Transnet Local Public Procurement Feedback:

Portfolio Committee on Trade and Industry

September 2017

Background

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• In August 2016 Transnet, DTI, DPE, SABS and the OEM’s came to present tothe Portfolio Committee on the localization progress.

• At this meeting Transnet reported that local content documents for 1064locomotive build program have been submitted to DTI as required formonitoring and auditing by SABS;

• It was also reported that SABS were engaging OEMs regarding the monitoringand verification process. However, there was a challenge with regards to whoshould pay for the verification cost.

• Transnet continues to receive local content updates from OEMs whilst theyawait the local content audit.

There are a number of role players that drive localization through designatedsectors

CHALLENGES

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

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Transnet Rolling Stock - Locomotives

Locomotive

Business

KDS

Electric

CRRC E-Loco - 359

Diesel

GE - 233

DBN

Electric

BT - 240

Diesel

CRRC Dalian - 232

The 1064 Locomotives have been the only acquisition since the Rail Designations came into effect in 2012.

Transnet Rolling Stock - Locomotives

Note: TFR has not accepted locomotives on the following classesClass 23E Electric LocomotivesClass 45D Diesel Locomotives

No Description VolumeTotal Value

(Rb)

Unit Value

(Rm)Facility

1 Locomotives Build Project 1064 49 547.22R

Class 22E Electric Locomotives 359 18 122.32R 50.48R Koedoespoort

Class 23E Electric Locomotives 240 13 049.21R 54.37R Durban

Class 44D Diesel Locomotives 233 8 428.69R 36.17R Koedoespoort

Class 45D Diesel Locomotives 232 9 947.00R 42.88R Durban

2 Locomotives Assembled Domestically

Class 22E Electric Locomotives 116 5 855.68R 50.48R Koedoespoort

Class 23E Electric Locomotives 10 543.72R 54.37R Durban

Class 44D Diesel Locomotives 153 5 534.72R 36.17R Koedoespoort

Class 45D Diesel Locomotives 2 85.75R 42.88R Durban

3 Locomotives Imported

Class 22E Electric Locomotives 40 2 019.20R 50.48R China

Class 23E Electric Locomotives 0 -R 54.37R n/a

Class 44D Diesel Locomotives 6 217.05R 36.17R USA

Class 45D Diesel Locomotives 20 857.50R 42.88R China

Overall Local Content Target and Spend to Date

R 21 794,90 bn

R 4 119,20 bnR 3 366,61 bn

R 752,59 m

Total Local ContentTarget

Total Local Spendto Date

DesignatedComponents Spend

to Date

Other ComponentsSpend to Date

1064 Local ContentNotes:

• To date 269 of the 1064 locomotives have been accepted from 2 of the OEMs manufacturing at Koedoespoort.

• 12 locomotives are being tested for acceptance.

• The local content achievement by OEM’s is yet to be audited and verified by SABS.

Sub-Systems and Other Components

Assembly of Locomotives

Assembly of Locomotives

2 Car Body:

-          Car body shell

-          Door system

-          Windows

- Seats (For coach interior)

- Lighting

-          Grab pillars and rails

- Interior cladding

-          Cable and wire

-          Safety equipment

-          Pipe works and ducts

3 Bogie:

- Bogie frame

-          Motor suspension unit

-          Wheel sets and wheel components

-          Axle and axle boxes

-          Bearings

-          Bolster

4 Coupling Equipment :

- Coupler body

-          Coupler hook

-          Yoke

-          Pin

-          Draft-gear

1 Suspension :

-          Shock absorbers and dampers

-          Springs

6 Heat, Ventilation and Air Conditioning

-          Fabrication

-          Power Coating

-          Heat Exchangers

-          Fans

-          Compressors

-          Refrigeration components

-          Electrical components

-          Fasteners

- Insulation and liners

7 Braking System :

Braking System

8 Alternators :

Alternators

Traction Motors :

Traction Motors

Electric Systems :

Electric Systems

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5

DESIGNATED COMPONENTS

Local Suppliers

Local Suppliers

Local Suppliers

Local Suppliers

Wagons Rolling Stock

Impact of LC on Transnet Rolling Stock

Rolling Stock Classification

Manufactured Refurbishment

1064 – New BuildDetails covered in the presentation Not applicable at this stage

Legacy FleetWagons - New Build

Over 5 years useful life

• Locomotives were built / upgraded before LC requirements

• There are varying degrees of local content on the components that has been achieved

Scheduled• Applicable LC threshold may be achieved

due to predictable demand

Unscheduled• Industry may find it difficult to improve

on the current LC achieved due to the unpredictability demand

• Thus industry has been hesitant to invest

Less than 5 Years useful life

• These locomotives were build in the 1970’s

• There are varying degrees of local content on the components that has been achieved.

• The 43 class and the 20E locomotives acquired prior to the 1064 are currently under warranty and will be going into maintenance; they are therefore excluded from the refurbishments.

• This fleet is gradually being phased out as the new locomotives are being commissioned.

• Therefore minimum refurbishment / interventions re done on these locomotives

• Except where local capacity has already been established, there are no further opportunities for improvement as the locomotives are being phased out.

