TRANSNET LOCALISATION UPDATE
Portfolio Committee on Trade and Industry August
2016
Contents
1. Transnet SD to Localisation
2. Locomotives update and local procurement
Topics
3. Other localisation - Transnet’s List of
Local suppliers 4. Localisation challenges and possible
solutions
2
5. Opportunities to export into the rest of
Africa
There are a number of role players that drive localization through designated sectors
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 3
SD - Transnet has recognised four main areas of opportunity that could arise through SD
Government objectives on local development … …help define Transnet’s organization's scope
3 tiers of government objectives relevant to us:
1
2
3
BBB-EE
Long term industrialisation
▪ Skills and knowledge transfer from multinationals to achieve industrialisation
1
2 Medium term development of established suppliers
▪ Development of established local suppliers to increase localisation and exports
3 Development of small and medium size businesses
▪ ‘Grassroots’ enterprise development
Transnet’s role
▪ Build sustainable local industries with meaningful black ownership, using MDS
▪ Extract most meaningful value from existing operations and contracts
Local development organization's scope and objectives
▪ Monitor Transnet’s progress towards skills development, localisation, job creation and industrialisation(BI’s) objectives
▪ Play a local development support and coordination role to all Transnet OD’s
▪ Help develop local suppliers when there is opportunity for impact
▪ Drive enterprise development when supplier and industry are vital to Transnet’s value chain
▪ Growth and Transformation for BI’s
▪ Transformation
4
Contents
2. Locomotives update and local procurement
1. Transnet SD to Localisation
Topics
3. Other localisation - Transnet’s List of Local suppliers
4. Localisation challenges and possible solutions
5
5. Opportunities to export into the rest of
Africa
1064 Local content – Principles being applied
• Local content is delivered over the delivery period of the locomotives
• There are locomotives not manufactured or assembled in South Africa on the following OEM contracts; CSR (40) , CNR (20) and GE (6).
• On the CSR contract 15 locomotive kits will be provided by CSR to TE to assemble.
• The local content on these locomotives will be limited to the assembly.
• Local content will increase as the local production starts and will continue as the locomotives are produced and the local content will be delivered over the delivery period of the locomotives
• The commitment to local content target is against the total delivery of each contract.
6
1064 LOCOMOTIVES – LOCAL CONTENT COMMITMENTS
OEM QUANTITY NO OF
LOCOMOTIVES
LOCAL MANUFACTURING/
ASSEMBLE
LOCAL
CONTENT
COMMITMENT
General
Electric South
Africa
Technologies
(GE)
233 Diesels 6 completed Manufactured and completed in USA. 55%
227
Transnet Engineering (TE)
227 will be manufactured in SA.
China South
Rail (CSR)
359
Electric
40 completed Manufactured and completed in
China.
60%
319
Transnet Engineering (TE)
15 “knock-down kits” were provided
have been assembled in SA .
304 will be manufactured in SA.
• GE & CSR are the two OEMs with manufacturing facilities in Pretoria;
• DTI/SABS is the custodian/authorised body to verify, monitor and report the local content obligations and achievements of OEMs.
7
1064 LOCOMOTIVES – LOCAL CONTENT COMMITMENTS
OEM QUANTITY NO OF
LOCOMOTIVES
LOCAL MANUFACTURING/
ASSEMBLE
LOCAL CONTENT
COMMITMENT
China North
Rail (CNR)
232
Diesels
20 To be manufactured and completed in
China.
55%
212
Transnet Engineering (TE)
212 will be manufactured in SA.
Bombardier
Transportation
(BT)
240
Electrics
240
Transnet Engineering (TE) 60%
240 will be manufactured in SA.
* Assembly of 1st locotive in progress.
• CNR & BT are the two OEMs with manufacturing facilities in Durban;
• DTI/SABS is the custodian/authorised body to verify, monitor and report the local content obligations and achievements of OEMs.
