NEW MULTI-PRODUCT PIPELINE (NMPP) PROJECT ......09 March 2010 SUMMARY OF COST CHANGES Pipeline The...

NEW MULTI-PRODUCT PIPELINE (NMPP) PROJECT UPDATE

09 March 2010

2Presentation to Media09 March 2010

OUTLINE OF PRESENTATION

CHRIS WELLS• Introduction

CHARL MOLLER• Operating Philosophy and Network Configuration

NEVILLE EVE• Project Life Cycle / Risk Reduction Process • Cost Revision Explanation• Risk and Mitigation• Schedule Variance Explanation

CHARL MOLLER• Actions to mitigate risks associated with late completion of the NMPP

project

CHRIS WELLS• Concluding remarks


OPERATING PHILOSOPHY & NETWORK CONFIGURATION

CHARL MOLLER


MAP OF TPL’s PRESENT GAS - CRUDE - REFINED PRODUCTS PIPELINES CURRENT OPERATING PHILOSOPHY

DOUBLE PUMP STATION

DELIVERY STATIONS / METERS

PUMP STATIONS

REFINED PRODUCTS

CRUDE OILGAS

AVTUR INDIANOCEAN

DURBAN

HOWICK

LADYSMITH

BETHLEHEM

VOLKSRUST

NEWCASTLEKROONSTAD

KLERKSDORP

POTCHEFSTROOM

WITBANKKENDAL

WALTLOOPRETORIA WEST

SECUNDA

STANDERTON

ALRODE

COALBROOKSASOLBURG

SCHEEPERSNEK

MAHLABATINI

HILLCREST

TARLTON

LESOTHO

NATAL

FREESTATE

GAUTENG

ø457,2

ø406,4ø323,8

QUAGGA

ø457,2

N

RUSTENBURG

MAGDALA

NORTH - WESTMPUMALANGA

KWAZULU /

AIRPORT

VRYHEID

RICHARDS BAY

CAPE TOWN

DURBAN

GAUTENG

SOUTH AFRICA RICHARDSBAY

PPT-0231-/J

( 18" )

( 16" )( 12" )

( 18" )

ø457,2( 18" )

ø406,4( 16" )

BHT

INTAKE STATIONS

AFRICA

MEYERTON

MNGENI

VAN REENEN

LESOTHO

SECUNDA

DUZI

INGOGO

WILGE

LANGLAAGTE

FORT MISTAKE

EMPANGENI

VREDE

MOOIRIVER


CURRENT OPERATIONS

Continuous system with intake (Supply/Refineries) & delivery pointsinterdependent on each otherNetwork has grown over the years, resulting in various intake anddelivery flowrates. Hence, the network is not balancedNetwork optimisation is restricted by up & downstream capabilityof infrastructure (e.g. batch sizes)Interruptions at any point in the network has an impact on thewhole networkNetwork efficiency is therefore not only dependent on TPL but allinvolved in the supply chainWhen there are capacity constraints, this arrangement leads tosecurity of supply concerns as “lost time” cannot be recoveredInterruptions are caused by:

Power failures along the pipelineAvailability of product at intake

Refinery performanceQualityImports

CURRENT VS FUTURE OPERATING PHILOSOPHY OF THE PIPELINE NETWORK



CURRENT OPERATIONS (Continued)

Interruptions are caused by:Inability of clients to accept deliveries

Ullage constraintsDemand volatilityPrice volatility

Equipment failurePersonnel

The key lever be overcome these constraints with the currentoperating philosophy in the current network is to substantiallyincrease the capacity of infrastructure integrated to the pipelinee.g. Storage at refineries & depots, feederline size & volumeincrease and distribution throughput at client depotsChange the operating philosophy – can only be done withreconfiguration of the network.The NMPP provides this opportunity and its design reflects that theabove issues have been addressed



INDIANOCEAN

FYNNLAND

HOWICK

LADYSMITH

BETHLEHEM

NEWCASTLEKROONSTAD

KLERKSDORP

WITBANKKENDAL


SECUNDA

STANDERTON

ALRODE

COALBROOKSASOLBURG

TARLTON

LESOTHO

NATAL

FREESTATE

GAUTENG

ø406,4 (16”)

ø323,8 (12”)

QUAGGA

ø457,2 (18”)

N

RUSTENBURG

MAGDALA


KWAZULU /

AIRPORT

BHT

AFRICA

MEYERTON

VAN REENEN

DUZI

LANGLAAGTE

FORT MISTAKE

MOOIRIVER

JAMESON

ø502 (20”)

ø457,2(18")

ø323,8 (12”)

Ø168,3 (6”)

Ø219,1 (8”)

