Transnet: Progress report

1. Transnet: Progress report Select Committee on Labour and Public Enterprises Parliament 21 June 2006

2. Contents • Global trends in the transport and logistics industry • Macro economic view of SA’s transport & logistics industry • Transnet strategy • Restructuring update

3. Contents • Global trends in the transport and logistics industry • Macro economic view of SA’s transport & logistics industry • Transnet strategy • Restructuring update

4. Global GDP trends

5. Regional growth in container traffic, 2003 - 2008

6. Global transport trends in containers • Global container volumes are increasing • Global containerized traffic grew from 78m TEU to 106 million TEU between 2002 & 2005 • Increasingly large vessels • Larger vessels demand larger, more efficient ports • Port congestion has become a global phenomenon • Strained capacity in USA and European ports to support container growth • Ports in Asia gearing to handle 250+ berth moves per hour • Average seaborne transport cost with an 8,000 TEU vessel is estimated to be 20-30% lower than that with a 4,000 TEU vessel • Increased industry consolidation • Top five carriers handle 63% of total volume • Increased use of technology *Source: Container management 2004

8. DCT projection – a South African growth example

9. Global transport trends in bulk commodities • Forecast volumes handled at China’s sea ports by 2010 • Coal expected to reach 990 m tons • Crude expected to be 140m tons (in 2004 China imported 110m tons via shipping) • Iron ore expected to reach 320m tons (imported iron ore was 200m tons in 2004) • Larger vessels are coming on stream • Ore carriers of 300,000 tons deadweight being constructed • Unprecedented order book for new bulk vessels • Freight rates remain high *Source: Container management 2004

10. China’s share of global commodity usage 46% 40% 36% 35% 29% 26% 26% 2011 Percentage of world consumption in 2001 30% Iron Ore 25% Crude Steel 22% Finished Steel 21% Platinum Zinc 17% Copper 15% Aluminium 15%

11. Africa’s share of natural resource reserves

13. Agenda • Global trends in the transport and logistics industry • Macro economic view of SA’s transport & logistics industry • Transnet strategy • Restructuring update

14. South Africa: macro-economic indicators

15. 745 million tons freight per annum. Total transport cost R135bn per annum. Biggest portion of total is long-haul road transport. R0.3bn SA’s logistics costs: 15.2% of GDP 75% long-haul goes by road (CSIR 2005) R11bn R11bn R25bn R50bn Rail corridor = R135/tonRoad corridor = R360/ton R30bn

16. Modal split of traffic

17. Transnet constraints include ageing infrastructure Rail • 2 360 locomotives and 84 633 wagons • Average age of fleet 27 years • Current availability of fleet approximately 64% Ports • Depth of harbours • Container handling facilities Pipeline • 40 years old • 90% of operating capacity

18. contents • Global trends in the transport and logistics industry • Macro economic view of SA’s transport & logistics industry • Transnet strategy • Restructuring update

19. Aligning Transnet’s strategic focus with the economy Maputo Richards Bay Durban East London Coega Cape Town PE • Mandate: • Support SA’s export-led growth strategy • Reduce the cost of doing business • SA’s economy: • Mining (6%) 49% • Manuf. (20%) 45% • Agriculture (4%) 6% • Why Strategic corridors? • Majority of export/ import traffic (excl. containers) is typically bulk and heavy manufacturing on rail • Majority of road haulage is for domestic distribution • To support the export strategy and economic growth for current key sectors, connectivity between inland transportation systems and ports are critical • Create efficient export systems • for growing sectors Production location of key sectors Freight Typology: Up to 70% of economy is bulk, heavy-haul, long distance and low to medium value traffic Transnet Focus Heavy Manufacturing zones Mining zones • Transnet strategic direction • Focus on rail , ports, pipelines (Operations & Infrastructure) • Focus on improving key corridors/ clusters

21. The turnaround time Transnet business: commercial ownership, development, maintenance and operations of South Africa’s port, rail and pipeline infrastructure on behalf of the South African government. Transnet mandate: to lower the cost of doing business in South Africa Transnet strategy: to boost the integrity and efficiency of the freight logistics network, driven by ‘one company: one vision’ approach.

22. Transport Telecomms PETRONET RAIL PORTS Core Transport Portfolio RAIL HSA Strategic Support Divisions Independent Regulators

23. The turnaround time Key pillars of the Turnaround Strategy Provide efficient, integrated transport logistics network to the bulk and manufacturing sectors • Redirect the business • Restructure the balance sheet • Implement strict corporate governance • and vigilant risk management • Build human Resources capabilities

24. Implementation programme overview Lower cost of doing business Targeted sectors Redirect and re- engineer the business Corporate governance and risk management • Reengineer core business • Corporate HO restructure • Operational synergies • Customer focus • Infrastructure development • Shareholders compact • Memo and articles of assoc • IFRS • Legal review 4 Point Turnaround Plan Human capital development Balance Sheet restructuring • Skills audit and matching • Recruitment and retention • Skills and training • Performance Management • Career management • Succession planning • Pension fund deficit • Transfer SAA to govt • Disposal of non-core • businesses Economic development One company, one vision

25. CAPEX 5-YEAR PLAN (CORE) 5-Year Capex total projection: R 64bn Ports (R18.6bn) Rail (R31.5bn) • Replacement: • Ore Line sustain (R460m) • Coal Line sustain (R6192m) • Capitalization of Maintenance (R8124m) • General Freight (R10827m) • Other smaller replacement projects (R1475m) • Replacement: • Pier 1 re-surfacing (R659m) • Reconstruct Island View Berths (R134m) • Remodel Maydon Wharf (R1249m) • Remodel South Arm (R633m) • Other smaller replacement projects (R836m) • Expansion: • Ore Line expansion (R2283m) • Coal Line expansion (R1765m) • Other smaller projects (R345m) • Expansion: • Construction of the Port of Ngqura (R2493m) • Container Terminal Expansion- • Salisbury and Bayhead (R3837m) • Cape Town Capacity expansion (R1838m) • Other smaller expansion projects (R6888m)

26. CAPEX 5-YEAR PLAN (CORE) Port Operations (R6.3bn) • Replacement: • Durban Container Terminal (R274m) • MPT West (R614m) • Refurbish 8 Noell cranes(R240m) • 14 Gantry cranes & 78 Straddle carriers (R1167m) • Other smaller replacement projects (R75m) • Expansion: • Coega Container Terminal (R1254m) • Saldanha Phase 1 & phase 1B expansion (R689m) • Other smaller expansion projects (R1950m) Pipelines (R4.9bn) • Replacement: • Upgrade of Gas Line - Lilly • (R396m) • Expansion: • New Multi-product pipeline • (R2905m) • Gauteng to Maputo line (R620m) • Terminalling and logistics (R499m) • Other smaller expansion projects (R1627m)

29. contents • Global trends in the transport and logistics industry • Macro economic view of SA’s transport & logistics industry 3. Transnet strategy 4. Restructuring update

30. Restructuring update • Disposal of non-care assets: • Transfers to government in process of completion: • Metrorail • SAA • Sale of shares in terms of existing shareholder agreements: • VAE Perway • Equity aviation • Connex • Preparation of sale to private sector: • V&A Waterfront • Blue Train • Viamax • Freight Dynamics

31. Restructuring update • Agreement has been reached with trade unions on disposals. • Only outstanding entities requiring finalisation of agreement: • Autopax • Transtel • Arivia • Agreed framework for different types of disposals and • protection of employee benefits

32. Thank you