8
Overall OEMs Supplier Development Progress to date
# SD DESCRIPTION
1064 TOTAL SD TARGETS & ACTUALS
SD Target Rand Value
(Rm)
SD Target % of
contract
Actual Rand Value delivered
(Rm)
Actual delivered % of SD Target Value
1 Industrialisation
R 5 030.13
10.75%
R 975.51
19.39%
2 Capacity & Capability Building (Localisation)
R 19 502.82
41.66%
R 3 031.55
15.54%
3 Sustainability / Technology and IP Transfer
R 3 070.81
6.56%
R 1 236.56
40.27%
4 Skills Development R 1 407.91
3.01%
R 60.16
4.27%
5 Job Creation/Preservation R 2 822.09 6.03% R 374.10
13.26%
6 Small Business Development R 465.19
0.99%
R 137.82
29.63%
7 Down Stream Supplier Development
R 58.51
0.12%
R 13.38
22.87%
TOTAL SD R 32 357.46 69.12% R 5 829.07 18.01%
*It should be noted that the local production of the locomotives has recently commenced hence the achievement of 18.01% to date.
9
Locomotive manufacture to date is 10.62% complete, with approximately 113 of 1064 Locomotives having been manufactured
CRRC ZELC 359 Locomotive Acceptance schedule per contract
0
50
100
150
200
250
300
350
4001
-Ju
l-1
5
1-A
ug-
15
1-S
ep
-15
1-O
ct-1
5
1-N
ov-
15
1-D
ec-1
5
1-J
an-1
6
1-F
eb
-16
1-M
ar-1
6
1-A
pr-
16
1-M
ay-1
6
1-J
un
-16
1-J
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16
1-A
ug-
16
1-S
ep
-16
1-O
ct-1
6
1-N
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16
1-D
ec-1
6
1-J
an-1
7
1-F
eb
-17
1-M
ar-1
7
1-A
pr-
17
1-M
ay-1
7
1-J
un
-17
1-J
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17
1-A
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17
1-S
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-17
1-O
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7
1-N
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17
1-D
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7
1-J
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8
1-F
eb
-18
1-M
ar-1
8
Acceptance CSR 359 (22E) Acceptance CSR 359 (22E) (Actual) Accepted
10
BT 240 Locomotive Acceptance schedule per contract
0
50
100
150
200
250
3001
-Ju
l-1
5
1-A
ug-
15
1-S
ep
-15
1-O
ct-1
5
1-N
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15
1-D
ec-1
5
1-J
an-1
6
1-F
eb
-16
1-M
ar-1
6
1-A
pr-
16
1-M
ay-1
6
1-J
un
-16
1-J
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16
1-A
ug-
16
1-S
ep
-16
1-O
ct-1
6
1-N
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16
1-D
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6
1-J
an-1
7
1-F
eb
-17
1-M
ar-1
7
1-A
pr-
17
1-M
ay-1
7
1-J
un
-17
1-J
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17
1-A
ug-
17
1-S
ep
-17
1-O
ct-1
7
1-N
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17
1-D
ec-1
7
1-J
an-1
8
1-F
eb
-18
1-M
ar-1
8
1-A
pr-
18
1-M
ay-1
8
Acceptance BT 240 (23E) *Original Acceptance BT 240 (23E)(Actual) *Original
11
GE 233 Locomotive Acceptance schedule per contract
0
50
100
150
200
250
Acceptance GE 233 (44D) Acceptance GE 233 (44D) Accepted
*28 of 34 locomotives subjected to recall program
12
CRRC DALIAN 232 Locomotive Acceptance schedule per contract
0
50
100
150
200
2501
-Ju
l-1
5
1-A
ug-
15
1-S
ep
-15
1-O
ct-1
5
1-N
ov-
15
1-D
ec-1
5
1-J
an-1
6
1-F
eb
-16
1-M
ar-1
6
1-A
pr-
16
1-M
ay-1
6
1-J
un
-16
1-J
ul-
16
1-A
ug-
16
1-S
ep
-16
1-O
ct-1
6
1-N
ov-
16
1-D
ec-1
6
1-J
an-1
7
1-F
eb
-17
1-M
ar-1
7
1-A
pr-
17
1-M
ay-1
7
1-J
un
-17
1-J
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17
1-A
ug-
17
1-S
ep
-17
1-O
ct-1
7
1-N
ov-
17
1-D
ec-1
7
1-J
an-1
8
1-F
eb
-18
1-M
ar-1
8
Acceptance CNR 232 (45D) *Original Acceptance CNR 232 (45D)(Actual) *Original
*2 locomotives not accepted yet
13
OEM and Transnet’s Supplier Development reporting mechanism
• The OEM’s monitor and record in an auditable manner, its own implementation and compliance with the Plans and report monthly to Transnet
• Transnet conducts quarterly verification of claims by OEM’s to ascertain whether or not the OEMs have met the quarterly targets
• Transnet appointed an external auditing firm to validate the reports by OEM’s on a regular basis and further verification is conducted by Transnet’s Supplier Development Team.
