TRANSNET LIMITED · TRANSNET LIMITED (Registration number 1990/000900/06) (incorporated with...

TRANSNET LIMITED(Registration number 1990/000900/06)

(incorporated with limited liability in the Republic of South Africa)

U.S.$2,000,000,000

Global Medium Term Note ProgrammeUnder the Global Medium Term Note Programme described in this Base Prospectus (the ‘‘Programme’’), Transnet Limited (‘‘Transnet’’, the ‘‘Company’’ orthe ‘‘Issuer’’), subject to compliance with all relevant laws, regulations and directives, may from time to time issue medium term notes (the ‘‘Notes’’). Theaggregate principal amount of Notes outstanding will not at any time exceed U.S.$2,000,000,000 (or its equivalent in other currencies).

This Base Prospectus has been approved by the Financial Services Authority (the ‘‘FSA’’) in its capacity as competent authority for the purposes of Directive2003/17/EC (the ‘‘Prospectus Directive’’) and relevant implementing measures in the United Kingdom as a base prospectus issued in compliance with theProspectus Directive and relevant implementing measures in the United Kingdom for the purposes of giving information with regard to the issue of the Notesdescribed in this Base Prospectus for the period of 12 months from the date of this Base Prospectus. Application has been made for such Notes to beadmitted to the official list (the ‘‘Official List’’) of the FSA and to the London Stock Exchange plc (the ‘‘London Stock Exchange’’) for such Notes to beadmitted to trading on the London Stock Exchange’s regulated market (the ‘‘Market’’). References in this Base Prospectus to Notes being ‘‘listed’’ (and allrelated references) shall mean that such Notes have been admitted to the Official List and have been admitted to trading on the Market. The Market is aregulated market for the purposes of Directive 2004/39/EC on markets in financial instruments. The Programme also permits Notes to be issued on the basisthat they will not be admitted to listing, trading and/or quotation by a competent authority, stock exchange and/or quotation system or that they will beadmitted to listing, trading and/or quotation by such other or further competent authorities, stock exchanges and/or quotation systems as may be agreed withthe Issuer. The relevant Final Terms (the ‘‘Final Terms’’) in respect of the issue of any Notes will specify whether or not such Notes will be listed on theOfficial List and admitted to trading on the Market (or any other stock exchange or quotation system). Notes may also be issued that are not traded on anyexchange.

Investing in the Notes involves substantial risks. Prospective investors should have regard to the risks described under the section captioned ‘‘Risk Factors’’ inthis Base Prospectus.

In general, the Notes of each Series (as defined in ‘‘Overview – Overview of the Programme – Method of Issues’’) issued in bearer form (‘‘BearerNotes’’) will initially be represented by a temporary global note in bearer form, without interest coupons (each a ‘‘Temporary Global Note’’), andwill be sold in ‘‘offshore transactions’’ within the meaning of Regulation S (‘‘Regulation S’’) under the United States Securities Act of 1933, asamended (the ‘‘Securities Act’’). Interests in Temporary Global Notes generally will be exchangeable for interests in permanent global notes (eacha ‘‘Permanent Global Note’’ and, together with the Temporary Global Notes, the ‘‘Global Notes’’), or if so stated in the relevant Final Terms,definitive Notes (‘‘Definitive Notes’’), after the date falling 40 days after the completion of the distribution of the relevant Tranche of Notes uponcertification as to non-U.S. beneficial ownership. Interests in Permanent Global Notes will be exchangeable for Definitive Notes in whole but not inpart in the limited circumstances described under ‘‘Summary of Provisions Relating to the Notes While in Global Form’’. Global Notes may bedeposited on the issue date with a common depositary (the ‘‘Common Depositary’’) on behalf of Euroclear Bank S.A./N.V. (‘‘Euroclear’’) andClearstream Banking, societe anonyme (‘‘Clearstream, Luxembourg’’) or such other clearing systems as shall be agreed between the Issuer andthe relevant Dealers (as defined herein). Bearer Notes are subject to U.S. tax law requirements.

The Notes of each Tranche (each a ‘‘Tranche’’) to be issued in registered form (‘‘Registered Notes’’) will be represented by registered certificates(each a ‘‘Certificate’’), one Certificate being issued in respect of each Noteholder’s entire holding of Registered Notes of one Tranche and may berepresented by a Global Certificate (as defined below) and Certificates may, and Global Certificates will, be deposited on the relevant issue dateeither with (a) a Common Depositary or (b) such other clearing system as shall be agreed between the Issuer and the relevant Dealers (as definedherein).

Registered Notes which are sold in an ‘‘offshore transaction’’ within the meaning of Regulation S will initially be represented by a permanentregistered global certificate (each a ‘‘Regulation S Global Certificate’’) without interest coupons, which may be deposited on the relevant issuedate (a) in the case of a Series intended to be cleared through Euroclear and/or Clearstream, Luxembourg, with a Common Depositary and (b) inthe case of a Series intended to be cleared through a clearing system other than, or in addition to, Euroclear and/or Clearstream, Luxembourg, ordelivered outside a clearing system, as agreed between the Issuer and the relevant Dealers.

Registered Notes which are sold in the United States to ‘‘qualified institutional buyers’’ (each a ‘‘QIB’’) within the meaning of Rule 144A (‘‘Rule144A’’) (the ‘‘Rule 144A Notes’’) under the Securities Act will initially be represented by a permanent registered global certificate (each a ‘‘Rule144A Global Certificate’’ and, together with the Regulation S Global Certificates, the ‘‘Global Certificates’’), without interest coupons, which may bedeposited on the relevant issue date with a custodian (the ‘‘Custodian’’) for, and registered in the name of Cede & Co. as nominee for, theDepository Trust Company (‘‘DTC’’).

The provisions governing the exchange of interests in the Global Certificates for individual Certificates in certain limited circumstances aredescribed in ‘‘Summary of Provisions relating to the Notes while in Global Form’’.

In the case of any Notes which are to be admitted to trading on a regulated market within the European Economic Area (the ‘‘EEA’’) or offered tothe public in a Member State of the EEA in circumstances which require the publication of a Prospectus under the Prospectus Directive, theminimum specified denomination (each a ‘‘Specified Denomination’’) shall be e50,000 (or its equivalent in any other currency as at the date ofissue of the relevant Notes). Rule 144A Notes may only be offered in a minimum denomination of U.S.$100,000 (or its equivalent in any othercurrency as at the date of issue of the relevant Notes). Any sale or transfer of Rule 144A Notes after the issue date of such Notes may only bemade in a minimum denomination of U.S.$100,000 (or its equivalent in another currency).

Tranches of Notes to be issued under the Programme may be rated or unrated. Where a Tranche of Notes is to be rated, such rating will not necessarily bethe same as the ratings assigned to the Programme. A security rating is not a recommendation to buy, sell or hold securities and may be subject tosuspension, reduction or withdrawal at any time by the assigning rating agency.

The Notes have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of theUnited States and may not be offered, sold, pledged or otherwise transferred except (1) in accordance with Rule 144A to a person that the holder and anyperson acting on its behalf reasonably believes is a QIB that is acquiring the Notes for its own account or for the account of one or more QIBs, (2) in anoffshore transaction in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act, (3) pursuant to an exemption from registration underthe Securities Act provided by Rule 144 thereunder, if available, or (4) pursuant to any effective registration statement under the Securities Act, in each casein accordance with any applicable securities laws of any state of the United States. No representation can be made as to the availability of the exemptionprovided by Rule 144 under the Securities Act for resales of the Notes. For a description of these and certain further restrictions on offers, sales andtransfers of Notes and distribution of this Base Prospectus, see ‘‘Subscription and Sale’’ and ‘‘Transfer Restrictions.’’

This Base Prospectus should be read and construed together with any amendment or supplement hereto. Further, in relation to any Series of Notes, thisBase Prospectus should be read and construed together with the relevant Final Terms.

As described further in this Base Prospectus, the prior written approval of the Financial Surveillance Department (‘‘ExCon’’) of the South African ReserveBank (the ‘‘SARB’’) will be required for each Tranche of Notes issued under this Programme.

ArrangersBarclays Capital Goldman Sachs International

DealersBarclays Capital Goldman Sachs International Goldman, Sachs & Co.

The date of this Base Prospectus is 26 January 2010

Proof18:26.1.10

This Base Prospectus comprises a base prospectus for the purposes of the Prospectus Directiveand for the purpose of giving information with regard to the Issuer and its subsidiaries (the‘‘Group’’) and the Notes which, according to the particular nature of the Issuer and of the Notes, isnecessary to enable investors to make an informed assessment of the assets and liabilities,financial position, profit and losses and prospects of the Issuer and the Group.

The Issuer accepts responsibility for the information contained in this Base Prospectus. To the bestof the knowledge and belief of the Issuer (which has taken all reasonable care to ensure that suchis the case) the information contained in this Base Prospectus is in accordance with the facts anddoes not omit anything likely to affect the import of such information.

No person has been authorised to give any information or to make any representation other thanthose contained in this Base Prospectus in connection with the issue or sale of the Notes and, ifgiven or made, such information or representation must not be relied upon as having beenauthorised by the Issuer or any Arranger or Dealer (each as defined in ‘‘Overview – Overview ofthe Programme’’).

Neither the delivery of this Base Prospectus or any Final Terms nor the offering, sale, or deliveryof any Note shall, under any circumstances, create any implication that the information contained inthis Base Prospectus is accurate subsequent to the date hereof or that there has been no changein the affairs of the Issuer or the Group since the date hereof or the date upon which this BaseProspectus has been most recently amended or supplemented or that there has been no adversechange in the financial position of the Issuer or the Group since the date hereof or the date uponwhich this Base Prospectus has been most recently amended or supplemented or that any otherinformation supplied in connection with the Programme is correct as of any time subsequent to thedate on which it is supplied or, if different, the date indicated in the document containing the same.

In the case of any Notes which are to be admitted to trading on a regulated market within the EEAor offered to the public in a Member State of the EEA in circumstances which require thepublication of a prospectus under the Prospectus Directive, the minimum specified denominationshall be c50,000 (or its equivalent in any other currency as at the date of issue of the Notes).

The distribution of this Base Prospectus and any Final Terms and the offering, sale or delivery ofthe Notes in certain jurisdictions may be restricted by law. Persons into whose possession thisBase Prospectus or any Final Terms comes are required by the Issuer, the Arrangers and theDealers to inform themselves about and to observe any such restriction. For a description ofcertain restrictions on offers, sales and deliveries of Notes and on distribution of this BaseProspectus and any Final Terms and other offering material relating to the Notes, see‘‘Subscription and Sale’’. In particular, Notes have not been and will not be registered under theSecurities Act, and Bearer Notes are subject to U.S. tax law requirements. Subject to certainexceptions, the Notes may not be offered, sold or, in the case of Bearer Notes, delivered withinthe United States or to U.S. persons. Notes may be offered and sold outside the United States inreliance on Regulation S and in the United States to QIBs in reliance on Rule 144A. Prospectivepurchasers of Notes are hereby notified that sellers of Notes may be relying on the exemption fromregistration requirements of Section 5 of the Securities Act provided by Rule 144A.

This Base Prospectus does not constitute an offer of, or an invitation by or on behalf of the Issuer,the Arrangers or the Dealers to subscribe for, or purchase, any Notes.

The Arrangers and the Dealers have not separately verified the information contained herein. Noneof the Arrangers or the Dealers makes any representation, express or implied, or accepts anyresponsibility, with respect to the accuracy or completeness of any of the information in this BaseProspectus. Neither this Base Prospectus nor any Final Terms nor any financial statements areintended to provide the basis of any credit or other evaluation and should not be considered as arecommendation by any of the Issuer, the Arrangers or the Dealers that any recipient of this BaseProspectus or any Final Terms or any financial statements should purchase the Notes. Eachpotential purchaser of Notes should determine for itself the relevance of the information containedin this Base Prospectus and any Final Terms and its purchase of Notes should be based uponsuch investigation as it deems necessary. None of the Arrangers or the Dealers undertakes toreview the financial condition or affairs of the Issuer during the life of the arrangementscontemplated by this Base Prospectus and any Final Terms nor to advise any investor or potentialinvestor in the Notes of any information coming to the attention of any of the Arrangers or theDealers.

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c101680pu007Proof18:26.1.10B/LRevision:0OperatorDavS

In connection with the issue of any Tranche of Notes, the Dealer or Dealers (if any) namedas the stabilising manager(s) (the ‘‘Stabilising Manager(s)’’) (or persons acting on behalf ofany Stabilising Manager(s)) in the relevant Final Terms may over-allot Notes or effecttransactions with a view to supporting the market price of the Notes at a level higher thanthat which might otherwise prevail. However, there is no assurance that the StabilisingManager(s) (or persons acting on behalf of a Stabilising Manager(s)) will undertakestabilisation action. Any stabilisation action may begin on or after the date on whichadequate public disclosure of the terms of the offer of the relevant Tranche of Notes ismade and, if begun, may be ended at any time, but it must end no later than the earlier of30 days after the issue date of the relevant Tranche of Notes and 60 days after the date ofthe allotment of the relevant Tranche of Notes. Any stabilisation action or over-allotmentmust be conducted by the relevant Stabilising Manager(s) (or persons acting on behalf ofany Stabilising Manager(s)) in accordance with all applicable laws and rules.

This Base Prospectus has been prepared by the Issuer for use in connection with the offerand sale of the Notes outside the United States, the resale of the Notes in the United Statesin reliance on Rule 144A under the Securities Act and the admission of the Notes to theOfficial List and to trading on the Market. The Issuer, the Arrangers and the Dealers reservethe right to reject any offer to purchase the Notes, in whole or in part, for any reason. ThisBase Prospectus does not constitute an offer to any person in the United States or to anyU.S. person other than any QIB to whom an offer has been made directly by one of theDealers or its U.S. broker-dealer affiliate. Distribution of this Base Prospectus by any non-U.S. person outside the United States or by any QIB in the United States to any U.S. personor to any other person within the United States, other than any QIB and those persons, ifany, retained to advise such non-U.S. person or QIB with respect thereto, is unauthorisedand any disclosure without the prior written consent of the Issuer of any of its contents toany such U.S. person or other person within the United States, other than any QIB andthose persons, if any, retained to advise such non-U.S. person or QIB, is prohibited.

THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIESAND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION IN THE UNITEDSTATES OR ANY OTHER U.S. REGULATORY AUTHORITY, NOR HAVE ANY OF THEFOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERINGOF NOTES OR THE ACCURACY OR THE ADEQUACY OF THIS BASE PROSPECTUS. ANYREPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES.

NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR ALICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISEDSTATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY ISEFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEWHAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEWHAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE ANDNOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OREXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THESECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS ORQUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TOANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATIONINCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

NOTICE TO SOUTH AFRICAN INVESTORS

The Notes may not be and, accordingly, are not being offered or sold to prospective investors inthe Republic of South Africa. Accordingly, any offer of Notes will not be an ‘‘offer to the public’’ asdefined in section 142 of the South African Companies Act, 1973 as amended (the ‘‘SACompanies Act’’) and this Base Prospectus does not, nor is it intended to, constitute a prospectusprepared and registered under the SA Companies Act.

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NOTICE TO UK INVESTORS

This Base Prospectus is only being distributed to and is only directed at (i) persons who areoutside the United Kingdom or (ii) investment professionals falling within Article 19(5) of theFinancial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the ‘‘Order’’) or (iii)persons falling within Article 49(2)(a) to (d) (‘‘high net worth companies, unincorporatedassociations, etc’’.) of the Order (all such persons together being referred to as ‘‘relevantpersons’’). The Notes are only available to, and any invitation, offer or agreement to subscribe,purchase or otherwise acquire such Notes will be engaged in only with, relevant persons. Anyperson who is not a relevant person should not act or rely on this Base Prospectus or any of itscontents.

NOTICE TO EEA INVESTORS

This Base Prospectus has been prepared on the basis that, except to the extent sub-paragraph (ii)below may apply, any offer of Notes in any Member State of the EEA which has implemented theProspectus Directive (each, a ‘‘Relevant Member State’’) will be made pursuant to an exemptionunder the Prospectus Directive, as implemented in that Relevant Member State, from therequirement to publish a prospectus for offers of Notes. Accordingly, any person making orintending to make an offer in that Relevant Member State of Notes which are the subject of anoffering contemplated in this Base Prospectus as completed by the Final Terms in relation to theoffer of those Notes may only do so (i) in circumstances in which no obligation arises for theIssuer or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive orsupplement a prospectus pursuant to Article 16 of the Prospectus Directive, in each case, inrelation to such offer, or (ii) if a prospectus for such offer has been approved by the competentauthority in that Relevant Member State or, where appropriate, approved in another RelevantMember State and (in either case) published, all in accordance with the Prospectus Directive,provided that any such prospectus has subsequently been completed by final terms which specifythat offers may be made other than pursuant to Article 3(2) of the Prospectus Directive in thatRelevant Member State and such offer is made in the period beginning and ending on the datesspecified for such purpose in such prospectus or final terms, as applicable. Except to the extentsub-paragraph (ii) above may apply, neither the Issuer nor any Dealer has authorised, nor do theyauthorise, the making of any offer of Notes in circumstances in which an obligation arises for theIssuer or any Dealer to publish or supplement a prospectus for such offer.

NOTICE TO INVESTORS

Because of the following restrictions, prospective investors are advised to consult legal counselprior to making any offer, resale, pledge or other transfer of the Notes offered hereby.

Each purchaser of Notes offered hereby will be deemed to have represented, agreed andacknowledged that:

1. It is either (i)(a) a QIB within the meaning of Rule 144A, (b) acting for its own account, or forthe account of one or more QIBs and (c) aware, and each beneficial owner of such Noteshas been advised, that the sale of such Notes to it is being made in reliance on Rule 144Aor (ii) purchasing the Notes in an offshore transaction pursuant to Regulation S.

2. It understands that the Notes have not been and will not be registered under the SecuritiesAct and may not be offered, sold, pledged or otherwise transferred except (a) in accordancewith Rule 144A to a person that it and any person acting on its behalf reasonably believe is aQIB purchasing for its own account or for the account of one or more QIBs, (b) in an offshoretransaction in accordance with Rule 903 or Rule 904 of Regulation S under the SecuritiesAct, (c) pursuant to an exemption from registration under the Securities Act provided by Rule144 thereunder, if available, or (d) pursuant to any effective registration statement under theSecurities Act, in each case in accordance with any applicable securities laws of any State oranother jurisdiction of the United States.

3. The purchaser of the Notes will be deemed to represent, warrant and agree that either (A) itis not and for so long as it holds a Note (or any interest therein) will not be (i) an ‘‘employeebenefit plan’’ as defined in Section 3(3) of ERISA that is subject to Title I of ERISA, (ii) a‘‘plan’’ as defined in and subject to the Code, (iii) an entity whose underlying assets includethe assets of any such employee benefit plan subject to ERISA or other plan subject toSection 4975 the Code, or (iv) a governmental or other benefit plan which is subject to any

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U.S. federal, state or local law, that is substantially similar to the provisions of Section 406 ofERISA or Section 4975 of the Code, or (B) its purchase and holding of the Notes will notresult in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code(or, in the case of such a governmental or other employee benefit plan, any suchsubstantially similar U.S. federal, state or local law) for which an exemption is not available.

4. It understands that the Rule 144A Notes, unless otherwise determined by the Issuer inaccordance with applicable law, will bear a legend substantially to the following effect:

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S.SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES ACT’’) OR WITH ANYSECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OFTHE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISETRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THESECURITIES ACT (‘‘RULE 144A’’) TO A PERSON THAT THE HOLDER AND ANY PERSONACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONALBUYER WITHIN THE MEANING OF RULE 144A (A ‘‘QIB’’), THAT IS ACQUIRING THISNOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ONE OR MORE QIBS, (2)IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OFREGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTIONFROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144THEREUNDER, IF AVAILABLE, OR (4) PURSUANT TO ANY EFFECTIVE REGISTRATIONSTATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITHANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NOREPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTIONPROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THE NOTES.

5. It understands that the Issuer, the Registrar (as defined in ‘‘Terms and Conditions of theNotes’’ (the ‘‘Conditions’’)), the relevant Arranger(s) and Dealer(s) and their affiliates, andothers will rely upon the truth and accuracy of the foregoing acknowledgements,representations and agreements. If it is acquiring any Rule 144A Notes as a fiduciary oragent for one or more investor accounts, it represents that it has sole investment discretionwith respect to each of those accounts and that it has full power to make the foregoingacknowledgements, representations and agreements on behalf of each account.

6. It understands that Rule 144A Notes will be evidenced by a Rule 144A Global Certificate.Before any interest in a Rule 144A Global Certificate may be offered, sold, pledged orotherwise transferred to a person who takes delivery in the form of an interest in a RegulationS Global Certificate, it will be required to provide a Transfer Agent (as defined in theConditions) with a written certification (in the form provided in the Agency Agreementexecuted in respect of the Notes (the ‘‘Agency Agreement’’)) as to compliance withapplicable securities laws.

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CONTENTS

Page

OVERVIEW ............................................................................................................................ 2

RISK FACTORS ..................................................................................................................... 14

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS ........................ 32

PRESENTATION OF FINANCIAL AND OTHER INFORMATION.......................................... 34

SUPPLEMENTARY PROSPECTUS ...................................................................................... 39

AVAILABLE INFORMATION .................................................................................................. 40

USE OF PROCEEDS............................................................................................................. 41

CAPITALISATION AND INDEBTEDNESS............................................................................. 42

SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION ........................... 43

OPERATING AND FINANCIAL REVIEW............................................................................... 47

BUSINESS.............................................................................................................................. 79

MANAGEMENT ...................................................................................................................... 118

OVERVIEW OF SOUTH AFRICA AND THE SOUTH AFRICAN ECONOMY ....................... 127

SHAREHOLDER..................................................................................................................... 139

REGULATION ........................................................................................................................ 140

RELATED PARTY TRANSACTIONS ..................................................................................... 142

EXCHANGE CONTROLS....................................................................................................... 144

TERMS AND CONDITIONS OF THE NOTES ....................................................................... 145

SUMMARY OF PROVISIONS RELATING TO THE NOTES WHILE IN GLOBAL FORM..... 167

CLEARING AND SETTLEMENT ............................................................................................ 171

TAXATION.............................................................................................................................. 175

ERISA AND CERTAIN OTHER U.S. CONSIDERATIONS .................................................... 185

SUBSCRIPTION AND SALE.................................................................................................. 186

TRANSFER RESTRICTIONS................................................................................................. 191

SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES ....................................... 194

LEGAL MATTERS.................................................................................................................. 196

INDEPENDENT AUDITORS................................................................................................... 197

DESCRIPTION OF CERTAIN INDEBTEDNESS .................................................................... 198

FORM OF FINAL TERMS...................................................................................................... 204

GENERAL INFORMATION .................................................................................................... 213

INDEX TO FINANCIAL STATEMENTS.................................................................................. F-1

OVERVIEW

This overview should be read as an introduction to, and is qualified in its entirety by reference to,the more extensive information contained elsewhere in this Base Prospectus. This overview maynot contain all the information that prospective investors should consider before deciding to investin the Notes. Accordingly, any decision by a prospective investor to invest in the Notes should bebased on a consideration of this Base Prospectus as a whole. Prospective investors should readthis entire Base Prospectus carefully, including the financial statements and related notes and theinformation set forth under the headings ‘‘Risk Factors’’ and ‘‘Cautionary Note Regarding Forward-Looking Statements’’.

Transnet’s Business

Transnet is a public company with the Government of the Republic of South Africa (the‘‘Government’’) as its sole shareholder (the ‘‘Shareholder’’) and is the operator and custodian of amajor portion of the Republic of South Africa’s transport infrastructure. Transnet is responsible forensuring that a significant part of the country’s bulk freight transportation system operatesaccording to world-class standards and as an integral part of the overall economy. Transnet is afocused freight transport company with a goal of delivering integrated, efficient, safe, reliable andcost-effective services. Transnet’s key mandate, as defined by its Shareholder Compact with itsShareholder (the ‘‘Shareholder Compact’’), is to assist in lowering the cost of doing business andto enable economic growth in the Republic of South Africa. Transnet seeks to promote economicgrowth in the Republic of South Africa by providing its customers with access to world-classintegrated logistics solutions and by creating transport capacity ahead of demand. Transnet isfunded through reserves and borrowings and does not receive cash subsidies from theGovernment. Transnet’s borrowings are based on the strength of its own balance sheet. Goingforward, Transnet intends to borrow without Government subsidies and the Notes are notguaranteed by the Government. As a result, Transnet is required to earn an appropriate return onassets that will allow for the maintenance and expansion of the rail, port and pipeline infrastructurethat it owns and operates, while maintaining a strong balance sheet.

Substantially all of Transnet’s revenues are generated in the Republic of South Africa. Over thepast four financial years, Transnet has transformed from a diversified conglomerate into a focusedrail, port and pipeline operator. Transnet has accomplished this through the sale, closure ortransfer of non-core assets and businesses, which have been treated as discontinued operationsfor accounting purposes. Transnet’s continuing operations are grouped into divisions according tomajor transport modes, with central support services unified under one brand. For operational andInternational Financial Reporting Standards (‘‘IFRS’’) reporting purposes, Transnet is organised intothe following five core business divisions: Freight Rail (‘‘Transnet Freight Rail’’), Rail Engineering(‘‘Transnet Rail Engineering’’), the National Ports Authority (‘‘Transnet National PortsAuthority’’), Port Terminals (‘‘Transnet Port Terminals’’) and Pipelines (‘‘Transnet Pipelines’’).The ‘‘Other’’ segment includes Transnet Property, Transnet Fuel Solutions, Transnet CapitalProjects, Transnet Corporate Centre, and Transnet Heritage Foundation.

Transnet Freight Rail is focused on transporting bulk and containerised freight. Transnet FreightRail transported 177 million tonnes of freight during Financial Year 2009 and 86.9 million tonnes offreight during the six months ended 30 September 2009.

Transnet Rail Engineering consists of eight product-focused business units that provide servicesranging from refurbishment, conversion and upgrades, to the manufacturing and assembly of rail-related rolling stock. Most of Transnet Rail Engineering’s sales are generated from sales toTransnet Freight Rail and the Passenger Rail Agency of the Republic of South Africa (‘‘PRASA’’)(a separate state owned entity and accordingly a related party under IFRS).

Transnet National Ports Authority is responsible for the safe, efficient and effective economicfunctioning of the national ports system of South Africa, which Transnet National Ports Authorityowns and manages in a landlord capacity on behalf of the Government. Transnet National PortsAuthority is also a provider of port infrastructure and marine services at all seven fully operationalcommercial ports in the Republic of South Africa, and plans to provide the same services for thePort of Ngqura when it becomes fully operational.

Transnet Port Terminals manages 16 cargo terminals situated across seven South African ports. Itprovides cargo handling services for container, bulk, break-bulk and automotive cargos.

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Transnet Pipelines transports a range of petroleum and gas products through approximately 3,000km of underground pipelines traversing five provinces in the Republic of South Africa.

For Financial Year 2009 the Group generated revenue of R 33,592 million, operating profit (asdefined) of R 8,602 million and profit for the year of R 4,528 million. For Financial Year 2008, theGroup generated revenue of R 30,091 million, operating profit of R 11,083 million and profit for theyear of R 4,530 million.

In the six months ended 30 September 2009, the Group generated revenue of R 17,335 million,operating profit of R 3,353 million and profit for the period of R 1,274 million. In the six monthsended 30 September 2008, the Group generated revenue of R 16,849 million, operating profit of R3,922 million and profit for the period of R 1,661 million.

Transnet’s current capital expenditure programme (the ‘‘Capital Expenditure Programme’’)provides for Transnet’s continuing operations to invest R 80.5 billion over the next five FinancialYears commencing with Financial Year 2010 (excluding capitalised borrowing costs of R 7.1 billion)on key corridors and sectors. Transnet currently estimates that of the R 80.5 billion, R 39 billionwill be spent on expanding capacity and R 41.5 billion will be spent on maintaining existinginfrastructure and equipment.

The Group’s spending under the Capital Expenditure Programme for the six months ended 30September 2009 (excluding capitalised borrowing costs) amounted to R 8.3 billion, with R 4.3billion spent to maintain current infrastructure and equipment and R 4.0 billion spent on expandingcapacity.

Business Strengths

Transnet’s business strengths include the following:

Focus on Customer Relationships

Transnet focuses on developing and maintaining long-term relationships with strategic customers.

Financial Strength

Transnet believes that its financial strength gives it the resources to implement its strategies and topursue its Capital Expenditure Programme to upgrade and increase capacity in its network. As at31 March 2009, the Group had cash and cash equivalents of R 5.9 billion and as at 30 September2009, the Group had cash and cash equivalents of R 6.5 billion which, together with the Group’slow gearing and historic profitability, makes the Group financially strong in the opinion ofmanagement.

Country-wide Reach and Scale

Transnet’s integrated system of freight rail, ports and pipelines covers the most economicallyimportant corridors in the Republic of South Africa. Its substantial operations and market share infreight rail and its ownership and operation of all the commercial ports in the Republic of SouthAfrica also provide country-wide reach and facilitate an international focus. Transnet owns andleases rolling stock in excess of 2,000 locomotives and 77,000 freight wagons. Transnet NationalPorts Authority owns and manages, in a landlord capacity on behalf of the Government, the portsystem of South Africa. Transnet National Ports Authority is also a provider of port infrastructureand marine services at all seven fully operational commercial ports in the Republic of South Africa,and plans to provide the same services for the Port of Ngqura when it becomes fully operational.Transnet Port Terminals manages 16 cargo terminal operations within seven South African ports,providing a range of cargo-handling and warehouse services to a wide variety of customers,including shipping lines, freight forwarders and cargo owners in the container, bulk, break-bulk andautomotive cargo sectors. Transnet also owns over 3,000 km of pipelines. The Centre for SupplyChain Management at the University of Stellenbosch estimates that Transnet’s integrated freighttransport system carried freight having a value approaching 7 per cent. of the total value of freighttransported in South Africa in Financial Year 2009.

Ability to Capitalise on International Growth in Container Transport

The geographic location of the Republic of South Africa at the southern tip of Africa between twooceans and on major shipping routes means that Transnet’s ports, port terminals and rail networkleading from those ports are well-positioned to capture economic benefits from any internationalgrowth in container traffic. Transnet believes that intermodal container traffic will become

3


increasingly important to the Republic of South Africa’s economy, based on the increasingimportance of container supply chains within global production-sharing arrangements. The cost,speed, predictability, reliability, flexibility and connectivity of container supply chains are keydeterminants of competitiveness for manufacturers, and accordingly Transnet believes that itsgeographic location on the African continent, coupled with its integrated container transportationstrategy, puts it in a strong position to benefit from growth in container transport.

Well Positioned to Capitalise on the Republic of South Africa’s Abundance of Metals andMinerals

The integration of Transnet’s freight rail network with the ports of Transnet National Ports Authorityallows Transnet to capture a significant portion of the transportation revenues associated with theexport of the Republic of South Africa’s metal and mineral resources as well as imports ofmanufactured goods. According to South Africa: A Country Study prepared by the FederalResearch Division of the Library of Congress under the Country Studies Area HandbookProgramme sponsored by the U.S. Department of the Army, the Republic of South Africa isbelieved to have the largest known deposits of chromium, manganese and vanadium. It is alsoamong the largest producers of platinum, gold and chromium and has significant deposits of ironore, coal, manganese, antimony, copper, nickel, lead, titanium, fluorspar, zinc and zirconium.Transnet’s network has been able to respond to some of this demand and is geographicallypositioned to do so on a cost-effective basis. Most of these commodities are exported, althoughiron ore is also used by the Republic of South Africa’s steel industry. Transnet Freight Rail has alargely dedicated coal line and a dedicated iron ore line to transport coal and iron ore products forexport and handles the rail transportation of all other metals and minerals.

Strategy

In 2004, Transnet adopted a turnaround plan (the ‘‘Turnaround Plan’’). See ‘‘– History andDevelopment ’’. The Turnaround Plan was intended to refocus the core operating divisions into anintegrated freight transport company with the primary objectives of improving operating efficienciesand growing the business. The investment plan that was developed as part of the Turnaround Planwas designed to support the integrated freight transport company model, improving existingservices as well as creating future capacity for growth. Although this was a significant challenge inlight of the backlog of maintenance and capital investment that needed to be made prior to theexecution of the Turnaround Plan, Transnet was able to increase investment significantly during theperiod from 2005 to 2007, principally as a result of the improvement in Transnet’s financialcondition and strong improvement in operating cash flows and ability to raise debt financing.In addition, all non-core businesses were identified for disposal, and as of 30 September 2009,Transnet had substantially completed its disposals as part of the Turnaround Plan.

Transnet believes that it has made substantial progress in achieving the goals of the TurnaroundPlan since it was instituted in 2004 and is now positioning itself for the next phase of itsdevelopment. Accordingly, in August 2007, Transnet adopted a new growth strategy (the ‘‘GrowthStrategy’’), which represents the evolution of the Turnaround Plan. The Growth Strategy isintended to build on the progress made under the Turnaround Plan to accelerate profitable andsustainable volume growth, improve service delivery to clients and enhance long-term financialperformance. Under the Growth Strategy, Transnet seeks to operate its businesses in a morecustomer-focused manner, continue to realise improvements in productivity and efficiency, invest inadditional capacity to grow the business, increase the sustainability of its financial performance,improve its safety record, enhance corporate governance and accelerate the development of itshuman capital. The Growth Strategy is focused on the following four key areas:

Reengineering: Profitability, Productivity and Efficiency

Transnet seeks to enhance the productivity and efficiency of its rail, port and container freightbusinesses by focusing its efforts on priority freight corridors in the Republic of South Africa suchas the Gauteng-Durban corridor (‘‘NatCor’’), the Gauteng-Richards Bay corridor (the ‘‘RichardsBay Corridor’’) and the Sishen-Saldanha Corridor (‘‘Iron Ore Line’’). Transnet is targetingcontinued improvement in moves per gross crane hour as well as reducing ship turnaround time atports, improving locomotive and wagon availability and reliability in its freight rail operations andreducing the number of external interruptions to its pipelines.

Transnet’s volumes of freight are concentrated in five principal land corridors, each with a portinterface and rail network, and Transnet believes that future growth in demand for freight transport

4


within the Republic of South Africa will largely arise in these corridors. Transnet seeks to furtherintegrate its rail and port operations in key corridors, which Transnet believes will enable its freightrail business to compete more effectively against road transportation companies and provideopportunities for additional port terminal business in these priority corridors. Integration andcoordination of infrastructure planning and investment across the Group is a key part of thisstrategy and is designed to focus infrastructure investment on priority corridors to accessconcentrated customer demand for freight services and create high-density rail corridors linked toports. Transnet also plans to simplify its interfaces with customers by developing an integratedport-to-customer pricing strategy and by expanding its service delivery to customers who seek fullend-to-end supply chain solutions across rail and port operations, which Transnet believes willprovide it with additional opportunities to develop business with key customers. Transnet plans tofollow this initiative with a targeted marketing campaign aimed at shipping lines, freight forwardersand large shippers that represent a substantial portion of the existing South African freight market.

