TONGAAT HULETTUnlocking rural funding and technical expertise for small scale cane-growers through public private partnerships

(PPPs)

Presentation by Wellington M. Ntshangase

Economies of Regions Learning Network

UKZN25 September 2012

TONGAAT HULETTUnlocking rural funding for small scale

cane-growers through public private partnerships (PPPs)

Operation Vuselela

3

Introduction of Operation Vuselela (OV) which is a partnership between Tongaat Hulett and the KZN Department of Economic Development & Tourism

Objectives of OV and the role of PPPs in unlocking rural funding

Benefits of PPPs to beneficiaries and other role-players

Stakeholder participation as a prerequisite for successful PPPs.

Process Followed

4

Informal engagements between KZN DEDT & THS officials

Looked for synergies Draft proposals Follow up proposals & provision of

requested informationBudgets had already been finalised and had

to wait for the following financial yearAllocation made in the KZN DEDT BudgetMore adjustments to the proposal as

benefits had to be quantifiedTHS internal buy-in: Board ResolutionFinal agreements & signingStakeholder roadshowImplementation

5

Operation Vuselela Funding & Agreement

6

In a nutshell:Public Private Partnership (PPP) between

Tongaat Hulett Sugar (THS)and the KZN Department of Economic Development & Tourism (KZN DEDT)

Entails planting 3 534 Ha of cane over 4 yearsGuaranteed funding of R52m from KZN DEDT

and R12,37m from THS (Total = R64m)Indirect funding from THS totaling R20m in the

form of managerial, logistics, technical & admin support. A projects office was established as part of this contribution.

7

Why Operation Vuselela?

The project aims to hit many birds with one stone – meets KZN DEDT, THS and beneficiary objectives at the same time.

OV farming model addresses challenges & shortcomings of the traditional small scale grower farming model.

Focus is on sustainability.Guaranteed market for produce.There is commitment from the sugar industry to

make it work.The sugar industry has a platform for renewable

energy.

8

9

Service Level Agreement (SLA)between TH and KZN DEDT

10

Both parties to commit funds.THS appointed as primary implementing

agent.Project Steering Committee to be establishedMonthly & quarterly reportsAppoint contractors through tender

processes Comply with government legislation e.g.

Public Finance Management Act (PFMA) & account for every cent.

Guard against conflict of interest.

04/18/2311

Conditions for Benefiting

Aimed at rural cane growers – not government employees

No THS employeesTHS mills to be suppliedGrowers to join the Retention Scheme to

ensure sustainabilityBased on “use it or lose it” principle

Operation Vuselela Objectives

12

Government PerspectiveLocal economic

development including small business development and job creation.

Contribute to socio-economic development especially with the new focus on Rural Development

THS PerspectiveEnterprise

developmentContribute to the

socio-economic development of sugarcane communities

Secure and increase cane supplies to the mills

Benefits of this PPP to partners

KZN DEDT Tongaat Hulett

13

Local economic development.

Contribution to rural development.

The spend and the multiplier effect in the community will create further benefits.

Increased cane supplies.

Stronger relationship with communities and stakeholders.

Benefits of the PPP to Small Scale Growers and other role-players

Beneficiaries / SSGs Other role-players

14

FinancingJobsOpportunity to

run own business

Service providers get business

Operation Vuselela Main Role-players

15

Project Steering Committee

THS Buying Office

Business Services Operation Vuselela

Internal Project Management Team

Cane & Rural Development Unit

SSG Unit

•Implementing Agent•Overall Project Management & Reporting.•Accountability

•Facilitate tenders •Adjudication Committee•Buying of materials

•Comprises THS;KZN DEDT, SASA & SA Cane Growers•Monitors & evaluate OV•Other stakeholders may participate•Receives reports from SSG Unit•Meets quarterly

•Provides accounting/ admin services•Payment of contractors & suppliers

Funders:THS Board &KZN DEDT

•Approve payments/ claims•Implementation & Monitoring

•Coordinated by the SSG Manager •Checks reports and claims beforebeing submitted to KZN DEDT.•Meets monthly.

Customer

THS SHE Dept.

•Beneficiaries (small scale growers)•KZN DEDT

•Safety, health & environment

16

PSC Site Visit - Monitoring

17

PSC Site Visit - Monitoring

18

Operation Vuselela Farming Model

Combined FarmingAdvantagesCapitalise on

economies of scaleGreater bargaining

powerCan be managed more

efficientlyAllows for passive

membershipBased on business

principles

DisadvantagesPossibility of

internal conflicts

It is compulsory for all beneficiaries and their committees to undergo training on principles of combined farming.

19

Mzobe 10 Ha

Co-Operative100 Ha

Mthembu 5 Ha

Msibi 20 Ha

Sishi 20 Ha

Ngidi 15 Ha

Ngcobo 15 Ha

Gumede 5 HaMbatha 10 Ha

Lease agreement between legal entity & landholders

Notes:1 Grower Code

20

Agreement between the individual landholder and the legal entity (Co-Op)

Lease agreement9 years and 11 monthsAdvantage is that the project can expand

by leasing land of passive landholdersLandholders paid 10% of proceeds

according to Ha they put into “Co-Op/ Our Farm”

Available funds can either be distributed to members or saved for re-planting or both etc.

21

Management & mentorship agreement between THS & Our Farm

Service Provider - Client Relationship

Co-OperativeFarm

Contractors (Service Providers)

Tongaat Hulett Sugar

22

Agreement between THS and the Co-Operative

Management and MentorshipFinanceGeneral AdminRegistration of legal entityHarvestingPlantingNegotiating ratesPurchasing of inputs at a discountAccess to canefieldsSubscription of the co-operative to the

Industry’s Savings Scheme. This ensures sustainability.

Delivering cane to Tongaat Hulett mills

23

Agreement between THS and Service Providers

Service Provider to provide the following services/ products:Land preparation, planting, weed control,

herbicides, fertilizer, seedcane and weed control.

Service providers appointed after an open bidding process. This is part of government’s tender rules.

Once the cane has reached canopy stage it is handed over to beneficiaries. Beneficiaries monitor planting contractors even before cane fields are officially handed over to them.

Achievements to date (March 2012)

24

2 341 hectares planted to date.More than 50 co-ops have been formed

with 2 026 beneficiaries participating in these co-ops.

2 354 job opportunities created.1 664 beneficiaries trained on the principles

of combined farming.57 000 tons of cane to be supplied to mills

in 2012.Many service providers have benefited from

the project.KZN FNB Top Business Partnership Award -

2011

25

Other funding unlocked through OV

26

Socio-economic development contribution worth more than R2.5m by TH in OV project areas.

R2m worth of training funds by SASA.Other government departments and

agencies have shown interest in the funding model and are in the process of investing in sugarcane production.

The Department of Rural Dev & Land Reform also injected funds into an OV project.

Lessons Learned

27

Acknowledge that the public sector functions differently from the private sector. Flexibility is required.

Show and quantify full benefits of the project e.g. employment & multiplier effects.

Both partners have learned from each other. When designing the PPP programmes there is a

need to create win -win situations.Importance of stakeholders and their support.Buy-in at the highest level is critical for project

success.Value of project monitoring and evaluation. Some beneficiaries prefer to operate as individuals

instead of groups. Sometimes there are negative social dynamics in groups.

How to balance the need for local contractors with the tender requirements.

28

THANK YOU