1. Supplier Development & Localisation CIVILUTION CONGRESS 2014
April 2014

2. We have distilled five main development objectives from different government programmes
ASGI-SA
Industrialisation
Localisation
Job creation
Skills Development
Transformation
NIPF
IPAP
CSDP
NIPP
B-BBEE
NGP
NDP
We have aligned ourselves along development objectives rather than individual policy and government programmes
This has allowed us to address the requirements of multiple programmes simultaneously, without having to create new departments or functions
Source: Introduction to the Competitive Supplier Development Programme; B-BBEE Act 53 of 2003; ESKADAAT6

3. This approach has created economic development and significant transformation impact
Initiative
Examples of impact
ASGI-SA
Guided our initial job creation and skills development achievements
NIPF
Driving industrialisation and localisation through our Supplier Development and Localisation Plan
IPAP
Created ~ jobs and developed new local industries
R722m invested in plant
We are positioned to drive development further through CSDP2
CSDP
NIPP
B-BBEE incorporated in all our transactions
B-BBEE spend of R72,1bn - 73,2% of total spend against a target of 70% in FY11/12
B-BBEE
Created an Execution Support team to support job creation as part of our overall SD&L capability
NGP
Shifting spend to black owned suppliers – will shift 50% of total procurement spend to BO suppliers by FY16/17
NDP
Source: Introduction to the Competitive Supplier Development Programme; B-BBEE Act 53 of 2003; ESKADAAT6

4. We have learned valuable lessons resulting from our implementation journey
Focus
Supplier Development and Localisation won’t happen as a “nice to have” add-on to tenders in the form of “SD&L Targets”
Strategy
Distill the core impact areas from a diverse policy environment and concentrate on key development objectives common to all of them
Integration
Integrate strategic sourcing, design of technology and our SD&L objectives into our procurement strategies for all transactions
Spend
Consolidate our long-term spend forecasts and plans as investment in industry will need time and long-term commitment
Engagement
Move away from an “arms-length”, transactional based relationship with suppliers towards a more integrated, partnership based model
Source: Eskom Supplier Development and Localisation Department

5. We are driving five overall priorities to use our spend for economic development
Drive economic development through our 5 focus areas… 1
Industrialisation to foster the establishment of new competitive industries, mainly in the energy sector 2
Localisation to develop South African supplier capability relevant to the energy sector 3
Skills development to increase the skill base (number and skill level) of South African workers
Accelerating transformation of local industry through Increased focus on Supplier Development to create black industrialists 4
Job Creation to enable the creation of new jobs by suppliers as a direct result of Eskom business 5
Supplier Development to increase the number and the capability and capacity of specifically black owned suppliers
Source: Eskom Supplier Development and Localisation strategy

6. Supplier Development and Localisation Accelerate transformation
We have defined our development priorities and designed a clear approach to create impact
Our Priorities
Our Approach
Embedding SD&L into our organisation 1
“Design for local”
Integrate
Supplier Development and Localisation 2
Accelerate transformation 3
Enhancing our Strategic Sourcing process
We are reviewing technical specifications to identify spend areas for design for local manufacturing
Supplier Development and Localisation has been included into our strategic and project sourcing process
To accelerate transformation we have identified key spend focus areas as enablers to foster the emergence of black industry
Making transformation a key focus
Creating our SD&L Plan
Source: Eskom Supplier Development and Localisation Department

