Localisation & Local Procurement Inquiry: day 1

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Trade and Industry

27 February 2018
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Prior to the commencement of the inquiry into compliance with localisation and local public procurement policy for bus procurement, the Chairperson said that the Eskom inquiry had led to the discovery that a number of protocols had been ignored when the South African Bureau of Standards (SABS) had tested coal from the Brakfontein mine for Tegeta in August 2015. The Minister had instituted a deeper inquiry into the matter. Eskom might have acted unlawfully regarding the Standards Act. This Committee was responsible for oversight of the SABS as well as the National Regulator of Standards. The Departments for Trade and Industry would respond to the issue together with the National Regulator of Standards.

The Committee had requested a legal opinion on the constitutionality of aspects of the National Credit Amendment Act. The legal opinion had been received and would be distributed to Members.

The City of Cape Town made a presentation on the city’s compliance with the localisation policy. Although meeting local content requirements had been challenging, the city's suppliers had met all the localisation targets for bus bodies to date. An independent auditor employed by the City had undertaken a verification process to ensure that all components designated as local were indeed local. The City requested greater clarity in respect of the verification process which should ideally be independent of the City. City officials required guidance on how to differentiate the bus body which required 80% local content from the chassis and mechanical aspects of the bus which were not subject to localisation requirements. It was a particular challenge in the face of the new bus frames. A further challenge was the limited number of producers of buses, especially in Cape Town. The lack of skilled labour in bus body building was concerning but for the industry to invest in training, there needed to be surety about the continued process of bus procurement in terms of funding streams, legislation and specifications. The City was in the process of acquiring 11 electric buses to be trialled in the city, in particular, to determine whether the apparent increased lifespan justified the increased costs.

Members asked if the City of Cape Town had engaged with Higher Education so that universities and colleges could infuse appropriate training into the system making it possible to work towards having the required skilled labour. Did the municipality have a strategy on how to address and implement localisation? What informed the high unit costs of electric buses and the lifecycle in comparison to other buses?

The City of Johannesburg made a presentation on Rea Vaya and Metrobus. The first buses in the Rea Vaya fleet had been acquired from Brazil, fully assembled, for the Soccer World Cup in 2010 which was before the local content policy requirements were in place. 134 buses had been purchased during 2013/14 for the Rea Vaya Phase 1B project. Those buses had all fulfilled the requirement of a minimum of 80% localisation in the bus body. Metrobus was a city-owned entity and had 150 dual fuel buses which had been purchased in 2014/15. Those buses had 87.4% local content.

Members were interested in how the City of Johannesburg was addressing the maintenance of the buses. Were there challenges in maintaining the buses? Who had paid for the local content verification, the City or the provider or a combination of both? What processes were in place to ensure that local content targets were met throughout the lifespan of the buses?

eThekwini presented its bus procurement policy under the banner of ‘Together Advancing People’s Power’ although the City had not procured new buses in over eight years. However, the city was brimming with ideas on how to best implement the policy of localisation. The policy in eThekwini was to require at least 10% local content in the assembly of the chassis of a bus but believed that local content of a chassis could be ramped up to 50%. There was a grey area in verification. The City had appointed someone to verify content and labour, especially skilled labour when it had last procured buses. Local content was easy to achieve, but the ownership model was problematic. It was about the total cost of ownership model. The technical specifications drove the economies of scale, but each city in South Africa had different specifications, and the City suggested that there should be greater standardisation to create the economies of scale. The municipalities had in total only 2 000 buses of the 15 000 in South Africa. The other buses were in private hands. Another concern was the quality of bus parts. Companies supplied parts of better quality to the European market.

Committee Members asked about the auditing processes for ensuring that buses were not stripped and that what the municipality had at the beginning of the year and was left at the end of the year. The possibility that 10% local content of chassis production was doable and could be rolled out was very pleasing. Who was the person responsible for quality control?

The Committee had asked Tshwane Metro to make a presentation buses on order, owned and maintained by the municipality. The Chairperson was most disconcerted when the municipality did not arrive, nor was there any communication from the municipality.