Capital Optimisation and Financial Management

Transnet estimates it will invest R 80.5 billion in capital expenditure over the next five financialyears, beginning in Financial Year 2010 (excluding capitalised borrowing costs of R 7.1 billion), ofwhich R 57.7 billion is estimated will be spent in the next three financial years, beginning inFinancial Year 2010 (excluding capitalised borrowing costs) across all operating divisions. Transnetcurrently estimates that of the R 80.5 billion, R 39 billion will be spent on expanding capacity andR 41.5 billion will be spent on maintaining existing infrastructure and equipment. The majority ofthis expenditure over the next five financial years is expected to be spent on the expansion ofcapacity in priority corridors with a particular focus on Transnet Freight Rail and Transnet PortTerminals. Transnet believes that successful execution of this Capital Expenditure Programme iscritical to its future financial performance and that the capital investment will allow Transnet toaddress further the historical backlog of maintenance projects that are needed to sustain itsexisting businesses and freight transportation assets, fund the expansion of its freight rail, port andcontainer terminal operations and increase capacity in advance of anticipated demand. See ‘‘–Capital Expenditure Programme’’. Transnet believes that selection, sequencing and execution ofinvestments through integrated planning and operations pursuant to the Capital ExpenditureProgramme should enable it to sustain its existing infrastructure and support future growth incapacity and demand. Transnet has developed a detailed funding strategy designed to enable it tofund these expenditures on a timely and cost-effective basis. See ‘‘– Capital ExpenditureProgramme’’ and ‘‘Operating and Financial Review – Liquidity and Capital Resources – CapitalExpenditure’’.

Improved Safety, Risk Management and Effective Governance

Transnet has established a single enterprise risk management strategy and framework (the ‘‘ERMFramework’’) for managing all material risks across the Group. The ERM Framework aims toimprove the practice of risk management throughout the Group’s day-to-day business activities,aligning strategy, processes, people, technology and knowledge so as to evaluate and manage theuncertainties faced by the Group. The ERM Framework, which has been aligned with the GrowthStrategy and specifically linked to operational efficiency, is informed by global leading practicessuch as the International Organization for Standardization’s risk management standard 31000:2009.Transnet believes that its risk management processes have reached a mature stage and consist ofstrong oversight, management and reporting and escalation of business critical risks to theappropriate governance levels including the Board of Directors and the Shareholder if necessary.

The risks identified by the Group are monitored and evaluated by the various governancestructures of the Group. These structures are as follows:

Board of Director Committees:

Group Audit Committee: The Group Audit Committee mandate includes the review and approval ofthe Group Audit Plan with internal and external audit.

Group Risk Committee: The Board has delegated the responsibility for providing assurance on theintegrity, quality and reliability of the Group’s risk management to the Group Risk Committee.

Remuneration Committee: The Group Remuneration Committee considers and approves policyframeworks and best practice standards in respect of remuneration in the Group.

Corporate Governance and Nominations Committee: The Corporate Governance and NominationsCommittee sets the criteria for the nomination of Directors to the Board, Board Committees, the

5


Transnet Second Defined Benefit Fund Board of Trustees and subsidiary Boards and ensures thatsuccession planning policies are implemented in respect of non-Executive Directors and membersof the Group Executive Committee.

Group Executive Committee Subcommittees:

Public Policy and Regulation Committee: The Public Policy and Regulation Committee ensures thatthe Group proactively manages public policy and economic regulation risk impacting the Group.

Finance Committee: The Finance Committee reviews overall governance procedures, monitors allfinancial risks, monitors all shared service, procurement, supply chain and ICT associated risks andensures appropriate financial management frameworks, policies, procedures and reporting areadopted throughout the Group.

Risk Management Committee: The Risk Management Committee ensures the quality, integrity andreliability of the Group’s risk management.

Human Resources Committee: The Human Resources Committee ensures good governance inrespect of remuneration policies and practices (with the concurrence of the RemunerationCommittee) and identifies and manages human capital risks.

Operations Committee: The Operations Committee designs and implements operational riskmanagement measures (including those related to safety).

Capital Investment Committee: The Capital Investment Committee ensures the resources that theGroup invests for the development of capital projects are strategically managed and that suchprojects comply with applicable risk management processes.

Commercial Committee: The Commercial Committee is established to provide leadership for theGroup’s commercial strategy and initiatives and ensures the maintenance of adequate standardsand practices for the Group’s commercial interests.

Transnet strives to operate and maintain a safe and healthy workplace and is committed to complywith the Occupational Health and Safety Act, 1993 (‘‘OHSA’’). Transnet’s current initiatives toimprove its safety record include training skilled safety personnel, implementing safety managementsystems, providing ongoing safety awareness and complying with all safety-related regulations.

Human Capital Strategy

In light of the significant shortage of skilled workers, the difficulty in attracting and retaining talentedmanagement, engineers and other employees and Transnet’s large, widely dispersed and agingworkforce, Transnet plans to continue to devote significant resources to the training anddevelopment of existing and new employees, the establishment and implementation of careerdevelopment programmes as part of the talent management process and the development of futureleaders through succession planning initiatives. As part of its strategy, Transnet currently plans tohire approximately 17,800 skilled employees over the next six years. This hiring goal assumes anattrition rate of approximately 20 per cent. per year. Transnet also seeks to strengthen and furtherembed its corporate culture and values (focused on safety, effective communication, respect anddignity, empowerment to perform jobs, business focus, recognising and rewarding good work, anddelivering on promises) with employees through internal branding campaigns and other initiatives.Transnet believes that effective management of its human capital is a critical factor in its success.

6


Overview of The Programme

Issuer: Transnet Limited.

Description: Global Medium Term Note Programme.

Initial ProgrammeAmount:

Up to U.S.$2,000,000,000 (or its equivalent in other currencies at the dateof issue) aggregate principal amount of Notes outstanding at any onetime.

Arrangers: Barclays Bank PLC and Goldman Sachs International.

Dealers: Barclays Bank PLC, Barclays Capital Inc., Goldman Sachs Internationaland Goldman, Sachs & Co.

The Issuer may from time to time terminate the appointment of any dealerunder the Programme or appoint additional dealers either in respect ofone or more Tranches of Notes or in respect of the whole Programme.References in this Base Prospectus to ‘‘Permanent Dealers’’ are to thepersons listed above as Dealers and to such additional persons that areappointed as dealers in respect of the whole Programme (and whoseappointment has not been terminated) and references to ‘‘Dealers’’ are toall Permanent Dealers and all persons appointed as a dealer in respect ofone or more Tranches of Notes.

Fiscal Agent, ExchangeAgent and CalculationAgent:

The Bank of New York Mellon.

Paying Agents andTransfer Agents:

The Bank of New York Mellon (Luxembourg) S.A., and The Bank of NewYork Mellon, New York Branch (in relation to Rule 144A Notes).

Registrar: The Bank of New York Mellon, New York Branch.

Method of Issue: The Notes will be issued on a syndicated or non-syndicated basis. TheNotes will be issued in series (each a ‘‘Series’’) having one or more issuedates and on terms otherwise identical (or identical other than in respectof the first payment of interest), the Notes of each Series being intendedto be interchangeable with all other Notes of that Series. Each Series maycomprise one or more tranches of notes (each, a ‘‘Tranche’’) issued onthe same or different issue dates. The specific terms of each Tranche(which will be completed, where necessary, with the relevant terms andconditions and, save in respect of the denominations, issue date, issueprice, first payment of interest and nominal amount of the Tranche, will beidentical to the terms of other Tranches of the same Series) will becompleted in the Final Terms.

Issue Price: Notes may be issued at any price and either on a fully or partly paid basis,as specified in the Final Terms. The price and amount of the Notes to beissued under the Programme will be determined by the Issuer and therelevant Dealer(s) at the time of issue in accordance with prevailingmarket conditions. Partly Paid Notes (as defined herein) may be issued,the issue price of which will be payable in two or more instalments.

Form of Notes: The Notes may be Bearer Notes or Registered Notes.

Each Tranche of Bearer Notes will be represented on issue by aTemporary Global Note if (i) definitive Notes are to be made available toNoteholders following the expiry of 40 days after their issue date or (ii)such Notes have an initial maturity of more than one year and are beingissued in compliance with the D Rules (as defined in ‘‘– SellingRestrictions’’). Otherwise such Tranche will be represented by aPermanent Global Note.

Registered Notes will be represented by Certificates, one Certificate beingissued in respect of each Noteholder’s entire holding of Registered Notesof one Series. Certificates representing Registered Notes that areregistered in the name of a nominee for one or more clearing systemsare referred to as ‘‘Global Certificates’’.

7


Registered Notes sold in an ‘‘offshore transaction’’ within the meaning ofRegulation S will initially be represented by a Regulation S GlobalCertificate. Registered Notes sold in the United States to QIBs within themeaning of Rule 144A will initially be represented by a Rule 144A GlobalCertificate.

Clearing Systems: Euroclear and Clearstream, Luxembourg for Bearer Notes. Euroclear,Clearstream, Luxembourg and DTC for Registered Notes or as may bespecified in the relevant Final Terms.

Currencies: Notes may be denominated in U.S. Dollars, Euros or in any other currencyor currencies, subject to compliance with all relevant laws, regulations,directives and central bank requirements. Payments in respect of Notesmay, subject to such compliance, be made in and/or linked to, anycurrency or currencies other than the currency in which such Notes aredenominated if so specified in the Final Terms.

Maturities: Subject to compliance with all relevant laws, regulations, directives and/orcentral bank requirements, any maturity.

Specified Denomination: Definitive Notes will be in such denominations (each a ‘‘SpecifiedDenomination’’) as may be specified in the relevant Final Terms savethat (i) in the case of any Notes which are to be admitted to trading on aregulated market, or offered to the public, within the EEA in circumstanceswhich require the publication of a prospectus under the ProspectusDirective, the minimum Specified Denomination shall be c50,000 (or itsequivalent in any other currency as at the date of issue of the Notes); (ii) inthe case of any Notes to be sold in the United States to QIBs, theminimum Specified Denomination shall be U.S.$100,000 (or its equivalentin any other currency as at the date of issue of the Notes); and (iii) unlessotherwise permitted by then current laws and regulations, Notes (includingNotes denominated in Sterling) which have a maturity of less than oneyear and in respect of which the issue proceeds are to be accepted by theIssuer in the United Kingdom or whose issue otherwise would constitute acontravention of section 19 of the FSMA will have a minimumdenomination of £100,000 (or its equivalent in another currency).

Fixed Rate Notes: Fixed interest will be payable in arrears on the date or dates in each yearspecified in the relevant Final Terms.

Floating Rate Notes: Floating Rate Notes (as defined in the Conditions) will bear interestdetermined separately for each Series as follows:

(i) on the same basis as the floating rate under a notional interest rateswap transaction in the relevant specified currency governed by anagreement incorporating the 2006 ISDA Definitions, as published bythe International Swaps and Derivatives Association, Inc.; or

(ii) by reference to LIBOR, LIBID, LIMEAN or EURIBOR (or such otherbenchmark as may be specified in the relevant Final Terms) asadjusted for any applicable margin.

Interest periods will be specified in the relevant Final Terms.

Zero Coupon Notes: Zero Coupon Notes (as defined in the Conditions) may be issued at theirnominal amount or at a discount to it and will not bear interest.

Dual Currency Notes: Payments (whether in respect of principal or interest and whether atmaturity or otherwise) in respect of Dual Currency Notes (as defined in theConditions) will be made in such currencies, and based on such rates ofexchange as may be specified in the relevant Final Terms.

Index Linked Notes: Payments of principal in respect of Index Linked Redemption Notes (asdefined in the Conditions) or of interest in respect of Index Linked InterestNotes (as defined in the Conditions) will be calculated by reference tosuch index and/or formula as may be specified in the relevant FinalTerms.

8


Interest Periods andInterest Rates:

The length of the interest periods for the Notes and the applicable interestrate or its method of calculation may differ from time to time or be constantfor any Series. Notes may have a maximum interest rate, a minimuminterest rate, or both. The use of interest accrual periods permits theNotes to bear interest at different rates in the same interest period. Allsuch information will be set out in the relevant Final Terms.

Redemption: The relevant Final Terms will specify the basis for calculating theredemption amounts payable. Unless otherwise permitted by then currentlaws and regulations, Notes (including Notes denominated in Sterling)which have a maturity of less than one year and in respect of which theissue proceeds are to be accepted by the Issuer in the United Kingdom orwhose issue otherwise would constitute a contravention of section 19 ofthe FSMA will have a minimum redemption amount of £100,000 (or itsequivalent in the relevant currency).

Redemption byInstalments:

The Final Terms issued in respect of each issue of Notes that areredeemable in two or more instalments will set out the dates on which,and the amounts in which, such Notes may be redeemed.

Other Notes: Terms applicable to high interest Notes, low interest Notes, step-upNotes, step-down Notes, reverse dual currency Notes, optional dualcurrency Notes, Partly Paid Notes (as defined herein) and any other typeof Note that the Issuer, the Fiscal Agent and any Dealer or Dealers mayagree to issue under the Programme will be set out in the relevant FinalTerms and a supplementary prospectus (if applicable).

Optional Redemption: The Final Terms issued in respect of each issue of Notes will statewhether such Notes may be redeemed prior to their stated maturity at theoption of the Issuer (either in whole or in part) and/or the holders (inaddition to the option described in ‘‘– Noteholder Put Option upon Changeof Control ’’ below), and if so the terms applicable to such redemption.

Tax Redemption: Except as described in ‘‘Optional Redemption’’ above, and subject asdescribed in ‘‘Redemption’’ above, early redemption will only be permittedfor tax reasons as described in Condition 6(c) (Redemption for TaxationReasons).

Noteholder Put Optionupon Change ofControl:

If the Government ceases to own (directly or indirectly) more than 50 percent. of the issued share capital of the Issuer or ceases to control (ascontemplated in Condition 6(e)(ii)), directly or indirectly, the Issuer, savefor any such change of control as will not lead to a Negative Rating Event(as defined in Condition 4(b)) or as is otherwise approved by anExtraordinary Resolution (as defined in the Agency Agreement) of theNoteholders, then each Note in respect of which the relevant Final Termsspecifies that the Change of Control Put Option is applicable will beredeemable at the option of the holder at the Change of ControlRedemption Amount set out in the relevant Final Terms, together with(if applicable) interest accrued to but excluding the relevant Put Date (asdefined in the Conditions) if such option is exercised within the period of30 days after the relevant Change of Control Notice (as defined in theConditions) is given.

Status of the Notes: Subject as set out in ‘‘Negative Pledge’’ below, the Notes are unsecuredobligations of the Issuer which rank pari passu, without any preferenceamong themselves and, subject as aforesaid, with all other outstandingpresent and future unsecured and unsubordinated obligations of theIssuer.

Negative Pledge: The Notes will have the benefit of a negative pledge as described inCondition 4(a) (Negative Pledge).

Change of PrincipalBusiness:

The Notes contain a covenant providing that the Issuer will not effect aBusiness Change (as defined in Condition 4(b) (Change of PrincipalBusiness)), save for any cessation of business arising as a result of

9


Government intervention and save for any such Business Change as willnot lead to a Negative Rating Event, as defined in Condition 4(b) (Changeof Principal Business), or as is otherwise approved by an ExtraordinaryResolution (as defined in the Agency Agreement).

Cross-Default: The Notes contain a cross-default provision in respect of other MaterialIndebtedness (as defined in Condition 10 and including for this purposeany guarantee or indemnity in respect of the relevant indebtedness) or afailure by the Issuer or any Material Subsidiary to pay when due (or whencapable of being declared due and payable), or within any applicablegrace period, any Material Indebtedness.

Ratings: Tranches of Notes may be rated or unrated. Where a Tranche of Notes isto be rated, such rating will be specified in the relevant Final Terms.

A credit rating is not a recommendation to buy, sell or hold securities andmay be subject to suspension, reduction or withdrawal at any time by theassigning rating agency.

Early Redemption: Except as provided in ‘‘– Optional Redemption’’ above, Notes will beredeemable at the option of the Issuer prior to maturity only for taxreasons. See ‘‘Terms and Conditions of the Notes – Redemption,Purchase and Options’’.

Taxation: All payments of principal and interest in respect of the Notes will be madefree and clear of withholding taxes of the Republic of South Africa, unlessthe withholding is required by law. In that event, the Issuer will (subject tothe exceptions in Condition 8 (Taxation)) pay such additional amounts aswill result in the Noteholders receiving such amounts as they would havereceived in respect of such Notes had no such withholding been required.

ERISA: In general, Benefit Plan Investors (as defined in ‘‘ERISA and CertainOther U.S. Considerations’’) will be eligible to purchase (or hold anyinterest in) the Notes. See ‘‘ERISA and Certain Other U.S.Considerations’’.

Governing Law: English.

Enforcement of Notes inGlobal Form:

In the case of Global Notes and Global Certificates, individual investors’rights against the Issuer will be governed by a deed of covenant dated onor around 26 January 2010 (the ‘‘Deed of Covenant’’), a copy of whichwill be available for inspection at the specified office of the Fiscal Agent.

Listing and Trading: Applications have been made for the Notes to be admitted during theperiod of twelve months after the date hereof to listing on the Official Listof the FSA and to trading on the Market or as otherwise specified in therelevant Final Terms and references to listing shall be construedaccordingly. As specified in the relevant Final Terms, a Series of Notesmay be unlisted.

Selling Restrictions: For a description of certain restrictions on offers, sales and deliveries ofNotes and on the distribution of offering material in the United States, theEEA, the United Kingdom, the Republic of South Africa, the Republic ofItaly and Japan, see ‘‘Subscription and Sale’’.

Bearer Notes will be issued in compliance with United States TreasuryRegulations §1.163-5(c)(2)(i)(D) unless (i) the relevant Final Terms statesthat the Notes are issued in compliance with United States TreasuryRegulations §1.163-5(c)(2)(i)(C) (the ‘‘C Rules’’) or (ii) the Notes areissued other than in compliance with the D Rules or the C Rules but incircumstances in which the Notes will not constitute ‘‘registration requiredobligations’’ under the United States Tax Equity and Fiscal ResponsibilityAct of 1982 (‘‘TEFRA’’), which circumstances will be referred to in therelevant Final Terms as a transaction to which TEFRA is not applicable.

10


Risk Factors

Investing in Notes issued under the Programme involves certain risks. The principal risk factorsthat may affect the ability of the Issuer to fulfil its obligations under the Notes are discussed under‘‘Risk Factors’’ below.

Summary Consolidated Financial and Other Information

The summary financial information set forth below has been prepared in accordance with IFRS andhas been derived, with respect to information as at and for Financial Years 2009, 2008 and 2007,from the Group’s audited consolidated financial statements as at and for Financial Years 2009,2008 and 2007 (the ‘‘Consolidated Financial Statements’’) and, with respect to the information asat and for the six months ended 30 September 2009 and 2008, from the unaudited condensedconsolidated financial statements as at and for the six months ended 30 September 2009 and2008 (the ‘‘Interim Consolidated Financial Statements’’). The Consolidated Financial Statementshave been prepared in accordance with IFRS as issued by the International Accounting StandardsBoard (‘‘IASB’’) and the Interim Consolidated Financial Statements have been prepared inaccordance with IAS 34 (as defined below). The summary financial data set forth below should beread in conjunction with ‘‘Presentation of Financial and Other Information,’’ ‘‘Capitalisation andIndebtedness,’’ ‘‘Operating and Financial Review,’’ ‘‘Selected Consolidated Financial and OtherInformation’’ and the Group’s Consolidated Financial Statements and the Interim ConsolidatedFinancial Statements and the accompanying notes thereto included elsewhere in this BaseProspectus.

Consolidated Income Statement Data

Six months ended

30 September Year ended 31 March

2009 2008 2009

2008

(Restated)

2007

(Restated)

(R millions)

Continuing operationsRevenue........................................................................... 17,335 16,849 33,592 30,091 26,899Net operating expenses excluding depreciation andamortisation ..................................................................... (10,694) (10,299) (20,392) (17,281) (16,232)

Profit from operations before depreciation,amortisation and items listed below............................ 6,641 6,550 13,200 12,810 10,667Depreciation and amortisation ......................................... (2,925) (2,303) (4,779) (3,798) (2,952)

Profit from operations before items listed below....... 3,716 4,247 8,421 9,012 7,715Post-retirement benefit obligation (costs)/income ............ (19) 67 (436) 686 (218)Impairment of assets ....................................................... (187) (110) (324) (153) (232)Dividends received........................................................... — — — 122 36Fair value adjustments..................................................... (157) (282) 941 1,416 2,462

Profit before income/(loss) from associates and jointventures and net finance costs(1)................................. 3,353 3,922 8,602 11,083 9,763Income/(loss) from associates and joint ventures............ — — 82 (59) 2Finance costs................................................................... (1,634) (1,089) (2,233) (2,692) (2,472)Finance income................................................................ 263 89 267 761 185

Profit before taxation..................................................... 1,982 2,922 6,718 9,093 7,478Taxation ........................................................................... (695) (861) (1,674) (2,642) (1,742)

Profit for the period after taxation from continuingoperations....................................................................... 1,287 2,061 5,044 6,451 5,736Discontinued operations(Loss)/profit from discontinued operations, including(loss)/profit on disposal of discontinued operations andimpairments ..................................................................... (13) (400) (516) (1,921) 921

Profit for the period ....................................................... 1,274 1,661 4,528 4,530 6,657

Attributable to equity holder ............................................. 1,274 1,661 4,528 4,526 6,640Attributable to minority interests ...................................... — — — 4 17

(1) Profit before income/(loss) from associates and joint ventures and net finance costs is referred to throughout this document asoperating profit.

11


Extract from the Consolidated Balance Sheet

As at 30 September As at 31 March

2009 2008 2009

2008

(Restated)

2007

(Restated)

(R millions)

Property, plant and equipment............................... 105,844 85,543 96,459 78,256 53,908Investment properties ............................................ 5,742 4,514 5,961 4,515 3,223Other investments and long-term financial assets . 327 451 287 452 460Inventories ............................................................. 2,495 2,617 2,589 2,319 1,798Trade and other receivables .................................. 5,103 4,314 5,503 4,074 3,992Cash and cash equivalents.................................... 6,512 2,561 5,880 5,980 3,847Assets classified as held-for-sale .......................... 321 1,311 374 1,131 3,570Total assets .......................................................... 129,301 102,949 118,534 98,686 77,358Total equity ............................................................ 61,662 53,562 58,334 50,961 36,818Post-retirement benefit obligations ........................ 2,228 2,144 2,324 2,181 2,422Long-term borrowings ............................................ 39,005 19,407 29,758 16,890 17,535Deferred taxation liabilities..................................... 9,768 7,598 8,589 6,695 1,726Trade payables and accruals................................. 6,693 7,118 6,491 6,988 5,875Short-term borrowings ........................................... 3,952 7,330 7,255 8,382 7,615Short-term provisions............................................. 2,224 2,119 2,279 2,533 2,376Liabilities directly associated with assets classifiedas held-for-sale ...................................................... 16 692 14 676 453Total current liabilities ............................................ 13,853 18,105 17,002 19,517 17,012Total liabilities and equity .................................. 129,301 102,949 118,534 98,686 77,358

Extract from Consolidated Cash Flow

Six months ended

30 September Year ended 31 March

2009 2008 2009

2008

(Restated)

2007

(Restated)

(R millions)

Cash flows from operating activities ...................... 5,278 3,176 7,400 10,287 8,941Cash flows used in investing activities .................. (10,611) (8,580) (19,084) (8,250) (10,345)Cash flows from financing activities....................... 5,963 1,417 11,587 9 3,669

Net increase/(decrease) in cash and cashequivalents ........................................................... 630 (3,987) (97) 2,046 2,265

Cash flows from discontinued operationsCash flows from operating activities ...................... — 17 36 634 995Cash flows used in investing activities .................. — (77) (193) (466) (374)Cash flows from/(used in) financing activities........ — 58 154 (376) 198

Net (decrease)/increase in cash and cashequivalents from discontinued operations ....... — (2) (3) (208) 819

12


Other Consolidated Financial and Operating Data

As at or for the six

months ended

30 September

As at or for the year ended

31 March

2009 2008 2009

2008

(Restated)

2007

(Restated)

EBITDA (R millions)(1) ........................................... 6,278 6,225 13,463 14,822 12,717Adjusted EBITDA (R millions)(1) ............................ 6,641 6,550 13,200 12,810 10,667EBITDA margin (per cent.)(2) ................................. 36 37 40 49 47Adjusted EBITDA margin (per cent.)(2) .................. 38 39 39 43 40Operating profit margin (per cent.)(3) ..................... 19 23 26 37 36Return on average total assets (per cent.)(4)......... n/a n/a 8 13 13Gearing ratio (per cent.)(5) ..................................... 37 33 36 30 40Interest cover (times)(6).......................................... 2.4 3.9 4.4 5.7 4.3Cash interest cover (times)(6) ................................ 4.2 3.9 4.0 6.7 5.5

(1) The Group defines EBITDA as profit for the period after tax from continuing operations before net finance costs, taxation,depreciation and amortisation. The Group defines adjusted EBITDA as EBITDA adjusted to exclude the impact of impairmentof assets, dividends received, fair value adjustments, post-retirement benefit obligation costs/income and income/loss fromassociates and joint ventures. The Group excludes these items because it considers them to be non-recurring or not reflectiveof the ongoing activities of the Group. The Group defines adjusted EBITDA margin as adjusted EBITDA expressed as apercentage of revenue. For further information on management’s use of these measures, including the limitations of thesemeasures, see ‘‘Presentation of Financial and Other Information’’. These measures are reconciled to the measures in theConsolidated Financial Statements as follows:

Six months ended30 September

Year ended31 March

2009 2008 20092008

(Restated)2007

(Restated)

Profit for the period after taxation fromcontinuing operations ........................................... 1,287 2,061 5,044 6,451 5,736Add back:Net financial costs.................................................... 1,371 1,000 1,966 1,931 2,287Taxation ................................................................... 695 861 1,674 2,642 1,742Depreciation and amortisation ................................. 2,925 2,303 4,779 3,798 2,952

EBITDA.................................................................... 6,278 6,225 13,463 14,822 12,717Add back:Impairment of assets ............................................... 187 110 324 153 232Dividends received................................................... — — — (122) (36)(Income)/loss from associates and joint ventures.... — — (82) 59 (2)Post-retirement benefit obligation (income)/costs .... 19 (67) 436 (686) 218Fair value adjustments............................................. 157 282 (941) (1,416) (2,462)

Adjusted EBITDA ................................................... 6,641 6,550 13,200 12,810 10,667

(2) The Group defines EBITDA margin and adjusted EBITDA margin as EBITDA and adjusted EBITDA, respectively, expressedas a percentage of revenue.

(3) The Group defines operating profit margin as profit before income/(loss) from associates and joint ventures, and net financecosts, expressed as a percentage of revenue.

(4) The Group defines return on average total assets as its operating profit for a period expressed as a percentage of average totalassets for such period. The Group defines operating profit as profit before income/(loss) from associates and joint ventures andnet finance costs. The Group defines average total assets for the Financial Year as the sum of the total assets at the beginingof the Financial Year plus the total assets as at the end of the Financial Year, divided by two.

(5) The Group defines and computes gearing ratio as net debt (defined as long-term borrowings, short-term borrowings, post-retirement benefit obligations, derivative financial liabilities, and overdrafts, less other short-term investments and cash andcash equivalents) expressed as a percentage of the sum of net debt and shareholder’s equity.

(6) The Group defines interest cover (times) as its operating profit divided by net finance costs expressed as a ratio. The Groupdefines cash interest cover (times) as cash generated from operations after working capital changes, divided by net financecosts (which includes capitalised borrowing costs) expressed as a ratio. For these purposes, net finance costs (includingcapitalised borrowing costs) consist of finance costs and finance income from the cash flow statement.

13


RISK FACTORS

An investment in the Notes involves a high degree of risk. Prospective investors should carefullyread and review this entire Base Prospectus and in particular should consider all the risks inherentin making such an investment, including the risk factors set forth below, before making a decisionto invest. The Issuer believes that the factors described below represent the principal risks inherentin investing in the Notes that could have a significant or material adverse effect on its business,results of operations, financial condition and prospects and/or the repayment of principal andinterest under the Notes to the Noteholders.

Words and expressions defined in the Conditions or elsewhere in this Base Prospectus have thesame meanings in this section. This Base Prospectus contains forward-looking statements thatinvolve risks and uncertainties. Transnet’s actual results could differ materially from thoseanticipated in such forward-looking statements as a result of certain factors, including the risksdescribed below and elsewhere in this Base Prospectus. See ‘‘Cautionary Note RegardingForward-Looking Statements’’.

Risks Relating to the Republic of South Africa

Risks relating to Emerging Markets

Investing in an emerging market country such as the Republic of South Africa carries economicrisks. These risks include economic instability, including destabilising effects from global economicinstability, that may affect the Republic of South Africa’s economic position. Economic instability inthe Republic of South Africa in the past and in other emerging market countries has been causedby many different factors, including the following:

* general economic and business conditions;

* high interest rates;

* changes in exchange rates;

* high levels of inflation;

* exchange controls;

* wage and price controls;

* foreign currency reserves;

* changes in economic or tax policies;

* the imposition of trade barriers;

* changes in investor confidence; and

* perceived or actual security issues and political changes.

Any of these factors, as well as volatility in the markets for securities similar to the Notes, mayadversely affect the value or liquidity of the Notes. See ‘‘Overview of the Republic of South Africaand the South African Economy’’.

The global financial crisis and economic downturn could continue to adversely affect the SouthAfrican economy and financial markets

The global financial system has been experiencing difficulties since August 2007 and the financialmarkets have deteriorated dramatically since September 2008. These conditions have resulted inhigh volatility, less liquidity or no liquidity, widening of credit spreads and a lack of pricetransparency in credit and other markets. These conditions may be exacerbated by persistingvolatility in the financial sector and the capital markets, or concerns about, or a default by, one ormore financial institutions, which could lead to significant market-wide liquidity problems, losses ordefaults by other financial institutions. Furthermore, it is not possible to predict what structural and/or regulatory changes may result from the current market conditions or whether such changes maybe materially adverse to the South African economy and financial system.

Although the Republic of South Africa’s bank and exchange control regulations (the ‘‘ExchangeControl Regulations’’) (discussed below) and well regulated financial services sector haveshielded South African banks from direct exposure to many of the toxic assets at the centre of thecurrent crisis, the South African economy remains vulnerable to external shocks, including theglobal economic crisis. The deterioration in global growth prospects has negatively affected fixedinward investment into the Republic of South Africa, as well as export growth. A significant decline

14


in the economic growth of any of the Republic of South Africa’s major trading partners, such as theEuropean Union, could have a material adverse impact on the Republic of South Africa’s balanceof trade and adversely affect the Republic of South Africa’s economic growth. The European Unionis the Republic of South Africa’s largest export market. A decline in demand for imports from theEuropean Union could have a material adverse effect on South African exports and the Republic’seconomic growth.

The Republic of South Africa’s real gross domestic product (‘‘GDP’’) growth slowed fromapproximately 5.1 per cent. in 2007 to 3.1 per cent. in 2008. According to Statistics South Africa,the South African economy experienced a 6.4 per cent. decline in output in the first quarter of2009, reflecting the worst quarterly performance since the third quarter of 1984.According toStatistics South Africa, South Africa’s real GDP continued to contract in the second quarter of 2009at an annualised rate of 3.0 per cent. compared with the first quarter of 2009. A decrease in globaldemand for commodities and reduced domestic demand has resulted in decreasing commoditiesprices and export volumes of commodities produced in the Republic of South Africa. Amidst globaleconomic uncertainties, between 1 January 2009 and 31 December 2009 the Rand traded betweenR 7.2269 and R 10.716 against the U.S. Dollar and as at 31 December 2009 the Rand/Dollarexchange rate was R 7.3996 = US$1.00. Weakness of the Rand may make the financing of theRepublic of South Africa’s current account deficit more difficult.

In addition, because international investors’ reactions to the events occurring in one emergingmarket country sometimes appear to demonstrate a ‘‘contagion’’ effect, in which an entire region orclass of investment is disfavored by international investors, the Republic could be adverselyaffected by negative economic or financial developments in other emerging market countries. Therecan be no assurance that any crises such as those described above or similar events will notnegatively affect investor confidence in emerging markets.

Transnet’s business and operations are closely related to the South African economy and arematerially affected by conditions in the South African economy that are outside of its control, suchas interest rates, inflation rates, sovereign credit ratings, economic uncertainty, changes in laws(including laws relating to taxation) and national and international political circumstances. Any eventadversely affecting the Republic of South Africa generally or the South African freight transportationindustry specifically, such as reduced volumes of coal, iron ore and other mineral exports from theRepublic of South Africa, an increase in energy prices, fluctuations in the prices of commodities orraw materials, adverse shifts in interest rates or foreign exchange rates and changes inGovernment policies (including environmental regulation) or infrastructure spending, could materiallyadversely affect Transnet’s business, results of operations, financial condition and prospects andmay cause Transnet to re-evaluate, and possibly reduce, its anticipated spending in relation to theCapital Expenditure Programme.

Capital flows to and from the Republic of South Africa are limited by exchange controls

South African law provides for Exchange Control Regulations that restrict the export of capital fromthe Republic of South Africa without approval from the SARB. These regulations limit the extent towhich Transnet can borrow funds from non-South African sources for use in the Republic of SouthAfrica. While Transnet determines and proposes its own borrowing needs, it is the SARB thatultimately approves the total amount that Transnet may borrow from non-South African sources. In1995, the South African Government began relaxing certain Exchange Control Regulations and hasrecently stated that it intends to continue this gradual relaxation, as evidenced by proposed reformscontained in the Government’s Medium Term Budget Policy Statement, released on 27 October2009, which are intended to lower the costs of doing business in South Africa. The extent to whichthe Government may further relax such exchange controls cannot be predicted with certainty.Further relaxation or immediate elimination of current exchange controls may precipitate a changein the capital flows to and from the Republic of South Africa. If the net result of this were to causelarge Rand-denominated capital outflows, this could adversely affect the Republic of South Africa’seconomy through possible depreciation of the Rand or an increase in interest rates.

