PRICING IN TRANSNET Current status and proposed way

PRICING IN TRANSNET Current status and proposed way forward May 2008

Current status of pricing in Transnet Business centre freight rail national ports authority pipelines Coal and iron ore export Cargo Dues Pipelines Preliminary port terminals Break bulk Motor Vehicles Business centre make-up 29 customers; 2 commodities; 6 flows Cargo Owners; Clearing & Forw Agents; Commodities 2 Pipelines, Fuel products 7 Multi Purpose Terminals 3 Car Terminals; 9 Key customers Contracting terms Long-term contracts Published Tariffs ; S-Term Contracts (preferential rates) Regulated 1 – 3 years + SLA’s or standard terms & conditions 1 – 3 years Pricing philosophy Return on investment, Return on assets Market Related Pricing Allowable Revenue; WACC Cost plus & eliminate loss making commodities Cost plus Profitability / Cost approach Ro. A, Ro. I Cost recovery Cost based on the usage pattern of each customer, Distance and volumes Targeted profit. Grow volumes & manage costs. Improve Ro. A. Profit targets based on capacity & informed budgeted volumes Pricing strategy Volume based Market related Pricing Block pricing, multi-part pricing, seasonal rates, time of use rates and others. Standard tariffs aligned to cargo handling methods & volumes Differential pricing strategy with Long term aim to align & standardise Pricing structure Formula based Rate per ton Terminal handling charges, Storage, Warehousing, Value add services, penalties Terminal handling charges, Storage, Value add services, penalties, A&L Business centre national ports authority General freight Real Estate - Rental Business centre make-up 18 sectors; 14 corridors, 420 key customers; 109 commodities; 10600 flows Terminal Operators; Services Providers; Commercial Leaseholders Services for Shipping Lines; Ships Agents 3 Terminals (PE, Saldanha, Richards Bay) 4 Terminals (CT, PE, Pier 1, DBN) Contracting terms 1 -5 year contracts or standard terms & conditions Long and Short Term; Price Differentiation Published Tariffs Various, 1 – 3 years and some long term. Currently 1 year due to Ngqura uncertainty Pricing philosophy Multi-dimensional, market/value based Market based Cost recovery per activity Cost plus & eliminate loss making commodities Captive market ROA, CPI-X & what market can bear. Premium service price differentiation. Competitive market, T/ship price differentiation Profitability / Cost approach Profit targets per portfolio, customer, flow Cost recovery; Activity Based Costing Profit targets per commodity. Grow volumes; manage costs, improve Ro. A ROA , volume, pricing & cost reduction though Business process re-engineering Pricing strategy Differential pricing; Price strategies for markets, consignment size, wagon type etc. Cost recovery Volume and Tonnage Based Size of Vessel and Time in Port Generally aligned to volumes, commodity type & process Std pricing ROA/CPI-X. Premium CTOC service Terminal handling charges+10%. T/ship competitive pricing Pricing structure Rail rates per unit of measure, miscellaneous plus penalties and incentives Market rates Cost Recovery per Activity Per Unit (Tonne), Belting use Terminal handling charges, storage, miscellaneous services & penalty compliance tariffs regulated Marine Services regulated Dry bulk Containers

Current status of pricing in Transnet for Motor vehicles freight rail Business centre General freight national ports authority Cargo Dues Marine Services Preliminary port terminals Motor Vehicles Contracting terms 1 -5 year contracts or standard terms & conditions Published Tariffs ; S-Term Contracts (preferential rates) Published Tariffs 1 – 3 years Pricing philosophy Multi-dimensional, market/value based Market Related Pricing Cost recovery per activity Cost plus Profitability / Cost approach Profit targets per portfolio, customer, flow Cost recovery; Activity Based Costing Profit targets based on capacity & informed budgeted volumes Pricing strategy Differential pricing; Price strategies for market, consignment size, wagon type etc. Market related Pricing Volume and Tonnage Based Size of Vessel and Time in Port Differential pricing strategy with Long term aim to align & standardise Pricing structure Rail rates per unit of measure, miscellaneous plus penalties and incentives Rate per ton Cost Recovery per Activity Terminal handling charges, Storage, Value add services, penalties, A&L

Current status of pricing in Transnet for containers freight rail Business centre General freight national ports authority Cargo Dues Marine Services Preliminary port terminals Containers Contracting terms 1 -5 year contracts or standard terms & conditions Published Tariffs ; S-Term Contracts (preferential rates) Published Tariffs Currently 1 year due to Ngqura uncertainty Pricing philosophy Multi-dimensional, market/value based Market Related Pricing Cost recovery per activity Captive market ROA, CPI-X & what market can bear. Premium service price differentiation. Competitive market, T/ship price differentiation Profitability / Cost approach Profit targets per portfolio, customer, flow Cost recovery; Activity Based Costing ROA , volume, pricing & cost reduction though Business process re-engineering Pricing strategy Differential pricing; Price strategies for market, consignment size, wagon type etc. Market related Pricing Volume and Tonnage Based Size of Vessel and Time in Port Std pricing ROA/CPI-X. Premium CTOC service Terminal handling charges+10%. T/ship competitive pricing Pricing structure Rail rates per unit of measure, miscellaneous plus penalties and incentives Rate per ton Cost Recovery per Activity Terminal handling charges, storage, miscellaneous services & penalty compliance tariffs

