FOREWORD - Transnet

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FOREWORD Transnet SOC Ltd © LTPF 2017

Transcript of FOREWORD - Transnet

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FOREWORD

Transnet SOC Ltd © LTPF 2017

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FOREWORD by GCE

Transnet SOC Ltd © LTPF 2017

The world stands on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. The digital revolution is characterized by a fusion of technologies that are poised to disrupt almost all industries and transform systems of production, management and governance. Management has adopted the Transnet 4.0 vision to provide a framework for Transnet’s growth in the context of the fourth Industrial Revolution.

Transnet 4.0 has three main growth thrusts: (i) geographic expansion, (ii) product and service innovation; and (iii) expansion of the scope of Transnet’s manufacturing business. In relation to geographic expansion, Transet plans to accelerate its efforts to

extend its footprint in fast growing regions of Africa, Middle East and South Asia. With respect to product and service innovation, the key emphasis is to transform from primarily being a transport and cargo handling focused business towards an integrated logistics solutions provider, offering end to end solutions to key partners.

All of these growth paths will be underpinned by a strong focus point on maximizing the use of technology to drive efficiency and effectiveness. Transnet 4.0 requires Transet to become a digital organization. The rapid incorporation of leading technologies into new and existing products and business processes will be a key characteristic of Transnet as the organization moves forward.

Our strategies and plans must be formulated with an understanding of alternative futures. The Long Term Planning Framework will consider future scenarios within the context of the 4th industrial revolution that will inform new strategies within Transnet. The LTPF will establish well founded long term plans allowing Transnet to serve as a key economic enabler in this Volatile, Uncertain, Complex and Ambiguous world.

Siyabonga Gama

Group Chief Executive

Transnet SOC Ltd

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FOREWORD by CCO

Transnet SOC Ltd © LTPF 2017

This year marks the 11th official Long-term Planning Framework publication release since it was first conceptualised as a Port and Rail Corridor Plan in 2006. The Long Term Planning Framework has grown from its initial purpose, into a holistic long term framework plan, guided by National Government, Strategic Business Planning and the greater Transnet Planning Community.

As a public document, the Long Term Planning Framework assists business and external stakeholders to better understand the capacity constraints created by the projected 30-year freight demand. Annually the LTPF improves in content development as well as increasing its reach to the planning community, both internally and externally to

Transnet. The LTPF has demonstrated its ability to add business value in guiding capacity plans beyond Transnet’s 5-year Corporate Plan.

In progressing with the strategic imperative of Transnet in becoming more agile, responsive and digital, the LTPF is undergoing radical transformation, and will in future, go beyond providing capacity solutions for Transnet’s rail, port and pipeline freight solutions, with the associated capital requirements to meet the 30-year demand forecast.

The LTPF will be redefined in form and content to align to the Transnet 4.0 strategic direction. This Area of Excellence (AoE) for planning within Transnet will engage the process of ideation and conceptualization of new business modalities and supply chain solutions, stemming from the development of future scenarios within the context of the 4th industrial revolution. The preferred future scenarios will guide the envisioning of Transnet’s future, which will then be unpacked into long term framework plans for the creation of that envisioned future. The future LTPF will thereby provide strategic decision support and foresight into the future capital investment requirements for existing freight modalities as well as new supply chain solutions.

On behalf of the Capital Planning and Advisory Services team, I wish to thank the Transnet planning community for their support in developing the LTPF.

Krishna Reddy

Chief Capital Officer

Transnet SOC Ltd

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CHAPTERS OF LTPF 2017

Transnet SOC Ltd © LTPF 2017

CHAPTER 1 OVERVIEW

CHAPTER 2 FREIGHT DEMAND FORECAST

CHAPTER 3 RAIL DEVELOPMENT PLAN

CHAPTER 4 PORT DEVELOPMENT PLAN

CHAPTER 5 PIPELINE DEVELOPMENT PLAN

CHAPTER 6 AFRICA TRANSPORT DEMAND AND INFRASTRUCTURE PLAN

CHAPTER 7 CAPITAL PLAN

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Transnet SOC Ltd © LTPF 2017