Ø219,1 (8”)

ø323,8 (12”)

Ø219,1 (8”)

Ø457,2 (18”)

ø323,8 (12”)

DURBAN

ø323,8 (12”)

Ø406,4(16”)

PARK

ø457,2 (18”)

ø406,4 (16”)

ø323,8 (12”)

CAPE TOWN

DURBAN

GAUTENG

SOUTH AFRICARICHARDS

BAYLESOTHO

SECUNDA

DOUBLE PUMP STATION


PUMP STATIONS

REFINED PRODUCTS

CRUDE OIL

AVTUR

INTAKE STATIONS

NMPP PIPELINES

NMPP PUMP STATIONS

NMPP ACCUMULATION TERMINAL

ELARDUS PARK

PPT-1747/-C

HILLCREST

MNGENI

VREDE“T”

WILGE

ø457,2 (18”)

TWINI

HILLTOP

MNAMBITHI

FUTURE NMPP PUMP STATIONS

TPL’S PRESENT PETROLEUM PIPELINE NETWORK AND POSITION OF FUTURE NMPP FUTURE OPERATING PHILOSOPHY


FUTURE OPERATIONS WITH COMPLETE NMPP

Ensure that the pipeline performance is shielded from immediate impact ofinterruptions. Provide a buffer (Accumulation facilities) in the system to“smooth” the shocksAdvantage of this is less changes in the total supply chain is requiredNMPP therefore designed to have an UNINTERRUPTED trunkline operationfrom TM1 to TM2. Hence, no supply to Ladysmith & BethlehemTM2 increases flexibility of distribution to the inland network

Natref to inland network and/or TM2Secunda to inland network and/or TM2TM2 to inland network without excessive changes to inland facilities

TM1 facilitates NMPP trunkline requirementsMinimizes “supply shocks” from the coastal refineries & importsEnsure coastal suppliers meet the NMPP future flowrates

NMPP accumulators designed on an average 2/3 day security of supplyprinciple

Inland supply can be maintained for 3 days if there is an interruption incoastal supplyCoast can supply into TM2 for 2 days if there is an inland interruption

Hence there is a lag of the impact interruptions have on the performance ofthe system – SECURITY OF SUPPLY is improved dramaticallyFrom an operating & security of supply perspective this is still the preferredoption



PROJECT LIFE CYCLE / RISK / COST & SCHEDULE VARIANCE

NEVILLE EVE


INDIANOCEAN

FYNNLAND

HOWICK

LADYSMITH

BETHLEHEM

NEWCASTLEKROONSTAD

KLERKSDORP

WITBANKKENDAL


SECUNDA

STANDERTON

ALRODE

COALBROOKSASOLBURG

TARLTON

LESOTHO

NATAL

FREESTATE

GAUTENG

ø406,4 (16”)

ø323,8 (12”)

QUAGGA

ø457,2 (18”)

N

RUSTENBURG

MAGDALA


KWAZULU /

AIRPORT

BHT

AFRICA

MEYERTON

VAN REENEN

DUZI

LANGLAAGTE

FORT MISTAKE

MOOIRIVER

JAMESON

ø502 (20”)

ø457,2(18")

ø323,8 (12”)

Ø168,3 (6”)

Ø219,1 (8”)

Ø219,1 (8”)

ø323,8 (12”)

Ø219,1 (8”)

Ø457,2 (18”)

ø323,8 (12”)

DURBAN

ø323,8 (12”)

Ø406,4(16”)

PARK

ø457,2 (18”)

ø406,4 (16”)

ø323,8 (12”)

CAPE TOWN

DURBAN

GAUTENG

SOUTH AFRICARICHARDS

BAYLESOTHO

SECUNDA

DOUBLE PUMP STATION


PUMP STATIONS

REFINED PRODUCTS

CRUDE OIL

AVTUR

INTAKE STATIONS

NMPP PIPELINES

NMPP PUMP STATIONS

NMPP ACCUMULATION TERMINAL

ELARDUS PARK

PPT-1747/-C

HILLCREST

MNGENI

VREDE“T”

WILGE

ø457,2 (18”)

TWINI

HILLTOP

MNAMBITHI

FUTURE NMPP PUMP STATIONS

TPL’S PRESENT PETROLEUM PIPELINE NETWORK AND POSITION OF FUTURE NMPP


UNIQUENESS OF THE NMPP

• 160km of 16 inch pipelines plus • More than half of the pipeline is in and around very built up

areas with:• Extensive rock• Highways and Street crossings• Extensive wetlands

• 2 terminals• One in a remote area• Other in a live congested, requiring existing tenants to be

relocated and a highly complex sight for construction requiring piling of all heavy tanks and equipment