The National Home Builders’ Registration Council in its briefing explained that the Council was involved in buses only in that offices were being built on a chassis as part of an approach to providing better service to rural communities. The NBHRC was evaluating the concept of mobile offices. The tender was for 80% local content in the building of the mobile offices. The chassis, engine and transmission were required to be Complete Knock Downs (CKDs). NBHRC also required that any hang-on parts such as the fuel tank, tyres, battery, wheel rims for the chassis which could be localised, had to be specified in the bid for the tender. The bid was awarded in December 2015, the service level agreement signed in March 2016 and the Council took delivery in May 2017. NBHRC had not struggled to find suppliers that met local specification requirements.

Members asked if NBHRC had requested any verification other than a declaration by the supplier and, if so, who had paid for the verification?

Consideration of the localization of bus building raised the question of the transversal national contract, RT57. The Department of Trade and Industry (DTI) was asked to comment on that contract. DTI explained that RT57 was about motor vehicles which were not designated for local content. There was sometimes a contradiction where government procured vehicles which were not built or manufactured in the country. However, there was the Automotive Investment Scheme which was an incentive designed to grow and develop the automotive sector through investment in new or replacement models and components that would increase plant production volumes, sustain employment or strengthen the automotive value chain. As it did not make economic sense to procure overseas-made cars, DTI suggested that National Treasury be asked to explain why cars could be procured overseas.

DTI was asked to take Committee through the verification process. The verification process took place after a tender had been awarded to the successful bidder. The role of the South African Bureau of Standards was to verify the actual production of what was being delivered. Currently, there were different outcomes as to how that was carried out. In 2012 DTI had given SABS the responsibility to verify local content. As DTI was implementing the localisation requirements, opportunities were being created. DTI still had a challenge with the funding of local content verification, but SABS was the institution to do it. DTI hoped to return to the Committee shortly with information on how to fund SABS to undertake the verification of local content.

Meeting report

The Chairperson informed the Committee that she had three issues to raise before the inquiry commenced.

The Chairperson referred Members to a letter handed out to them which was headed The Office of the Director-General. The Minister had briefed her with the DG on the previous Thursday, but the Committee had not met that Friday. The matter arose from the Eskom inquiry, where Mr Koko had testified that the decision to obtain coal from Brakfontein Mine and Tegeta was based on South African Bureau of Standards (SABS) results. SABS fell under Department of Trade and Industry. The DG informed her and the Minister that after the initial inquiry, it turned out that a number of protocols had been ignored. SABS had not collected the samples themselves, as they should have done, but samples were given to them. Against protocol, the people who had requested the tests remained in the laboratory while the samples were being tested. The tests took place after hours, which was also a protocol violation. SABS senior management uncovered a case of collusion or manipulation of results at SABS in Mpumalanga on 30 August 2015. She noted that it had occurred a long time ago but it was fortunate that the matter had arisen in another parliamentary inquiry. The preliminary information shows that there was a clear breach of established protocols.

It was disturbing that the irregularities were there. What had subsequently happened was that the Minister had instituted a deeper inquiry in the matter and the DG wanted to draw the attention of the Committee to the fact that Eskom may have acted unlawfully in terms of the Standards Act. She had asked the Minister to brief the Committee in person and to clarify any questions. The Minister, the Director-General and the National Credit Regulator would brief the Committee on 6 March 2018.

Secondly, Mr McPherson had asked for specific things to do with Africa Bank to be addressed but as he had not yet arrived, she would hold the matter over to 6 March 2018.

Thirdly, the Committee had to address the Committee Report of the oversight visit to Gauteng and that the Director-General was working with SABS to address the challenges identified. The National Regulator for Compulsory Specifications Act and the other technical infrastructure Acts would be reviewed as recommended by the Committee. The Minister had pointed out that the IT system, which Mr Macpherson had raised repeatedly, would also be addressed. The DTI would respond together with the NRCS.

The Committee had requested a legal opinion on the constitutionality of aspects of the National Credit Amendment Act. The legal opinion had been received and would be distributed to Members.

The Chairperson welcomed officials from the DTI.

City of Cape Town presentation on Compliance with the Localisation Policy
Mr Henry du Plessis, City of Cape Town Director: Asset Management, made a presentation on behalf of the Transport and Urban Development Authority (TDA) of the City of Cape Town. He was accompanied by Mr John Marchese, Manager of Network Integration.

The City had 40 low floor buses and 66 high floor buses. 11 battery-powered low-entry buses had been ordered and would be delivered in about July 2018.

