IPAP – 2012/8 -AAA123-20090304- Transnet National Ports Authority Authority’s administered tariffs - Manufacturing Sector Trade and Industry Portfolio Committee 2nd Nov 2012 1

Contents IPAP – 2012/8 Strategic Focus – aligned to MDS Core Functions Port Investment Planning Transnet MDS Capital Program Administered Pricing Volume & Tariff Statistics Tariff application Pricing strategy Proposed tariffs Beneficiation Promotion Program (BPP) Discount level for BPP Way forward Opportunities and Challenges 2 2 2 2 2

TNPA Strategic Focus – aligned to Transnet MDS IPAP – 2012/8 TNPA Strategic Focus – aligned to Transnet MDS Strategic Intent “To enable the effective, efficient & economic functioning of an integrated port system to promote economic growth” Driven by a 3-tier strategy and 6 goals Capital Delivery + Service Levels +Integration = Increased Volumes, Revenue and contain Costs Improve Port efficiencies Efficient port system Economic port system NPA 3-tier strategy NPA Strategic Objectives Enhance the ports’ position as integrated gateways for trade Integrated port system Grow the market Create & manage Infrastructure capacity ahead of demand 1. Effective port system 2. Economic port system 6. Organizational capacity / readiness Create & manage Infrastructure capacity ahead of demand Effective port system Economic port system Aligned to Transnet MDS strategy Improve Port efficiencies (oversight role) 3. Efficient port system 2. Economic port system Enhance the ports’ position as integrated gateways for trade 4. Integrated port system. 5. Grow the market 3 3 3 3 3

Core Functions (National Ports Act, Section 11) IPAP – 2012/8 Core Functions (National Ports Act, Section 11) Function Detail Landlord Promote the use, improvement and development of ports land and has the power to lease port land. Master planner Plan, improve, develop and maintain port infrastructure. Controller of ports navigation Application of rules to control navigation within port limits. Ensures protection of the environment, safety and security within port limits. Controller of ports services and facilities Ensure the provision of port services and facilities. Marketer and administrator Ensure that adequate, affordable, equitable and efficient port services and facilities are provided for port users. Change agent Ensure non-discriminatory, fair, transparent access to port services and facilities; advancement of previously disadvantaged people; Promotion of representation and participation in terminal operations. Enhanced transparency in port management Co-ordinator with other State Agencies Advise on all matters relating to the port sector, and liaise with all stakeholders. 4 4 4 4 4

Port Investment Planning IPAP – 2012/8 Port Investment Planning The main function of the Authority is to own, manage, control and administer ports to ensure their efficient and economic functioning, and in doing so the Authority must ―   plan, provide, maintain and improve port infrastructure; prepare and periodically update a port development framework plan for each port, which must reflect the Authority’s policy for port development and land use within such port; control land use within ports, and has the power to lease land under such conditions as the Authority may determine; provide or arrange for road and rail access within ports; arrange for such services such as water, light, power and sewerage and telecommunications within ports; maintain the sustainability of the ports and their surroundings;’ 5 5 5 5 5

TNPA MDS Capital Program IPAP – 2012/8 TNPA MDS Capital Program 9,038 1,750 2,376 5,326 5,434 6,392 8,134 10,167 Expansion vs. replacement (Rbn) 7.9 7.7 6.3 4.2 2.8 2.5 3.3 2.1 2.2 1.9 2.3 1.0 0.7 0.8 1.5 1.3 expansion replacement 1212 1313 1414 1515 1616 1717 1818 1919 10,167 Province (Rbn) Durban 9,038 R Bay Western Cape 8,134 Eastern Cape Other (LNS, DRS and HQ) 7-year total TNPA R 46.9 Bn 6,392 5,326 5,434 1,750 2,376 133 2,657 3,018 992 1,325 1,509 1,508 406 436 258 503 85 423 251 26 51 44 11/12 12/13 Bgt 13/14 14/15 15/16 16/17 17/18 18/19 6 6 6 6 6

