Transnet Strategy andInfrastructure Plan

September 2005

Context

Ageing infrastructure: Rail

• 2 360 locomotives and 84 633 wagons• Lifespan of asset 20 to 30 years• Average age of fleet 27 years• Current availability of fleet approximately 64%• Number of derailments increased to 269 against target of 150

CONSTRAINT TO CARRY:27.6mtpa ON OREX

69.2mtpa ON COALLINK80mtpa ON GFB

Ageing infrastructure: Ports

• Depth of Durban Harbour entrance– Single lane with depth of 12m– International norm – double lane with depth of 13,5mCONSTRAINT: SHIPS WITH CAPACITY OF 6000-7000 TEUs CANNOT CALL AT DURBAN

• Durban Container Terminal– Current capacity of 1,4m TEUs– Growth in TEUs 8% paCONSTRAINT: RUN OUT OF CAPACITY BY 2006

• Depth of Cape Town Harbour– Currently 12.8m CONSTRAINT: SHIPS WITH CAPACITY OF 6000-7000 TEUs CANNOT CALL AT CAPE

TOWN

• Cape Town Container Terminal– Current capacity of 510 000TEUs– Terminal running at capacity CONSTRAINT: NO CAPACITY FOR GROWTH

Ageing infrastructure: Pipeline

• DJP pipeline– 40 years old– Running at 90% operating capacity at presentCONSTRAINT: NO CAPACITY FOR GROWTH AND CONSTRAINT BY

LIFESPAN BEYOND 2010

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.

Pipeline & Water

0%

Air9%Rail

9%

Road - Corridor

38%

Road - Metro24%

Road - Rural20%

R11bn

R50bn

R30bn

R11bn

R0.3bn

Rail corridor = R135/tonRoad corridor = R360/ton

R25bn

Understanding the Road / Rail trend over the past decade

60

70

80

90

100

110

120

130

140

150

160

1991

1993

1997

2003

Inde

x 19

91=1

00

Transportable GDP Road ton Rail ton Rail ton excl export coal & ore

Data depicted on an index basis

The last decade has seen growth in road traffic, while rail traffic (excl. the export lines) has declined

Cape Town Port 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.

Strategic direction

Our Mandate

…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 countryPresident Thabo Mbeki, State of the Nation address, May 2004

Government’s strategic agenda for economic development:

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

Our vision is to become an efficient freight transport company in Southern Africa

Key pillars of the Turnaround Strategy

• Redirect the business

• Restructure the balance sheet

• Implement strict corporate governance principles

and adhering to vigilant risk management processes

• Build Human Resources capabilities

Provide efficient, integrated

transport to the bulk and

manufacturing sectors

Implementation plan

Lower cost ofdoing business

Targeted sectors

4 Point Turnaround

Plan

Redirect and re-engineer

the business

Balance Sheet restructuring

Human capital development

• Reengineer core business • Corporate HO restructure• Operational synergies• Customer focus• Infrastructure development

• Pension fund deficit• Transfer SAA to govt• Disposal of non-core businesses

• Skills audit and matching • Recruitment and retention• Skills and training• Performance Management• Career management• Succession planning

• Shareholders compact• Memo and articles of assoc• IFRS • Legal review• EWRMF

Economic development

Corporate governance and risk management

One company, one vision

Implementation programme overview

Transport Portfolio

PipelineNetwork

PipelineOperations

Transnet Business Portfolio

RailInfrastructure

RailOperations

Port Infrastructure

Port Operations

HoldingCo

Investment Portfolio

Aviation

Other

Independent Regulators

PETRONETPETRONETTRANSNETTRANSNETHOUSINGHOUSING

Pty (Ltd) 26%

Pty (Ltd) 100%

Pty (Ltd) 100%

Pty (Ltd) 100%

Pty (Ltd) 35%

Pty (Ltd) 100%

Pty (Ltd) 49%

Holdings Pty (Ltd) 100%Pty (Ltd) 95%

100%

(SNO)

TransportTelecomms

PROPNETPROPNET

Core Businesses Non - Core Businesses

The strategic direction of Transnet requires separation between core and non-core businesses

