TONGAAT HULETT Unlocking rural funding and technical expertise for small scale cane-growers through public private partnerships (PPPs) Presentation by Wellington M. Ntshangase Economies of Regions Learning Network UKZN 25 September 2012

TONGAAT HULETT Unlocking rural funding for small scale cane-growers through public private partnerships (PPPs)

Operation Vuselela 3 Introduction of Operation Vuselela (OV) which is a partnership between Tongaat Hulett and the KZN Department of Economic Development & Tourism Objectives of OV and the role of PPPs in unlocking rural funding Benefits of PPPs to beneficiaries and other role-players Stakeholder participation as a prerequisite for successful PPPs.

Process Followed 4 Informal engagements between KZN DEDT & THS officials Looked for synergies Draft proposals Follow up proposals & provision of requested information Budgets had already been finalised and had to wait for the following financial year Allocation made in the KZN DEDT Budget More adjustments to the proposal as benefits had to be quantified THS internal buy-in: Board Resolution Final agreements & signing Stakeholder roadshow Implementation

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Operation Vuselela Funding & Agreement 6 In a nutshell: Public Private Partnership (PPP) between Tongaat Hulett Sugar (THS)and the KZN Department of Economic Development & Tourism (KZN DEDT) Entails planting Ha of cane over 4 years Guaranteed funding of R52m from KZN DEDT and R12,37m from THS (Total = R64m) Indirect funding from THS totaling R20m in the form of managerial, logistics, technical & admin support. A projects office was established as part of this contribution.

7 Why Operation Vuselela? The project aims to hit many birds with one stone – meets KZN DEDT, THS and beneficiary objectives at the same time. OV farming model addresses challenges & shortcomings of the traditional small scale grower farming model. Focus is on sustainability. Guaranteed market for produce. There is commitment from the sugar industry to make it work. The sugar industry has a platform for renewable energy.

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Service Level Agreement (SLA)between TH and KZN DEDT 10 Both parties to commit funds. THS appointed as primary implementing agent. Project Steering Committee to be established Monthly & quarterly reports Appoint contractors through tender processes Comply with government legislation e.g. Public Finance Management Act (PFMA) & account for every cent. Guard against conflict of interest.

4/23/ Conditions for Benefiting Aimed at rural cane growers – not government employees No THS employees THS mills to be supplied Growers to join the Retention Scheme to ensure sustainability Based on “use it or lose it” principle

Operation Vuselela Objectives 12 Government Perspective Local economic development including small business development and job creation. Contribute to socio- economic development especially with the new focus on Rural Development THS Perspective Enterprise development Contribute to the socio- economic development of sugarcane communities Secure and increase cane supplies to the mills

Benefits of this PPP to partners KZN DEDTTongaat Hulett 13 Local economic development. Contribution to rural development. The spend and the multiplier effect in the community will create further benefits. Increased cane supplies. Stronger relationship with communities and stakeholders.

Benefits of the PPP to Small Scale Growers and other role-players Beneficiaries / SSGsOther role-players 14 Financing Jobs Opportunity to run own business Service providers get business

Operation Vuselela Main Role-players 15 Project Steering Committee THS Buying Office Business Services Operation Vuselela Internal Project Management Team Cane & Rural Development Unit SSG Unit Implementing Agent Overall Project Management & Reporting. Accountability Facilitate tenders Adjudication Committee Buying of materials Comprises THS;KZN DEDT, SASA & SA Cane Growers Monitors & evaluate OV Other stakeholders may participate Receives reports from SSG Unit Meets quarterly Provides accounting/ admin services Payment of contractors & suppliers Funders: THS Board & KZN DEDT Approve payments/ claims Implementation & Monitoring Coordinated by the SSG Manager Checks reports and claims before being submitted to KZN DEDT. Meets monthly. Customer THS SHE Dept. Beneficiaries (small scale growers) KZN DEDT Safety, health & environment

16 PSC Site Visit - Monitoring

17 PSC Site Visit - Monitoring

18 Operation Vuselela Farming Model Combined Farming Advantages Capitalise on economies of scale Greater bargaining power Can be managed more efficiently Allows for passive membership Based on business principles Disadvantages Possibility of internal conflicts It is compulsory for all beneficiaries and their committees to undergo training on principles of combined farming.

19 Mzobe 10 Ha Co-Operative 100 Ha Mthembu 5 Ha Msibi 20 Ha Sishi 20 Ha Ngidi 15 Ha Ngcobo 15 Ha Gumede 5 Ha Mbatha 10 Ha Lease agreement between legal entity & landholders Notes: 1 Grower Code

20 Agreement between the individual landholder and the legal entity (Co-Op) Lease agreement 9 years and 11 months Advantage is that the project can expand by leasing land of passive landholders Landholders paid 10% of proceeds according to Ha they put into “Co-Op/ Our Farm” Available funds can either be distributed to members or saved for re-planting or both etc.

21 Management & mentorship agreement between THS & Our Farm Service Provider - Client Relationship Co-Operative Farm Contractors (Service Providers) Tongaat Hulett Sugar

22 Agreement between THS and the Co-Operative Management and Mentorship Finance General Admin Registration of legal entity Harvesting Planting Negotiating rates Purchasing of inputs at a discount Access to canefields Subscription of the co-operative to the Industry’s Savings Scheme. This ensures sustainability. Delivering cane to Tongaat Hulett mills

23 Agreement between THS and Service Providers Service Provider to provide the following services/ products: Land preparation, planting, weed control, herbicides, fertilizer, seedcane and weed control. Service providers appointed after an open bidding process. This is part of government’s tender rules. Once the cane has reached canopy stage it is handed over to beneficiaries. Beneficiaries monitor planting contractors even before cane fields are officially handed over to them.

Achievements to date (March 2012) hectares planted to date. More than 50 co-ops have been formed with beneficiaries participating in these co-ops job opportunities created beneficiaries trained on the principles of combined farming tons of cane to be supplied to mills in Many service providers have benefited from the project. KZN FNB Top Business Partnership Award

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Other funding unlocked through OV 26 Socio-economic development contribution worth more than R2.5m by TH in OV project areas. R2m worth of training funds by SASA. Other government departments and agencies have shown interest in the funding model and are in the process of investing in sugarcane production. The Department of Rural Dev & Land Reform also injected funds into an OV project.

Lessons Learned 27 Acknowledge that the public sector functions differently from the private sector. Flexibility is required. Show and quantify full benefits of the project e.g. employment & multiplier effects. Both partners have learned from each other. When designing the PPP programmes there is a need to create win -win situations. Importance of stakeholders and their support. Buy-in at the highest level is critical for project success. Value of project monitoring and evaluation. Some beneficiaries prefer to operate as individuals instead of groups. Sometimes there are negative social dynamics in groups. How to balance the need for local contractors with the tender requirements.

28 THANK YOU