Mr Chris Wells Acting Group Chief Executive 07 October 2010 UPDATE ON PROGRESS NMPP INFRASTRUCTURE INVESTMENT

Transcription

1 Mr Chris Wells Acting Group Chief Executive 07 October 2010 UPDATE ON PROGRESS NMPP INFRASTRUCTURE INVESTMENT

2 1 OBJECTIVE OF THE PRESENTATION As indicated in past, Transnet will update all roleplayers including the media when appropriate. Communication to the stakeholders is being made on a regular basis (Transnet Board; DoE/DPE; Regulator/NERSA; Media) Objective of this session Progress in rolling out the project To share challenges and impact on timelines and projected future cost INDEX Transnet Strategy and Investment plans Mr. C Wells Project Progress Security of supply: Bridging Plan Conclusion and Way forward Mr. N Eve Mr. C Möller Mr. C Wells

3 TRANSNET S STRATEGIC PRIORITIES Regulatory environment SHEQ Increase productivity and efficiency Improving customer services Volume growth Human resources Financial sustainability Create capacity Strategy enablers The NMPP is important and significant in Transnet s capital investment programme 2

4 TRANSNET S INFRASTRUCTURE INVESTMENT PROGRAMME To enable and support economic growth, Transnet continues with its major capital investment programme 22.8 Transnet s Capital Investment Plan 21.9 Total 5- year plan: R93.4bn Five Year Plan (Rbn) R billion Rail 54.6 Ports /11 11/12 12/13 13/14 14/15 Pipeline & Other 14.1 Investment Plans are reviewed annually to ensure alignment with market conditions and operational requirements and approved through governance structures NMPP investment cost included in the approved 5-year plan Transnet is committed to the roll-out of its capital investment plans 3

5 NMPP: MAJOR STRATEGIC PROJECT IN TRANSNET INVESTMENT PORTFOLIO NMPP Investment: Strategic Intent To replace the existing 45-year old Durban-Johannesburg Pipeline (DJP - 12 inch) urgently as it is running at full capacity and nearing the end of its design life To increase the capacity on this critical route (Durban-Gauteng) to meet projected demand (16 inch required) from a business case perspective Include additional capacity to ensure security of supply for the long term as required by the Department of Energy (mainline increased from 16 inch to 24 inch) Investment Overview 555km of 24 inch pipeline (mainline) and 160km of 16 inch pipelines NMPP, as both a Greenfields and Brownfields project, executed over long distances with difficult terrain would have significant issues in respect of cost and time delivery Rolling out with a sense of urgency The Department of Energy in 2006 required the size of the new pipeline to be increased to address projected potential security of fuel supply shortages in 2010/11. The Transnet Board in 2008 took the decision to proceed with the NMPP project despite certain unresolved risks to ensure that South Africa (specifically Gauteng) did not face fuel shortage. Strategic and important world-class asset for South Africa over the long term 4

6 5 NMPP INVESTMENT COST Forecasted investment cost shared with stakeholders March 2010 = R15.5bn (baseline) Expert multi-disciplinary team currently finalising cost and commissioning dates given the now generally advanced state of engineering and design Updated costs and deliverable dates will be communicated in Nov/Dec 2010 This will be shared with all governance bodies and roleplayers Increase of R1bn in the NMPP project cost impacts the fuel price by a relatively small amount (estimated currently at less than 1 cent/litre)

7 FUNDING PLANS Funding Strategy Transnet does not receive any subsidies or loans from the Government (Shareholder) Transnet funds its capital investment programme from: Cash flows from operations (tariffs) Funds raised in the debt capital markets based on Transnet s strong balance sheet and credit rating Funding Investment The 5 year funding plan includes funding from: Transnet Domestic and International Bonds (DMTN/GMTN) Commercial paper Development Finance Institutions Export Credit Agencies Funding requirements 2010/11 to 2014/15 Of R40bn Fuel levy to Transnet for the next 3 years for funding of Security of Transnet Pipelines: Security of Supply Supply portion of the NMPP project (24 inch mainline), Would have been received by way of tariffs in subsequent years (now will be deducted from the asset base no double counting) As no returns are allowed by Regulator on Capital work in progress Received first levy payment during September