HIV/ AIDS poses risks to Transnet in terms of lost productivity and increased costs

Statistics South Africa has estimated that by the middle of 2009, 5.2 million or 10.6 per cent. ofthe South African population was living with HIV. The socio-economic impact of this pandemic onthe Republic of South Africa is and will continue to be significant. The incidence of HIV/AIDS in theRepublic of South Africa will likely lead to increasing absenteeism, increasing deaths from AIDS-related illnesses, increasing medical and other costs and decreasing productivity. It may also

15


contribute to other human resources challenges, such as difficulty in recruiting and retainingemployees. The potential impact of HIV/AIDS on Transnet’s operations and financial condition willbe determined by a variety of factors, including the cost and effectiveness of the HIV/AIDSprogramme deployed by Transnet for the benefit of its employees, the incidence of HIV infectionamongst Transnet’s employees, the progressive impact of HIV/AIDS on infected employees’ healthand productivity and the medical and other costs associated with infection. Based on numberscompiled for use in Transnet’s pension fund report, Transnet estimates that approximately 10 percent. of its workforce may be infected by HIV, although Transnet can give no assurances as to theaccuracy of this percentage. While it is not possible to determine with certainty Transnet’s costs ofmanaging HIV/AIDS or the impact that HIV/AIDS may have on Transnet in general, the incidenceof HIV/AIDS amongst Transnet’s workforce could adversely impact its business, results ofoperations, financial condition and prospects.

Risks Related to Transnet’s Business

Transnet may not be able to maintain or increase its volumes or its revenues

Transnet’s ability to achieve and maintain future growth depends on a number of factors, includingits ability to maintain or increase both the volume of goods transported through its network and itsrevenue. Transnet’s revenue is determined principally by the volume of goods transported and itstariffs. Transnet’s ability to maintain or increase its volumes of goods transported has been and isexpected to continue to be adversely affected by the global financial crisis and economic downturn.

Transnet’s volumes of goods transported are influenced by several factors, some of which arebeyond Transnet’s control. In particular, reduced domestic and international demand forcommodities and consumer products led to volume decreases in Financial Year 2009. Volumes inTransnet Freight Rail have been negatively impacted due to declining production of coal (for exportand domestic use), and of the minerals, metals and cement industries, although export iron orevolumes increased during Financial Year 2009. Transnet National Ports Authority and Transnet PortTerminals have experienced volume decreases as a result of a decline in container volumesfollowing reduced economic growth and decreasing vehicle and other imports and exports. Volumesin Transnet Pipelines have been negatively affected by the current economic climate. There can beno guarantee that conditions will improve or will not deteriorate further and, should volumes stay atcurrent reduced levels or continue to decline, it could have a material adverse effect on Transnet’sbusiness, results of operations, financial condition or prospects.

Transnet’s volumes and revenue also depend upon its ability to maintain, expand and developrelationships with its customers, suppliers, contractors, lenders and other third parties and expandits operating capacity in a timely and reasonable manner. Revenue growth will also depend uponTransnet’s ability to renew, win or negotiate favourable terms on future contracts with key clients,such as iron ore and coal producers. Many of the factors that affect Transnet’s revenue arebeyond Transnet’s control, and Transnet is unable to provide any assurances that it will maintainits recent rate of revenue growth in the future.

Transnet is exposed to risks associated with the economic regulation of its business

The tariffs charged by Transnet Pipelines and Transnet National Ports Authority for their servicesand facilities are subject to annual approval by the National Energy Regulator of the Republic ofSouth Africa (‘‘NERSA’’) and the Ports Regulator (the ‘‘Ports Regulator’’), respectively. Indetermining proposals for both tariffs, Transnet uses a revenue requirement model. The intendedeffect of the model is to permit Transnet Pipelines and Transnet National Ports Authority to earnan appropriate return on investment and recover operating expenditures through the regulatory tariffapproval mechanism, to provide revenue streams that are sufficient to fund the requirements of therespective businesses and to provide a regulated rate of return on those assets engaged in therespective business that are included within the regulatory asset base. While the revenuerequirement model is intended to reduce income risk and facilitate a predictable capital expenditureprogramme, the model requires both complex calculations and the application of judgementregarding those assets to be included in the model, the valuation of assets, depreciation rates,variations between actual and forecasted capital and operating expenditures, inflation levels andindexation, the impact of acquisitions and dispositions and the timing of implementation of tariffadjustments. No assurance can be given that tariff proposals by Transnet Pipelines or TransnetNational Ports Authority will be approved by their respective regulators. What’s more, theDepartment of Transport may institute tariff controls or approvals in the future through theestablishment of a rail regulator. Failure to receive approval for proposed tariff increases in the

16


amounts and at the times proposed could materially adversely affect Transnet’s business, results ofoperations, financial condition and prospects.

Transnet Pipelines tariffs

In accordance with the Petroleum Pipelines Act, 2003 (the ‘‘Petroleum Pipelines Act’’), NERSA, ismandated to set or approve petroleum pipeline tariffs and arrange storage tariffs. In TransnetPipelines’ 2008/2009 tariff application, Transnet Pipelines applied for a 15 per cent. increase in itspipeline tariffs. NERSA approved an average annualised increase of 4.6 per cent. In its 2009/2010tariff application Transnet Pipelines sought a tariff increase of 82.5 per cent., which it subsequentlyreduced to 74.42 per cent. to reflect revisions to its New Multi-Product Pipeline (‘‘NMPP’’)construction schedule. The tariff proposal included an allowance to maintain its cash interest coverratio at 3 (three) times. On 30 April 2009, NERSA decided to institute an average tariff reduction of10.38 per cent. for Financial Year 2010. Because NERSA’s decision came one month intoTransnet Pipelines’ financial year, the tariff reduction will be spread over eleven months, ratherthan twelve months, resulting in an effective tariff reduction of 11.17 per cent. NERSA announcedthat the principal factor contributing to its decision in rejecting Transnet Pipelines’ proposed tariffwas its interpretation of the law, which does not authorise it, when computing tariffs, to include an‘‘F-Factor’’ in relation to assets that are still in the process of being constructed and which are notyet operational. An ‘‘F-Factor’’ is an allowance to an applicant to maintain a reasonable debtservice cover ratio. As of the date of this Base Prospectus, NERSA is considering a ‘‘security ofsupply’’ levy as an alternative mechanism for receiving this shortfall. This reduction in tariffs coulddecrease Transnet’s revenues for the current financial year, and could therefore adversely affect itsbusiness, results of operations, financial condition and prospects. Furthermore, there can be noassurance that Transnet Pipelines will be able to secure future tariff increases in the amounts andat the times requested or avoid further reductions, or that NERSA will approve future proposalsrelating to the calculation of tariffs.

As at the date of this Base Prospectus, Transnet is in discussions with NERSA to amendTransnet’s petroleum pipeline construction license to allow for a delay in the completion scheduleand an increase in construction costs.

Transnet National Ports Authority tariffs

Sections 30 and 72 of the National Ports Act, 2005 (the ‘‘National Ports Act’’) requires thatTransnet National Ports Authority submit annual tariff proposals to the Ports Regulator for approvaland that, prior to substantial alteration of a tariff, Transnet National Ports Authority consult with theNational Ports Consultative Committee, created by section 82 of the National Ports Act. As at thedate of this Base Prospectus, this committee has not yet been established. In addition, while theboard of the Ports Regulator was appointed by the Minister of Transport in calendar year 2006, thechief executive officer of the Ports Regulator began work only in calendar year 2008. TransnetNational Ports Authority submitted its tariff application for Financial Year 2010 for approval to thePorts Regulator on 1 August 2008.

On 6 August 2009, the Ports Regulator (the ‘‘Ports Regulator’’) issued the Port Directives (the‘‘Directives’’) in relation to the National Ports Act. The Directives contained provisions cappingTransnet Port Authority’s tariffs at ‘‘CPIX-X’’, where ‘‘CPIX’’ is the consumer price index for allurban areas in South Africa and ‘‘X’’ is an efficiency factor determined by the Ports Regulator afterconsulting Transnet National Ports Authority, other Government stakeholders and those port usersthat the Port Regulator deems necessary. The Directives also indicate that the Ports Regulator willperform a tariff level rebasing every five years to set the baseline tariff structure to assessTransnet National Ports Authority’s tariff applications. The Directives further give the Port Regulatordiscretion as to whether it is desirable that the tariffs which it approves enable Transnet NationalPorts Authority to recover its investments and costs and to make a profit commensurate with therisk of owning, managing, controlling and administering ports and providing port services andfacilities. Transnet subsequently obtained legal advice from a South African law firm that these andother aspects of the Directives are unlawful. Transnet advised the Government of this legal advice,and prepared an urgent court application in October 2009 in order to challenge the Directives. On20 October 2009, the Ports Regulator agreed to withdraw or amend the relevant Directives,including the cap on tariffs, rebasing and the discretionary provisions. As of 31 December 2009,the Government has not yet published the agreed amendments. In line with the timeframes set outin the Directives for tariff submissions, Transnet National Ports Authority re-submitted its tariffapplication for Financial Year 2010 to the Ports Regulator on 1 September 2009, proposing a

17


10.26 per cent. increase over three years or a 19.13 per cent. increase in one year. On 19January 2010, the Ports Regulator issued its decision to approve a 4.42 per cent. increase inTransnet National Ports Authority’s tariffs for the Financial Year 2010. No reasons were given forthe decision.

The potential corporatisation of Transnet National Ports Authority poses risks to Transnet

The National Ports Act provides for the corporatisation of Transnet National Ports Authority. On 17June 2008, the Government informed Transnet in writing that neither it nor the relevant Ministers(the Minister of Transport and the Minister of Public Enterprises) intended to initiate thecorporatisation process, however, as of the date of this Base Prospectus, the Government is stillconsidering the matter at a policy level. However, if Transnet National Ports Authority iscorporatised, it could have a material adverse impact on Transnet, both financially and strategically,and could trigger a default under one or more of Transnet’s financing agreements including, but notlimited to, Transnet’s Domestic Medium Term Note Programme (defined below) and the Notes.

Transnet risks losing substantial assets to the Government should the National EnvironmentalManagement: Integrated Coastal Management Act, 2008 be fully enacted, in its current form

The main objective of the South African National Environmental Management: Integrated CoastalManagement Act, 2008 (the ‘‘ICM’’), is to provide for the coordinated and integrated managementof the coastal zone by the Government in order to preserve, protect, extend and enhance SouthAfrican coastal public property. The ICM seeks to achieve this objective by requiring that theownership of all assets located in the coastal property zone be transferred to the Government, tobe held in trust on behalf of all South Africans. Initially, it was unclear whether the ICM wouldapply to Transnet’s approximately R 31 billion of assets (at book value) that lie within the coastalproperty zone. Following the approval of the ICM by the President of the Republic of South Africa,Transnet appealed to the Department of Water and Environmental Affairs to amend the ICM, oralternatively, to exclude Transnet from the application of the ICM, before it came into effect.Transnet subsequently obtained a letter from the Minister of Environmental Affairs and Tourism thatacknowledges that the ICM creates unintended consequences for Transnet. The letter furtheradvises that sections of the ICM will be amended to ensure that Transnet’s assets and operationswithin the ports are secure, and that Transnet is able to properly fulfil its port authority functions.

When the ICM came into operation on 1 December 2009, certain sections that could haveotherwise required Transnet to transfer assets to the Government were specifically excluded fromcoming into operation. The purpose of excluding those sections was to provide both Transnet andthe Government with the opportunity to address those sections of the ICM that would impactTransnet’s port assets, specifically any transfers into state ownership. Any changes to the ICM,however, will need to be formulated and proposed to the South African Parliament. It is expectedthat amendments to the ICM to address these issues for the long term will be recommended to theSouth African Parliament at some point in 2010. As a result, Transnet can make no assurancesthat the problematic sections of the ICM will be permanently amended or that Transnet will beexcluded from its remit. Should Transnet be required to transfer any of its ports assets to theGovernment, it could have a material adverse affect on Transnet’s business, results of operations,financial condition and prospects.

Transnet is exposed to funding risk as a result of its significant capital expenditure plans andthe need to repay or refinance outstanding indebtedness

Transnet’s businesses require a substantial amount of capital and other long-term expenditures,including those relating to the replacement and refurbishment of locomotives and rolling stock,construction of the NMPP, the construction of new ports and container terminal facilities, theexpansion of existing ports, container terminal facilities, railway lines and other infrastructureprojects and the maintenance of Transnet’s existing infrastructure. As a result, Transnet isdependent on access to domestic and international capital markets and lenders in order to meet itsfunding needs. As of 31 March 2009, Transnet had approximately R 80.5 billion of capitalexpenditures planned for the next five financial years commencing with Financial Year 2010(excluding capitalised borrowing costs of R 7.1 billion) under its Capital Expenditure Programmeand approximately R 26.0 billion of short- and long-term debt maturing in the next five financialyears (commencing with Financial Year 2010) that will need to be repaid or refinanced.

In the past, Transnet has financed capital expenditures through a variety of means, includingretained earnings, third party indebtedness and leasing transactions. In the future, Transnet expects

18


to utilise a combination of these sources, along with project finance and international and domesticcapital markets transactions, to meet its financing requirements. Transnet does not receive or relyupon subsidies or funding from the Government, and there can be no assurance that theGovernment would contribute capital or other funds to Transnet in the future. As a result of theglobal financial crisis, widening of credit spreads and yields on South African and other governmentdebt and increased domestic and international competition for funding (including competition fromthe Republic of South Africa and other state-owned enterprises), Transnet expects that fundingmay be more scarce and expensive than in the past, and although Transnet believes it will be ableto fund its needs appropriately, there is no guarantee that Transnet will be able to secure fundingto meet its needs in a timely basis or on commercially reasonable terms, if at all. Transnet’s abilityto arrange external financing and the cost of such financing are dependent on numerous factors,including its future financial condition, general economic and capital market conditions, interestrates, the availability of credit generally from banks and other lenders, competition for funding indomestic and international markets, investor confidence in Transnet, applicable provisions of taxand securities laws and political and economic conditions in the Republic of South Africa and otherrelevant jurisdictions. Transnet’s ability to raise funds in international markets is also subject toapproval by South African Exchange Control Regulations. See ‘‘Exchange Controls’’. If Transnet isunable to generate or obtain funds sufficient to make, or is otherwise restricted from making,necessary or desirable capital expenditure and other investments, it may be unable to maintain orgrow its business and may be required to revise its Capital Expenditure Programme. Thesecircumstances, or an inability to obtain funding to repay or refinance maturing indebtedness, couldhave a material adverse effect on Transnet’s credit rating, business, results of operations, financialcondition and prospects.

Transnet is subject to risks associated with the impaired performance of its equipment andinfrastructure due to their age and required maintenance

Transnet’s business and operations depend upon the performance of its equipment and otherworking assets, such as its locomotives, wagons and other infrastructure. Transnet’s success alsodepends on the successful operations of its infrastructure, including its network of ports, rails andfreight lines. As its equipment and infrastructure age, their performance or effectiveness becomeimpaired, often leading to decreased productivity as well as delays and costly maintenance. Inrecent years Transnet has incurred substantial costs and devoted significant time and resources toreplacing outdated equipment. Any decrease in asset performance could negatively impactTransnet’s business.

In the past, however, Transnet did not adequately invest in replacing impaired or underperformingassets, or in the scheduled maintenance that its business required. This lack of maintenance hasbeen a particular problem for both rail lines and rolling stock of Transnet Freight Rail and as aresult assets may not perform at the required level. Transnet also has a backlog of maintenancework for rail lines, wagons and locomotives, together with other railway infrastructure such asdepots and signalling systems. In recent years, Transnet has improved its maintenanceprogrammes and has budgeted substantial amounts for infrastructure maintenance under its CapitalExpenditure Programme. In the event that Transnet does not replace, maintain or repair itsinfrastructure in a timely manner it will face decreased asset performance as well as increasedmaintenance costs, delays and lost revenue due to unscheduled stoppages and derailments. Assetimpairment and inadequate maintenance may reduce Transnet’s competitive position and couldhave an adverse impact on Transnet’s business, results of operations, financial condition andprospects.

Transnet faces a number of risks relating to its ability to deliver its capital projects on time andwithin budget

Capital expansion and construction projects, including those currently in Transnet’s CapitalExpenditure Programme, typically require substantial capital expenditure throughout thedevelopment phase, and may take months or years before they become operational, during whichtime Transnet is subject to a number of construction, financing, operating and other risks, many ofwhich are beyond its control, including but not limited to:

* shortages or unavailability of materials, equipment and skilled and unskilled labour;

* increases in capital costs (including materials, engineering and construction costs) and/oroperating costs (including costs of staff, services, utilities and supplies), including as a resultof foreign exchange rate movements;

19


* adverse weather conditions and natural disasters;

* changes in demand for Transnet’s services;

* labour disputes and disputes with contractors and sub-contractors;

* inadequate infrastructure, including as a result of failure by third parties to provide utilities andtransportation links that are necessary or desirable for the successful completion of a project;

* inadequate engineering, poor project management, or inadequate capacity;

* failure to complete projects according to specification;

* environmental regulations, including the need to perform feasibility studies and conductremediation activities;

* accidents;

* political, social and economic conditions;

* changes in laws, rules, regulations and governmental priorities; and

* an inability to obtain and maintain project development permission or requisite governmentallicenses, permits or approvals.

Transnet manages some of these risks by entering into Engineering, Procurement and ConstructionManagement contracts, which provide Transnet with access to specialised skills in its capitalprojects delivery. Furthermore, Transnet is also subject to the risk that in the current adversefinancial environment it may be unable to obtain necessary financing on commercially reasonableterms or on terms as favorable as those budgeted, if at all.

If one or more of these risks materialises, it could negatively affect Transnet’s ability to completeits current or future projects on schedule, if at all, or within the estimated budget, and may preventTransnet from achieving the projected revenues, internal rates of return or capacity expected fromsuch projects. Failure to complete the capital projects according to currently estimated timetablesand budgets could have a material adverse effect on Transnet’s business, results of operations,financial condition and prospects.

Transnet is dependent upon key personnel, skilled and highly-skilled employees

Transnet’s continued success is dependent, in part, on the ongoing services of its senior officersand employees, many of whom have significant experience within Transnet and may be difficult toreplace, and on its ability to attract and retain top quality management and key staff. DuringFinancial Year 2009, Transnet’s Chief Executive Officer resigned effective 28 February 2009 andher position has been temporarily filled by the Chief Financial Officer. The Chief Operating Officerresigned effective 31 March 2009. Transnet’s Chairman resigned on 11 August 2009 and hisposition has been temporarily filled by Professor Geoff Everingham. Transnet’s success is alsodependent upon skilled employees and, in common with similar businesses in the Republic ofSouth Africa, Transnet has experienced shortages of such employees in the past and expects itwill do so in the future. The loss of senior officers and skilled employees or the inability to recruitand retain skilled employees could have a material adverse effect on Transnet’s business, resultsof operations, financial condition and prospects.

Transnet may be required to incur significant costs in order to comply with environmental lawsand regulations

Transnet’s operations are subject to extensive international, national and local laws and regulationsgoverning, among other things, the loading, unloading and storage of hazardous materials and theprotection of the environment, which laws and regulations change from time to time and aregenerally becoming more restrictive. The cost of compliance with environmental laws andregulations has been significant and is expected to continue to be significant, and Transnet may beliable for damages should an environmental violation occur. While Transnet has begun toimplement the ISO 14001 environmental management systems in its operating divisions in order toinstitutionalise international best practices and develop a standardised approach to environmentalsafety, Transnet has experienced instances of non-compliance with environmental laws. AlthoughTransnet believes that to date its non-compliance with environmental laws has not had a materialadverse impact on it, no assurance can be given that the costs of complying with environmentallaws, the imposition of civil or criminal liability for violations of environmental laws and/or liability fordamages arising under environmental lawsuits or proceedings would not have a material adverseeffect on Transnet’s business, results of operations, financial condition and prospects. Furthermore,

20


while Transnet maintains insurance coverage for environmental accidents, there is no guaranteethat its insurance will be adequate to cover the possible costs of environmental matters, includingthe costs of litigation (including damages, fines and penalties) and remediation.

Transnet is subject to risks associated with the availability and cost of key inputs to its businessand the business of its key clients

Key input items to Transnet’s cost base, including salaries and other personnel costs, energycosts, material costs, maintenance costs, operating lease costs and equipment costs are sensitiveto increases in general price levels in the Republic of South Africa and elsewhere. Transnet’sbusiness and profitability could be adversely affected if the costs of its basic inputs materiallyincrease and these costs cannot be recovered from customers.

Electricity

Transnet’s expenditure on electricity increased significantly in Financial Year 2009 (to 6% of totaloperating expenditure) as compared to the previous year, and are likely to continue to increase inthe foreseeable future. Eskom, the state owned generator of electricity in the Republic of SouthAfrica, increased its electricity tariff by 27 per cent. in the year ended March 2009 and hasobtained a further increase for the year ending March 2010 of 31.3 per cent. Increases in energycosts will result in increases in operating costs both for Transnet and for its clients, some of whichare substantial consumers of electricity. Such increases could adversely impact the profitability ofTransnet’s clients, which could in turn result in reductions in volumes of goods transported byTransnet and downward pressure on Transnet’s revenues. Furthermore, Transnet’s operations andthe operations of its key customers could be adversely affected by electricity shortages. During2007 and 2008, the Republic of South Africa experienced electricity shortages that resulted inrolling blackouts and load shedding by Eskom. During some of these rolling blackouts, Transnet’soperations and the operations of its key customers slowed due to the disruption of electricity. Whileslower economic growth has reduced demands for electricity, if demand for electricity were toincrease prior to increases in electricity generation capacity that are planned for the medium-term,future load shedding and rolling blackouts could occur. Such blackouts could severely disrupt ordelay Transnet’s operations and the businesses of its key customers, which could have a materialadverse effect on Transnet’s business, results of operations, financial condition and prospects.

Fuel

Transnet’s fuel expense represented approximately 9.5 per cent. of its total operating expenditurein Financial Year 2009 and Transnet has budgeted for approximately R 2.0 billion in fuel expensesfor Financial Year 2010, which is equal to 8.3 per cent. of total operating expenses. Instabilitycaused by imbalances in the worldwide supply and demand for oil, and the global economicdownturn, has resulted in significant fluctuations in fuel prices. As at 30 September 2009, asignificant majority of the customer contracts relating to Freight Rail’s general freight business(‘‘GFB’’) contain price adjustment clauses to account for changes in fuel prices. Price adjustmentsunder these contracts are typically made monthly and reflect both increases and decreases in fuelprices. Freight Rail therefore shares the risk associated with fuel price volatility with clients that areparty to such contracts. The coal and iron-ore contracts however are subject to an annual priceescalation. The coal contracts’ fuel price is adjusted on the basis of a formula comprising of PPIand CPIX inputs and as such no correlation exists between the monthly fuel price changes andwhat Transnet’scustomers are charged. The iron-ore contracts annual price adjustments are basedon a composite escalation index linked to PPI, CPIX, Steel Price Index, Electricity Price Index andDiesel Price Index. In addition, each contract provides for a tariff review every five years.Furthermore, the electric/diesel fleet currently used on the Iron-ore Line is planned to be convertedto primarily an electric fleet, which would reduce exposure to fuel price fluctuations. Any futurevolatility in the cost of fuel could however negatively impact Transnet’s business, results ofoperations, financial condition and prospects. It is important to note, however, that the number ofcontracts containing price adjustment clauses and the impact of such clauses does not necessarilymatch Transnet’s exposure to volatility in fuel prices nor equal the percentage of revenue orexpenses.

Although Transnet has a fuel hedging policy under which it may hedge up to 75 per cent. ofannual budgeted consumption, as at 30 September 2009, Transnet did not have any derivative fuelhedges in place to hedge it’s budgeted fuel exposure for Financial Year 2010 against eithercurrency and/or commodity price fluctuations. Consequently, there can be no assurance that

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Transnet will continue to have adequate access to fuel, that Transnet’s hedging policies willsucceed in limiting its exposure to fluctuations in the fuel price or that Transnet will succeed inpassing on fuel price increases to its customers. See ‘‘Operating and Financial Review –Qualitative and Quantitative Disclosures about Market Risk – Commodity Price Risk’’.

Steel and other materials

Recently, the cost of steel, cement and other materials critical to projects that are part ofTransnet’s Capital Expenditure Programme have decreased. However, no assurance can be giventhat these trends will continue, and the cost of these items may increase. Any increase in thecosts of these key inputs may negatively impact Transnet. To the extent that Transnet must importthese materials, Transnet endeavours to price these contracts in Rand. Whenever possible,Transnet immediately enters into hedging agreements if the contracts for imported materials arepriced in foreign currencies. However, Transnet is exposed to the risk of foreign exchange ratefluctuations until Transnet contracts for such purchases and enters into related hedgingagreements.

Inflation

Consumer price inflation in the Republic of South Africa, as measured by the consumer price index(‘‘CPI’’), averaged 11.5 per cent. for calendar year 2008. Consumer price inflation was 13.7 percent. in August 2008 and subsequently moderated to 6.1 per cent. in September 2009. As ofJanuary 2009, the SARB replaced the consumer price index for all urban areas (‘‘CPIX’’) with CPI(Headline) as its targeted measure. The Bureau for Economic Research at the University ofStellenbosch has forecasted that CPI in calendar year 2010 will reach 5.7 per cent. The SouthAfrican Bureau for Economic Research stated that it expects consumer price CPI inflation toaverage 7.1 per cent. during calendar year 2009. A return to significant inflation in the Republic ofSouth Africa could significantly increase Transnet’s operating costs and have a material adverseeffect on its business, results of operations, financial condition and prospects.

Inflation, as well as the scarcity of qualified personnel, has contributed to escalating wage costs inthe Republic of South Africa in the past several years, which may increase further in the future.Transnet’s salary costs have increased at or above inflation levels in the Republic of South Africa,in large part as a result of collective bargaining agreements with unions and routine, performance-based salary increases, and these salary costs are likely to continue to increase.

Transnet may not be able to pass along increased costs to its customers as a result of competitivepressures, contractual provisions, regulatory limits on tariffs and other factors. Accordingly, if therecent downward inflationary trend reverses, or if the costs of fuel, electricity and labour continueto increase, there can be no assurance that Transnet will be able to maintain or increase itsmargins. Furthermore, many of Transnet’s suppliers may seek to pass on increases in material orother costs to Transnet. Any increases in the prices of materials or other goods or servicespurchased by Transnet could impair Transnet’s ability to complete new infrastructure and otherprojects on time and within budget. The occurrence of any of the foregoing could have a materialadverse effect on Transnet’s business, results of operations, financial condition and prospects.

Transnet is exposed to risks associated with exchange rate fluctuations

Transnet has foreign currency denominated debt and payment obligations in foreign currenciesunder its Capital Expenditure Programme and for other expenditures within the normal course ofbusiness. As a policy matter, Transnet seeks to hedge all foreign currency payment obligations atthe time the contractual agreements are entered into. Accordingly, Transnet is exposed to the riskof cost increases for capital expenditures in currencies other than Rand until such time as suchexpenditures are contracted and hedged into Rand. Fluctuations in foreign currency exchange ratesalso may lead to fluctuations in the valuations of financial assets and liabilities and relatedderivative financial instruments, which could result in significant losses or volatility in Transnet’sincome statement. Fluctuations in foreign currency exchange rates could adversely affectTransnet’s results of operations, financial condition and prospects. See ‘‘Operating and FinancialReview – Qualitative and Quantitative Disclosures about Market Risk – Foreign Currency Risk’’.

Transnet is subject to risks associated with interest rate changes

Transnet is exposed to fluctuations in interest rates, which historically have fluctuated significantlyin the Republic of South Africa. As of 30 September 2009, the aggregate principal amount ofTransnet’s variable interest rate indebtedness was R 13.94 billion. Transnet seeks to manage

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interest rate risk through the use of financial hedging instruments within the parameters of itsBoard of Directors approved policy, although no assurance can be given that hedging transactionswill be fully effective. Notwithstanding hedging transactions, interest rate fluctuations could have amaterial adverse effect on Transnet’s business, results of operations, financial condition andprospects. See ‘‘Operating and Financial Review – Qualitative and Quantitative Disclosures aboutMarket Risk – Interest Rate Risk’’.

Transnet is subject to risks associated with a unionised workforce and may be adverselyaffected by changes in labour laws

Most of the major industries in the Republic of South Africa are unionised, and approximately 81per cent. of Transnet’s workforce are unionised through two principal unions. Union recognition andwage agreements are negotiated annually. There is a risk that strikes or other types of conflict mayoccur at Transnet’s operations. See ‘‘Business – Employees’’.

Transnet is also subject to South African labour laws that provide for mandatory compensation toemployees in the event of termination of employment for operational reasons and administrativeand reporting requirements in respect of employment equity compliance. Non-compliance withlabour law could result in large monetary penalties. Changes to existing regulations or theintroduction of new regulations or licensing requirements may adversely affect Transnet’s business.

Licenses necessary for Transnet’s businesses may expire, be revoked or not be renewed

Transnet conducts its operations pursuant to licences granted to it by a number of governmentagencies. Transnet believes that it currently holds all of the material licences required for the legaloperation of its businesses. However, there can be no assurance that Transnet’s licenses will berenewed, that they will be extended or that they will not be revoked. In addition, it is currentlyunclear whether Transnet Port Terminals’ deemed license under the National Ports Act, whichallows Transnet Port Terminals to operate its current ports, also enables it to operate the new Portof Ngqura, which is being built by Transnet pursuant to the terms and authorization provided in thePort of Ngqura Establishment Act. The loss of any of Transnet’s material licenses or a finding thatTransnet’s licenses do not cover all of its current or proposed operations could have a materialadverse effect on Transnet’s business, financial condition, results of operations and prospects. See‘‘Regulation’’.

Transnet’s business is exposed to the adverse effects of operational risks

Transnet’s businesses, like all similar businesses, are subject to operational risks including but notlimited to the following, which could result in losses, delays and business interruption, and couldadversely impact Transnet’s ability to provide services to its customers or ensure the timelydelivery of customer cargo:

* inadequate or failed internal systems and processes, including those for identifying, managingand controlling risks and those related to information technology;

* inadequate documentation or failure to document or authorise transactions properly;

* human error of employees or third-party contractors or fraud, including corruption;

* equipment failures due to, among other things, the age of Transnet’s infrastructure, demandin excess of capacity or inadequate maintenance;

* failure to comply with regulatory requirements;

* theft of copper cable and other infrastructure;

* natural disasters or the failure of external systems and controls outside of Transnet’s control,including those of its suppliers and counterparties; and

* other operational risks specific to the transportation industry, including land disaster,mechanical failure, collisions, loss of life, injury, property losses to fixed assets, decreases ordisturbances in commodity production, cargo loss or damage.

Although Transnet has implemented risk controls and mitigation programmes, and substantialresources are devoted to developing efficient and effective procedures and to staff training, it is notpossible to be certain that such procedures will be effective in identifying, managing and controllingeach of the operational risks faced by Transnet.

The operation of any transportation related activity carries with it an inherent risk of catastrophe,collision and loss of life or property as a result of equipment failure, natural disasters, severe

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weather, human error, acts of terrorism and other circumstances or incidents that are outside ofTransnet’s control. Collisions, spills or other environmental mishaps, or other accidents can result inbusiness interruption, damage to or loss of Transnet’s assets or cargoes and serious bodily injury,death and extensive property damage, particularly when such accidents occur in heavily populatedareas. In such circumstances, Transnet may not be able to rebuild or repair its property or restoreoperations in a timely manner or at all.

Transnet maintains insurance that it believes is consistent with industry practice within the Republicof South Africa against the accident-related risks involved in the conduct of its business. However,this insurance may not be sufficient to cover, in whole or in part, damages to Transnet or othersand this insurance may not continue to be available on similar terms or at commercially reasonablerates. In addition, the severity or frequency of events may result in losses or expose Transnet toliabilities in excess of its insurance cover. Transnet does not fully insure against certain risks.Should an incident occur in relation to which Transnet has no insurance cover or inadequateinsurance cover, it may be financially liable for related losses. Losses or third party claims fordamages could have a material adverse effect on Transnet’s business, results of operations,financial condition and prospects.

If any of these risks materialise, it could have a material adverse effect on Transnet’s business,results of operations, financial condition and prospects.

Notwithstanding anything in this risk factor, this risk factor should not be taken to imply that eitherthe Issuer or the Group will be unable to comply with its obligations as a company with securitiesadmitted to the Official List.

Transnet is exposed to risks and costs related to health and safety

Transnet’s operations are subject to health and safety laws and regulations designed to improveand to protect the safety and health of employees and the public. Although Transnet believes itcomplies in all material respects with national and international safety regulations, in Financial Year2009 there were fatalities and injuries at some of Transnet’s operations. Safety incidents may leadto business interruptions, loss of assets, harm to employees and the public, damage to theenvironment and adverse publicity resulting in damage to Transnet’s reputation. The costs ofcomplying with health and safety laws and regulations, and the imposition of civil or criminal liabilityfor violations and/or liability for damages arising under personal injury or other legal actions couldhave a material adverse effect on Transnet’s business, results of operations, financial condition andprospects. In addition, if these laws and regulations were to change and if material expenditurewere then required in order to comply with such new laws and regulations, this could adverselyaffect Transnet’s business, results of operations, financial condition and prospects. See ‘‘Business– Health and Safety’’ and ‘‘Regulation’’.

Additional security requirements may increase Transnet’s operating costs and restrict its abilityto conduct its business

In recent years, various international bodies and governmental agencies and authorities haveimplemented numerous security measures that affect Transnet’s ports and container terminaloperations and the costs associated with such operations. Failure on Transnet’s part to complywith the security requirements applicable to it or to obtain relevant security-related certificationsmay, among other things, prevent certain shipping line customers from using its facilities or resultin higher insurance premiums. In addition, new security measures or updated regulatorycompliance requirements may be introduced at any time. Ensuring Transnet’s compliance with suchmeasures or requirements may involve considerable time, cost and resources on its part. Thecosts associated with existing and any additional or updated security measures may negativelyaffect Transnet’s results of operations to the extent that it is unable to recover the full amount ofsuch costs from its customers, who generally have also faced increased security-related costs.Similarly, additional security measures that require Transnet to increase the scope of its operatingprocedures may effectively reduce the capacity of, and increase congestion at, its terminals andother facilities. Continued or increased costs of compliance with freight transportation and othersecurity requirements applicable to Transnet may negatively affect Transnet’s business, results ofoperations, financial condition and prospects.