In terms of National Ports Act, 2005 the TNPA is required: IPAP – 2012/8 Administered Pricing In terms of National Ports Act, 2005 the TNPA is required: with the approval of the Ports Regulator to determine tariffs for services and facilities offered annually publish a tariff book containing those tariffs The Port Directives require the Ports Regulator to ensure that the TNPA’s tariffs allows it to: recover its investment; recover its costs; make a profit commensurate with the risk. 7 7 7 7 7

Administered Pricing (Contd.) IPAP – 2012/8 Administered Pricing (Contd.) CPI vs. Tariff increase 104 Index CPI 111 112 106 Other tariffs 109 104 Automotive exports R1bn Discount Programme Container exports (6m) Container exports (12m) 4.42% 4.49% 2.76% April ’09 April ’10 April ’11 April ’12 Capital Expenditure Terminal Capacity Below CPI Tariff Adjustments are not sustainable for TNPA in relation to Investment drive 8 8 8 8 8

Volume and Tariff Statistics – Manufacturing Sector IPAP – 2012/8 Volume and Tariff Statistics – Manufacturing Sector  Commodity CAGR FY 09/10-FY 12/13 Volume Growth Tariff increase Tariff increase after rebate 6m / 12m Tariff increase after rebate Auto Real Term Tariff Increase 6m / 12m Real Term Tariff Auto   Container Full Imports (%) +9 +4 -  - -4 / -4 -  Container Full Exports (%) -29 / -44 -70 / -85 Automotive Exports (%) +14 -15 -48 Average Tariff increases under Regulation below inflation In Real terms, tariff reductions for the manufacturing industry despite increased capacity provision FY 2012/13 – once off R1bn export discount program Manufacturing Sector 9 9 9 9 9

Tariff Application FY 13/14 IPAP – 2012/8 Tariff Application FY 13/14 TNPA Capex Programme Tariff Application FY 13/14 – 5.4% with future smoothed increase of CPI + 3% Tariff request considered reasonable given Capex Program Revenue certainty will increase investor confidence and tariff stability Creates environment for longer term planning in the manufacturing industry and wider economy Tariff Adjustment – capped and smoothed CPI forecast

TNPA has been criticised over its tariff structure IPAP – 2012/8 Pricing Strategy TNPA has been criticised over its tariff structure Key issues Consequences Lack of a clear set of principles and rules to be applied for individual tariffs Lack of clarity and transparency regarding all operating costs, expenses and revenues Lack of explanation for differential tariffs for different commodities using the same handling classification; Lack of information detail with respect to services or facilities pricing and cost relationships Lack of focus on promoting access to ports and efficient and effective management and operation of ports. Very high tariff levels for cargo dues Very high differentials in the levels of cargo dues Relatively low tariff levels for maritime services, Very low levels of revenue from the real estate business 11 11 11 11 11

Pricing Strategy (Contd.) IPAP – 2012/8 Pricing Strategy (Contd.) The Authority has recently finalised its Pricing Strategy. Addresses shortcomings of the current tariff practises and complies with Port Directives. Per the proposed tariff structure: Terminal operators will pay higher rentals cargo owners will pay lower cargo dues Export tariffs lower than Import Tariffs shipping lines will pay slightly higher tariffs In addition the Pricing Strategy indicated: import and export container and automotive cargo dues tariffs need to reduce Cargo dues for bulk and break bulk commodities including coal and iron ore need to increase 12 12 12 12 12

Pricing Strategy Tariff Application FY 13/14 - Proposed tariffs IPAP – 2012/8 Pricing Strategy Tariff Application FY 13/14 - Proposed tariffs -43.2% Description   Tariff book tariff 12/13 R1bn Export Discount Programme 12/13 after discount Proposed Tariff 13/14 Dev. Tariff Book 12/13 vs Proposed tariff 13/14 Dev. % Container Full export:   6m/20' containers R 1 082 740 342 614 -467.37 -43.2% 12m/40', 13m/45' containers R 2 163 1 820 343 1 228 -934.76 Container Full import: 2 178 - 1 866 -312.07 -14.3% 4 355 3 731 -624.10 Automotive export: Motor vehicle own wheels average tariff 430.00 200.00 230.00 315.12 -114.88 -26.7% -26.7%