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ACRONYMS AND ABBREVIATIONS

Transnet SOC Ltd © LTPF 2017

CP Corporate Plan

CPRC Central Port and Rail Corridor

EPRC Eastern Port and Rail Corridor

FSRUs Floating Storage and Regasification Units

GBP Gauteng Basin Plan

HDSA Historically Disadvantaged South Africans

LNG Liquefied Natural Gas

MDS Market Demand Strategy

MPP Multi-Product Pipeline

NIP National Infrastructure Plan

OEM Original Equipment Manufacturer

PICC Presidential Infrastructure Coordinating Commission

PRC Port and Rail Corridor

SRL Swaziland Rail Link

TE Transnet Engineering

TFR Transnet Freight Rail

TIP Transnet Infrastructure Plan

TNPA Transnet National Ports Authority

TPT Transnet Port Terminals

WPRC Western Port and Rail Corridor

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TABLE OF CONTENTS

Transnet SOC Ltd © LTPF 2017

1. INTRODUCTION ________________________________________________________________________ 1

2. LONG TERM PLANNING FRAMEWORK DEVELOPMENT PROCESS ___________________________________ 1

3. LONG TERM PLANNING FRAMEWORK EVOLUTION _____________________________________________ 2

3.1 PORT AND RAIL CORRIDOR DEVELOPMENT PLANS ________________________________________________________ 3

3.2 NATIONAL INFRASTRUCTURE PLAN ____________________________________________________________________ 3

3.3 TRANSNET INFRASTRUCTURE PLAN ____________________________________________________________________ 3

3.4 LONG TERM PLANNING FRAMEWORK ___________________________________________________________________ 3

4. PLANNING PRINCIPLES AND OUTPUTS ______________________________________________________ 4

5. THE TRANSNET PLANNING HIERARCHY ______________________________________________________ 5

6. THE TRANSNET PLANNING CYCLE __________________________________________________________ 6

7. THE LTPF 2017 _________________________________________________________________________ 7

7.1 FREIGHT DEMAND FORECAST ________________________________________________________________________ 7

7.2 RAIL DEVELOPMENT PLAN ___________________________________________________________________________ 7

7.3 PORT DEVELOPMENT PLAN ___________________________________________________________________________ 7

7.4 PIPELINE DEVELOPMENT PLAN ________________________________________________________________________ 7

7.5 AFRICA TRANSPORT DEMAND AND INFRASTRUCTURE PLANNING ___________________________________________ 7

7.6 CAPITAL PLANNING _________________________________________________________________________________ 7

Please note this Long-Term Framework Plan is not a business or operational plan, and is unconstrained to capital planning and independent to other more detailed Transnet business and operating division (OD) plans. The LTPF is only a planning tool, to broadly guide Transnet and all external and public stakeholders.

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OVERVIEW

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1. INTRODUCTION Transnet’s Long Term Planning Framework (LTPF) provides the Transnet business and broader stakeholder community with a planning framework within which the long term development of South Africa’s freight transportation network and the expansion of Transnet’s operational footprint can be executed.

Driven by freight demand projections for the next 30 years, the LTPF provides the capacity development and investment opportunities that are needed to ensure Rail, Port and Pipeline capacity is developed in an integrated manner ahead of demand. The LTPF is not an operational planning blueprint, but rather a long term unconstrained framework that identifies the movement of freight locally and regionally and considering this demand, projects the infrastructure and capital requirements needed to meet that demand.

As a framework, the objective of the LTPF is to guide strategic investment decisions and offer an impartial view of capacity requirements not impacted by affordability, profitability and other business constraints. The LTPF thus provides guidance, direction and context within which Transnet’s short term seven-year business plan (Corporate Plan) is prepared alongside the Market Demand Strategy (MDS). The Corporate Plan differs from the LTPF in that it considers business risk, capital availability, implementation constraints and market commitments in determining what will be executed in the next seven-year period.

