1. TSDBF / TPF & TRANSNET SOC LTD JOINT FINAL PROPOSAL TO THE PORTFOLIO COMMITTEE 25 NOVEMBER 2011

2. AGENDA  TSDBF stakeholder expectations and Transnet’s mandate  The Portfolio Committee (PC) recommendations and its implications  The TSDBF & Transnet Proposal – detailed per item  Conclusion – on TSDBF  Transnet sub-fund within TPF  Questions 2

3. THE STAKEHOLDERS  TSDBF Pensioners  Pension increases beyond the current 2% p.a.  Preferably linked to inflation  Bonus structure to continue (NB)  Secure cashflow from a sustainable fund  TSDBF Trustees  Fulfill their fiduciary obligations to the Fund and its pensioners  Financial prudence of the Fund wrt liabilities is paramount as well as a statutory requirement  Well aware of the plight of pensioners  Cognisant of the generational issues in balancing immediate cashflow versus longer term effect of inflation on pensions  Employer (Transnet Ltd)  Well aware of challenges facing TSDBF trustees and pensioners  Need to comply with PFMA requirements and mandate from Shareholder  Transnet BOD must act within the scope of their fiduciary obligations 3

4. TRANSNET MANDATE  Transnet’s mandate is:  Primary logistics service provider to support RSA economic growth; and  Roll out a massive capital expenditure plan to ensure the appropriate infrastructure to provide logistics services in a cost effective and efficient manner.  The capital expenditure programme and the Portfolio Committee’s resolution will result in Transnet being in the following position:  Borrowing R36.3 billion over 3 years on the strength of its own balance sheet with no Government guarantees;  Gearing ratio will increase to 48.3% - cannot increase beyond 50%; and  Cash interest cover very fragile at 3.2 times – cannot be below 3.0 times.  International economic crisis; Moody’s downgrade etc  This position will seriously jeopardise Transnet’s ability to execute its mandate – consequently contrary to fiduciary duties of the Board of Directors of Transnet. 4

5. THE PC RECOMMENDATIONS AND ITS IMPLICATIONS  Recommendations :  Backpay of 5 months’ pension  Future pension increases at 75% of CPI, subject to affordability  A once off 3.2% base uplift in pension  Funding issues  Will exhaust current surplus PLUS will require additional injection of R2bn 5

6. TSDBF CANNOT AFFORD PC RECOMMENDATIONS Scenario (R’bn)Current75% CPI only 75% CPI plus 5m backpay 75% CPI plus 5m backpay and uplift Assets18.8 Liabilities16.119.320.120.8 Surplus/(Deficit)2.7(0.5)(1.3)(2.0) Funding level117.0%97.5%93.4%90.6%  Total cost of PC recommendations R4.7 billion 6

7. FINAL PROPOSAL  Takes account of :  The Fund’s financial position and soundness  The impact of the proposal on pensioners receiving, or qualifying to receive, the State Old Age Pension  Generational issues and current life expectancy of pensioners  The asset allocation of the fund and expected return on assets  Potential unwinding of solvency reserves over time  Preferences expressed by the pensioners as advised by the Pensioner elected Trustee representatives of the Fund  Fiduciary duties of Trustees and Transnet BOD 7

8. PROPOSAL 1 : PAYMENT OF 5 MONTHS’ PENSION  Since PC communication started, 2 months additional pension have been paid as bonuses  The Fund will by Feb 2012 pay another 3 months pension as bonuses to take the total bonuses paid to 5 months pension (since November 2010)  The Fund Trustees will finalise the details of the payment plan and exact timing of payments  The intention of the Fund is to fully implement this proposal at a total cost of R850 million (18%) 8

9. PROPOSAL 2 : PROSPECTIVE PENSION INCREASE POLICY OF 75% OF CPI, SUBJECT TO AFFORDABILITY (STA)  Based on 6% p.a. expected inflation  The 2% p.a. guaranteed increase (33% of CPI) remain  The targeted increase is subject to affordability (STA)  STA will be clearly defined by the Fund, but will be based on :  Investment returns in line or beating expectations  The Fund not having a deficit after any such increase  The Trustees will finalise the exact payment and timing of these increases.  The increases will not vest, but is expected to accumulate over time to equate to the targeted level of CPI increase  The increases will be paid using the bonus rule currently in the Rules of the Fund  Modelling results outlined below (next slide) 9

10. PROPOSAL 2 : Cont.  The 2% p.a. already represents 33% of CPI and is included in the results below (all STA)  Based on current valuation basis : A target of 63% of CPI can be afforded  Based on the higher expected returns on equity and the matching structure of the Fund, the target can be increased to 68% of CPI should these investment returns transpire  Lastly, the Fund expects the solvency reserves to unwind (reduce) over time and together with any further outperformance of assets will try to target 75% of CPI increases over time  Any excesses beyond this level may lead to additional bonuses being paid  IMPORTANT : Although the Fund may target 75% of CPI, the comfortable level of increases is between 63% and 68% of CPI  The intention is to fully implement this proposal at a cost of R2.7 billion (57%) 10

11. CONCLUSION ON TSDBF  Of the 3 PC proposals, 2 can by and large be met:  5 months pensions – fully met  75% of CPI prospective increases STA – targeted, but mostly met in terms of analysis  75%, R3.55 billion, of total expected cash flows from proposals will be given to pensioners  Additional bonuses, if future excesses are generated for benefit of pensioners  Not taken into account in the means test in calculating an older persons entitlement to a State grant 11

12. TSDBF’S POSITION AFTER IMPLEMENTATION OF JOINT PROPOSAL * The surplus will be used to fund the targeted CPI linked increases Scenario (R’bn)TSDBF Current TSDBF After bonus payment(s) Assets18.818.3 Liabilities16.1 Surplus*2.72.2 Funding level117.0%114.0% 12

13. Thank you for inviting us to present to you… Any questions? 13