An introduction to Transnet

1. An introduction toTransnet 13 October 2004

2. Agenda • Strategy • Overview of key businesses • Spoornet • SAPO • NPA • Petronet • SAA

3. Strategy

4. Delivering on our commitments “The public sector discharges its responsibilities to our people as a critical player in the process of the growth, reconstruction and development of our country by reducing the cost of doing business in our country.” President Mbeki : State of the Nation Address 21 May 2004

5. Why Port and Rail

6. Total throughput for 2003 in the South African economy that required logistics intervention = 745mt (1998 = 590mt) 2003 Manufacturing = 20% of GDP @ constant 1995 prices 2003 Mining = 6% of GDP @ constant 1995 prices 330mt 370mt 45mt 2003 Agriculture = 4% of GDP @ constant 1995 prices

7. The 745mt results in a total transport cost of R135bn to the South African economy. The biggest portion of this cost is attributable to long haul road transport. R0.3bn R11bn R11bn R25bn R50bn R30bn The challenge:Rail corridor = R135/tonRoad corridor = R360/ton

8. The R135bn transport cost has an associated logistics cost of R45bn, amounting to a total logistics cost of R178bn (14.7% of GDP).

9. Understanding the Road / Rail trend over the past decade The last decade has seen growth in road traffic, while rail traffic (excl. the export lines) has declined Data depicted on an index basis

10. The structure of the surface freight transport market (2003 million tons):The “normal” macro economic model is to transport corridor freight on rail and rural freight on road. Structural myopia caused an unhealthy situation in South Africa. Tonnage 1105mt (270) Figure in brackets denotes average transport distance Road 920mt (200) Rail 185mt (600) Metropolitan 570mt (70) 52% Rural 210mt (190) 19% Corridor 140mt (750) 13% Corridor 45mt (670) 4% Rural 30mt (500) 3% Metropolitan 10mt (100) 1% Export lines 100mt (650) 9% Tonkm 296bn Road 185bn Rail 111bn Metropolitan 40bn 14% Rural 40bn 14% Corridor 105bn 35% Corridor 30bn 10% Rural 15bn 5% Metropolitan 1bn 0% Export lines 65bn 22% Income R123bn Road R111bn Rail R12bn Metropolitan R29bn 24% Rural R27bn 22% Corridor R55bn 45% Corridor R5.6bn 5% Rural R1.5bn 1% Metropolitan R0.5bn <1% Export lines R4.5bn 4%

11. There are significant shifts in the SA economy that warrant a closer examination of the supply chains necessary to support the economy. SA needs to reduce logistics costs by one third to sustain our competitiveness. Beitbridge Maputo Gauteng Richards Bay Sishen Durban Saldanha East London Cape Town Port Elizabeth

12. Aligning Strategic Focus with the Economy Maputo Richards Bay Durban East London Coega Cape Town PE • Micro-economic strategy: • Support SA’s export-led growth strategy • Reduce the cost of doing business • SA’s economy: • Mining (6%) 49% • Manuf. (20%) 45% • 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 Production location of key sectors Freight Typology: Up to 70% of economy is bulk, heavy-haul, long distance and low to medium value traffic Transnet Focus Heavy Manufacturing zones Mining zones • Transnet Strategic Direction • Focus on Rail and Ports (Operations & Infrastructure) • Focus on improving key corridors/ clusters

13. Strategic direction

14. The Role of Transnet Contribute to the sustainable economic development of South Africa by providing the best connected and efficient transport network run by world-class rail, pipeline and port operators

15. An Integrated Transport Strategy Transnet provides efficient, integrated transport services to the bulk and manufacturing sectors • Ensure that Transnet provides an efficient transport platform that • facilitates trade growth in SA • Transnet is the custodian of Port, Rail and Pipeline Infrastructure • Transnet serves specific industries to leverage its strength in assets • Transnet collaborates with Customers to jointly design services and • invest in areas that improves the performance of all parties

16. Transnet Business Portfolio Holding Co Investment Portfolio Rail Operations Port Operations Pipeline Operations Aviation Other Rail Infrastructure Port Infrastructure Pipeline Network Transport Portfolio Independent Regulators

17. Transnet into the future Holding Co Transport Portfolio Transnet Infrastructure Transnet Operations Pipeline Infrastructure Pipeline Operations NPA Rail Infrastructure Rail Operations SAPO