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Transnet’s customer concentration and dependence on a few large industrial companies andtheir suppliers expose it to risks

Transnet’s ten largest customers in Financial Year 2009 generated approximately 26 per cent. ofits revenue. Transnet’s volumes and revenues in its Freight Rail division are primarily dependenton Transnet’s relationships with a core group of customers, most of whom operate in the miningsector. Transnet’s twelve most significant customers comprised 46 per cent. of the tradereceivables carrying amount in Financial Year 2009, 43 per cent. in Financial Year 2008 and 33 percent. in Financial Year 2007. In Financial Year 2009, Arcelor Mittal S.A., Sishen Iron Ore Company(Pty) Limited (‘‘Sishen Iron Ore’’), Assmang Limited. (‘‘Assmang’’), Anglo American, BHP Billitonand Xstrata generated. 6.44 per cent., 3.94 per cent., 2.91 per cent., 2.83 per cent., 2.5 per cent.and 1.91 per cent, respectively, of Transnet’s total revenue. Transnet’s ten largest general freightcustomers generated almost half of the revenue for GFB in Financial Year 2009. Arcelor Mittal S.A.alone accounted for 18 per cent. of general freight revenue in Financial Year 2009. Transnet’sdependency upon core clients exposes it to risks associated with a slowdown or downturn in aparticular sector and the risk that such a slowdown or downturn in the economy at large willsimilarly affect most of its core customers at the same time.

Transnet is seeking to establish long-term contracts across its divisions with a number of itscustomers. As part of this strategy, Transnet has allowed agreements with certain clients to expire,with the intention of entering into a single agreement covering all of the services offered to aparticular customer across Transnet’s divisions. As of the date of this Base Prospectus Transnethas entered into new contracts with most of its major export coal customers. Although Transnethas enjoyed good working relationships with these customers to date, there can be no assurancethat, in the absence of signed contracts, Transnet can rely on ongoing business from thesecustomers. There can be no assurance that Transnet will retain its current customers’ business, orthat their business, if lost, could be replaced by that of other customers on comparable terms and/or at comparable volumes, and prices if at all. The loss of, or failure to replace, one or more ofTransnet’s larger customers could materially and adversely affect Transnet’s business, results ofoperations, financial condition and prospects.

In addition, Transnet is exposed to credit risk with respect to its customers. While Transnet seeksto limit its credit risk by setting credit limits for individual customers, obtaining financial guaranteesfrom some customers and monitoring outstanding receivables, its customers may default on theirobligations to Transnet due to bankruptcy, lack of liquidity, operational failure or other reasons.Transnet’s credit risk is increased by the fact that many of its largest customers operate in thesame industry and therefore may be similarly affected by changes in economic and otherconditions. Delayed payment, non-payment or non-performance on the part of one or more ofTransnet’s larger customers, or a number of its smaller customers, could have a material adverseeffect on its business, results of operations, financial condition and prospects.

The interests of Transnet’s controlling shareholder may conflict with those of the Noteholders

As at 30 September 2009, the Government owns 100 per cent. of Transnet’s issued share capital.See ‘‘Shareholder – Shareholder Compact ’’. The Government is therefore able to determine theoutcome of all matters concerning Transnet that may be decided by shareholders. The interests ofthe Government may conflict with the interests of the Noteholders and the Government mayrequire Transnet to take actions that may adversely affect the Noteholders’ investment. See‘‘Shareholder ’’.

Transnet is subject to a wide variety of laws and regulations and may incur material costs or facesubstantial liabilities if it fails to comply with existing or future laws or regulations

Transnet’s operations are subject to extensive laws and regulations governing, among other things,anti-competitive behaviour, economic transformation, procurement practices, employment equity andequity participation matters. Transnet’s failure to interpret correctly or comply with all applicablelaws and regulations could lead to civil liabilities, administrative or other penalties and/or increasedregulatory scrutiny. For the most serious violations, Transnet could be forced to suspendoperations until it obtains necessary certifications, permits or licences or otherwise brings itsoperations into compliance. In addition, changes to existing regulations or the introduction of newregulations or licensing requirements could adversely affect its business by reducing its revenue,increasing its operating costs, or both, and Transnet may be unable to effectively mitigate theimpact of such changes. See ‘‘Regulation’’.

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Competition could adversely affect Transnet

Transnet faces competition from a number of other domestic and international freight transportationand logistics providers. Although Transnet believes that it has been able to compete successfully todate, there can be no assurance that it will be able to do so in the future, and any failure to do socould have a material adverse effect on Transnet’s business, results of operations, financialcondition and prospects. See ‘‘Business – Competition’’.

Risks Related to the Structure of a Particular Issue of Notes

A wide range of Notes may be issued under the Programme. A number of these Notes may havefeatures which contain particular risks for potential investors. Set out below is a description ofcertain such features:

The Notes may be subject to optional redemption by the Issuer

An optional redemption feature is likely to limit the market value of Notes. During any period whenTransnet may elect to redeem Notes, the market value of those Notes generally will not risesubstantially above the price at which they can be redeemed. This also may be true prior to anyredemption period.

Transnet may be expected to redeem Notes when its cost of borrowing is lower than the interestrate on the Notes. At those times, an investor generally would not be able to reinvest theredemption proceeds at an effective interest rate as high as the interest rate on the Notes beingredeemed and may only be able to do so at a significantly lower rate. Potential investors shouldconsider reinvestment risk in light of other investments available at that time.

Index Linked Notes and Dual Currency Notes are subject to additional market risks

Transnet may issue Notes with principal or interest determined by reference to an index or formula,to changes in the prices of securities or commodities, to movements in currency exchange rates orto other factors (each, a ‘‘Relevant Factor’’). In addition, the Issuer may issue Notes with principalor interest payable in one or more currencies that may be different from the currency in which theNotes are denominated. Potential investors should be aware that:

* the market price of such Notes may be volatile;

* they may receive no interest;

* payment of principal or interest may occur at a different time or in a different currency thanexpected;

* the amount of principal payable at redemption may be less than the nominal amount of suchNotes or even zero;

* a Relevant Factor may be subject to significant fluctuations that may not correlate withchanges in interest rates, currencies or other indices;

* if a Relevant Factor is applied to Notes in conjunction with a multiplier greater than one orcontains some other leverage factor, the effect of changes in the Relevant Factor on principalor interest payable likely will be magnified; and

* the timing of changes in a Relevant Factor may affect the actual yield to investors, even ifthe average level is consistent with their expectations. In general, the earlier the change inthe Relevant Factor, the greater the effect on yield.

Partly Paid Notes are subject to additional risks

Transnet may issue Notes where the issue price is payable in more than one instalment. Failure topay any subsequent instalment could result in an investor losing all of its investment.

Variable Rate Notes with a multiplier or other leverage factor are subject to increased volatility

Notes with variable interest rates can be volatile investments. If they are structured to includemultipliers or other leverage factors, or caps or floors, or any combination of those features orother similar related features, their market values may be even more volatile than those forsecurities that do not include those features.

Inverse Floating Rate Notes are subject to increased volatility

Inverse floating rate notes (‘‘Inverse Floating Rate Notes’’) have an interest rate equal to a fixedrate minus a rate based upon a reference rate such as LIBOR. The market values of such Notes

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typically are more volatile than market values of other conventional floating rate debt securitiesbased on the same reference rate (and with otherwise comparable terms). Inverse Floating RateNotes are more volatile because an increase in the reference rate not only decreases the interestrate of the Notes, but may also reflect an increase in prevailing interest rates, which furtheradversely affects the market value of these Notes.

Fixed/Floating Rate Notes are subject to additional risks

Fixed/Floating Rate Notes may bear interest at a rate that Transnet may elect to convert from afixed rate to a floating rate, or from a floating rate to a fixed rate. Transnet’s ability to convert theinterest rate will affect the secondary market and the market value of such Notes since the Issuermay be expected to convert the rate when it is likely to produce a lower overall cost of borrowing.If the Issuer converts from a fixed rate to a floating rate, the spread on the Fixed/Floating RateNotes may be less favourable than then-prevailing spreads on comparable Floating Rate Notes tiedto the same reference rate. In addition, the new floating rate at any time may be lower than therates on other Notes. If Transnet converts from a floating rate to a fixed rate, the fixed rate maybe lower than then-prevailing rates on its Notes.

Notes issued at a substantial discount or premium are subject to increased volatility

The market values of securities issued at a substantial discount or premium to their nominalamount tend to fluctuate more in relation to general changes in interest rates than do prices forconventional interest-bearing securities. Generally, the longer the remaining term of the securities,the greater the price volatility as compared to conventional interest-bearing securities withcomparable maturities.

The Notes may be redeemed prior to their final maturity date for tax or other reasons

In the event that Transnet would be obliged to increase the amounts payable in respect of anyTranche due to certain changes affecting taxation in the Republic of South Africa or any politicalsubdivision thereof, it may redeem all but not some of the outstanding Notes of such Tranche inaccordance with the Conditions.

The Notes contain provisions that permit Transnet to amend the Conditions without the consentof all Noteholders

The Notes contain provisions regarding acceleration and voting on amendments, modifications,changes and waivers, which are commonly referred to as ‘‘collective action clauses’’. Under theseprovisions, certain key provisions of the Notes may be amended, including the maturity date,interest rate and other payment terms, with the consent of the holders of 75 per cent. of theaggregate principal amount of the outstanding Notes. See ‘‘Terms and Conditions of the Notes –Meetings of Noteholders and Modification’’.

Risks Related to the Notes Generally

Set out below is a brief description of certain risks relating to the Notes generally.

European Monetary Union may cause certain Notes to be re-denominated

If the United Kingdom joins the European Monetary Union prior to the maturity of the Notes, thereis no assurance that this would not adversely affect investors in the Notes. It is possible that priorto the maturity of the Notes the United Kingdom may become a participating Member State andthat the Euro may become the lawful currency of the United Kingdom. In that event (i) all amountspayable in respect of any Notes denominated in Sterling may become payable in Euro, (ii) the lawmay allow or require such Notes to be re-denominated into Euro and additional measures to betaken in respect of such Notes; and (iii) there may no longer be available published or displayedrates for deposits in Sterling used to determine the rates of interest on such Notes or changes inthe way those rates are calculated, quoted and published or displayed. The introduction of theEuro in the United Kingdom could also be accompanied by a volatile interest rate environment,which could adversely affect investors in the Notes.

The EU Savings Directive may result in withholding tax on the Notes

Under EC Council Directive 2003/48/EC on the taxation of savings income (the ‘‘EU SavingsDirective’’), Member States are required to provide to the tax authorities of another Member Statedetails of payments of interest (or similar income) paid by a person within its jurisdiction to anindividual resident in that other Member State. However, for a transitional period, Luxembourg andAustria are instead required (unless during that period they elect otherwise) to operate a

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withholding system in relation to such payments (the ending of such transitional period beingdependent upon the conclusion of certain other agreements relating to information exchange withcertain other counties). A number of non-EU countries and territories including Switzerland haveadopted similar measures (a withholding system in the case of Switzerland) with effect from thesame date. Belgium has replaced this withholding tax with a regime of exchange of informationwith the Member State of residence as from 1 January 2010.

If a payment were to be made or collected through a Member State which has opted for awithholding system and an amount of, or an amount in respect of, tax were to be withheld fromthat payment, neither Transnet nor any Paying Agent or Transfer Agent nor any other personwould be obliged to pay additional amounts with respect to any Note as a result of the impositionof such withholding tax. If a withholding tax is imposed on payment made by a Paying Agent orTransfer Agent, Transnet will be required to maintain a Paying Agent and a Transfer Agent in aMember State that will not be obliged to withhold or deduct tax pursuant to the Directive.

Change of law may adversely affect the Notes

The Conditions are based on English law in effect as at the date of issue of the relevant Notes.No assurance can be given as to the impact of any possible judicial decision or change to Englishlaw or administrative practice after the date of issue of the relevant Notes.

Definitive Notes will not be issued in integral multiples of less than f50,000

In relation to any issue of Notes that has a denomination consisting of the minimum SpecifiedDenomination of c50,000 plus a higher integral multiple of another smaller amount, it is possiblethat the Notes may be traded in amounts in excess of c50,000 (or its equivalent) that are notintegral multiples of c50,000 (or its equivalent). In such a case a Noteholder who, as a result oftrading such amounts, holds a principal amount of less than the minimum Specified Denominationwill not receive a definitive Note in respect of such holding (should definitive Notes be printed) andwould need to purchase a principal amount of Notes such that it holds an amount equal to one ormore Specified Denominations.

Risks Related to the Market Generally

Set out below is a brief description of certain market risks, including liquidity risk, exchange raterisk, interest rate risk and credit risk.

There has been no prior market for the Notes and Transnet cannot assure investors that anactive, stable or liquid secondary market for the Notes will develop

Prior to the issuance of Notes under the Programme, there has been no established trading marketfor the Notes. As a result, Transnet cannot predict whether an active trading market will develop.Even after Notes are issued, if a market does develop, it may not be liquid. Therefore, investorsmay not be able to sell their Notes easily or at prices that will provide them with a yieldcomparable to similar investments that have a developed secondary market. This is particularly thecase for Notes that are especially sensitive to interest rate, currency or market risks, are designedfor specific investment objectives or strategies or have been structured to meet the investmentrequirements of limited categories of investors. These types of Notes generally would have a morelimited secondary market and more price volatility than conventional debt securities. Illiquidity mayhave a severely adverse effect on the market value of Notes. Consequently, there can be noassurance that holders of the Notes will be able to resell their Notes at or above the applicableIssue Price.

The Notes may be subject to exchange rate risks and exchange controls

Transnet will pay principal and interest on the Notes in the Specified Currency. This presentscertain risks relating to currency conversions if an investor’s financial activities are denominatedprincipally in a currency or currency unit (the ‘‘Investor’s Currency’’) other than the SpecifiedCurrency. These include the risk that exchange rates may significantly change (including changesdue to devaluation of the Specified Currency or revaluation of the Investor’s Currency) and the riskthat authorities with jurisdiction over the Investor’s Currency may impose or modify exchangecontrols. An appreciation in the value of the Investor’s Currency relative to the Specified Currencywould decrease (1) the Investor’s Currency-equivalent yield on the Notes, (2) the Investor’sCurrency-equivalent value of the principal payable on the Notes and (3) the Investor’s Currency-equivalent market value of the Notes.

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Fixed rate notes are subject to interest rate risks

An investment in Fixed Rate Notes involves the risk that subsequent changes in market interestrates may adversely affect the value of Fixed Rate Notes.

Legal investment considerations may restrict certain investments

The investment activities of certain investors are subject to legal investment laws and regulations,or review or regulation by certain authorities. Each potential investor should consult its legaladvisers to determine whether and to what extent (1) Notes are legal investments for it, (2) Notescan be used as collateral for various types of borrowing and (3) other restrictions apply to itspurchase or pledge of any Notes. Financial institutions should consult their legal advisers or theappropriate regulators to determine the appropriate treatment of Notes under any applicable risk-based capital or similar rules.

Because the Global Notes are held by or on behalf of Euroclear and Clearstream, Luxembourg orDTC, investors will have to rely on their procedures for transfer, payment and communicationwith the Issuer

The Notes may be represented by one or more Global Notes (in the case of Bearer Notes) orGlobal Certificates (in the case of Registered Notes). Such Global Notes and Global Certificateswill be deposited with a Common Depositary, and in the case of Global Certificates, with theCustodian and registered in the name of a nominee of DTC.

Except in the circumstances described in the relevant Global Note, investors will not be entitled toreceive Definitive Notes. Euroclear and Clearstream, Luxembourg will maintain records of thebeneficial interests in the Global Notes. While the Notes are represented by one or more GlobalNotes, investors will be able to trade their beneficial interests only through Euroclear andClearstream, Luxembourg.

While the Notes are represented by one or more Global Notes or Global Certificates, as the casemay be, the Issuer will discharge its payment obligations under the Notes by making payments tothe Common Depositary for distribution to their account holders. A holder of a beneficial interest ina Global Note must rely on the procedures of Euroclear, Clearstream, Luxembourg or DTC toreceive payments under the Notes. The Issuer has no responsibility or liability for the recordsrelating to, or payments made in respect of, beneficial interests in the Global Notes.

Holders of beneficial interests in the Global Notes or Global Certificates, as the case may be, willnot have a direct right to vote in respect of the Notes. Instead, such holders will be permitted toact only to the extent that they are enabled by Euroclear, Clearstream, Luxembourg or DTC toappoint appropriate proxies.

Credit ratings may not reflect all risks

One or more independent credit rating agencies may assign credit ratings to an issue of Notes.The ratings may not reflect the potential impact of all risks related to structure, market factors,additional factors discussed above, and other factors that may affect the value of the Notes. Acredit rating is not a recommendation to buy, sell or hold securities and may be suspended,revised or withdrawn by the rating agency at any time.

The Notes may not be a suitable investment for all investors

Each potential investor in any Notes must determine the suitability of that investment in light of itsown circumstances. In particular, each potential investor should:

* have sufficient knowledge and experience to make a meaningful evaluation of the relevantNotes, the merits and risks of investing in the relevant Notes and the information contained inthis Base Prospectus or any applicable supplement;

* have access to, and knowledge of, appropriate analytical tools to evaluate, in the context ofits particular financial situation, an investment in the relevant Notes and the impact suchinvestment will have on its overall investment portfolio;

* have sufficient financial resources and liquidity to bear all of the risks of an investment in therelevant Notes, including where principal or interest is payable in one or more currencies, orwhere the currency for principal or interest payments is different from the Investor’s Currency;

* understand thoroughly the terms of the relevant Notes and be familiar with the behaviour ofany relevant indices and financial markets; and

29


* be able to evaluate (either alone or with the help of a financial adviser) possible scenarios foreconomic, interest rate and other factors that may affect its investment and its ability to bearthe applicable risks.

Some Notes are complex financial instruments and such instruments may be purchased as a wayto reduce risk or enhance yield with an understood, measured, appropriate addition of risk to theiroverall portfolios. A potential investor should not invest in Notes which are complex financialinstruments unless it has the expertise (either alone or with the help of a financial adviser) toevaluate how the Notes will perform under changing conditions, the resulting effects on the valueof such Notes and the impact this investment will have on the potential investor’s overallinvestment portfolio.

There has been no prior market for the Notes and there is no assurance that an active, stable orliquid market for the Notes will develop

The Notes may have no established trading market when issued, and one may never develop. If amarket does develop, it may not be liquid. Therefore, investors may not be able to sell their Noteseasily or at prices that will provide them with a yield comparable to similar investments that have adeveloped secondary market. This is particularly the case for Notes that are especially sensitive tointerest rate, currency or market risks, are designed for specific investment objectives or strategiesor have been structured to meet the investment requirements of limited categories of investors.These types of Notes generally would have a more limited secondary market and more pricevolatility than conventional debt securities. Illiquidity may have a severely adverse effect on themarket value of Notes.

The trading market for debt securities may be volatile and may be adversely impacted by manyevents

The market for the Notes is influenced by economic and market conditions and, to varyingdegrees, interest rates, currency exchange rates and inflation rates in the United States andEuropean and other industrialised countries. There can be no assurance that events in theRepublic of South Africa, the United States, Europe or elsewhere will not cause market volatility orthat such volatility will not adversely affect the price of Notes or that economic and marketconditions will not have any other adverse effect.

Transfer of the Notes will be restricted, which may adversely affect the value of the Notes

The Notes have not been and will not be registered under the Securities Act or any U.S. statesecurities laws and Transnet has not undertaken to effect any exchange offer for the Notes in thefuture. Investors may not offer the Notes in the United States except pursuant to an exemptionfrom, or a transaction not subject to, the registration requirements of the Securities Act andapplicable U.S. state securities laws, or pursuant to an effective registration statement. The Notesand the Agency Agreement will contain provisions that will restrict the Notes from being offered,sold or otherwise transferred except pursuant to the exemptions available pursuant to Rule 144Aand Regulation S, or other exceptions, under the Securities Act. Furthermore, Transnet has notregistered the Notes under any other country’s securities laws. It is each investor’s obligation toensure that its offers and sales of the Notes within the United States and other countries complywith applicable securities laws. See ‘‘Transfer Restrictions’’.

Investments in emerging markets are subject to greater risk than investments in more developedmarkets

Investors in emerging markets should be aware that these markets are subject to greater risksthan more developed markets, including in some cases significant legal, economic and politicalrisks. Accordingly, investors should exercise particular care in evaluating the risks involved andmust decide for themselves whether, in the light of those risks, their investment is appropriate.Generally, investment in emerging markets is only suitable for sophisticated investors who fullyappreciate the significance of the risk involved.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Base Prospectus are not historical facts but constitute ‘‘forward-lookingstatements’’. This Base Prospectus contains certain forward-looking statements in various sections,including, without limitation, under the headings ‘‘Overview’’, ‘‘Risk Factors’’, ‘‘Operating andFinancial Review’’ and ‘‘Business’’. Transnet may from time to time make written or oral forward-looking statements in reports to its shareholder, holders of debt securities and in othercommunications. Examples of such forward-looking statements include, but are not limited to:

* statements of Transnet’s plans, objectives or goals, including those related to its strategy,products and services;

* statements of future economic performance and financial position and results of operations;

* statements of assumptions underlying such statements; and

* any other statements other than statements of historical fact.

Forward-looking statements that may be made by Transnet from time to time (but that are notincluded in this Base Prospectus) may also include projections or expectations of revenues, income(or loss), earnings (or loss) per share, dividends, capital structure or other financial items or ratios.

Words such as ‘‘aim,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘continue,’’ ‘‘could,’’ ‘‘estimates,’’ ‘‘expects,’’‘‘forecast,’’ ‘‘guidance,’’ ‘‘intends,’’ ‘‘may,’’ ‘‘plans,’’ ‘‘potential,’’ ‘‘predict,’’ ‘‘project,’’ ‘‘targets,’’ ‘‘will,’’‘‘would,’’ and similar expressions are intended to identify forward-looking statements but are not theexclusive means of identifying such statements.

By their very nature, forward-looking statements involve inherent risks and uncertainties, bothgeneral and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. Prospective investors should be aware that a number ofimportant factors could cause actual results to differ materially from the plans, objectives,expectations, estimates and intentions expressed in such forward-looking statements. These factorsinclude:

* the effects of, and changes in, the policy of the Government;

* availability of funding in domestic and international capital markets and in particular,Transnet’s ability to raise sufficient capital to fund its current and future capital expenditureplans, including the Capital Expenditure Programme;

* Transnet’s ability to operate its business and carry out its current and future capitalexpenditure plans and other obligations;

* Transnet’s ability to project that the planned expenditures under the Capital ExpenditureProgramme are sufficient to meet the goals of the Capital Expenditure Programme or thatactual costs will be as anticipated;

* the ability of Transnet’s current rail lines, container terminals, port facilities and pipelines tosatisfy current and ongoing demand;

* Transnet’s ability to upgrade and/or expand its existing rail lines, container terminals, portfacilities and pipelines and to develop new facilities;

* Transnet’s ability to develop, enhance and implement strategies to adapt to changingconditions in the freight rail, port, container terminal and pipeline industry and segments;

* Transnet’s ability to adjust tariffs set by government agencies to reflect changing marketconditions;

* expectations regarding the future of the freight transportation industry in the Republic of SouthAfrica;

* competition from road freight and other transportation logistics providers;

* the effects of domestic and international political events on Transnet’s business;

* the impact of regulatory initiatives including labour laws, taxation, health and safetyregulations, environmental laws, security requirements adopted by various international bodiesand governmental agencies and the National Ports Act, among others;

* Transnet’s competitive strengths and weaknesses;

* the effects of electricity shortages and load shedding on Transnet’s business and that of itscustomers;

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* the effects of economic conditions in the Republic of South Africa, including GDP growth,increases or decreases in inflation or changes to interest rates or foreign exchange rates;

* worldwide economic conditions, inflation and deflation, monetary conditions and policies ofcentral banks, interest rates, exchange rates and financial market conditions generally;

* acts of war, terrorist acts, geopolitical events, pandemic or other such events, natural andother disasters, adverse weather and similar events;

* the ability to hedge risk economically; and

* Transnet’s success at managing the risks of the aforementioned factors.

Additional factors that could cause actual results, performances or achievements to differ materiallyinclude, but are not limited to, those discussed under the heading ‘‘Risk Factors’’. Forward-lookingstatements speak only as of the date of this Base Prospectus and, except as required byapplicable law, rule or regulation, Transnet expressly disclaims any obligation or undertaking topublicly update or revise any forward-looking statements in this Base Prospectus to reflect anychange in its expectations or any change in events, conditions or circumstances on which theseforward-looking statements are based.

This list of important factors is not exhaustive. When relying on forward-looking statements,prospective investors should carefully consider the aforementioned factors and other uncertaintiesand events, especially in light of the political, economic, social and legal environment in whichTransnet operates. Such forward-looking statements speak only as at the date on which they aremade and are not subject to any continuing obligations under any guidelines issued by the LondonStock Exchange. Accordingly, except as required by applicable law, rule or regulation, Transnetdoes not undertake any obligation to update or revise any of them, whether as a result of newinformation, future events or otherwise, provided that the Issuer will update this Base Prospectusas required by, and in accordance with, the Prospectus Rules, Listing Rules and Disclosure andTransparency Rules. Transnet does not make any representation, warranty or prediction that theresults anticipated by such forward-looking statements will be achieved, and such forward-lookingstatements represent, in each case, only one of many possible scenarios and should not beviewed as the most likely or standard scenario.

32


PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Fiscal and calendar years

The Group’s financial year ends on 31 March. In this Base Prospectus, in order to distinguishbetween financial years and calendar years, the following conventions are adopted: (i) calendaryears are referred to as ‘‘calendar year [YEAR]’’ or simply ‘‘[YEAR]’’ and (ii) the Group’s financialyear is referred to as the ‘‘year ended or year ending 31 March [YEAR]’’ or as ‘‘Financial Year[YEAR]’’. For example, the 12 month period ended 31 March 2009 is referred to as Financial Year2009.

Presentation of Financial Information

Financial information

This Base Prospectus contains audited consolidated financial statements for the Group as at, andfor Financial Years 2009, 2008 and 2007, which have been prepared in accordance with IFRS asissued by IASB and unaudited condensed consolidated financial statements as at, and for the sixmonths ended 30 September 2009 and 2008 which have been prepared in accordance withInternational Accounting Standards No. 34, Interim Financial Reporting (‘‘IAS 34’’). The Group’sfinancial statements are presented in Rand which is the Group’s functional currency.

The financial information for Financial Years 2007 and 2008, as presented in the Group’s financialstatements for Financial Year 2009, has been restated. The restatement is principally to reflect thefollowing corrections and adjustments:

* IAS 12: Income Taxes: In Financial Year 2008, management estimated the split betweentaxable depreciable assets and non-taxable depreciable assets in respect of TransnetPipelines, assets for the purposes of calculating the deferred taxation liability. This split wasreviewed in Financial Year 2009, which resulted in a decrease in the proportion of taxationdepreciable assets to non-taxation depreciable assets. Accordingly an adjustment wasrequired in Financial Year 2008. In addition, deferred taxation relating to a financearrangement in Financial Year 2008 was over-estimated in the prior year, and has beencorrected subsequently. Accordingly, deferred taxation decreased by R 84 million in therestated 2008 financial information as well as by R 147 million in the restated 2007 financialinformation and a corresponding adjustment was required in the financial statements for thesix months ended 30 September 2008.

* IAS 23: Borrowing Costs: All borrowing costs incurred on qualifying assets are capitalised tothe cost of property, plant and equipment. However in Financial Year 2008 this wasincorrectly applied and this has resulted in a reduction in finance costs of R 16 million and anincrease in the deferred taxation charge of R 4 million. This restatement also resulted in anincrease in property, plant and equipment of R 54 million in Financial Year 2008. For the sixmonths ended 30 September 2008, this restatement resulted in an increase in property, plantand equipment of R 54 million and an increase in deferred taxation charge of R 15 million.Financial Year 2007 was also impacted by this restatement resulting in a decrease in financecosts of R 38 million and an increase in the deferred taxation charge of R 11 million.

* IAS 21: The Effects of Changes in Foreign Exchange Rates: An assessment of foreignexchange gains and losses on derivative financial instruments resulted in a restatement of fairvalue gains for Financial Year 2008. The financial effect of this restatement has resulted in areduction in fair value gains by R 64 million and a reduction in the current taxation charge ofR 18 million with respect to Financial Year 2008. For the six months ended 30 September2008, this restatement resulted in an increase in property, plant and equipment of R 64million and an increase in deferred taxation charge of R 18 million.

* IAS 19: Employee Benefits: An assessment of the manner in which transfers from the fundswere treated resulted in a reduction of the actuarial gains and losses in the disclosure in therestated 2008 financial information, of R 151 million, and a deferred taxation charge reductionof R 42 million.

* IAS 16: Property Plant and Equipment: In terms of an approved incentive bonus scheme,certain contractors that are engaged to construct assets were entitled to an incentivepayment. This payment in terms of IAS 16 should have been recognised as part of thecarrying value of the asset but was incorrectly expensed in Financial Year 2008.Consequently, in the restated 2008 financial information an adjustment of R 50 million was

33


recorded to reduce the incentive bonus expense with an increase in the deferred taxationcharge of R 14 million. For the six months ended 30 September 2008, this restatementresulted in an increase in property, plant and equipment of R 50 million and an increase indeferred taxation charge of R 14 million.

* IAS 37: Provisions, Contingent Liabilities and Contingent Assets: The Group has had alegal obligation as defined in terms of IAS 37 for the rehabilitation caused by asbestoscontamination since the enactment of certain legislation in 1998, and accordingly a provisionhas been recorded for the estimated costs of the restoration in Financial Year 2008. TheGroup recognised a R 110 million decrease in the provision expense and a subsequentincrease in the deferred taxation charge of R 31 million in the restated 2008 financialinformation. This has also resulted in the recognition of a provision of R 700 million, anincrease in the depreciation charge of R 3 million and a reduction in the deferred taxationcharge of R 197 million recorded against the restated 2007 financial information. This resultedin an increase in the provision of R 567 million, a subsequent decrease in deferred taxationliability of R 166 million and a decrease of R 26 million in property plant and equipment forthe six months ended 30 September 2008.

In addition to the restatements described above, the Group adopted IFRS 8 Operating Segments(IFRS 8) in Financial Year 2009. IFRS 8 replaces IAS 14 Segment Reporting (IAS 14). The coreprinciple of IFRS 8 is that an entity shall disclose information to enable users of its financialstatements to evaluate the nature and financial effects of the business activities in which itengages and the economic environments in which it operates. IFRS 8 is a disclosure standard andconsequently has not impacted reported results. There were no changes to the operating segmentsupon adoption of IFRS 8 compared to the operating segments disclosed under IAS 14.

The Consolidated Financial Statements have been audited by Deloitte & Touche, who haveexpressed unqualified opinions on the Group’s Consolidated Financial Statements.

Operating Divisions and Segment Reporting

The Group operates and manages its business principally by division, and its current divisions are:Transnet Freight Rail, Transnet Rail Engineering, Transnet National Ports Authority Transnet PortTerminals and Transnet Pipelines. The Group’s principal business segments were, for the periodsunder review, Transnet Freight Rail, Transnet Rail Engineering, Transnet National Ports Authority,Transnet Port Terminals, Transnet Pipelines and other. Unless otherwise specified herein,references to segment revenue are to segment total revenue, including external and internalrevenue.

Presentation of Non-IFRS Measures

This Base Prospectus contains certain non-IFRS measures, including ‘‘EBITDA’’ and ‘‘EBITDAmargin,’’, ‘‘adjusted EBITDA’’ and ‘‘adjusted EBITDA margin’’, ‘‘return on average total assets,’’‘‘gearing ratio,’’ ‘‘total debt-to-total capital employed,’’ ‘‘interest cover (times),’’ ‘‘cash interest cover(times),’’ and ‘‘operating cash flow to total debt’’.

The Group has presented EBITDA, adjusted EBITDA and the associated margin and the othernon-IFRS measures noted above as it believes that they enhance investors’ understanding of theGroup’s financial performance and because it uses these measures in its business operations toevaluate the performance of its operations. These measures are not a measure of a company’sfinancial performance or earnings under IFRS and as such should not be viewed as an alternativeto profit, operating profit or other measures of earnings under IFRS. Nor should these measures beviewed as an alternative to cash flow from operating activities or as a measure of liquidity.Transnet uses these measures as supplemental measures of operating performance because theyare internationally recognised measures that are regularly used by security analysts, ratingagencies, investors and other parties to evaluate a company’s operating performance. Transnetalso believes that these measures serve as a useful indicator of Transnet’s ability to incur andservice its indebtedness. EBITDA and similar measures are used by different companies fordiffering purposes and are often calculated in ways that reflect the circumstances of thosecompanies. You should exercise caution in comparing EBITDA as reported by the Group toEBITDA of other companies.

The Group defines EBITDA as profit for the period after tax from continuing operations before netfinance costs, taxation, depreciation and amortisation. The Group defines adjusted EBITDA as

34


EBITDA adjusted to exclude the impact of impairment of assets, dividends received, fair valueadjustments, post-retirement benefit obligation costs/income and income/(loss) from associates andjoint ventures. The Group excludes these items because it considers them to be non-recurring ornot reflective of the ongoing activities of the Group. The Group defines EBITDA margin as EBITDAexpressed as a percentage of revenue. The Group defines adjusted EBITDA margin as adjustedEBITDA expressed as a percentage of revenue. For further information on the reconciliation ofthese measures to measures disclosed in the Consolidated Financial Statements and InterimConsolidated Financial Statements, see ‘‘Summary Consolidated Financial and Other Information’’.EBITDA and adjusted EBITDA should not be considered an indication of the Group’s performanceor as an alternative to cash flows as a measure of the Group’s liquidity as determined inaccordance with IFRS and should not be considered in isolation, because their ability to conveymeaningful information is limited in various respects. For example, EBITDA and adjusted EBITDA,among other things:

* do not reflect any cash capital expenditure requirements for the assets being depreciated andamortised that may have to be replaced in the future;

* do not reflect any impairments of assets, such as property, plant, and equipment, subsidiariesand associates, loans and advances, and trade and other receivables;

* do not reflect changes in, or cash requirements for, the Group’s working capital needs; and

* do not reflect the significant financial cost of, or the cash requirements necessary to serviceinterest payments on, the Group’s debts.

The Group defines ‘‘operating profit’’ as profit before income/(loss) from associates and jointventures and net finance costs. The Group defines ‘‘operating profit margin’’ as profit beforeincome/(loss) from associates and joint ventures, and net finance costs, expressed as apercentage of revenue.

The Group defines ‘‘return on average total assets’’ as its operating profit for a period expressedas a percentage of average total assets for such period. ‘‘Average total assets’’ for the period isdefined as the sum of the total assets (consisting of current and non-current assets) at thebeginning of Financial Year plus the total assets as at the end of the last two Financial Years,divided by two. The Group defines ‘‘gearing ratio’’ as net debt (as defined below) expressed as apercentage of the sum of net debt and shareholders’ equity. Net debt is defined as interest-bearingborrowings (both short and long term), post-retirement benefit obligations, derivative financialliabilities (both short and long term) plus bank overdrafts, all less short term investments and cashand cash equivalents.