Mr du Plessis said although meeting local content requirements had been challenging, the City’s suppliers to date had met all the localisation targets for bus bodies.

Greater clarity was required in respect of the verification process. An independent auditor did the check for the City. However, procedures and feedback required were not clear. No guidance was available for differentiating the bus body from the mechanical aspect of the bus. A further challenge was the limited number of producers, especially in Cape Town. The lack of skilled labour in bus body building was concerning but for the industry to invest in training, there needed to be surety about the continued process of bus procurement in terms of funding streams, legislation and specifications.

The City was in the process of acquiring 11 electric buses to be trialled in the city, in particular, to determine whether the suggested increased lifespan justified the increased costs.

Discussion
Ms S van Schalkwyk (ANC) referred to the lack of skilled labour challenge. Had the City engaged with Higher Education to infuse appropriate training into the system so that it was possible to work towards having the required skilled labour? The local content project was a long-term one, and unemployment always had to be taken into account. Were the specifications for 80% local content for the bus bodies only? Were there penalties for manufacturers if local content targets were not met and what processes were in place to ensure that the local content requirement was met throughout the life-cycle of the bus?

Ms L Theko (ANC) asked if the municipality had a strategy on localisation in place. What did the municipality have in place to manage localisation, why was it challenging and what had city done to meet the challenges? The Committee required the names of companies that had provided local content so that the Committee could check that the municipality was meeting the requirements as per legislation.

Mr S Mbuyane (ANC) asked what constituted the local content. He asked for details of the relevant companies who had supplied the local content. What did the TDA do where there was a shortage of local content? Where did it get supplies? How was that situation dealt with? He asked if the City had a plan and a strategy to address the skills shortage.

Mr J Esterhuizen (IFP) noted that it was important to support local suppliers, but it was also difficult because very big manufacturers, such as Volvo and Mercedes, were available. He wondered whether the country had the necessary skills. There had to be spill-over effects. There had to be development of small businesses. Inferior products could not be put into R5 million buses as that would be disastrous.

The Chairperson asked for details of the independent audits. Who did the audits? The presenter had referred to challenges in the guidance and procedures in the legislation, the lack of clarity. The integrated frame structure had not been dealt with. The Committee needed the presenters to be specific. Exactly what was not clear? What informed the high unit costs of electric buses and the lifecycle in comparison to other buses? The matrix was helpful. She asked for information about tender processes and what exactly was the 80% local content e.g. wheels, body? Had the buses been produced in South Africa? She understood that South Africa did not produce the chassis. That was not clear in the presentation.

Mr du Plessis replied that the City continued to encourage various sectors of Higher Education to provide the necessary skills, but it was the uptake by the companies that was lacking due to the uncertainty of bus procurement on an ongoing basis. It was therefore a two-pronged issue: firstly, the lack of skills and secondly, the need for companies to employ skilled artisans. There was no surety that the companies would continue to need such skills. There was only one bus building company in Cape Town that met the required standards. The acquiring of buses on an ongoing basis that gave longevity and certainty to bus building companies was dependent on funding. As there was no guarantee of funding, there was uncertainty about the intention of government and companies could not afford to hold onto the skilled people if they did not have work for them. There was clear direction from national on the process, but everything was dependent on available funding. The City of Cape Town transport budget had been seriously cut for the coming financial year.

Mr Martheze explained that the chassis was just the engine with wheels and the body was built onto the chassis. The 80% localisation designation was in respect of the body of the bus.

The Chairperson interjected asking where the City bought the chassis.

Mr Martheze replied that the City had followed appropriate tender processes, including the localisation policy as per National Treasury requirements. The chassis were imported in kit form and assembled in South Africa. The Volvo chassis came from Brazil, but he thought that others came from Sweden. Hang-on parts such as fuel tanks, tyres etc. were made locally. The ladder chassis was fine in respect of building the body according to the localisation requirements, but the current issue was how to deal with the tubular space frame chassis which included parts of the body that were integrated into the chassis itself. The City required clarity around that point.

Mr du Plessis stated that the City could provide a list of local companies that had supplied content. The strategy for local content was quite simple: contracts were only awarded if the local content requirements were met. The City was very hard about the local content requirement. The local content requirement was either met or not met.