18. Implementation plan

19. Migration Path for Transnet Integrated, Inter-modal Transport Solution Deliver the Mandate Implement New Business Model • Operational integration with private sector (port and rail) • Partnerships (local and global) established for growth Building a Solid Foundation • Operational synergy between SAPO, NPA • & Spoornet • Restructured portfolio • Operational efficiency • Vertical separation • Corporate office Restructuring • Divestment 2004/05 2005/06 2006/07

20. Transnet Strategy Pipelines Freight Railways Ports Effective & Efficient National Logistics System Financial Strategy • Vertical Separation • Infrastructure Planning • Head Office Restructuring • Divestment • Operational Synergies Strategic Corridors Strategic Clusters Change Management Economic Growth

21. Critical element of implementation At the heart of the turn around plan is the operational efficiency of the core businesses. Without efficiency in the core operations, reducing supply chain costs and changing the road rail mix in transport will not occur.

22. Operational Themes Operational Efficiency • Nodal efficiency • Increasing key Productivity indicators within the nodal points • Safety and Risk compliance • Efficient and streamlined operational processes Infra-structure Development • Create capacity before demand arises • Implementation of CAPEX plans – rolling 5 / 15 year plans Integration & Interface • Integration and optimisation of rail and port interfaces • Reduction of total logistics costs • Enhancing predictability and reliability Customer & Third Party Collaboration • Strategic operational forums • Supply chain competitiveness (time and cost) • De-bottlenecking

23. Business Definition and Focus • Portfolio Restructuring to establish Transport Co. • Core business restructuring within Transport Co. • SAPO / NPA (port operations and infrastructure) already separated • Spoornet initiatives • Spoornet accounting separation of infrastructure and operations to make costs visible and enable separate focus and reporting in progress • Separation of high density and low and light density rail operations (within Spoornet) to enable different operating models

24. Investment for Efficiency Improvements Implementing Operational Improvement Systemic coordination and consolidation of investments Coordinate Divisional strategies along corridors Strategic focus Integrated investment models and plans Value analysis and value engineering Drive value improvement Structure organisation and set targets for new focus Inter-organisational measurement and accountability systems and processes Strategic operational forums (multi organisational) Support Required Supporting legislation and policy Partnerships for funding and efficiency improvement Private Sector Participation Customer / supplier / vendor initiatives Governance framework • R 37.2 bn TIM focussed on SAPO • NPA, Spoornet & Petronet • Backlog investments • Expansions • New developments (Coega) • Efficiency improvements • Capex Committee to monitor these • processes

25. Collaboration, Partnering and Integration • Collaboration initiatives and projects • Interim Advisory Board to improve container supply chain efficiencies • Analysis and prioritisation of key industries and customers to determine areas of biggest impact taking place in Spoornet (will result in similar projects to Thuth’ihlathi – timber, and Masibambane - domestic coal) • Petronet managing depots and terminals for customers • Inter-divisional integration • City Deep / corridor container performance improvement (SAPO / Spoornet) • Various NPA / SAPO / Spoornet commodity / corridor based initiatives (e.g granite and ferros – Richards Bay) • Private sector participation • SAPO business model incorporates PPP’s to attract investments and improve efficiencies • Selective introduction of PPP’s in “branch lines” • Commercial cold storage (SAPO)

26. Process Efficiencies, Systems and Technology • New cranes in SAPO (twin lift capability) – improved container handling efficiencies and throughput • New locomotives with increased traction efficiency will • Increase utilisation and reduce costs (e.g. fuel efficiency) and • Enable implementation of additional technologies that will futher enhance efficiencies • On-board signalling on new locomotives has major benefits in terms of • Traffic density (number of trains on a line) • Safety • Changing of signal spacing on Sishen-Saldanha corridor will allow increased traffic density • NPA modelling and simulation of ports and terminals (ITE / G2) improves investment decisions • NPA strategic sourcing initiative • Operational systems integration

27. Key businesses

28. Financials Spoornet

29. Positioning Statement Spoornet is "mission critical" to the economy of the country. Its service places it at the heart of it all. 

