A presentation by Mr James Mackay (Private Sector Participation, Transaction Advisory Services: Transnet Group Commercial) at the Transport Forum SIG 2 July 2015 proudly hosted by Resolve in Midrand. The theme for the event was: "Supply Chain and Logistics Collaboration". The topic of the presentation was: "How Transnet intends to leverage Private Sector Participation to develop and improve supply chains."

1. 1
Transnet PSP presentation
02 July 2015

2. 2
Workshop objectives
• Context of collaboration
• Snap-shot of Transnet
• What is Transnet’s PSP strategy
• Transnet PSP Portfolio
• Transnet PSP considerations
• Key success factors

3. 3
3
TRANSNET AUDITED RESULTS 2014
• Capital liquidity in the region will be a challenge
• Regional growth has been downgraded and risks are rising
• New investment landscape is pushing investment to lower risk
sectors and lower risk countries will outperform
After the commodity boom – defining Africa’s new growth path
As a country we are achieving the highest spend
on economic infrastructure in 25 years
5 years to 2013: R1.02trillion (6.7%)
4 years to 2017: R1.08trillion (6.2%)
34% on Transport and Logistics (R339.2 bn) JP Landman

4. 4
Emerging markets: Who goes where? F’2015
Export Strength (right)
vs
Export Character (below)
Current Account Deficit
($bn)
Current Account Surplus
($bn)
Commodity Exporter
Brasil –89
Indonesia –24
South Africa –20
Colombia -16
Ukraine –9
Peru –9
Chile –5
Argentina –5
Saudi Arabia +120
Russia +54
UAE +22
Kuwait +16
Qatar +10
Venezuela +10
Manufactured Goods
Exporter
Turkey –46
Mexico -25
India –23
Poland –7
Egypt –4
Pakistan –3
Romania –1
China +197 Hungary +6
Taiwan +65 Slovenia 6€
South Korea +47 Greece +2€
Singapore +44 Slovakia 0€
Malaysia +18 Czech +0
Philippines +10
Vietnam +10
Thailand +10
Hong Kong +8
Bangladesh +0
Sources: Economist , 10.1.2015,
Trading Economics, HSBC
Nigeria
Angola
Algeria
Iran
Kazakhstan
IraqCommodities – negative impact
Dollar – negative impact

5. 5
Are blocs and $ GDP growth correlated?
South East
South West
North East
Chart
Source:
Emerging
Advisors
Group
Dollar GDP growth potential (index score)
North West
South Africa
Where
we are
Where we want to be requires
effective and efficient logistics
High growth
economies
Michael Power

6. 6
Our challenges are not unique
UK freight rail is a modern success (Chairman CILT Rail Freight Forum)
• UK has realised a 70% increase in freight traffic and 50% increase in train length – resulting in a 76% decrease
in CO2 emissions and millions of lorry’s taken off the road.
• It is a myth full train loads of bulk over long distances are necessary – Intermodal has doubled in the last 10
years and aggregate traffic is 17% of all freight
• There is increasing movement of deep sea containers away from Ports; Tesco is utilising rail for distribution
and store deliveries
In comparison
• European rail has not been successful and seen a 50% reduction in freight
• Despite a standard ERTMS signalling system, 4 incompatible versions run across Europe. Varying and
prohibitive access charges remain a problem for cabotage operators
South African Story…..there are pro’s and con’s of having a single freight transport utility
• Transnet will remain an integrated supplier of logistics and will invest billions of Rands into upgrading South African Rail
and Port systems
• This does support and optimise a single set of standards, focused investment and strategic planning
• Transnet is implementing leading technology and striving to achieve the best country outcome through seamless supply
chains and lower logistics costs
Some key challenges……
• Road and Rail are competing on commercial as well as structural terms (Public vs Private, volumes and distance )
• Rail investment will increase logistics costs if volume density is not achieved on Rail – pushed onto end user
• Transnet is not well positioned to compete on the first and last mile, so must integrate with LSP’s to be successful.
• Private Sector is better integrated with the market and largely controls the customer
• Public Sector lacks customer focus and decision making is too slow
Take away: public private collaboration is critical for SA economic growth ‘
‘ and the opportunities out way the challenges

