“Unlocking potential through current programmes and future initiatives”

Presenter: Mmadiboka Chokoe, Executive Manager: Supplier Development, Transnet

10-11 September 2013

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TRANSNET

National Ports Authority

Freight Rail

Port Terminals

PipelinesEngineering

Product Manufacturing:� Manufacture� Assembly� Rebuilds� Refurbishments� Upgrades &

Conversions� Maintenance &

Service

SA National Maritime Authority:� Responsible for the

safe, efficient and effective management of South African ports

Port Terminals Operator:� Monitoring and

executing port terminal operations within South African ports

SA Rail Line and Freight Operator:� Rail operator

responsible for rail freight logistic solutions

� Serve the mining, manufacturing and industrial sectors

Oil and Gas Pipeline Operator:� Transportation of

petroleum and gas products via a pipeline network within South Africa

Owns and operates

21,000 km track,

including 1,500kmdedicated heavy haul

Africa’s rolling stock and maintenance

supplier of choice

Landlord to 8 commercial Ports around the South African coastline

16 cargo terminal operations across South African Ports

3 800 km of pipeline capacity

for petroleum and gas products

Transnet is a custodian of ports, rail and pipelines and has a number of operating divisions which have key focus areas

Source: TRE value analysis

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Setting the scene

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…One color one model and as few options as possible…

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Introduction

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• South Africa and Africa’s commercial and industrial giant, is now gearing up to take first steps into a new future, a future built on the foundation of a well-developed multimodal transport network and intra-regional trade.

• At the forefront of this initiative is Transnet. Transnet’s mandate is to lower the cost of doing business in South Africa, whilst promoting shared growth and transformation.

• Transnet recently embarked on its biggest project to date – the R600 billion Market Demand Strategy (MDS), which will significantly boost infrastructure development, job creation and investment in South Africa, and expose the country to a host of international trading possibilities.

PAGESource: Team Analysis

Corporate Strategy (MDS) drives various other strategies and frameworks inside Transnet to cascade and align with its objectives

Supply Chain Policy (SCP)

Corporate Strategy(MDS)

Document reference Key objectives (not exhaustive)

• Corporate Plan

• iSCM Strategy

• Increase volume and revenue growth• Create greater capacity• Increase operational efficiency• Maintain financial strength• Improve safety and health• Develop Suppliers: growth, transformation

• Optimise value from sourcing activities• Increase supply chain efficiency• Proactively manage compliance risk• Integrate SD strategy• Develop supplier base

• Enterprise and Supplier Development Strategy

• Support NGP/NDP objectives throughleading empowerment and transformation of the supplier base

• Leverage procurement to develop local suppliers to support localisation and industrialisation; creating jobs and reducing the unemployment rate

• Identify key areas to target for SD within the IC3 framework, together with their Strategies

• Provide implementation framework for SDP• Transnet SDP

Supplier Development Plan (SDP)

Enterprise and SD Strategy

Integrated Supply Chain Management

(iSCM) Strategy

• Supply Chain Policy

• Carry out procurement cost-effectively while meeting commercial, regulatory and socio-economic goals

• Ensure good governance via integrated Supply Chain Management

Key Transnet guidance framework’s / strategies / plans

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Focus area

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The majority of the MDS expenditure over the next 7 years will be in General Freight and Freight Rail requiring a responsive and competitive local supplier base

Commodity split (Rbn)

Divisional split (Rbn)

Major programmes

GFB rail capacity growth to meet market demand volumes from 79,7mt to 170,2mt

Completion of the New Multi-Product Pipeline (NMPP)

Increase export coal to 97,5mt – including Waterberg

Increase exportiron ore to 82,5mt

Increase exportmanganese to 16mt

Increase in fleet and improvementto the infrastructure

24

25

32

151

30

3

26

9

Containers (Ports)

Export Iron Ore

Export Coal

GFB

Bulk

Piped Products

Break Bulk

Other

4 11

33

47

4

201Other

TPL

TPT

TNPA

TRE

TFR

Other

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Key Facts

� By 2030 there should be approximately 60million people living in SA .

� Globally, 15 to 24 year-olds make up 40 percent of the total unemployed population.

� SA 60% of between 15 and 35 are unemployed.

� High levels of unemployment could lead to social

instability.

The need for Meaningful Transformation

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South Africa’s Inequality

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South Africa’s Inequality

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• MDS is an enabler for localisation, transformation and empowerment.

• The 300 billion in capital expenditure, and an additional R300 billion in operational expenditure invested over a seven-year period will open doors for extensive supplier development and enterprise development opportunities.

