1

PRESENTATION TO THE PORTFOLIO COMMITTEE

PROGRESS ON INFRASTRUCTURE INVESTMENTS

CAPE TOWN

14 JUNE 2006

2

• ASGISA

• INITIAL VERSUS REVISED INVESTMENT PLANS

• ESKOM

• TRANSNET

• KEY RISKS

• WAY FORWARD

Overview

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Infrastructure Investment - History

After a protracted decline in investment spend, government plans to increase infrastructure investment significantly

4

Increased Investment Required

In order to achieve the growth targets, gross fixed capital formation will need to comprise 25% of GDP per year by 2014 – this will require growth in investment by about 10% per year.

Starting the present Transnet / Eskom investment spend at R22.8 billion (based on an average of R26.6 billion per year for five years), would need to grow to R51,4 billion by year ten if all government spending increased proportionately by 10%.

Investment Growth

0

20

40

60

1 2 3 4 5 6 7 8 9 10

Year

Bill

ions

(In

vest

men

t)

Series1

5

The CAPEX Program – Local Content

•42% of the CAPEX is projected to be imported: Growth impact of local content development is extremely significant

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

05 06 07 08 09 10 11 12 13 14

Real GDP level (Normal sourcing)Real GDP level (Increased domestic sourcing)

.00

.04

.08

.12

.16

.20

.00

.04

.08

.12

.16

.20

05 06 07 08 09 10 11 12 13 14

Real GDP growth (Normal sourcing)Real GDP growth (Increased domestic sourcing)

What will it take for local industry to aggressively respond to the opportunities created by the capex program ?

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• The infrastructure investment and capital expenditure program is core to the achievement of ASGISA goals:

– Failure to roll out the capex program efficiently will result in failure to achieve the 5% growth target as the ASGISA growth rate assumes that the infrastructure expenditure will take place to stimulate local investment.

– Failure to roll-out the capex program efficiently could result in infrastructure bottlenecks (insufficient electricity, port capacity) that will inhibit investment and thus growth.

– Failure to plan infrastructure investment adequately could also result in infrastructure shortages and bottlenecks.

– It is critical that infrastructure productivity (e.g. port and rail operations) is enhanced as this will decrease the costs of doing business and increase investment which will further ASGISA goals.

– The building of a national infrastructure supplier industry will both catalyse greater investment within the economy (thus increasing growth) and result in the more competitive provision of infrastructure – this contributes to accelerating economic growth.

7

Initial Versus Revised Investment Plan

CATEGORY INITIAL PLAN REVISED PLAN

DIFFERENCE

ESKOM R84 billion R97 billion R13 billion

TRANSNET R37 billion R65 billion R28 billion

TOTAL R121 billion R162 billion R41 billion

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Initial Eskom Plan

ESKOM Rmillion

2006/7 2007/8 2008/9 2009/10 2010/11 TOTAL

GENERATION 9,825 8,323 9,598 11,894 13,442 53,052

TRANSMISSION 1,566 2,633 2,736 2,717 1,306 10,958

DISTRIBUTION 2,935 3,257 3,052 3,037 3,131 15,412

CORPORATE 389 318 317 290 275 1,589

OTHER 34 52 317 1,065 2,116 3,584

TOTAL 14,749 14,583 16,020 19,003 20,270 84,625

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Revised Eskom Plan

ESKOM Rmillion

2006/7 2007/8 2008/9 2009/10 2010/11 TOTAL

GENERATION 9,474 8,191 12,167 16,700 18,956 65,488

TRANSMISSION 1,566 2,634 2,736 2,717 1,306 10,959

DISTRIBUTION 2,935 3,257 3,051 3,037 3,131 15,412

CORPORATE 389 318 317 290 275 1,589

OTHER 34 52 317 1,065 2,116 3,584

TOTAL 14,397 14,452 18,588 23,809 25,785 97,031

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Initial Transnet Plan

0 5 10 15 20 25 30 35 40

Rail OperationsCapex Requirements

Rail Infrastructure Capex Requirements

Port Operations CapexRequirement

Port Infrastructure Capex Requirement

Total Transnet CapexRequirement

Capex Requirements (R Billions)