Further, the LTPF is extensively shared with Transnet’s Shareholder, thereby acting as an important link between national developmental strategies, policies and corporate capital plans. The LTPF is then positioned to provide Government with sound future projections, which may then inform strategic country wide decisions.

2. LONG TERM PLANNING FRAMEWORK DEVELOPMENT PROCESS The LTPF is updated annually and the development process stretches over a 15- to 18-month planning cycle. Figure 1 provides a visual representation of the long term planning logic adopted.

Figure 1: The Long Term Planning Framework Development Process

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On the left hand side of Figure 1 is the current installed capacity of the network and the infrastructure for rail, ports and pipelines. The implication is that with the current infrastructure the organisation has certain capacity that allows it to handle up to a specific capacity of freight on the various rail networks, the ports as well as the pipelines.

On the right hand side, the primary input is the 30-year freight demand forecast as published in the Transnet Demand Book every April. This forecast is used to determine how much capacity will be required in future. By comparing installed capacity with future capacity needs, it is easy to see when capacity will run out and how much new capacity would need to be created, and when it will be required.

Capacity planning specialists then produce a range of possible key capacity development initiatives (also known as KCDIs) to ensure capacity is provided marginally ahead of demand. These intervention options are evaluated and ranked and the most likely interventions are selected for inclusion in the LTPF.

In producing the 30-year capital requirements, Group Planning also takes all current capital projects into consideration. There will necessarily, be differences between the unconstrained capital needs produced in the LTPF and the fundable and constrained capital plans of the Corporate Plan. This difference is called the “Capital Requirements Gap” and by analysing in detail how the two plans differ, it is possible to ensure longer-term guidance and alignment.

This intelligence is thus used for the continuous improvement of the annual capital budgeting process. An outflow of this process is the energy needs of Transnet in the future that is derived from the volumes to be transported as well as the infrastructure and equipment that will be utilised.

3. LONG TERM PLANNING FRAMEWORK EVOLUTION Originating in 2006 as a simplified long term plan, the then publication focussed on Port and Rail corridor development plans. In subsequent editions (called the NIP and TIP) the focus was mainly on infrastructure capacity development and alignment between port, rail and pipeline plans. The framework evolved over time by progressively broadening and deepening its scope to become more holistic, to the point where the first LTPF was released in 2012. This evolution is depicted in Figure 2.

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Figure 2: Development of the Long Term Planning Framework

3.1 PORT AND RAIL CORRIDOR DEVELOPMENT PLANS

The early 2006 and 2007 development plans launched included the Eastern, Central- and Western Port and Rail Corridor studies (EPRC, CPRC and WPRC) to assess overall infrastructure investment needs across the rail and ports network. Shortly afterwards a Gauteng Basin Plan (GBP) was added, as well as the first 10-year view of freight demand. The initial development plans excluded a total capital cash flow view but did include detailed capital estimates for individual projects.

3.2 NATIONAL INFRASTRUCTURE PLAN

2008 saw the first cross-divisional integrated port, rail and pipeline development plan. Included in this edition was the first five-year capital plan which was based on the Transnet Capital Programme as well as a comprehensive

30-year plan for the entire rail network based on a scientific analysis of local freight demand. The NIP was presented to the Shareholder and to the Parliamentary Committee on Transport. A road-show followed to all major regions.

3.3 TRANSNET INFRASTRUCTURE PLAN

The Transnet Infrastructure Plan (TIP) was the first desktop published version which was circulated both within the business and to Transnet’s Shareholder. The TIP included the first unconstrained 30-year capital plan, integration of environmental planning as well as alignment with the national New Growth Path. In addition to port fleet and rolling stock fleet development plans, the TIP incorporated the rail-asset condition impact in the development plans.

3.4 LONG TERM PLANNING FRAMEWORK

Transnet and the planning community are now accustomed to the Long Term Planning Framework, which is produced and printed annually in July. The LTPF has continued to evolve as business needs come to the fore. Major improvements to the LTPF over the past four years include:

• Alignment of the plan with the National Planning Commission’s National Development Plan; • Inclusion of sustainability principles in infrastructure development planning; • Alignment of the plan to Transnet’s Shareholder Compact and Corporate Plan;

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• Incorporation of regional freight demand and capacity planning, considering the Southern African Development Community and the overall Africa status quo;

• Introduction of gas; and • The first Transnet-wide energy demand forecast.

