PRESENTATION TO THE PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES Broad-Based BEE (Transnet)

1. PRESENTATION TO THE PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES Broad-Based BEE (Transnet) 31 AUGUST 2005

2. Table of Contents • Introduction • Black Economic Empowerment Procurement in SOE • Management • Employment Equity • Skills Development • Preferential Procurement • Broadening of Equity Ownership Restructuring ( Disposal) Employee share ownership Initial Public Offering ( IPOs) • Enterprise development • SOEs Three year Plans for Broad-based BEE • Challenges • Summary and way forward

3. Introduction • Transnet, through its recently defined core Divisions as listed below is a multi-modal supplier of logistics / mover of freight: - Spoornet / Transwerk - SAPO / NPA - Petronet • Potential BEE suppliers are frustrated by the complexity of requirements in some areas due to the diversity and uniqueness of the multi-modal demand pattern • The challenge faced is to present BEE- opportunities in a competitive environment where standards are often too high for emerging enterprises to compete • The focus is on continuing the drive to expose emerging companies to previously inaccessible markets

4. Black Economic Empowerment Procurement in SOE • Transnet is a member of the Inter-Parastatal Forum: • Forum created to share information • Strives for all parties to comply with relevant Legislation • Forum adopted its own scorecard to specifically comply with the BBBEE Act and the DTI- scorecard • Members of the Forum participate in the development of the NDoT Charters • DPE-Forum which is an initiative of Procurement Officials in SOEs to deal with matters of BEE

5. Black Economic Empowerment Procurement in SOE Transnet BEE-spend figures Rbillion

6. Black Economic Empowerment Procurement in SOE (contd.) Transnet Business awards (since tracking these) Due to the diverse systems implemented by the various Transnet divisions and business units, the target setting and tracking of BEE, WBE, DPBE and SMME spend is extremely difficult, but a concerted effort is being made to enable Transnet to do so efficiently in future.

7. Management • Although the initial Preferential Procurement Policies of Government focused only on Shareholding, Transnet as early as 2000 already realised that other aspects such as for example Management, employment equity, skills transfer, own procurement policies/practices are equally important BEE enablers • Hence, during November 2000, when Transnet’s current Procurement Policy was issued, it already acknowledged most of the elements which have now been introduced into the BEE arena in terms of the BBBEE Act • PPPF Act was not applicable to Transnet and the other SOE’s such as Telkom and Eskom, but the gist of the Act. was embraced by Transnet • Immediately the new Group Supply Management Structure becomes operational the whole Transnet Preferential Procurement Policy framework will be revisited in terms of the latest legislation - incidentally, the new BBBEE Act is now also applicable to the SOEs

8. Employment Equity • EE is being looked at in a two pronged approach, i.e. :- • Internal Human Resources focus where Transnet’s own Employment Equity Plans as submitted to the Dept. of Labour are assessed; and • Employment equity ratios, on all employment levels, e.g. management, supervisory, skilled and semi-skilled, of the contractors and suppliers wishing to do business with Transnet.

9. Preferential Procurement • Transnet, as early as November 2000 already introduced a Preferential Procurement Framework which was in line with the gist of the PPPF Act (namely the 80/20 and 90/10 preference systems), but which instead of focusing primarily on BEE shareholding only, also included the following equally important BEE enablers, namely Management, Employment Equity, Skills Transfer, procurement practices and social- and Community projects • It will be noted that the above are almost identical to the BEE elements as per the BBBEE Act

10. Skills development • Transnet’s focus is again a two pronged approach, i.e.:- • Suppliers / Contractors measured on their own skills development programmes • Transnet acknowledges and promotes joint ventures and sub-contracting between established business and BEE’s and where real skills-transfer is taking place • Although not formally training suppliers/contractors, Transnet contributes towards the development of BEE entrepreneurs via acknowledged institutions such as NAFCOC, NIC, IBA and BOC, etc. by means of sponsorships, donations and active membership (-fees) • and • Staff training through Internal Human Resources

11. Broadening of Equity Ownership Restructuring ( Disposal) • Handled at DPE / Transnet EXCO –level • Connex and Skotaville (now African Impression Media) only non-core assets disposed of (both to Black buyers) • Future disposals to be handled in terms of BEE- Legislation

12. Broadening of Equity Ownership Cont. Employee share ownership ( ESOPS)

13. Broadening of Equity ownership Cont. Initial Public Offering ( IPOs)

14. Enterprise development Although Transnet is not positioned to directly develop emerging BEE enterprises, its Policy is geared towards assisting such companies to do business with it, i.e.: • Breakout procurement (unbundling of larger contracts) • Awarding of tenders in terms of a development objective- price mechanism • An affirmative, small, medium and micro enterprise participation programme • Promoting employment-intensive practices. • Affirming marginalized sectors or society in construction projects. • Earlier payment cycles • Set-asides etc.

15. SOEs Three year Plans for Broad –based BEE • The new Transnet structure to decide .

16. Challenges • Lack of BEE entrepreneurs in certain markets • Shortage of skilled BEE companies to undertake certain highly technical construction and/or manufacturing contracts • Apparent unwillingness of established enterprises to participate in meaningful enterprise development programmes, joint-ventures or subcontracting • Access to finance (or the lack thereof) by emerging small BEE enterprises remains a huge stumbling block.

17. Summary and way forward • Transnet Corporate Head Office is presently undergoing a restructuring process • This includes, amongst others, a total revamp of the Procurement Function and the replacement of the existing Group Tendering and Policy Function with a Group Supply Management Function • This new function will amongst others also be responsible for the revamp of Transnet’s Procurement Policy Framework, which will include a Preferential Procurement Framework in line with the latest Legislation, BEE reporting systems and introducing of best practices • The GM, Group Supply Management has been appointed and immediately the structure has become operational, new BEE targets and -action plans will be developed and implemented