Mr Martheze responded to the question of life cycle compliance. All repairs were done locally by local suppliers unless the chassis or engine part had to be imported to make a repair or ensure maintenance. The bodywork was repaired locally. Which companies had the contract to build the buses? Two companies had been engaged, but both companies had contracted out. Busmark had produced bodies for both the Volvo and Scania contracts but had sourced material from 40 local companies supplying paints, timber, steel etc. They had engaged extensively with local companies. The independent audits were included in the tender so that the City could pay for the audits. The audits were done by Adler and Associates, an independent audit firm of registered audits situated in Gauteng. He offered copies of the audit reports.

The Chairperson wanted an answer. Who was the winning bid? The Committee needed to know so that it could invite the company to clarify the source of content, including the chassis, from the winning bidder.

Mr Martheze informed her that the local companies for Marco Polo and Busmark brought in chassis as required. He understood that MAN might possibly build locally, but he did know that they sub-contracted.

Mr Mbuyane indicated that his questions had not been responded to. Did the City of Cape Town have a localisation strategy? Was there a strategy to deal with the challenges raised, such as the shortage of skills?

Ms van Schalkwyk asked again if there were penalties for manufacturers that did not respect the local content requirements. At what stage was the audit performed and who paid for the audits?

Ms Theko requested a list of companies so that those companies could testify before the Committee. Were there any companies that had manipulated local content requirements by importing content that they had said was locally made?

Mr du Plessis responded to the strategy for content. Generally, there was a strategy in the City for local content. The City had succeeded, in the past three years, in acquiring over 50% of local content in all services and goods. The bus building strategy was limited in that the City had to meet the required specification demands. From raw material to product, everything had to be acquired and produced locally to count as local content.

Mr Martheze explained that the audit was done at the end of the contract. As the manufacturers ordered supplies on an ongoing basis, the audit was undertaken within a specified period after the delivery of the last bus. Penalties were spelt out in the National Treasury requirements and companies could be prevented from dealing with organs of the state if they did not adhere to the requirements. The list of companies involved in building the buses would be sent to the Secretary. He assured the Committee that no manipulation had been observed. All companies had met the requirements and the completed buses themselves had met the requirements. The City had established the imported chassis value at R970 000 and the local content value of the chassis, including assembly etc., was R275 000. While the imported value was considerably higher, the chassis did have some local content value. He did not have the exact figures or percentages with him.

The Chairperson informed him that certain questions had still been overlooked.

Ms van Schalkwyk asked who had paid for the independent audits.

Mr Martheze responded that the audits had been paid for by the City of Cape Town.

Mr Mbuyane thought it best if he asked a straightforward question. Did the City have any plans for addressing the challenges that they had raised?

Mr Martheze replied that there were no insurmountable challenges, but a recent challenge was the tubular space frame. He did not know how to differentiate between the ladder chassis and the tubular space frame. He did not have any strategy, and he did not even know when the next buses would be procured. That was something that still had to be dealt with internally.

Mr Cachalia asked if the tenders were covered by the general audit of the City of Cape Town as that would be an additional bill of health, as it were.

Mr Martheze informed the Committee that Auditor General’s audit had cleared all tenders.

The Chairperson commented that the independence of the auditors was a concern. If one was paying the piper, he would dance to one’s tune. How independent was such a process if the City was paying? She did not remember that the penalties were so clearly articulated in the localisation requirements, but perhaps they were clearer to others. The presenters had mentioned several challenges. If they were running a big organisation and DTI was not doing what was required, would they not engage with DTI? Had they ever contacted the unit in DTI, verbally or in writing, and just got nowhere?

Mr Martheze replied that at the commencement of the localization programme, he had had extensive discussions with DTI and even representatives from the National Association of Automobile Manufacturers (NAMSA). He had raised the concerns of the City and had given a short presentation to organs of state in Pretoria on the first tender that the City had put out. They had talked about a few issues and managed to sort them out. Regarding the independent audits, it did trouble the City. The audit ought to be a DTI or SABS process, but there was no clarity on that, so the City had arranged audits. Electric buses were to be trialled. The battery unit was the most expensive component of an electric bus, and that pushed up the price, so the cost was much higher than the cost of diesel buses. The 11 electric buses were to be tested to determine whether the alleged longer lifespan would balance out the cost of the batteries.

The Chairperson noted that Mr Martheze had had extensive discussions with DTI at the beginning of the process, but the presentation stated that no guidance had been given about the integrated framework. Did the City go to DTI? With whom had they had discussions?