The Group defines ‘‘interest cover (times)’’ as its operating profit divided by net finance costs. TheGroup defines ‘‘cash interest cover (times)’’ as cash generated from operations after workingcapital changes, divided by net finance costs expressed as a ratio. For these purposes, net financecosts consist of finance costs (including capitalised borrowing costs) and finance income from thecash flow statement.

These non-IFRS measures, including EBITDA, adjusted EBITDA, EBITDA margin, adjustedEBITDA margin, return on average total assets, gearing ratio, interest cover (times) and cashinterest cover (times) have important limitations as analytical tools and investors should notconsider them in isolation or as substitutes for analysis of the Group’s results as reported underIFRS. These and similar measures are used by different companies for different purposes and areoften calculated in ways that reflect the circumstances of those companies. Investors shouldexercise caution in comparing these measures as reported by Transnet to the measures asreported by other companies.

Currency

In this Base Prospectus, the following currency terms are used:

* ‘‘South African Rand’’, ‘‘Rand’’, ‘‘R’’ or ‘‘ZAR’’ refers to the lawful currency of the Republic ofSouth Africa;

* ‘‘$,’’ ‘‘U.S. Dollar,’’ ‘‘USD’’ or ‘‘U.S.$ ‘‘ refers to the lawful currency of the United States;

* ‘‘£’’, ‘‘Pounds’’ or ‘‘British Pounds’’ refers to the lawful currency of the United Kingdom;

35


* ‘‘e’’, ‘‘Euro’’ or ‘‘EUR’’ refers to the currency introduced at the start of the third stage of theEuropean Economic and Monetary Union pursuant to the Treaty establishing the EuropeanCommunity, as amended;

* ‘‘AUD’’ or ‘‘Australian Dollars’’ refers to the legal currency of Australia; and

* ‘‘JPY,’’ ‘‘Japanese Yen,’’ ‘‘Yen’’ or ‘‘¥’’ refers to the legal currency of Japan.

Exchange Rates

The table below sets forth, for the periods and dates indicated, certain information regarding theexchange rate between the Rand and the U.S. Dollar, based on the exchange rate quoted by theI-Net Bridge (Pty) Limited. Fluctuations in the exchange rates between the Rand and the U.S.Dollar in the past are not necessarily indicative of fluctuations that may occur in the future. Therates may differ from the actual rates used in the preparation of the Group’s Consolidated FinancialStatements and Interim Consolidated Financial Statements and other financial informationappearing in this Base Prospectus. The Issuer makes no representation that the Rand or U.S.Dollar amounts referred to in this Base Prospectus have been, could have been or in the futurecould be converted to Rand or U.S. Dollars at any particular rate, or at all. On 31 December 2009,the official exchange rate quoted by I-Net Bridge (Pty) was R 7.3996 to $1.

High(1) Low(2)Period

average(3)Period

end(4)

(Rand per U.S. Dollar)Month endedJanuary 2010 (through 20 January) .................... 7.5733 7.2269 7.3682 7.536331 December 2009 ............................................. 7.7644 7.2469 7.4792 7.399630 November 2009 ............................................. 8.1487 7.2878 7.4959 7.403431 October 2009 ................................................. 7.89 7.1925 7.4701 7.80930 September 2009 ............................................ 7.9264 7.2697 7.4947 7.51431 August 2009................................................... 8.2110 7.6700 7.9271 7.769031 July 2009 ....................................................... 8.3578 7.5838 7.9350 7.772530 June 2009 ...................................................... 8.2684 7.7756 8.0529 7.775629 May 2009 ....................................................... 8.6961 7.9795 8.3750 7.979530 April 2009....................................................... 9.5260 8.4291 9.0248 8.429131 March 2009 .................................................... 10.5948 9.4816 10.0060 9.626627 February 2009................................................ 10.2298 9.6721 10.2298 9.949830 January 2009 ................................................. 10.2549 9.3163 9.9055 10.1333

Year ended 31 December2008 .................................................................... 11.474 6.7211 7.6305 9.30352007 .................................................................... 7.5233 6.4639 7.0543 6.78622006 .................................................................... 7.953 5.968 6.7671 6.97372005 .................................................................... 6.9186 5.6497 6.3623 6.32052004 .................................................................... 7.5197 5.6148 6.4499 5.6356

(1) The highest daily average of the exchange rates recorded on each business day of the relevant month or year as applicable.

(2) The lowest daily average of the exchange rates recorded on each business day of the relevant month or year as applicable.

(3) The average exchange rate for each relevant month or year as applicable calculated using the daily average exchange rate.

(4) The average daily exchange rate on the last business day of each relevant month or year as applicable.

See also ‘‘Operating and Financial Review – Significant Factors Affecting the Group’s FinancialCondition and Results of Operations – Volatility of the Rand ’’.

Rounding

Rounding adjustments have been made in calculating some of the financial information included inthis Base Prospectus. As a result, numerical figures shown as totals in some tables may not beexact arithmetic aggregations of the figures that precede them.

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Market Data

The Issuer has obtained certain statistical and market information that is presented in this BaseProspectus on such topics as the South African transportation industry, the South African economyin general and related subjects from the following third-party sources:

* the Government;

* the SARB; and

* Statistics South Africa

This third-party information is presented in the following sections of this Base Prospectus:‘‘Overview’’, ‘‘Risk Factors,’’ ‘‘Operating and Financial Review’’ and ‘‘Business’’.

The Issuer takes responsibility for the accurate reproduction of such information and, as far as theIssuer is aware and is able to ascertain from information published by such third parties, no factshave been omitted that would render the reproduced information inaccurate or misleading.Nevertheless, prospective investors are advised to consider this data with caution. Market studiesare often based on information or assumptions that may not be accurate or appropriate, and theirmethodology is inherently predictive and speculative. Prospective investors should note that theIssuer’s estimates are based on such third-party information. None of the Issuer, the Arrangers orthe Dealers has independently verified the figures, market data or other information on which thirdparties have based their studies.

Industry Measures

The Issuer employs a number of metrics to quantify volume, throughput and other industry-relatedmeasures. In this Base Prospectus, the following terms used have the following definitions:

* GTK: means gross tonne kilometres: it is a unit of measurement of the total gross weight (inmetric tonnes) of general freight loaded and empty active wagons multiplied by the distance(in kilometres) travelled by the general freight locomotives;

* km: means kilometre;

* m: means metre;

* mt: means metric tonne (also called long tonne); it is a measure commonly used for bulk;

* mtpa: means metric tonne per annum;

* ml.km: means million litre kilometres;

* mV: means million volumes;

* TAT: means turnaround time (in days);

* TEU: means twenty-foot equivalent unit: it is an inexact unit of cargo capacity used todescribe the capacity of container ships and terminals. The TEU corresponds to a standardshipping container measuring 20 feet long and 8 feet wide, the height of which can vary;

* Tonne kilometre: is a unit of measurement of the freight transportation performed by arailroad during a given period, usually a year, the total of which consists of the sum of theproducts obtained by multiplying the aggregate weight of each shipment in metric tonnesduring the given period by the number of kilometres for which it is carried;

* mt/h: means metric tonnes per hour; and

* Vol: means volume.

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SUPPLEMENTARY PROSPECTUS

If at any time the Issuer shall be required to prepare a supplementary prospectus pursuant tosection 87G of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’), the Issuer will prepareand make available an appropriate amendment or supplement to this Base Prospectus or a furtherBase Prospectus which, in respect of any subsequent issue of Notes to be listed on the OfficialList and admitted to trading on the Market, shall constitute a supplementary prospectus as requiredby the UK Listing Authority and section 87G of the FSMA.

The Issuer has given an undertaking to the Arrangers and the Dealers that if at any time duringthe duration of the Programme there is a significant new factor, material mistake or materialinaccuracy relating to information contained in this Base Prospectus which is capable of affectingthe assessment of any Notes and whose inclusion in, or removal from, this Base Prospectus isnecessary for the purpose of allowing an investor to make an informed assessment of the assetsand liabilities, financial position, profits and losses and prospects of the Issuer, and the rightsattaching to the Notes, then the Issuer shall prepare an amendment or supplement to this BaseProspectus or publish a replacement Base Prospectus for use in connection with any subsequentoffering of the Notes and shall supply to each Arranger and each Dealer such number of copies ofsuch supplement hereto as such Arranger or Dealer may reasonably request.

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AVAILABLE INFORMATION

The Issuer has agreed that, for so long as any Notes are ‘‘restricted securities’’ as defined in Rule144(a)(3) under the Securities Act, it will, during any period that it is neither subject to Sections 13or 15(d) of the United States Securities Exchange Act of 1934 (the ‘‘Exchange Act’’) nor exemptfrom reporting pursuant to Rule 12g3-2(b) thereunder, furnish, upon request, to any holder orbeneficial owner of Notes or any prospective purchaser designated by any such holder or beneficialowner, the information required to be delivered pursuant to Rule 144A(d)(4) under the SecuritiesAct.

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USE OF PROCEEDS

The net proceeds from the issue of each Tranche of Notes will be used by Transnet Limited tofund its Capital Expenditure Programme and for its general corporate purposes. If, in respect ofany particular issue, there is a particular identified use of proceeds, this will be stated in therelevant Final Terms.

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CAPITALISATION AND INDEBTEDNESS

The following table sets out Transnet’s historical capitalisation as at 30 September 2009.Prospective investors should read this information in conjunction with ‘‘Use of Proceeds,’’‘‘Operating and Financial Review’’ and the Consolidated Financial Statements and InterimConsolidated Financial Statements and the Notes thereto included elsewhere in this BaseProspectus. Save as disclosed in the footnotes below, there has been no material change in thecapitalisation of Transnet since 30 September 2009.

As at30 September

2009(unaudited)

(R millions)

Total short-term debt(1)............................................................................................... 3,952Long-term debt(2)........................................................................................................ 39,005

Total indebtedness ..................................................................................................... 42,957

Shareholders’ equityIssued share capital .................................................................................................. 12,661Reserves .................................................................................................................... 49,001

Total capital and reserves .......................................................................................... 61,662

Total capitalisation(3)(4) ............................................................................................... 100,667

(1) Consists of: short-term borrowings and bank overdrafts.

(2) Consists of: long-term borrowings.

(3) Consists of: long-term borrowings and capital and reserves.

(4) Since 30 September 2009 to 22 January 2009, the Group has issued a total of R 2.3 billion in domestic bonds, raised R 600million in commercial paper, secured R 287 million in domestic loans and R 1.3 billion in foreign loans and repaid R 1.4 billion ofcommercial paper, R 92 million of domestic loans and R 19 million of foreign loans.

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SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION

The selected income statement, balance sheet and cash flow information as at and for FinancialYears 2009, 2008, and 2007 and as at and for the six months ended 30 September 2009 and2008 of the Group has been derived from the Group’s Consolidated Financial Statements andInterim Consolidated Financial Statements, respectively, which are included elsewhere in this BaseProspectus.

The selected consolidated financial information has been derived from, and should be read inconjunction with, the Consolidated Financial Statements and Interim Consolidated FinancialStatements and the related notes thereto included elsewhere in this Base Prospectus, as well asthe section entitled ‘‘Operating and Financial Review’’. For a discussion of the restatement of theGroup’s financial statements for Financial Years 2008 and 2007 please see ‘‘Presentation ofFinancial and Other Information’’.

The selected non-IFRS consolidated income statement, balance sheet and cash flow informationand operating data presented under the caption ‘‘Other Consolidated Financial and Operating Data’’has been calculated using information from the Consolidated Financial Statements and the InterimConsolidated Financial Statements included elsewhere in this Base Prospectus.

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Consolidated Income Statement Data


Year ended31 March

2009 2008 20092008

(Restated)2007

(Restated)

(R millions)Continuing operationsRevenue ................................. 17,335 16,849 33,592 30,091 26,899Net operating expensesexcluding depreciation andamortisation ............................ (10,694) (10,299) (20,392) (17,281) (16,232)

Profit from operationsbefore depreciation,amortisation and itemslisted below ........................... 6,641 6,550 13,200 12,810 10,667Depreciation and amortisation (2,925) (2,303) (4,779) (3,798) (2,952)

Profit from operationsbefore items listed below .... 3,716 4,247 8,421 9,012 7,715Post-retirement benefitobligation (costs)/income ........ (19) 67 (436) 686 (218)Impairment of assets .............. (187) (110) (324) (153) (232)Dividends received ................. — — — 122 36Fair value adjustments ........... (157) (282) 941 1,416 2,462

Profit before income/(loss)from associates and jointventures and net financecosts ...................................... 3,353 3,922 8,602 11,083 9,763Income/(loss) from associatesand joint ventures ................... — — 82 (59) 2Finance costs ......................... (1,634) (1,089) (2,233) (2,692) (2,472)Finance income ...................... 263 89 267 761 185

Profit before taxation ........... 1,982 2,922 6,718 9,093 7,478Taxation .................................. (695) (861) (1,674) (2,642) (1,742)

Profit for the period aftertaxation from continuingoperations ............................. 1,287 2,061 5,044 6,451 5,736Discontinued operations(Loss)/profit from discontinuedoperations, including (loss)/profit on disposal ofdiscontinued operations andimpairments ............................ (13) (400) (516) (1,921) 921

Profit for the period.............. 1,274 1,661 4,528 4,530 6,657

Attributable to equity holder .... 1,274 1,661 4,528 4,526 6,640Attributable to minorityinterests .................................. — — — 4 17

43


Extract from the Consolidated Balance Sheet


2009 2008 20092008

(Restated)2007

(Restated)

(R millions)Property, plant and equipment ............. 105,844 85,543 96,459 78,256 53,908Investment properties........................... 5,742 4,514 5,961 4,515 3,223Other investments and long-termfinancial assets .................................... 327 451 287 452 460Inventories............................................ 2,495 2,617 2,589 2,319 1,798Trade and other receivables ................ 5,103 4,314 5,503 4,074 3,992Cash and cash equivalents.................. 6,512 2,561 5,880 5,980 3,847Assets classified as held-for-sale......... 321 1,311 374 1,131 3,570Total assets ........................................ 129,301 102,949 118,534 98,686 77,358Total equity .......................................... 61,662 53,562 58,334 50,961 36,818Post-retirement benefit obligations....... 2,228 2,144 2,324 2,181 2,422Long-term borrowings .......................... 39,005 19,407 29,758 16,890 17,535Deferred taxation liabilities ................... 9,768 7,598 8,589 6,695 1,726Trade payables and accruals ............... 6,693 7,118 6,491 6,988 5,875Short-term borrowings.......................... 3,952 7,330 7,255 8,382 7,615Short-term provisions ........................... 2,224 2,119 2,279 2,533 2,376Liabilities directly associated withassets classified asheld-for-sale ......................................... 16 692 14 676 453Total current liabilities .......................... 13,853 18,105 17,002 19,517 17,012Total Liabilities and Equity ............... 129,301 102,949 118,534 98,686 77,358

Extract from Consolidated Cash Flow


Year ended31 March

2009 2008 20092008

(Restated)2007

(Restated)

(R millions)

Cash flows from operating activities .... 5,278 3,176 7,400 10,287 8,941Cash flows used in investing activities. (10,611) (8,580) (19,084) (8,250) (10,345)Cash flows from financing activities ..... 5,963 1,417 11,587 9 3,669

Net increase/decrease in cash andcash equivalents ................................ 630 (3,987) (97) 2,046 2,265

Cash flows from discontinuedoperationsCash flows from operating activities .... — 17 36 634 995Cash flows used in investing activities. — (77) (193) (466) (374)Cash flows from/(used in) financingactivities ............................................... — 58 154 (376) 198

Net (decrease)/increase in cash andcash equivalents from discontinuedoperations........................................... — (2) (3) (208) 819

44


Other Consolidated Financial and Operating Data

As at or for the sixmonths ended30 September

As at or for the year ended31 March

2009 2008 20092008

(Restated)2007

(Restated)

EBITDA (R millions)(1).......................... 6,278 6,225 13,463 14,822 12,717Adjusted EBITDA (R millions)(1)........... 6,641 6,550 13,200 12,810 10,667EBITDA margin (per cent.)(2) ............... 36 37 40 49 47Adjusted EBITDA margin (per cent.)(2) 38 39 39 43 40Operating profit margin (per cent.)(3) ... 19 23 26 37 36Return on average total assets (percent.)(4)................................................. n/a n/a 8 13 13Gearing ratio (per cent.)(5) ................... 37 33 36 30 40Interest cover (times)(6) ........................ 2.4 3.9 4.4 5.7 4.3Cash interest cover (times)(6)............... 4.2 3.9 4.0 6.7 5.5

(1) The Group defines EBITDA as profit for the period after tax from continuing operations before net finance costs, taxation,depreciation and amortisation. The Group defines adjusted EBITDA as EBITDA adjusted to exclude the impact of impairmentof assets, dividends received, fair value adjustments, post-retirement benefit obligation costs/income and income/loss fromassociates and joint ventures. The Group excludes these items because it considers them to be non-recurring or not reflectiveof the ongoing activities of the Group. The Group defines adjusted EBITDA margin as adjusted EBITDA expressed as apercentage of revenue. For further information on management’s use of these measures, including the limitations of thesemeasures, see ‘‘Presentation of Financial and Other Information’’ and for the reconciliation of these measures to measures inthe Consolidated Financial Statements, see the reconciliations below.

For the six months ended30 September

For the year ended31 March

2009 2008 20092008

(Restated)2007

(Restated)

(R millions)Profit for the period after taxationfrom continuing operations ............... 1,287 2,061 5,044 6,451 5,736Add back:Net financial costs ................................. 1,371 1,000 1,966 1,931 2,287Taxation ................................................ 695 861 1,674 2,642 1,742Depreciation and amortisation............... 2,925 2,303 4,779 3,798 2,952

EBITDA................................................. 6,278 6,225 13,463 14,822 12,717Add back:Impairment of assets............................. 187 110 324 153 232Dividends received ................................ — — — (122) (36)(Income)/loss from associates and jointventures ................................................ — — (82) 59 (2)Post-retirement benefit obligation(income)/costs ....................................... 19 (67) 436 (686) 218Fair value adjustments .......................... 157 282 (941) (1,416) (2,462)

Adjusted EBITDA ................................ 6,641 6,550 13,200 12,810 10,667

(2) The Group defines EBITDA margin and adjusted EBITDA margin as EBITDA and adjusted EBITDA, respectively, expressedas a percentage of revenue.

(3) The Group defines operating profit margin as profit before income/(loss) from associates and joint ventures and net financecosts, expressed as a percentage of revenue.

(4) The Group defines return on average total assets as its operating profit for a period expressed as a percentage of average totalassets for such period. The Group defines operating profit as profit before income/(loss) from associates and joint ventures andnet finance costs. The Group defines average total assets for the Financial Year as the sum of the total assets at the beginningof the Financial Year plus the total assets as at the end of the Financial Year, divided by two.

(5) The Group defines and computes gearing ratio as net debt (defined as long-term borrowings, short-term borrowings, post-retirement benefit obligations, derivative financial liabilities, and overdrafts, less other short-term investments and cash andcash equivalents) expressed as a percentage of the sum of net debt and shareholder’s equity.

(6) The Group defines interest cover (times) as its operating profit divided by net finance costs expressed as a ratio. The Groupdefines cash interest cover (times) as cash generated from operations after working capital changes, divided by net financecosts (which includes capitalised borrowing costs) expressed as a ratio. For these purposes, net finance costs consist offinance costs (including capitalised borrowing costs) and finance income from the cash flow statement.

45


OPERATING AND FINANCIAL REVIEW

The following discussion and analysis of the Group’s financial condition and results of operations isbased on the Consolidated Financial Statements prepared in accordance with IFRS and the InterimConsolidated Financial Statements prepared in accordance with IAS 34. This discussion should beread in conjunction with the information in ‘‘Selected Consolidated Financial and Other Information’’,‘‘Presentation of Financial and Other Information,’’ the Consolidated Financial Statements andInterim Consolidated Financial Statements and the notes thereto appearing elsewhere in this BaseProspectus.

This discussion and analysis contains forward-looking statements that involve risks anduncertainties. The Group’s actual results could differ materially from those expressed or implied inthese forward-looking statements as a result of various factors, including those discussed belowand elsewhere in this Base Prospectus, particularly under the headings ‘‘Risk Factors’’ and‘‘Cautionary Note Regarding Forward-looking Statements’’.

Overview

Transnet is a public company with the Government as its sole Shareholder. As the operator andcustodian of a major portion of the Republic of South Africa’s transport infrastructure, Transnet isresponsible for ensuring that a significant part of the country’s bulk freight transportation systemoperates according to world-class standards and as an integral part of the overall economy.Transnet is a focused freight transport company with a goal of delivering integrated, efficient, safe,reliable and cost-effective services. Transnet’s key mandate, as defined by the ShareholderCompact, is to assist in lowering the cost of doing business and to enable economic growth in theRepublic of South Africa. Transnet seeks to promote economic growth in the Republic of SouthAfrica by providing Transnet’s customers with access to world-class integrated logistics solutionsand by creating transport capacity ahead of demand. Transnet is funded through reserves andborrowings and does not receive cash subsidies from the Government. Transnet’s borrowings arebased on the strength of its own balance sheet, and going forward, Transnet intends to borrowwithout Government subsidies. As a result, Transnet is required to earn an appropriate return onassets that will allow for the maintenance and expansion of the rail, port and pipeline infrastructurethat it owns and operates, while maintaining a strong balance sheet.

Substantially all of Transnet’s revenues are generated in the Republic of South Africa. Over thepast four financial years, Transnet has transformed from a diversified conglomerate into a focusedrail, port and pipeline operator. Transnet has accomplished this through the sale, closure ortransfer of non-core assets and businesses, which have been treated as discontinued operationsfor accounting purposes. Transnet’s continuing operations are grouped into divisions according totheir operational activity, with central support services unified under one brand. For operational andIFRS reporting purposes, Transnet is organised into the following five core business divisions:Transnet Freight Rail, Transnet Rail Engineering, Transnet National Ports Authority, Transnet PortTerminals and Transnet Pipelines. The ‘‘Other’’ segment includes Transnet Property, Transnet FuelSolutions, Transnet Capital Projects, Transnet Corporate Centre and Transnet Heritage Foundation.

Transnet Freight Rail is focused on transporting bulk and containerised freight. Transnet FreightRail transported approximately 177 million tonnes of freight during Financial Year 2009, and86.9 million tonnes of freight during the six months ended 30 September 2009.

Transnet Rail Engineering consists of eight product-focused business units that provide servicesranging from refurbishment, conversion and upgrades, to the manufacturing and assembly of rail-related rolling stock. Most of Transnet Rail Engineering’s sales are generated from sales toTransnet Freight Rail and PRASA (a separate state owned entity and accordingly a related partyunder IFRS).



46



Significant Factors Affecting the Group’s past Financial Condition and Results of Operations

Economic Review

Global output and trade decreased significantly in the final months of calendar year 2008 andremain at low levels in comparison to global output and trade in 2007. The continuation of thefinancial crisis has caused equity values to fall sharply across both advanced and emergingeconomies. This, in turn has generally decreased household wealth and placed downward pressureon consumer demand. In addition, the associated high level of uncertainty has largely promptedhouseholds and businesses to reduce or postpone certain expenditures, reducing demand forconsumer and capital goods. At the same time, stricter credit funding criteria are constraininghousehold spending and curtailing production and trade. World gross domestic product growth isestimated by IHS Global Insight to have slowed to 2.4 per cent. in 2008 from 4 per cent. in 2007.

In response to decreasing demand and hence decreasing economic growth and inflation, the SARBhas lowered interest rates by 500 basis points since December 2008. Transnet and Transnet’sprincipal customers’ businesses and operations are closely related to the South African economyand may be materially affected by conditions in the South African economy, such as interest rates,inflation rates, commodity price movements and general economic conditions. Inflation and certaincommodity price movements had a significant impact on Transnet’s revenues and net operatingexpenses in Financial Year 2009 as compared to Financial Year 2008.

However, South African real GDP expanded at a noticeably slower pace in calendar year 2008 andthe South African economy recorded its lowest rate of growth in nominal GDP in ten years,consistent with slower global economic growth. This was primarily driven by a substantialcontraction in the mining sector which was directly affected by weaker international demand, fallingcommodity prices and interruptions due to maintenance, safety procedures and strikes. Despitetightening economic conditions, there has been an increasing contribution to South African growthfrom investment, in part reflecting an increase in public infrastructure spending led by outlays toexpand electricity-generation capacity and to upgrade the Republic of South Africa’s airports. Theworld economic outlook has further weakened since 30 September 2008 due to the credit crunchcaused by the subprime mortgage crisis in the United States, which quickly spread to theEuropean Union and beyond. The Republic of South Africa is exposed to considerable inflationarypressures from rising food and energy prices, import price pass-through from the recent weaknessof the Rand, and electricity tariffs.

The South African economy is generally reacting to the global economic crisis in much the sameway as many other countries’ economies. GDP growth figures for the second quarter of 2009confirmed that South Africa is officially in recession. Sharp contractions in mining (33 per cent.)and manufacturing (22 per cent.) production as compared to the first quarter of 2008 are partlyreflected in the decline in freight volumes handled by Transnet. According to the SARB SouthAfrican GDP growth slowed to 3.1 per cent. in 2008, from 5.1 per cent. in 2007, with year-on-yearexports and imports declining by 5.8 per cent. and 7.8 per cent. respectively.

Volume and pricing

The Group’s revenue is dependent to a significant extent on pricing and volume in terms of thethroughput at its ports and container and other terminals, the tonne kilometres covered on itsfreight rail network and the volume of liquids transported through its pipelines. Factors that canimpact these volume measures include (i) the levels of global and regional trade and the degree ofglobalisation of world trade, (ii) competition, including from other regional and global terminaloperators (in the case of the Group’s container terminal business with respect to transhipment) and(iii) the Group’s capacity to handle increased volumes.

Transnet Group Financial Planning calculates a weighted average volume growth and revenue perunit increase (year-on-year actual) for each major commodity line reported within a division, andthen weights the growth or increases/decreases per commodity line to its revenue as a percentageof the total commodity revenue in that division. The results represent the weighted average growthin volumes and revenue per unit for a division. A Group weighted volume and revenue per unitincrease is also calculated by weighting the divisional weighted averages (as calculated above)against the divisional commodity revenue as a percentage of the cumulative Group commodityrevenue. This practice is designed to ensure that volume growth and revenue per commodity unit

47


increases are directly linked and reconcilable with increases per commodity line to its revenue. Thecalculations to determine volume growth and increases in revenue per unit increases excludesgrowth in other revenue sources such as storage, marine services, and property rentals.

In Financial Year 2008, volumes transported increased by 0.8 per cent. and tariffs increased by 9.2per cent., in each case as compared to Financial Year 2007, and these increases resulted in anoverall revenue increase of 11.9 per cent. year-on-year from Financial Year 2007. All operatingdivisions experienced volume increases in Financial Year 2008 compared to Financial Year 2007,except for Transnet Freight Rail, which experienced a slight decline in volumes as a result of coalfreight decreases resulting from product unavailability at Transnet’s customers as well asoperational problems, including derailments and cable theft on Transnet’s network. Tariff increaseswere seen across all operating divisions in Financial Year 2008 compared to Financial Year 2007except that Transnet Pipelines’ tariffs did not increase to the extent applied for in Financial Year2008 as a result of the tariff increase applied for by Transnet Pipelines not being approved by theregulator.

In Financial Year 2009, volumes decreased by 2.9 per cent. and tariffs increased by 13.0 percent., in each case as compared to Financial Year 2008; the net effect of which was an overallrevenue increase of 11.6 per cent. year-on-year from the prior period. All operating divisionsexperienced volume decreases in Financial Year 2009 compared to the prior period, except forTransnet Pipelines which experienced a 5.6 per cent. increase in volume. These decreases involume, particularly in the second half of Financial Year 2009, were in large part due to the globaleconomic crisis. In line with Transnet’s expectations, volumes continued to drop during the sixmonths ended 30 September 2009 compared to the same period in 2008.

The Group’s operating results are significantly impacted by tariff levels. Tariffs with respect to theNational Ports Authority and Transnet Pipelines are subject to approval by the regulatoryauthorities, which may limit the Group’s flexibility in pricing and could reduce its revenue andoperating results. See ‘‘Risk Factors – Risks Related to Transnet’s Business – Transnet’s business,financial condition and results of operations are dependent on tariffs set by various governmentalagencies’’.

Capital Expenditure Programme and maintenance needs

Under the Capital Expenditure Programme, Transnet estimates it will invest at least R 80.5 billionin capital expenditure over the next five Financial Years, beginning in Financial Year 2010(excluding capitalised borrowing costs of R 7.1 billion), of which R 57.7 billion is estimated will bemade in the next three financial years beginning in Financial Year 2010 (excluding capitalisedborrowing costs). The Capital Expenditure Programme is reviewed and updated annually by theBoard of Directors and as such, is subject to change. Transnet currently estimates that of theR 80.5 billion, R 39 billion will be spent on expanding capacity and R 41.5 billion will be spent onmaintaining existing infrastructure and equipment. The Capital Expenditure Programme takescognisance of Transnet’s Growth Strategy and focuses on key corridors and sectors to harnessgrowth opportunities. Approximately R 22.5 billion is expected to be invested in projects relating toTransnet Port Terminals and Transnet National Port Authority, R 45.6 billion in Transnet FreightRail and Transnet Rail Engineering (including R 24.0 billion in the GFB) and R 12.4 billion inTransnet Pipelines and Specialist Units, over the next five Financial Years beginning in FinancialYear 2010. Transnet’s plan is focused on expanding and creating new capacity ahead of demandfor its customers. Transnet expects such expenditures to be made both on replacing andexpanding ports, pipeline and rail freight assets. The Capital Expenditure Programme is alreadyunder way and has resulted in increased spending by Transnet, much of it funded by newindebtedness. As a result, finance costs have increased and are expected to increase further withincreased spending under the programme, although a significant portion of borrowing costs areexpected to be capitalised under IAS 23. Depreciation and amortisation have also increasedsignificantly year-on-year in Financial Years 2007, 2008 and 2009 as a result of initial spendingunder projects included in the previous years’ programmes.

Depreciation and amortisation for Financial Years 2007, 2008 and 2009 was R 3.0 billion,R 3.8 billion and R 4.8 billion, respectively. Depreciation and amortisation for the six months ended30 September 2009 increased to R 2,925 million compared to R 2.3 billion for the six monthsended 30 September 2008. Depreciation and amortisation are expected to increase further in linewith increased spending as a result of the Capital Expenditure Programme.

48


Power shortages and energy costs

At the end of 2007 and early in 2008, the Republic of South Africa experienced an electricity crisisas state power supplier Eskom’s aging power plants were not always able to supply enough powerto meet demand. This necessitated rolling blackouts, or load shedding, which affected residentsand businesses in major cities. In particular, it affected the ability of the Group’s coal miningcustomers to mine and also affected the Group’s electric locomotives and electricity-dependentequipment at port terminals, all of which had an adverse effect on volumes transported byTransnet. Profitability was also impacted adversely as revenues in affected areas declined whilefixed costs continued to be incurred even during load shedding. Although as at the date of thisBase Prospectus the problem has abated, aided by lower demand, there still remains a risk toelectricity supply until new generation capacity is installed, and accordingly the Group expects theproblem to recur and possibly adversely affect revenue and profitability in future periods.

Transnet’s energy costs decreased in Financial Year 2008 compared to the prior year,predominantly as a result of lower usage. Energy costs increased by 22.62 per cent. in FinancialYear 2009 as compared to Financial Year 2008, which principally reflected the increase in the priceof diesel fuel used by the locomotives and machinery as well as oil and the increase in electricitytariffs. In the six months ended 30 September 2009, however, energy costs decreased by 8.33 percent. predominantly due to oil prices decreasing when compared to 30 September 2008. Transnetcannot predict future oil prices and therefore cannot predict what effect, if any, volatility in such oilprices will have on its business and operations.

Volatility of the Rand

The value of the Rand as measured against the U.S. Dollar has historically fluctuated significantly.The value of the Rand as measured against the U.S. Dollar fluctuated between R 7.2697 perU.S.$1.00 and R 10.59 per U.S.$1.00 between 1 January 2009 and 30 September 2009. See also‘‘Presentation of Financial and Other Information – Exchange Rates’’. Decreases in the value of theRand as measured against other currencies could increase the cost in Rand terms of foreigndenominated debt, foreign denominated financing costs and foreign denominated operating andcapital expenditures. The Group estimates that its non-Rand funding requirements over the nextthree Financial Years (and especially with respect to the U.S. Dollar, Euro and Yen) will amount toapproximately R 9.2 billion. Future exchange rate and financial market volatility may continue tomaterially impact the Group’s results. Although it is Transnet’s policy to hedge its foreign currencydenominated debt and operating and capital expenditures, currency exchange hedges are notalways available on commercially acceptable terms.

Discontinued operations

As discussed above, over the past three financial years, Transnet has disposed of certain non-corebusinesses and assets including the disposal of V&A Waterfront, freightdynamics (Transnet’sdiscontinued road business segment) and South African Express Airways (Pty) Limited pursuant tothe Turnaround Plan. See ‘‘Business – History and Development.’’ The historical results ofoperations of these entities have been reported as discontinued operations under IFRS. Thedisposal of non-core assets has largely been completed.

The results of these discontinued operations have been excluded from the results of continuingoperations of the Group for the periods presented.

In Financial Year 2007, key disposals included South African Airways (Pty) Limited (‘‘SouthAfrican Airways’’) (although no cash flowed in this transaction), Transnet’s 26 per cent. interest inV&A Waterfront Holdings (Pty) Limited for R 1.8 billion, Transnet’s 49 per cent. share in EquityAviation (Pty) Limited for R 70 million, the Transnet Pension Fund Administrator’s business for R 23million and assets of Transtel Full Services Network for R 251 million.

In Financial Year 2008, key disposals included freightdynamics, Transnet’s discontinued roadbusiness segment, for R 1 million, Viamax (Pty) Limited for R 1.2 billion, Transnet’s homeownersloan book, a portfolio consisting of loans to Transnet employees to fund the purchase of theirhouses and secured by mortgages over the houses (the ‘‘Homeowners Loan Book’’), for R 1.4billion, Transtel DEVI assets for R 231 million and Transnet’s 35 per cent. interest in VAE Perway(Pty) Limited for R 30 million.

In Financial Year 2009, key disposals included the disposal of Transnet’s interest (indirectly held) inNeotel for R 135 million (plus a R 198 million settlement payment for loans owed by Neotel toTransnet), South African Express Airways (Pty) Limited for R 140 million (plus a R 336 million

49


settlement payment for loans owed by South African Express Airways (Pty) Limited to Transnet),the disposal of the Shosholoza Meyl passenger rail business for R 100 (included in this disposalwas a R 500 million reimbursement payment to Transnet for costs incurred by Transnet for theoperation of the business for Financial Year 2009), and the disposal of Autopax PassengerServices (Pty) Limited, the bus line business for R 1.