Infrastructure plan

PortElizabeth

East London

Maputo

Gauteng Mega

Industrial Zone

Sishen

Beit Bridge

RichardsBay

DurbanSaldanha

Volumes and Investment per Corridor

Gauteng-Cape Town

Volume (mt) Value (Rbn)Road 16,6 13,3Rail 2,7 0,7Total 19,3 14,0

Investment (Rbn)

NPASAPOSpoornetTotal

1.260.790.102.14

Gauteng-Durban

Volume (mt) Value (Rbn)Road 44,7 16,1Rail 9,7 1,9Total 53,4 18,0

Investment (Rbn)NPASAPOSpoornetPetronetTotal

2.51

6.201.900.40

11.01

Sishen-Saldanha

Volume (mt) Value (Rbn)RoadRail 27,0 0,8Total 27,0 0,8

Investment (Rbn)NPASAPOSpoornetTotal

0.381.101.83

0.35

Gauteng-Beit Bridge

Volume (mt) Value (Rbn)Road 29,5 8,5Rail 3,2 0,6Total 32,7 9,1

Gauteng-Richardsbay

Volume (mt) Value (Rbn)RoadRail 74,0 3,8Total 74,0 3,8

Investment (Rbn)NPASAPOSpoornetTotal

1.172.704.79

0.92

Gauteng-PE/East London

Volume (mt) Value (Rbn)Road 9,1 5,2Rail 0,7 0,3Total 9,8 5,5

Investment (Rbn)

NPASAPOSpoornetTotal 3.98

2.760.201.02

Sishen-PE

Volume (mt) Value (Rbn)RoadRail 2,4 0,3Total

Investment (Rbn)NPATotal 0.25

0.25

Gauteng-Maputo

Volume (mt) Value (Rbn)Road 23,1 4,6Rail 4 0,4Total 27.1 5,0

Investment (Rbn)SpoornetPetronetTotal

0.920.27

1.19

Spoornet - Other

Investment (Rbn)

BranchlinesOtherTotal

0.1816.8016.98

Coega

Investment (Rbn)NPASpoornetTotal

2.171.023.20

Cape Town

Gauteng Mega Domestic Zone

Volume (mt)

Value (Rbn)

33417.8

19.50.6

RoadRail

Improved profitability, efficiency & safety;Increase coal capacity from 71mta to 86mta by 2007/08;Increase general freight capacity from 14mta to 19mta;Further investment of R9bn required to sustain this capacity;Investment by NPA for additional berth 306 at a cost of R443m

Optimize scarce resources and to capture market demandAffords sustainable profitability and increased productivity;Recover the cost of the investment over the period;Rand based tariff for the remaining period of contract ;

Coal line capacity expansion

(R2.5bn)

Iron Ore line capacity expansion

(R2.8bn)

Upgrade of 200 18E

Locomotives

(R1.2bn)

Wagon Fleet Renewal &

modernization

(R4.1bn)

Upgrading and over hauling the 6EI’s to 18E’s; improvements in reliability and traction;Reduced repair and maintenance costs.

Upgrade of the wagon fleet; Extend the life

of wagonsSpoornet

major projectsSpoornet

major projects

Major Rail Projects

Durban Port Investments

(R4.5bn)

Cape Town Container Terminal

expansion

(R1.9bn)

Port of Ngqura

(R4.1bn)

Alignment with govt objective to foster economic development;The port expected to be operational by Oct 2005;

Increase in stacking capacity by 226k TEU by 2008 and to 1.6m TEU by 2017;To meet productivity expectations of customers;

Ports (NPA & SAPO) major

projects

• Durban 2005 expansion program• Widening of the entrance channel• Pier no 1 container terminal • Deepening of Berths

Major Port Projects

MAJOR PROJECT: PETRONET

• New Multi-purpose pipeline (R3bn)

– Replacement of ageing asset;

– Addresses the high risks of failure on the environment;

– Provide additional capacity to meet the expected capacity constraints;

– Alignment with govt.’s objective of economic growth and a supply of

environmentally safe transport mode for petroleum products.

