1. 1 Spoornet Rail Freight Challenges Positioning for Growth and Prosperity Siyabonga Gama Chief Executive, Spoornet Global Rail Freight Conference 22-24 March 2007

2. 2 Non-core portfolio TRANSNET COMPANY Structure Enabling economic growth Focused freight transport company Delivering effective and competitive services Spoornet RAIL Transwerk PORTS National Ports Authority SA Port Operations Petronet PIPELINE Operational divisions (continued businesses) SAA Viamax V & A Waterfront Autopax Metrorail freightdynamics Equity Aviation VAE Perway Discontinued businesses Other to be sold Propnet – non-core portfolio Housing assets SA Express “C” class preference shares Strategy Transnet Structure

3. 3 Spoornet Network Sishen Saldanha Cape Town East London Port Elizabeth Durban Richards Bay Messina Pretoria Kimberley Low Density No Service Lines High Density Light Density Bloemfontein Johannesburg Spoornet is the largest division of Transnet with a focus on the transportation of freight.

4. 4 Facts about Spoornet ● Moves 17% of the nations freight annually  70mt of export coal on the heavy-haul Ermelo – Richards Bay line  32mt of export iron ore on the heavy haul Sishen - Saldanha line  80mt of general freight across various freight corridors ● 30% of the core network carries 95% of freight volumes ● 3 million inter-city passengers annually ● Annual revenues of over R14billion (US$2.2bn) ● R7 billion in annual capital investment over the next 5 years ● Total assets of R24 billion ( ’03/07) up from 18.4bn (’03/06) ● 25 068 employees system wide (from 33 450 in March 2006)

5. 5 Spoornet Statistics ● Freight Wagons93 700 (active) ● Locomotives2 157 (active) ● Track km 30 400 km ● Route km 20 298 km ● Freight volumes182 mV (2005/06) ● Passenger Coaches 1 227 (active) ● Long distance Passengers3.15 million (2006/05) ● Blue Train occupancy 164 trips, 90% ● TurnoverR14.3 billion (2005/06) ● Employees25 068 (Dec. 2006)

6. 6 Spoornet : Density over the network Touwsrivier MidIlovo Plaston Kelso Eshowe Utrecht Hawerklip Naboomspruit Middelwit Vierfontein Sishen Saldanha Cape Town East London Port Elizabeth Mosselbaai Bredasdorp Protem StrandSimonstad Stellenbosch Franschhoek Bitterfontein Porterville Atlantis PrinsAlfred Hamlet Riversdale Knysna Calitzdor p George Ladysmith Avontuur Patensie Klipplaat Oudtshoorn Rosmead Kirkwood Alexandria Cookhouse Somerset East Noupoort DeAar Prieska Upington Kakamas Naroegas Worcester Sakrivier Calvinia Hutchinson Kootjieskolk Beaufort West Belmont Douglas Hotazel Warrenton Pudimoe Makwass ie Mafekeng Ottosdal Vermaas Schweizer-Reneke Klerksdorp Hlobane Moorleigh Ladysmith Roossenekal Steelpoort Graskop Machadodorp Belfast Lothair Komatiepoort Baberton Phalaborwa Messina LouisTrichardt Soekmekaar Zebediela Vaalwater Nylstroom Johannesburg Pretoria Olifantsfontein Ellisras Northam Charlestown Vrede Potchestroom Empangeni Donnybrook Greytown Franklin Kimberley Marble Hall Standerton Bethal Gelukpos Simuma Mandonela Winburg Theunisen Chroomvallei Drummondlea Virginia Glen H Howick Hilton Copperton Cullinan Rayton Uitenhage Klawer New Castle Glencoe Drummondlea Virginia Glen H Howick Hilton Copperton Cullinan Rayton Uitenhage Klawer New Castle Glencoe High Density Lines (<3mnt/a) High Density Lines (3-7mnt/a) High Density Lines (7-10mnt/a) High Density Lines (10-20mnt/a) High Density Lines (20-30mnt/a) High Density Lines (>30mnt/a) Low Density Lines (Open) No Significant Service Lines Picked up Lines Port Alfred Iron ore exports > 30mt Coal exports > 70mt General Freight > 80mt

