An introduction to Transnet 13 October 2004

Agenda Strategy Overview of key businesses –Spoornet –SAPO –NPA –Petronet –SAA

Strategy

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

Why Port and Rail

Total throughput for 2003 in the South African economy that required logistics intervention = 745mt (1998 = 590mt) 330mt 370mt 45mt 2003 Manufacturing = 20% of constant 1995 prices 2003 Mining = 6% of constant 1995 prices 2003 Agriculture = 4% of constant 1995 prices Key SectorSub-Groups Agriculture Grain, Vegetables, Fruit, etc Mining Coal, Ferrous Metal, Nonferrous Metal, Non- metallic Minerals, Crude Petroleum Manufacturing Heavy Light Chemicals, Fuel & Petroleum Products, Fertilizer, Iron, Steel & Metal, Machinery & Equipment, Motor Vehicles, Parts & Accessories, Scrap FMCG; Beverages, Textiles & Clothing, Wood & -Products, Furniture, Paper & -Products, Rubber, Plastic, Ceramics & Glass,

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. R11bn R50bn R30bn R11bn R0.3bn The challenge: Rail corridor = R135/ton Road corridor = R360/ton R25bn

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

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

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) Road 920mt (200) Rail 185mt (600) Corridor 140mt (750) 13% Metropolitan 570mt (70) 52% Rural 210mt (190) 19% Corridor 45mt (670) 4% Metropolitan 10mt (100) 1% Rural 30mt (500) 3% Export lines 100mt (650) 9% Figure in brackets denotes average transport distance Tonkm 296bn Road 185bn Rail 111bn Corridor 105bn 35% Metropolitan 40bn 14% Rural 40bn 14% Corridor 30bn 10% Metropolitan 1bn 0% Rural 15bn 5% Export lines 65bn 22% Income R123bn Road R111bn Rail R12bn Corridor R55bn 45% Metropolitan R29bn 24% Rural R27bn 22% Corridor R5.6bn 5% Metropolitan R0.5bn <1% Rural R1.5bn 1% Export lines R4.5bn 4%

Cape TownPort Elizabeth Durban Saldanha Richards Bay East London Maputo Sishen Beitbridge Gauteng 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.

Aligning Strategic Focus with the Economy PE East London Maputo Richards Bay Durban Cape Town Coega Heavy Manufacturing zones Mining zones Micro-economic strategy: 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 and Ports (Operations & Infrastructure) Focus on improving key corridors/ clusters Transnet Focus

Strategic direction

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

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

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

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

Implementation plan

Operational integration with private sector (port and rail) Partnerships (local and global) established for growth Deliver the Mandate 2004/ /072005/06 Implement New Business Model Operational synergy between SAPO, NPA & Spoornet Restructured portfolio Operational efficiency Vertical separation Corporate office Restructuring Divestment Building a Solid Foundation Migration Path for Transnet Integrated, Inter-modal Transport Solution

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

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.

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

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 Business Definition and Focus

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

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)

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

Key businesses

Financials Spoornet

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

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

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

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

Key Statistics

Spoornet Strategic Direction

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

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

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

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

Major Bulk Commodities Exported Through SA Ports PortMajor Bulk CommoditiesVolume million tons SourceApprox. distance from source Richards Bay Durban Port Elizabeth Cape Town Saldanha Coal and coke Wood Chips Rock Phosphate Chrome ore Steel Timber Chemicals Manganese Ore Prepared Fruit Iron ore KZN/Mpumulanga Nelspruit Phalaborwa Rustenburg Middelburg Pinetown Secunda Meyerton Ceres Sishen km 585km 806km 721km 856km 30km 546km 569km 110km 993km

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.

Strategic Objectives 1. Diversify revenue streams by entering into strategic partnerships to exploit new business opportunities that grow our revenue base by 2007 in real terms 2. Understand customer requirements and translate these into consistent and personalised service offerings that exceed their expectations 3. Anticipate market demand in order to timeously plan and create capacity in line with UNCTAD standards 4. Maintain our market dominance, by ensuring we are benchmarked as an efficient and cost competitive operator, prior to the introduction of competition 5. Reduce operating costs by 10% per unit of volume in the 2005/06 financial year 6. Create a performance management culture that unleashes the potential of our employees through a multi-dimensional human capital recruitment and development programme

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

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

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

National Ports Authority

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.

