UNIDO Presentation on TPT’s SD Plans

26th of July 2012

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Contents

SD : Proposal vs Final plan

SD : Background and Objectives

Tender gateways : SD and BBBEE

TPT Equipment acquisitions

A lack of investment in infrastructure has impacted the capacity and capability of the local industry to do business in South Africa and subsequently economic growth

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Historical Background

There has been a significant decline in SA local industry over the past years largely due to a lack of consistent investment in infrastructure

Ratio of Gross Fixed Capital Formation to GDP (1970-2009)

Source: SARB Quarterly Bulletin

Furthermore, due to significant historical political and social imbalances a large portion of the SA population were unable to participate meaningfully in the economy thereby creating a gap in wealth distribution

0

5

10

15

20

25

30

2006

1982

1974

1998

1990

Impact on industry

The overall impact both from the lack of investment in infrastructure and the suppression of a large percentage of the population from partaking in the economy had a significant impact on local industry:

Loss of key skills and key capabilities

Decrease in manufacturing capabilities and thereby export potential

Lack of job creation opportunities Increase in the costs of doing

business due to higher transportation costs and longer lead times

The key difference between CSDP and NIPP is that CSDP allows for the investment to take place in a related industry

NIPP CSDP

Transaction target

Focus

Reporting & Tracking

Part of Negotiation

• Prior to February 2008 • February 2008 Onwards

• Non Related Industry • Related Industry

• DTI • SOE DPE

• Not Part of Evaluation Criteria

• Not part of SOE responsibility – Done by DTI and the Supplier

• Part of Evaluation Criteria

Spend is channeled into relevant industry development which Transnet can influence 4

Effective Date

• 30 % > R100 million • 30 % > R100 million

Tier 1Systems –

Subsystems

Tier 2

Tier 3

Other

Components

Assemblies

Supplier BaseSphere of Control

Tran

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CS

DP

Focu

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Su

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liers

’ C

SD

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Tran

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D

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P F

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liers

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Supplier Development

Category

**ED – Enterprise Development / PP – Preferential Procurement

s

Transnet’s CSDP phase one Strategic Approach will be to focus on Tier 1 suppliers to assist them in engaging local Tier 2 suppliers

Transnet will use its sphere of control to contract with OEM’s as tier-1 suppliers

Sphere of Influence

CSDP Development:

Port Equipment

BBBEE Focus

ED Development

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Transnet will apply their influence and current resources to actively align their existing SD activities with the objectives of NGP as reflected below

SHEQHuman Resources

Regulatory

Funding

Volumegrowth

Increase productivity & efficiency

Capital investment

Financial sustainability

Improvingcustomerservice

Quantum Leap Focus• Increase productivity

and efficiency

• Volume growth

• Capital investment

• Financial stability

• Funding

• Human capital

• SHEQ

• Regulatory

• Improve customer

service

• Increase employment intensity of the economy

• Reduce the cost to improve infrastructure and address competiveness

• Balanced spatial development of rural areas and poorer provinces’

• Reduce the carbon intensity of the economy

• Create opportunities in changing regional and global environments

• Increase black ownership and entrepreneurship

New growth path

Source: Transnet Corporate Plan 2011/12

iSCM/Supply Chain

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A shared aspiration for SD was created by merging Governments and Transnet’s objectives

SD Principles

• Increase the percentage of the population

involved in quality formal employment

opportunities

• Address wealth distribution disparities in

the country by ensuring the

participation of previously

disadvantaged groups in the economy

• Maintain a healthy balance of payments

position by reducing the reliance of

South African industries on imports

• Increase the participation of public

enterprises in increasing levels of real

fixed capital formation

• Develop key skills and capabilities

required for specific industries where these

do not exist

• Volume and Revenue Growth

• Creating Capacity

• Operational Efficiency

• Financial Strength

• SHEQ

• Promote the

1) Empowerment of previously

disadvantaged groups

2) Increase in local content

3) Improvement of skills and create

opportunities for sustainable jobs

• Security of Supply

• Reduction in Costs

• Reduction in Working Capital

• Enhanced Preferential Procurement

and Enterprise Development

Government’s Objectives Transnet’s Objectives

Internal Analysis

External Analysis

Corp

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te

Ob

jectiv

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SD

O

bje

ctiv

es

Su

pp

ly C

hain

Gu

idin

g

Prin

cip

les

Source: Transnet Corporate Plan, NGP, B-BBEE, CSDP

Vision

Values

Supplier Development (SD)

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• Supplier development refers to the improvement in the socio-economic environment by creating competitive local suppliers via Competitive Supplier Development and other initiatives. This results in a local supply base that can eventually be competitive to market its goods on the international market leading to increased exports