7. 7
Transnet SOC Limited
• 16 Cargo Terminals
operating across 7
SA ports
Supporting
• 8 Commercial ports
along 2 798 km
of coastline
• 20 500 km of railway
track
• +200 million tons of
freight
• General freight & 2
heavy haul export lines
• Support TFR for rolling
stock and TPT for lifting
equipment
maintenance
• 18 billion litres of
petroleum products
and gas through 3
000 km of pipelines,
mainly to Gauteng
• R300 billion of capital
investments over 7
years
• CSI in Education,
Health, Sport, Arts &
Agriculture
Capital
Projects
Transnet
Foundation
Transnet
Pipelines
(TPL)
Transnet
Engineering
(TE)
Transnet
Freight Rail
(TFR)
Transnet Port
Terminals
(TPT)
Transnet
National Ports
Authority
(TNPA)
PipelinesRailPorts

8. PAGE 8
Commodity split (%)
8%
Other
5%
4%
Iron Ore
Bulk 1%
Break-bulk
GFB
Maritime
Containers
6%
6%
Manganese
Ore
14%
Export coal
43%
Piped products
12%
Transnet MDS targets R312bn investment
Transnet has embarked on a strategy to renew the Rail and Port infrastructure capability in
the country and in so doing reduce cost of logistics as a % of transportable GDP and
stimulate economic activity – encapsulated in the MDS
National Transnet Investment planning targets include
7yr (2021) 30yr (2044)
Sustaining and renewal R159 bn -
Expansion LTPF R396 bn R910bn
unfunded/PSP requirement R243 bn -
Clear National requirement to ensure effective and efficient spend
1. Broaden the base of capital for infrastructure investment
2. Unlock Value through alternate procurement methodology
3. Increase Skills, focus, speed and capacity
4. Significantly impact developmental and social issues
5. Mitigate risk through transfer to lowest NPC

9. 9
Transnet PSP delivery is embedded in the Transnet Shareholder
Compact and Ministerial Statement of Strategic Intent
Transnet PSP strategy was initiated as a funding
mechanism in support of the MDS corporate plan.
PSP strategy has evolved to incorporate the following
broader objectives:
• Leverage Private capital at a national level to broaden
available investment in infrastructure
• Expedite national infrastructure development through
additional capacity, skills and procurement options in
support of Transnet’s own initiatives
• Diversify and mitigate Transnet risk, especially in areas
of: Market risk and EPC risk (on time and on budget
projects)
• Achieve greater economic multipliers in the areas of
social development, transformation and
empowerment
Transnet Successes in this regard:
• PSP strategy embedded in Ministerial Statement of
intent, shareholder compact and corporate plan
• Transnet PSP Policy approved in 2013 (2015 revision)
• Further PSP methodology and best practice
governance developed in 2014/15
• Transnet PSP portfolio defined; over 30 opportunities
under investigation, at value of over R110bn.
• PSP transactions progressing, with 4 projects
scheduled for market offering in 2015/16
• The recent partnering of Transnet and DBSA for PSP
project funding and preparation will add additional
skills and capacity to expedite delivery.
Proposed
Durban Dig-
out Port:
2025
Durban Agri
Port: 2015