• Supplier Development opportunities present themselves along the entire Transnet value chain however what is key on Transnet’s transformation agenda is the development of competitive Black industries that can take advantage of the opportunities presented by MDS

• This requires the prioritising industry-specific skills transfer and skills related to manufacturing for our local Black SMMEs through:

i. on-the-job training and apprenticeships in international supply contracts for local suppliers, and

ii. providing financial and non-financial assistance to Black SMMEs (particularly in rural areas) to nurture innovation and create jobs. Skill vs Education

Underpinning the MDS is a commitment to ensure that Transnet creates lasting economic, social and environmentalvalue for South Africa

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Transnet’s SD approach is to leverage the MDS infrastructure programme to foster economic growthand promote transformation

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• Achieving SD objectives through leveraging high-value procurement by including: Industrialisation Localisation Promoting technology

transfer Job creation and

preservation Developing industry-

specific skills Enterprise

development Rural integration

• Ensuring transactions to bring HDI’s* into the economic mainstream through the advancement of HDI ownership

• Address economic disparities and entrenched social inequalities through the use of:

Generic B-BBEE scorecard• Ownership• Management Control• Employment equity• Preferential

procurement

• Enterprise development

• Socio economic development

• Skills development

SD objectives

Driv

e economic Transform

atio

n

(Empowerm

ent)

Facilitate economic Gro

wth

Transformation Growth

SD approach SD objectives

Enterprise

Development

Focused

Strategic

Programmatic

* HDI = Historically Disadvantaged Individuals as per the B-BBEE Act 2003** FRC = Further Recognition CriteriaSource: Team analysis

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Current supplier base has high maintenance and replacing capability but little IP to penetrate industries with high product complexity

*Desired supplier base capability

Current supplier base capability

A fundamental shift should take place to move our Black SMMEs from products/services with low complexity into Manufacturing, Design and Technology Development

• The current supplier base has high capability in products or services that have little or low complexity

• Black owned enterprises participate mainly in the technical support and maintenance industry

• Increasing capability should take place within industries with high complexity

• Government policies should support the BI initiative

A number of initiatives should be implemented to ensure the shift in current capability:

• Transfer of IP• Skills development and

training• Enterprise development• Incubation process where

established industries

Product complexity

Capability

TechnologyDevelopment

Design&Prototype

Manufacturing Technical support Maintenance and replacing

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Transnet has committed R200 million in the 2012/2013 FY to create an enabling environment for Black SMMEs/BI’s to participate meaningfully in the mainstream economy

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Description

Independent and Empowered Black Industrialists

Development Banks• DST• DTI

• Supplier Development Parks

• SOC collaboration --CSIR/AIDC/Mines/

• SABS/Anglo Zimele• FET colleges• Universities of Technology• Department of Science

and Technology• OEM’s Partnership

Skills Development

Incubation and Innovation

Financial Support

Independence

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Through the facilitation of a licencing partnership, Transnet developed Rail2Rail who’s capability and capacity have grown sustainably

14* Values are based on snapshot position at that time (i.e. not incremental)Source: TFR Report Oct 12

Historical ContextHistorical Context

As at October

2012*

As at October

2012*

AS at April 2009*

AS at April 2009*

SD initiatives

SD initiatives•2007-Sole supplier

•An award for 1 million concrete sleepers (over 5 years) was received from Transnet

•Successful application to participate in the Transnet CSDP through securing a licence agreement with Rail One GmbH of Germany

SD impact

Key lessonsKey lessons

Job creation

Investment in plant

Capacity

Transformation

Skills development

85 direct new jobs

R73m

350 000 pcs pa

51%

120 people

35 direct new jobs

R70m

156 000 pcs pa

51%

35 people

Job preservation 35 jobs0 jobs

• Facilitating joint-ventures between established OEM’s and local SMME’s accelerates the development of local suppliers

ED

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Case Study: CSDP - 50 Like New Locomotives

UTEX 16-645 Engine

Imported from US –Listed for localization in next order.

Modified Cooling, Engine and Inertial Air Hoods

All hoods and cab structures fabricated in Bloemfontein

Under frame

40 Supplied by EMD and 10 fabricated locally by DSC

New HVC, EM200 Control System and Rewire

Fabricated and equipped at TRE

UTEX AR10Main Alternator

Imported from US –Listed for localization in next order.

Fuel Tank

Fabricated by local suppliers including Kare

Of the 3000 Component parts listed, 2000 were sourced locally in South Africa.

That represents about 67% of the line items and over 40% of the product cost.

Plans have been presented to Transnet for additional units with increased local sourcing. New D43 Traction

motors supplied from EMD

Bogies (2 per unit) cast by SCAW

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TRANSNET will continue to aim for Sustainable Development and Transformation through fostering partnerships between government, private sector and industry

Transforming the Local Industries

• Structuring Meaningful BEE Deals

• Capital Investment

• Technology and IP Transfer

• Reducing the cost of steel

• Reviewing the current tariff methodology

• Setting targets for local content on specific components

• Improve SOC’s procurement and “transformation approval processes”

• Create significant opportunities' to channel the increased MDS spend to grow the local economy, and make a deliberate effort to support the meaningful participation of Black people,

Development of New Black Industrialists

• Creating strategic Relationships with the following Institutions :

� DST

� DTI

� CSIR

� Innovation Hubs

� OEMS

• Allow for transfer of key technology and skills from international organisations to build local capability which does not exist

• Enable downstream SD through unlocking opportunities

• Facilitate increase in transformation of the local supplier base through shifting spend

• Incentivise Black people for investment in plant and machinery to build industries