7. 7 General Freight: Portfolio Mix (Rbn) Coal & Containers generate highest revenues. 70% of other revenue is from mining/ bulk related freight. Coal Containers Other Iron ore Grain Manganese Petroleum Cement Chrome Phosphate Ferrochrome Lime Steel Timber R1,8bn R1,1bn R1,6bn The portfolio mix is representative of most freight railways

8. 8 Locomotive Age Profile ● The average age of the total fleet is 30 years compared to 12 years US Class One ● Last batch purchased more than 12 years ago ● Ageing fleet characterised by high maintenance costs, very low reliability and availability and high number of safety related incidents ● Aggravated by lack of effective maintenance over a long period

9. 9 Wagon Fleet Age Profile ● The average age of the General Freight wagon fleet is 34 years ● Limited investment in wagons over the past 12 years (excl. coal & ore) ● Capital investment for wagon fleet modernisation behind schedule ● Availability of wagons is not achieving desired percentage and is deteriorating ● Lack of effective maintenance over a long period, leading to current backlog Replace with equivalent wagon graph Wagon Fleet Age distribution 0 2000 4000 6000 8000 10000 12000 14000 16000 147 1013 161922252831343740434649525558 Age (Years) Quantity Wagons

10. 10 Where have we come from? ● South Africa ● Spoornet

11. 11 South Africa: Economic Outlook ● Export performance expected to improve  high commodity prices  increased profitability of a broader range of manufactured goods ● Growth in imports likely to remain high due to continued strong domestic demand ● Inflation projected to remain well within the target range ● Outlook for achieving 6% GDP growth by 2010 is bright

12. 12 Issues that being addressed in South Africa ● Globalization ● Regional role ● Increase/enhance competitiveness  Reduce cost of doing business  Job creation and poverty alleviation ● Streamline/improve the national logistics infrastructure ● Transformation & BBBEE ● Understand the interaction between the 1st and 2nd economies

13. 13 Structure of the South African Economy 330mt 370mt 45mt 2004 Manufacturing = 18% of GDP 2004 Mining = 7% of GDP 2004 Agriculture = 6% of GDP @ The total throughput in the South African economy that requires logistics intervention amounts to 830mt (transportable GDP) Mining 49% Agriculture 6% Manufacturing 45%

14. 14 Spoornet’s Strategic Intent ● Enables Economic Growth ● Facilitates Trade Growth by increasing South Africa’s competitiveness ● Reduces logistics costs by transferring traffic from road to rail ● Develops Skills Spoornet is a Freight Railway that satisfies the needs of our Customers

15. 15 Spoornet Strategic Rail Track Map 2012 Desired Future SPOORNET Current State of SPOORNET Stabilise and Re-engineer the Business Improve Operational Efficiency & Customer Service Improve Business Performance Volume & Market Share Growth Sustainable Business Position in Rail Industry Investigate Vertical Integration vs. Vertical Separation Regain Credibility Strategic Investment Divestment of Non-Core Non-Freight Business Activities 2005200720082009 2012

16. 16 Spoornet Objectives Leadership & Employee Capability Optimise human capital deployment and development Customer Service Delivery Retain the desired customer base and improve service delivery Scheduled Freight Railway Implement efficiency improvements Create Capacity Invest to maintain, replace and increase capacity Improve Corporate Governance Change Leadership Focus on high growth, high yield General Freight in key corridors Safety Transform Spoornet into a safe railway 4 1 2 5 3

17. 17 Restructuring Capital Investment Operational Efficiency Spoornet : Levers for Growth People Marketing / Pricing

