Asset Management Workshop November 2010 #424282v1

SANRAL Mandate Corporate Governance Budgeting Funding Financial Reporting Revaluing assets Open Road Tolling (not discussed) AGENDA

The SANRAL mandate

Established in April 1998 by an Act of Parliament as an independent operating company to operate South Africa’s national road network Established in terms of the National Roads Act of 1998 as a public company with a share capital within the requirements of the South African Companies Act Governed by a board of directors (8 members) of whom 7 must be appointed by the Minister of Transport Eighth member of the board is the CEO by virtue of office Who Is SANRAL Responsible for strategic planning with regard to South African national road system Finance, plan, construct, provide, operate and maintain roads in neighbouring countries upon request from the Minister of Transport and in agreement with the respective countries Commercial principles, but not profit driven

Vision: To be recognised as a world leader in the provision of a superior primary road network in Southern Africa. Mission: As the custodian of a public good we are committed to the advancement of the Southern African community through:-  a highly motivated and professional team;  state-of-the-art technology;  proficient service providers; and  promoting the ‘user pay’ principle. Vision and Mission

E-xcellence P-roactiveness P-articipativeness I-ntegrity C-are EP 2 IC SANRAL’s Core Values

Minister (Regulator) Governance and Control Planning, Design, Construction, Operation, Management, Control, Maintenance & Rehabilitation of National Roads Chief Executive Officer Board MOT Day to Day Business and Operations Management SANRAL Staff SANRAL RELATIONSHIP TO MINISTER and DOT

Regulation  The South African National Roads Agency Limited and National Roads Act, No 7 of 1998  Public Finance Management Act, No 1 of 1999  External Auditor: Office of the Auditor-General  Internal Audit: Outsourced to Pricewaterhouse Coopers & BI Group (SAB&T)  Bankruptcy remote – may not be placed under judicial management or in liquidation except if authorised by an Act of Parliament  Exempt from Income Tax but toll portfolio is a vendor in terms of the VAT

 Responsible for proclaimed national roads: Toll and Non- Toll Network  Obligated by legislation to keep separate accounts for Toll and Non-Toll activities  Design, fund, maintain, operate and rehabilitate national roads  Manage approximately R18.5bn of annual spend  Manage toll road concessionaires  Levy tolls for the purposes of funding the Toll Road Network – with annual adjustments subject to the approval of the Minister of Transport  Provide safely engineered, well maintained roads What Do We Do?

Road user is our client – SANRAL objective is to provide a safe well engineered road to the user – movement of people, services and goods Value of time – Time is valuable, both commercial and private To enable the economy to grow – creating wealth and job opportunities, saving on road user costs – sufficient infrastructure is required The Bigger Picture

In order to provide above, there are different focus areas: –As minimum, roads must be well maintained: Routine road maintenance (crack sealing, pothole repair, grass cutting, road signs and markings, guardrails, etc) Periodic maintenance – reseals and overlays Rehabilitation Available funding optimized using tools such as pavement management systems, HDM4 –Capacity improvements (combine with rehabs): Additional lanes Paved shoulders Climbing lanes The Bigger Picture

NATIONAL ROAD NETWORK (km) Description Non TollState TollBOTTotal Dual Carriageway Lane Undivided Lane Single Total % of SANRAL Network 81%11%8%

Corporate Governance

 Board and Top Management – Control and Direction  Enterprise-wide Risk Management Risk Management Cluster Board Ultimately Accountable  Measures against Fraud and Corruption: Zero Tolerance Fraud Hotline (Whistle blowing) Tip-Offs Committee Forensic Investigations Governance

Transparent and consistent procurement process International standards for terms and conditions: FIDIC Promotion of SMME’s and BEE Segregation of duties as per SCM policy –Evaluation, recommendation, award Procurement Process

Budgeting for national roads

Cost Of Maintenance Delay – Sanral Repair Cost = X / km Good Fair Poor Very Poor 3-5 Years Repair Cost = 6X / km 5-8 Years Repair Cost = 18X / km (Ratio 1:6) (Ratio 1:18)

Cost Of Maintenance Delay – Road User (2008r) Good Poor

Asset Preservation - Data Roughness Rut Depth Macro Texture Cracking Ravelling Video Surface Friction Structural Strength Centralised Database Traffic Bridge DGPS Unit Costs

SANRAL Budgeting Procedure Instrumental Data CBA Priority List PMS RDME RUE Bridge Inspections BMS BDME RUE CBA Priority List Traffic Super Project List Budget Optimisation EasternSouthernNorthernWestern Programming Pavement Management System Bridge Management System

Funding

 In terms of the SANRAL Act the it is obliged to operate its toll roads separately from its other national roads  SANRAL maintains separate accounting records for Toll and Non-Toll related operations  There is no cross subsidisation between the Toll and Non- Toll businesses  Toll roads are deemed to be self-funding and for financial analysis are deemed to amortise over a period of 30 years Toll and Non-Toll

 Monies appropriated through grants by Parliament (Non-Toll)  Debt Capital Markets for toll roads (Toll)  Toll road funding is supported by toll revenue income (Loan Supportable by Revenue Principle)  Raised in ZAR SANRAL Funding

 Transparent, intelligent procurement  Use of technology: - Intelligent Transport Systems (ITS) - Electronic Toll Collection (ETC) - Asset Management Systems  Environmental sensitivity  Promote entrepreneurship and support SMMEs  Public Private Partnerships (PPP) How Do We Deliver ?