Mr Martheze responded that he could not recall speaking to anyone specifically and he did not believe that there had been specific discussions on the integrated framework. The only discussions would have been with DTI and probably not have been direct discussions. But it had been a topic of discussion for a little while.

The Chairperson asked DTI if they had had extensive discussions on the integrated framework with the City of Cape Town.

Dr Tebogo Makube, DTI Chief Director for Industrial Procurement, replied that discussions had been held around local content but not specifically on the tubular space frame. The discussion was related to the first tender which was for the supply of 40 units by Volvo. DTI had interacted with the City of Cape Town on the procurement of electric buses, and the DTI had insisted on local content.

The Chairperson stated that it was incorrect to say ‘no guidance’ when the City of Cape Town had not gone back to DTI. It was misguided to say that the City had not received guidance when the City had not consulted specifically with DTI, despite the fact that there was a good relationship with the Department.

Mr Mbuyane noted that there was no plan for dealing with the skills development in the municipality so how could the City have a strategy for dealing with local content? The position was contradictory.

Mr Du Plessis informed the Committee that the only intervention had been to engage with the three local universities about the long-term development of skills. The issue was not only about the development of the skills, but it was also about the ongoing updating of skills in the industry itself. The industry had to take it up itself. Industry would not take up the skills development until it had a long-term take-up commitment towards bus requirements and so the skilled people moved away from Cape Town to where there was more work, taking their skills with them.

The Chairperson thanked the representatives from the City of Cape Town, explaining that if there were further questions, the Committee would get back to them in writing.

City of Johannesburg presentation on Rea Vaya and Metrobus
Mr Andre van Niekerk, Director of Operations at the City of Johannesburg, said that the first buses had been acquired from Brazil, fully assembled, for the Soccer World Cup in 2010 which was before the local content policy requirements were in place. During 2013/14, 134 buses were purchased for the Rea Vaya Phase 1B project. The total value of that tender was R326 169 772. Metrobus was a city-owned entity and had 150 dual fuel buses which had been purchased in 2014/15. Those buses had 87.4% local content.

There were some challenges, especially in finding suitable suppliers. Where there were only one or two suppliers, such as Perspex, prices were artificially high. The chassis were imported from Brazil as CKDs (complete knock-downs) and assembled in South Africa with over 80% local content and SABS audited the content. The prototype bus was audited by SABS, and audits took place in the middle of the contract and buses were audited again at the end of the process.

Mr van Niekerk stated that the City of Johannesburg was committed to meeting local content requirements.

Discussion
Mr Macpherson was interested in the Rea Vaya and Metro verification. Who had paid for the local content verification, the city or the provider or a combination of both? The point was relevant to the Transnet issue as Transnet had declared that it was very expensive to undertake verification and had asked who was going to pay for it. But the City of Johannesburg had shown that it could be done.

Ms van Schalkwyk asked the presenter about the first buses that were imported in 2010. How was the maintenance of those buses being addressed? Were there challenges in maintaining the buses? She referred to his comments about the lack of local suppliers causing high prices. How did that compare with importing parts and were they encouraging the development of local businesses?

Mr Esterhuizen noted that the municipalities were forced to go to Mercedes Benz etc. He was concerned about the quality of imports. Who did oversight of the quality of imports? He was concerned about the reduced presence of SABS that affected local standards. SABS was funded by levies that users paid.

Mr Mbuyane asked what percentage of each contract was for bus bodies and what processes were in place to ensure that local content targets were met throughout the lifespan of the buses.

The Chairperson asked if the municipality complied with the BBBEE requirement when it handed out contracts. She saw that Sandown Motors Mercedes had been awarded a contract. Was that for the Mercedes chassis?

Mr van Niekerk replied that the City of Johannesburg paid for the verification, using the City’s own funds and not grants. Busmark had certified the local content, and Deloitte and Touche verified the content and provided documentation. The maintenance of Phase 1A imported buses had been contracted to Biotrans, a company that worked within the taxi industry. The City monitored and made sure that the Phase 1B buses were maintained with local content. There were also Scania buses that had been built by Marco Polo in Brazil, but there was a Marco Polo company in South Africa, and Scania was local, so both companies were well aware of the local content requirement. All contracts required local maintenance of buses. The tender required the development of skills. The original maintenance tenders were five years. The new tender required full maintenance for 12 years, thereby ensuring that the buses would be cared for throughout their lifespan.