• If the OEMs fail, at any time, to achieve its Supplier Development targets in accordance with their commitments, Transnet may issue non-compliance penalties.
14
Local Content Update
• Local Content Documentation were handed over by Transnet to DTI for monitoring and verification by SABS;
• SABS are engaging OEMs regarding the monitoring and verification process.
• Local Content information is also shared between OEMs and Transnet.
• Current SABS Update : SABS has received relevant information from GE, and are preparing a quotation for the verification exercise to be done.
• Both Transnet and the DTI are provided updates from SABS
15
The role of TE versus OEM’s
Items noted as “NO” or which are blank are the OEM’s responsibility of supply and the verification process by SABS and DTI will provide further detail as it relates to the local content of these components.
16
17
Local Content verification update
• Transnet Engineering is committed to the verification of its Wagon build and will fit in to the SABS schedule
• TE continues to support local production and is in constant discussions with the dti and play a role in educating suppliers on local content expectations
Leveraging Procurement through SD
• Based on the TE scope suppliers were approached through various medium including the National Treasury Website.
• Suppliers have been assessed by TE and the OEM’s and have been developed as such
to ensure their standards are improved.
• TE has also awarded various contracts to the local industry and more contracts will be awarded according to the production stages.
• There has been a huge interest and participation from BO/BWO/BYO suppliers in various categories of the Locomotive build, from steel fabrication, to castings, to off-the-shelf items and services.
• Technical specifications are developed so that local suppliers are able to participate and meet the minimum specification requirements.
• Local content has also been applied as directed in various Instruction Notes and
industry is slowly adjusting to the requirements. • TE is seeing more opportunities for exposure of the industry to a number of
international products that will enable the local industry to partake in work on a global scale.
18
Leveraging Procurement through SD
• At the South Africa Rail Association (SARA) exhibition the OEMs & suppliers participating in the 1064 build program were showcasing their technologies.
• An interest was shown from the African Countries represented in wanting to adopt the Model that TE is using to develop suppliers and also buying from the suppliers.
• This not only opens doors for the suppliers who were presenting but it also shows
South Africa as a country that cares for its industry’s growth and participation. • Various Suppliers are investing in their companies not only to support TE, but to grow
and sustain themselves in this globally competitive environment as a result of their relationship with TE.
• More still needs to done in supporting the developing industry and black Industrialist
from the dti and other funding institutions.
19
TE’s Progress to date : Capacity and Capability
OEM EME QSE LARGE Total No. of Suppliers Utilised
CNR 3 5 8 16
BT 13 12 34 59
GESAT 32 21 41 94
CSR 30 16 24 70
The total number of suppliers utilised per OEM:
20
TE’s Progress to date : Capacity and Capability
OEM Black Owned Black Women Owned
Total No. of Suppliers Utilised
CNR 5 3 16
BT 23 10 59
GESAT 37 21 94
CSR 24 28 70
The total number of Black Owned and Black Women Owned suppliers utilized per OEM:
21
TE’s progress to date : Jobs Maintained/Preserved
The total number of jobs preserved per OEM:
22
Leveraging Transnet’s procurement to enhance TE capabilities
Leveraging Transnet procurement to enhance TE’s capabilities
TE has invested in its facilities to grow into an OEM. The Centre's of Excellence (COEs) were the first to be identified and maintenance plants.
We are currently enhancing our skills for maintenance through collaboration with the OEM’S in order to take the maintenance regimes of the OEM to the African market.
The investments began when Transnet Engineering worked with Electro Motive Diesels in the build of the 50 like new Locomotives. The investments also continues throughout the infrastructure programs and has ensured TE facilities match that of its partners such as the GE’s.
