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PRESENTATION TO THE PORTFOLIO COMMITTEE

This presentation provides an overview of the progress and investment plans in infrastructure, specifically focusing on Eskom and Transnet. It discusses the increased investment required to achieve growth targets and emphasizes the importance of local content development. The presentation also highlights the risks and the way forward for infrastructure investments.

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PRESENTATION TO THE PORTFOLIO COMMITTEE

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  1. PRESENTATION TO THE PORTFOLIO COMMITTEE PROGRESS ON INFRASTRUCTURE INVESTMENTS CAPE TOWN 14 JUNE 2006

  2. Overview • ASGISA • INITIAL VERSUS REVISED INVESTMENT PLANS • ESKOM • TRANSNET • KEY RISKS • WAY FORWARD

  3. 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%.

  5. The CAPEX Program – Local Content • 42% of the CAPEX is projected to be imported: Growth impact of local content development is extremely significant What will it take for local industry to aggressively respond to the opportunities created by the capex program ?

  6. 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

  8. Initial Eskom Plan

  9. Revised Eskom Plan

  10. Initial Transnet Plan

  11. Revised Transnet Plan

  12. Capacity Project Funnel Research Opportunity Identification Pre - feasibility Feasibility, Business 1000 Build 165 Case, Contract 0 Concluding PBMR 3500 1332 800 New Coal Supply Oscar 1775 1000 Yankee Hotel 112 1775 961 600 0 1600 600 UCG Lima Komati Discard Coal November Juliett Sierra India 1520 100 4200 1600 800 Camden 6000 800 2400 4000 Concentrating Solar *Papa 1800 1200 300 Romeo Foxtrot Delta Mike Tango 2000 Uniform Victor Arnot P1&P2 4200 X-ray 1050 1000 0 Bravo 1128 1332 Grootvlei 500 Songo Apollo Quebec Echo 500 HVDC Link Capacity Upgrade 4200 2100 W Zulu Hydro Hydro - - Rainbow Millenium 2100 Alpha 1050 90 Golf 1546 0 1300 Nuclear Nuclear Charlie OCGT - - 90 0 500 765kV Cape Strengthening Kilo Gas Gas - - Whiskey Trans KalahariInterconnector Coal Coal - - 400kV Beta Delphi Coal Coal - - *Possible 2400MW Mid Merit 90 - Solar - Transmission 7800 MW 17375 MW 20850 MW 8391 MW Version: 26 April 2006

  13. Timing of decisions

  14. Projects in Development

  15. Current Generation Build Programme

  16. Camden Unit 6: Commercial. Unit 7: Commercial Unit 8 : Expected commercial date end June 2006 Scope of Work (SOW) greater than expected. Staffing >80%. Grootvlei Partnership delivering. Catching up. Centre line & Boiler started. Challenges: staffing, planning, purchasing and partnerships. First unit expected before March 2007 Komati 15 Months into project. Asbestos removal complete. Centre line work started. Major contracts in adjudication Staffing, SOW, engineering specifications, strategy on time. First unit expected before September 2007 RTS Current Status

  17. Milestones 2006/7 Total: 1390 MW Quarter 1: 200 MW Quarter 2: 200 MW Quarter 3: 0 MW Quarter 4: 990 MW

  18. 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 Next Projects’ Status

  19. 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

  20. Beta - Delphi Construction has commenced on the longest 400Kv line in the country R460m project Schedule completion by end May 2007 26% of foundations completed Challenges Weather impact Supplier capability 765 kV “Super Grid” R6.3bn investment Scheduled completion by 2009 Challenge servitude and ROD approval Transmission Project Status

  21. 2009 2009 2010 765 kV 400 kV Reflection on Transmission 2009/10 for integration of project Alpha Matimba Botswana Mozambique Dinaledi PRETORIA KOMATIPOORT Marang Namibia WITBANK Mercury Swaziland Kudu Perseus 2009 Bloemfontein RICHARD'S BAY BLOEMFONTEIN 2007 To Option A4 DURBAN Eros Hydra 2009 DE AAR DE AAR 2009 Gamma Delphi Juno • 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 2010 Neptune BEAUFORT WEST EAST LONDON Grassridge Omega PORT ELIZABETH CAPE TOWN

  22. Options for greater reliability and capacity 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

  23. 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

  24. Maputo Richards Bay Durban East London Coega Cape Town PE TRANSNET: Aligning Strategic Focus with the Economy • Micro-economic strategy: • Support SA’s export-led growth strategy • Reduce the cost of doing business • SA’s economy: • Mining (6%) 49% • Manuf. (20%) 45% • 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 Production location of key sectors Freight Typology: Up to 70% of economy is bulk, heavy-haul, long distance and low to medium value traffic Transnet Focus Heavy Manufacturing zones Mining zones • Transnet Strategic Direction • Focus on Rail and Ports (Operations & Infrastructure) • Focus on improving key corridors/ clusters

  25. Volumes and Investment per Corridor – 5 year budget Beit Bridge Gauteng Mega Industrial Zone Maputo Richards Bay Sishen Durban Saldanha East London Port Elizabeth Cape Town

  26. Major Projects – Five Year Capital Budget Beit Bridge Gauteng Mega Industrial Zone Maputo Richards Bay Sishen Durban Saldanha East London Port Elizabeth Cape Town

  27. Directing Capital Expenditure

  28. Directing Capital Expenditure

  29. CAPEX 5YEAR PLAN (CORE) 5 Year Capex Spend R 64bn RAIL (R31.5bn) Ports (R18.6bn) • Replacement: • Ore Line sustain (R460m) • Coal Line sustain (R6192m) • Capitalization of Maintenance (R8124m) • General Freight (R10827m) • Other smaller replacement projects (R1475m) • 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) • Expansion: • Ore Line expansion (R2283m) • Coal Line expansion (R1765m) • Other smaller projects (R345m) Amounts against projects are 5 year spending (not estimated total cost)

  30. 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) CAPEX 5YEAR PLAN (CORE) 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)

  31. Transwerk (R2.5bn) • Replacement: • Equipment replacement (R1743m) • Upgrade of facilities (R562m) • Other smaller replacement projects (R2305m) CAPEX 5YEAR PLAN (CORE) 5 Year Capex Spend R 64bn (continued) Amounts against projects are 5 year spending (not estimated total cost)

  32. 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

  33. THANKING YOU

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