The City did not have a problem with sub-standard products as products were checked by SABS. It was a responsibility of Mr van Niekerk’s portfolio to ensure that parts were of specified standards, tested and maintained. Some engine parts had to be imported as those parts were not made in South Africa. He was not sure of the percentages of local content versus the imported chassis. For tenders above R30 million, 30% of the contract had to be contracted to BBBEE status suppliers which included veterans, disabled people, etc. The City was putting out its first contract under those requirements, but the City was evaluating bids at the moment, and there did not seem to be any new challenges. SABS would be checking, and an auditing firm would also be appointed.

The Chairperson thanked Mr van Niekerk and said the Committee would make further requests in writing.

eThekwini presentation: Together Advancing People’s Power
Mr Malcolm Joshua, City Fleet Unit Head led the delegation from eThekwini Municipality. He was supported by Fleet staff, Bheki Ndalosi and Siyabonga Nkanana. They were accompanied by Clr Nkosenhle Madlala of the eThekwini Municipality.

Mr Joshua noted that the bus market in South Africa was only 900 buses a year, so they had stretched their thinking into other possibilities. In 2007, eThekwini had started a localization project that was monitored by National Treasury to ensure that there was no funny business. The local content of a chassis could be ramped up to 50%.

The City had started to look at locally produced maintenance parts, for example, batteries should be manufactured in South Africa, not just supplied locally. Getting parts for fire engines had been very difficult, so fire engines were built in South Africa, but the company was in business rescue because the market size was very small.

As with Cape Town, the industry needed security over a longer period, so the City had put out tenders for five-year maintenance contracts. There was a grey area in verification. The City had appointed someone to verify content and labour, especially skilled labour. The City had city buses and commuter buses and spent about 50% on the chassis and 50% on the body of the bus. Local content was built into the tender process, and the first cut in the evaluation process was companies that did not meet local content. However, the City had not found a single tender that did not meet local content requirements, at least on paper.

Local content was easy to achieve, but the ownership model was problematic. It was about the total cost of the ownership model. The technical specifications drove the economies of scale, but cities in South Africa had different specifications, and he suggested that there should be greater standardisation to create the economies of scale.

How did they get the bus market to grow? Bus population was around 15 000 buses, and buses had a lifespan of 10 years, so they needed 1500 per year, but some buses had been running for 18 years. Therefore eThekwini suggested that regulations should indicate the lifespan of a bus. Having only two glass fibre manufacturers in South Africa had led to high prices. Imported buses would be 20% cheaper than those assembled in South Africa using local content, but an increase in market size would push the differential.

The municipalities had in total only 2 000 buses of the 15 000 in South Africa, so Mr Joshua thought that consideration should be given to how the other bus companies were being regulated in respect of local content. Another concern was the quality of bus parts. Companies supplied parts of better quality to the European market.

The Chairperson asked that the last statement be put in writing to the Committee.

Clr Madlala indicated that he would respond to questions if so required.

Discussion
Adv Alberts could not find information on the verification process in the document. When were the buses verified during the manufacturing process and who was responsible for verification?

Ms Theko asked about the person responsible for quality control. Was it a full-time position or was the position based on need?

Ms van Schalkwyk welcomed the excitement with which the presentation had been made. There was a lot of food for thought. She thought that the 10% local content of chassis production could be rolled out. The concerns about quality required further investigation.

Mr Macpherson stated that as a resident of eThekwini and former Councillor, he had a keen interest in the Durban fleet. He wanted to understand whether the procurement of the 150 buses was part of the new ‘Durban Go’ procurement or was it fleet replacement of existing stock. He recalled the problems faced by the eThekwini bus programme when there were no controls. Had things changed from those days when people stripped buses? What auditing processes were in place to ensure that buses were not stripped and that what the municipality had at the beginning of the year was left at the end? The quality assurance of spare parts had been a concern.

He explained the government could not force private companies to procure according to the local content policy as that would be in conflict with the World Trade Organisation policy which South Africa was obliged to adhere to. However, the point about standardization in government procurement of vehicles was a valid point. When the city bought vehicles, it spent a few billion rand at a time. He thought that those vehicles should be bought from local suppliers. He had challenges where his party was in government, as even there, buying of locally-made vehicles was not a requirement. Municipalities were one of the largest spenders on high-end goods such as vehicles and this was something that the Committee should take into account when considering local content.