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

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.

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

Centrality of NPA in the Logistics Chain NPA Terminal operators Shipping agents Concessionaires Stevedores Rail operators Road operators Cargo owners Freight forwarders Inbound Logistics Outbound Logistics Cargo owners Ship owners Consumers

Challenges Reduced tariff income vs. Increased Capital Investment –R16.3b for the next 5 years Lowering Cost of doing business –Whether the reduced cost trickles down to SA Inc.

Key Enablers Ring fencing of assets Corporatisation Funding plans Private sector participation Port Regulator

Petronet

OUR CORE BUSINESS Bulk transportation of energy (energy carrier) : Range of petroleum products and gas HOW ? Through 3000km of high-pressure underground steel pipelines which we own, operate and maintain Of the 3000km – 2500km for conveying petroleum products and 500km for transmission of gas to KwaZulu Natal PETRONET 3 PPT-0998 Petronet

Pipeline network 6 PPT-1001

 Total products transported (2003/04): All liquid fuel products : ± 17,2 billion liters Petrols and diesel: 10,5 billion liters Avtur (jet fuel): 0,9 billion liters Crude oil: 5,8 billion liters For perspective : This equates to road tankers per annum (refined products only) = 5500 road tanker per 40m per tanker = 210km long “train” of tankers weekly or ± 30km long “train” daily Activities PETRONET 10 PPT-1005

 Petronet transports approximately 40% of the SA refined product fuel requirements and 100 % of the Natref refinery’s crude oil requirements (which is 21% of the total SA crude requirement)  Approximately 80% of Johannesburg international airport’s requirements are supplied by Petronet’s Avtur pipeline from the Natref refinery and Durban Petronet in perspective PETRONET 11 PPT-1006

Major international and local oil companies and government:  BP, CALTEX, SASOL OIL, SASOL GAS, SHELL, TOTAL and CEF Clients PETRONET 14 PPT-1009

Fuel tax c/l % Basic Price c/l % Wholesale Margin c/l 8.209% Transport Cost c/l 2.863% (Based on Petronet’s Tariffs) Road Accident Fund 26.5 c/l 5.837% Slate Levy c/l 0.220% Customs & Excise 4.0 c/l 0.881% Retail Margin c/l 8.767% Service Cost recoveries c/l 1.476% BASED ON PETROL PRICE : 93 - OCTANE (ULP) GAUTENG : c/l (SEPTEMBER 2004) COMPONENTS OF THE PUMP PRICE OF PETROL What costs do we add to price of fuel PETRONET 17 PPT-1012

Financials South African Airways

Financial overview

Revenue by Route (FY2005F) Intercontinental routes accounted for ~60% of passenger revenue. Note: Revenue is a forecast for FY2005, and includes passenger and cargo revenue only Source: SAA Finance

Revenue by Sales Region Roughly 50% of SAA’s sales are generated outside of South Africa. Note: Data is for FY2005YTD; 48% of sales (i.e. originating from outside RSA) are denominated in foreign currency Source: SAA Finance

Cost Overview Fuel, labour and aircraft capital costs are the three largest cost components, accounting for 51% of operating expenses. Note: Data is for FY2005F; Roughly 50% of SAA’s costs are incurred in foreign currencies Source: SAA Finance

Route structure

Serves 600 intercontinental destinations Serves 30 African destinations Serves 21 domestic destinations Offers 358 daily frequencies SAA has 9 route specific alliances SAA Network Reach

Johannesburg/Cape town Atlanta New York London Dubai Perth Sydney São Paulo Hong Kong Frankfurt SAA network structure Utilising alliances and code shares, SAA serves over 600 destinations.