• Transnet’s SD strategy aims to holistically satisfy all of Government’s legislation and requirements in respect of identifying and undertaking opportunities through specific initiatives

Tender Process:

• All contracts sent to the market equal or exceeds R70million* will include a CSDP obligation as part of the tender,• A CSDP Proposal must be submitted as part of the tender •A CSDP Plan must be signed submitted within 30 days to Transnet after signing the Letter of Intent (LOI) and be agreed and signed within 15 days thereafter by both parties

CSDP opportunities are generally triggered for transactions equal or exceeding USD10 million for all tenders after February 2008

• SOE influences OEM/multinational for CSDP transactions .

• The following will trigger a CSDP transaction which involves the purchase of services and goods:

- Single New Contract with an imported content portion that is equal to or exceeds USD 10 million*;

- Contract with a renewable option clause, should the option be exercised, the total value of the imported content would be equal to or exceed USD 10 million*

Criteria to be considered to initiate a CSDP transaction:

• To avoid capital leakage;• When an opportunity to develop a local industry within Transnet’s supply chain; and / or• When a limited local supply base exists but the potential to develop existing suppliers is evident; and / or• Where there is a strong opportunity for IP and skills transfer to local suppliers and / or Transnet for which the capacity does not presently reside in South Africa

* Total Value planned to spend with a Supplier - (USD 10 million ~ R70 million. ** All CSDP Capability and capacity building in SA efforts initiated by the Supplier since the award of the contract to date must be included

into the plan.

Trigger for a CSDP transaction:

- No CSDP obligations (after Feb 2008) may be claimed for a NIPP – Double CountingAll CSDP obligations will be considered as standalone -obligations for each specific tender;- Where a CSDP obligation has not been mutually agreed between Transnet and the Supplier after February 2008 a CSDP Reconciliation Plan (to date) must be submitted by the Supplier to Transnet and agreed and signed off by both parties.

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The IC3 Matrix is used as the basic framework to plot the SD opportunities identified in its appropriate SD initiative bucket

Value leverage

Hig

hLow

HighLow

Focused

Small

Enterprise

Development

Programmatic1

Strategic

Ind

ustr

ial le

vera

ge

1 This could be further refined in the future through the DPE Programmatic Policy2Adapted from the DPE Supplier Classification Matrix focused on Increased Competitiveness, Capability and Capacity.

IC3 Supplier Development Classification Matrix2

Stra

teg

ic Im

porta

nce to

Tra

nsn

et

Industrialisation

Capability and capacity building in SA and Supplier Development

SkillsDevelopment

Value Leverage refers to transactions where the financial scale of the transaction allows the buyer the opportunity to negotiate supplier development. Industrial Leverage refers to transactions whereby the nature of the procurement is such that the scale and the industrial complexity of the item being purchased allows for local supply chain development around a particular industry.Strategic Importance to Transnet refers to the extent to which the product to be procured has a impact on Transnet’s core business.

The IC3 supplier development classification matrix assists in categorising opportunities according to their industrial leverage, value leverage and strategic importance to Transnet

Once opportunities are identified it will be possible to identify the tools that should be implemented to maximise the full supplier development potential from the opportunities

Not currently a focus area

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Strategic objectives within each quadrant have been identified

Strategic ObjectiveIC3 quadrant Key Outcomes

Programmatic

• Assist Government achieve their industrialisation objectives through development of local supplier base to increase the cost efficiency of fleet procurement, support and maintenance

• Industrialisation• Technology transfer• Job creation/preservation • Skills Development• Downstream Supplier

Development • Increased exports • Reduction in capital leakage

Strategic

• Influence multinational organisations toward initiatives that lead to the development of local downstream suppliers through large-scale SOE procurement in order to develop a competitive local supplier base focusing on Rolling stock, Port Equipment and Infrastructure

• Capability and capacity building in SA

• Increased Technology transfer• Job creation/preservation• Skills development

Focused

• Assist local suppliers to improve their performance, enhance their existing production & skills capabilities by placing increased emphasis on benefiting previously disadvantaged individuals and rural development

• Provide a platform through which local suppliers can test their local innovations for export promotion

• Job Creation/preservation• Empowerment• Skills Development• Rural Development

Small Enterprise

Development

• Assist local suppliers to improve their skills by placing increased emphasis on benefiting previously disadvantaged individuals and rural development in line with the BBBEE strategy

• Empowerment• Rural Development• Skills Development• Job Creation/preservation

Transnet has to develop an internal policy to support product development and funding as the current innovation policy drafted by the DPE only allows for testing local products in the Transnet operating environmentSource: Team analysis

