TSDBF / TPF &TSDBF / TPF &TRANSNET SOC LTDTRANSNET SOC LTD

JOINT FINAL PROPOSAL TO THE JOINT FINAL PROPOSAL TO THE PORTFOLIO COMMITTEEPORTFOLIO COMMITTEE

25 NOVEMBER 201125 NOVEMBER 2011

AGENDAAGENDA

TSDBF stakeholder expectations and Transnet’s mandate

The Portfolio Committee (PC) recommendations and its implications

The TSDBF & Transnet Proposal – detailed per item

Conclusion – on TSDBF

Transnet sub-fund within TPF

Questions

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TRANSNET MANDATETRANSNET MANDATE

Transnet’s mandate is:

Primary logistics service provider to support RSA economic growth; and Roll out a massive capital expenditure plan to ensure the appropriate

infrastructure to provide logistics services in a cost effective and efficient manner.

The capital expenditure programme and the Portfolio Committee’s resolution will result in Transnet being in the following position:

Borrowing R36.3 billion over 3 years on the strength of its own balance sheet with no Government guarantees;

Gearing ratio will increase to 48.3% - cannot increase beyond 50%; and Cash interest cover very fragile at 3.2 times – cannot be below 3.0

times. International economic crisis; Moody’s downgrade etc

This position will seriously jeopardise Transnet’s ability to execute its mandate – consequently contrary to fiduciary duties of the Board of Directors of Transnet. 4

THE PC RECOMMENDATIONS AND ITS IMPLICATIONSTHE PC RECOMMENDATIONS AND ITS IMPLICATIONS

Recommendations :

Backpay of 5 months’ pension

Future pension increases at 75% of CPI, subject to affordability

A once off 3.2% base uplift in pension

Funding issues

Will exhaust current surplus PLUS will require additional injection of R2bn

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TSDBF CANNOT AFFORD PC RECOMMENDATIONSTSDBF CANNOT AFFORD PC RECOMMENDATIONS

Scenario (R’bn) Current 75% CPI only

75% CPI plus 5m backpay

75% CPI plus 5m backpay

and uplift

Assets 18.8 18.8 18.8 18.8

Liabilities 16.1 19.3 20.1 20.8

Surplus/(Deficit) 2.7 (0.5) (1.3) (2.0)

Funding level 117.0% 97.5% 93.4% 90.6%

Total cost of PC recommendations R4.7 billion

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FINAL PROPOSALFINAL PROPOSAL

Takes account of :

The Fund’s financial position and soundness

The impact of the proposal on pensioners receiving, or qualifying to receive, the State Old Age Pension

Generational issues and current life expectancy of pensioners

The asset allocation of the fund and expected return on assets

Potential unwinding of solvency reserves over time

Preferences expressed by the pensioners as advised by the Pensioner elected Trustee representatives of the Fund

Fiduciary duties of Trustees and Transnet BOD

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PROPOSAL 1 : PAYMENT OF 5 MONTHS’ PENSIONPROPOSAL 1 : PAYMENT OF 5 MONTHS’ PENSION

Since PC communication started, 2 months additional pension have been paid as bonuses

The Fund will by Feb 2012 pay another 3 months pension as bonuses to take the total bonuses paid to 5 months pension (since November 2010)

The Fund Trustees will finalise the details of the payment plan and exact timing of payments

The intention of the Fund is to fully implement this proposal at a total cost of R850 million (18%)

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PROPOSAL 2 : PROSPECTIVE PENSION INCREASE POLICY OF 75% OF PROPOSAL 2 : PROSPECTIVE PENSION INCREASE POLICY OF 75% OF CPI, SUBJECT TO AFFORDABILITY (STA)CPI, SUBJECT TO AFFORDABILITY (STA)

Based on 6% p.a. expected inflation

The 2% p.a. guaranteed increase (33% of CPI) remain

The targeted increase is subject to affordability (STA)

STA will be clearly defined by the Fund, but will be based on :Investment returns in line or beating expectationsThe Fund not having a deficit after any such increase

The Trustees will finalise the exact payment and timing of these increases.

The increases will not vest, but is expected to accumulate over time to equate to the targeted level of CPI increase

The increases will be paid using the bonus rule currently in the Rules of the Fund

Modelling results outlined below (next slide) 9

PROPOSAL 2 : Cont.PROPOSAL 2 : Cont.

The 2% p.a. already represents 33% of CPI and is included in the results below (all STA)

Based on current valuation basis : A target of 63% of CPI can be afforded

Based on the higher expected returns on equity and the matching structure of the Fund, the target can be increased to 68% of CPI should these investment returns transpire

Lastly, the Fund expects the solvency reserves to unwind (reduce) over time and together with any further outperformance of assets will try to target 75% of CPI increases over time

Any excesses beyond this level may lead to additional bonuses being paid

IMPORTANT : Although the Fund may target 75% of CPI, the comfortable level of increases is between 63% and 68% of CPI

The intention is to fully implement this proposal at a cost of R2.7 billion (57%)10

CONCLUSION ON TSDBFCONCLUSION ON TSDBF

Of the 3 PC proposals, 2 can by and large be met:

5 months pensions – fully met

75% of CPI prospective increases STA – targeted, but mostly met in terms of analysis

75%, R3.55 billion, of total expected cash flows from proposals will be given to pensioners

Additional bonuses, if future excesses are generated for benefit of pensioners

Not taken into account in the means test in calculating an older persons entitlement to a State grant

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TSDBF’S POSITION AFTER IMPLEMENTATION OF JOINT PROPOSALTSDBF’S POSITION AFTER IMPLEMENTATION OF JOINT PROPOSAL

* The surplus will be used to fund the targeted CPI linked increases

Scenario (R’bn) TSDBFCurrent

TSDBFAfter bonus payment(s)

Assets 18.8 18.3

Liabilities 16.1 16.1

Surplus* 2.7 2.2

Funding level 117.0% 114.0%

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