18. 18 Spoornet: Projected Volumes (mV) 2007-2012 0 50 100 150 200 250 300 687274778186 31354244 47 Coal Iron Ore General Freight 79828995102105 2006/072007/082008/092009/102010/112011/12 Growth focus: Market share capture

19. 19 Spoornet’s Service Offerings BlockloadIntermodal Fixed origin and destination point with high level of empty returns, and focused asset utilization Heavy Haul Terminal-to- terminal blockloads with priority path status Purpose-built bulk conveyor belts Less than Blockload Varying OD’s, many operational moves, poor asset utilisation Fixed schedule serviceCharter serviceConsolidation service

20. 20 Spoornet Market Strategy Market Defense Strong relationships with base-load industries through: dedicated service and tight integration with their production processes Market Defense Strong relationships with base-load industries through: dedicated service and tight integration with their production processes Market Capture of Bulk freight through: Efficiency improvements translated into a competitive service offering Market Capture of Bulk freight through: Efficiency improvements translated into a competitive service offering Market Attraction through Rail and Road partnerships to service the needs of growing, non-bulk sectors of the economy via intermodal solutions Market Attraction through Rail and Road partnerships to service the needs of growing, non-bulk sectors of the economy via intermodal solutions

21. 21 Efficiency focus for Rail Focus Area Optimal planning and execution of resources Increase locomotive reliability Quality and cost of service delivery Asset utilisation and efficiency Ring-fence rolling stock fleets and reduce cycle time Reduction in safety and security incidents Streamlined customer interface Execution of Backlog Maintenance, Capital Programme and improved maintenance practices Labour Productivity and Change Management Measures

22. 22 Spoornet Capital Investments Key Projects Coal & Ore line expansions Locomotive Renewal Programme o110 AC/DC for Coal line o 212 Diesel-electric o163 AC/DC for General Freight General Freight oRolling stock fleet renewal & modernization oTrain authorisation systems oInfrastructure electrical systems oRelocation of CTC offices oOptic fibre cabling oUpgrade & sustain rail infrastructure: R4bn p.a. over next 5 years R34bn (US$5bn) Investment over next 5 years US$1.3bn invested in 2006 ● Rolling Stock Maintenance & Backlog  Reliability  Stabilisation  Fleet Rightsizing & Standardisation  Upgrades ● Expansion  Majuba Power Station  Coal and Iron Ore Export lines ● Rail Master Planning: future

23. 23 The Competitive Challenge for South Africa SA is essentially a bulk net exporter: equidistant from all the main global markets Global trade routes SA trade routes 14k km 12k km 10k km

24. 24 Influenced by global logistics trends… ● Sourcing of product is a global game ● Choice is influenced by agility and cost of the total supply chain ● Balance of power shifting to carriers ● Focus on Intermodalism and Integration ● Pressure on developing countries to reduce the cost of doing business ● Global Revival of Rail  Rail is catalyst in positioning emerging economies  Infrastructure investment critical  Regulation of modal competition

25. 25 Global Customer Requirements for Rail ● Heightened pressure for world-class competitiveness ● Efficient rail is a competitive advantage for customers to get product to market – 5 “R’s” of Rail:  Right Place  Right Time  Right Quantity  Right Cost  Right Condition Rail is an integral part of the total supply chain, rail operators need to think outside the ‘rail’ box

26. 26 Rail in the Customers’ Supply Chain ● For Customers the world is flat in terms of supply and demand ● Rail is the critical link between supply and demand ● Rail is part of a production system  Each component needs to focus on product delivery  Each component needs to perform based on quality standards  Each component needs to invest in technology to improve  If the production line fails the factory stops Supply Chains are global production lines

27. 27 Future Outlook ● Volume based growth strategy & philosophy ● Capital investments to capture market growth (10% of GFB to 22% over 5 years) ● Investments in sustaining growth ● Sharper focus on customer service Reduce switching cost from road to rail

28. 28 Thank You