Transnet Core Divisions: 5 yr Capex Breakdown

R 3.8 Bn

R 4.9 Bn

R 4.0 Bn

Pipelines Capex Requirements

R 13.8 Bn

R 11.0 Bn

R 37 Bn

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Revised Transnet Plan

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Build1000

800

1775

165Feasibility, Business

Case, Contract Concluding

Pre-feasibility

ResearchOpportunity Identification

PBMR

Echo

1128Grootvlei

1520

Camden300

Arnot P1&P2

November

600

Juliett

Oscar

6000

Mike

1000

Lima

1332

600

India

Romeo

1600

Sierra

1050

OCGT

1600

*Papa

1300

Kilo

Golf

Bravo

961

KomatiUCG

17375 MW 7800 MW 20850 MW

1050

Quebec

800

Tango

90

112

4000Concentrating Solar

100

Version: 26 April 2006

- Coal

W - Hydro

- Nuclear

- Gas

- Coal- Coal

- Hydro

- Nuclear

- Gas

- Coal

Solar-

Whiskey

500

Transmission-

Songo ApolloHVDC Link Capacity Upgrade

* Possible 2400MW Mid Merit

Trans KalahariInterconnector

0

0

Discard Coal

0

New Coal Supply

0

90

1546

90

1800

Uniform

1200

Victor

500

Rainbow Millenium

2000

X-ray

1775

3500

Zulu 2100

Delta

Charlie

2400

4200

500

Yankee

800

1000

2100

Alpha

Hotel

1332

4200

Foxtrot

4200

765kV CapeStrengthening

0

8391 MW

400kV Beta Delphi

Capacity Project Funnel

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Timing of decisions

Complete Dec 2005

March 2006

-CompletePBMR – Pilot/Demo

2012 or laterAugust 2007J une 2006J uly 2005Coal 2 – PF/FBC (2100 MW added to above

J an 2007March 2006CompleteCompleteOCGT 1 (Atlantis/Mossel Bay)

J an 2009J une 2007November 2007J une 2005OCGT 2(Contingency)

J an 2015Sep 2007CompleteCompleteSteelpoort Pump Storage

Dec 2012CompleteCompleteCompleteBraamhoek Pump Storage

Apr 2011December 2007J une 2007March 2006CCGT 2 – LNG (1600MW) Saldanha

J an 2010December 2006J une 2006CompleteCCGT 1 – LNG (1600MW) Coega

Oct 2010J une 2006March 2006CompleteCoal 1 – PF (2100 MW) Matimba B

Sep 2008CompleteCompleteCompleteRTS (Komati)

Sep 2007CompleteCompleteCompleteRTS (Grootvlei)

Aug 2005CompleteCompleteCompleteRTS (Camden)

1st unit COBusiness PlanERA

FeasibilityBus Case

Pre-FeasibilityDRAPlant Decision for Base

Load 2010 Implementation

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Projects in Development Project Name Stage Location Capacity Possible Commercial

date

Project Echo (coal) Pre-feasibility Mozambique – linked to NMPD initiative

1500MW 2012

Project Delta (coal) Pre-feasibility Botswana 3600MW 2011

Project Kilo (hydro) Business case Mozambique – linked to NMPD initiative

1300MW 2011

Project Romeo (gas) Feasibility Namibia 800MW 2010

Project Papa (gas) Feasibility RSA Coastal 1600MW 2011

Project X – Ray Pre-Feasibility Conventional Nuclear 16000MW 2014

Project Quebec (gas) Pre-feasibility DME initiative; Eskom monitoring 1050MW 2009

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Current Generation Build Programme

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RTS Current Status

• Camden Unit 6: Commercial. Unit 7: CommercialUnit 8 : Expected commercial date end June 2006Scope of Work (SOW) greater than expected. Staffing >80%.

• GrootvleiPartnership delivering.Catching up. Centre line & Boiler started.Challenges: staffing, planning, purchasing and partnerships.First unit expected before March 2007

• Komati15 Months into project.Asbestos removal complete.Centre line work started.Major contracts in adjudicationStaffing, SOW, engineering specifications, strategy on time.First unit expected before September 2007

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Milestones 2006/7Milestones 2006/7

Site M W Date

RTS: Camden - Unit 8 200 30 June ’06

RTS: Camden – Unit 5 200 30 Sep ’06

RTS: Grootvlei – Unit 1 200 30 Mar ‘07

OCGT – Atlantis 147 31 Jan ‘07

OCGT – Mossel Bay 146 15 Feb ‘07

RTS: Camden – unit 4 200 28 Feb ‘07

OCGT – Atlantis 147 28 Feb ‘07

OCGT – Mossel Bay 146 15 Mar ‘07

Total: 1390 MW

Quarter 1: 200 MW

Quarter 2: 200 MW

Quarter 3: 0 MW

Quarter 4: 990 MW

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Next Projects’ Status

• Project Alpha (Base load)– Approved for R26 000M on 1 Dec

2005– PFMA approval in place– Contracting strategy completed 2006– EIA and RoD in progress– Coal agreement negotiations in

progress– Licenses outstanding (water, NERSA)– Contract placement before end 2006– CO dates