TE has since used the learning on all the build programs including its status as an OEM on Coaches and Wagons to design and manufacture its first Trans Africa Locomotive which will be launched and TE intends to export its locomotive into the African market.
23
Contents
1. Transnet SD to Localisation
2. Locomotives update and local procurement
Topics
3. Other localisation - Transnet’s List of
Local suppliers 4. Localisation challenges and possible
solutions
24
5. Opportunities to export into the rest of
Africa
Transnet’s Key Local Suppliers for rolling stock commodities
No Supplier Black Ownership
Black Women Ownership
Components
1 Ansys 40.00% 4.00% Locomotive Control Systems
2 Battery Tech 25.00% 0.00% Battteries
3 Booyco Engineering (Pty) Ltd 0.00% 0.00% Heat, Ventilation and Air Conditioning
4 CTLE 68.00% 68.00% Valve, Brakes
5 DCD Rolling Stock 44.79% 5.35% Draft-gear
6 Donkin 25.00% 6.97% Blower Traction Motor
7 Duys 0.00% 0.00% Engine Cab
8 Electrahertz 0.00% 0.00% Power Outlet
9 Electroweb 0.00% 0.00% Marker Light
10 First National Battery 36.00% 8.00% Batteries
11 Hiperconn 0.00% 0.00%
Jumper Plugs & Sockets (Receptacles) on all rolling stock
25
Transnet’s Key Local Suppliers for rolling stock commodities
No Supplier Black Ownership
Black Women Ownership
Components
12 IPT/Pefco 0.00% 0.00% Bearing Cap
13 KBSA 25.10% 0.00% Vacuum Rack
14 Knorr.Bremse S.A. (Pty) Ltd. 25.10% 15.00% Braking System
15 Marble Gold (Pty) Ltd 17.00% 5.00% Seats (For coach interior)
16 Microelettrica Power (Pty) Ltd 26.00% 15.00%
High Speed Curcuit Breaker, AC/DC Network Detection Device, Braking Resistor
17 Minus 40 0.00% 0.00%
18 Penbro Kelnick (Pty) Ltd 27.00% 6.00% Power generation and Metal Fabrication
19 Profibre 71.00% 0.00% Component Manufacturers
20 Proseat 43.00% 17.00% Component Manufacturers, Seats
21 Radel (Pty) Ltd 0.00% 0.00% Lighting
22 Rollmech 0.00% 0.00% Controller
26
Transnet’s Key Local Suppliers for rolling stock commodities
No Supplier Black Ownership
Black Women Ownership
Components
23 Scaw South Africa (Pty) Ltd 79.41% 27.91% Coupler body
24 Siemens (Pty) Ltd 30.00% 15.03% Vehicle Magnet
25 Siyahamba Engineering (Pty) Ltd 74.87% 10.41%
Door system, Windows, Grab Pillars and Rails
26 SWASAP 0.00% 0.00% Axle
27 Timken South Africa (PTY) LTD 0.00% 0.00%
Bearings
28 Trans Fire (Pty) Ltd 0.00% 0.00% Safety equipment
29 Transfire 0.00% 0.00% Fire Extinguisher
30 Transnet Engineering N/A N/A Car body shell, Interior cladding, Bogie frame, Springs
31 TTS 51.00% 0.00% Harness
32 Vanrail 51.00% 0.00% Air Dryer
33 Wabtec 30.00% 0.00% Brakes and Braking System
27
Transnet’s Rolling stock commodities localisation with Local Suppliers
Component Supplier Local content per
DTI requirement
Current Local content achieved
Bogie
• Wheels • 34” Cast – SCAW
• 34” Forged -
Naledi
• Cast - 100%
• Forged – Not
designated
• Cast - 96%
• 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 SA
• 100% by month
25
• SCAW is currently 93%
• CSR is currently 0% but will be
100% by month 25
• Axels • Swasap
• CRI
• 100% • 100%
• Springs • Foundry business
• Local suppliers
• 100% • 100%
• Limited demand, in spikes of
supply outside local suppliers are
used
• Bearings • Reelin
• Timken
• 100% by month
25
• 80%
• 100% will be achieved by month
25
28
Transnet’s Rolling stock commodities localisation with Local Suppliers
Component Supplier Local content per
DTI requirement
Current Local content achieved
Body
• Steel • Macsteel
• Aveng Trident
• Alert Tshwane
• 100% • 100% as TE uses primary steel
