Procurement and Localization for Supplier Development

1. PROCUREMENT AND LOCALISATION • PRESENTATION TO PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES 17 May 2017

2. The Competitive Supplier Development Programme (CSDP) has the objective of leveraging State Owned Companies (SOC) procurements for development and transformation. The CSDP involves: • The SOC systematically planning and executing procurements to promote investment in plant, skills, and technology and the development of new capabilities in existing, emerging and new suppliers so as to drive the growth, industrialisation and transformation of the economy. • The systematic alignment of broader Government policy and mobilisation of resources to support and incentivise the supplier development and transformation process. CONFIDENTIAL

3. Objectives of the CSDP • To promote investment and the development of internationally competitive capabilities in supplier sectors to the SOC’s capital and relevant operational spend, with the aim of: • Reducing costs through increasing efficiencies. • Reducing dependency on imports and foreign exchange exposure. • Developing niche export areas. CONFIDENTIAL

4. The Programme is measured against a number of Key Performance Indicators. These indicators and associated targets are included in the Shareholder Compact for both Transnet and Eskom CONFIDENTIAL

5. Transnet Supplier Development • Since inception of the Programme Transnet Supply Development obligations that have been committed are as follows: • Local Content R30.8 billion • Skills Development R4.6 billion • Investment in plant R4.9 billion • Jobs created R2.9 billion • Jobs preserved R3.9 billion • Industrialisation R 6.4 billion • Small Business development R3.8 billion • Rural development R0.4 billion • Technology and IP transfer R0.7 billion • Other initiatives R2 billion CONFIDENTIAL

6. Eskom Supplier Development • Since inception of the Programme Eskom Supply Development obligations that have been committed are as follows: • Localisation R116.89 billion • BBBEE Suppliers R596 billion • Black Owned Business R170 billion • Black Women Owned R58 billion • Black Youth Owned R5 billion • Small Medium Enterprises R 63 billion CONFIDENTIAL

7. 1064 LOCOMOTIVES – LOCAL CONTENT COMMITMENTS • GE & CSR are the two OEMs with manufacturing facilities in Pretoria; CONFIDENTIAL

8. 1064 LOCOMOTIVES – LOCAL CONTENT COMMITMENTS • CNR & BT are the two OEMs with manufacturing facilities in Durban; CONFIDENTIAL

9. Leveraging Procurement through Supplier Development • At the South Africa Rail Association (SARA) exhibition the OEMs & suppliers participating in the 1064 build program were showcasing their technologies. • An interest was shown from the African Countries represented in wanting to adopt the Model that TE is using to develop suppliers and also buying from the suppliers. • This not only opens doors for the suppliers who were presenting but it also shows South Africa as a country that cares for its industry’s growth and participation. • Various Suppliers are investing in their companies not only to support TE, but to grow and sustain themselves in this globally competitive environment as a result of their relationship with TE. • More still needs to be done in supporting the developing industry and black Industrialist programme from the DTI CONFIDENTIAL

10. TE’s Progress to date : Capacity and Capability The total number of suppliers utilized per OEM CONFIDENTIAL

11. TE’s Progress to date : Capacity and Capability The total number of Black Owned and Black Women Owned suppliers utilized per OEM: CONFIDENTIAL

12. TE’s progress to date : Jobs Maintained/Preserved The total number of jobs preserved per OEM: CONFIDENTIAL

13. Transnet’s Key Local Suppliers for rolling stock commodities CONFIDENTIAL

14. Transnet’s Key Local Suppliers for rolling stock commodities CONFIDENTIAL

15. Transnet’s Key Local Suppliers for rolling stock commodities CONFIDENTIAL

16. Transnet’s Rolling stock commodities localisation with Local Suppliers CONFIDENTIAL

17. Transnet’s Rolling stock commodities localisation with Local Suppliers CONFIDENTIAL

18. OEM and Transnet’s Supplier Development reporting mechanism • The OEM’s monitor and record in an auditable manner, its own implementation and compliance with the Plans and report monthly to Transnet • Transnet conducts quarterly verification of claims by OEM’s to ascertain whether or not the OEMs have met the quarterly targets • Transnet appointed an external auditing firm to validate the reports by OEM’s on a regular basis and further verification is conducted by Transnet’s Supplier Development Team. • If the OEMs fail, at any time, to achieve its Supplier Developmenttargets in accordance with their commitments, Transnet may issue non-compliance penalties. CONFIDENTIAL

19. DPE together with SOCs (Eskom and Transnet) and DTi have briefed the Portfolio Committee on Trade and Industry about the progress, challenges and success on CSDP CONFIDENTIAL

20. UPDATES ON ISSUES RAISED BY PC: ON LOCALISATION AND IMPLEMENTATION ON RAIL PROCUREMENT PROGRAM • A need for independent verification of localisation and industrialisation on 1064 program • DG of DTi to write a letter to SABS instructing them to provide a quote at cost for verifying the localization of 1064 program • Ironing out challenges that DTi has on localization and continued imports on rail components • Planned workshop in May/June 2017 between DTi, Transnet, DPE and affected departments such as Transport and National Treasury to discuss the following: • Free issuing of parts by OEM • Status of the CSR-Transnet JV • Amended delivery schedules of the 1064 • Transfer of technology by OEMs to local supplies • Compensation of import value imported by OEMs on the first 66 locos • Transnet long term contracts CONFIDENTIAL

21. THANK YOU CONFIDENTIAL