Transnet Pipelines 2013/14 tariff Decision Presentation to Parliamentary Portfolio Committee on Energy 27th March 2013

Transnet has a network of 32 Pipelines Approx 3,800km of pipelines

Transnet NMPP project Transnet: 24” Durban to Gauteng + other Running more than 3 years late. Not complete yet Scheduled completion Q3 2010 – latest Q4 2013 Cost escalations: Initial estimate R9.5bn 2007 R 11 bn 2009 R 12.6 bn 2010 R 15.4 bn 2010 R 23.4 bn next ???? NMPP = big influence on tariffs “User pays” policy - motorists carry the bigger burden. Budget speech – no mention of further help Minister of Public Enterprises commissioned investigation. NERSA starting a prudency review of NMPP

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Public consultation on tariffs EVENT DATE Application published for public comment 17 Sep 2012 Draft tariff decision published for public comment 03 Dec 2012 Consultations with Government Departments Nov - Jan Public Hearing 14 Jan 2013 NERSA decision 13 March 2013

Decision: Allowable Revenue Transnet application: + 22.6% NERSA: + 8.5%

Notable “issues” in this application Single year tariff application instead of multi-year Large clawback Decline in volumes – total network volumes decline

2013/14 Application vs. NERSA Transnet Application R million/% NERSA decision R million / % Regulatory Asset Base 19,155.80 19,900.35 Weighted Average Cost of Cap 5.47% 5.79% WACC Return Operational Expenses Depreciation F-factor Clawback Clawback deferment Tax allowance 1,047.50 1,007.30 453.70 466.10 (315.43) 498.40 1,152.77 913.67 483.97 0.00 (453.51) 226.76 471.96 Allowable Revenue (AR) 3,157.57 2,795.61 % increase in AR 22.58% 8.53% Debt ratio EBIT/ Interest cover 55.82% 2.00 40.52% 2.05

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Impact on inland petrol price ULP 93 Decision 1.4 c/l 12

Petrol price structure April 2013 (est.) Petrol ULP 93 (c/l) Basic Fuels Price 773.590 Incremental Inland Transport Recovery Cost 3.000 Wholesale Margin 58.000 Petroeum Products Levy 0.150 Transport Cost 26.800 Delivery Cost 25.500 Retail Margin 99.200 Demand side management levy 0.000 Slate Levy 10.960 RAF 96.000 Customs &excise 4.000 Fuel tax 220.0 Rounding 0.3 Retail price 1317.500 % International component + refining margin 59 Taxes & Levies 25 Administered prices 16 100 Small business Job creation 26c/l Cost drivers: Accident rate Admin costs 13

Pipeline Volumes Lower volumes = higher tariffs = higher inland fuel prices NERSA concerned Transnet annual report for 2011/12: 7.1% reduction in total volumes

Decline in volumes Transnet Pipeline Volumes trended monthly Litres Refined Dbn - Gauteg Crude Inland Network Total System 600 1,600 1,400 550 1,200 500 1,000 Litres 450 800 600 400 400 350 200 300 -

Decline in volumes Possible reasons: Price regulation: Incremental Inland Transport Cost Recovery Levy; Revised service differential in petrol price regulation - unintended consequence; Oil companies: changing procurement and marketing strategies; Market/Transnet: Increased demand for niche products not transported in pipelines; Economy: lower/flat growth in fuel demand.

NERSA collaborating with DoE to see what, if anything, can be done Transnet forecast 4.6% increase in volumes in 2013/14

Thank You www.nersa.org.za