8 7 UNCERTAINTY IN REGULATED TARIFFS Increased investment risk to ensure appropriate return on investment There remains significant economic regulatory risk as the determination of the required tariff by NERSA is still an area of significant concern. It is critical that tariffs granted give a fair return on invested capital. Although uncertainty in funding model and rate of return However Transnet is committed to engaging constructively with NERSA and DOE to ensure that going forward the Regulatory process results in predictable and fair tariffs (cash flow for Transnet)

9 NMPP PROJECT PROGRESS Mr Neville Eve 07 October 2010

10 9 SCOPE OF THE NMPP 160km of new 16 inch Pipelines including connection to 3 existing depots and the Jameson Park pump station 2 New Terminals a Greenfields site at Jameson Park and a Brownfields site at Island View at the Port of Durban 555km of new 24 inch Pipelines Several major and minor river crossings Half of the line in mountainous terrain Wetlands Four Mainline Pump-stations in Phase 1, (Pump station 0 being at Terminal 1) Pumping capacity to move product 1800 metres up the escarpment Max pumping capacity after initial installation is ca. 1150m3/hr

11 PETROLEUM PIPELINE NETWORK AND THE ROUTE OF THE NMPP GAUTENG PRETORIA WEST WALTLOO GAUTENG NORTH - WEST RUSTENBURG TARLTON AIRPORT KENDAL ALRODE WITBANK MPUMALANGA SOUTH AFRICA SECUNDA RICHARDS BAY LESOTHO DURBAN JAMESON PARK SECUNDA CAPE TOWN KLERKSDORP SASOLBURG COALBROOK STANDERTON FREE VOLKSRUST AFRICA KROONSTAD STATE NEWCASTLE VRYHEID BETHLEHEM VAN REENEN KWAZULU / NATAL N LADYSMITH EMPANGENI LESOTHO RICHARDS BAY REFINED PRODUCTS CRUDE OIL GAS AVTUR FUTURE NMPP PIPELINES INDIAN OCEAN DURBAN PPT-1741

12 NMPP TECHNOLOGY 11

13 12 NMPP STRATEGIC VALUE CHALLENGES Safe, environmentally friendly and efficient system that will provide for security for supply for the long term. Significantly reduce the current road haulage of fuel from Durban to Gauteng. Enhance supply integrity (low dependence on oil company feeder line run down scheduling) A new liquid fuel transportation system to support strong economic growth for South Africa. Product demand driving a schedule prioritised project which commenced on a fast track basis. Engineering keeping pace with the delivery of the project. The management of a complex physical and multi stakeholder delivery environment. Transnet has met and will continue to meet these challenges.

14 Status of the Project 13

15 14 MAIN LINE PROGRESS Line Pipe Delivery Complete Welded km (98.4%) Backfilled km (76.8%) Re-instated km (52.9 %)

16 15 MAIN LINE PROGRESS Main River crossings complete (49) Major Wetland crossings complete (481) (95km) First welding crew demobilized Mainline sections on schedule Hydro-testing began Land Acquisitions complete (1148 properties) All Environmental Approvals in place

17 DURBAN AREA PROGRESS Durban area welded 71.1km (88.2%) Durban area backfilled 35.8km (44.4%) Durban are re-instated 11.5km (14.3 %) 16

18 PUMP STATION PROGRESS Progress 32% (33%) Eskom Power supply progressing Earthworks and Civil works ahead of schedule Management of Risks Engineering & design Fast track construction Materials delivery 17

19 INLAND TERMINAL (Terminal 2) PROGRESS Progress 27% (33%) Ahead of Schedule Satisfactory Safety and Environmental performance Tank foundations Management of Risks Engineering & design Material delivery Vendor data 18

20 Project Management 19

21 TRANSNET PROJECT LIFE-CYCLE PROCESS 20

22 21 NMPP CONSTRUCTION SCHEDULE AND LICENCE CONDITIONS Transnet s current revised forecast dates for each of these licence conditions are as follows: NMPP Licence Conditions Schedule Requirements LICENCE CONDITION 1.3 ASSETS TO BE OPERATIONAL KENDAL TO WALTLOO LINE CONSTRUCTION COMPLETE DATE IN LICENCE CURRENT FORECAST 31 DEC DEC COMMENCE OPERATION OF 24 TRUNKLINE 31 MAR DEC CONSTRUCTION OF ALL ASSETS COVERED BY THE LICENCE COMPLETE AND READY FOR OPERATION 20 DEC DEC 2013 NOTE: The delay in the 24 Trunkline gives rise to the need for a Bridging Plan Stakeholders were advised Jan March 2010 of the delayed final completion date of Aug This remains the target completion date.

