THE USE OF INVESTMENT FUNDS FOR INFRASTRUCTURE DEVELOPMENT

1. THE USE OF INVESTMENT FUNDS FOR INFRASTRUCTURE DEVELOPMENT African Stock Exchange Conference 20 September 2006

2. What is Infrastructure?

3. What is Infrastructure? the basic structural foundations of society or enterprises roads, bridges, sewers etc regarded as a country’s economic foundation Source : Concise Oxford Dictionary

4. Infrastructure characteristics • Assets with: • Essential assets • Long term, predictable cash flows • Low sensitivity to economic cycles • Not subject to competitive markets • Low risk/volatility

5. Infrastructureasset classes • Patronage/Throughput • Patronage dependent • Monopolistic elements • Demographic factors • e.g. roads, airports, railways, car parks and ports • Social • Essential service, but not monopoly • Basic social service provision • e.g. hospital, school, government buildings Return • Regulated • Revenue level or tariffs regulated • Natural monopoly • Basic/essential service • e.g. prison, electricity & gas distribution • Competitive • Compete in market for sale of product • Volatile returns • e.g. certain power pool generators Risk

6. Investment Needs • Investment Needs : • High risk adjusted returns • Diversification • Absolute returns • Low correlation alternatives • Lower risk/volatility alternatives • Returns that match liability profiles • Balance capital growth with the security of cash yield • Downside protection • Other Needs : • Seen to be contributing to upliftment • Social responsibility

7. Different to listed equity, bonds & property • Special Purpose Vehicles • Essential Services • High Barriers to Entry • High Capital Costs/Low Operating Costs/High Financial Leverage • High Gearing to Declining Risk • Regulated

8. Typical structure

9. Shareholders Agreement Shareholder 1 Shareholder 2 Actively monitor our investments and engage with management on regular basis. Board representation Primary focus as a Non sponsor equity investor LoanAgreement ConcessionAgreement Special Purpose Vehicle(SPV) Lender Authority Design and Construct Contract Facilities Management Contract Interact with Authority on behalf of SPV Interact with Lenders to extract maximum benefit for shareholders Contractor Operator Due diligence on project, assumptions and forecasts Ongoing assessment of performance Asset Manager actively monitors its investments at various levels to extract maximum benefit for shareholders PPP Structures

10. Optimal risk allocation • Risks appropriately allocated to the party that controls it • e.g.: • Construction risk entirely back to back to D&C contractor • Operational risk back to back to O&M contractor • Revenue risk with concession company • Finance risk with concession company

11. Investment Process

12. Due Diligence Financial Model Completion Initial Screening Ongoing Management Investment Life Cycle Restructuring Revaluation Refinancing Infrastructure Management Process Investment Committee Investment Committee Deal Flow Investor Returns Disposal

13. Active management • Management • Asset management intensive • Big stakes, few investments • Often Concessions held by SPV i.e. influence brings obligations • Understanding the asset class • Few qualified asset managers • Constant search of economic value add • Valuation management and continuity • Cross pollination of best practice (non-competitive) • Government agency interaction • Deal Flow • Securing pipeline

14. Listed Infrastructure

15. Infrastructure index • Constitution of index: • All companies in Euro Top 300 Index with greater than 50% exposure to pure infrastructure were selected • Separate infrastructure index was created using these companies • Comparisons run to ther indexes

16. Companies not included in Index Listed Infrastructure Companies in EuroTop 300 Index 100% Companies included in Infrastructure Index 80% 60% Infrastructure Exposure 40% 20% 0% FCC PPC Enel RWE Suez Endesa E.ON Acesa BAA Plc Vinci SA Iberdrola Bouygues BG Group Autostrade Severn Trent Union Fenosa Scottish Power Snam Rete Gas United Utilities Gas Natural SDG National Grid Transco Vivendi Envvironment Electricidade de Portugal Scottish & Southern Energy Source: Based on broker ‘sum of parts valuations’ and Macquarie infrastructure definition

17. Correlation of Infrastructure Index compared to other Indices 1.0 0.8 0.6 0.4 0.2 0.0 - Auto Auto Media Banks Retail Techno Energy Finance Cyclical Utilities Telecom Telecom Chemical Insurance Food& Bev Healthcare Non Cyclical Construction Construction Basic resources Infrastructure Index Industrial goods& Serv Source: Dow Jones STOXX website; indexes are based on total return data

18. 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% - - Serv Auto Banks Retail Retail Utilities Media Media Techno Energy Finance Telecom Telecom Chemical Insurance Healthcare Food & Bev Non Cyclical Construction Basic resources Infrastructure Index Industrial goods&cyclical Standard Deviation of Infrastructure Index compared to other Indices Source: Dow Jones STOXX website; indexes are based on total return data

19. Valuation

20. Risk and Capital Growth Asset Value Project Life Risk Level Project Life Mature Risks: Major population shift Risk Premium 4% – 5.5% Greenfield Risks: Legal, Environmental & Regulatory Risk Premium 9% - 12% Construction Risks: Construction Risk Premium 8% – 10% Ramp Up Risks: Ramp Up Rate, Natural Traffic Level Risk Premium 6.5% - 8% Growth Risks: Impacts on Traffic Risk Premium 5.5% – 6.5% Note: risk premium over risk free rate ( eg R153) Source : African Infrastructure Investment Managers

21. SAIF Refreshing Concessions Project Value Revaluation exceeds Cash distribution End of cash available exceeds revaluation Concession

22. Other benefits

23. Other benefits • Basis for a globally competitive economy • Stimulates stronger economic growth • 1% increase in infrastructure stock = 1% increase in GDP • Redistribution of State Spending • Generates new jobs • Increases economic productivity • Alleviates Poverty

24. Why Infrastructure • Government objectives: • Reduce public sector borrowing & cost • Operational efficiencies of private sector • Focus on user benefits & service delivery • Speed up infrastructure development • Optimal risk allocation between public and private sector

25. Conclusion

26. Investor appetite • Institutional appetite has broadened and deepened • Initially through private equity funds or direct private investments • Critical mass build-up • Public listing – international precedent for both listed funds and direct investments • Asset class diversification • Liquidity

27. Government role • Government vital to future of asset class • Will and competence • Stability of policy • Public entities with track record • Private sector efficiencies

28. Regulatory Information Old Mutual Asset Managers (South Africa) (Pty) Ltd Physical Address: Mutualpark Jan Smuts Drive Pinelands 7405 Telephone number: +27 21 5095082 (Mike van Heerden) Internet website: www.omam.com Old Mutual Asset Managers (South Africa) (Pty) Ltd (“OMAM (SA)”) is a licensed discretionary financial services provider approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisors and Intermediary Services Act 37 of 2002. OMAM (SA) is a wholly owned subsidiary of Old Mutual South Africa Limited. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuate, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance. All returns are rand returns, unless otherwise stated. Investment deals done on behalf of clients with a company in the Old Mutual Group are all done on an arms length basis.