Paris - Alstom SA has started development of a locomotive factory outside Johannesburg to manufacture equipment for its biggest-ever rail contract and expand on the African continent.
“We intend to make South Africa our base for serving sub-Saharan Africa,” Alstom Chief Executive Officer Henri Poupart-Lafarge said in an interview ahead of an event in Dunnottar on Friday for the plant, which will cost along with equipment and train development as much as 150 million euros ($165 million).
Read: Alstom's profit climbs as focus turns to rail
The French company is building the factory through a joint venture called Gibela, a South African rail company in which it owns a majority stake and which has a 4-billion-euro contract with the Passenger Rail Agency of South Africa, known as Prasa, to supply 600 trains and technical services for 19 years.
Alstom, based in Saint-Ouen, France, is focusing on rail after selling most of its energy assets to General Electric. The global industry is starting to consolidate after China’s two largest train makers agreed to merge while Japan’s Hitachi has bought Italy’s AnsaldoBreda SpA. Poupart-Lafarge took the helm February 1, replacing Patrick Kron.
“Development of the supply chain is the main challenge” of the South African venture, the new CEO said in the interview. The first 20 trains will be made at an Alstom factory in Brazil and the rest at the Dunnottar plant, which should be completed within eight months and have produced its first equipment within a couple of years, he said.
“Technologically it’s not a complex train,” Poupart-Lafarge said. “Clearly the main objective of the contract is also to build a complete industrial base in South Africa.” Local content was a requirement of state-owned Prasa.
Alstom shares closed 7.6 percent higher at 22.45 euros in Paris trading, giving the company a market capitalisation of 4.9 billion euros.
Elsewhere, Alstom is negotiating on tenders for the Makkah metro in Saudi Arabia and for one in Dubai in the United Arab Emirates, both countries hit by a slump in crude prices.
“Typically for contracts which are in force, we see absolutely zero impact” from the oil drop, he said, adding that new projects may be delayed.
BLOOMBERG