10. 10
PSP Portfolio is segmented into key functional focus areas with number
of projects under consideration
Key PSP portfolio focus areas based on volume
drivers
Key PSP projects progressed for active analysis or approval
i. Investment Property Portfolio
ii. LNG to Power and National Gas infrastructure
iii. Operation Phakisa
i. Waterberg Consolidation
ii. Funding for Heavy Haul coal link
iii. Manganese CUF in Mamatwan - Northern Cape
1. Bulk commodities (coal, iron ore and
manganese)
i. Durban Dig Out Port (DDOP) – KZN
ii. Tambo Springs intermodal hub - Gauteng
2. Intermodal (focus on containers)
i. Branch lines – Northern Cape; Western Cape; KZN; Free State
ii. Specialised rolling stock
iii. Domestic bulk loading Terminals – Mpumalanga, Rustenberg
3. Rail (general freight services)
i. Agri-port Durban - KZN
ii. East London Grain Elevators – Eastern Cape
iii. Liquid Fuel Terminals – KZN and Gauteng
4. Ports (multi-purpose services)
i. Botswana – Waterberg link
ii. Maputo corridor and Port
iii. Regional intermodal hubs
5. Regional integration
6. Non-core but complementary to MDS

11. How we are responding to these challenges?
Improved Reporting
transparency &
robustness
Enhanced PSP
methodology &
Governance
A market win
(An early adopter)
Robust engagement
& discussion
• Practice notes
• Transnet Policy
• National Policy
• Reporting
• Portfolio
management
• Stakeholder
management
internal & external
• 4 projects targeted
for market bidding
in 2015
1 2 3 4
Four focus areas established
Transnet PSP policy
1
Life cycle
Overview
2
Project
Selection
and Portfolio
Development
3
Business
Case
Development
4
Risk
Transfer
5
Public Sector
Comparator
6
Procurement
and
Adjudication
7
Contract
Management
Outline of practice notes for PSP projects
Ministerial Framework on PSP (DPE and DOT aligned in their approach)
Other areas of PSP within SOE’s
and Transport in general that will
leverage similar benefits to
economic growth and
development

12. 12
Transnet success factors for PSP
1) Political Vision and Project Sponsorship is aligned and supports PSP project delivery
• Ministerial support embedded through Shareholder Compact and Corporate Plan
• Close working relationship with DPE and DOT established on PSP development.
• PFMA pre-notification being done with DPE to ensure early political alignment.
• Key for early identification of Project Sponsors
2) Best practice methodology in place to ensure risk transfer to PSP and minimise retained/ residual Transnet risk
• Transnet must consider long term impact of PSP portfolio on business sustainability
• PSP projects are implemented either due to Transnet affordability constraints or enhanced value delivery over the
life-cycle of the project due to the inherent advantages of the private sector positioning.
• Transnet will often have to be the “funder of last resort” or step in funder if the PSP fails.
• What is the level of aggregated residual risk to Transnet across the PSP portfolio.
• PSP methodology is challenging the traditional public procurement frameworks – this take time.
3) Private Sector project appetite will be determined by process integrity, certainty and transparency
• Delivery interface with the market determines Private Sector confidence in the process. Transnet PSP projects will
compete for Private capital and capacity with other domestic and off-shore investment opportunities.
• PSP methodology must ensure strong focus on transaction preparation prior to market engagement.

13. PAGE
Key Success factors to enable PSP transactions
Practical focus areas to expedite collaboration
1) Political Vision and Project Sponsorship (per asset class/ per project)
• Public commitment is evident in plenty NDP; PICC; SIP’s; Phakisa; Policy; Comments
• Execution is further encumbered by perception of risk and confidence in process to achieve outcomes – IPP success
• Private sector must also demonstrate vision and strategy – not just first mover advantage
2) Bankable and credit worthy project off-take
• Effective capital spend resulting in affordable services to the end user
• Prioritisation of capital and projects based on economic impact – low hanging fruit
• Need innovative ways to securitise projects through market off-take – distribution of market risk between pvt and public
3) Robust methodology and approval process
• Greater commercial and project discipline required
• Understanding of the public policy positions and constraints
4) Practical first steps – with a strategic goal in mind
• Practical debate between public and private as to what is not working
• At risk opportunities are plentiful (private sidings, interface agreements, capacity bookings)
• Industry coordination allows easier interface between public Monopoly and fragmented competitive market
• First mover relationship does not supersede requirement for open market bidding
Take away: PSP is a life-cycle transaction to provide a service at the lowest
’ NPC rather than buying an asset.

14. 14
Thank-you