• 555km of 24 inch pipelines• Several major and minor river crossings• Half of the line in mountainous terrain• Wetlands

• Four Mainline Pump-stations• Pumping capacity to move product 1800 metres up the

escarpment


Vaal River Crossing


Bronkhorst River Crossing -rehabilitated


Terrain


Concept(FEL-1)

Pre-feasibility(FEL-2)

Feasibility(FEL-3)

Execution(FEL-4)

Confirm the business

need Generate options

§ Select the

preferred option

Plan to build the

asset

Build and commission

the asset

Gat

e 3

Rev

iew

Gat

e 2

Rev

iew

Gat

e 1

Rev

iew

Gat

e 4

Rev

iew

Transnet Capital Projects Project Life-cycle Process: Project Risk Reduction Process

Scope definition:Very Limited

Engineering: 0%

Risk:High

Contingency:50-100%

Scope definition:Limited

Engineering:3-5%

Risk:High - Reducing

Contingency:30 – 50%

Scope definition:Substantial

Engineering:10 – 30%

Risk:Med


Scope definition:Complete

Engineering: Complete

Risk:Low



NMPP – Time Line Cost Evolution

November 2008 – Capex Cost Reduction Proposal• Final Forecast Cost (FFC) = R12.1 Billion

February 2009 – Board Submission• FFC = R12.67 Billion (23% Contingency + 9% Risk = 32% )

Late 2009 – Board Presentation• FFC = R15.42 Billion (13% Contingency + 8% Risk = 21%) • Change in Budget: R 2.75 Billion


COST DRIVERS

Economics

• Economic downturn• Cost of equipment (Market & Escalation)• Cost of schedule (Market & Escalation)

Project related

• Internal Processes and Governance • Delivery & Contracting Strategy• Project Development / Life Cycle

• Power supply (Eskom)• Changes in scope • Market (Suppliers & Contractors) expertise & capacity• Security• DWAF & DEA & DME


PROJECT BUDGET CHANGE SUMMARY

100%-

2,747,000,000ZAR

3% 70,000,000ZAR NKP Requirements7% 180,000,000ZAR Back-Up Power Generation

10% 280,000,000ZAR Terminal 1 Delay

18% 482,000,000ZAR Steel

21% 581,000,000ZAR Indirect Costs

42% 1,154,000,000ZAR Pipeline Construction

% VALUE GROWTH ITEM

BU

DG

ET G

RO

WTH


SUMMARY OF COST CHANGESPipeline

The following costs resulted from events encountered in the NMPP project during execution

•Changes to valve type / spec / actuation due to completion of detail design

•Delay / remobilisation cost associated with expropriation delay

•Value of Compensation Event’s (“CE's”) agreed in addendum to Main Pipeline Works Contract

•Additional trench rock volumes identified by construction geotechs

•Trenchless crossings emergent scope

•Pipeline contractor fee on change in Estimated Total Cost (“ETC”) on pipeline construction contract

•SUB-TOTAL FOR PIPELINES R1,154,000,000

Rands


SUMMARY OF COST CHANGESSteel / Materials & EPCM

•Change in pipe length due to completion of end of line facilities engineering & rounding off wall thickness

•Mass of steel due to specification and required designChanges

•Pipe manufacture - conversion cost

•Additional tons for mix change

SUB-TOTAL FOR STEEL R 482,030,243

•EPCM R 581,000,000

TOTAL R 1,063,030,243

Rands


SUMMARY OF COST CHANGESLate Inclusion of Cost Items

• Costs excluded from the TCP / NMPP Nov FFC (R12.66 Bn) as presented to the Transnet Board in February 2009 and as reported to NERSA

• Back-up Power Generation R180,000,000

• Balance of NKP Compliance R 70,000,000

Total R250,000,000


SUMMARY OF COST CHANGES AS APPROVED BY TRANSNET BOARD LATE 2009

• Pipeline costs R 1,154,000,000

• Steel & Materials & EPCM R 1,063,000,000

• Balance of National Key PointsCompliance R 70,000,000

• Back-up Power Generation R 180,000,000

• TM1 later completion date R 280,000,000

TOTAL R 2,747,000,000 (Detail)


Summary of Risk Allowances per Asset

ASSET PRE MITIGATED POST MITIGATED

TOTAL R 2 896m R 994m

Main Automation Contract

Pump Stations

TM1 Specific to IV

TM2 Specific to JP

Integrated Pipeline Team

Project Wide

Risk mitigation for these asset classes


•PL4 (Kendal to Waltloo line)• Schedule engineering of critical path viz. end of line facilities• Cost / schedule benefit review: Anglo Coal mobilisation cost• Focus on safety performance risk mitigations