• 1st Unit 3rd quarter 2010• 3rd Unit 2nd quarter 2012

• Project Hotel Pumped Storage (Peaking- 333MW x 4 : 1332 MW)

– Work on schedule, process world class

– Approved for R 8 900M, including contracting strategy

– PFMA approval in process– Contract placement December

2006– CO dates

• 1st unit 2nd quarter 2012• 4th unit 4th quarter 2012

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Current Transmission Schemes Under Construction

• Cape Strengthening (Phase 1)• Bacchus and Proteus Series Capacitors commissioned

(studies being conducted on extra MW).• Palmiet - Stikland line still at risk because the National roads

department has not approved Eskom using their servitude.• Platinum Basin Apollo-Dinaledi line still at risk due to

servitude issues• Substation works on target.• Significant Savings on these projects

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Transmission Project Status

• Beta - DelphiConstruction has commenced on

the longest 400Kv line in the country

R460m projectSchedule completion by end

May 2007 26% of foundations completedChallenges

Weather impactSupplier capability

• 765 kV “Super Grid”• R6.3bn investment • Scheduled completion by

2009• Challenge servitude and

ROD approval

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Reflection on Transmission

BLOEMFONTEIN

DE AAR

KOMATIPOORT

RICHARD'S BAY

WITBANKNamibia

Botswana

Mozambique

Swaziland

CAPE TOWN

DURBAN

EAST LONDON

PORT ELIZABETH

PRETORIA

DE AAR

Mercury

Perseus

Hydra

Gamma

Omega

Kudu

2009

2009

2009

2010

765 kV400 kV

Matimba2009/10 for integration

of project Alpha

Marang

Dinaledi

Grassridge

Eros

Delphi

Neptune2010

2007

BEAUFORT WEST

Juno

Bloemfontein

2009

2009To Option A4

• Major transmission needs have been identified and will need to be implemented regardless• Further major decisions include HV/DC link and further major improvements to comply with higher reliability criteria. • Interrelationship with future long term generation options is key

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1. Accelerate Kudu Power• First Kudu Power CCGT unit (400 MW) April 2010 and the second

400 MW unit is July 2010. • On critical path: finalisation of the gas supply agreements and

construction of the upstream component.• Proposal due by end January 2006, still not received. Critical.

2. Accelerating Coega as a mid merit option - feasibility• Accelerating Coega as a mid merit option, it is possible, subject to

favourable Record of Decision to run 400MW earliest winter 2009 onwards using liquid fuel.

3. New Nuclear in the Cape – feasibility

A concept study has been launched for conventional nuclear including a review of Eskom sites. Timeframes are still being developed

Options for greater reliability and capacity

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Eskom Standard Project Schedules

• Overall Project Timescales to first unit:–OCGT 4 Years–LNG 5 ½ Years–CCGT 6 Years–COAL 9 Years–HYDRO 10 ½ Years–NUCLEAR 11 ½ Years

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TRANSNET: Aligning Strategic Focus with the Economy

PE

East London

Maputo

RichardsBay

Durban

Cape Town

Coega

Heavy Manufacturing zonesMining 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

TransnetFocus

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PortElizabeth

East London

Maputo

Gauteng Mega

Industrial Zone

Sishen

Beit Bridge

RichardsBay

DurbanSaldanha

Volumes and Investment per Corridor – 5 year budget

Cape Town

Sishen-Saldanha

Investment (Rbn)NPASAPOSpoornetTotal

2.300.833.006.13

Gauteng-Richardsbay

Investment (Rbn)NPASAPOSpoornetTotal

1.80

7.9610.83

1.07

Gauteng-Beit Bridge

No InvestmentNPASAPOSpoornetTotal

Investment (Rbn)10.838.1018.93

General Freight Maintenance

Total

Spoornet - Network Investment

Gauteng-Cape Town

Investment (Rbn)NPASAPOSpoornetTotal 2.34

0.03

1.860.45

Gauteng-PE/East London/Ngqura

Investment (Rbn)NPASAPOSpoornetTotal 4.15

1.250.38

3.35

Gauteng-Durban

Investment (Rbn)NPASAPOSpoornetTotal 9.50

7.201.800.50

Gauteng-Maputo

Investment (Rbn)PetronetSpoornetTotal

0.611.23

0.62

26

PortElizabeth

East London

Maputo

Gauteng Mega

Industrial Zone

Sishen

Beit Bridge

RichardsBay

Durban

Saldanha

Major Projects – Five Year Capital Budget

Cape Town

Container Terminal ExpansionTotal

Investment (Rbn)