Human Capital Development Strategy

The strategic context for HR

1. Redirect the Business

2. Restructure the Balance Sheet

HR capacityHR capacity

HR EnablersTurnaround Strategy

3. Implementation of Governance Principles

4. Promote Skills Development

The Four PointTurnaround Plan

Leadership & culture

Performance and reward

Capability building

Talent management

Transformation & change

Employee relations

HR systems & measures

Business Results

Business that is:Growing

ProductiveProfitable

SustainableRe-engineered

Achieves the strategy

Business that is:Growing

ProductiveProfitable

SustainableRe-engineered

Achieves the strategy

Transnet Leadership Competency Model

Transformational Leadership ensuring

Business Success

Anchoring the Transnet Way

Redirecting the business

Building capability

Restructuring the

balance sheet

Institutionalisingcorporate governance

& risk mgt

Sustaining the Transnet WayDeveloping Others

Self Development

Manages and shares information

Role models the culture and values

Embraces diversity

Professional Expertise

Managing the Transnet WayOptimizes business performance

Manages finances

Manages people & teams

Delights customers

Manages programs, projects & contracts

Manages risk and compliance

Is resilientIs emotionally intelligentIs an excellent communicator

Is a conceptual and analytical thinkerIs results focused Is courageous

4 pillars of transformation

Competencies required to achieve transformation

and business success

Foundation competencies for personal effectiveness

6

Leading the Transnet WayIs visionary and inspiring

Is strategic

Is collaborative

Is innovative and entrepreneurial

Has impact and influence

Is a change agent

1 2 3

4

An integrated talent management framework

Talent Management

STRATEGY

Vision

Mission

Values

Talent MgtValue

propositionSt

rate

gic

HR

pl

anni

ng

Sour

cing

&

Pla

cing

Cap

acity

build

ing

Perf

orm

ance

Man

agem

ent

Rew

ard

Rel

ease

TM strategy & position paper

- principles- definitions- framework- outcomes- benefits

- CSFs

Attraction and sourcing of key

talentEmployment

brandingCompetency frameworkPlacement

On-boarding

Monitoring and measuring talent management

IndividualPersonal

Development plans

- Career plans- Mentoring- Key talent programs &

opportunities- Leadership development

Performance based reward

-Guaranteed pay- Incentive pay

- Retention strategies

- Benchmarking

Strategic people planning – Dept/BU

- future business environment, org

design, skills- Gap analysis

- plans to close gap- succession

planning

PromotionsMaintaining

relationshipsExit interviews

Company- Career ladders- Departmental and BU skills

plans- Succession

plans

Attraction and retention of key talent to ensure:

- continuity- productivity- profitability

- Customer growth & retention- Employee

engagement & retention

MeasurementEngagement

surveyExit interviewsTurnover rates

Cost of replacementTime to fillFirst time

acceptance

-Performance Contracts

- Feedback and coaching

- Performance reviews

Strategic people planning - Group

ExcoTalent Review & Staff movements

Integrated performance management cycle Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Strategic Review

People & Performance Mgt Training

- setting targets & coaching

Mid-term review

Performance Coaching and Optimisation

Performance Contracting

People & Performance Mgt Training- reviewing

performance

Development Contracting

Development Review

Strategic Review

Business Planning & Budgeting

Business Planning &

Budgeting & LEReview

ExcoQuarterly business

performance reviews

ExcoTalent Review

& Staff movements

ExcoSPO

measures & incentives

Guaranteed Pay

Incentive Pay (bonus)

ExcoQuarterly business

performance reviews

•Operating profit margin•CFROI•Capex delivery

4 Point Turnaround

Plan

Redirect and re-engineer

the business

Balance Sheet restructuring

Human capital development

• Reengineer core business • Corporate HO restructure• Operational synergies• Customer focus• Infrastructure development

• Pension fund deficit• Transfer SAA to govt• Disposal of non-core businesses

• Skills audit and matching • Recruitment and retention• Skills and training• Performance Management• Career management• Succession planning

• Shareholders compact• Memo and articles of assoc• IFRS • Legal review• EWRMF

Economic development

Corporate governance and risk management

Change rail share of Transport GDP from 11% to 20%

•Gearing ratio•Talent management•Leadership pipeline

Outputs and outcomes

•BEE spend•SME spend