The Chairperson stated that the points that Mr Joshua had raised on localisation were very valuable. She noticed that eThekwini did not have the same problems with verification as a previous presenter. Was that because the municipality had got support from DTI?

Mr Joshua thanked the Committee for the positive feedback. The verification process was irrelevant to his presentation because the last purchase was prior to the local content requirements. The City had had an individual person who did the ongoing assessment, but now with the local content policy, he was talking to DTI about verification. One of the questions was how deep one went when tracking local content. The question was whether the products purchased locally had been made in South Africa. It seemed that verification was generally a desktop exercise. A retired person had done the quality assurance in eThekwini and had transferred skills to staff. He wanted to build internal capacity amongst his staff.

He told Mr Macpherson that 50 buses a year were for re-fleeting. A series of controls had been imposed on those contracted to do maintenance of buses. There was a constant debate about the quality of spare parts and maintenance. The City was employing simple standard business practices. A standardization policy was written by eThekwini some years back. Local procurement was demanded, but the city could not spell out the manufacturer of vehicles as that could be challenged in the Constitutional Court. When officials attempted standardization, they were accused of manipulation.

He pointed out that there was a transversal national contract, RT57. The Committee should look at how many of the products were not manufactured locally in transversal contracts. The contract did not support localisation.

The Chairperson suggested that the Committee should give DTI time to consider the issue. However, Dr Makube had an explanation on hand.

Dr Makube explained that RT57 was about motor vehicles which had not been designated for local content. There was sometimes a contradiction where the government procured vehicles which were not built or manufactured in the country. However, the Automotive Investment Scheme was an incentive designed to grow and develop the automotive sector through investment in new or replacement models and components that would increase plant production volumes, sustain employment or strengthen the automotive value chain. It, therefore, did not make economic sense to procure overseas-made cars. National Treasury needed to explain why cars could be procured overseas. The sector had not been regulated for local content, and there was also the consideration of the WTO.

The Chairperson informed Mr Joshua that the Committee would get back to him in writing with further questions. She thought that Malcolm Joshua had given the Committee much food for thought with his passionate presentation. She understood that the delegation had to return to eThekwini, but she hoped that one of the team could watch the proceedings the following day on the parliamentary channel.

National Home Builders’ Registration Council (NHBRC) presentation
Mr Shafeeq Abrahams, NHBRC CFO, explained that NBHRC was involved in buses only in that offices were being built on a chassis as part of an approach to providing better service to rural communities. The NBHRC was evaluating the concept of mobile offices.

In February 2015, the NBHRC had entered into a process to lease two mobile office buses for three years at the cost of R11 million. The Council had secured advice and expertise from that Department of Trade and Industry and from National Treasury. The tender was for 80% local content in the building of the mobile offices. The chassis, engine and transmission were required to be Complete Knock-downs (CKDs). The Council also required that the bid specified hang-on parts such as the fuel tank, tyres, battery, wheel rims for the chassis which could be localised. The bid was awarded in December 2015, the service level agreement was signed in March 2016 and the Council took delivery in May 2017.

The NHBRC had not struggled to find suppliers that met the local specification requirements. Bidders were required to complete a local content form, and that was part of the submission for the tender. The Auditor General had audited the transaction as part of its compliance audit.

The NHBRC would continue to endeavour to promote local supply and industrialisation of the services that it procured.

Discussion
Ms Mantashe was happy that the Auditor General had insisted on the compliance of suppliers. Who had paid for verification?

Mr Mbuyane asked if the NBHRC had requested any other verification and, if so, who had paid for the verification.

Mr Abrahams replied that NHBRC had paid for the Auditor General and in respect of verification, the Council had worked on the declarations submitted with the written bids in respect of local content. Should there be misrepresentation on three occasions, the Council would follow the National Treasury blacklisting processes. In hindsight, he believed that the NHBRC should have paid for its own compliance processes.

The Chairperson appreciated the presentation.