Gauteng-Cape Town

2.312.31

Resurface Pier 1Reconstruct Island View BerthsRemodel Maydon WharfRemodel South ArmContainer Terminal ExpansionMultipurpose TerminalDurban Container TerminalTotal

Gauteng-Durban

Investment (Rbn)0.660.131.250.633.84

0.270.61

7.40

Ore Line ExpansionOre Line SustainPhase 1 and 1B expansionTotal

0.69

Sishen-Saldanha

Investment (Rbn)2.280.46

3.43

Gauteng to Maputo LineTotal

Gauteng-Maputo

Investment (Rbn)0.620.62

Port of NgquraCoega Container TerminalSpoornetTotal

Gauteng-PE/East London/Ngqura

2.49Investment (Rbn)

1.25

3.75

Coal Line SustainCoal Line ExpansionTotal

Gauteng-Richardsbay

Investment (Rbn)6.191.777.96

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Directing Capital Expenditure

Transnet Core Businesses

0%

20%

40%

60%

80%

100%

06/07 07/08 08/09 09/10 10/11

Investment to expand core business Replacement of capacity

28

Directing Capital Expenditure

PORTS

0%

20%

40%

60%

80%

100%

06/07 07/08 08/09 09/10 10/11

Investment to expand core business Investment to replace capacity

RAIL

0%

20%

40%

60%

80%

100%

06/07 07/08 08/09 09/10 10/11

Investment to expand core business Investment to replace capacity

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CAPEX 5YEAR PLAN (CORE)

RAIL (R31.5bn)

Replacement:•Ore Line sustain (R460m)•Coal Line sustain (R6192m)•Capitalization of Maintenance (R8124m)•General Freight (R10827m)•Other smaller replacement projects (R1475m)

Expansion:•Ore Line expansion (R2283m)•Coal Line expansion (R1765m)•Other smaller projects (R345m)

Ports (R18.6bn)

Replacement:•Pier 1 resurfacing (R659m)•Reconstruct Island View Berths (R134m)•Remodel Maydon Wharf (R1249m)•Remodel South Arm (R633m)•Other smaller replacement projects (R836m)

Expansion:• Construction of the Port of Ngqura (R2493m)• Container Terminal Expansion- Salisbury and Bayhead (R3837m)• Cape Town Capacity expansion (R1838m)• Other smaller expansion projects (R6888m)

5 Year Capex Spend R 64bn

Amounts against projects are 5 year spending (not estimated total cost)Amounts against projects are 5 year spending (not estimated total cost)

30

CAPEX 5YEAR PLAN (CORE)

Port Operations (R6.3bn)

Replacement:•Durban Container Terminal (R274m)•MPT West (R614m)•Refurbish 8 Noell cranes(R240m)•14 Gantry cranes & 78 Straddle carriers (R1167m)•Other smaller replacement projects (R75m)

Expansion:•Coega Container Terminal (R1254m)•Saldanha Phase 1 & phase 1B expansion (R689m)•Other smaller expansion projects (R1950m)

5 Year Capex Spend R 64bn (continued)

Pipeline (R4.9bn)

Replacement:• Upgrade of Gas Line - Lilly (R396m)

Expansion:• New Multi-product pipeline (R2905m)Gauteng to Maputo line (R620m) Terminalling and logistics (R499m)•Other smaller expansion projects (R1627m)

Amounts against projects are 5 year spending (not estimated total cost)Amounts against projects are 5 year spending (not estimated total cost)

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CAPEX 5YEAR PLAN (CORE)

Transwerk (R2.5bn)

Replacement:• Equipment replacement (R1743m)• Upgrade of facilities (R562m)• Other smaller replacement projects (R2305m)

5 Year Capex Spend R 64bn (continued)

Amounts against projects are 5 year spending (not estimated total cost)Amounts against projects are 5 year spending (not estimated total cost)

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Key Risks

• Scarce Skills (Project Management, Engineering, Commercial and Finance), high demand for resources worldwide

• Capability of suppliers - SA not be highest priority

• Steel – demand, availability and price

• Commercial complexities associated with Primary Energy Sources

• Water constraints increasingly becoming a constraint to station positioning

• Environmental Processes – increasingly complex and difficult

• Timescales tight

• Project execution strategy

• Delays due to approval processes outside of Eskom• Planning for 6% GDP (4.4% electricity growth):

– 11 New Build Projects should be in process– 9 are in process– 4 are on time– 5 are in funnel, but late

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THANKING YOU