground infrastructure and lowers maintenance ・Ability to negotiate continuous steep grades cost. High acceleration and deceleration performance and sharp curves makes it possible to handle the continuous steep grades on the route of this project. Laborsaving maintenance Use of AC motor in rolling stock, high-speed ・Use of AC motor inspection cars, and mechanizing the maintenance of ・Inspection car, mechanization of facilities save labor and contribute to lower maintenance maintenance cost. Environmental compatibility Balancing the high-speed function and compliance ・Balance high speed and compliance with with stringent environmental standards (noise, stringent environmental standards vibration, etc.) protects the environment along the railway line, contributes to the realization of higher speed in urban areas and tunnels, and lowers construction cost. Energy-efficiency/low environmental load Because the Shinkansen has the lowest energy ・Lowest energy consumption in the world consumption and lowest CO2 emissions in the world during operation, modal shift from road and air transport to the railway will contribute to protection of the global environment. Comfort The comfort resulting from wide seat pit and large ・Wide seat pit, rotatable seats, space between seats is a great selling point in the air-conditioning providing excellent amenity competition with airplanes. Technology for through operation with Although it is necessary to change the gauge of the conventional lines conventional line, use of this technology makes it ・Succeeded in changing the gauge of possible to expand the high-speed railway network in conventional line the future at low cost. Source: Study Team

This project also considers the transport of freight containers. From the perspectives of technological feasibility and demand, it is possible to combine the high-speed railway with container freight trains operating at a medium speed of 160 km/h. In particular, the Super Rail Cargo used by JR Freight in Japan is a freight train with a distributed traction system. It operates at a maximum speed of 130 km/h, same speed as the express passenger trains. EMU using this technology has high chance of combining operation with the high-speed railway.

If Japan’s sophisticated electric train technology is applied to freight transport, it is possible to establish a

Summary-18 new high-speed railway system that can work well with the freight trains. This new combined passenger and freight high-speed railway system can be introduced to countries where passenger demand is relatively low. It will also become a new strength of the Japanese high-speed railway technology.

2. Economic Benefits A certain amount of financial involvement by the government is necessary for this project to materialize. However, since the amount required is huge, it is difficult for the South African government to pay for it from its general budget. In an interview with the South Africa National Treasury, there was a comment that it would be difficult for the project to materialize without some sort of installment plan.

Japan has various tools to help the South African government to implement the project. Yen loan is available for the government to procure funds. For the private sector, there are export credits from JBIC, equity from the Innovation Network Corporation of Japan, financial investment by JICA, and funding from JBIC, and so on.

These tools are effective means to backup the strength of Japanese companies from a financial point of view.

(7) Specific Schedule until Realization of the Project and Risks that May Hinder Its Realization

1. Decision-making Process of the South African Government In the “Strategic Agenda 2010/11-2012/13” formulated based on NATMAP, DOT considers reviewing the project for the construction of high-speed railway in the Johannesburg–Durban section a priority among the strategic issues and is taking specific measures aimed at opening the railway for service in 2020. DOT intends to start the project during the term of President Zuma (5-year term), which will last until 2014.

The preliminary qualification (PQ) for the bidding of the feasibility study and preliminary design of the Johannesburg–Durban High-speed Railway, which is the corridor with the highest priority, was published on November 22, 2010 but it was cancelled soon afterward on November 29. Later on, the Minister of Transport Mr. Sibusiso Ndebele indicated to move forward with the Johannesburg–Durban High-speed Railway project at the end of February 2011.

Summary-19 The following are potential risks that may hinder realization of this project: a．Delay in the implementation of specific measures due to delay in Cabinet approval for NATMAP b．The functions and role of HSRDA (tentative name), to be established under DOT, are not clear at this time c． Delay in the bidding for feasibility study and preliminary design commissioned by DOT

2. Fund Procurement This project is a national project identified in NATMAP, which is being formulated currently, involvement of the national government in financing is believed to be indispensable. Since the early opening proposed by this Study will contribute to the development of the corridor in KwaZulu-Natal province, financial involvement of the provincial government is also expected.

On the other hand, since considerable funds will be needed for this project, various funding sources will be used, including not only government funds but also private funds and the PPP scheme, as in the case of Gautrain, the first PPP railway project in South Africa.

From the above, there are two risks in fund procurement concerning government funds and private-sector funds. a. Delay in making decision on loan/issuance of bonds in the government’s fund procurement b. For private-sector funds, private investors may not be attracted to the investment if business risks is not equitably shared.

3. Environmental Impact Assessment Risks from environmental impact assessment that might hamper the implementation of this project are as follows: a. Difficulty or delay in the implementation of environmental impact assessment due to opposition from local residents. b. Delay in the implementation of environmental impact assessment due to review of measures to stave off or mitigate impacts after it has been confirmed that the Ramsar sites will be affected by the project.

Solution for a: it is advisable to obtain the support of the national and provincial governments in advance and hold briefing and discussion sessions with local residents at an early stage in order to gain their trust, understanding, and cooperation.

Solution for b: Selection of Route B will reduce the number of wetlands that might be impacted to only one site (Blesbokspruit) in Gauteng province. Even for this site, the principle is to try to avoid the wetland as much as possible when designing the route and selecting station locations.

Summary-20 4. Land Acquisition The following are two considerations regarding the risks in land acquisition: a. Over 90% of the land along the railway line is privately owned. It will take considerable amount of time and efforts to negotiate with each of the owners. b. During the Apartheid era, many blacks were forced to relocate from their original districts of residence to other areas. After abolition of the Apartheid system, many blacks filed land claims trying to get back their land. However, since these areas have already been occupied or owned by other residents or businesses, there are many pending land disputes.

Solution for a: It is advisable to find out the number of owners (who will be the counterparts in negotiation) and the conditions in advance, obtain the support of provincial government in advance, hold briefing and discussion sessions, and start negotiation as soon as possible.

Solution for b: It is advisable to obtain information on disputed land from the Land Claim Commission in advance and design route in such a way as to avoid these areas as much as possible.

(8) Map Showing the Project Locations in South Africa

Figure 5 shows locations of the High-speed Railway Project.

Figure 5 Locations of Project

0 200km

Source: Study Team

Summary-21