23 DELAY IN CONSTRUCTION SCHEDULE 22

24 23 PRIMARY SCHEDULE DELAY & COST DRIVERS Abbreviated project life cycle process Fast Track Engineering demand Long lead procurement challenges Contract strategy impact Route and location option feasibility engineering Physical environment Adverse weather Rock / Trenchless Crossings / HDD / Wetlands / Street Works / Security Physical / logistical construction spread Statutory approval process Land acquisition Underestimated wetland impact Time related costs Social interface challenges

25 24 DURBAN PORT & ISLAND VIEW PROPOSAL AS IN MARCH 2008 DURBAN HARBOUR Existing Transnet pump station Natcos Tank Proposed Island View Terminal Station FYNNLAND Pipeline routes not shown

26 25 DELIVERY ACHIEVEMENTS The Mainline and Facilities Project is progressing well Majority of major contracts have been awarded Pipeline is fully manufactured and on site Commissioning of inland systems underway All regulatory approvals have now been obtained World class technologies employed Communities have benefitted from construction of the main line Transnet has been a responsible corporate citizen in the delivery of this project, incl 2100 local people recruited, trained and employed over 9 magisterial districts 190 home owners participated in the NMPP Mini Quest Houses accommodation project Specialised skills training eg. 40 Welders (25 % women and 20 advanced qualification) World class standards of physical environment protection and re-instatement

27 SECURITY OF SUPPLY - BRIDGING PLAN 26

28 OVERVIEW OF TRANSNET PIPELINES (TPL) Turnover of about R1,4 billion/annum. 560 Employees with Head Office in Durban. We own, maintain and operate 3000 km of high pressure, underground steel pipes supplying energy (petroleum and gas) to the economic heartland of our country. At any moment the SA Oil Industry has 300 million liters of fuel in our system. We transport energy in the form of a variety of petroleum products such as petrol, diesel, crude oil and jet fuel as well as Gas through our pipelines and our clients are the Oil Companies of South Africa (SAPIA-members). Our pipelines are like arteries supplying energy to the eastern parts of our country and are key elements to ensure an appropriate supply of petroleum products to meet security of supply challenges. Capacity constraints in our pipeline system could hamper economic growth in our country s heartland. Present petroleum pipeline between Durban and Gauteng is operating at maximum capacity which is insufficient to meet demand. Primary ( First Choice ) mode of transport of SA Oil Industry for Liquid Fuels being safe, bulk volume, low cost, reliable, environmentally friendly carrier. Our tariffs are used as benchmarks for pricing with regard to the transport element of the controlled price of fuel in South Africa. We are regulated by the National Energy Regulator of South Africa (NERSA) as far as both our petroleum as well as gas activities are concerned. We presently hold the following licences (with conditions) from NERSA: Operations of the total petroleum pipeline system. Operations of the Gas pipeline (Lilly-line) Operations of the Tarlton storage facility. (For all licenced operating activities, tariffs are set and/or approved by NERSA.) Construction of the New Multi Products Pipeline (NMPP). 27

29 THE EXISTING NETWORK ALSO INDICATING THE ROUTE AND POSITION OF THE NEW MULTI-PRODUCT PIPELINE (NMPP) GAUTENG PRETORIA WEST WALTLOO GAUTENG NORTH - WEST RUSTENBURG TARLTON AIRPORT KENDAL ALRODE WITBANK MPUMALANGA SOUTH AFRICA SECUNDA RICHARDS BAY LESOTHO DURBAN JAMESON PARK SECUNDA CAPE TOWN KLERKSDORP SASOLBURG COALBROOK STANDERTON FREE VOLKSRUST AFRICA KROONSTAD STATE NEWCASTLE VRYHEID BETHLEHEM VAN REENEN KWAZULU / NATAL N LADYSMITH EMPANGENI LESOTHO RICHARDS BAY REFINED PRODUCTS CRUDE OIL GAS AVTUR FUTURE NMPP PIPELINES INDIAN OCEAN DURBAN PPT-1741