The financial information for Financial Years 2007 and 2008, as presented in the Group’s financialstatements for Financial Year 2009, has been restated. For further information on this restatement,please see ‘‘Presentation of Financial and Other Information’’.

Seasonality

External market forces on commodities and products serviced by the Group may be affected byseasonality and can impact revenue significantly.

Descriptions of Principal Income Statement Items

Descriptions of the principal items in the Group’s consolidated income statements are set outbelow.

Revenue: Revenue consists of amounts earned through the rendering of freight transportation andother services, rental income, finance income from lending activities, and through constructioncontracts, and excludes revenues from discontinued operations.

Depreciation and amortisation: Depreciation from continuing operations consists of depreciationof owned assets at historic cost (which principally relates to rolling stock and containers, portfacilities, buildings and structures, machinery, equipment and furniture, and permanent way andworks), depreciation on the revalued portion of owned assets (which relates principally to portfacilities and pipeline networks) and depreciation on leased assets. Amortisation consists ofamortisation with respect to software and licences.

Impairment of assets: Impairment of assets consists principally of impairments with respect toRail segment property, plant and equipment and trade and other receivables for Transnet FreightRail’s assets.

Dividends received: Dividends received are those received, as the case may be, from associates,from investments and from the redemption of the C-Class Preference Share in Newshelf 664 (Pty)Ltd held by Newshelf 697 (Pty) Limited, a wholly owned subsidiary of Transnet.

Fair value adjustments: Fair value adjustments consist principally of fair value adjustments ofinvestment property, revaluations of the C-Class Preference Share (which has since been sold),derivative fair value adjustments, fair value adjustments of treasury bonds, gains on hedginginstruments, and other fair value adjustments.

Income/(Loss) from associates: Income/(Loss) from associates reflects income or loss fromequity-accounted for investees. At 31 March 2009 and 30 September 2009, Transnet had eightassociates and one joint venture.

Finance costs: Finance costs consist principally of interest costs, discounts on bonds amortisedand net foreign exchange translation gains and losses, less borrowing costs capitalised.

Finance income: Finance income consists principally of interest received on loans andreceivables.

Taxation: Taxation consists principally of South African normal taxation, capital gains taxation anddeferred taxation.

(Loss)/profit from discontinued operations, including (loss)/profit on disposal ofdiscontinued operations and impairments: This represents the results of the discontinuedoperations during each period and the profit or loss on disposal.

50


Results of Operations for the six months ended 30 September 2009 and 2008

Summary

The following table sets forth the Group’s principal consolidated income statement items for the sixmonth periods indicated.


2009 2008Variation

2008/09

(R millions) (R millions) (per cent.)Revenue 17,335 16,849 2.88Net operating expenses excluding depreciation andamortisation (10,694) (10,299) 3.84

Profit from operations before depreciation and amortisationand items listed below 6,641 6,550 1.39Depreciation and amortisation (2,925) (2,303) 27.01

Profit from operations before items listed below 3,716 4,247 (12.50)Post-retirement benefit obligation (costs)/income (19) 67 (128.36)Profit on sale of interests in businesses and dividendsreceived — — —Impairment of assets (187) (110) (70.00)Fair value adjustments (157) (282) 44.33

Profit from operations before income/(loss) fromassociates and net finance costs 3,353 3,922 (14.51)(Loss)/income from associates — — —Finance costs (1,634) (1,089) (50.05)Finance income 263 89 195.51

Profit before taxation 1,982 2,922 (32.17)Taxation (695) (861) (19.28)

Profit after taxation 1,287 2,061 37.55

Profit for the period from continuing operations 1,287 2,061 37.55Discontinued operations(Loss)/profit from discontinued operations, including (loss)/profit from disposal of discontinued operations andimpairments (13) (400) (96.75)

Net profit for the period 1,274 1,661 23.30

Attributable to the shareholder 1,274 1,661 23.30Attributable to minority interests — — —

51


The following table sets forth the Group’s principal consolidated income statement items as apercentage of revenue for each of the six-month periods indicated.


2009 2008

(as percentage of revenue)Revenue(1) 100.00 100.00Net operating expenses excluding depreciation andamortisation (61.69) (61.13)

Profit from operations before depreciation andamortisation and items listed below 38.31 38.87Depreciation and amortisation (16.87) (13.67)

Profit from operations before items listed below 21.44 25.20Post retirement benefit obligation (costs/income) expenses (0.11) 0.40Impairment of assets (1.08) (0.65)Fair value adjustments (0.91) (1.67)

Profit from operations before income/(loss) fromassociates and net finance costs 19.34 23.28(Loss)/income from associates — —Finance costs (9.43) (6.46)Finance income 1.52 0.53

Profit before taxation 11.43 17.35Taxation (4.01) (5.11)

Profit after taxation 7.42 12.23

Profit for the period from continuing operations 7.42 12.23Discontinued operationsLoss from discontinued operations, including (loss)/profitfrom disposal of discontinued operations and impairments (0.07) (2.37)

Net profit for the period 7.35 9.86

Attributable to the shareholder 7.35 9.86Attributable to minority interests — —

(1) The per cent. contributions of revenue presented in the above table include only external revenues.

Results of Operations for the six months ended 30 September 2009 and 2008

Revenue

Revenue increased by 2.88 per cent. from R 16,849 million in the six months ended 30 September2008 to R 17,335 million in the six months ended 30 September 2009. This increase wasprincipally attributable to a weighted average tariff increase of 10.10 per cent., off-set in part by anaverage volume decrease of 10.60 per cent. as well as other non-commodity revenue increasessuch as marine services and lease rentals. Transnet Freight Rail made the most significantcontribution to the Group’s external revenue in the six months ended 30 September 2009 (56.48per cent.), followed by Transnet National Ports Authority (19.27 per cent.), Transnet Port Terminals(14.35 per cent.), Transnet Rail Engineering (4.64 per cent.), and Transnet Pipelines (3.91 percent.).

Transnet Freight Rail’s total segment revenue increased by 7.38 per cent. from R 9,210 million inthe six months ended 30 September 2008 to R 9,890 million in the six months ended30 September 2009. The increase in revenue was mainly attributable to price increases for general

52


freight. These price increases reflected Transnet Freight Rail’s continuing operational improvement,investment in assets, improved traffic mix and prioritisation of higher yield volumes.

These price increases were off-set in part by an 17.59 per cent. decrease in general freighttonnages transported as compared to the six months ended 30 September 2008. This decrease ingeneral freight tonnages was due largely to the effect of the economic downturn on global demandfor the products transported by Transnet Freight Rail. Iron ore export tonnes increased by 32.70per cent. from 15.9 mt in the six months ended 30 September 2008 to 21.1 mt in the six monthsended 30 September 2009. General freight tonnes, which make up a significant portion of TransnetFreight Rail’s revenue, decreased by 17.59 per cent. from 43.2 mt in the six months ended30 September 2008 to 35.6 mt in the six months ended 30 September 2009. This decrease waslargely due to the effect of the economic downturn. Volumes increased slightly on the coal line by1.00 per cent. from 29.9 mt in the six months ended 30 September 2008 to 30.20 mt the sixmonths ended 30 September 2009, primarily due to a reduction in derailments at Transnet FreightRail, compared to the prior comparative period.

Transnet Rail Engineering’s total segment revenue decreased by 5.08 per cent. from R 3,958million in the six months ended 30 September 2008 to R 3,757 million in the six months ended30 September 2009. This decrease was principally attributable to the decrease in orders forrefurbishment of coaches for PRASA as well as decreased internal work performed for TransnetFreight Rail’s operations.

Transnet National Ports Authority’s total segment revenue decreased by 3.24 per cent. fromR 3,765 million in the six months ended 30 September 2008 to R 3,643 million the six monthsended 30 September 2009. This decrease was principally attributable to lower than anticipatedvolumes on container import, break-bulk exports, dry-bulk import and export, and automotivesectors. The decrease was also attributable to the continued decline in coal exports due mainly toa softening of demand for commodities on world markets.

Transnet Port Terminals’ total segment revenue decreased by 8.53 per cent. from R 2,720 millionin the six months ended 30 September 2008 to R 2,488 million in the six months ended30 September 2009. This decrease was principally attributable to a decline in the volume of goodstransported on all major cargo segments (with the exception of the bulk sector).

Transnet Pipelines’ total segment revenue decreased by 10.44 per cent. from R 757 million in thesix months ended 30 September 2008 to R 678 million in the six months ended 30 September2009. This decrease in revenue resulted principally from NERSA’s decision to reduce tariffs by10.38 per cent. per annum on 30 April 2009.

Total segment revenue from those divisions covering all activities other than those listed above(the ‘‘Other division’’) which encompasses all of Transnet’s remaining assets, increased by3.76 per cent. from R 1,118 million in the six months ended 30 September 2008 to R 1,160 millionin the six months ended 30 September 2009. This increase was principally attributable to increasedrevenue at the Capital Projects and Property divisions. Transnet Capital Projects is responsible forthe oversight and management of all large capital expansion projects for the Group, and theincrease in its revenue reflects the increased activity under the Turnaround Plan and the GrowthStrategy.

53


Net Operating Expenses Excluding Depreciation and Amortisation

The table below sets forth the principal components of the Group’s net operating expensesexcluding depreciation and amortisation for the six month periods indicated.

Six months ended 30 September

2009 2008 Variation

(R millions) (per cent.)Net operating expenses excluding depreciation andamortisationPersonnel costs ................................................................. 5,002 4,878 2.54Energy costs ...................................................................... 1,497 1,633 (8.33)Operating leases ................................................................ 657 691 (4.92)Material costs..................................................................... 669 815 (17.91)Managerial and technical consulting fees .......................... 276 434 (36.41)Other .................................................................................. 2,593 1,848 40.31

Total .................................................................................. 10,694 10,299 3.84

Net operating expenses excluding depreciation and amortisation increased by 3.84 per cent. fromR 10,299 million in the six months ended 30 September 2008 to R 10,694 million in the six monthsended 30 September 2009. This increase was principally attributable to an increase in labour costs.The increase was partially off-set, however, by decreases in material costs, energy costs,managerial and technical consulting fees.

Material costs decreased by 17.91 per cent. from R 815 million in the six months ended30 September 2008 to R 669 million in the six months ended 30 September 2009. This decreasewas principally attributable to the decreasing cost of steel used for maintenance as well as costreduction measures initiated by the Group.

Energy costs decreased by 8.33 per cent. from R 1,633 million in the six months ended30 September 2008 to R 1,497 million in the six months ended 30 September 2009. This decreasewas principally attributable to lower diesel and oil prices in the Republic of South Africa anddecreased consumption by Transnet due to lower volumes of goods being transported.

Personnel costs increased by 2.54 per cent. from R 4,878 million in the six months ended30 September 2008 to R 5,002 million in the six months ended 30 September 2009. This increasewas mainly a result of salary increases given to non-management employees. This increase waspartially off-set, however, by a decrease in overtime costs as a result of cost reduction measuresinitiated by the Group.

Expenses related to operating leases decreased by 4.92 per cent. from R 691 million in the sixmonths ended 30 September 2008 to R 657 million in the six months ended 30 September 2009.This decrease was principally attributable to fewer operating leases being contracted.

Depreciation and Amortisation

The table below sets forth the principal components of the Group’s depreciation and amortisationfor the six month periods indicated.


2009 2008 Variation

(R millions) (per cent.)Depreciation and amortisationDepreciation – Owned assets at historic cost ....................... 2,487 1,878 32.43Depreciation – Owned assets including revalued portion ..... 295 351 (15.95)Depreciation – Leased assets............................................... 72 21 242.86Amortisation of intangible assets (software and licences) .... 71 53 33.96

Total ..................................................................................... 2,925 2,303 27.01

54


Depreciation and amortisation increased by 27.01 per cent. from R 2,303 million in the six monthsended 30 September 2008 to R 2,925 million in the six months ended 30 September 2009. Thisincrease was principally attributable to the increased depreciation associated with increasedspending in relation to the Capital Expenditure Programme, as well as the revaluation of portfacilities and the pipeline networks at 31 March 2009.

Impairment of Assets

Impairment of assets increased by 70.00 per cent. from R 110 million in the six months ended30 September 2008 to R 187 million in the six months ended 30 September 2009. The increasedimpairment of assets was principally attributable to derailments and certain accounts receivable atTransnet Freight Rail.

Fair Value Adjustments

Fair value adjustments amounted to R 282 million in the six months ended 30 September 2008and R 157 million in the six months ended 30 September 2009. The movement in fair valueadjustments during the periods under review was principally attributable to an improvement in the‘mark to market’ of derivative financial instruments which the Group holds to hedge foreignexchange risks emanating from the Capital Investment Programme. The ‘mark to market’ of theseinstruments resulted in losses of R 188 million in the six months ended 30 September 2009.

Finance Costs

Finance costs increased by 50.05 per cent. from R 1,089 million in the six months ended30 September 2008 to R 1,634 million in the six months ended 30 September 2009. This increasewas principally attributable to increased amounts of borrowing to fund the Capital ExpenditureProgramme and current period capital expenditures.

Finance Income

Finance income increased by 195.51 per cent. from R 89 million in the six months ended30 September 2008 to R 263 million in the six months ended 30 September 2009. This increase isdirectly attributable to the increase in cash that has been generated from operations as well as anincrease in the amount of funds raised through domestic debt pursuant to Transnet’s R 30 billiondomestic medium term note programme (the ‘‘Domestic Medium Term Note Programme’’) aspart of the Group’s pre-funding strategy in response to the global liquidity crisis.

Taxation

The taxation charge for the six-month period amounted to R 695 million, comprising a currenttaxation charge of R 352 million (R 364 million as at 30 September 2008) and deferred taxationcharge of R 343 million (R 497 million as at 30 September 2008). The effective taxation rate forthe Group (continuing operations) at 35.07 per cent. (29.47 per cent. as at 30 September 2008) isabove the corporate taxation rate of 28 per cent. (29 per cent. as at 30 September 2008) primarilyas a result of items not deductible for taxation purposes, mainly depreciation on port assets.

Loss from discontinued operations, including (loss)/profit on disposal of discontinuedoperations and impairments

Loss from discontinued operations, including (loss)/profit on disposal of discontinued operations andimpairment decreased from R 400 million in the six months ended 30 September 2008 to R 13million in the six months ended 30 September 2009. This decrease was principally attributable toTransnet disposing of South African Express Airways (Pty) Limited, Shosholoza Meyl and AutopaxPassenger Services (Pty) Limited in Financial Year 2009. No further disposals were made for thesix months ended 30 September 2009. The loss from discontinued operations of R 13 million inthe six months ended 30 September 2009 resulted from an operating loss of R 17 million fromLuxrail, which was partially off-set by Transnet recognizing an impairment reversal of R 4 million.

Profit for the six-month period

The profit of R 1,274 million for the six months ended 30 September 2009 was a decrease of23.30 per cent. when compared to the R 1,661 million profit for the six months ended 30September 2008.

55


Results of Operations for the Years ended 31 March 2009, 2008 and 2007

Summary

The following table sets forth the Group’s principal consolidated income statement items for eachof the Financial Years indicated.

Year ended 31 March

20092008

(Restated)Variation

2008/092007

(Restated)Variation

2007/08

(R millions) (R millions) (per cent.) (R millions) (per cent.)Revenue(1) ..................................... 33,592 30,091 11.6 26,899 11.9Net operating expenses excludingdepreciation and amortisation ........ (20,392) (17,281) 18.0 (16,232) 6.5

Profit from operations beforedepreciation, amortisation anditems listed below .......................... 13,200 12,810 3.0 10,667 20.1Depreciation and amortisation ....... (4,779) (3,798) 25.8 (2,952) 28.7

Profit from operations beforeitems listed below........................ 8,421 9,012 (6.6) 7,715 16.8Impairment of assets ..................... (324) (153) (111.8) (232) (34.1)Post-retirement benefit obligation(costs)/income................................ (436) 686 (163.6) (218) (414.7)Dividends received......................... — 122 (100.0) 36 238.9Fair value adjustments................... 941 1,416 (33.5) 2,462 (42.5)

Profit before income/(loss) fromassociates and joint venturesand net finance costs.................. 8,602 11,083 (22.4) 9,763 13.5

Income/(loss) from associates andjoint ventures ................................. 82 (59) 239.0 2 (3,050.0)Finance costs................................. (2,233) (2,692) (17.1) (2,472) 8.9Finance income ............................. 267 761 (64.9) 185 311.4

Profit before taxation .................. 6,718 9,093 (26.1) 7,478 21.6Taxation ......................................... (1,674) (2,642) (36.6) (1,742) 51.7

Profit for the year after taxationfrom continuing operations ........ 5,044 6,451 (21.8) 5,736 12.5(Loss)/profit from discontinuedoperations, including (loss)/profiton disposal of discontinuedoperations and impairments........... (516) (1,921) 73.1 921 (308.6)

Profit for the year ........................ 4,528 4,530 0.0 6,657 (31.9)

Attributable to equity holder ........... 4.528 4,526 0.0 6,640 (32.0)Attributable to minority interests .... — 4 (100.0) 17 (76.5)

(1) The per cent. contributions of revenue presented in the above table include only external revenues.

56


The following table sets forth the Group’s principal consolidated income statement items as apercentage of revenue for each of the Financial Years indicated.

Year ended 31 March

20092008

(Restated)2007

(Restated)

(as percentage of revenue)Revenue(1)................................................................................ 100 100 100Net operating expenses excluding depreciation andamortisation .............................................................................. (60.7) (57.4) (60.3)

Profit from operations before depreciation, amortisationand items listed below........................................................... 39.3 42.6 39.7Depreciation and amortisation.................................................. (14.2) (12.6) (11.0)

Profit from operations before items listed below ............... 25.1 29.9 28.7Impairment of assets ................................................................ (1.0) (0.5) (0.9)Post-retirement benefit obligation (costs)/income..................... (1.3) 2.3 (0.8)Fair value adjustments ............................................................. 2.8 4.7 9.2Dividends received ................................................................... 0.0 0.4 0.1

Profit before income/(loss) from associates and jointventures and net finance costs ............................................ 25.6 36.8 36.3Income/(loss) from associates and joint ventures .................... 0.2 (0.2) —Finance costs ........................................................................... (6.6) (8.9) (9.2)Finance income ........................................................................ 0.8 2.5 0.7

Profit before taxation ............................................................. 20.0 30.2 27.8Taxation.................................................................................... (5.0) (8.8) (6.5)

Profit for the year after taxation from continuingoperations ............................................................................... 15.0 21.4 21.3Profit/(loss) from discontinued operations, including profit/(loss) on disposal of discontinued operations and impairments (1.5) (6.4) 3.4

Profit for the year ................................................................... 13.5 15.1 24.7

Attributable to equity holder ..................................................... 13.5 15.1 24.7Attributable to minority interests ............................................... — — —

(1) The per cent. contributions of the revenue presented in the above table include only external revenues.

57


Results of Operations for the Years Ended 31 March 2009 and 2008

Revenue

Revenue increased by 11.6 per cent. from R 30,091 million in Financial Year 2008 to R 33,592million in Financial Year 2009. This increase was principally attributable to a weighted average tariffincrease of 13.0 per cent., off-set by an average volume decrease of 2.9 per cent. TransnetFreight Rail made the most significant contribution in Financial Year 2009 to the Group’s externalrevenue (55 per cent. of the total), followed by Transnet National Ports Authority (20 per cent.),Transnet Port Terminals (15 per cent.), Transnet Pipelines and Transnet Rail Engineering (eachwith 4 per cent.).

Transnet Freight Rail’s segment total revenue increased by 12.6 per cent. from R 16,598 million inFinancial Year 2008 to R 18,683 million in Financial Year 2009. This increase was principallyattributable to tariff increases for the export coal line, renegotiation of iron ore contracts as well asgeneral freight increases and volume improvements on the iron ore line (which resulted fromincreased contractual commitments to iron ore exporters due to increased demand for iron ore).These increases were off-set in part by volume decreases in GFB as a consequence of customercancellations, internal operational issues on the coal line, and a general slowdown in theinternational commodities markets. General freight revenue accounted for 63.7 per cent. ofTransnet Freight Rail total segment revenue in Financial Year 2009, while the export coal line, theexport iron ore line and other non-freight revenue accounted for 23.2 per cent., 9.1 per cent. and 4per cent., respectively of Transnet Freight Rail total segment revenue.

Transnet Rail Engineering’s segment total revenue increased by 0.9 per cent. from R 8,156 millionin Financial Year 2008 to R 8,228 million in Financial Year 2009. This increase was principallyattributable to increased orders for refurbishment of coaches for PRASA and increased internalwork performed for Transnet Freight Rail’s operations.

Transnet National Ports Authority’s segment total revenue increased by 3.9 per cent. from R 6,842million in Financial Year 2008 to R 7,110 million in Financial Year 2009. This increase wasprimarily due to tariff increases, but was off-set in part by a decline in break-bulk and vehicleimport volumes due to the downturn in the local economy. Further partial off-sets were attributableto the continued decline in coal exports due mainly to derailments in the rail corridor and asoftening of demand for commodities on world markets.

Transnet Port Terminals’ segment total revenue increased by 3.9 per cent. from R 4,844 million inFinancial Year 2008 to R 5,037 million in Financial Year 2009. This moderate increase in revenuehas been impacted by container volumes which have declined by 0.2 per cent. during FinancialYear 2009, the first decline in five financial years. Container volumes, which reflected stronggrowth as of 30 June 2008, declined sharply over the last six months of Financial Year 2009,particularly during the final three months of Financial Year 2009.

Transnet Pipelines’ segment total revenue increased by 13.2 per cent. from R 1,292 million inFinancial Year 2008 to R 1,463 million in Financial Year 2009. This increase in revenue resultedfrom a 6 per cent. increase in the mega litre kilometre of petroleum products transported throughthe pipelines, as well as an average annual tariff increase of 4.6 per cent. from August 2008.

Segment total revenue from the Other division, which encompasses all of Transnet’s remainingassets, increased by 25.4 per cent. from R 2,327 million in Financial Year 2008 to R 2,917 millionin Financial Year 2009. This increase was principally attributable to Transnet’s Capital Projects andProperty divisions. Transnet’s Capital Projects is responsible for the oversight and management ofall large capital expansion projects of the Group, which is reflective of the increased activity underthe Group’s Turnaround Plan and subsequent strategy pursuant to the Growth Strategy.

58



The table below sets forth the principal components of the Group’s net operating expensesexcluding depreciation and amortisation for the Financial Years indicated.

Year ended 31 March

20092008

(Restated) Variation

(R millions) (per cent.)Net operating expenses excluding depreciation andamortisationPersonnel costs........................................................................ 9,440 7,938 18.9Energy costs ............................................................................ 3,144 2,564 22.6Operating leases ...................................................................... 1,338 1,179 13.5Material costs ........................................................................... 1,745 1,098 58.9Managerial and technical consulting fees ................................ 988 1,014 (2.6)Other ........................................................................................ 3,737 3,488 7.1

Total......................................................................................... 20,392 17,281 18.0

Net operating expenses excluding depreciation and amortisation increased by 18.0 per cent. fromR 17,281 million in Financial Year 2008 to R 20,392 million in Financial Year 2009. This increasewas principally attributable to increases in material costs, energy costs and personnel costs. Thispercentage increase was greater than the percentage increase in Group revenue (11.6 per cent.).

Material costs increased by 58.9 per cent. from R 1,098 million in Financial Year 2008 to R 1,745million in Financial Year 2009. This increase was principally attributable to the cost of steel usedfor rolling stock and equipment, which, in turn, also impacted the cost of maintenance materials,together with the increased maintenance programme initiated by the Group.

Energy costs increased by 22.6 per cent. from R 2,564 million in Financial Year 2008 to R 3,144million in Financial Year 2009. This increase was principally attributable to increases in the cost ofelectricity, diesel and oil in the Republic of South Africa which were in line with global increases inFinancial Year 2009. In the second half of Financial Year 2009, however, the Group benefited fromworldwide decreases in oil prices.

Personnel costs increased by 18.9 per cent. from R 7,938 million in Financial Year 2008 to R 9,440million in Financial Year 2009. This increase was broadly in line with the rate of inflation, asmeasured by CPI in the Republic of South Africa.

Expenses related to operating leases increased by 13.5 per cent. from R 1,179 million in FinancialYear 2008 to R 1,338 million in Financial Year 2009. This increase was principally attributable todiesel and operating leases being adjusted, at renewal, to reflect inflation.

59


Depreciation and Amortisation

The table below sets forth the principal components of the Group’s depreciation and amortisationfor the Financial Years indicated.

Year ended 31 March

20092008

(Restated) Variation

(R millions) (per cent.)Depreciation and amortisationDepreciation – Owned assets at historic cost .......................... 4,037 3,370 19.8Depreciation – Owned assets including revalued portion ........ 563 342 64.6Depreciation – Leased assets .................................................. 64 64 0.0Discontinued operations ........................................................... — (72) 100.0Amortisation of intangible assets (software and licences)........ 115 94 22.3

Total depreciation and amortisation – continuingoperations ............................................................................... 4,779 3,798 25.8

Depreciation and amortisation from continuing operations increased by 25.8 per cent. from R 3,798million in Financial Year 2008 to R 4,779 million in Financial Year 2009. This increase wasprincipally attributable to the increased depreciation associated with increased spending withrespect to the Capital Expenditure Programme as well as the revaluation of port facilities and thepipeline networks.

Impairment of Assets

Impairment of assets increased by 111.8 per cent. from R 153 million in Financial Year 2008 toR 324 million in Financial Year 2009. The increased impairment of assets was principallyattributable to damage to rolling stock as a result of derailments in Transnet Freight Rail inFinancial Year 2009.

Dividends Received

Dividends received decreased from R 122 million in Financial Year 2008 to nil in Financial Year2009. In Financial Year 2008, Transnet received a dividend from its investment in the C-classPreference Shares which did not recur in Financial Year 2009.


Fair value adjustments amounted to R 1,416 million in Financial Year 2008 and R 941 million inFinancial Year 2009. This change was principally attributable to the mark-to-market of certainderivative instruments used to manage the risks relating to imports of locomotives, port cranes anddredgers as well as fair value adjustments in respect of investment properties.

Income/(loss) from Associates and Joint Ventures

There was a loss of R 59 million from associates and joint ventures in Financial Year 2008 whichrelated primarily to the investment in Transpoint Properties (Pty) Limited. The amount wasrecovered in Financial Year 2009 resulting in income from associates and joint ventures of R 82million.

Finance Costs

Finance costs decreased by 17.1 per cent. from R 2,692 million in Financial Year 2008 to R 2,233million in Financial Year 2009. This decrease was principally attributable to the capitalisation ofborrowing costs under IAS 23 Borrowing Costs despite the effect of increased amounts ofborrowing to fund projects included in the prior capital expenditure programme. Borrowing costs forFinancial Year 2009 amounted to R 764 million compared to R 303 million in Financial Year 2008.

Finance Income

Finance income decreased by 64.9 per cent. from R 761 million in Financial Year 2008 to R 267million in Financial Year 2009. This decrease is directly attributable to the decrease in cash thathas been used to fund projects included in the Capital Expenditure Programme.

60


Taxation

The Group’s taxation from continuing operations decreased by 36.6 per cent. from R 2,642 millionin Financial Year 2008 to R 1,674 million in Financial Year 2009. This decrease in taxes paid wasprimarily attributable to a year on year increase in taxation exempt income. The Group’s effectivetax rate for continuing operations decreased to 24.9 per cent. in Financial Year 2009, compared to29.1 per cent. in Financial Year 2008. The decrease in effective tax rate can be attributed to thedecrease in the statutory tax rate from 29 per cent. in Financial Year 2008 to 28 per cent. inFinancial Year 2009, a 1.7 per cent. decrease in rate due to an increase in non-taxable income,and adjustments for prior year deferred taxation charges, partially off-set by increased capital gainstax.

(Loss)/profit from discontinued operations, including (loss)/profit on disposal of discontinuedoperations and impairments

Loss from discontinued operations, including (loss)/profit on disposal of discontinued operations andimpairment decreased from R 1,921 million in Financial Year 2008 to R 516 million in FinancialYear 2009. This was principally attributable to the disposal of freightdynamics, Viamax (Pty) Limitedand VAE Perway (Pty) Limited in Financial Year 2008 compared to South African Express Airways(Pty) Limited, Shosholoza Meyl and Autopax Passenger Services (Pty) Limited in Financial Year2009. These disposals were part of Transnet’s planned divestment of non-core businesses.

Profit for the Year

The profit of R 4,528 million for Financial Year 2009 is a decrease of 0.04 per cent. whencompared to the R 4,530 million for Financial Year 2008.

Results of Operations for the Years Ended 31 March 2008 and 2007

Revenue

Revenue increased by 11.9 per cent. from R 26,899 million in Financial Year 2007 to R 30,091million in Financial Year 2008. This increase was principally attributable to a weighted average tariffincrease of 9.2 per cent. and a weighted average volume increase of 0.8 per cent. for the Group.Transnet Freight Rail made the most significant contribution in Financial Year 2008 to the Group’sexternal revenue (53 per cent. of the total), followed by Transnet National Ports Authority (21 percent.), Transnet Port Terminals (16 per cent.), Transnet Pipelines and Transnet Rail Engineering(each with 4 per cent.). All of these divisions had increases in revenue year-on-year, but theprincipal contributing factors to the Group-wide increase in revenue were the increase in iron orevolumes transported by Transnet Freight Rail, the growth in container volume throughput andincreased vessel calls at the ports, and increased operational efficiency at the Durban and CapeTown container terminals.

Transnet Freight Rail’s segment total revenue increased by 13.9 per cent. from R 14,574 million inFinancial Year 2007 to R 16,598 million in Financial Year 2008. This increase was principallyattributable to an average increase of 8.5 per cent. in tariffs in the latter period which were off-setin part by marginal decreases in volumes transported. These volume decreases were dueprincipally to lack of availability of coal for transport because of coal mine production problems andpower outages at the mines and lower than contracted volumes of iron ore principally attributableto Sishen Iron Ore’s failure to deliver product to the rail network.

Transnet Rail Engineering’s segment total revenue increased by 11.5 per cent. from R 7,317million in Financial Year 2007 to R 8,156 million in Financial Year 2008. This increase wasprincipally attributable to the increase in revenue from external customers, namely PRASA, for therefurbishment of its coaches. The increase also reflected the first full-year effect of the inclusionwithin Transnet Rail Engineering of revenue associated with the maintenance depots. Increasedrevenue in this division was principally attributable to an increase in activity by the division but wasalso supported by a year-on-year increase in the average tariff received.

Transnet National Ports Authority’s segment total revenue increased by 12.0 per cent. from R 6,107million in Financial Year 2007 to R 6,842 million in Financial Year 2008. This increase wasprincipally attributable to an increase in container export and import volumes (which are the objectof port tonnage charges) in Financial Year 2008 as well as the increased number of vessel calls atTransnet National Ports Authority’s ports. The increase was also aided by a year-on-year increasein the tariff received.

61


Transnet Port Terminals’ segment total revenue increased by 18.2 per cent. from R 4,097 million inFinancial Year 2007 to R 4,844 million in Financial Year 2008. This increase was principallyattributable to increased container volume throughput and storage revenue, increased operationalefficiency at the Durban and Cape Town container terminals, as well as the part-year effect inFinancial Year 2008 of the new Pier 1 container terminal in Durban, which became fully operationalin November 2007. The impact of these items was off-set in part by decreases in break-bulk(particularly steel and cement) and automotive (principally attributable to delays in a customer’sexport plans) volumes year-on-year. In addition to volume increases year-on-year, Transnet PortsTerminals also benefited from an increase in the average tariff in Financial Year 2008.

Transnet Pipelines’ segment total revenue increased by 6.1 per cent, from R 1,218 million inFinancial Year 2007 to R 1,292 million in Financial Year 2008. This increase was principallyattributable to the volume increase in Financial Year 2008. The increase was off-set in part bylower real prices in Financial Year 2008 because the proposed tariff increase (reflecting inflationand other increases) was not granted by the regulator.

The Other division’s segment total revenue increased by 39.0 per cent. from R 1,674 million inFinancial Year 2007 to R 2,327 million in Financial Year 2008. This increase was principallyattributable to increased rental income from the properties division.


The table below sets forth the principal components of the Group’s net operating expensesexcluding depreciation and amortisation for the Financial Years indicated.

Year ended 31 March

2008(Restated)

2007(Restated) Variation

(R millions) (per cent.)Net operating expenses excluding depreciation andamortisationPersonnel costs........................................................................ 7,938 7,663 3.6Energy costs ............................................................................ 2,564 2,524 1.6Operating leases ...................................................................... 1,179 991 19.0Material costs ........................................................................... 1,098 319 244.2Managerial and technical consulting fees ................................ 1,014 765 32.5Other ........................................................................................ 3,488 3,970 (12.1)

Total......................................................................................... 17,281 16,232 6.5

Net operating expenses from continuing operations (excluding depreciation and amortisation)increased by 6.5 per cent. from R 16,232 million in Financial Year 2007 to R 17,281 million inFinancial Year 2008. This percentage increase was less than the percentage increase of 11.9 percent. in Group revenue, reflecting principally the implementation of cost-cutting measures pursuantto the Group’s strategy.

Personnel costs increased by 3.6 per cent. from R 7,663 million in Financial Year 2007 to R 7,938million in Financial Year 2008, which was broadly in line with inflation as measured by CPI in theRepublic of South Africa.

Energy costs increased by 1.6 per cent. from R 2,524 million in Financial Year 2007 to R 2,564million in Financial Year 2008, which was principally attributable to the rising cost of oil, gas anddiesel fuel over the same period and the increased reliance on diesel fuel for locomotives in thesecond half of Financial Year 2008. This increase was off-set in part by lower usage due toimproved efficiency.

Expenses related to operating leases increased by 19.0 per cent. from R 991 million in FinancialYear 2007 to R 1,179 million in Financial Year 2008. This increase was principally attributable toincreased pricing related to operating leases and additional operating leases contracted for.

Material costs increased by 244.2 per cent. from R 319 million in Financial Year 2007 to R 1,098million in Financial Year 2008. This increase was principally attributable to increased prices of steeland increased activity levels and backlog maintenance on rolling stock and infrastructure.

62


Depreciation and amortisation

The table below sets forth the principal components of the Group’s depreciation and amortisationfor the Financial Years indicated.

