transnet localisation update portfolio committee on...

TRANSNET LOCALISATION UPDATE

Portfolio Committee on Trade and Industry August

2016

Contents

1. Transnet SD to Localisation

2. Locomotives update and local procurement

Topics

3. Other localisation - Transnet’s List of

Local suppliers 4. Localisation challenges and possible

solutions

2

5. Opportunities to export into the rest of

Africa

There are a number of role players that drive localization through designated sectors

Stakeholder Role

• Support localization, measure the impact • Engage the market to establish and drive

capability • Ensure capability within the market

• Issuer of designated sectors and instruction notes

• Ensure development of industry

• Monitoring and auditing forum to establish real local content impact

• Deliverer of local content, utilizing procurement to deliver sustainable value to the local economy

• Demand driver, ensuring sustainability 3

SD - Transnet has recognised four main areas of opportunity that could arise through SD

Government objectives on local development … …help define Transnet’s organization's scope

3 tiers of government objectives relevant to us:

1

2

3

BBB-EE

Long term industrialisation

▪ Skills and knowledge transfer from multinationals to achieve industrialisation

1

2 Medium term development of established suppliers

▪ Development of established local suppliers to increase localisation and exports

3 Development of small and medium size businesses

▪ ‘Grassroots’ enterprise development

Transnet’s role

▪ Build sustainable local industries with meaningful black ownership, using MDS

▪ Extract most meaningful value from existing operations and contracts

Local development organization's scope and objectives

▪ Monitor Transnet’s progress towards skills development, localisation, job creation and industrialisation(BI’s) objectives

▪ Play a local development support and coordination role to all Transnet OD’s

▪ Help develop local suppliers when there is opportunity for impact

▪ Drive enterprise development when supplier and industry are vital to Transnet’s value chain

▪ Growth and Transformation for BI’s

▪ Transformation

4

Contents



Topics

3. Other localisation - Transnet’s List of Local suppliers

4. Localisation challenges and possible solutions

5


Africa

1064 Local content – Principles being applied

• Local content is delivered over the delivery period of the locomotives

• There are locomotives not manufactured or assembled in South Africa on the following OEM contracts; CSR (40) , CNR (20) and GE (6).

• On the CSR contract 15 locomotive kits will be provided by CSR to TE to assemble.

• The local content on these locomotives will be limited to the assembly.

• Local content will increase as the local production starts and will continue as the locomotives are produced and the local content will be delivered over the delivery period of the locomotives

• The commitment to local content target is against the total delivery of each contract.

6

1064 LOCOMOTIVES – LOCAL CONTENT COMMITMENTS

OEM QUANTITY NO OF

LOCOMOTIVES

LOCAL MANUFACTURING/

ASSEMBLE

LOCAL

CONTENT

COMMITMENT

General

Electric South

Africa

Technologies

(GE)

233 Diesels 6 completed Manufactured and completed in USA. 55%

227

Transnet Engineering (TE)

227 will be manufactured in SA.

China South

Rail (CSR)

359

Electric

40 completed Manufactured and completed in

China.

60%

319


15 “knock-down kits” were provided

have been assembled in SA .


• GE & CSR are the two OEMs with manufacturing facilities in Pretoria;

• DTI/SABS is the custodian/authorised body to verify, monitor and report the local content obligations and achievements of OEMs.

7

1064 LOCOMOTIVES – LOCAL CONTENT COMMITMENTS

OEM QUANTITY NO OF

LOCOMOTIVES

LOCAL MANUFACTURING/

ASSEMBLE

LOCAL CONTENT

COMMITMENT

China North

Rail (CNR)

232

Diesels

20 To be manufactured and completed in

China.

55%

212



Bombardier

Transportation

(BT)

240

Electrics

240

Transnet Engineering (TE) 60%


* Assembly of 1st locotive in progress.

• CNR & BT are the two OEMs with manufacturing facilities in Durban;

• DTI/SABS is the custodian/authorised body to verify, monitor and report the local content obligations and achievements of OEMs.