30 PERSPECTIVE ON PIPELINES TARIFFS : AS PERCENTAGE OF FINAL FUEL PRICE Example: Petrol price: Gauteng October c/l Basic fuel Price % Wholesale margin % Service cost recoveries % Dealers margin % Zone differential, , 2% TPL tariffs: 11.6 Differential : 3.9 Incremental Inland Transport Recovery Levy % NMPP Levy % Fuel Levy % Petroleum Products Levy % RAF levy % Customs & exercise % 29

31 THE NMPP STRATEGIC NEED FOR SOUTH AFRICA 30

32 31 THE NMPP STRATEGIC NEED FOR SOUTH AFRICA 2 Increase pipeline capacity between Durban and Gauteng Sequence of events leading from Pipeline Capacity Study (Plan) to NMPP Project Plan initiated in More capacity needed in 2015 at time. Annually updated update : Higher growth rates. Need shifted to Start with planning for new pipeline. Address both issues of DJP replacement and additional capacity (2003). Transnet approval to build NMPP January " pipe to be completed Q Project started (feasibility) During 2006 : Shareholder debate and request to revisit project 20 year planning horizon Annual GDP-growth of 6% Major changes in South Africa Oil Industry Termination of Sasol Supply agreement Clean Fuel project Increase in economic growth in country and therefore demand for fuels not seen before. Consequence : Urgent 2006 update of plan. Overall result : More pipeline capacity needed, earlier need for Bridging Plan from 2006/2010 At the same time : 24" pipeline optimal solution for 20 year challenge with ability to increase capacity on a phased-in-as-required (modular) basis. Operational philosophy and network configuration change dramatically trunkline with terminals concept.

33 32 NMPP INITIAL INVESTMENT AND MODULAR EXPANSIONS TO MEET DEMAND OF 4.2% Y-O-Y THEREAFTER Flowrate needed m³/h m/s (max) 2m/s NMPP Trunkline Design 5% BER 3.6% Facilities and Fin. Model - 4.2% DESIGN GROWTH (PIPELINE) PROBABLE GROWTH LOW GROWTH DIFFERENT FLOW-RATES m/s EXPANSION STEPS TO MEET 4,2% DEMAND m/s (calculated min) 12" - PRESENT YEAR

34 FIRST TPL BRIDGING PLAN BASED ON ORIGINAL CONCEPT OF STAYING ABOVE THE RED LINE ( ) NMPP Capacity needed from coast Ops Changes DRA's DIC Rail Original Capacity Available Pipe, Rail and Road Growth Line (example 5%) Contingency with MP Model should NMPP run late (almost 2 years) DRA: Drag Reducing Agents DIC: Diesel in Crude Pipeline Planned NMPP completion PERMANENT RAIL AND ROAD Time

35 34 THE BRIDGING PLAN (PHASE 1) : DETAIL Operational Changes DJP design capacity - 74 Ml/w Operating capacity at 68-70Ml/w Until the Bridging Plan intervention only 63Ml/w was possible because of inefficient industry coordination, ordering, scheduling, injection and acceptance of product Cooperation amongst all role-players to address inefficiencies and enhance utilisation of pipeline network DRAs DRAs are long-chain hydrocarbon polymers Had to do extensive testing with SAPIA members in early 2007 Was planned for April 2007, only achieved end November 2007