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Small Enterprise Development

Focused

Strategic

Programmatic

Strategic Focused Small ED

*Points allocated in further recognition of certain components of BBBEE in line with Transnet and government objectives

Programmatic

• Localisation

• Technology transfer/ sustainability

• Skills development

• J ob creation / preservation

• Small business promotion

• Further recognition*

• Rural development and regional integration

• Industrialisation

• Technology transfer/ sustainability

• Skills development

• J ob creation/ preservation

• Small business promotion

• Further recognition*

• Rural development and regional integration

• localisation

• . J ob creation/ preservation

• Skills development

• Further recognition*

• Rural development and regional integration

• Small business promotion

• Further recognition*

• J ob preservation

Decreasing emphasis on evaluation criteria categories

Sphere of influence

** Indicative and varies on business and Macro Economic need

Figure 2: Transnet value capture through supplier influence

Category Description

Capability and capacity building in SA

• Developing local capability and efficiency through : investment in plant, increasing the number of products bought locally and qualifying suppliers to meet international standards.

• This criterion refers specifically to industrial capability building that focuses on value-add activities of the local industry through manufacturing or service-related functions.

Source: Team Analysis

Technology transfer/Sustainability

• Refers to process, know-how and Intellectual Property associated with developing a competitive local supplier post the current transaction

The recommended SD categories are based on the alignment with government objectives

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Skills development

Job creation/ preservation

Small business promotion

• Refers to skills transfer with an emphasis on the accumulation of knowledge and experience

• Generally targeted toward sector specific skills development with a focus on artisan and technical skills

• Refers to an increase or preserve in the number of jobs due to the award of business from Transnet

• Favouring more labour intensive methods for job creation• Jobs include both skilled and unskilled

• Encourage the growth and expansion of small businesses and start ups through procurement and support mechanisms

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SD and BBBEE Requirements

Contents

SD : Proposal vs Final plan

SD : Background and Objectives

Tender gateways : SD and BBBEE

TPT Equipment acquisitions

Summary: SD Process

Compile proposal as part of SD plan

Transnet evaluates supplier SD proposal

Successful tenderer to compile SD plan

SD plan to be agreed upon by Transnet and supplier

Responsible Supplier Transnet Supplier &

TransnetSupplier& Transnet

• The supplier is expected to formulate a SD proposal to identify the opportunities that the supplier will pursue

• The SD Proposal should address the main areas

Capability and capacity building in SA;

technology transfer/sustainability;

skills development; small business

promotion job

creation/preservation

• SD (Proposals) responses will be evaluated on their ability to leverage Transnet’s long term procurement in order to promote Capability and capacity building in SA in order to increase the capability and capacity, responsiveness and competitiveness of South African supplier industries

• The SD Programme’s ability to promote skills transfer, Capability and capacity building in SA and the sustainability of the venture will all be taken into account during evaluation

• Once the SD plan has been finalised with Transnet, the supplier will initiate the plan

• The supplier will be required to report quarterly on the progress being made against the plan, the attainment of milestones and the reasons (if any) that goals are not being met

• Transnet will supply guidelines to the reporting format required for the quarterly reports

• Only a successful bidder will be required to complete a detailed SD Plan and deliver it to Transnet in 30 days after signing the LOI

• Both the Supplier ad Transnet must agree and sign the final SD plan 30 days thereafter

• The SD Plan will have to outline the:

– Type of Capability and capacity building in SA effort that will be pursued,

– Anticipated investment,

– Description of products to be produced,

– Skills transfer ,as well as

– Processes, systems, technologies and equipment required

NOTE: • Both a SD Proposal and SD Plan must be completed . 1

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SD Plan: Capability and capacity building in SA Summary – Supplier (x/x)

Description Sub-initiative

Total Summary • 1.0 xxx• 2.0 xxx • 3.0 xxx

• Total Capability and capacity building in SA Value

1.0 xxxx • xxxx • Rx.xm

Key KPICategory

Capability and capacity building in SA

A • R xxx.xm• R xxx.xm• R xx.xm

• R xxx.xm

Transnet Authorised Signatory Date

Name / Title

Supplier Authorised Signatory Date

Name / Title

2.0 xxxx • xxxx

3.0 xxxx • xxxx

• Rx.xm

• Rx.xm

Example

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SD Plan: SD Capability and capacity building in SA Initiative (x/x)