7. Our operations and expansion programme enable us to drive development through sustained procurement spend
Our business
The future picture
Projected spend includes:
Operating costs (maintenance etc.)
Infrastructure and Projects (expansion, upgrading and refurbishment)
Primary energy costs
The potential spend on our portion of the Integrated Resource Plan (IRP) 2010, beyond known projects, is still not fully clarified at this stage
Generation
Top 20 utility in the world by generating capacity
Net generation capacity of 41,7GW with GWh of electricity produced in 2012
New build programme will add a total of 17GW of capacity by 2018/19
Kusile and Medupi will be the world’s 3rd and 4th largest coal-fired plants
Transmission
Our transmission grid spans an area similar to Western Europe, reaching across South Africa with km of transmission lines and 153 substations
New build programme will add 9 004km of new high voltage transmission lines
MVA of installed capacity in substations by 2018/19
Distribution
Connected over 4,2m households since 1991
The largest power line system in Africa with km of distribution lines
We plan to reach universal access by 2020 in support of government’s objective of advancing electrification
Source: Interim Integrated Report for the six months ended 30 September 2012; The Eskom Factor 2011

8. Government objectives
We are using our comprehensive Supplier Development and Localisation Plan as the key driver for our development efforts
Identification of extended list of Strategic Focus areas
SD&L Plan
Analysis
Identification of key Spend Focus areas
Demand
Forecasts
188 Strategic focus areas
42 Spend focus areas
Industrialisation
Operational
Supply
Analysis
Localisation
Projects
Skills Development
New Build
Job Creation
Primary Energy
Supplier Development
Government objectives
Source: Eskom Supplier Development and Localisation Plan

9. Transformation is one of our key focus areas and we will support the emergence of black industrialists
We are proud of our B-BBEE achievements.
We are resolved to further contribute to tangible transformation and we will:
Focus on additional “broad-based transformation impact”
Focus on “changing the ownership patterns” of the local energy supply base
Incorporate transformation and Supplier (Enterprise) Development into all our transactions
Support an increase in the numbers of black industrialists in areas of high value, high impact procurement spend
Improve the capacity and capability of black owned businesses through various intervention mechanisms, e.g. shifting procurement spend and providing dedicated support
Establish strategic internal and external relationships to foster integration and collaboration
Source: Eskom Supplier Development Strategy

10. We will provide emerging suppliers with direct support to become competitive and sustainable
We will develop suppliers through: 1
Creating an enabling environment for new suppliers
Technical and management interventions to address the challenges facing new suppliers wanting to do business with Eskom
This will be achieved through a range of interventions e.g. incubation through established suppliers (such as Roshcon and Rotek) 2
Developing and growing existing emerging suppliers
Targeted interventions to support existing suppliers to increase their capacity and capability to take on larger and more complex contracts 3
Grow emerging suppliers into large and medium enterprises
Assist with access to sustainable work opportunities and innovation to grow emerging suppliers into established, internationally competitive enterprises
Source: Eskom Supplier Development Strategy

11. Interventions of a Supplier Development nature are key to develop a Black Owned supplier base across al Commodity categories
Developing and growing existing suppliers
Creating new suppliers
Large and Medium Enterprises (LMEs)
Established business
Complex governance structures
Aligned strategies and performance management
Highly developed operating model
Enhanced capabilities
Turnover >R35m
Growth levers for further expansion:
Annuity revenue
Exposure to large projects
Development of IP
Improvement to governance structures
Qualifying Small Enterprise (QSE)
Improved level of business sophistication
Refinement of operating model and processes
Established value proposition
Turnover of R5m to R35m per annum
Growth needs include:
Exposure to more complex business
High increase in revenue
Exposure to and generation of best practice IP
Emerging Micro Enterprise (EME)
Operations set up and business begins
Market presence established
Core business function launched
Turnover <R5m per annum
Growth needs include:
Gain experience
Increased revenue
Skills development
Access to IP
Supplier type
Start-ups
Characteristics
Business idea launched off the ground
Business plan created
Financing to be secured
Development needs across all areas of growth
Intervention types
Support capitalisation
Work experience & technical skills development through:
Joint ventures
Sub-contracts
Incubation
Managerial and entrepreneurial skills training
Support capitalisation
Access to markets , IP and capability building through:
Enterprise development
Joint ventures
Sub-contracts
Set asides
Managerial training
Facilitate generation of IP through promotion of local designs in commodity strategies
Access to work opportunities through set asides
Technical and managerial training
Limited Supplier Development involvement
Access to more business through set asides