Year ended 31 March

2008(Restated)

2007(Restated) Variation

(R millions) (per cent.)Depreciation and amortisationDepreciation – Owned assets at historic cost .......................... 3,370 2,618 28.7Depreciation – Owned assets including revalued portion ........ 342 244 40.1Depreciation – Leased assets .................................................. 64 80 (20.0)Total depreciation from discontinued operations ...................... (72) (71) 1.4Amortisation of intangible assets (software and licences)........ 94 81 16.0

Total depreciation and amortisation – continuingoperations ............................................................................... 3,798 2,952 28.7

Depreciation and amortisation from continuing operations increased by 28.7 per cent. from R 2,952million in Financial Year 2007 to R 3,798 million in Financial Year 2008. The increase wasprincipally attributable to spending under projects included in the Group’s Capital ExpenditureProgramme and revaluations of the Group’s port facilities and pipeline networks. The Groupexpects depreciation from continuing operations to increase further with the increased spendingand capitalised borrowing costs associated with the Group’s Capital Expenditure Programme. See‘‘Business – Capital Expenditure Programme,’’ ‘‘– Liquidity and Capital Resources – CapitalExpenditure’’ and ‘‘– Significant Factors Affecting the Group’s Financial Condition and Results ofOperations – Capital Expenditure Programme’’.

Impairment of assets

Impairment of assets decreased by 34.1 per cent. from R 232 million in Financial Year 2007 toR 153 million in Financial Year 2008. This decrease was principally attributable to the impairmentof rolling stock and containers which did not recur in Financial Year 2008.

Dividends received

Dividends received increased from R 36 million in Financial Year 2007 to R 122 million in FinancialYear 2008. This increase was principally attributable to dividends received on redemption of theC-Class Preference Share.


Fair value adjustments from continuing operations decreased by 42.5 per cent. from R 2,462million in Financial Year 2007 to R 1,416 million in Financial Year 2008. In Financial Year 2007,the fair value adjustment of R 2,462 million arose mainly from the marking-to-market of theC-Class Preference Share (marked-to-market at an increase of R 1.7 billion). This share wasredeemed in Financial Year 2008, contributing to the significant decrease year-on-year. Thedecrease was off-set in part by the fair value adjustment of investment property held by the Groupand which increased in value year-on-year in line with property prices.

Income/(loss) from associates and joint ventures

There was income of R 2 million from associates and joint ventures in Financial Year 2007 and aloss of R 59 million from associates and joint ventures in Financial Year 2008.

Finance Costs

Finance costs increased by 8.9 per cent. from R 2,472 million in Financial Year 2007 to R 2,692million in Financial Year 2008. This increase reflected increased levels of borrowing which were off-set in part by borrowing costs which were capitalised.

Finance Income

Finance income from continuing operations increased by 311.4 per cent. from R 185 million inFinancial Year 2007 to R 761 million in Financial Year 2008. This increase reflected the increase ininterest received on loans and receivables in the latter period as well as interest received on the

63


proceeds of R 5.6 billion from the disposal in the latter period of the C-class Preference Share ofNewshelf 697 (Pty) Limited.

Taxation

The Group’s taxation from continuing operations increased by 51.7 per cent. from R 1,742 millionin Financial Year 2007 to R 2,642 million in Financial Year 2008. The effective tax rate for theGroup increased to 29.1 per cent. in Financial Year 2008, compared to 23.3 per cent. in FinancialYear 2007. The increase in the effective tax rate is primarily due to a 7.0 per cent. decrease innon-taxable income in 2008.

(Loss)/profit from discontinued operations, including (loss)/profit on disposal of discontinuedoperations and impairments

There was a profit of R 921 million from discontinued operations, including (loss)/profit on disposalof discontinued operations and impairments in Financial Year 2007, while there was a loss ofR 1,921 million in Financial Year 2008. This change was principally attributable to the profitrealised on the disposal of the V&A Waterfront in Financial Year 2007 and the losses fromdiscontinued rail services (Shosholoza Meyl and Luxrail) and the impairments in the discontinuedrail and road segments (Shosholoza Meyl and freightdynamics) in Financial Year 2008.

Profit for the Year

Profit for the year decreased by 32.0 per cent. from R 6,657 million in Financial Year 2007 toR 4,530 million in Financial Year 2008.

Liquidity and Capital Resources

Liquidity

The Group’s principal sources of liquidity over the last three years have been operating cash flows,borrowings and proceeds from the sale of non-core assets and discontinued operations. Over thenext three years, the Group anticipates that it will continue to rely on operating cash flows andborrowings for liquidity, with a potential increased reliance on borrowings. Transnet believes that itsoperating cash flows and borrowings will be sufficient to meet its foreseeable requirements inFinancial Year 2010.

Working Capital and Indebtedness

The Group’s funding base is comprised principally of short- and long-term borrowings as well asequity. The Group’s outstanding borrowings at 31 March 2009 were as follows:

Total borrowings by lenderAs at

31 March 2009

(R millions)

South African lending banks ............................................................................................. 10,875International lending banks ............................................................................................... 390Various holders of Transnet bonds and commercial paper, widely held, and traded(1).... 25,619Other................................................................................................................................. 129

Total borrowings............................................................................................................. 37,013

(1) As at 31 March 2009, includes bonds held at amortised cost of R 18,814 million, bonds held at fair value of R 466 million, andcommercial paper of R 6,339 million.

The aggregate total borrowings at 30 September 2009 were R 42,957 million.

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Bonds

The Transnet borrowings listed above include the following bonds in issue as at 31 March 2009:

Bond Maturity DateCoupon

RateCarrying

valueNominal

value

(per cent.) (R millions)Domestic Rand BondsT011(1) ......................................... 1 April 2010 16.50 1,089 1,050T018(1) ......................................... 15 July 2014 10.75 6,086 6,000TN17 ............................................ 14 November 2017 9.25 4,829 5,042TN23 ............................................ 6 November 2023 10.80 1,062 1,050TN27 ............................................ 14 November 2027 8.90 2,772 2,942

15,838 16,084

Eurorand BondsEuro 42(1)..................................... 18 April 2028 13.50 1,952 2,000Euro 42A(1) .................................. 30 March 2029 10.00 1,024 1,500

2,976 3,500

Total bonds ................................ 18,814 19,584

(1) These domestic Rand bonds and Eurorand bonds are guaranteed by the Government and Transnet paid R 19.2 million inguarantee fees (2008: R 19.2 million). The TN17, TN23 and TN27 bonds are not guaranteed.

The aggregate total nominal value of bonds as at 30 September 2009 was R 24,870 million.

Short-term borrowings

Short-term borrowings decreased by 45.5 per cent. from R 7,255 million as at 31 March 2009 toR 3,952 million as at 30 September 2009. This decrease was principally attributable to therepayment of Transnet’s short-term commercial paper borrowings that matured during the sixmonths ended 30 September 2009.

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Long-term borrowings

Long-term borrowings increased by 31.07 per cent. from R 29,758 million as at 31 March 2009 toR 39,005 million as at 30 September 2009. The increase was principally attributable to theissuance of Rand denominated bonds, funds from the Domestic Medium Term Note Programmeand domestic club loans, the proceeds of which were principally used to fund the CapitalExpenditure Programme. The following table summarises the Group’s long-term and short-termborrowings as at 30 September 2009 and 30 September 2008:

As at 30 September

2009 2008

(R millions)

Unsecured Rand denominated bonds ....................................................... 23,734 15,481Other unsecured liabilities ......................................................................... 9,833 —Unsecured foreign currency denominated loan ......................................... 1,976 67Secured loans and capitalised leases ....................................................... 3,537 3,927

Total long-term borrowings including current portion ................................ 39,080 19,475

Current portion of long-term borrowings redeemable within one yeartransferred to short-term borrowings ......................................................... 75 68Short-term borrowings ............................................................................... 3,877 7,262

Total short-term borrowings ...................................................................... 3,952 7,330

Future funding

The Group has planned capital expenditure of R 80.5 billion (excluding capitalised borrowing costsof R 7.1 billion) from the beginning of Financial Year 2010 over the next five financial years thatwill require the raising of substantial amounts of additional funding/borrowings. Managementexpects capital commitments to be financed by cash from operations, together with domestic andinternational issues of commercial paper, bonds and loans, export credit agency-backed financeand project financing. See ‘‘– Capital Expenditure’’ and ‘‘Business – Capital ExpenditureProgramme’’. Currently, Transnet plans to fund a portion of this capital expenditure throughindebtedness, a large part of which is planned to be borrowed in the domestic market under theDomestic Medium Term Note Programme. Transnet also plans to fund a portion of this capitalexpenditure through issuances under the global medium term note programme established by thisBase Prospectus. See ‘‘– Use of Proceeds’’. Transnet has also established a loan facility withExport Credit Agencies to facilitate cost-effective and flexible funding for imported plant andequipment.

As at 30 September 2009, Transnet had undrawn borrowing facilities of R 36.2 billion, of whichR 3.6 billion was committed and available to fund working capital.

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Cash Flows

Cash flows for the six months ended 30 September 2009 and 2008 and for Financial Years 2009, 2008and 2007

The following table sets forth the Group’s cash flow activity for the six months ended 30 September2009 and 2008 and for Financial Years 2009, 2008 and 2007.

Six monthsended 30 September Year ended 31 March

2009 2008 20092008

(Restated)2007

(Restated)

(R millions)

Cash flows from operatingactivities .................................. 5,278 3,176 7,400 10,287 8,941Cash flows used in investingactivities .................................. (10,611) (8,580) (19,084) (8,250) (10,345)Cash flows from financingactivities .................................. 5,963 1,417 11,587 9 3,669

Net increase/(decrease) in cashand cash equivalents................ 630 (3,987) (97) 2,046 2,265Cash and cash equivalents atthe beginning of the year.......... 5,905 6,589 6,002 3,956 1,691

Total cash and cashequivalents at the end of theperiod ...................................... 6,535 2,602 5,905 6,002 3,956

Cash flows fromdiscontinued operationsCash flows from operatingactivities.................................... — 17 36 634 995Cash flows used in investingactivities.................................... — (77) (193) (466) (374)Cash flows from/(used in)financing activities .................... — 58 154 (376) 198

Net decrease in cash andcash equivalents fromdiscontinued operations........ — (2) (3) (208) 819

Cash flows from operating activities

Net cash flows from operating activities for the six months ended 30 September 2009 were R 5,278million, an increase of 66.18 per cent. from R 3,176 million for the six months ended 30 September2008. This increase was principally attributable to a decrease in working capital outflows resultingfrom improved working capital management in the six months ended 30 September 2009 comparedto the six months ended 30 September 2008. The working capital management in the periodsunder review improved in part because the Group’s trade receivables reduced, due to tighterdebtor repayment deadlines, which, in turn, resulted in faster repayment periods for tradereceivables.

Net cash flows from operating activities for Financial Year 2009 amounted to R 7,400 million, adecrease of 28.1 per cent. from R 10,287 million for Financial Year 2008. This decrease wasprincipally attributable to an increase in working capital in the latter period resulting mainly fromincreased trade and other receivables, and decreased payables. The increase in trade receivableswas due to Transnet Freight Rail’s recognition of a coal tariff increase subsequent to the signing ofcontracts with customers of R 912 million and a R 500 million reimbursement of operating costsfrom PRASA. These accounts were settled post year end. The focus on maintenance programmes,especially in the Transnet Freight Rail division, also resulted in increased holding of inventories.

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Net cash flows from operating activities for Financial Year 2008 amounted to R 10,287 million, anincrease of 15.1 per cent. from R 8,941 million in Financial Year 2007, due mainly to the increasein adjusted EBITDA and the positive impact of changes in working capital, reflecting theimprovement in the Group’s productivity, cost control and working capital management.

Cash flows used in investing activities

Cash used in investing activities for the six months ended 30 September 2009 was R 10,611million, an increase of 23.67 per cent. from R 8,580 million for the six months ended 30 September2008. This increase was due to increased capital expenditure in relation to the Capital ExpenditureProgramme. In both periods, capital expenditure was incurred pursuant to projects included in theCapital Expenditure Programme.

Cash used in investing activities for Financial Year 2009 amounted to R 19,084 million, an increaseof 131.3 per cent. from R 8,250 million for Financial Year 2008. In both periods, capitalexpenditure was made pursuant to projects included in Transnet’s Capital Expenditure Programmebut in the earlier period, this expenditure was off-set in part by proceeds from the early redemptionby Newshelf 697 (Pty) Limited (a subsidiary of Transnet) of the C-class Preference Share for R5,622 million and the sale of Transnet’s Homeowners Loan Book of R 1.4 billion. In Financial Year2009, R 8,498 million was spent to maintain infrastructure and equipment and R 10,884 million wasspent to expand capacity. See ‘‘Capital Expenditure Programme’’ below.

Cash flows used in investing activities amounted to R 8,250 million for Financial Year 2008 ascompared to R 10,345 million in Financial Year 2007. In both years, cash was principally used forthe expansion of operations as well as for the maintenance of existing infrastructure as part of anearlier capital expenditure programme (see ‘‘Capital Expenditure Programme’’). Cash used ininvestment activities in Financial Year 2008 was off-set in part by cash from the early redemptionby Newshelf 697 (Pty) Limited (a subsidiary of Transnet) of the C-Class Preference Share forR 5,622 million as well as by the disposal of non-core assets which resulted in less cash used ininvesting activities in Financial Year 2008 than in Financial Year 2007.

Cash flows from financing activities

Cash from financing activities for the six months ended 30 September 2009 was R 5,963 million,an increase of 320.82 per cent. from R 1,417 million for the six months ended 30 September2008. This increase is principally attributable to increased borrowings under the Domestic MediumTerm Note Programme to support the funding of projects included in the Capital ExpenditureProgramme and reduced repayments of borrowings.

Cash from financing activities for Financial Year 2009 amounted to R 11,587 million, whileR 9 million was used for financing activities for Financial Year 2008. This change was principallyattributable to a substantial increase in net borrowings under the Domestic Medium Term NoteProgramme to support the funding of projects included in the Capital Investment Programme.

Net cash flows from financing activities were R 9 million in Financial Year 2008 as approximatelyequal amounts of borrowings were raised as were repaid in that period. In Financial Year 2007,net cash flows from financing activities amounted to R 3,669 million. The cash flows from financingactivities in Financial Year 2007 was principally attributable to the increase in borrowings underTransnet’s commercial paper programme.

Capital Expenditure Programme

Capital expenditure amounted to R 11,674 million in Financial Year 2007 and R 15,780 million inFinancial Year 2008. A further R 19,382 million was spent in Financial Year 2009. Of theR 19,382 million in Financial Year 2009, R 8,498 million was spent to maintain infrastructure andequipment and R 10,884 million was spent to expand capacity.

The Capital Expenditure Programme is currently focused on the following key projects:

Rail: Expansion of the iron ore export channel and coal export line; acquisition of 406locomotives and the upgrading of rolling stock and infrastructure; and the acquisition oflocomotives for general use;

68


Ports: Widening and deepening of the Durban harbour entrance channel; reconstruction ofMaydon Wharf in Durban; equipping and reengineering Durban Container Terminal andexpanding and equipping the Cape Town Container Terminals; upgrade of equipment for theSaldanha iron ore terminal; construction of the Ngqura Container Terminal; increase capacityat the Durban Car Terminal; and

Pipeline: Construction of the NMPP from Durban to Jameson Park in Gauteng. The NMPP isanticipated to consist of 550 kilometres of 24 inch pipeline between Durban and JamesonPark in Gauteng and 170 kilometres of 16 inch pipeline for the inland network. Through theNMPP, Transnet Pipelines aims to decrease the volume of road traffic and improve securityof petroleum product supply to the inland market.

Transnet’s current Capital Expenditure Programme provides for Transnet’s continuing operations toinvest R 80.5 billion over the next five Financial Years commencing with Financial Year 2010(excluding capitalised borrowing costs of R 7.1 billion) on key corridors and sectors. Transnetcurrently estimates that of the R 80.5 billion, R 39 billion will be spent on expanding capacity andR 41.5 billion will be spent on maintaining existing infrastructure and equipment. R 57.7 billion isplanned to be spent in the three financial years ending 31 March 2012 and relates mainly to theupgrade and expansion of rail, port facilities and pipeline networks. Management expects capitalcommitments to be financed by cash from operations, together with domestic and internationalissues of commercial paper, bonds and loans, export credit agency-backed finance and projectfinancing. See also ‘‘Business – Capital Expenditure Programme’’.

As a result of the Group’s Capital Expenditure Programme, the Group expects its fundingrequirements over the three financial years from Financial Year 2010 to Financial Year 2012 toamount to approximately R 30.3 billion.

Contractual Obligations and Commercial Commitments

The following table sets forth the Group’s contractual obligations and commercial commitments,excluding ordinary course trade payables, other payables and pension obligations, as at 31 March2009.

Payments due by period

TotalLess than

1 year 1-3 years 3-5 yearsMore than

5 years

(R millions)Bonds(1)(5) ...................................... 43,295 2,200 5,309 3,814 31,972Secured bank loans(1)(5) ................ 7,468 (190) 1,199 2,508 3,951Unsecured bank loans(1)(5)............. 10,607 444 8,045 547 1,571Commercial paper(1)(5) ................... 7,568 6,640 928 — —Other borrowings(5) ........................ 49 49 — — —Derivative financial liabilities(3)(5).... 192 149 43 — —Capital commitments(3)(5) ............... 25,634 10,372 12,031 2,927 304Finance leases(5) ........................... 73 7 4 2 60Operating lease obligations(5) ........ 1,532 487 573 216 256

Total(2)(3)(4)(5) ................................. 96,418 20,158 28,132 10,014 38,114

(1) These borrowings include interest costs. For debt obligations with variable interest rates, future interest payments have beenestimated using the current interest rate at 31 March 2009. Certain of these borrowings require the group to comply withrestrictive debt covenants. These covenants include, but are not limited to, negative pledge and cross-default covenants aswell as limitations on the incurrence of future indebtedness. While the Group does not anticipate a violation of these covenants,any violation of such covenants could result in the acceleration of these payments.

(2) This table does not reflect: (i) outstanding purchase orders for products or services entered into in the normal course ofbusiness and (ii) pension obligations, due to the unpredictability of the timing of the payment.

(3) Some of the amounts reflected in this table are denominated in a currency other than South African Rand, whereas this table isreflected in South African Rands translated at the 31 March 2009 exchange rate. As a result, any change in exchange ratebetween the currency of the underlying contract and the South African Rand will result in a change in these payments.

(4) The table above does not include additional borrowings and contractual commitments entered into by the Group since31 March 2009. As of 1 July 2009, the Group had incurred R7 billion of additional debt.

(5) These amounts are undiscounted amounts of future cash flows and not carrying amounts.

69


It is anticipated that these contractual commitments will be financed by net cash flow fromoperations, together with domestic and international issues of commercial paper, bonds and loans,export credit-agency backed finance and project financing.

Contingent Liabilities

Judicial Proceedings

While no assurance can be given, Transnet does not expect to incur material losses in connectionwith existing legal proceedings to which Transnet is a party. As at 30 September 2009,Management estimated that contingent liabilities related to judicial proceedings involving Transnetas either defendant or plaintiff could amount to approximately, R 95 million. See also ‘‘Business –Litigation and Other Proceedings.’’

Provisions

Short-term and long-term provisions include provisions for third-party claims, customer claims, leavepay, onerous contracts, decommissioning and other environmental liabilities, incentive bonuses,restructuring and other matters.

Long-term provisions increased by 9.57 per cent. from R 2,509 million as at 31 March 2009 toR 2,749 million as at 30 September 2009. This increase was mainly attributable to an increase inthe long term accumulated leave pay provision.

Short-term provisions decreased by 2.41 per cent from R 2,279 million as at 31 March 2009 toR 2,224 million as at 30 September 2009. This increase was attributable to a decrease in theshort-term portion of Transnet’s incentive bonus scheme.

Guarantees

As of 30 September 2009, Transnet had provided guarantees of third-party liabilities in the amountof R 2,967 million. The most significant guarantee relates to a R 2.4 billion guarantee pertaining toa sale and leaseback with respect to Transnet Freight Rail locomotives used in the Republic ofSouth Africa.

Off-Balance Sheet Arrangements

Other than the contingent liabilities and guarantees discussed above, the Group does not have anyoff-balance sheet arrangements.

Qualitative and Quantitative Disclosure about Market Risk

In the ordinary course of business, the Group is exposed to a variety of market risks arising fromfluctuations in interest rates, commodity prices, exchange rates and other prices. The Groupmonitors and manages these risks as an integral part of its overall risk management programme,which recognises the unpredictability of financial markets and seeks to reduce their potentiallyadverse effects on its results.

The Group has a centralised treasury function that controls all decisions and commitmentsregarding cash management, arrangement of borrowing facilities, banking relationships and foreigncurrency commitments. It is responsible for the management of financial risks and hasresponsibility for funding of the Group.

Financial risk assessment and analysis are disclosed on a monthly basis to the Group FinanceCommittee and the Group Executive Committee. These committees are responsible for reportingfinancial risk exposures to the Board of Directors on a bi-monthly basis.

The Group’s treasury policies are contained in a Board of Directors-approved financial riskmanagement framework designed to identify, monitor and appropriately manage the financial,operational, and strategic risks applicable to the Group’s funding, trading and investment activitiesand to monitor its compliance with the Group Enterprise-wide Risk Management Framework, thePublic Finance Management Act 1 of 1999, as amended (the ‘‘Public Finance Management Act’’)and other applicable regulations.

Given the nature of the Group’s business and its Capital Expenditure Programme, it is not alwayspossible to avoid risk. However, the Group does not use financial instruments for trading orspeculative purposes.

70


Foreign Currency Risk

Foreign currency risk arises mainly as a result of the Group’s imports under capital and operationalexpenditure programmes, where goods are imported from foreign countries and the Group isexposed to currency fluctuations as a result of its payment obligations in foreign currencies.Indirect foreign currency risk arises as a result of imports by local suppliers, resulting in fluctuatingRand payments, as well as the inherent foreign currency component in fuel risk exposures.

It is the Group’s preference to enter into Rand-based financing contracts, if this can be achieved atan acceptable cost. Transnet seeks to hedge all foreign currency risk exposures arising from itssupply contracts or other contracts within the framework approved by The Board of Directors. TheGroup’s net foreign currency position is monitored on a monthly basis by obtaining the net foreigncurrency position in all the major currencies (including U.S. Dollar, Euro, Pounds Sterling andJapanese Yen). Foreign currency risk exposures are fully hedged until maturity after carefulconsideration and analysis of the tax and accounting implications. Hedge accounting is appliedwherever possible to minimise income statement volatility.

The Group’s net long (short) foreign currency risk exposures as at 31 March 2009 and 31 March2008 are as follows (expressed in notional amounts).

31 March 2009 31 March 2008

USD(1) JPY(2) EUR(3) AUD(4)

Othercurrenciesexpressed

in USD USD(1) JPY(2) EUR(3) AUD(4)

Othercurrenciesexpressed

in USD

(in millions of currency)

Secured bank loans .......... (11) — — — — (17) — — — —

Unsecured bank loans ...... — — — — — — (355) — — —

Brazil equity investment .... 16 — — — — 16 — — — —

Gross balance sheet

exposure .......................... 5 — — — — (1) (355) — — —

Exposures for future

expenditure ....................... (25) (27,634) (159) (2) — (116) (27,462) (190) — (5)

Gross foreign currency

exposure .......................... (20) (27,643) (159) (2) — (117) (27,817) (190) — (5)

Forward exchange

contracts and currency

options............................... 13 27,643 127 — — 2 27,817 166 — 4

Cross currency swaps....... 11 — — — — 17 — — — —

Net uncovered exposure 4 9 (32) (2) — (98) — (24) — (1)

(1) The mid-rates of exchange of the U.S. Dollar against the Rand used for conversion purposes were 9.5187 at 31 March 2009and 8.1085 at 31 March 2008.

(2) The mid-rates of exchange of the Japanese Yen against the Rand used for conversion purposes were 10.2817 at 31 March2009 and 12.3019 at 31 March 2008.

(3) The mid-rates of exchange of the Euro against the Rand used for conversion purposes were 12.8274 at 31 March 2009 and12.6355 at 31 March 2008.

(4) The mid-rates of exchange of the Australian Dollar against the Rand used for conversion purposes were 6.6450 at 31 March2009 and 7.3958 at 31 March 2008.

The table below shows the impact on profit and loss of a stronger and weaker Rand for the Groupas a result of fair value movements of cross currency interest rate swaps and forward exchangecontracts as at 31 March 2009 and 31 March 2008.

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31 March 2009 31 March 2008

Currency

Currency

exposure Fair value

Impact

of Rand

strengthening

Impact of

Rand

weakening

Currency

exposure Fair value

Impact of

Rand

strengthening

Impact of

Rand

Weakening

(in millions

of currency) (R millions) (R millions) (R millions)

(in millions

of currency) (R millions) (R millions) (R millions)

EUR........... 50 6 (182) 182 67 148 (121) 121JPY............ 9 120 (0.5) 0.5 1,651 118 (28) 28USD Group 13 (23) (55) 55 21 (55) (28) 28

The table below shows the impact on profit and loss of a stronger and weaker Rand for the Groupas a result of fair value movements of foreign currency options as at 31 March 2008 and 31 March2009. Weaker Rand and higher volatilities are based on a 95 per cent. confidence level, with a100-basis point (bp) increase in interest rates. Stronger Rand and lower volatilities are based on a95 per cent. confidence level, with a 100-basis point (bp) decrease in interest rates.

31 March 2009 31 March 2008

Currency

Nominal

amount of

options

currency/m

Fair market

value

Weaker

Rand:

Impact of

profit (loss)

Stronger

Rand:

Impact of

profit (loss)

Nominal

amount of

options

currency/m

Fair market

value

Impact of

profit (loss)(1)

Impact of

profit (loss)(2)

(R millions) (R millions)

AUD........... — — — — 2 2 1 (1)EUR........... 21 43 60 (61) 64 153 51 (49)

Total.......... 21 43 60 (61) 66 155 52 (50)

Value-at-risk

Transnet uses Value-at-risk (‘‘VaR’’) to calculate the maximum pre-taxation loss expected on aposition held over a 90-day horizon given a 95 per cent. confidence level. The methodology is astatistically defined, probability-based approach that takes into account market volatilities relative toa position held. The value at risk as at 30 September 2008 was R 116.4 million and as at30 September 2009 was R 18.7 million.

The calculation of VaR involves a number of assumptions and approximations. While managementbelieves that these assumptions and approximations are reasonable, there is no uniform industrymethodology for estimating VaR, and different assumptions and/or approximations could producematerially different VaR estimates. The Group uses historical simulation and the model assumesthat historical patterns will repeat into the future. Given the Group’s reliance on historical data,VaR is most effective in estimating risk exposures in markets in which there are no suddenfundamental changes or shifts in market conditions. An inherent limitation of VaR is that pastchanges in market risk factors, even when weighted toward more recent observations, may notproduce accurate predictions of future market risk. VaR should be evaluated in light of themethodology’s limitations.

Commodity price risk

Commodity price risk refers to the potential variability in the Group’s financial condition owing tochanges in commodity prices such as Brent crude oil, steel, iron ore and others. Only fuel riskexposures are actively monitored on a regular basis and are hedged in terms of the Board-authorised frameworks.

72


The table below shows the cash flow at-risk scenarios against budget at various levels of Brentcrude and USD/ZAR ($/Rand) exchange rates for the Financial Year 2009.

Cash flow at risk(negative: excess against budget)

Fuel price in dollars per barrel $/R 5.26 $/R 7.50 $/R 9.52 $/R 13.76 $/R 15.00

(R millions)

Brent @ $28 .................................. 817 719 630 444 390Brent @ $53 .................................. 612 426 259 (94) (196)Brent @ $78 .................................. 406 133 (113) (633) (782)Brent @ $100 ................................ 223 (128) (445) (1,112) (1,304)

Interest rate risk

The Group’s cash flow interest rate risk arises from long-term borrowings issued at variable rates.The Group measures interest rate risk using repricing/maturity gaps and by analysing the impact ofstandardised interest rate shocks. The Group manages its exposure to interest rate risk bymaintaining Board of Directors-approved ratios of floating rate exposures versus fixed rateexposures and seeking to reduce the weighted average cost of debt. The Group’s exposures tofixed and floating interest rates on its domestic financial liabilities as at 31 March 2009 and31 March 2008 were as follows:

31 March

2009 2008

(R millions)

Fixed rate liabilities ........................................................................................ (27,764) (19,225)Floating rate liabilities .................................................................................... (10,088) (5,218)

Total .............................................................................................................. (37,852) (24,443)

The above table excludes liabilities carried at fair value of R 611 million as at 31 March 2009 andR 1,701 million as at 31 March 2008.

In addition, the Group was exposed to floating interest rates on its foreign currency financialliabilities in the amount of R 100 million as at 31 March 2009 compared to an exposure of R 140million as at 31 March 2008. The full foreign currency loan portfolio has been swapped to a fixedRand interest rate exposure.

The sensitivity analysis below has been determined based on the exposure to floating interest ratesfor both derivatives and non-derivative financial instruments as at the balance sheet dates shown.The analysis illustrates the possible impact on finance cost and profit and (loss) in the financialyear commencing immediately after the balance sheet dates (i.e. Financial Years 2010 and 2009)as a result of changes in domestic interest rates. Similar shifts are used internally when reportinginterest rate risk to key management personnel and represents management’s assessment of thereasonably possible change in interest rates. The sensitivities show the impact on profit and lossas a result of fair value movements at higher and lower domestic interest rates for the Group as at31 March 2009 and 31 March 2008.

As at 31 March 2009

(with respect to Financial Year 2010)

As at 31 March 2008

(with respect to Financial Year 2009)

Financial instrument

Market

value

shift at

100 bp

increase

Market

value

shift at

100 bp

decrease

Market

value

shift at

200 bp

increase

Market

value

shift at

200 bp

decrease

Market

value

shift at

100 bp

increase

Market

value

shift at

100 bp

decrease

Market

value

shift at

200 bp

increase

Market

value

shift at

200 bp

decrease

Finance cost impact (increase) for theremainder of the financial year against

budget for new and existing debt ....... (68) 68 (135) 137 (35) 35 (70) 71Fair value movements on floating rate

debt..................................................... (9) 10 (16) 21 (3) 4 (5) 8

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The impact on profit and loss of higher and lower foreign interest rates on the Group at 31 March2009 was not significant. The sensitivity analysis was performed by doing non-parallel shifts of theswap curve (plus/minus 100 and 200 basis points). The sensitivity ranges utilised are based onhistorical trends. The above tables assume no change in other variables.

Other price risk

The Group is exposed to equity price risk. At 31 March 2009, the quoted value of the Group’sequity investment in Spoornet DO Brazil Limited. was R 149 million compared to R 126 million asat 31 March 2008. Management believes that the foreign exchange exposures on this investmentare significantly greater than that of equity price risk and as such the sensitivity for this investmenthas been included in the foreign currency risk net position and VaR calculations.

Critical Accounting Policies

The preparation of financial statements in conformity with IFRS requires management to makejudgments, estimates and assumptions that affect the application of policies and reported amountsof equity, assets and liabilities, revenue and expenses. The estimates and associated assumptionsare based on historical experience and various other factors that are considered to be reasonableunder the circumstances. Actual results may differ from these estimates. The estimates andunderlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates arerecognised in the period in which the estimate is revised if the revision affects only that period, orin the period of the revision and future periods, if the revision affects both current and futureperiods. Judgements made by management in the application of IFRS that have a significant effecton the Group’s financial statements and estimates with a significant risk of material adjustment inthe next year are discussed below. Critical judgements made by Transnet’s Board of Directors inapplying accounting policies and key sources of estimation or uncertainty are detailed below:

Property, plant and equipment (PPE)

Revaluation and impairment of PPE

Port operating assets (Transnet Port Terminals), pipeline networks (Transnet Pipelines) and portinfrastructure assets (Transnet National Ports Authority) are carried at revalued amounts. Formalrevaluations are performed every three years by independent experts for all asset classes.Appropriate indices as determined by the independent experts continue to be applied in theintervening periods to confirm that the assets are carried at fair value at the balance sheet date.Fair value as determined by the independent experts is derived by applying internationallyacceptable and appropriately benchmarked valuation techniques such as depreciated optimisedreplacement cost or modern equivalent asset valuation methods which are dependent on the assetclass being revalued.

IAS 16: Property Plant and Equipment requires that the carrying value of PPE exceed itsrecoverable amount based on the future cash flows. Consequently all asset classes that aresubject to a revaluation was tested against a discounted cash flow model to confirm that thecarrying value of assets were recoverable.

In addition as required by IAS 36: Impairment of Assets an entity is required to assess at eachreporting period whether there is any indication that an asset is impaired and if so the recoverableamount of these assets must be determined. In the current year the global economic crisis lead toindicators of impairment being identified with respect to rail assets (Transnet Freight Rail) andconsequently the recoverable amount of these assets were determined by using a discounted cashflow model.

As with all discounted cash flow models various assumptions were made in order to derive the netpresent value of future cash flows. These assumptions were arrived at after wide consultation withsubject matter experts, both internal and external, benchmarked with peer companies, compared tointernational trends and adjusted for local market conditions. The more critical assumptions madewere as follows:

* Future cash flows were based on the five-year approved budgets, and operational plans andwere amended for the latest available volume and pricing indicators as well as economicindicators;

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* The rate used to discount cash flows for purposes of determining value in use was theindividual operating divisions post-tax weighted average cost of capital (‘‘WACC’’) as thiscould verify that the appropriate risk profile of the business was incorporated into the assetvaluation;

* The WACC rates used were 11.86 per cent. for Transnet National Ports Authority andTransnet Port Terminals, Transnet Pipelines 11.21 per cent. and Transnet Freight Rail 11.80per cent. respectively; and

* The cash flows utilised in the discounted cashflow analysis were estimated into perpetuitybased on varying terminal year growth rates after year 15. The elements considered indeveloping the discounting period for the operating divisions were the long term use andasset life, long term funding arrangements and long term customer contracts.

Based on the above, the carrying value of port infrastructure would have been adjusted from R 25.1billion to R 40.2 billion (estimated replacement cost) at 31 March 2009, a proposed revaluationamount of R 15.1 billion. However this amount was limited to R 3.1 billion based on therecoverable amount of port infrastructure assets. In the case of all other classes of revalued assetstheir recoverable amount exceeded the carrying value. In addition no impairment of rail assets wasrecoded as the recoverable amounts exceeded the carrying value of these assets.

Sensitivities

The table below sets forth the Group’s sensitivity analysis as of 31 March 2009:

Sensitivity Analysis

PortInfrastructure

Assets

PortOperating

AssetsPipelineNetwork Rail Assets

Carrying value of assets peraudited consolidated financialstatements ................................. R 28.2 billion R 10.2 billion R 4.5 billion R 34.8 billionWACC 0.5per cent. impact* ....................... R 1.4 billion R 1.9 billion R 300 million R 1.2 billionRevenue 0.5per cent. impact* ....................... R 196 million R 370 million R 62 million R 1.5 billion

*Increasing/decreasing WACC or revenue by 0.5 per cent. will result in the carrying value of assets being adjusted by these values.

