PRASA PRESENTATION TO PORTFOLIO COMMITTEE ON TRANSPORT GROUP CEO – LUCKY MONTANA 10 OCTOBER 2012

CONTENT INTRODUCTION BCKGROUND CHALLENGES FACING RAILWAYS STRATEGIC OBJECTIVES PERFOMANCE IN 2011/12 PROGRESS ON OTHER KEY STRATEGIC PROGRAMMES ROLLING STOCK FLEET RENEWAL PROGRAMME FINANCIALS 2011/2012 KEY CHALLENGES CONCLUSION

INTRODUCTION Financial Year 11/12 significant & historic for passenger railways Commencement of Fleet Renewal Programme Commencement of National Signaling Upgrade Programme South African Railways – both Freight and Passenger have entered new cycle of investment, renewal ,capacity expansion, technology upgrades to support the country’s long term growth PRASA’s three principal tasks at heart of strategy: Modernisation Short –Term visible improvements in quality of train services Securing PRASA’s financial sustainability

BACKROUND PRASA established to house the assets, finances, personnel and operations of the former SARCC, its subsidiary, Intersite, Metrorail, Shosholoza Meyl and Autopax - Owns, Manages, Operates, Maintains Assets under its control. End fragmentation in passenger services Invest and Revitalise rail passenger transport PRASA established to be the leading provider of Integrated Public Transport Solutions

CHALLENGES FACING PASSENGER RAIL Railway infrastructure and technology has reached the end of its design lifespan Poor levels of reliability and predictability High costs of maintenance Failure to contribute to an efficient transport system Inability to support economic development Limited access to socio-economic opportunities for rural and urban poor

STRATEGIC OBJECTIVES Deliver on Legal Mandate of PRASA Position Rail as the Preferred Mode of Transport in High- Volume Corridors Double Market Share of Rail by 2017 Facilitate Access for the Rural and Urban Poor Ensure Financial Sustainability of PRASA Modernize Passenger Rail Systems Contribute to Integrated Public Transport Solutions in South Africa Integration within the SADC Region

PERFORMANCE IN 2011/12

HIGHLIGHTS FOR THE YEAR Going concern issue, as previously indicated through technical insolvency position was addressed in the short-term through the prior period correction of R2,7 billion on amortisation of Capital Subsidy. Improvement of 96,4% on prior year’s shortfall of R795,6 million to R28,9million in current year, mainly due to fair valuation of investment property; PRASA had committed and spent R4.328 billion of an allocated Capital Budget of R6.1bn – 70% spending. However, the overall budget had been committed by 31 March 2012 for Multi-Year Capital Projects such as Signaling Modernization Projects in Cape Town, Gauteng and Durban. Delivery of 510 coaches against a target of 450; The Accelerated Rolling Stock Programme has created 2205 Jobs

HIGHLIGHTS FOR THE YEAR Passenger numbers in Metrorail 18,6% below target but showed 9,5% annual improvement; Fatalities declined 7% resulting in a decline in the Fatality rate per million passengers of 16,1%; Crime incidents against passenger declined by 22 incidents or 4% with a resultant decrease in the Crime index 100 000 passengers of 12,2%; Autopax passenger numbers increased by 25% from 2.7 million to 4.5 million

HIGHLIGHTS FOR THE YEAR Investment initiatives in new capacity and modernizing rail Recapitalization of the fleet commenced following approval by Cabinet of detailed feasibility study. 7225 new coaches for Metrorail to be acquired. Funding commitment and Affordability Limit of R40 billion was set by Minister of Finance in February 2012; Programme to introduce modern, electronic interlocking systems commenced. Gauteng Phase 1 commenced. Phase 1 for KZN and Western Cape tender approved and have entered implementation phase. Implemented Capacity-Enhancement and Infrastructure Upgrade Projects:

Improving Safety - Platform Corrections After Before The step here was 650mm. A standard step in a building is 170mm. The standard step for commuter trains is 190 mm - 230 mm. View of completed platform

Station Modernisation- Rebranding & Wayfinding Signage

Station Upgrades and Modernisation Cape Town Station

HIGHLIGHTS FOR THE YEAR

LOWLIGHTS FOR THE YEAR Irregular expenditure – R25.676 million mainly due to lapsed contracts at Autopax Wasteful expenditure – R5 million due to late payment interest charges   Shosholoza Meyl challenges -  Severe impact on PRASA’s operational cash flow with R1,1billion over 24 months – a PRASA cross-subsidy Revenues and subsidy do not cover minimum operational expenditure shown as R1,4billion p.a. by due diligence of 2008. Passengers declined 7,5%.