National priorities with key policies IPAP – 2012/8 Pricing Strategy – Consideration Beneficiation Promotion Programme (BPP) aligned with national priorities National priorities with key policies 14 14 14 14 14

IPAP – 2012/8 BPP – Discount levels for export cargo derived from labour intensity and value add to economy Steel sector value add and employment levels by beneficiation stage Steel sector value add and employment levels by beneficiation stage Discount level rationale Discount level rationale Beneficiation Selling price/ Employment per stage ton steel (US$) 100 tons of steel • no discount as no beneficiation Iron ore 30 0.1 1 • low discount as low Iron 120 0.6 incremental value add 2 and job creation Hot rolled 300 1.1 steel • high increase in discount level as Cold rolled 500 1.6 Ø stage 3 necessary 3 steel precursor to stage 4 Ø currently low level of Pipe and stage 3 ben'n in SA 650 7.0 tube Structural 1,000 75.0 steel • high discount as high potential for significant White goods 5,000 100.0 4 increase in incremental value add and job creation to SA economy Mining 13,000 150.0 equipment 15 Source: Department of Trade and Industry : Metals Sector Strategy 15 15 15 15

Pricing Strategy Way forward IPAP – 2012/8 Pricing Strategy Way forward Pricing Strategy Engagement with: Ports Regulator Government Departments Other Stakeholders Discussion with DTI re beneficiation levels for various sector industries ie Textiles, Agriculture, Food, Furniture, Leather, etc. Transnet Board Approval Support from DTI for the TNPA’s Pricing Strategy inclusive of the BPP

Opportunities and Challenges IPAP – 2012/8 Opportunities and Challenges Opportunities Transnet MDS to provide infrastructure ahead of demand Pricing Strategy aligned to reducing costs for the manufacturing sector Stimulating economic growth Challenges Regulatory Certainty Tariff level to support MDS Capex Program Implementation of Pricing Strategy particularly BPP

IPAP – 2012/8 Questions

IPAP – 2012/8 APPENDIX

Tariffs : Containers Imports IPAP – 2012/8 Tariffs : Containers Imports Tariffs : Containers Imports April ’09 Real Term Tariffs April’09 April ’10 April ’12 April ’11 -4% Rand Rand +4% April ’12 5,000 4,000 -4% 4,000 +4% 3,000 3,000 2,000 2,000 1,000 1,000 Full 6m 12m Full 6m Full 12m Full Volumes : Containers Imports Teu’s +9% 1,400,000 1,200,000 09/10 1,000,000 10/11 800,000 11/12 600,000 12/13 Le 400,000 200,000 Teu Imports Full 20 20 20 20 20

Tariffs : Containers Exports IPAP – 2012/8 Tariffs : Containers Exports April’09 April ’09 April ’12 Tariffs : Containers Exports Real Term Tariffs April ’10 April ’12 Rebate April ’11 April ’12 Rand Rand -4% -85% +4% April ’12 Rebate 2,500 2,000 2,000 -4% -70% +4% 1,500 1,500 1,000 1,000 500 500 Full Full 6m 12m Full Full 6m 12m Full Volumes : Container Exports Teu’s April- Sept 2011 Containers -1% April- Sept 2012 +4% 250,000 09/10 +9% +7% 200,000 10/11 800,000 11/12 150,000 600,000 +42% 12/13 Le 100,000 400,000 50,000 200,000 6m Full 12m Full 6m MT 12m MT Teu Exports Full 21 21 21 21 21

Tariffs : Automotives Exports IPAP – 2012/8 Tariffs : Automotives Exports April’09 April ’12 Tariffs : Automotive Exports April ’09 April ’12 Rebate April ’10 Real Term Tariffs April ’11 Rand April ’12 Rand -13% -48% April ’12 Rebate 0% 600 500 500 400 400 300 300 200 200 100 100 Average Revenue Average Revenue per unit Volumes : Automotive Exports April- Sept 2011 April- Sept 2012 Units Units +3% +14% 300,000 140,000 134,605 138,522 250,000 09/10 120,000 200,000 10/11 100,000 150,000 11/12 80,000 60,000 100,000 12/13 Le 40,000 50,000 20,000 Exports Exports 22 22 22 22 22