•PL1 (Trunk Line + Pump Stations)• Expedite supply of pipe from Impumelelo JV

• Commissioning of Bandera Plant (Hall Longmore)• Review of UTI Logistics planning / delivery ramp up capacity• Acceleration of “ready-to-award” PS construction contract• Focus on safety performance risk mitigations• IPT Contracting strategy

•TM1 & 2 (Coastal & Inland Terminals)• FEL4 engineering of revised TM1 construction strategy• “Live site” hazops (Sapref new tank construction)• Interface management - Oil Company feeder line tie in schedule • Aggressive acceleration of TM2 to support “tight line” multi-

product operation via PL1

CRITICAL CONSTRUCTION SCHEDULE RISK / MITIGATIONS

•Contracting Strategy


• Land acquisition• Statutory Approvals & Appeals

• EIA• Section 53 (MPRDA)• Section 79 (NPA)• DWAF

• Water Abstraction• Disposal• Waterway Crossings

• Rezoning of:• Pump Station Sites• Terminal 2

• Engineering Development• Pipe Manufacture & Delivery• Field Joint Coating (Inland network)• Contractor Performance

SCHEDULE DRIVERS


Contract Award NERSA License Time Now

A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

INLAND LICENSE

PL4 - KENDALL TO WALTLOO

PHASE 1 - LSD DELIVERY

PL2 & PL3 - JAMESON PARK TO LANGLAAGTE

PL1 - DURBAN TO JAMESON PARK *

FYNNLANDS BYPASS

TERMINAL 2 (INLAND) PHASE 1

PUMP STATIONS *

PHASES 2 TO 4 - MULTI-PRODUCT DELVERY

TERMINAL 1 (COASTAL)

TERMINAL 2 (INLAND) PHASES 2 - 4

LEGENDOriginal Plan

Current Plan

2011 20122010ASSET AREA

2007 2008 2009

NERSA License 1.3

NERSA License 10.4

NERSA License 1.2

BASELINE v. CURRENT PLANBY NERSA LICENCE CONDITION

Presentation to NERSA25 January 2010

SCHEDULE EVOLUTION WITH DELAY ISSUESAND NERSA LICENSE CONDITION

Ready for Operation Dates Given


NMPP LICENCE CONDITIONSSCHEDULE REQUIREMENTS

…

…

…

NERSA CLAUSE ASSETS TO BE OPERATIONAL

DATE IN LICENSE

CURRENT FORECAST

Ch1 §1.3 KENDAL TO WALTLOO LINE CONSTRUCTION COMPLETE 31-Dec-09 30-Jun-10

Ch3 §10.4 COMMENCE OPERATION OF 24" TRUNKLINE 31-Mar-11 31-Mar-11

Ch1 §1.2 CONSTRUCTION OF ALL ASSETS COVERED BY THE LICENCE COMPLETE AND READY FOR OPERATION 20-Dec-11 20-Dec-12


Authorisation Planned Actual

•PL4 (Kendal to Waltloo line) EIA April 2008 July 2008 (3 Months)•PL4 DWAF June 2008 Feb 2009 (8 Months)

•PL2/3 (Alrode/L’laagte/J’son Park) EIA April 2008 July 2008* (3Months)•PL2/3 DWAF June 2008 May 2009 (11Months)

•PL1 (Trunk Line) EIA Oct 2008 Aug 2009**(10Months)•PL1 DWAF (orig scope) Oct 2008 Jul 2009***(9Months)

* Amendment authorised 29 April 2009** SDCEA appeal dismissed 14 August 2009*** Processing of DWAF applications took on average 18 months from date of

application to date of authorisation.

SCHEDULE of EIA and DWAF APPROVALS


MITIGATION & SECURITY OF SUPPLY

CHARL MOLLER


1. Detail of Action Plans during 2011 and 2012

1.1. Key principle of actions based on concept of simultaneous use of present DJP (to a de-ratedservice-level) and the NMPP whilst by-passing Terminal 1 (TM1) in Island View (Port ofDurban).

1.2 Use of present Transnet Pipelines (TPL) Durban depot in Island View on a tight-lining basis iskey to concept.

Present TPL feederlines to Durban depot will be used.Present meters and pumps with a modified manifold will be used to feed both the DJP andNMPP simultaneously.On exit-side of present depot a link needs to be made to presently mothballed 18"pipeline of TPLThis 18" line will then be connected to the new 24" NMPP trunkline at exit-side of TM1,now to be commissioned later.