LOWLIGHTS FOR THE YEAR Property Portfolio still not delivering value, with income being 48,8% below budget, with the Non-timely Approval of Section 54 PFMA request to DOT being one of the major contributing factors; Quality of Service in PRASA Rail Poor demand due to slow economic recovery, industry capacity constraints, crime and vandalism of key assets such as signal cables Poor levels of reliability of aged infrastructure Operational Inefficiencies and outdated methods Two accidents in April and May of 2011 resulted in increased injury rate of 59%.

TIMING OF PROCUREMENT PROCESS OF EQUITY PARTNERS The Bidders, as part of their bid responses will be expected to indicate the percentage of equity for the BEE Partners The process to procure the Equity Partners will commence in October 2012, the anticipated timetable is indicated below STAGE KEY DATES AND ACTIVITIES Release of B-BBEE Procurement Documents 17 October 2012 Clarification process 18 October to 7 December Proposal Submission Date 14 December 2012 Evaluation and Selection Completed 31 January 2013 Interface between Preferred Bidder and Equity Partners From February 2013 to Financial Close

PROGRESS ON KEY INFRASTRUCTURE PROJECTS

SIGNALLING PROGRAMME Upgrading the signalling system of PRASA key strategic priority Only 23 of the 163 (14%) of the signalling installations have not reached the end of their design lives PRASA is replacing all existing signalling interlocking, which consists mainly of obsolete mechanical and electro-mechanical systems, with electronic interlockings as the technology of choice. Gauteng Phase 1 currently underway Board has approved Kwazulu – Natal and Western Cape Gauteng Phase under evaluation The signalling programme is one of the key priorities of PRASA over the period ahead. In the next three years, the project has been allocated an amount of R2.4 billion, including telecommunication, with R768 million in 2012/13, R814 million in 2013/14 and R855 million in 2014/15.

BRIDGE CITY Bridge City a new town centre being created 17 kilometres from the Durban city centre, bridging the communities of Phoenix and Inanda, Ntuzuma and KwaMashu (INK) and linking them into the urban system PRASA constructing a 3.2km rail extension - the rail service will be complemented by an integrated bus and taxi interchange located adjacent to the railway station The overall developments in the area include a regional hospital, retail, residential, magistrate’s court and other commercial facilities. PRASA will spend approximately R700 million for the construction of the rail line. Phase 1 – Station Box (100% complete) Phase 2 - Construction of the new station building (100% complete) Phase 3 – Construction of the new rail link.

Bridge City Rail Link with new Bridge City Station Progress on Key Strategic Projects Bridge City Rail Link with new Bridge City Station Progress as at end February 2012 Bridge City Station completed - March 2011 Rail Extension design completed - April 2011 Construction commenced - June 2011 Key steps for 2012/13 Earthworks completed - March 2012 Viaduct and bridges completed - June 2012 Rail Link completed - March 2013

BRIDGE CITY

BRIDGE CITY

Greenview Capacity Enhancement Project Mamelodi is one of PRASA’s Priority “A” corridors in terms of demand and rail activity. Daily passengers on corridor = 91 000. Peak hours passengers = 38 000. Section from Eerste Fabrieke towards east has most passenger demand. Rail line from Eerste Fabrieke is currently only a single line, causing a 30 minute delay for turn-around of trains. The communities stopped trains in 2009 as communities of Greenview and Pienaarspoort have no access to rail services. Greenview doubling and additional station capacity will provide for 50% increase in passengers over medium to long term(39 000 passengers  58 000 passengers per day. Doubling of the line with new signaling and additional rolling stock will increase capacity with 100% (Currently 114 trains per day on the section).