36 35 THE BRIDGING PLAN (PHASE 1) : DETAIL DIC Initiative COP not used at capacity since clean fuel project - end 2005 Opportunity to transport other petroleum products in the COP Contamination of diesel & processing of crude-diesel intermixture is issue DIC initiative developed in detail between Transnet Pipelines and the inland Natref refinery With OPS, DRA and DIC initiatives of Bridging Plan TPL has been able to keep the Gauteng region fully supplied. Last stock-outs in December 2005 (clean fuels). Economic downturn did have a positive effect. More than 3,8 billion litres of fuel delivered additional over the period by TPL. Role of road transport also important for successful supply. Rail & Pipeline Cooperation (Durban-Gauteng Corridor) Allocate more Rail Tank Cars (RTCs) to transport fuels from Durban Challenge is not to invest in new RTCs but to improve use of present fleet by improving on the turnaround time of the RTCs Other initiatives like Jet-fuel to continue and be increased

37 36 WC2010 SUCCESS STORY SUCCESSES OF COMBINED TRANSNET PIPELINES AND TRANSNET FREIGHT RAIL PLANS TO SUPPLY OR TAMBO AIRPORT DURING FIFA WORLD CUP 2010 No stock-out occurred during period. TFR delivered 16Ml/w ex Durban on continuous basis. TPL delivered 24 Ml/w ex Natref as planned. All refineries supplied as planned. Role of co-ordinating meeting between all roleplayers, lead by Department of Energy (DOE), paramount in success. Competition Commission exemption was critical for success. TPL Simulation model developed as part of process, key in daily monitoring and overall success of managing the project. Silent success story of Fifa WC2010.

38 NMPP LATEST DELAYS : DE-RATING OF THE DJP AND SECURITY OF SUPPLY RISKS AND CHALLENGES 37 Latest delays on NMPP will require the DJP to continue running at full capacity for at least another 9 months beyond 31 March 2011 to cope with security of supply challenges to Gauteng. After this, DJP is de-rated and run in combination with the NMPP trunkline. (By-passing TM1 as originally planned as part of By-pass project) Intelligent pigging inspection of the DJP has just been completed. Final report not available as yet but the interim results indicate that the line still needs to be de-rated by 1 April A direct consequence of this is increased of risk of security of supply to the inland market. Alternative modes of transport will be needed to cope with this requirement (road, rail or combination). The current Bridging Plan must be enhanced to ensure security of supply. Plans will be developed to address two distinct periods, namely, o April December 2011 (only downrated DJP, no NMPP trunkline (Bridging Plan II) o Post December 2011 (downrated DJP plus partial NMPP trunkline: By-pass project) For period April December 2011 detail plans need to be developed between DOE, DPE, TPL, TFR and Oil Industry to cope with the challenge of de-rating the DJP before the NMPP is available Phase 2 of TPL s present Fuel Bridging Plan.

39 ACTIONS TO MITIGATE SECURITY OF SUPPLY AND DJP RISKS 38 Detail of Action Plans required during 2012 and 2013 (from 1 January 2012) By-pass project 1. Key principle of actions based on concept of simultaneous use of present DJP (to a de-rated service-level) and the NMPP whilst by-passing Terminal 1 (TM1) in Island View (Port of Durban). 2. Use of present Transnet Pipelines (TPL) Durban depot in Island View on a tight-lining basis is key 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 and NMPP simultaneously. On exit-side of present depot a link needs to be made to presently mothballed 18" pipeline of TPL This 18" line will then be connected to the new 24" NMPP trunkline at exit-side of TM1, now to be commissioned later. 3. Through present TPL Durban depot the NMPP will be able to run on diesel at a flowrate of 500m 3 /h. 4. Flowrate (as a multi-products pipeline) of the DJP will be decreased from present 520m 3 /h with DRA s to 400m 3 /h still with DRAs in order to reduce operating pressures required for prescribed de-rated condition of pipeline for continued use (initial expert requirement). 5. Above will provide the ability to by-pass TM1 on a tight-lining basis and will be able to meet with projected demands in 2012 and NMPP able to function as multi-products 500m 3 /h (role of TM2) further reduced risks on DJP.