8

Overall OEMs Supplier Development Progress to date

# SD DESCRIPTION

1064 TOTAL SD TARGETS & ACTUALS

SD Target Rand Value

(Rm)

SD Target % of

contract

Actual Rand Value delivered

(Rm)

Actual delivered % of SD Target Value

1 Industrialisation

R 5 030.13

10.75%

R 975.51

19.39%

2 Capacity & Capability Building (Localisation)

R 19 502.82

41.66%

R 3 031.55

15.54%

3 Sustainability / Technology and IP Transfer

R 3 070.81

6.56%

R 1 236.56

40.27%

4 Skills Development R 1 407.91

3.01%

R 60.16

4.27%

5 Job Creation/Preservation R 2 822.09 6.03% R 374.10

13.26%

6 Small Business Development R 465.19

0.99%

R 137.82

29.63%

7 Down Stream Supplier Development

R 58.51

0.12%

R 13.38

22.87%

TOTAL SD R 32 357.46 69.12% R 5 829.07 18.01%

*It should be noted that the local production of the locomotives has recently commenced hence the achievement of 18.01% to date.

9

Locomotive manufacture to date is 10.62% complete, with approximately 113 of 1064 Locomotives having been manufactured

CRRC ZELC 359 Locomotive Acceptance schedule per contract

0

50

100

150

200

250

300

350

4001

-Ju

l-1

5

1-A

ug-

15

1-S

ep

-15

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5

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15

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5

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6

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-16

1-M

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6

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16

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6

1-J

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-16

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16

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16

1-S

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-16

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6

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16

1-D

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6

1-J

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7

1-F

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-17

1-M

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7

1-A

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17

1-M

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7

1-J

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-17

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17

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17

1-S

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-17

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7

1-N

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17

1-D

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7

1-J

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8

1-F

eb

-18

1-M

ar-1

8

Acceptance CSR 359 (22E) Acceptance CSR 359 (22E) (Actual) Accepted

10

BT 240 Locomotive Acceptance schedule per contract

0

50

100

150

200

250

3001

-Ju

l-1

5

1-A

ug-

15

1-S

ep

-15

1-O

ct-1

5

1-N

ov-

15

1-D

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5

1-J

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6

1-F

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-16

1-M

ar-1

6

1-A

pr-

16

1-M

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6

1-J

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-16

1-J

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16

1-A

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16

1-S

ep

-16

1-O

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6

1-N

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16

1-D

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6

1-J

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7

1-F

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-17

1-M

ar-1

7

1-A

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17

1-M

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7

1-J

un

-17

1-J

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17

1-A

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17

1-S

ep

-17

1-O

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7

1-N

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17

1-D

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7

1-J

an-1

8

1-F

eb

-18

1-M

ar-1

8

1-A

pr-

18

1-M

ay-1

8

Acceptance BT 240 (23E) *Original Acceptance BT 240 (23E)(Actual) *Original

11

GE 233 Locomotive Acceptance schedule per contract

0

50

100

150

200

250

Acceptance GE 233 (44D) Acceptance GE 233 (44D) Accepted

*28 of 34 locomotives subjected to recall program

12

CRRC DALIAN 232 Locomotive Acceptance schedule per contract

0

50

100

150

200

2501

-Ju

l-1

5

1-A

ug-

15

1-S

ep

-15

1-O

ct-1

5

1-N

ov-

15

1-D

ec-1

5

1-J

an-1

6

1-F

eb

-16

1-M

ar-1

6

1-A

pr-

16

1-M

ay-1

6

1-J

un

-16

1-J

ul-

16

1-A

ug-

16

1-S

ep

-16

1-O

ct-1

6

1-N

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16

1-D

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6

1-J

an-1

7

1-F

eb

-17

1-M

ar-1

7

1-A

pr-

17

1-M

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7

1-J

un

-17

1-J

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17

1-A

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17

1-S

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-17

1-O

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7

1-N

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17

1-D

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7

1-J

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8

1-F

eb

-18

1-M

ar-1

8

Acceptance CNR 232 (45D) *Original Acceptance CNR 232 (45D)(Actual) *Original

*2 locomotives not accepted yet

13

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 Development targets in accordance with their commitments, Transnet may issue non-compliance penalties.

14

Local Content Update

• Local Content Documentation were handed over by Transnet to DTI for monitoring and verification by SABS;

• SABS are engaging OEMs regarding the monitoring and verification process.

• Local Content information is also shared between OEMs and Transnet.

• Current SABS Update : SABS has received relevant information from GE, and are preparing a quotation for the verification exercise to be done.

• Both Transnet and the DTI are provided updates from SABS

15

The role of TE versus OEM’s

Items noted as “NO” or which are blank are the OEM’s responsibility of supply and the verification process by SABS and DTI will provide further detail as it relates to the local content of these components.

16

17

Local Content verification update

• Transnet Engineering is committed to the verification of its Wagon build and will fit in to the SABS schedule

• TE continues to support local production and is in constant discussions with the dti and play a role in educating suppliers on local content expectations

Leveraging Procurement through SD

• Based on the TE scope suppliers were approached through various medium including the National Treasury Website.