Progress on Key Infratructure Projects Mamelodi Extension with new Greenview station, doubling of lines and upgraded Pienaarspoort and Mamelodi stations Progress as at end September 2012 Doubling of line - 65% complete Delays as result of liquidation of main contractor Key steps for 2012/13 Completion of doubling of line - June 2013 Tender re-award for Mamelodi Upgrade and Greenview - April 2012 Delay as result of default of preferred bidder Construction to commence Mamelodi and Greenview - May 2012 Tender award for Pienaarspoort station upgrade - May 2012 Construction to commence - June 2012 Completion of all stations - June 2013

Background THE PROJECT ENTAILS THE DOUBLING OF EXISTING RAILWAY LINE FROM EERSTE FABRIEKE TO GREENVIEW, INCLUDING EARTHWORKS, TRACKWORK, SUBSTRUCTURE, ALTERATIONS TO ROAD-OVER-RAIL BRIDGE, SIGNALLING AND ELECTRIFICATION, AND UPGRADING OF MAMELODI GARDENS AND PIENAARSPOORT STATIONS AND CONSTRUCTION OF A NEW STATION AT GREENVIEW

Mamelodi Rail Expansion

Mamelodi Gardens Station Existing Stations to be upgraded Package 1 includes the lengthening of the station platform

Greenview Station Doubling of the Tracks and Station Infrastructure is 65% complete. Package 1 includes the passenger platform foundations, building foundation piling and column stubs New Station to be constructed in Greenview and upgrading of two other stations

Modern Architectural Design Mamelodi Gardens Station Greenview Station Pienaarspoort Station

Contract Packages Contract Package 1 : Earthworks, Station Platform, Piling at Platforms, Bridgework and Culverts: Package 1a: OHTE Package 1b: Perway Package 1c: Signalling Package 1d: Telecommunications

Contract Packages Contract Package 2 Mamelodi Gardens Station Building above platform level Contract Package 3 Greenview Station Building above platform level Contract Package 4 Pienaarspoort Station Contract Package 5a Infrastructure Changes required at Pienaarspoort Station. Contract Package 5b Elimination of level crossing.

Project Overall Progress Contract Package 1 Doubling of the Line (Physical progress 80%) Contract Package 2 Mamelodi Gardens Station Building above platform level (Contract has been awarded to Bila Civil Contractor) Contract Package 3 Greenview Station Building above platform level (Problems with Preferred Contractor alternate contractor to be in place mid March 2012) Contract Package 4 Pienaarspoort Station (Planning to call tenders for construction by end March 2012) Contract Package 5 Bridge at Pienaarspoort for elimination of level crossing and Track work (Planning to call tender for infrastructure changes by August 2012. Bridge to be built by National Roads Authority)

Key Issues (Challenges) Formalisation of Agreement between PRASA and CoT for the use of CoT land. Relocation of the informal settlement at Greenview. Approval of Station Drawings and Authority to start construction. Pienaarspoort Level Crossing Closure. Access Roads and Intermodal Facilities to be provided by CoT (Re-planning of new Township north of Greenview)

The Rolling Stock Fleet Renewal Programme contributing to Government’s Industrial Policy Action Plan (IPAP2) –strengthening Local Manufacturing & Production, Skills Development and Job Creation

Forecast Commuter Rail Volumes & Market Engagement Indicate: Total R123.5bn over the 20 year period New Fleet requirement 7224 procurement at ~ 360 coaches per year for two x 10 year contracts The Programmatic procurement will result in: Long term procurement will allow local capability to evolve to above 65% of the value of a coach produced locally Creating ~65 000 direct and indirect jobs

TECHNOLOGY AND CAPACITY Rolling stock technology and capacity Platform Electric Multiple Units (EMUs) Cape Gauge 3 kV DC traction 12 car units To be made up of proven standard components and designs Capacity 2 503 passengers per train set loading 5 pax/m2 12% higher capacity than existing rolling stock Estimated overall cost 3 600 vehicles (1st batch) (10 years) 5 712 vehicles (16 years) 7 224 vehicles (includes estimated growth) = R123.5 bn (20 years)