Current status of pricing in Transnet for liquid bulk Business centre freight rail national ports authority pipelines General freight Cargo Dues Pipelines Contracting terms 1 -5 year contracts or standard terms & conditions Published Tariffs ; S-Term Contracts (preferential rates) Regulated Pricing philosophy Market/value based Market Related Pricing Allowable Revenue; WACC Profitability / Cost approach Profit targets per portfolio, customer, flow Cost recovery Cost based on the usage pattern of each customer, Distance and volumes Pricing strategy Differential pricing; Price strategies for market, consignment size, wagon type etc. Market related Pricing Block pricing, multi-part pricing, seasonal rates, time of use rates and others. Pricing structure Rail rates per unit of measure, miscellaneous plus penalties and incentives Rate per ton Preliminary

Current status of pricing in Transnet for coal, iron ore, manganese Business centre Preliminary freight rail national ports authority port terminals Coal and iron ore export Cargo Dues Dry bulk Contracting terms Long-term contracts Published Tariffs ; S-Term Contracts (preferential rates) Various, 1 – 3 years and some long term. Pricing philosophy Return on investment, Return on assets Market Related Pricing Cost plus & eliminate loss making commodities Profitability / Cost approach Ro. A, Ro. I Cost recovery Profit targets per commodity. Grow volumes; manage costs, improve Ro. A Pricing strategy Volume based Market related Pricing Generally aligned to volumes, commodity type & process Pricing structure Formula based Rate per ton Per Unit (Tonne), Belting use Business centre Domestic coal and iron ore Contracting terms 1 -5 year contracts or standard terms & conditions Published Tariffs Pricing philosophy Multi-dimensional, market/value based Cost recovery per activity Profitability / Cost approach Profit targets per portfolio, customer, flow Cost recovery; Activity Based Costing Pricing strategy Differential pricing; Price strategies for market, consignment size, wagon type etc. Volume and Tonnage Based Size of Vessel and Time in Port Pricing structure Rail rates per unit of measure, miscellaneous plus penalties and incentives Cost Recovery per Activity Marine Services

Key issues • No overall Transnet strategy for markets and corridors • • • ODs pursue their own strategies and potentially work counter-productive to others No overall pricing strategy for common markets and accounts • Common (corporate) accounts are largely dealt with separately by ODs • Some ODs “shed” business to the detriment of others • Inconsistent messages to corporate accounts No overall profit target or price for shared customers / markets • Some ODs “shed” business based on profit margins to the detriment of others and overall Transnet profitability • Customer value not common to all ODs across supply chains • • Large and strategic in one OD, small and “insignificant” in others Price regulation – Quo Vadis?

Proposal (The house we will build) Transnet sustainability Transnet integrated • Market strategies • Customer value propositions • Pricing strategies TNPA specific • Segmentation and market strategies • Pricing Philosophy and strategies • Costing and profitability targets TPT specific • Segmentation and market strategies • Pricing Philosophy and strategies • Costing and profitability targets Transnet pipelines • Segmentation and market strategies • Pricing Philosophy and strategies • Costing and profitability targets Transnet Integrated Business Economic Strategies (Approach to financial returns, profitability etc) Transnet Business Design Philosophy Segmentation ; Market- and corridor strategies Transnet mission and over arching pricing philosophy a) Role in the economy • Lowering the cost of doing business • Contributing to economic growth • Facilitating beneficiation of products • Enabling of SA competitiveness b) Shareholder expectations • Sustainability • Funding and capital investment Transnet Strategy TFR specific • Segmentation and market strategies • Pricing Philosophy and strategies • Costing and profitability targets

Key success factors • One vision / strategy for common markets and accounts • One goal / target for common markets and accounts • Integrated account plans and strategies • Cross-functional teams to implement • Governance

Way forward 2008 Apr May Jun Jul Aug Sep Take stock of pricing practices across Transnet Appoint Group Commercial pricing managers Develop an overarching Transnet pricing philosophy (incl. conceptual/theoretical foundations Confirm and align Transnet segmentation, market and corridor strategies Develop integrated corporate strategies / plans for 6 priority commodities Develop integrated corporate account strategies / plans (detailed pricing strategies for pilot corporate accounts) Present results, refine and sign off Implementation commences, ready for next budget cycle Timelines are indicative

Thank you