Brakes
• Brake
valves
• Knorr Bremse
• Wabtec
• 70% • 74%
• Slack
Adjusters
• Wabtec
• Ngolovan
• National Rail &
Trading
• 70% • 45%
• Current global market is very
limited number of AAR approved
suppliers
• Brake
blocks
• DCD Metpro
• FIP
• Federal Mougul
• Knorr Bremse
• 70% by month
25
• Limited scope for further
localisation due to limited demand
to sustain suppliers
29
Transnet’s Rolling stock commodities localisation with Local Suppliers
Component Supplier Local content per
DTI requirement
Current Local content achieved
Draw Gear
• Draw gear • Miner Enterprises • 100% • 30% of the draw gear is composed
of rubber pads which have been
localised
• A local daw gear refurbishment
centre is planned for Uitenhage
• Couplers,
knuckles,
pins & yolks
• Scaw
• Benkling
• 100% by month
25
• Scaw is currently 90%
• Foundry technology is being
developed to increase capability
and capacity to produce more local
components
30
Contents
1. Transnet SD to Localisation
2. Locomotives update and local procurement
Topics
3. Other localisation - Transnet’s List of
Local suppliers 4. Localisation challenges and possible
solutions
31
5. Opportunities to export into the rest of
Africa
Challenges and Possible Solutions
No. Challenges Solution
1
Lack of understanding and importance of
South African transformation objectives by
Emphasis on the requirements, importance
and expectations of the South African Policies
2
Identifying suppliers with capacity/capability
to execute according to OEMs acceptable
specification (Specialised components e.g.
Bogie)
Local suppliers to be encouraged to
continuously conduct benchmark exercise and
innovation.
3 Uninformed Local Supplier Base
Transnet, DTI and DPE to workshop policies
and legislations
4
Lack of Interaction/understanding between
Local Supplier and OEMs expectations
Regular engagement between the two parties.
(Forums and workshops)
5
Language barrier: Communication during
the upskilling of local suppliers.
OEM
32
Challenges and Possible Solutions
No. Challenges Solutions
1
Lack of communication between DPE, DTI
and Transnet Planned, regular engagements
2 Roles and responsibilities not clearly defined
Roles and responsibilities to be defined at
different intervals
3 Lack of transparency in terms of
* Designation process; SOCs buy-in
* Identification of capable local suppliers
Local Suppliers Portal to be available to the
public
* OEM auditing process post contract award; Regular updates
* No alignment in terms of requirements
and expectations between Transnet, OEMs
and DTI
Alignment on the implementation post the
award of tender
* Exemption process.
SOCs to be informed where exemptions have
been granted
4 Verification Costs
Verification cost to be defined in the
instruction notes.
5
Designated components targets (Realistic
targets)
Reviewing of the applicable designated
components targets and continuous
engagement of OEMs.
6 Reporting and Monitoring Tools Develop and workshop to SOCs
DTI/DPE
33
Contents
1. Transnet SD to Localisation
2. Locomotives update and local procurement
Topics
3. Other localisation - Transnet’s List of
Local suppliers 4. Localisation challenges and possible
solutions
34
5. Opportunities to export into the rest of
Africa
Opportunities to export into Africa
Background:
• Africa has many small and medium-sized ports, with a low concentration by world standards.
• Ports are poorly equipped and inefficiently operated. Road and rail networks in Africa are disconnected, and many are in a poor condition.