EMU NUMBERS 5 712 vehicles 7 224 vehicles

ROLLOUT OF THE NEW FLEET Rollout of 360 vehicles per annum

INFRASTRUCTURE INTERVENTIONS Infrastructure intervention envisaged at an estimated cost of R13.5 bn (excl new corridors): Intervention needed to permit operation of new rolling stock Intervention needed to obtain optimal use of new rolling stock Depots New depots required at all sites: Gauteng R1.5 bn Cape Town R1.5 bn Durban R1.0 bn East London: R0.3 bn Port Elizabeth R0.3 bn

MAIN FEATURES OF PROCUREMENT Contract structure Contract with design, build, and defined maintenance responsibilities for the RSM Period of rolling stock roll-out Stretch the period of rolling stock roll-out to approximately 20 years, with the initial batch enduring over 10 years (2015 to 2025). Subsequent procurement could take the form of a second batch over 10 years, or several subsequent batches over shorter periods, depending on the state of readiness of new lines that are currently in planning stages Flexibility Procurement framework to be designed as flexible as possible to provide PRASA optimum protection in procurement, given complexity of project

Modern Trains South African Factory Economic Development STRATEGIC GOALS Modern Trains South African Factory Economic Development 42

INDUSTRIAL REGENERATION This is much more than a train supply contract – this Project will regenerate South Africa’s rolling stock manufacturing industry & supply chain

INDUSTRIAL REGENERATION RFP Issued Closed on 30 Sept 2012 7 Bids Submitted: China North Railways China South Railways Bombadier Dudula Rail (ABB & Satdler), Gibela Rail (Alstom) CSR/Wictra Evaluation of the Bids Underway Preferred and Reserve Bidders to be announced End of Nov 2012 Financial Close by June 2013

Economic Development and BBBEE 45

ECONOMIC DEVELOPMENT APPROACH The PRASA approach to Economic Development ("ED“) is informed by, inter alia, the following: Opportunity presented by long term investment in the Rolling Stock Fleet Renewal Programme Opportunity presented by structuring new project companies and/or entities to be created for implementing the Programme Government objectives and policy framework for B-BBEE (various policy documents and papers) Legislative requirements and guidelines such as the Broad-Based Black Economic Empowerment Act, 2003 ("B-BBEE Act") and the Preferential Procurement Policy Framework Act, 2000 ("PPPFA") in relation to procurement.

JOB CREATION AND B-BBEE ELEMENTS FOR THE PROGRAMME The Job Creation and B-BBEE elements for the Programme were developed taking into account the: policy and regulatory framework, which includes the: Constitution PPPFA B-BBEE Act and B-BBEE Codes socio-economic conditions in South Africa, which include: high unemployment rate lack of education lack of skills

OBJECTIVES IN THE PROGRAMME FOCUSING ON BLACK PEOPLE PRASA has developed outputs for ED, informed by regulatory framework and socio-economic conditions in South Africa Outputs developed for ED are as follows: sustainable job creation for black people, the youth, women and South Africans Increased black equity the empowerment of a broader base of people to contribute towards the economy the involvement of women in a meaningful manner skills development for black people - engineers, artisans, technicians and technologists, etc. subcontracting to black owned enterprises development of small, medium and micro enterprises

JOB CREATION AND B-BBEE ELEMENTS FOR THE PROGRAMME FOCUSED ON BLACK PEOPLE Job Creation, which focuses on jobs for South Africans, Black South Africans and Skilled Black People Ownership, which focuses on shareholding in the Project Company by Equity Partners (Black People, Black Women and Broad-Based Ownership Schemes Management Control, which focuses on the involvement of Black People and Black Women in top and senior management Employment Equity, which focuses on the involvement which focuses on the involvement of people with disabilities, Black People and Black Women in top and senior management

KEY FEATURES OF ECONOMIC DEVELOPMENT Local Factory in South Africa constructed and operational by July 2016 (3 years after financial close) Minimum 40% local content by year 3 of delivery Minimum of 65% Local Content by value of trains to be sourced locally no later than 2021/22 Development of rail related skills and transfer of skills generally to South Africans Subcontracting with entities owned by black people, small entities and entities owned by women Development of small enterprises and communities 50

