BEE in the PRASA fleet procurement process

[John Ashworth]

Decoupling of BEE, technology bids will broaden beneficiary base – Prasa

By: Terence Creamer, Engineering News
17th October 2012

The State-owned Passenger Rail Agency of South Africa (Prasa), which is at the beginning stages of a multibillion-rand fleet procurement process, has officially launched the black–empowerment portion of the project, through which a 30% role has been set aside for participation by black investors, workers and industrialists.

The broad-based black economic-empowerment (BBBEE) request for proposals (RFP) has been separated out from the tender for the design, manufacture and maintenance of new commuter trains for delivery from, 2015 and the BBBEE tender documentation is currently available for a fee of R5 000.

The process is being conducted in parallel to the main equipment tender, for which seven companies and consortia submitted bids by the September 30 deadline. These companies include CAF, of Spain; Bombadier, of Canada; China South Rail (CSR); China North Rail; Gibela Rail Transportation, which is a French consortium comprising Alstom and Actom; Dudula Rail, a consortium comprising ABB South Africa and Stagler, of Switzerland; and CSR/Wictra, consortium comprising CSR and Wictra, of South Africa.

The winning rolling-stock supplier would hold 70% of the project delivery company, with the BBBEE equity participants holding the 30% balance. The BBBEE partners would be subject to a three-year lock-in period.

Prasa chairperson Sifiso Buthelezi said the decision to separate out the BBBEE component was informed by the company’s desire to ensure a genuinely broad-based empowerment structure that was decoupled from the technology offering.

Under the scheme, Prasa would insist that 10% of the 30%, or 33% of what is available for empowerment equity, was to be held by an employee trust, to benefit staff below the senior management level. The balance would be divided between black businesses active in the rail industry (10%), passive black investors (7%) and an educational trust (3%).

CEO Lucky Montana acknowledged criticism of the separation, particularly by those suggesting that it would lead to a “forced marriage” between the winning rolling-stock supplier and the winning BBBEE bidder.

But he argued that there were sufficient legal and contractual instruments available to ensure that the preferred technology supplier and the preferred equity partner were able to forge a workable partnership around the project, which could ultimately involve an investment of R123-billion and the purchase of 7 200 passenger coaches by 2035.

In the first ten-year phase, which was the current focus, the National Treasury had set an affordability limit of R40-billion and the number of coaches delivered within that envelope was currently the subject of the competitive bidding process.

Montana stressed, too, that the 65% localisation stipulation would also provide considerable scope for black businesses keen to participate as suppliers to the Prasa fleet renewal programme.

Empowerment companies with existing relationships with the seven bidders would be eligible to participate in the BBBEE tender, but Prasa stressed that recognition of such associations would not be treated as exclusive arrangements.

A compulsory briefing session had been scheduled for November 1 and bids should be submitted by December 14. The evaluation and selection could be completed by January 31, after which the preferred equipment and BBBEE bidders would be given an opportunity to interface ahead of financial closure.

The preferred equipment supplier could be announced by the end of September and once the BBBEE partner was identified the two participants in the project delivery company would have until around mid-2013 to reach financial close.

It was also confirmed that Transnet Rail Engineering (TRE) would provide the facilities for the production of the passenger coaches and had also been designated in the tender documentation as the conduit through which all technology transfer would occur.

The idea was to use TRE as the platform for the creation of a local rail manufacturer, with the capacity to design, manufacture and maintain locomotives and passenger coaches for South Africa and for export. In return the Transnet subsidiary would be expected to invest in a customised facility at which the preferred Prasa bidder would manufacture and assemble the passenger coaches.

Transport Minister Ben Martins argued that there was an opportunity through the process to create a new “template” for the way in which government pursued empowerment deals – one that encouraged broad-based participation and was aligned to the country’s industrialisation ambitions.

Martins encouraged black business to participate in the tender, but also highlighted the opportunity arising for “black industrialists” to supply into the Prasa programme.

“It can’t be correct that, whenever black people participate in ventures of this nature they only do so by way of a certain percentage of shareholding . . . We have to see black individuals creating value in this country by becoming industrialists,” the Minister asserted.

[Nathan Berelowitz]

Reads a bit racist to me in these latter years of the change of ownership!