• Spending needs for the road sector amount to US$9.6 billion a year, skewed towards capital expenditure. Existing spending on the sector amounts to US$6.9 billion a year, significantly less than what is needed
Infrastructure spending needs for Africa (US$ billions per annum)
The African Union, under the auspices of the Programme for Infrastructure Development in Africa (PIDA), and further guided by RECs’ infrastructure master plans, has prioritised approximately 50cross-border projects and programmes grouped into a set of general categories including transport infrastructure. These projects total US$25 billion, including 14 multimodal corridors, ports and railways modernisation, and air transport modernisation
• TE has invested in its facilities to grow into an Original Equipment Manufacturer (OEMs). Centres of Excellence (COEs) and maintenance plants have been identified
• Transnet Engineering has worked with Electro Motive Diesels in the build of the 50 like new Locomotives. This will continue throughout the infrastructure programs and ensures that TE facilities match that of its partners such as the GE’s.
• TE is currently enhancing its skills for maintenance through collaboration with the OEM’S in order to take the maintenance regimes of the OEM to the African market
• TE is currently enhancing skills for maintenance through collaboration with the OEM’S in order to take the maintenance regimes of the OEM to the African market
Transnet can leverage procurement to enhance Africa export capabilities:
Source: Prospects and Challenges for South African Exporters and Investors, Export Credit Insurance Corporation of South Africa SOC LTD (ECIC)
35
Current business environment: Current deals requiring funding
Notes: • TE has currently in the pipeline R3.8 billion worth of deals that require funding • TE has managed to obtain indicative funding term sheets for all customers except SNCFT Tunisia. The transaction is still in early negotiations • Most deals are awaiting a customer decision on funding, although the general sentiment is that the funding sourced is expensive
No. Customer Country Products Value (R 'm)
Awaiting funding offer
Awaiting customer
decision to procure.
Awaiting customer
decision on funding.
Nature of funding
1 TransNamib Namibia 321 refurb wagons
16 Loco's 720 X X DBSA
2 SNCFT Tunisia 50 New Hopper wagons 80 X Core West Dubai
DBSA
3 SNCFT Tunisia 20 refurb Grain wagons 15 TE: letter of credit
discounting
4 SNCFT Tunisia 400 Phosphate Wagons 100 Passenger Coaches
1 185 X None yet: efforts in
progress
5 Sable Chemicals Zimbabwe 90 Ammonia Tank Wagons 159 X Customer secured
own funding
6 Zambia Railways Ltd Zambia 350 various new wagons 410 X X Core West Dubai
DBSA
7 Kenya Railways Kenya 93 Passenger Coaches 535 X X Various commercial
banks
8 Angola Railways Angola 370 wagons 450 X X Core West Dubai
DBSA
9 SCTP DRC 6 x TransAfrica Loco's 210 X X
TOTAL 3 764
36
Current business environment: Potential leasing revenues to be earned
Source of Demand Information Rolling stock demand Information has been derived based on Primary and secondary research. In-country visits were primarily used to obtain and validate demand data at the first level.
Demand Validation Levels
1st Level: Validation of Customer Requirements – In-principle demand requirements based on customer’s assessment of their needs. 2nd Level: Validation of Tenure (Length of contracts they are willing to enter into with Transnet) 3rd Level Matching demand to rolling stock requirements based on varying levels of operational performance.
Demand Validation Conducted
Demand validation has only been done at the first level for the current financial model = Customer perspective of rolling stock requirements. 2nd level validation will only be conducted once the financial model has been finalised and the first round of market engagements has been conducted.
The intention of the market engagement is to gauge affordability and in so doing get an indication of potential tenure for each lease transaction. 3rd level validation will be done in-house using validation models previously developed by Afri-ID to match traffic to rolling stock requirements based
on varying levels of operational performance. Demand validation at the 2nd and 3rd level is still outstanding. Revenue projection is for 30 years @ 50% utilization (based on the useful life of asset including maintenance)
Demand Fuel Tankers
(Refurb) Flat Beds (Refurb)
High sided wagons (Refurb)
Containers (Refurb)
Closed wagons (Refurb)
Side tipping wagons (Refurb)
Locomotives (Refurb) Total Revenue
ZRL 100 200 100 100 10
SNCC 50 100 150
BR 8
NRZ 10 15
TRL 50 50 174 10
Total 210 200 100 300 174 100 43
Revenue Projections
(ZAR million) R738 R827 R344 R1 498 R744 R539 R4 977 R9 666
Revenue Projections
(USD million) $49 $55 $23 $100 $50 $36 $332 $645
37
Thank You