New Rolling Stock Programme Commercial and Financial Outputs Market Engagement with manufactures and financiers

1. NewRolling Stock ProgrammeCommercial and Financial OutputsMarket Engagement with manufactures and financiers 05 April 2011

2. Overview

3. PRASA Rolling Stock fleet renewal programme Policy Framework Commercial issues deal with key bid evaluation criteria in the procurement process only at the clarification and the Request for Proposal stages.Requirements aligned with South Africa’s Industrial Action Policy Plan (IPAP2), the Competitive Supplier Development Programme (CSDP) and the National Industry Participation Plan (NIPP) for significant localization which will result in local rolling stock manufacturing facilities.IPAP2 – broadly addresses industrial development and localization issues CSDP – broadly addresses the competitiveness, capacity and capability of local suppliers; and NIPP – broadly addressees contributions from suppliers which exceed a $10 million content on imported goods or services

4. PRASA Rolling Stock fleet renewal programmePolicy Framework (continued) All of these programmes seek to enhance South Africa’s competitiveness in the industrial sector, promote localization for manufacturing in key sectors such as rolling stock production, create significant long term employment and enhance skills development.

5. PRASA Rolling Stock fleet renewal programmeLocalization Localization will be measured in a specific project by the value of locally manufactured components compared to the total project value.The Department of Trade and Industry will consider the following elements fundamental to the achievement of localization targets: - foreign currency spend on localization - skills development and training - job creation - enhancement of existing manufacturing plants and facilities - development of new manufacturing plants and facilities; and - sourcing of locally manufactured componentsPRASA has set the target for localization at 65%;a study has also been commissioned by the Department of Trade and Industry through the United Nations Industrial Development Organization (UNIDO).

6. PRASA Rolling Stock fleet renewal programmeBroad Based Black Economic Empowerment Addresses the imbalances created by the apartheid policy and colonisation. Therefore government implemented policies that provide for the following:A transformational process that will address the social and economic dimensions of inequality;Achievement of the constitutional right to equality;Increase broad based participation of black people in the economy; andPromotion of a higher economic growth rate, increased employment and equitable distribution of wealth.

7. PRASA Rolling Stock fleet renewal programmeBroad Based Black Economic Empowerment Potential rolling stock manufactures will have to comply with the following BEE Policies: Ownership – involvement of black people in the shareholding of the entity as determined by the voting rights and economic interest held by black people; Management Control – involvement of black people in the day to day management of the company as determined by representation in the company’s Board of Directors; Employment Equity – black representation in the upper echelons of the employee population measured as black representation in the junior, middle and senior management categories; Skills Development – investment in the training and skills development of black people as a percentage of the entity’s total payroll;

8. PRASA Rolling Stock fleet renewal programme-Broad Based Black Economic Empowerment Preferential Procurement – procuring goods and services from black owned and BBBEE compliant companiesEnterprise Development – providing monetary and non-monetary assistance to black entrepreneurs Socio Economic Development – contributions towards facilitating sustainable access for black people, communities and youth into the economyGeneral Compliance with The Codes of Good Practice on Broad Based Black Economic published by the DTI and in particular the Transport Sector Code

9. PRASA Rolling Stock fleet renewal programmeTax Based Incentives The South African Government will put in place R20 billion in tax allowances or tax breaks to promote investments, expansions and upgrades in factories. This is in addition to normal tax deductions. Projects will only qualify with a minimum investment of R200 million for new projects and R30 million for expansion and upgrades of existing projects.

10. PRASA Rolling Stock fleet renewal programmeTax Based Incentives The incentive offers:R900 million in the case of any greenfield project with a preferred status;R550 million in the case of any other greenfield project;R550 million in the case of any brownfield project with a preferred status;R350 million in the case of any other brownfield project;An additional training allowance of R36 000 per employee, which may be deducted from taxable income; andA maximum total additional training allowance per project: amounting to R20 million in the case of a qualifying project; and R30 million in the case of a preferred project.

11. PRASA Rolling Stock fleet renewal programmeGrant and Financing Based Incentives This incentive is under the following programmes:Enterprise Investment ProgammeMedium-to-large investment projects of above R5 million, may qualify for an investment grant of between 15% and 30% payable over a period of two years, however, the grant is limited to R30 million.Business Finance: Metals. Transport and Machinery Sector (Industrial Development Corporation (IDC)The financing offered comes in the form of loans, mezzanine financing and performance bonds but the financial solutions are adapted for the requirements of a particular project. The IDC will co-finance with commercial banks and they will tend to take on the higher risk element of the transaction. The IDC offers the following financing options:- Revolving Credit Facility- Acquisitions and Equity Transactions- Fixed Interest Rate Scheme

12. PRASA Rolling Stock fleet renewal programmeCritical Infrastructure Programme Critical Infrastructure Progamme This programme is a non-refundable incentive scheme that offers subsidized support for economic infrastructure for new projects and expanding existing projects. The funds required for the infrastructure project must be deemed to be ‘critical’. The CIP supports construction of the infrastructure that enables the investor to undertake a defined fixed investment, or the expansion of an existing fixed investment.The grant covers between 10% and 30% of the total development costs of the qualifying infrastructure.

13. PRASA Rolling Stock fleet renewal programme- Financing Objectives Financing issues for consideration: Any efficiencies that may be achieved through private fundingBased on capital requirements of the renewal programme, is the proposed 18 year concession period appropriate? What financing periods are appropriate: 12 to 15 year perhaps?Benefits which will accrue to government through risk transfer by a privately funded consortiumAppropriate mixture of public and private financing Understanding the funding gap between the PRASA rolling stock renewal budget and the actual funding requirements Initial capital requirements for the first phase of the renewal programme vs. National Treasury budget allocations

14. PRASA Rolling Stock fleet renewal programme- Financing Objectives Potential Financing Partners: The following potential funding partners have been identifiedLocal and international commercial banksMulti-lateral and national development banks (Development Finance Institutions)Rolling stock leasing firms (ROSCO’s)Life insurance companies and pensions funds (institutional lenders)Export Credit Agencies (ECA)Various combinations of the above

15. Thank You