It is envisaged that the LTPF will continue to evolve but remain focussed on the main purpose of showing long term capacity expansion options. The LTPF executive summary (this publication) only shows the most likely, summarised results extracted from the full body of knowledge of the LTPF.

From 2015, the planning team aims to distribute a series of corridor-focused system reports that goes deeper into specific developments and options for clustered supply chains such as the ore line, coal system, Durban – Gauteng system, etc. In addition, the team has planned specific business-related forward-thinking papers, such as an intensive deep dive into the rail gauge challenge locally and regionally.

4. PLANNING PRINCIPLES AND OUTPUTS A set of planning principles is followed in the development of the LTPF and is fundamental to the use of the framework. The 10 main principles adopted are:

1. Provide capacity marginally ahead of demand to enable and promote economic growth in South Africa and in the region; 2. Adopt sustainability principles as part of development plans, including improved energy efficiency and reducing carbon

emissions; 3. Integrate rail, port and pipeline planning within Transnet; 4. Pursue alignment with national road and electricity supply planning; 5. Assume that operational efficiency is optimised first, then consider infrastructure-based capacity solutions; 6. Target rail suitable freight to shift from road-to-rail; 7. Benchmark internationally on world class handling services, new technologies and best practices; 8. Plan to improve South Africa’s global competitiveness by reducing the total cost of freight transport and logistics; 9. Identify opportunities in Africa and leverage the economies of scale in global trade; and 10. Provide responsive infrastructure that meets South Africa’s economic needs in line with the New Growth Path and the

National Development Plan.

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5. THE TRANSNET PLANNING HIERARCHY Planning within Transnet takes place at various levels. While each level will address capacity planning in a different way, it is important to ensure that planning efforts are fundamentally aligned and aim towards the same future objectives. The LTPF provides an important link between national and provincial masterplans and policy; and the corporate strategy or MDS. The influence goes both ways in that the LTPF both informs and reacts to both levels of planning.

Figure 3: The Planning Hierarchy

LEVEL 1: NATIONAL AND PROVINCIAL PLANNING The planning frameworks typically associated with this level include the national development plan, national transportation masterplan (NATMAP), the PICC’s SIPs and a variety of provincial and local masterplans. The focus of these plans is typically developmental and may stretch as far as 50 years into the future.

Transnet formally interacts with the associated planning structures and in many cases assists in formulating plans or provide essential inputs for planning. There are also many informal or ad hoc interactions with stakeholders who assist in formulating the LTPF or see the LTPF as a source of information.

LEVEL 2: LONG TERM PLANNING FRAMEWORK The MDS’s capital plans are framed by the 30-year LTPF (Long Term Planning Framework). The LTPF is produced annually by Group Planning, with support from both the operating divisions and key external stakeholders. It provides the business and broader stakeholder community with a planning framework within which the long term development of South Africa’s freight transportation network and the expansion of Transnet’s operational footprint can be executed. The LTPF is clearly an important input to the Transnet Corporate Plan. It uses an aligned (not matched) seven-year and an unconstrained 30-year view of demand. It is therefore a framework to guide strategic investment decisions and offers a neutral view on capacity requirements not impacted by affordability, profitability and other business constraints. The LTPF and Corporate Plan will inevitably differ, since the Corporate Plan considers affordability, funding and commercial constraints.

LEVEL 3: TRANSNET CORPORATE PLAN Transnet’s Corporate Plan is prepared on an annual basis by the Transnet Group Executive Committee and is approved by the Transnet Board. The Corporate Plan:

• Aligns the defined strategy, objectives and plans with the requirements of the Shareholder as agreed in the Shareholder’s Compact; and

• Outlines Transnet’s strategy, objectives and plans, and details the initiatives that will be implemented to achieve the Company’s strategic objectives, thereby enabling it to deliver on its mandate in the next financial year as well as the following six years.

