TSDBF / TPF & TRANSNET SOC LTD JOINT FINAL PROPOSAL TO THE PORTFOLIO COMMITTEE 25 NOVEMBER 2011

1. TSDBF / TPF & TRANSNET SOC LTD JOINT FINAL PROPOSAL TO THE PORTFOLIO COMMITTEE 25 NOVEMBER 2011

2. AGENDA • TSDBF stakeholder expectations and Transnet’s mandate • The Portfolio Committee (PC) recommendations and its implications • The TSDBF & Transnet Proposal – detailed per item • Conclusion – on TSDBF • Transnet sub-fund within TPF • Questions 2 TSDBF/TTPF/Transnet Ltd

3. THE STAKEHOLDERS • TSDBF Pensioners • Pension increases beyond the current 2% p.a. • Preferably linked to inflation • Bonus structure to continue (NB) • Secure cashflow from a sustainable fund • TSDBF Trustees • Fulfill their fiduciary obligations to the Fund and its pensioners • Financial prudence of the Fund wrt liabilities is paramount as well as a statutory requirement • Well aware of the plight of pensioners • Cognisant of the generational issues in balancing immediate cashflow versus longer term effect of inflation on pensions • Employer (Transnet Ltd) • Well aware of challenges facing TSDBF trustees and pensioners • Need to comply with PFMA requirements and mandate from Shareholder • Transnet BOD must act within the scope of their fiduciary obligations 3 TSDBF/TTPF/Transnet Ltd

4. TRANSNET MANDATE • Transnet’s mandate is: • Primary logistics service provider to support RSA economic growth; and • Roll out a massive capital expenditure plan to ensure the appropriate infrastructure to provide logistics services in a cost effective and efficient manner. • The capital expenditure programme and the Portfolio Committee’s resolution will result in Transnet being in the following position: • Borrowing R36.3 billion over 3 years on the strength of its own balance sheet with no Government guarantees; • Gearing ratio will increase to 48.3% - cannot increase beyond 50%; and • Cash interest cover very fragile at 3.2 times – cannot be below 3.0 times. • International economic crisis; Moody’s downgrade etc • This position will seriously jeopardise Transnet’s ability to execute its mandate – consequently contrary to fiduciary duties of the Board of Directors of Transnet. 4 TSDBF/TTPF/Transnet Ltd

5. THE PC RECOMMENDATIONS AND ITS IMPLICATIONS • Recommendations : • Backpay of 5 months’ pension • Future pension increases at 75% of CPI, subject to affordability • A once off 3.2% base uplift in pension • Funding issues • Will exhaust current surplus PLUS will require additional injection of R2bn 5 TSDBF/TTPF/Transnet Ltd

6. TSDBF CANNOT AFFORD PC RECOMMENDATIONS • Total cost of PC recommendations R4.7 billion 6 TSDBF/TTPF/Transnet Ltd

7. FINAL PROPOSAL • Takes account of : • The Fund’s financial position and soundness • The impact of the proposal on pensioners receiving, or qualifying to receive, the State Old Age Pension • Generational issues and current life expectancy of pensioners • The asset allocation of the fund and expected return on assets • Potential unwinding of solvency reserves over time • Preferences expressed by the pensioners as advised by the Pensioner elected Trustee representatives of the Fund • Fiduciary duties of Trustees and Transnet BOD 7 TSDBF/TTPF/Transnet Ltd

8. PROPOSAL 1 : PAYMENT OF 5 MONTHS’ PENSION • Since PC communication started, 2 months additional pension have been paid as bonuses • The Fund will by Feb 2012 pay another 3 months pension as bonuses to take the total bonuses paid to 5 months pension (since November 2010) • The Fund Trustees will finalise the details of the payment plan and exact timing of payments • The intention of the Fund is to fully implement this proposal at a total cost of R850 million (18%) 8 TSDBF/TTPF/Transnet Ltd

9. PROPOSAL 2 : PROSPECTIVE PENSION INCREASE POLICY OF 75% OF CPI, SUBJECT TO AFFORDABILITY (STA) • Based on 6% p.a. expected inflation • The 2% p.a. guaranteed increase (33% of CPI) remain • The targeted increase is subject to affordability (STA) • STA will be clearly defined by the Fund, but will be based on : • Investment returns in line or beating expectations • The Fund not having a deficit after any such increase • The Trustees will finalise the exact payment and timing of these increases. • The increases will not vest, but is expected to accumulate over time to equate to the targeted level of CPI increase • The increases will be paid using the bonus rule currently in the Rules of the Fund • Modelling results outlined below (next slide) 9 TSDBF/TTPF/Transnet Ltd

10. PROPOSAL 2 : Cont. • The 2% p.a. already represents 33% of CPI and is included in the results below (all STA) • Based on current valuation basis : A target of 63% of CPI can be afforded • Based on the higher expected returns on equity and the matching structure of the Fund, the target can be increased to 68% of CPI should these investment returns transpire • Lastly, the Fund expects the solvency reserves to unwind (reduce) over time and together with any further outperformance of assets will try to target 75% of CPI increases over time • Any excesses beyond this level may lead to additional bonuses being paid • IMPORTANT : Although the Fund may target 75% of CPI, the comfortable level of increases is between 63% and 68% of CPI • The intention is to fully implement this proposal at a cost of R2.7 billion (57%) 10 TSDBF/TTPF/Transnet Ltd

11. CONCLUSION ON TSDBF • Of the 3 PC proposals, 2 can by and large be met: • 5 months pensions – fully met • 75% of CPI prospective increases STA – targeted, but mostly met in terms of analysis • 75%, R3.55 billion, of total expected cash flows from proposals will be given to pensioners • Additional bonuses, if future excesses are generated for benefit of pensioners • Not taken into account in the means test in calculating an older persons entitlement to a State grant 11 TSDBF/TTPF/Transnet Ltd

12. TSDBF’S POSITION AFTER IMPLEMENTATION OF JOINT PROPOSAL * The surplus will be used to fund the targeted CPI linked increases 12 TSDBF/TTPF/Transnet Ltd

13. Thank you for inviting us to present to you… Any questions? 13 TSDBF/TTPF/Transnet Ltd