Transnet forces foreign companies to involve local suppliers in train tender
State-owned transport and logistics group, Transnet, is making headway in its bid to place a significant portion of its procurement spending in the hands of local suppliers.
The decision by Transnet is bucking the widespread practice by state-owned institutions of shirking their responsibility to source goods from South African manufacturers.
The failure to use the state procurement muscle to grow the local manufacturing sector by substituting imports with locally-produced goods is destroying jobs at home and delaying the “radical industrialisation” of the South African economy the government officials and politicians so often speak about.
However, Transnet is forcing four foreign companies that it awarded the locomotives manufacturing contract to source from local suppliers the materials needed to produce the locomotives instead of using imported supplies.
The company’s import-substitution strategy, known as the supplier development programme, is a model worth emulating and replicating across the public sector.
“All the bidders have committed to stringent local content. Even though the threshold for supplier development in the tender documents was 40%, we are proud to announce that all of the winning bidders have so far exceeded 60%, and we are still pushing for a little more”
The programme aims to localise the production of imported machinery and equipment used in the manufacturing of 1064 diesel and electric locomotives at a cost of R50 billion, the biggest rail recapitalisation programme in South Africa’s history. It is expected to create more than 300 000 jobs over the next four years.
All the winning bidders are almost complete with technical designs for the locomotives and the first prototype will roll off the production line from the end of March.
Transnet chief executive Brian Molefe, who this week gave a wide-ranging progress on the project intended to modernise the parastatal’s fleet of locomotives, expressed his happiness about the progress made by local suppliers in getting a greater share in the locomotives tender than initially foreseen.
“All the bidders have committed to stringent local content. Even though the threshold for supplier development in the tender documents was 40%, we are proud to announce that all of the winning bidders have so far exceeded 60%, and we are still pushing for a little more,” said Molefe.
At the heart of the Transnet’s supplier development strategy is the plan to boost investment in plants; transfer of technology and skills from the foreign manufacturers to the locals; and promotion of small businesses.
The four winning bidders, US’s General Electric, Canada’s Bombardier, China South Railways, and China North Rail will build and assemble the locomotives at two sites in Koedoenspoort, Pretoria, and in Durban.
It is anticipated that the new locomotives will improve the reliability of Transnet’s rail cargo service and, perhaps, help the parastatal win back the market share it lost over a period of two decades to truck companies due to the financial and operational neglect of its infrastructure.
If successful, the group’s fight-back strategy will reduce the number of trucks on South Africa’s roads and get more cargo off the road and back onto its wagons.
“Two thirds of this capex investment will be funded from revenue generated from operations while a third will be borrowed from both the domestic and international capital markets”
The R50 billion locomotives project is part of Transnet’s R300 billion capital expenditure programme expected to run over a seven-year period and ease logistics bottlenecks that prevent South Africa from achieving higher and faster economic growth rates.
So far, Transnet has already spent in excess of R90 billion of the capex in freight railway, ports, and petroleum infrastructure.
Transnet does not require to finance its capex from the government fiscus and none of its loans will be guaranteed by the state, unlike other state-owned enterprises such as power utility Eskom and national airline South African Airways, which have gone to the government, cap in hand, asking for financial support.
“Two thirds of this capex investment will be funded from revenue generated from operations while a third will be borrowed from both the domestic and international capital markets,” Molefe explained.
*Article first published by www.getbiz.co.za