SEPARATE PROCESS ON EQUITY PARTNERS PRASA intends to have significant ownership by black people, black enterprises and broad-based ownership schemes in the Programme The separate procurement process has been undertaken to enable PRASA to structure the participation of the Equity Partners to ensure that such participation: empowers a broader base of people benefits the employees to be involved serves to revitalize the rail industry introduce new participants in the rail sector

ATTRIBUTES OF THE EQUITY PARTNERS TO BE PROCURED The Equity Partners will be comprised of the following shareholding by: by black enterprises, who are: investor enterprises, comprised of black people, black women and people with disabilities actively involved in the rail sector, comprised of black people, black women and people with disabilities employee trusts, comprised of: a trust for the employees of the Project Company a trust for PRASA employees an educational trust, focused on the development of skills in the rail sector, which will include skills such as those of engineers, technologists, technicians, and artisans

30% SHAREHOLDING OF EQUITY PARTNERS Breakdown in Percentage (out of 100%) Breakdown in actual figure (of 30% shareholding) Active Black Enterprises 33% 10% Investor Black Enterprises 24% 7% Employee Trust Educational Trust 3% Total 100% 30%

FUNDING ARRANGEMENTS FOR THE PROGRAMME In order to facilitate the involvement of Black People in the Programme, PRASA has engaged the National Empowerment ("NEF") and the Industrial Development Corporation ("IDC") about the possibility of funding the suppliers in the Programme to enable the achievement of PRASA objectives in the Programme The products have been provided as part of the procurement documents for the Programme: the Procurement Finance product from the NEF, which is for tenders and contracts (and other NEF products), which requires that the applicants be more than 50% owned by Black People Gro-e-Scheme from the IDC, which is targeted at start-up entities, for buildings, machinery and working capital It is anticipated that the availability of funding will go a long way in assisting Black People to participate in the Programme

WAREHOUSING The NEF has been brought into the process to hold the shares while the procurement process of Equity Partners is underway NEF has facilitator status, any shareholding held by them is recognised as follows: 100% Black owned 40% women owned 10% owned by designated groups (broad-based black ownership schemes) In the event that the procurement process the Equity Partners being concluded prior to Financial Close, it may not be necessary for have NEF as the initial holder of the shares in the Project Company, subject to any applicable funding structure Create a revolving facility amounting to R200m for equity portion

WAREHOUSING (CONT.) The period it will take before the NEF transfers the shares the Equity Partners in the event that the NEF warehouses the shares has not yet been decided and it will depend on factors including, the time it takes to finalise the Equity Partners and registration of any trusts PRASA will however, ensure that the shares are transferred to the Equity Partners such that there is sufficient time in the remainder of the contract to enable them to make a meaningful contribution to the project and derive commercial benefit from it The NEF will become a shareholder during the warehousing period and will be entitled to all rights of a Shareholder in the Project Company NEF will provide an equity contribution, commensurate with its shareholding in the Project Company

FINANCIALS 2011/2012

ABRIDGED GROUP INCOME STATEMENT 2012

GROUP SUBSIDY AND FARE REVENUE

PRASA RAIL SUBSIDY VS. REVENUE

MLPS PASSENGER TRIPS

METRORAIL PASSENGER TRIPS

KEY RATIOS

ASSET BASE

CHANGES IN FINANCIAL POSITION

IRREGULAR EXPENDITURE

KEY CHALLENGES Lack of funding of Long-Distance Train Service – adding huge financial burden on PRASA- main contributor to R600 Million loss - PRASA urged to shut it down SMEYL transferred from Transnet to PRASA in 2009 – Due Dilligence confirmed a funding requirement of R1.4 billion per annum Property Portfolio – unlocking its value critical – Section 54 PFMA approvals critical – financing development leases and buying back leases critical – bringing in development partners critical Striking the right balance between Operational Funding and Capital allocations – critical to capitalise the costs associated with infrastructure upgrade and modernization Going-Concern issue fully addressed – however Cash remains a major, immediate challenge -

CONCLUSION Next 12 Months critical – Appointment of a Rolling Stock Contractor Critical Signing Contract Job Creation, Skills Development and unlocking devlopmentment through the Infrastructure Modernisation Programme All these testimony of PRASA’s intense modernisation to create a new modern commuter rail system by 2014/15.