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

Contents 1.Global trends in the transport and logistics industry 2.Macro economic view of SA’s transport & logistics industry 3.Transnet strategy 3.Restructuring update

Contents 1.Global trends in the transport and logistics industry 2.Macro economic view of SA’s transport & logistics industry 3.Transnet strategy 3.Restructuring update

Global GDP trends

Regional growth in container traffic,

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

DCT projection – a South African growth example

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

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

Africa’s share of natural resource reserves

Agenda 1.Global trends in the transport and logistics industry 2.Macro economic view of SA’s transport & logistics industry 3.Transnet strategy 3.Restructuring update

South Africa: macro-economic indicators

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

Modal split of traffic

Transnet constraints include ageing infrastructure Rail locomotives and 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

contents 1.Global trends in the transport and logistics industry 2.Macro economic view of SA’s transport & logistics industry 3.Transnet strategy 3.Restructuring update

Aligning Transnet’s strategic focus with the economy PE East London Maputo Richards Bay Durban Cape Town Coega Heavy Manufacturing zones Mining zones Mandate: Support SA’s export-led growth strategy Reduce the cost of doing business SA’s economy: 1.Mining (6%) 49% 2.Manuf. (20%) 45% 3.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 Freight Typology: Up to 70% of economy is bulk, heavy-haul, long distance and low to medium value traffic Production location of key sectors Transnet strategic direction Focus on rail, ports, pipelines (Operations & Infrastructure) Focus on improving key corridors/ clusters Transnet Focus

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.

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

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

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

CAPEX 5-YEAR PLAN (CORE) Rail (R31.5bn) Replacement: Ore Line sustain (R460m) Coal Line sustain (R6192m) Capitalization of Maintenance (R8124m) General Freight (R10827m) Other smaller replacement projects (R1475m) Expansion: Ore Line expansion (R2283m) Coal Line expansion (R1765m) Other smaller projects (R345m) Ports (R18.6bn) 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: Construction of the Port of Ngqura (R2493m) Container Terminal Expansion- Salisbury and Bayhead (R3837m) Cape Town Capacity expansion (R1838m) Other smaller expansion projects (R6888m) 5-Year Capex total projection: R 64bn

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)

contents 1.Global trends in the transport and logistics industry 2.Macro economic view of SA’s transport & logistics industry 3.Transnet strategy 4. 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 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 Restructuring update

Thank you