The preparation of the Corporate Plan follows a robust and structured process involving, inter alia, the Board of Directors and the Group Executive Committee of Transnet, and flows from a culmination of various activities, initiatives and processes within Transnet.

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6. THE TRANSNET PLANNING CYCLE Figure 4 illustrates the planning cycle and the alignment that takes place in the process. This process stretches over an entire financial year.

Figure 4: Planning Process Alignment

1st quarter: April – June

Demand Book (Aligned) is published.

2nd quarter: July – September

Receive demand updates from several sources and process.

Produce Demand Tables (Unconstrained) for next planning cycle.

Develop early capacity options for port, rail and pipeline development based on Demand Tables (Unconstrained).

Update the installed capacity of port, rail and pipeline networks.

3rd quarter: October – December

OD engagement on demand target setting and alignment.

OD engagement on unconstrained capacity plans and capital budgeting.

Finalise unconstrained content chapters towards LTPF draft.

4th quarter: January – March

Compile the final draft LTPF and circulate to internal stakeholders.

Analysis of capital submissions in Corporate Plan vs. LTPF seven-year plan.

Initiate demand update process for the next cycle.

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7. THE LTPF 2017 The 2017 LTPF is essentially a minor update of the 2016 LTPF, where capacity solutions have been aligned the adjusted freight demand and capacity development initiatives within Transnet’s Operating Divisions.

7.1 FREIGHT DEMAND FORECAST

A comprehensive and reliable demand forecast is the starting point for developing a planning. The 30-year freight demand forecasts used in the LTPF is unconstrained in that it does not account for capital affordability, profitability and other business constraints. Overall, the demand for freight transportation is expected to grow significantly a 30-year period which implies that rail, port, and pipeline infrastructure will require significant interventions, to ensure capacity is created ahead of demand.

7.2 RAIL DEVELOPMENT PLAN

The rail section of the Long-Term Planning Framework (LTPF) provides the development plans for the rail network, terminals and rolling stock. It is based on providing the required capacity to meet both the unconstrained demand and development of a strategic rail network to enhance economic development within South Africa and its neighbouring states.

The LTPF has evolved over the last few years into a comprehensive and aligned long term framework plan. Rail Plans are developed to support and facilitate business imperatives such as operational efficiencies and safety as well as to reduce the cost of rail freight transport.

7.3 PORT DEVELOPMENT PLAN

The port chapter summarises the development plans for the ports in South Africa. This includes both the ports and terminals owned and operated by Transnet and the terminals owned and operated by private entities. An overview of potential new port sites along South Africa’s coast, interesting new emerging technologies, an update to Durban’s container capacity planning, as well as an assessment of import options for natural gas through the port system is presented.

7.4 PIPELINE DEVELOPMENT PLAN

The pipeline chapter summarises the pipeline development plans for South Africa, comprising the pipelines owned and operated by Transnet and pipelines owned and operated private operators. The LTPF provides a national overview of the development plans for liquid petroleum and gas requirements of South Africa.

7.5 AFRICA TRANSPORT DEMAND AND INFRASTRUCTURE PLANNING

The Africa chapter provides a view on the current infrastructure within the region as well as an overview on freight demand and regional corridor development strategies and plans. Major developments and opportunities concerning rail, port and pipeline infrastructure are highlighted. A very brief view is presented of the Transnet strategies and development plans for Africa.

The Africa chapter includes an assessment and ranking of rail, port and pipeline projects on the continent, providing a basis for Transnet to support supply chain solutions in Africa. Information was also extracted on possible risks to South African operations with developments elsewhere on the continent.

7.6 CAPITAL PLANNING

The capital quantifies and summarises the interventions identified in the individual port, rail and pipeline chapters and thereby completes the capital planning process which forms the basis for the capital budgeting process where the viability and affordability of the capital investments are tested and the long term sustainability of Transnet is ensured. The module summarises the 30-year capital requirements from 2017 to 2046.