SAA Route Network - Intercontinental (1Q2006) Asia/Australia Mumbai – 7 Hong Kong – 7 Perth – 4 Europe Paris - 7 Frankfurt (JNB) - 7 Frankfurt (CPT) - 3 Milan* - 3 Zurich - 7 London (JNB) - 14 London (CPT) - 9 Americas Sao Paulo – 7 Atlanta – 7 New York - 7 Note: Figures represent flights per week and excludes code shares; *To be cancelled after Southern summer due to poor profitability

SAA Route Network - Africa (1Q2006) Eastern/Islands Nairobi - 9 Dar-es-Salaam – 7 Mauritius – 9 Entebbe - 3 Kigali - 1 Southern/Central Luanda – 3 Kinshasa – 3 Blantyre – 2 Lilongwe – 5 Maputo – 9 Windhoek – 17 Lusaka – 12 Harare – 13 Victoria Falls - 11 Western Dakar – 7N/3S Cape Verde – 7N/3S Lagos – 4 Accra/Abidjan – 4 Note: Figures represent flights per week and excludes code shares

SAA Route Network - Domestic (1Q2006) JNB – George Note: *Coastals = CPT-DBN, PLZ-CPT and PLZ-DBN; E. Cape = JNB-PLZ and JNB-ELS 3 JNB – CPT Daily flightsRoute 22 Coastals*12 E. Cape**11 JNB – DBN16

Fleet structure

A/C TypeNumber  A e 6  A   A   A SAA Fleet Composition (by 2005) Note: All but 7 of SAA’s aircraft are leased; Owned aircraft include A (6) and B (1)

A/C TypeNumberDelivery  A  A e 3Done  A e 31Q2005  A From 1 Sep 2004  A Done 26 Deliveries to date

When fleet renewal is completed average fleet age will be 4 years The products and services will be world-class –Lie-flat seats –Premium service Cost efficiencies enormous –Lower fuel consumption –Fewer pilots (no flight engineer for long haul) –Lower maintenance SAA’s ‘new fleet’ benefits

Personnel

SAA Employee Headcount Technical staff, airport staff and cabin crew account for ~72% of SAA’s employee headcount. Note: Headcount is for March 2004; Airport staff includes international station staff; Overhead includes sales, marketing, finance, IT, HR and executive management Source: SAA HR

Technical issues

Financial Lease Substantially all the risks and rewards associated with ownership of the asset are transferred from the lessor to the lessee Obligations under the finance lease agreement are capitalised onto the balance sheet Asset is depreciated over the remaining useful life Periodic lease payments applied to reducing capital portion of the lease liability and expensed as finance cost Finance lease is in substance a loan (with simultaneous purchase of asset)

Operating Lease Substantially all the risks and rewards are not transferred to the lessee (e.g. SAA) Lease payments are expensed as operating costs Asset is not on the balance sheet of the lessee An operating lease is in substance similar to a rental agreement

Hedging Financial term used to describe the process of covering financial exposures faced by a company Much the same as buying insurance to cover personal risk Financial exposures arise as a result of the ongoing activities of a company Nature of such risks: foreign currency, interest rate, inflation, commodities (e.g. oil) – any financial instrument whose price fluctuates and therefore whose value in the future cannot be known with certainty A market exists for “insurance” products to cover these risks – e.g. forward exchange contracts (FECs), swaps, options, futures contracts, etc. An example would be where a South African company buys an asset whose price is in Euro, for delivery at a future date. The South African company can either carry the exposure, and at the future date sell Rand to buy enough Euro to pay for the asset. Alternatively, the South African company can choose to fix or cap the Rand price at which it needs to buy Euro in the future to pay for the asset.

SAA Hedges Hedging should in most instances be used by companies to cover their exposures and to create certainty. This is desirable as it makes robust and value creating decision making possible. It also makes long term decision making possible. So called derivatives, which is the term used to describe many of these hedging instruments used to achieve certainty in financial risk, are actually powerful tools used appropriately and responsibly Hedging should be in respect of all exposures in one particular financial risk area. For example, one should first offset foreign currency outflows against foreign currency inflows, with only the residual (net exposure) amount being considered for hedging unless there is market failure Deliberately hedging one side (inflow or outflow only) in the absence of market failure is not really hedging, but speculation, or taking a bet In the case of the hedging issue at SAA, the failure to assess the net exposures by looking at both inflows and outflows was at the heart of the problems they then faced in the future. Rather than hedging, they turned out to have taken a bet, which they subsequently lost As is normally the case in situations where companies lose a lot of money because of financial decisions, it is usually not the fault of the derivatives, but that of management

Transnet Investment Portfolio Metro rail Autopax SAA/SAX Others

Financials Thank you