1.3 Through present TPL Durban depot the NMPP will be able to run on diesel at a flowrate of500m3/h.

1.4 Flowrate (as a multi-products pipeline) of the DJP will be decreased from present 520m3/hwith DRA’s to 400m3/h still with DRA’s in order to reduce operating pressures required forprescribed de-rated condition of pipeline for continued use (initial expert requirement; to bebacked-up with latest intelligent pigging results).

1.5 Above will provide the ability to by-pass TM1 on a tight-lining basis.

1.6 The above action plans envisaged are sufficient to cope with security of supply requirementsand challenges in 2011 and 2012.

ACTIONS TO MITIGATE SECURITY OF SUPPLY AND DJP RISKS ASSOCIATED WITH THE LATE FINAL COMPLETION OF THE NMPP PROJECT


DIAGRAMMATIC LAYOUT OF THE PROPOSED PUMPING PROCEDURE WHEN USING BOTH DJP AND NMPP AND BY – PASSING TERMINAL1 (TM1) (PRINCIPLE OF TIGHT - LINING)

TIGHT-LINING: FEEDER LINES THROUGH METERS AND DIRECT TO PUMPING STATION

AND INTO PIPELINES

FUTURE NMPP: FEEDER LINES THROUGH METERS AND DIRECT TO ACCUMULATOR TANKS

–

FROM TANKS TO PUMPING STATION AND INTO PIPELINE

TANKS

NEW COMPANYFEEDER LINES

INTO TM1

PUMPINGSTATION

TM1 (TERMINAL 1)

LINK LINE

TRANSNETPIPELINESEXISTINGFEEDER LINES

METERSPUMPINGSTATION

EXISTING DURBAN PUMP STATION

LINK LINE

METERS

DURBAN MANIFOLD SPLIT TO RUN BOTH DJP AND NMPP AT THE SAME TIME



TABLE 3: SUMMARY OF NMPP CAPITALISATION SCHEDULE USED IN REGULATORY ASSET BASE (RAB) FORTHE CALCULATION OF THE ALLOWABLE REVENUES (AR) IN TABLE .2.


YEAR MAIN COMPONENTS VALUE - Rbn

10/11 Inland Network 1.6

11/12 24”Dia. Trunkline incl. Pump Stations 10.1

12/13Island View – TM.1.

Jameson Park – TM.2.3.8


CONCLUDING REMARKS

CHRIS WELLS

34Presentation to Media09 March 2010Presentation to Media03 March 2010

• The Minister of Finance has announced in his budget speech for the

10/11 fiscal year that Government has decided to provide Transnet

with a grant for the construction of the NMPP to ensure security of

supply• This grant represents the cost difference between a 24 inch

pipeline versus the 16 inch pipeline that Transnet proposed to build• The levy compensates Transnet for the security of supply

component of the pipeline investment. • If the levy was not put in place, future tariffs (adjusted for the time

value of money) would have been increased by the same amount • On a net present value basis, Transnet is placed in exactly the

same position as it would have been (no better off, nor worse off) –

the advantage is that cash flow at the time of the investment in the

security of supply component of the pipeline is received

SECURITY OF SUPPLY LEVY AND IMPACT ON TARIFFS


• The grant will be paid over a three year period at R1,5 billion (including

VAT) per annum commencing 1 April 2010• The grant will be payable directly to Transnet Pipelines for exclusive

use on NMPP expenditure• For regulatory purposes and for the determination of allowable

revenue, the net grant will be deducted from the regulatory asset base

– this ensures that the security of supply component of the asset base

will be excluded from the asset base of future tariffs• In its 2010/11 tariff application, TPL has applied for a revenue increase

of 51.3% compared to the 2009/2010 determination of NERSA• This increase is largely due to new assets being commissioned in this

financial year (2010/2011) as well as application of sound technical

and widely accepted regulatory principles

SECURITY OF SUPPLY LEVY AND IMPACT ON TARIFFS


• The NMPP, probably the world’s largest diameter multiproduct pipeline, is a

legacy project for SA• Its flexible design enables the addition of pump stations to increase capacity

by approximately 200%• Because of its technical construction, material selection, type of welding,

quality control and field joint coating, this will enable the NMPP to have an

economic life of at least 75 years• With the strategies in place, Transnet is confident of the security of supply in

the years 2011/12 – until the full NMPP is brought into use• This has been difficult, but the governance process are sound and the

pipeline will be of high quality and will be cost-effective• This project was commenced and continued amidst uncertainty; and the law

provides for a fair return to be earned and we’re confident that these will be

resolved• Transnet’s capital investment programme, which is supported by a

successful funding strategy, remains solidly on track

CONCLUSION


END OF PRESENTATION

THANK YOU

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