• Suppliers have been assessed by TE and the OEM’s and have been developed as such

to ensure their standards are improved.

• TE has also awarded various contracts to the local industry and more contracts will be awarded according to the production stages.

• There has been a huge interest and participation from BO/BWO/BYO suppliers in various categories of the Locomotive build, from steel fabrication, to castings, to off-the-shelf items and services.

• Technical specifications are developed so that local suppliers are able to participate and meet the minimum specification requirements.

• Local content has also been applied as directed in various Instruction Notes and

industry is slowly adjusting to the requirements. • TE is seeing more opportunities for exposure of the industry to a number of

international products that will enable the local industry to partake in work on a global scale.

18

Leveraging Procurement through SD

• 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 done in supporting the developing industry and black Industrialist

from the dti and other funding institutions.

19

TE’s Progress to date : Capacity and Capability

OEM EME QSE LARGE Total No. of Suppliers Utilised

CNR 3 5 8 16

BT 13 12 34 59

GESAT 32 21 41 94

CSR 30 16 24 70

The total number of suppliers utilised per OEM:

20

TE’s Progress to date : Capacity and Capability

OEM Black Owned Black Women Owned

Total No. of Suppliers Utilised

CNR 5 3 16

BT 23 10 59

GESAT 37 21 94

CSR 24 28 70

The total number of Black Owned and Black Women Owned suppliers utilized per OEM:

21

TE’s progress to date : Jobs Maintained/Preserved

The total number of jobs preserved per OEM:

22

Leveraging Transnet’s procurement to enhance TE capabilities

Leveraging Transnet procurement to enhance TE’s capabilities

TE has invested in its facilities to grow into an OEM. The Centre's of Excellence (COEs) were the first to be identified and maintenance plants.

We are currently enhancing our skills for maintenance through collaboration with the OEM’S in order to take the maintenance regimes of the OEM to the African market.

The investments began when Transnet Engineering worked with Electro Motive Diesels in the build of the 50 like new Locomotives. The investments also continues throughout the infrastructure programs and has ensured TE facilities match that of its partners such as the GE’s.

TE has since used the learning on all the build programs including its status as an OEM on Coaches and Wagons to design and manufacture its first Trans Africa Locomotive which will be launched and TE intends to export its locomotive into the African market.