40 ACTIONS TO MITIGATE SECURITY OF SUPPLY AND DJP RISKS 39

41 ACTIONS TO MITIGATE SECURITY OF SUPPLY AND DJP RISKS 40 DIAGRAMMATIC LAYOUT OF THE PROPOSED PUMPING PROCEDURE WHEN USING BOTH DJP AND NMPP AND BY PASSING TERMINAL1 (TM1) (PRINCIPLE OF TIGHT - LINING) EXISTING DURBAN PUMP STATION PUMPING STATION METERS LINK LINE TRANSNET PIPELINES EXISTING FEEDER LINES DURBAN MANIFOLD SPLIT TO RUN BOTH DJP AND NMPP AT THE SAME TIME TIGHT-LINING: FEEDER LINES THROUGH METERS AND DIRECT TO PUMPING STATION AND INTO PIPELINES PUMPING TM1 (TERMINAL 1) STATION TANKS LINK LINE METERS NEW COMPANY FEEDER LINES INTO TM1 FUTURE NMPP: FEEDER LINES THROUGH METERS AND DIRECT TO ACCUMULATOR TANKS FROM TANKS TO PUMPING STATION AND INTO PIPELINE

42 PHASE 2 OF TPL S BRIDGING PLAN (APRIL DECEMBER 2011) (BPII) 41 Initial Task Team similar to that for Fifa World Cup 2010 approval to implement Nov 2010 STEERING COMMITTEE CEO Level (TPL, TFR, Sapia, DoE, DoT, DPE) TRANSNET Responsible for Security of Supply PROJECT MANAGER TRANSNET OIL COMPANIES OTHERS Pipelines (TPL) Rail (TFR) Ports (NPA) TASK TEAM Sapia BP Chevron Engen PetroSA Sasol Shell Total SA Vuyo Khulaco Dept Energy (DoE) Dept Transp (DoT) Airports (ACSA) Ortia (ORTAFS) Road Haulers (RFA) Provincial DoT's Other Other Sub Task Team 1 Sub Task Team 2 LPT Sub Task Team..

43 42 PHASE 2 OF TPL S BRIDGING PLAN (APRIL DECEMBER 2011) (BPII) QUANTIFYING THE TASK

44 43 PHASE 2 OF TPL S BRIDGING PLAN (APRIL DECEMBER 2011) (BPII) SOLUTIONS AND PRINCIPLES Principles to apply in reaching a solution : Focus on Transnet Freight Rail solutions before road solutions first prize is to keep road at present levels. Focus on block trains as opposed to General Freight Business (GFB). Focus on depot bridging volumes as opposed to direct to customer deliveries (smaller volumes). Focus on shifting coastal and on rail volumes rather than current rail volumes ex inland refineries. Avoid capital investment that cannot be used after the end of BPII. Take into account the long term sustainability and growth prospects of both rail and pipe. Utilise synergies between rail and pipe. Apply lowest cost options first.

45 44 PHASE 2 OF TPL S BRIDGING PLAN (APRIL DECEMBER 2011) (BPII) Replace remaining pipeline deliveries to Ladysmith and Bethlehem with rail ex Durban [Permanent Solution after NMPP] All Jet Fuel from DBN to Ortia by rail, not pipe [Permanent Solution after NMPP up to 16ml/wk] Shift on-railing volumes and capacity to rail ex coast. [Temporary Solution : After BPII, capacity can be shifted back to on-railing] : Bloemfontein / Kimberley ex PE/EL instead of Kroonstad Mokopane ex DBN instead of ex Waltloo Botswana ex DBN instead of Tarlton Maximise current rail volumes on the Energy Express to Nelspruit, Rocky Drift, Matsapha ex DBN [Permanent / temporary solution] Rail from coast to inland pipeline terminals (increase rail to Kroonstad, Waltloo, Langlaagte, Rustenburg, or new rail to Alrode, Pretoria West, Klerksdorp, Witbank [Temporary solution volumes should return to NMPP after BPII] Replace Overland Exports to Zim/Zam/DRC ex SBG/SEC with deliveries ex DBN, Maputo or Beira. [Temporary solution, should be reversed after BPII]

46 45 CONCLUSION The NMPP is a strategic legacy investment which will give South Africa security of fuel supply for the inland market for the long term. It will be an asset to be proud of - environmentally friendly, safe, enabling economic growth and providing cost efficient fuel supply. The NMPP will be delivered successfully within the revised cost and timelines There are good project controls and cost reviews in place and the NMPP will be benchmarked against other international pipeline investments World class multi-product pipeline that will secure the supply of petroleum products for the long term