12. Early SD&L strategy development allows us to influence the sourcing process as seen in valves
Developing our valve SD&L strategy before the sourcing strategy allows us to influence the sourcing process and proactively develop the valve industry
We identified valves as an opportunity to drive localisation
Our SD&L strategy aims to holistically develop the industry:
Large portion of our generation spend
New Build Programme has increased our demand
Previous ad hoc approach to use of local industry
Underdeveloped local supply industry
Underutilised downstream foundry business
Designation of valves for local procurement by the DTI
DST has identified valves for technology advancement
Standard valves
High pressure/ high temperature valves
Valve spares
Maintenance and refurbishment
Downstream foundry industry
Source: Eskom Valve Supplier Development and Localisation strategy

13. Petro-chemicalsPetro-chemicals
We are working towards pooling demand where our own demand is not big enough to sustain local industry
Valves and actuator market
(% revenue by end user)
Eskom accounts for 17% of total valve and actuator demand
We are driving consolidation of demand to provide a sustainable demand view through:
Collaboration with mining and petrochemical industry
Establishment of a working group to develop industry wide standards
Standardising specifications 17
Water 
Mining 
Energy 
Petro-chemicalsPetro-chemicals
Other 
Total
Source: Eskom Valve Supplier Development and Localisation strategy

14. Working together with industry has ensured that all stakeholders have a voice
Lessons from our past have taught us to work with industry to drive localisation
Mobilising the industry
The Valve and Actuator Manufacturers Cluster of South Africa (VAMCOSA) represents local manufacturers and provides a platform to:
Understand supplier capacity and capability
Work with government to encourage local procurement of valves
To share challenges facing the valve industry
Share long-term investment, localisation and transformation plans
“Design for local” Working Groups
Technical working group to review and create “standard specifications” for local manufacture
Despite initial challenges, technical and commercial are working together with government and industry to drive localisation
Industry Champions
Appointing industry champions to drive the valve development initiatives
Ensure a deeper understanding of local industry capability
Downstream input
Incorporating the downstream foundry industry ensuring there is a sufficient demand picture to upscale their capacity and capability
Source: Eskom Valve Supplier Development and Localisation strategy

15. Realisation of our development efforts will benefit Eskom, local industry and South Africa – without increasing the cost of procurement
Driving economic development...
Will benefit….
Enhanced industrialisation
The South African economy:
Reduced cost of doing business
Investment in plant and technology
Greater export potential
Reduced unemployment and poverty
Larger and more skilled workforce
Increased diversity in work
Improved quality of life
Localised energy industry
Greater local skills base
Accelerated job creation
Eskom operations:
Reduced supply chain costs
Greater security of supply
Shorter lead times
Improved efficiencies and quality
Co-development of solutions for operation specific problems with manufacturers
Investment in building local communities
Source: CSDP; IPAP2; Group Technology and Commercial

16. To realise these benefits, we need to collaborate and engage on this development journey
How can you support us:
The opportunity:
Engage and communicate with us and your downstream suppliers
Ability to grow your business on the back of sustainable business opportunities
Insight into a consistent way of doing business with us
Access to a team of professionals to support your development efforts
Development of a local up and downstream supply chain to support your operations and strengthen your value chain
Share your innovative development ideas and solutions
Collaborate within industry hubs to coordinate development; align capacity to future demand and jointly find solutions to challenges
Establish strategic long-term relationships with us and emerging suppliers to enable the emergence of BO suppliers
Make sustained development part of your core value proposition – We are moving away from a transaction and compliance/process focused mind-set
OEMs to integrate development objectives into your long-term plans to make SA part of your global supply chain
Innovate and invest on the back of long term and sizeable opportunities to do business with us. Local industry needs to be competitive and efficient
Source: Eskom Supplier Development and Localisation Department