The City of Tshwane representatives had not yet arrived, but the Chairperson indicated that she would wait another ten minutes. She thanked the Municipalities that had presented. The Committee was interested in both challenges and also some proactive proposals. eThekwini had made some good proposals. How could Brazil manufacture chassis but South Africa could not? She had been raising the issue since 2009. South Africa did not need to manufacture all chassis, but at the moment none were manufactured in the country. It was necessary to encourage an entrepreneur to fill the gap. There was government support, and there were subsidies. There might be a need to ring-fence subsidies. All presenters had indicated how they could be proactive and now they should take the ideas forward. The Committee had heard about political changes in councils that had derailed projects, but if a project was running well, political parties had to stop being so parochial and to accept that things had to work for the good of the country. Everyone had to do the best one could with the resources available. The party-political approach to doing things had to stop. If the previous council had been ANC or DA, there was no need for the new council to reject all the project proposals that were on the table. The municipalities were at the forefront of development, much more so than provinces or national government.

She recalled the "Indian Mynas” buses in eThekwini that were of a good size to manage the bus population.

Mr Joshua confirmed that the Metro still had the buses, but they were called simply ‘Mynas.’ Those buses had been a very solid size and had worked well.

The Chairperson asked Dr Makube of DTI to take Committee through the verification process.

DTI on the verification process
Dr Makube indicated that the verification process took place post-award. After a tender had been awarded to the successful bidder, SABS’s role was to verify the actual production of what was being delivered. As Members had heard, there were different outcomes as to how that was carried out. In 2012 DTI had given SABS the responsibility to verify local content. Johannesburg Metro had paid SABS to verify local content in Rea Vaya. The tender had been given to Sandown Motors, but Marco Polo had manufactured the bus body. DTI had been involved in that.

Dr Makube suggested that he should share with the Committee what had happened in that case. The City of Johannesburg had wanted buses to have a wheelchair lift mechanism, but no one in the country had manufactured that type of mechanism. Marco Polo had asked DTI for an exemption as per procedural requirements. DTI had checked with the industry, and no one was manufacturing that particular product. An exemption was, therefore, given, but with the condition that Marco Polo worked with local manufacturers. His understanding was that the company was now working with local suppliers to produce that lift mechanism. In the absence of local content, that opportunity would be lost. The same had happened with the chassis, and so DTI had agreed with eThekwini that there was an opportunity for DTI to increase the local content requirements. In working with the CSIR, DTI had identified opportunities to scale up in that area. The minimum threshold was not yet 100% but, in the absence of local content, one did not realise the opportunities to deepen manufacturing. Even as the Department was implementing the localisation requirements, opportunities were being created. DTI still had a challenge with the funding of local content verification, but the institution to do it was SABS. DTI was hoping to return to the Committee shortly with information about how to fund SABS so that it could undertake the verification of local content.

Ms Mantashe said she had thought verification by SABS was already an accepted process but if it was not happening, how long would it take? Localisation was a priority for the Committee. If DTI had not budgeted for SABS to do verification, then the Committee was fighting a losing battle.

The Chairperson thanked all the presenters for the helpful presentations. It had been very constructive and had given the Committee something to work on.

Committee business
The Committee had run out of time for a strategy workshop. The only day available was 22 March 2018, which was a parliamentary day. The Chairperson was looking at 12:30, but it depended on whether parties would be holding caucuses that morning. If there were no caucuses, the start time would be 9 or 10 am.

Ms van Schalkwyk informed the Chairperson that she and Ms Theko had obligations on the Labour Committee which was dealing with the Minimum Wage legislation.

The Chairperson said that everyone had to endeavour to be there as the Members needed to discuss oversight outside of field oversight. They had to undertake onsite oversight. The Committee could also conduct Committee Meetings while on onsite oversight visits. The Members needed to prioritise activities. The Committee had legislation before it that had been on the table for over a year, and there was little likelihood that the Committee would be able to carry the legislation over to the next term of Parliament. She was aware that Minimum Wage was a legislation matter and therefore those Members had obligations to Labour Committee.

Referring to the Tshwane Metro, she stated that it was not an ordinary matter to stand Parliament up. It was serious, and she had asked the Committee Secretary to summons the Metro if it carried on with the cavalier attitude. In 23 years, she had not had to summons someone. No phone call had been received before the meeting, and there had been not one call from the Metro throughout the morning.

The inquiry would continue on 28 February 2018, and the Sub-Committee on the Copyright Bill would be held at 14:00 on 28 February 2018.

Meeting was adjourned.

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