Transnet Authorised Signatory Date

Name / Title

Supplier Authorised Signatory Date

Name / Title

Initiative Description:  Target KPI   

Detailed Description R x.x* ZAR

Transnet Lead:TPT Lead:

x # of reports completed

Supplier Lead:Supplier Lead:

TBD at selection meeting

# of components selected

Start Date:  

End Date:

Reporting Frequency:(one month prior to DPE report)

Quarterly (xx May CY, xx, xx August CY, xx November CY and February (following Year) xx)

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Transnet Authorised Signatory Date

Name / Title

Supplier Authorised Signatory Date

Name / Title

412 9871110 498764321

20132012

8765 9321 10 11

2011

5 12 1 62 3 5 121110

Year

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

xxx

Activity

SD Plan: SD Capability and capacity building in SA Initiative (x/x)

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SD and BBBEE Requirements

Contents

SD : Proposal vs Final plan

SD : Background and Objectives

Tender gateways : SD and BBBEE

TPT Equipment acquisitions

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A three step evaluation strategy will be used in the evaluation of the equipment proposals

> Threshold

MinimumSD/BBBEE

criteria

SD / BBBEE PriceSD BBBEE

Award tender to successful supplier

Evaluate for

>Threshold

MinimumEligibility criteria

1 2 2

Evaluate for Evaluate per weighting

Equipment SD / BBBEE threshold

Eligibility threshold

Technical threshold

Evaluation weighting (%)

Main offer and main offer plus options

Price SD BBBEE (Scorecard and Further recognition criteria)

RTG Cranes (Proposal A), STS Cranes (Proposal B) and RTG Cranes and STS Cranes (Proposal C)

40% 100% 80% 60 20 20

1 2

3

>Threshold

MinimumTechnical criteria

Evaluate for

Eligibility

3

2

Note: The tender indicates that the SD commitment is aimed at achieving at least 30% of the supplier’s tender value as part of the tender bidIf no tender passes the 2nd stage technical evaluation, the threshold will be reduced from 80% to 70%

Technical

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SD and BBBEE Requirements

Contents

SD : Proposal vs Final plan

SD : Background and Objectives

Tender gateways : SD and BBBEE

TPT Equipment acquisitions

7 Year Capital expenditure plans

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• Transnet’s capital investment over the next 7 years (2012/13 to 2018/19) totals R300billion

• Transnet Port Terminals will be undertaking R33billion (11%) of these projects over the next 7 years

• TPT’s 7 year investment plan will comprise mainly of the following acquisitions:o Ship to Shore Craneso Rubber-Tyred Gantry Craneso Straddle Carrierso Ship Loaderso Ship Unloaderso Mobile Harbour Craneso Haulerso Trailerso Reach Stackerso Empty Container Handlers

Equipment acquisitions : currently in procurement cycle phase

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Item Project

1 4 x STS Cranes – Ngqura

2 18 x RTG Cranes – Ngqura

3 DGPS (Digital Global Positioning System) - Durban

4 Supply and installation of a monitoring system for refrigerated containers (Reefers) at Cape Town (CTCT & CTMPT), Port Elizabeth (PECT), Ngqura (NCT) and Durban Container terminals (Pier1 and Pier2).

5 Manufacture, supply, delivery and commissioning of 74 Fifth wheel haulers for RBY

6 Manufacture, supply, delivery and commissioning of forklifts – RBY (3x42T;6x32T;10x18T;11x8T); EL (4x7T) and NGQURA (2x2T)

7 Manufacture, supply, delivery and commissioning of 6 Reachstackers – 2 RBY;2 NCT;1 Pier 1 and 1 CTNMPT

Equipment acquisitions : SD plans being finalised

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Item Project

1 1 x Mobile harbour crane for CTN

2 Design review services

3 Manufacture, supply, delivery and commissioning of 14 haulers – 4 Saldanha;10 Pier 1

4 Manufacture, supply, delivery and commissioning of 9 empty container handlers – 2 CTN;2 NCT; 5 DCT

5 Manufacture, supply, delivery and commissioning of 48 haulers for Ngqura

Equipment acquisitions : SD plans committed

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Item Project SD value committed (R’m)

SD committed %age of Contract value

1 1 x Ship unloader 15.52 12%

2 28 x Straddle Carriers 23.00 10%

3 7 x Tandem lift STS Cranes 47.00 6%

4 6 x Mobile Harbour Cranes 58.29 23%

5 33 x Haulers 4.07 9%

6 8 x Reachstackers 18.12 16%

Equipment acquisitions planned for the remainder of this year (to Mar 2013)

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Item Project

1 Ship unloaders for Bulk terminals

2 Rail Mounted Gantry Cranes for Container Terminals

3 Wharf Cranes