J-curve

Moody’s National Scale Issuer Ratings: (Non-guaranteed notes) Long-Term: Aa2.za Short-Term: P-1.za Global Scale Issuer Ratings: Long-Term: A3 Short-Term: P2 Rating

Initial R6 billion guaranteed funding (SZ bonds) R1 billion N1 loan – separate guarantee R10 billion – non guaranteed funding (NRA bonds) R31.91 billion guaranteed funding (HWAY bonds & others) BORROWING CAPACITY Total Borrowing capacity = R48.91 billion Total Guarantee = R38.91 billion {R31.91 billion (H Way) & R6 billion (SZ)}

TOTAL DEBT

BONDCOU- PON MATURITYCOUPON DATESISSUE AMT (million) TYPE NRA October April 31 October1 560CPI NRA April April 31 October140Fixed NRA November May 30 November2 556Fixed NRA October April 31 October2 200Fixed NRA May May 30 November515CPI NRA November May 30 November2 671Fixed HWAY July January 31 July5 762Fixed HWAY December June 31 December 521CPI HWAY July January 31 July1 779Fixed HWAY December June 31 December 211CPI HWAY July January 31 July647Fixed THE SANRAL SUITE (Aug 2010) Spire Awards: BEST BORROWER 2008 & 2009 BEST ISSUER 2009 (HWAY20)

Current Concessions  N4 East, Maputo Development Corridor – 420km  N3 Cedara, Heidelberg – 512km  N4 West, Platinum Highway – 484km Proposed Concessions  N1/N2 Winelands Toll Highway (Tenders closed 1 Nov 10)  N2 Wild Coast Toll Highway (ROD received)  R300 Ring Road Current & Proposed Concessions

Financial Reporting

Statutory Reporting (Financial Statements) International Financial Reporting Standards Special approval from NT due to publicly traded debt & international funding sources Financial Reporting

Management Reporting Non-toll and Toll separate Forecasts done on monthly basis per project on mySAP (ERP) Non-toll balanced to zero for budget Toll allowed to budget for deficit due to finance charges and ‘J-curve’ effect Financial Reporting

Going Concern: technically insolvent –Established with nominal asset value –Incorporated roads at zero cost –Toll roads > J-curve effect –Deferred Income: Non-current liability ito IAS20 Completeness of assets –SANRAL Act > ownership –Registration of property cumbersome Reporting Challenges

Revaluing our assets

Investment Property –1500 properties –Normal valuation (NPV) method –R1.1 billion (2009) Road Reserve Land – ha –Corridor method > Legal opinion –Using comparable sales of ‘across the fence’ properties –Adjusted for services & access Asset Revaluation

Road Reserve Improvement –16 170km, bridges & culverts –R billion –Standards for road building given specific traffic and topography –Pavement & Bridge condition Asset Revaluation (continued) Depreciated replacement cost

Toll roads: Loan Supportable by revenue (LSR) methodology –Recoverable amount over a rolling 30 year period Non-toll: Depreciated replacement –Non-cash generating unit, therefore no guidance in IFRS –IPSAS 21: value in use for non-CGU = depreciated replacement cost Impairment

Property verification project –ITIS (maps, RDS, status of each property) –Identification & Verification, then transfer –Valuation of all properties Condition of roads & bridges –Condition survey every 2 years –Bridge inspection every 3 years –Detailled loaded into ITIS Comprehensive Asset register

Open Road Tolling (ORT)

Project Extent: PLANNED LANE ADDITIONS: 185 km (2010) FUTURE UPGRADES: (223 KM) PLANNED NEW ROUTES: 158 km FINAL SCHEME: 561 KM

Open Road Tolling

SANRAL principles for ORT  One tag standard  One account – may include various vehicles  Central clearing Full interoperability

ORT - General  SANRAL model:  TCH & VPC – National SANRAL initiative:  Central clearing with all current and future concessions  Clearing with CTROM (current toll plazas)  Integration of Natis and AARTO  Utilising special enforcement unit to do violation processing & enforcement

ORT Building Blocks  Consist of following:  Toll tag  Kiosks/Mobile Kiosks  Satellite Centres  Technical Shelters and Gantries (Toll Point)  Communications Backbone  Central Operations Centre (ORT Back Office, TCH, VPC, ITS  Disaster Recovery Centre  Toll Signage  User Services

ORT – Customer Service Centres

Customer Centre 12 min reach

Technical Shelters & Gantries

Communications Backbone  SANRAL Provides:  Fibre Optic Backbone  Combination of existing ITS fibre and fibre to be installed in median  Contractor:  Backup/emergency coms

ORT – Central Operations Centre  ORT Back Office  Transaction Clearing House (TCH)  Violations Processing Centre (VPC)  New ITS ops centre

ORT – Back Office  Receives Transactions from RSS  Apply discounts  Do manual NPR if ANPR failed for non e-Tag transactions  Optimise completeness and compliancy of transaction, before forwarding to the TCH

ORT - TCH  Receive transactions from the ORT operator  TCH links transaction to an account  Does financial clearing  If not successful – forward to VPC  Do account management – call centre  Manage tag logistics – issues the tag to all ETC projects/Retail outlets

ORT – Violation Processing  Potential violator identified if:  No tag or account  Insufficient funds in account  Vehicle not identifiable  Transaction forwarded to VPC:  Send invoice  Not successful - final invoice  Not successful – Infringement notice

Violation Enforcement  Enforcement Unit (traffic officers together with ORT contractor) is set up to do violation enforcement  Not only toll – all traffic violations  Also attending to other requirements – management of incidents

Freeway ITS network Figure 10.1: GFIP Phase 1 SANRAL ITS Network – Implemented (210 km) JRA ITS Expansion

Cape Town FMS Operations

Inge Fraud hotline