• See details on the next slide

Transnet Legacy Fleet

CHALLENGES

Fleet

PurchaseDate/UpgradeDate

AvAGE

20

17

/1

8

20

18

/1

9

20

19

/2

0

20

20

/2

1

20

21

/2

2

20

22

/2

3

20

23

/2

4

B-Fleet Declaration

GE34D 1975 42180

150 104 50 25 0 0 Declare B-Fleet as at Apr 2019 - all major programstopped

GM34D 1975 42 81 50 25 0 0 0 0Declare B-Fleet as at Apr 2018- all major programstopped

7E 1978 39 0 0 0 0 0 0 0Declare B-Fleet as at Apr 2016- all major programstopped

7E1 1980 37 40 20 0 0 0 0 0Declare B-Fleet as at Apr 2016- all major programstopped

9E 1980 37 0 0 0 0 0 0 0 Fleet Staged

GM37D 1982 35 50 30 0 0 0 0 0Declare B-Fleet as at Apr 2017- all major programstopped

7E2 1982 35 20 0 0 0 0 0 0Declare B-Fleet as at Apr 2016- all major programstopped

7E3 1984 33 30 20 0 0 0 0 0Declare B-Fleet as at Apr 2016- all major programstopped

7E4 1984 33 10 10 0 0 0 0 0Declare B-Fleet as at Apr 2016- all major programstopped

8E 1984 33 15 0 0 0 0 0 0 Declare B-Fleet as at Apr 2015- all major programstopped

11E 1986 31 20 0 0 0 0 0 0Declare B-Fleet as at Apr 2016- all major programstopped

10E/10E2 198730 54 54 25 0 0 0 0

Declare B-Fleet as at Apr 2016- all major programstopped

10E1 198928 80 80 50 20 0 0 0

Declare B-Fleet as at Apr 2016- all major programstopped

38EDE 1993 24 10 6 0 0 0 0 0Declare B-Fleet as at Apr 2017- all major programstopped

18E 2007 10 650 650 600 550 500 450 400Declare portion as B-Fleet as at Apr 2020- all major program stopped

NB: though the 18E is on the green legacy fleet, it will be gradually phased out once the new BT locomotives are being bought in service

View of the Wagon

CHALLENGES

Tank Barrel Plates

Bogie Wheels & Casting

Flexible Brake Hoses:

Steel Brake Pipes: TE fabrication

Brake Valve

Quick Release Mechanism

Slack Adjuster

Brake CylinderCouplers: TE Foundry

Yokes: TE Foundry

Yokes: Internal Foundry

Tank Frame Plates

Charge and Discharge valves

Safety Relive Valve

Vacuum Cylinders

Draft Gear Drawgear

Coating

Bogie Wheel Bearings

Bogie Springs: TE fabrication

Transnet’s wagon localisation with local suppliers: Bogies

Component Supplier Local content per DTI requirement Current Local content achieved as per Supplier’s report

Bogies

• Wheels • 34” Cast –SCAW

• 34” Forged -Naledi

• Cast - 100%• Forged – Not designated at the time

of the award

• 100%

• 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

• 100%

• 100% by Jan 2018

• 100%

• Supplier raised concern about low demand

• Axels • Swasap • 100% • 100%

• Bearings • Reelin• Timken

• 100% with the exemption• 100%

• 100% with the exemption

• 100% with the exemption

Transnet’s wagon localisation with local suppliers: Body & Braking System

Component Suppliers Local content per DTI requirement Current Local content achieved as per Supplier’s report

Body

• Steel • Macsteel• Aveng Trident• BBD• Qinisa Steel• Allied Steel

• Primary Steel deemed local at the time of award

• Since 2012, primary steel was deemed local at the time of going to tender,

• however the suppliers are currently procuring from the local steel mill

Braking system

• Brake valves • Knorr Bremse • 70% • 70% Target LC achieved

• Slack Adjusters• Knorr Bremse

• 70% • 70% Target LC achieved• Current global market is very limited number

of AAR approved suppliers

• Brake blocks • DCD Metpro• Federal Mogul

• 70% • 70% Target LC achieved• Limited scope for further localisation due to

limited demand to sustain suppliers

Transnet’s wagon localisation with local suppliers: Coupling Equipment

Component Supplier Local content per DTI requirement Current Local content achieved as perSupplier’s report

Coupling equipment

• Draw gear • Miner Enterprises • 100% • 30% of the draw gear is composed of rubber pads which have been localised

• Miner has localisation plans with a local partner in two years.

• Couplers,knuckles, pins & yolks

• Scaw

• Benkling

• 100%

• 100%

• 100%

• Benkling is currently 0%, no purchasing activity from TE

• Foundry technology is being developed to increase capability and capacity to produce more local components

Impact of current economic conditions on localisation

CHALLENGES

National Treasury issued Instruction Note on local content during the 2012/13 financial year

Prior to that TE had contracted suppliers on the various designated commodities and most of the contracts expired between 2013 - 2015.

TE subsequently issued and awarded several long term High Value Tenders (HTVs) to the open market on designated items i.e. bearing, axles, couplers, wheels, etc.

At the time of issuing these components, TE had forecasted demand driven mainly by the wagon build programme at the time.

Since then Transnet Engineering wagon build programme has significantly reduced as depicted in the graph below:

19

3427

4085

3114

2100

100

3284

2527

33263692

4119

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2012 / 2013 2013 / 2014 2014 / 2015 2015 / 2016 2016 / 2017

Actual Number of Wagons Build

Forecasted Number Wagons

Impact of current economic conditions on localisation

Transnet Engineering enters into as and when contracts based on demand.

The reduction in demand for wagons translated into a low demand for the components related to these long term contracts entered into.

This has negatively impacted on anticipated localization deliverables.

TE has been aggressively going into the market to source more business however the impact caused by the economic drought impacts directly on the planned wagon build programme which has reduced demand.

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