1. Unit of measure *Footnote Source:Source Working Draft - Last Modified 17/09/2008 09:19:19 Printed 17/09/2008 08:28:20 CONFID ENTIAL Document Date This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion. Working Draft Last Modified 17/09/2008 09:19:19 South Africa Standard Time Printed 17/09/2008 08:28:20 South Africa Standard Time Click to edit Master subtitle style Transnet Cable Theft Analysis 2008/09 – 2011/12 Jan YTD

2. Unit of measure *Footnote Source:Source Working Draft - Last Modified 17/09/2008 09:19:19 Printed 17/09/2008 08:28:20 2 THE EFFECT OF CABLE THEFT ON TRANSNET  Theft and vandalism has a dramatic effect on Transnet Limited (“Transnet”) operations, its customers and business  Transnet has implemented a number of initiatives directed at reducing cable theft. Despite the security effects it has become evident that the number of incidents are increasing with a dramatic increase in length of cable stolen.  The cancellation of slots does impact the economy directly, negatively affecting strategic commodities such as iron ore exports, Fast Moving Consumer Goods (“FMCG”), coal exports, local coal supplying Eskom power stations, lime to the Rand Water Board for water purification, supply of fuel to ORTIA, fuel & FMCG to neighbouring countries.  The higher incidents of cable theft, has in most cases rendered the railways less reliable, thereby diverting traffic to road which leads to the further pressure and deterioration of the road infrastructure.  This impacts the National Budget.  Transnet Pipelines cable theft has minimal operational disruptions but major consequential damage. The majority of cables stolen are connected to the cathodic protection system for the prevention of electrolytic corrosion of the buried steel pipelines. Failure to detect and replace the missing cables will lead to corrosion leaks with the consequential costs related to repairs, environmental damage, loss of income, etc.

3. Unit of measure *Footnote Source:Source Working Draft - Last Modified 17/09/2008 09:19:19 Printed 17/09/2008 08:28:20 3 CABLE THEFT INCIDENTS; RAND VALUE LOSSES AND REPLACEMENT VALUES FINANCIAL YEAR CABLE THEFT INCIDENTS RAND VALUE LOSS REPLACEMENT COSTS 2008/09 2009/10 2010/11 2011/12 Jan YTD 1432 2014 2091 1380 R12, 000,000 R27,100,000 R38,600,000 R17,800,000 R30,000,000 R67,600,000 R96,500,000 R44,500,000

4. Unit of measure *Footnote Source:Source Working Draft - Last Modified 17/09/2008 09:19:19 Printed 17/09/2008 08:28:20 4 TRANSNET CABLE THEFT INCIDENTS & RAND VALUE LOSSES COMPARATIVE STATISTICS

5. Unit of measure *Footnote Source:Source Working Draft - Last Modified 17/09/2008 09:19:19 Printed 17/09/2008 08:28:20 5 PREVENTATIVE INTERVENTIONS  Enhanced In House security is in the process of being introduced to protect key installations.  The school of security has been established to administer special training interventions.  Joint operations with state security agencies has been established and disruptive operations are conducted as per available intelligence  Transnet nerve centres has been established and cable theft incidents are analysed, geographically  Exploring appropriate security technologies for deployment in open infrastructure including acquisition of UAVs  Conducting awareness campaigns through CPFs (Transnet Foundation assist in building of community centres)  Ongoing judicial awareness campaigns to empower the prosecution regarding veracity of cable theft  Sharing of intelligence/information with SSA, CI and other SOC  Participation in SA Chamber of Business to spread awareness through their network 

6. Unit of measure *Footnote Source:Source Working Draft - Last Modified 17/09/2008 09:19:19 Printed 17/09/2008 08:28:20 6 CONCLUSION  The consequential rand value loss due to cable theft far exceeds the cost of loss for Transnet. The cost of loss comprises of train delays / cancellations, demurrage costs, cost to replace equipment e.g. locomotive pantographs, labour costs, safety and injury to our personnel, etc. This excludes customer dissatisfaction, loss of business, negative media coverage and the enormous negative impact on the logistics chain of South Africa and SADC as a whole.  The industry’s biggest problem relating to non ferrous theft has always been the bucket shops, the scrap yards, the general metal market and the smelters and recyclers. Most stolen copper is for the export market and South Africa does not have sufficient measures / scanning equipment at Ports to scan all containers, hence a lot of stolen copper and associated material leave the country illegally.  Cable theft & vandalism remains one of the biggest challenges to Transnet and South African business in general.  During the past five years, security efforts has increased dramatically, however, the cable theft challenges are still increasing despite a downward trend in the current financial year.  A committee has been established comprising Transnet Freight Rail Security, SAPS Organized Crime Unit, the National Prosecuting Authority and the SAPS (Hawks). Various meetings have taken place to highlight the challenges faced by TFR as well as formulating solution to that effect.  The proposed legislative initiatives are required in order to assist the police and courts with enforcement and harsher punishment in order to serve as a deterrent for the theft of copper cable.