30. Spoornet’s Position within the World In world terms, Spoornet is a smaller freight based railway, seeking to leverage heavy haul technology Source: www.nationmaster.com

31. Spoornet’s Position within Africa However, Spoornet is a large railway business and is the most significant player in Africa Source: www.nationmaster.com

32. Freight Logistics Solutions Vision Spoornet Integrated Freight Railway Deregulation of Road Transport MUP retrenchment Predictable Service Closing of regions • Management • Interventions • Labour • GFB sustainability • COALlink & Orex privatisation Financial difficulties surface Declining Customer Service Poor morale and work ethic Loss of Market Share Loss of critical skills Incremental improvements in operations Declining Operational Efficiency & Safety Historical Background 1986 1990 1992 1994 1996 1998 2003

33. Key Statistics

34. Phase 3 Phase 3: • Logistics and Supply Value Chain Management • Business Development Overborder Value Add Phase 2 Phase 2: Growth New Service Offerings Yield Management Capability Increasing Capacity Phase 1 Phase 1 • Customer Service • Operational Efficiency • Safety • Profitability • Attracting and Retaining a skilled Workforce Fixing the Basics 04/05 05/06 06/07 07/08 08/09 Immediate Medium Term Long Term Mobilisation Development Value Extraction Spoornet Strategic Direction

35. 1 Customer Service 2 Operational Efficiency 3 Safety Organisational Redesign 4 Profitability 5 Skills Strategic Programme of Action Customer Orientation

37. Overview of South African Port Operations • SAPO operates 13 terminals in 6 ports of SA • Revenue - R3.2 billion in 2004/05 financial year and expected to grow by 9% p.a • Staff complement 5570 • Total Assets Employed R3.3 billion

38. Services Offered • Cargo handling • Storage • Logistics Management Solutions • Warehousing and Distribution Management • Steverdoring • Rail/Port Interface • Value Added Services

39. Market Profile • Operates in 4 Sectors viz. Containers, Bulk, B/bulk and Cars • Volumes handled for 2003/04 were • Sector PerformanceMarket share • 3 Container terminals handled 2.5 million Teu’s 100% market share • 6 Break bulk terminals handled 13.3 million tons 82 % market share • 2 Dry bulk terminals handled 44 million tons 32 % market share • 2 Car terminals handled 220,000 units 100% market share

40. Major Bulk Commodities Exported Through SA Ports

41. Vision • To be a leading provider of terminal services in port operations Mission • To provide efficient terminal services to our customers, the standard of which exceeds expectations of all stakeholders. We will seek appropriate partnerships to ensure we grow our service offering and generate improved returns for our shareholder.

42. Strategic Objectives • Diversify revenue streams by entering into strategic partnerships to exploit new business opportunities that grow our revenue base by 2007 in real terms • Understand customer requirements and translate these into consistent and personalised service offerings that exceed their expectations • Anticipate market demand in order to timeously plan and create capacity in line with UNCTAD standards • Maintain our market dominance, by ensuring we are benchmarked as an efficient and cost competitive operator, prior to the introduction of competition • Reduce operating costs by 10% per unit of volume in the 2005/06 financial year • Create a performance management culture that unleashes the potential of our employees through a multi-dimensional human capital recruitment and development programme  

43. What has been the focus? • Splitting the company into two, namely, NPASA and SAPO • Setting up systems, corporate office (infrastructure) • Creating an independent & sustainable SAPO culture

44. Focus Areas • Upgrading terminal superstructure • Business Ring Fencing • Creating an e-business forum with clients • Continuous Improvement • SAPO Capacity Building Initiatives • Shop Floor Development Program • Women in Operations • Freight Handling Learnership • Tariff Reform

45. Way Forward through Strategic Alliances • Lowering the cost and improving the service • Reducing the burden on overstretched infrastructure • Increasing total efficiencies by shifting to modes that have higher capacity • Reduce cost and time and inconvenience • Increased productivity and efficiency • Improved energy consumption, air, and environmental quality

46. National Ports Authority

47. NPA Vision & Mission • Vision: • To be a transformed, collaborative port authority that leads economic growth in a world class port system. • Mission: • To create and sustain world class freight and logistics solutions.

48. Strategic Objectives • Value and wealth creation • Optimising infrastructure and business processes to enhance logistics chains timeously • Create winning customers and stakeholders through service excellence • Inculcate behaviour embracing NPA core values; and • Develop people’s business skills and embed innovation as a core competence

49. NPA Business Overview • Custodian of SA’s 7 commercial ports. • The NPA provides the following functions: • Landlord (infrastructure provider, management of port industrial complex) • Maritime (marine, dredging, lighthouse ) • Control function (environment, IMO, ISPS, harbour master) • Focus on functional efficiencies, systems & structures • Trade facilitation & competitiveness.

50. Future Position Of SA Ports Playing a leading role in the SA economy • Occupy a central role in integrated logistics chains; • Set, monitor & sustain efficiency standards to meet/exceed customer expectations • Play a key developmental role in furtherance of national & regional objectives: • economic growth & sustainability • country competitiveness • Broadening the economic base