23

Contents



Topics



solutions

24


Africa

Transnet’s Key Local Suppliers for rolling stock commodities

No Supplier Black Ownership

Black Women Ownership

Components

1 Ansys 40.00% 4.00% Locomotive Control Systems

2 Battery Tech 25.00% 0.00% Battteries

3 Booyco Engineering (Pty) Ltd 0.00% 0.00% Heat, Ventilation and Air Conditioning

4 CTLE 68.00% 68.00% Valve, Brakes

5 DCD Rolling Stock 44.79% 5.35% Draft-gear

6 Donkin 25.00% 6.97% Blower Traction Motor

7 Duys 0.00% 0.00% Engine Cab

8 Electrahertz 0.00% 0.00% Power Outlet

9 Electroweb 0.00% 0.00% Marker Light

10 First National Battery 36.00% 8.00% Batteries

11 Hiperconn 0.00% 0.00%

Jumper Plugs & Sockets (Receptacles) on all rolling stock

25




Components

12 IPT/Pefco 0.00% 0.00% Bearing Cap

13 KBSA 25.10% 0.00% Vacuum Rack

14 Knorr.Bremse S.A. (Pty) Ltd. 25.10% 15.00% Braking System

15 Marble Gold (Pty) Ltd 17.00% 5.00% Seats (For coach interior)

16 Microelettrica Power (Pty) Ltd 26.00% 15.00%

High Speed Curcuit Breaker, AC/DC Network Detection Device, Braking Resistor

17 Minus 40 0.00% 0.00%

18 Penbro Kelnick (Pty) Ltd 27.00% 6.00% Power generation and Metal Fabrication

19 Profibre 71.00% 0.00% Component Manufacturers

20 Proseat 43.00% 17.00% Component Manufacturers, Seats

21 Radel (Pty) Ltd 0.00% 0.00% Lighting

22 Rollmech 0.00% 0.00% Controller

26




Components

23 Scaw South Africa (Pty) Ltd 79.41% 27.91% Coupler body

24 Siemens (Pty) Ltd 30.00% 15.03% Vehicle Magnet

25 Siyahamba Engineering (Pty) Ltd 74.87% 10.41%

Door system, Windows, Grab Pillars and Rails

26 SWASAP 0.00% 0.00% Axle

27 Timken South Africa (PTY) LTD 0.00% 0.00%

Bearings

28 Trans Fire (Pty) Ltd 0.00% 0.00% Safety equipment

29 Transfire 0.00% 0.00% Fire Extinguisher

30 Transnet Engineering N/A N/A Car body shell, Interior cladding, Bogie frame, Springs

31 TTS 51.00% 0.00% Harness

32 Vanrail 51.00% 0.00% Air Dryer

33 Wabtec 30.00% 0.00% Brakes and Braking System

27

Transnet’s Rolling stock commodities localisation with Local Suppliers

Component Supplier Local content per

DTI requirement

Current Local content achieved

Bogie

• Wheels • 34” Cast – SCAW

• 34” Forged -

Naledi

• Cast - 100%

• Forged – Not

designated

• Cast - 96%

• Forged – Supplier is setting up a

wheel machining plant in SA, with

the intention to localise a forge

over the contract period

• Bogie cast

components

• SCAW

• CSR SA

• 100% by month

25

• SCAW is currently 93%

• CSR is currently 0% but will be

100% by month 25

• Axels • Swasap

• CRI

• 100% • 100%

• Springs • Foundry business

• Local suppliers

• 100% • 100%

• Limited demand, in spikes of

supply outside local suppliers are

used

• Bearings • Reelin

• Timken

• 100% by month

25

• 80%

• 100% will be achieved by month

25

28



DTI requirement


Body

• Steel • Macsteel

• Aveng Trident

• Alert Tshwane

• 100% • 100% as TE uses primary steel

Brakes

• Brake

valves

• Knorr Bremse

• Wabtec

• 70% • 74%

• Slack

Adjusters

• Wabtec

• Ngolovan

• National Rail &

Trading

• 70% • 45%

• Current global market is very

limited number of AAR approved

suppliers

• Brake

blocks

• DCD Metpro

• FIP

• Federal Mougul

• Knorr Bremse

• 70% by month

25

• Limited scope for further

localisation due to limited demand

to sustain suppliers

29



DTI requirement


Draw Gear

• Draw gear • Miner Enterprises • 100% • 30% of the draw gear is composed

of rubber pads which have been

localised

• A local daw gear refurbishment

centre is planned for Uitenhage

• Couplers,

knuckles,

pins & yolks

• Scaw

• Benkling

• 100% by month

25

• Scaw is currently 90%

• Foundry technology is being

developed to increase capability

and capacity to produce more local

components

30

Contents



Topics



solutions

31


Africa

Challenges and Possible Solutions

No. Challenges Solution

1

Lack of understanding and importance of

South African transformation objectives by

Emphasis on the requirements, importance

and expectations of the South African Policies

2

Identifying suppliers with capacity/capability

to execute according to OEMs acceptable

specification (Specialised components e.g.

Bogie)

Local suppliers to be encouraged to

continuously conduct benchmark exercise and

innovation.

3 Uninformed Local Supplier Base

Transnet, DTI and DPE to workshop policies

and legislations

4

Lack of Interaction/understanding between

Local Supplier and OEMs expectations

Regular engagement between the two parties.

(Forums and workshops)

5

Language barrier: Communication during

the upskilling of local suppliers.

OEM

32

Challenges and Possible Solutions

No. Challenges Solutions

1

Lack of communication between DPE, DTI

and Transnet Planned, regular engagements

2 Roles and responsibilities not clearly defined

Roles and responsibilities to be defined at

different intervals

3 Lack of transparency in terms of

* Designation process; SOCs buy-in

* Identification of capable local suppliers

Local Suppliers Portal to be available to the

public

* OEM auditing process post contract award; Regular updates

* No alignment in terms of requirements

and expectations between Transnet, OEMs

and DTI

Alignment on the implementation post the

award of tender

* Exemption process.

SOCs to be informed where exemptions have

been granted

4 Verification Costs

Verification cost to be defined in the

instruction notes.

5

Designated components targets (Realistic

targets)

Reviewing of the applicable designated

components targets and continuous

engagement of OEMs.

6 Reporting and Monitoring Tools Develop and workshop to SOCs

DTI/DPE

33

Contents



Topics



solutions

34


Africa

Opportunities to export into Africa

Background:

• Africa has many small and medium-sized ports, with a low concentration by world standards.

• Ports are poorly equipped and inefficiently operated. Road and rail networks in Africa are disconnected, and many are in a poor condition.

