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

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





Global GDP trends

GDP Growth

0.1

1

10

2003 2004 2005 2006 2007

Period

Gro

wth

Rat

e

World

Euro Area

US

East Asia and Pacific

South Asia

South Africa

Regional growth in container traffic, 2003 - 2008

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%

15%

China’s share of global commodity usage

2011

46%

40%

36%

35%

29%

26%

26%

Africa’s share of natural resource reserves

Agenda





South Africa: macro-economic indicators

Macroeconomic Indicators

0.1

1

10

100

2002 2003 2004 2005 2006 2007 2008

Period

Rat

e o

f ch

ang

e

Gross domestic expenditure

Exports

Imports

Real GDP growth

745 million tons freight per annum. Total transport cost R135bn per annum. Biggest portion of total is long-haul road transport.

Pipeline & Water

0%

Air9%Rail

9%

Road - Corridor

38%

Road - Metro24%

Road - Rural20%

R11bn

R50bn

R30bn

R11bn

R0.3bn

Rail corridor = R135/tonRoad 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

• 2 360 locomotives and 84 633 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





Aligning Transnet’s strategic focus with the economy

PE

East London

Maputo

RichardsBay

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

TransnetFocus

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

RAILTelecomms

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





Disposal of non-care assets:Transfers to government in process of completion:• Metrorail• SAASale of shares in terms of existing shareholder agreements:• VAE Perway• Equity aviation• ConnexPreparation 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

Documents

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