• Spending needs for the road sector amount to US$9.6 billion a year, skewed towards capital expenditure. Existing spending on the sector amounts to US$6.9 billion a year, significantly less than what is needed

Infrastructure spending needs for Africa (US$ billions per annum)

The African Union, under the auspices of the Programme for Infrastructure Development in Africa (PIDA), and further guided by RECs’ infrastructure master plans, has prioritised approximately 50cross-border projects and programmes grouped into a set of general categories including transport infrastructure. These projects total US$25 billion, including 14 multimodal corridors, ports and railways modernisation, and air transport modernisation

• TE has invested in its facilities to grow into an Original Equipment Manufacturer (OEMs). Centres of Excellence (COEs) and maintenance plants have been identified

• Transnet Engineering has worked with Electro Motive Diesels in the build of the 50 like new Locomotives. This will continue throughout the infrastructure programs and ensures that TE facilities match that of its partners such as the GE’s.

• TE is currently enhancing its skills for maintenance through collaboration with the OEM’S in order to take the maintenance regimes of the OEM to the African market

• TE is currently enhancing skills for maintenance through collaboration with the OEM’S in order to take the maintenance regimes of the OEM to the African market

Transnet can leverage procurement to enhance Africa export capabilities:

Source: Prospects and Challenges for South African Exporters and Investors, Export Credit Insurance Corporation of South Africa SOC LTD (ECIC)

35

Current business environment: Current deals requiring funding

Notes: • TE has currently in the pipeline R3.8 billion worth of deals that require funding • TE has managed to obtain indicative funding term sheets for all customers except SNCFT Tunisia. The transaction is still in early negotiations • Most deals are awaiting a customer decision on funding, although the general sentiment is that the funding sourced is expensive

No. Customer Country Products Value (R 'm)

Awaiting funding offer

Awaiting customer

decision to procure.

Awaiting customer

decision on funding.

Nature of funding

1 TransNamib Namibia 321 refurb wagons

16 Loco's 720 X X DBSA

2 SNCFT Tunisia 50 New Hopper wagons 80 X Core West Dubai

DBSA

3 SNCFT Tunisia 20 refurb Grain wagons 15 TE: letter of credit

discounting

4 SNCFT Tunisia 400 Phosphate Wagons 100 Passenger Coaches

1 185 X None yet: efforts in

progress

5 Sable Chemicals Zimbabwe 90 Ammonia Tank Wagons 159 X Customer secured

own funding

6 Zambia Railways Ltd Zambia 350 various new wagons 410 X X Core West Dubai

DBSA

7 Kenya Railways Kenya 93 Passenger Coaches 535 X X Various commercial

banks

8 Angola Railways Angola 370 wagons 450 X X Core West Dubai

DBSA

9 SCTP DRC 6 x TransAfrica Loco's 210 X X

TOTAL 3 764

36

Current business environment: Potential leasing revenues to be earned

Source of Demand Information Rolling stock demand Information has been derived based on Primary and secondary research. In-country visits were primarily used to obtain and validate demand data at the first level.

Demand Validation Levels

1st Level: Validation of Customer Requirements – In-principle demand requirements based on customer’s assessment of their needs. 2nd Level: Validation of Tenure (Length of contracts they are willing to enter into with Transnet) 3rd Level Matching demand to rolling stock requirements based on varying levels of operational performance.

Demand Validation Conducted

Demand validation has only been done at the first level for the current financial model = Customer perspective of rolling stock requirements. 2nd level validation will only be conducted once the financial model has been finalised and the first round of market engagements has been conducted.

The intention of the market engagement is to gauge affordability and in so doing get an indication of potential tenure for each lease transaction. 3rd level validation will be done in-house using validation models previously developed by Afri-ID to match traffic to rolling stock requirements based

on varying levels of operational performance. Demand validation at the 2nd and 3rd level is still outstanding. Revenue projection is for 30 years @ 50% utilization (based on the useful life of asset including maintenance)

Demand Fuel Tankers

(Refurb) Flat Beds (Refurb)

High sided wagons (Refurb)

Containers (Refurb)

Closed wagons (Refurb)

Side tipping wagons (Refurb)

Locomotives (Refurb) Total Revenue

ZRL 100 200 100 100 10

SNCC 50 100 150

BR 8

NRZ 10 15

TRL 50 50 174 10

Total 210 200 100 300 174 100 43

Revenue Projections

(ZAR million) R738 R827 R344 R1 498 R744 R539 R4 977 R9 666

Revenue Projections

(USD million) $49 $55 $23 $100 $50 $36 $332 $645

37

Thank You

transnet localisation update portfolio committee on...

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