Useful lives and residual values

In terms of IAS 16 the useful lives of property, plant and equipment must be reviewed at eachbalance sheet date. The useful lives are estimated by management based on historic analysis,benchmarking and other available information. In the current year, based on the recommendationof independent experts and international benchmarking the useful lives of certain port infrastructureassets were increased from 50 to 100 years.

The residual values of property, plant and equipment are reviewed at each balance sheet date.The residual values are based on the assessment of useful lives and other available information.

Provisions

Various assumptions are applied in arriving at the carrying value of provisions that are recognisedin terms of the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

A provision for the estimated cost of rehabilitating the contamination caused by asbestos has beenraised. This obligation arises from certain legislation that governs asbestos contamination.

Transnet engaged external consultants to perform a countrywide asbestos risk assessment onareas affected by the historical spillage of asbestos and its related pollution liability.

A number of factors were considered in determining the obligation which included:

* the cost of remediation per running line kilometre;

* the cost of yard remediation per hectare;

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* the estimated yard area to be remediated;

* project administration and monitoring costs;

* follow-up maintenance and inspection costs; and

* the costs estimated for the removal and replacement of asbestos roof sheeting and cladding.

Fair value assumptions – investment properties

The services of internal experts are used to arrive at the fair value of investment properties.Assumptions used in these valuations are in line with the Property Valuers Profession Act, 47 of2000.

Special purpose entities

Management has applied significant judgement in determining whether the substance of therelationship between the Group and a special purpose entity, SUBCO/Newshelf 697, indicates thatthe special purpose entity is controlled by the Group.

Valuation of C-class Preference Share

The carrying value of the C-class Preference Share has been arrived at after utilising a modeldeveloped by an external valuer. Management has further applied judgement to the valuationobtained, taking into account factors pertaining to the realisation of the asset.

Qualifying hedge relationships

The Group has fair value hedges in place. In designating financial instruments as qualifying hedgerelationships, the Group has determined that it expects the hedge to be highly effective over thelife of the hedging instrument. Furthermore, at the inception of the hedge and on an ongoing basis,the Group documents whether the hedging instrument that is used in a hedging relationship ishighly effective in off-setting changes in fair values or cash flows of the hedged item.

Taxation

Income taxation on the profit or loss for the year comprises current and deferred taxation. Incometaxation is recognised in the income statement except to the extent that it relates to itemsrecognised directly in equity, in which case it is recognised in equity.

Current taxation

The charge for current taxation is the amount of income taxes payable in respect of the taxableprofit for the current period and any adjustment to taxation payable in respect of previous years. Itis calculated using taxation rates that have been enacted or substantially enacted by the balancesheet date.

Deferred taxation

Deferred taxation is provided using a balance sheet liability method on all temporary differencesarising between the carrying amounts of assets and liabilities for financial reporting purposes andtheir taxation bases. The following temporary differences are not provided for:

* the initial recognition of goodwill;

* the initial recognition of assets and liabilities (other than in a business combination), whichaffect neither accounting nor taxable profit or loss; and

* differences relating to investments in subsidiaries to the extent that they will probably notreverse in the foreseeable future.

The amount of deferred taxation provided is based on the expected manner of realisation orsettlement of the carrying amount of assets and liabilities and is calculated using the taxation ratesthat have been enacted or substantively enacted at the balance sheet date.

Deferred taxation is charged or credited in the income statement except where it relates to itemscharged or credited directly to equity, in which case the deferred taxation is also dealt with inequity.

A deferred taxation asset is recognised to the extent that it is probable that future taxable profitswill be available to be utilised against the associated unused taxation losses and deductibletemporary differences. Deferred taxation assets are reduced to the extent that it is no longerprobable that the related taxation benefit will be realised.

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Deferred taxation liabilities are recognised for taxable temporary differences associated withinvestments in subsidiaries and joint ventures, except where the Group is able to control the timingof the reversal of the temporary differences and it is probable that it will not reverse in theforeseeable future.

Deferred taxation assets and liabilities are off-set when they relate to income taxes levied by thesame taxation authority and the Group has the legal right to and intends to settle its currenttaxation assets and liabilities on a net basis.

In terms of the measurement criteria set out in IAS 12: Income Taxes, Transnet has assessedtheir intention at balance sheet date on recovering an asset or liability to the extent that thisintention influences the rate of tax to be applied in calculating deferred tax. In this regard, Transnethas recognised deferred tax as follows:

Land

As land is deemed to be realised through sale, there is no deferred tax effect on the differencebetween the Tax Base and the Original Cost of the land. Deferred tax is calculated on thedifference between the Carrying Amount and the Capital Gains Tax (‘‘CGT’’) Base Cost at the CGTrate.

Asset In Respect of Which No Tax Allowances Are Granted

No deferred tax is raised in the case where neither the accounting nor tax profit are effected.Where the asset is revalued, deferred tax affects are calculated based on the intention of theentity. Where the intention is to sell the asset, deferred tax is raised at the CGT rate on thedifference between the CGT Base Cost and the Revalued Carrying Amount. Where the intention isto use to asset, deferred tax is raised at the usage rate on the difference between the Tax Baseand the Revalued Carrying Amount.

Asset (Other Than Land) Recorded at Cost

Where an asset is recorded using the cost model, and a tax allowance is available to be claimedagainst the asset, deferred tax is calculated on the excess of the Carrying Amount over the TaxBase at the full income tax rate.

Asset (Other Than Land) Recorded at Revalued Amount – Intention to Use

Assets recorded at revalued amounts, with the intention to use, are taxed in accordance with theirintention. As the future benefits expected to flow from the use of the asset, deferred tax iscalculated at the full income tax rate on the difference between the Tax Base and the RevaluedCarrying Amount.

Asset (Other Than Land) Recorded at Revalued Amount – Intention to Sell

Where the intention is to recover the benefits of the asset through sale, deferred tax is calculatedat the usage rate on the difference between the Tax Base and the Original Cost, and at the CGTrate on the difference between the CGT Base Cost and the Revalued Carrying Amount.

Asset (Other Than Land) Recorded at Revalued Amount – Intention to both Use and Sell

Where the intention is to recover the benefits of the asset through both use and sale, deferred taxis calculated to reflect this intention. Deferred tax is calculated at the usage rate (29 per cent.) onthe difference between the Tax Base and the Original Cost, at the CGT rate (14.5 per cent.) onthe difference between the CGT Base Cost and the Future Selling Price (residual value), and atthe usage rate on the difference between the Future Selling Price and the Revalued CarryingAmount.

Post-retirement benefit obligations

Various assumptions, including those relating to mortality, demographics, discount rate, rate ofreturn on assets and salary increases have been applied by management and the actuaries in thecalculation of the post-retirement benefit obligations.

Provisions

Various assumptions are applied in arriving at the carrying value of provisions that are recognisedpursuant to the requirements of IAS 37: Provisions, Contingent Liabilities and Contingent Assets.Management further relies on input from the Group’s lawyers in assessing the probability ofmatters of a contingent nature.

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BUSINESS

Overview

Transnet is a public company with the Government as its sole Shareholder. As the operator andcustodian of a major portion of the Republic of South Africa’s transport infrastructure Transnet isresponsible for ensuring that a significant part of the country’s bulk freight transportation systemoperates according to world-class standards and as an integral part of the overall economy.Transnet is a focused freight transport company with a goal of delivering integrated, efficient, safe,reliable and cost-effective services. Transnet’s key mandate, as defined by the ShareholderCompact, is to assist in lowering the cost of doing business and to enable economic growth in theRepublic of South Africa. Transnet seeks to promote economic growth in the Republic of SouthAfrica by providing its customers with access to world-class integrated logistics solutions and bycreating transport capacity ahead of demand. Transnet is funded through reserves and borrowingsand does not receive cash subsidies from the Government. Transnet’s borrowings are based onthe strength of its own balance sheet. Going forward, Transnet intends to borrow withoutGovernment subsidies and the Notes are not guaranteed by the Government. As a result, Transnetis required to earn an appropriate return on capital that will allow for the maintenance andexpansion of the rail, port and pipeline infrastructure that it owns and operates while maintaining astrong balance sheet.

Substantially all of Transnet’s revenues are generated in the Republic of South Africa. Over thepast four financial years, Transnet has transformed from a diversified conglomerate into a focusedrail, port and pipeline operator. Transnet has accomplished this through the sale, closure ortransfer of non-core assets and businesses, which have been treated as discontinued operationsfor accounting purposes. Activities have been grouped into divisions according to major transportmodes, with central support services unified under one brand. For operational and IFRS reportingpurposes, Transnet is organised into the following five core business divisions: Transnet FreightRail, Transnet Rail Engineering, Transnet National Ports Authority, Transnet Port Terminals andTransnet Pipelines. The ‘‘Other’’ segment includes Transnet Property, Transnet Fuel Solutions,Transnet Capital Projects, Transnet Corporate Centre and Transnet Heritage Foundation.

Transnet Freight Rail is focused on transporting bulk and containerised freight. Transnet FreightRail transported 177 million tonnes of freight during Financial Year 2009 and 86.9 million tonnes offreight during the six months ended 30 September 2009.

Transnet Rail Engineering consists of eight product-focused business units that provide servicesranging from refurbishment, conversion and upgrades, to the manufacturing and assembly of rail-related rolling stock. Most of Transnet Rail Engineering’s sales are generated from sales toTransnet Freight Rail and PRASA (a separate state-owned entity and accordingly a related partyunder IFRS).




For Financial Year 2009, the Group generated revenue of R 33,592 million, operating profit ofR 8,602 million and profit for the year of R 4,528 million. For Financial Year 2008, the Groupgenerated revenue of R 30,091 million, operating profit of R 11,083 million and profit for the yearof R 4,530 million.

In the six months ended 30 September 2009, the Group generated revenue of R 17,335 million,operating profit of R 3,353 million and profit for the period of R 1,274 million. In the six monthsended 30 September 2008, the Group generated revenue of R 16,849 million, operating profit ofR 3,922 million and profit for the period of R 1,661 million.

Transnet’s current Capital Expenditure Programme provides for Transnet’s continuing operations toinvest R 80.5 billion over the next five Financial Years commencing with Financial Year 2010

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(excluding capitalised borrowing costs of R 7.1 billion) on key corridors and sectors. Transnetcurrently estimates that of the R 80.5 billion, R 39 billion will be spent on expanding capacity andR 41.5 billion will be spent on maintaining existing infrastructure and equipment.

The Group’s spending under the Capital Expenditure Programme for the six months ended30 September 2009 (excluding capitalised borrowing costs) amounted to R 8.3 billion, withR 4.3 billion spent to maintain current infrastructure and equipment and R 4.0 billion spent onexpanding capacity.

History and Development

Transnet was formed in 1990 as a result of the transfer of the commercial enterprise of the SouthAfrican Transport Services to Transnet as the country’s railway, harbour, road transport, aviationand pipeline operator.

For Financial Year 2004, the Group recorded a consolidated loss of R 6,332 million under SouthAfrican generally accepted accounting principles. In August 2004, Transnet adopted a TurnaroundPlan focused on stabilising the business and creating a platform for growth. The stated goals ofthe Turnaround Plan were to: (i) redirect and reengineer the business in order to increase theefficiency and effectiveness of the core business units and realise synergies between the businessunits; (ii) focus on core business units, with non-core businesses sold or transferred to theGovernment; (iii) establish and adhere to high standards of corporate governance and improve therisk management framework; and (iv) introduce talent management as well as leadershipdevelopment programmes, and performance and reward-based compensation initiatives with a viewto transforming the culture and behaviour of employees.

In August 2007, Transnet approved the Growth Strategy designed to build on the success of theTurnaround Plan. The four pillars of the Growth Strategy are (i) capital optimisation and financialmanagement; (ii) human resource strategy, (iii) risk management with an emphasis on safety andeffective governance; and (iv) re-engineering, integration, productivity and efficiency. See ‘‘–Strategy’’ below for further details regarding the Turnaround Plan and the Growth Strategy.

Disposal of Non-core Assets and Discontinued Operations

As part of the Turnaround Plan, Transnet identified non-core assets for disposal in areas includingaviation (including Transnet’s shares in South African Airways), passenger rail services,telecommunications, pension fund obligation management, fleet management and housing loans. InFinancial Year 2009, Transnet disposed of non-core assets with a carrying value at the time ofsale of R 816 million. No non-core assets were disposed of in the six months ended 30 September2009. Of the non-core assets originally identified for disposal, Transnet still retains ownership ofnon-core assets in information technology services and passenger rail services, which Transnetintends to dispose of in Financial Year 2010, and which have been classified as discontinuedoperations for accounting purposes and have an immaterial impact on the financial performance ofthe Group. See ‘‘Risk Factors – Transnet may be unable to divest itself of certain discontinuedoperations and related obligations’’ and ‘‘Operating and Financial Review – Significant FactorsAffecting the Group’s Financial Condition and Results of Operations – Discontinued and divestedoperations’’.

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Current Structure of Transnet

Transnet is 100 per cent. owned by the Government. The diagram below illustrates Transnet’sbusiness divisions:

TransnetCore Operating Divisions

Rail Ports Pipelines

Freight Rail Rail EngineeringNational Ports

Authority Port Terminals Pipelines

Discontinued Operations Specialist Units

•Luxrail

•Transnet Corporate Centre•Transnet Capital Projects•Transnet Property •Transnet Fuel Solutions•Transnet Foundation

Business Strengths

Transnet’s business strengths include the following:

Focus on Customer Relationships

Transnet focuses on developing and maintaining long-term relationships with strategic customers.

Financial Strength

Transnet believes that its financial strength gives it the resources to implement its strategies and topursue its Capital Expenditure Programme to upgrade and increase capacity in its network. As at31 March 2009, the Group had cash and cash equivalents of R 5.9 billion and as at 30 September2009, the Group had cash and cash equivalents of R 6.5 billion which, together with the Group’srelatively low gearing and historic profitability, makes the Group financially strong in the opinion ofmanagement.

Country-wide Reach and Scale

Transnet’s integrated system of freight rail, ports and pipelines covers the most economicallyimportant corridors in the Republic of South Africa. Its substantial operations and market share infreight rail and its ownership and operation of all the commercial ports in the Republic of SouthAfrica also provide country-wide reach and facilitate an international focus. Transnet owns andleases rolling stock in excess of 2,000 locomotives and 77,000 freight wagons. Transnet NationalPorts Authority owns and manages, in a landlord capacity on behalf of the Government, the portsystem of South Africa. Transnet National Ports Authority is also a provider of port infrastructureand marine services at all seven fully operational commercial ports in the Republic of South Africa,and plans to provide the same services for the Port of Ngqura when it becomes fully operational.Transnet Port Terminals manages 16 cargo terminal operations within eight South African ports(including the Port of Ngqura), providing a range of cargo-handling and warehouse services to awide variety of customers, including shipping lines, freight forwarders and cargo owners in thecontainer, bulk, break-bulk and automotive cargo sectors. Transnet also owns over 3,000 km ofpipelines. The Centre for Supply Chain Management at the University of Stellenbosch estimatesthat its integrated freight transport system carried freight having a value approaching 7 per cent. ofthe total value of freight transported in South Africa in Financial Year 2009.

Ability to Capitalise on International Growth in Container Transport

The geographic location of the Republic of South Africa at the southern tip of Africa between twooceans and on major shipping routes means that Transnet’s ports, port terminals and rail network

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leading from those ports are well-positioned to capture economic benefits from the internationalgrowth in container traffic. Transnet believes that intermodal container traffic will becomeincreasingly important to the Republic of South Africa’s economy, based on the increasingimportance of container supply chains within global production-sharing arrangements. The cost,speed, predictability, reliability, flexibility and connectivity of container supply chains are keydeterminants of competitiveness for manufacturers, and accordingly Transnet believes that itsgeographic location on the African continent, coupled with its integrated container transportationstrategy, puts it in a strong position to benefit from growth in container transport.

Well Positioned to Capitalise on the Republic of South Africa’s Metal and Mineral Resources

The integration of Transnet’s freight rail network with the ports of Transnet National Ports Authorityallows Transnet to capture a significant portion of the transportation revenues associated with theexport of the Republic of South Africa’s metal and mineral resources as well as imports ofmanufactured goods. According to South Africa: A Country Study, prepared by the FederalResearch Division of the Library of Congress under the Country Studies/Area HandbookProgramme sponsored by the U.S. Department of the Army, the Republic of South Africa isbelieved to have the largest known deposits of chromium, manganese and vanadium. It is alsoamong the largest producers of platinum, gold and chromium and has significant deposits of ironore, coal, manganese, antimony, copper, nickel, lead, titanium, fluorspar, zinc and zirconium.Transnet’s network has been able to respond to some of this demand and is geographicallypositioned to do so on a cost-effective basis. Most of these commodities are exported, althoughiron ore is also used by the Republic of South Africa’s steel industry. Transnet Freight Rail has alargely dedicated coal line and a dedicated iron ore line to transport coal and iron ore products forexport and handles the rail transportation of all other metals and minerals.

Strategy

In 2004, Transnet adopted the Turnaround Plan. See ‘‘– History and Development’’. TheTurnaround Plan was intended to refocus the core operating divisions into an integrated freighttransport company with the primary objectives of improving operating efficiencies and growing thebusiness. The original investment plan that was developed as part of the Turnaround Plan wasdesigned to support the integrated freight transport company model, improving existing services aswell as creating future capacity for growth. Although this was a significant challenge in light of thebacklog of maintenance and capital investment that needed to be made prior to the execution ofthe Growth Strategy, Transnet was able to increase investment significantly during the period from2005 to 2007, principally as a result of the improvement in Transnet’s financial condition and strongimprovement in operating cash flows and ability to raise debt financing. Accordingly, all non-corebusinesses were identified for disposal, and as of 30 September 2009, Transnet had substantiallycompleted its disposals as part of the Turnaround Plan.

Transnet believes that it has made substantial progress in achieving the goals of the TurnaroundPlan since it was instituted in 2004 and is now positioning itself for the next phase of itsdevelopment. Accordingly, in August 2007, Transnet adopted the Growth Strategy, whichrepresents the evolution of the Turnaround Plan. The Growth Strategy is intended to build on theprogress made under the Turnaround Plan to accelerate profitable and sustainable volume growth,improve service delivery to clients and enhance long-term financial performance. Under the GrowthStrategy, Transnet seeks to operate its businesses in a more customer-focused manner, continueto realise improvements in productivity and efficiency, invest in additional capacity to grow thebusiness, increase the sustainability of its financial performance, improve its safety record, enhancecorporate governance and accelerate the development of its human capital. The Growth Strategy isfocused on the following four key areas:

Reengineering: Profitability, Productivity and Efficiency

Transnet seeks to enhance the productivity and efficiency of its rail, port and container freightbusinesses by focusing its efforts on priority freight corridors in the Republic of South Africa suchas the NatCor, the Richards Bay Corridor and the Iron Ore Line. Transnet is targeting continuedimprovement in moves per gross crane hour as well as reducing ship turnaround time at ports,improving locomotive and wagon availability and reliability in its freight rail operations and reducingthe number of interruptions to its pipelines.

Transnet’s volumes of freight are concentrated in five principal land corridors, each with a portinterface and rail network, and Transnet believes that future growth in demand for freight transportwithin the Republic of South Africa will largely arise in these corridors. Transnet seeks to further

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integrate its rail and port operations in key corridors, which Transnet believes will enable its freightrail business to compete more effectively against road transportation companies and provideopportunities for additional port terminal business in these priority corridors. Integration andcoordination of infrastructure planning and investment across the Group is a key part of thisstrategy and is designed to focus infrastructure investment on priority corridors to accessconcentrated customer demand for freight services and create high-density rail corridors linked toports. Transnet also plans to simplify its interfaces with customers by developing an integratedport-to-customer pricing strategy and by expanding its service delivery to customers who seek fullend-to-end supply chain solutions across rail and port operations, which Transnet believes willprovide it with additional opportunities to develop business with key customers. Transnet plans tofollow this initiative with a targeted marketing campaign aimed at shipping lines, freight forwardersand large shippers that represent a substantial portion of the existing South African freight market.

Capital Optimisation and Financial Management

Transnet estimates it will invest R 80.5 billion in capital expenditure over the next five financialyears, beginning in Financial Year 2010 (excluding capitalised borrowing costs of R 7.1 billion), ofwhich R 57.7 billion is estimated will be spent in the next three financial years, beginning inFinancial Year 2010 (excluding capitalised borrowing costs) across all operating divisions. Transnetcurrently estimates that of the R 80.5 billion, R 39 billion will be spent on expanding capacity andR 41.5 billion will be spent on maintaining existing infrastructure and equipment. The majority ofthese expenditures over the next five financial years is expected to be spent on the expansion ofcapacity in priority corridors with a particular focus on Transnet Freight Rail and Transnet PortTerminals. Transnet believes that successful execution of this capital expenditure programme iscritical to its future financial performance and that the capital investment will allow Transnet toaddress further the historical backlog of maintenance projects that are needed to sustain itsexisting businesses and freight transportation assets, fund the expansion of its freight rail, port andcontainer terminal operations and increase capacity in advance of anticipated demand. See ‘‘–Capital Expenditure Programme’’. Transnet believes that selection, sequencing and execution ofinvestments through integrated planning and operations pursuant to the Capital ExpenditureProgramme should enable it to sustain its existing infrastructure and support future growth incapacity and demand. Transnet has developed a detailed funding strategy designed to enable it tofund these expenditures on a timely and cost-effective basis. See ‘‘– Capital ExpenditureProgramme’’ and ‘‘Operating and Financial Review – Liquidity and Capital Resources – CapitalExpenditure’’.

Improved Safety, Risk Management and Effective Governance

Transnet has established the ERM Framework for managing all material risks across the Group.The ERM Framework aims to improve the practice of risk management throughout the Group’sday-to-day business activities, aligning strategy, processes, people, technology and knowledge soas to evaluate and manage the uncertainties faced by the Group. The ERM Framework, which hasbeen aligned with the Growth Strategy and specifically linked to operational efficiency, is informedby global leading practices such as the International Organization for Standardization’s riskmanagement standard 31000:2009. Transnet believes that its risk management processes havereached a mature stage and consist of strong oversight, management and reporting and escalationof business critical risks to the appropriate governance levels including the Board of Directors andthe Shareholder if necessary. The risks identified by the Group are monitored and evaluated by thevarious governance structures of the Group. These structures are as follows:

Board of Director Committees:

Group Audit Committee: The Group Audit Committee mandate includes the review and approval ofthe Group Audit Plan with internal and external audit.

Group Risk Committee: The Board has delegated the responsibility for providing assurance on theintegrity, quality and reliability of the Group’s risk management to the Group Risk Committee.

Remuneration Committee: The Group Remuneration Committee considers and approves policyframeworks and best practice standards in respect of remuneration in the Group.

Corporate Governance and Nominations Committee: The Corporate Governance and NominationsCommittee sets the criteria for the nomination of Directors to the Board, Board Committees, theTransnet Second Defined Benefit Fund Board of Trustees and subsidiary Boards and ensures thatsuccession planning policies are implemented in respect of non-Executive Directors and membersof the Group Executive Committee.

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Group Executive Committee Subcommittees:

Public Policy and Regulation Committee: The Public Policy and Regulation Committee ensures thatthe Group proactively manages public policy and economic regulation risk impacting the Group.

Finance Committee: The Finance Committee reviews overall governance procedures, monitors allfinancial risks, monitors all shared service, procurement, supply chain and ICT associated risks andensures appropriate financial management frameworks, policies, procedures and reporting areadopted throughout the Group.

Risk Management Committee: The Risk Management Committee ensures the quality, integrity andreliability of the Group’s risk management.

Human Resources Committee: The Human Resources Committee ensures good governance inrespect of remuneration policies and practices (with the concurrence of the RemunerationCommittee) and identifies and manages human capital risks.

Operations Committee: The Operations Committee designs and implements operational riskmanagement measures (including those related to safety).

Capital Investment Committee: The Capital Investment Committee ensures the resources that theGroup invests for the development of capital projects are strategically managed and that suchprojects comply with applicable risk management processes.

Commercial Committee: The Commercial Committee is established to provide leadership for theGroup’s commercial strategy and initiatives and ensures the maintenance of adequate standardsand practices for the Group’s commercial interests.

Transnet strives to operate and maintain a safe and healthy workplace and is committed tocomplying with the OHSA. Transnet’s current initiatives to improve its safety record include trainingskilled safety personnel, implementing safety management systems, providing ongoing safetyawareness and complying with all safety-related regulations.

Human Capital Strategy

In light of the significant shortage of skilled workers, the difficulty in attracting and retaining talentedmanagement, engineers and other employees, coupled with Transnet’s large, widely dispersed andaging workforce, Transnet plans to continue to devote significant resources to the training anddevelopment of existing and new employees, the establishment and implementation of careerdevelopment programmes as part of the talent management process and the development of futureleaders through succession planning initiatives. As part of its strategy, Transnet currently plans tohire approximately 17,800 skilled employees over the next six years. This hiring goal assumes anattrition rate of approximately 20 per cent. per year. Transnet also seeks to strengthen and furtherembed its corporate culture and values (focused on safety, effective communication, respect anddignity, empowerment to perform jobs, business focus, recognising and rewarding good work, anddelivering on promises) with employees through internal branding campaigns and other initiatives.Transnet believes that effective management of its human capital is a critical factor to its success.

Operations

Transnet is organised into five core business divisions: Transnet Freight Rail, Transnet RailEngineering, Transnet National Ports Authority, Transnet Port Terminals and Transnet Pipelines,each of which is discussed below.

Transnet Freight Rail

Transnet Freight Rail is Transnet’s largest division by revenue. Transnet Freight Rail offers railfreight transport services to customers in the mining, manufacturing, agriculture, forestry, intermodaland automotive industries as well as cross-border trade with six African countries, to which avariety of commodities are transported. Transnet Freight Rail is focused on transporting bulk andcontainerised freight. Recently, Transnet disposed of its intercity passenger rail service to anotherstate-owned enterprise to enable Transnet to focus on providing freight services. Transnetmaintains an extensive rail network across the Republic of South Africa that connects with otherrail networks in the geographic region including Botswana, Lesotho, Namibia, South Africa andSwaziland (‘‘Southern Africa’’). Transnet owns all of the Republic of South Africa’s freight railnetworks. Transnet’s rail network of 20,953 route kilometres as of 31 March 2009 includes a coremainline network of 12,801 route kilometres of which 565 kilometres are comprised of an exportcoal line and 861 kilometres are comprised of an export iron ore line. The balance of the networkconsists of feeder (or branch) lines that connect customers to the mainlines which in turn connect

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to main port hubs (e.g. Gauteng to Cape Town and to Durban port). The railway network usesover 2,000 locomotives and 77,000 freight wagons to transport its general freight, export coal andexport iron ore resources.

Transnet Freight Rail had total segment revenue of R 18,683 million in Financial Year 2009, anincrease of 12.6 per cent. as compared to Financial Year 2008. In Financial Year 2009, itssegment external revenues accounted for 55 per cent. of the Group’s total external revenue.Transnet’s volume of iron ore transported increased from Financial Year 2008 to Financial Year2009, but volumes decreased over the same period for both coal and GFB due to the globaleconomic downturn.

Transnet Freight Rail generated revenue of R 9,890 million in the six months ended 30 September2009, an increase of 7.38 per cent as compared to revenue of R 9,210 million in the six monthsended 30 September 2008. This increase was principally attributable to Transnet Freight Rail’scontinuing operational improvement, investment in assets, better traffic mix and prioritisation ofhigher yield volumes and was achieved despite a substantial decrease of 18.2 per cent in generalfreight tonnages transported due to the effect of the economic downturn. Transnet Freight Railmade the most significant contribution to the Group’s total external revenue in the six monthsended 30 September 2009, contributing 56.48 per cent. of the Group’s external revenue for thatperiod.

The current downturn in the global economy has had a negative impact on the South Africanmining, manufacturing and production sectors. While Transnet Freight Rail’s management hasnoted a recent improvement in these sections, Transnet Freight Rail’s management believes that ifthis negative impact continues or becomes more severe, future volumes transported by TransnetFreight Rail could also decrease.

Strategy

Transnet Freight Rail’s strategic objectives are designed to support the overall Growth Strategy.The division aims to create a reliable and profitable business which Transnet seeks to grow andexpand in the coming years through the increase of rail freight volumes. In response to the globaleconomic downturn, Transnet has reduced its volume forecasts for Financial Year 2010. TransnetFreight Rail is currently focusing on cost reduction and improving operating margins during thisperiod of expected lower growth as well as enhancing service levels and resource optimisation.Transnet Freight Rail’s strategic objectives also include: increasing revenue; improving safety;enhancing leadership and employee capability; improving customer service, improving efficiencyand asset utilisation for scheduled freight railway; and continuing to maintain the railwayinfrastructure. In order to meet these objectives, Transnet Freight Rail plans to utilise ‘‘MultiRail’’, anew computerised operational planning tool, to help to optimise underutilised rail yards and improvelabour productivity in rail yards.

Services

Transnet Freight Rail provides the railway infrastructure for the transport of goods in the Republicof South Africa including lines, yards and goods sheds as well as rolling stock, depots and storage.Transnet Freight Rail is focused on three key segments: general freight (which includes coal andiron ore for domestic use in the Republic of South Africa), export coal and export iron ore.

General freight consists of both imports and exports, and Transnet Freight Rail transports generalfreight along the national main line corridors between economic and mining hubs in the Republic ofSouth Africa and the country’s major ports. GFB is the largest of Transnet Freight Rail’s businessunits, accounting for approximately 63.7 per cent. of its total freight revenue and handlingapproximately 44 per cent. of its freight tonnage in Financial Year 2009 and accounting forapproximately 63 per cent. of its total freight revenue and handling approximately 41.0 per cent. ofits freight tonnage in the six months ended 30 September 2009, as measured by freight, iron oreexports and coal exports. Approximately 85 per cent. of general freight revenue in Financial Year2009 and the six months ended 30 September 2009, respectively was generated by thetransportation of coal, iron ore, manganese, ferrochrome and eight other commodities for domesticuse in the Republic of South Africa. Transnet Freight Rail manages the flow of material andinformation between suppliers and customers along sections of their supply chains. It integrates therail component of the supply chain with adjoining components in order to increase supply chainefficiency and reliability and help reduce costs.

The export coal line accounted for 23.2 per cent. and 26.1 per cent. of Transnet Freight Rail’s totalsegment revenue in Financial Year 2009 and in the six months ended 30 September 2009,

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respectively. The export coal line is a specialist business unit within Transnet Freight Rail thatprovides transport (predominantly via electric trains) for the Republic of South Africa’s export coalfrom the Mpumalanga coalfields to the Richards Bay coal terminal. Transnet provides transportationto the terminal at Richards Bay but does not operate the coal terminals.

The export Iron Ore Line (the ‘‘Orex Line’’) is a specialist business unit within Transnet FreightRail that provides transport of export iron ore over the 861 km railway line from Sishen to the portat Saldanha Bay. The Orex Line accounted for 9.1 per cent and 11.1 per cent. of Transnet FreightRail’s total segment revenue for Financial Year 2009 and for the six months ended 30 September2009, respectively. In response to increasing demand for ore in the export markets, Transnetbegan improving the Orex Line in 1998. Transnet has increased the capacity of the Orex Line from29 million tonnes per annum in Financial Year 2008 to 45 million tonnes per annum in FinancialYear 2009 and from 36 million tons per annum for the six months ended 30 September 2008 to46 million tons per annum for the six months ended 30 September 2009. Actual volumes handledin Financial Year 2009 amounted to 36.8 million tonnes as compared to 31.9 million tonnes inFinancial Year 2008, and actual volumes handled in the six months ended 30 September 2009amounted to 21.1 million tonnes as compared to 15.9 million tonnes in the six months ended 30September 2008. Transnet plans to further expand the capacity of Orex Line, where the capitalspend on the Ore Export Line is underpinned by committed contracts for 60 million tonnes perannum. Other non-freight revenue amounted to 4.0 per cent of total revenue for the six monthsended 30 September 2009.

In addition to these main categories of goods, Transnet also transports containers between inlanddepots and major ports. In order to focus solely on freight rail growth Transnet has recentlydisposed of its small intercity passenger rail service (Shosholoza Meyl) to another State-ownedenterprise. Transnet is in the process of disposing of The Blue Train, another passenger railservice operated by its Luxrail unit.

Customers

Freight Rail’s major customers in each business segment include:

General Freight: Transnet Freight Rail operations over 14 strategic mainlinecorridors between economic hubs and ports. Major GeneralFreight customers include: Afrisam SA (Pty) Limited, ArcelorMittal SA, Assmang, Eskom, Foskor Limited, Highveld Steel &Vanadium, PPC Cement Pty Limited, Samancor Chrome Limited,Samancor Manganese Limited, and Sasol. Intermodal trafficextends between main industrial hubs and ports or cross-border.Major customers include Cargo Movers SA (Pty) Limited,Grindrod Intermodal Limited, Maersk SA (Pty) Limited,Mediterranean Shipping Company Logistics S.A (‘‘MSC’’) andSouth African Container Depot (Pty) Limited (‘‘SACD’’).

Export Coal Line: This line extends from the Mpumalanga coal fields to the Port ofRichards Bay. Customers include ARM Coal, Anglo American,BECSA, BHP Billiton, Exxaro, Kangra Coal, Main Street 432,Optimum Coal, Sasol Mining, Total Coal SA, and Xstrata plc.GFB is also transported on this line.

Export Iron Ore Line: This line extends from Sishen to the Port of Saldanha Bay,serving two main customers, namely Assmang and Sishen IronOre.

Transnet Freight Rail’s main customers fall into three categories, which correspond to the type offreight transported: coal exporters, iron ore exporters and general freight customers, whichgenerated revenue representing 12.9 per cent., 5 per cent., and 35 per cent., respectively, of theGroup’s total revenue in Financial Year 2009. Transnet Freight Rail’s principal coal exportcustomers are Anglo American, BHP Billiton and Xstrata, all of which operate in the Mpumalangaprovince. These three customers accounted for approximately 70.0 per cent. and 67.5 per cent. ofthe total volume of coal transported in Financial Year 2009 and the six months ended 30September 2009, respectively. Principal iron ore exporter customers are Sishen Iron Ore, whoseoperations are in Limpopo and the Northern Cape near Sishen, and Assmang, whose operationsare also in the Northern Cape near Sishen. Within GFB, Transnet Freight Rail’s top ten customersaccounted for almost half of Transnet’s revenue from general freight in Financial Year 2009 and

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the six months ended 30 September 2009. Arcelor Mittal S.A. alone accounted for 18 per cent.and 14.0 per cent. of general freight revenue in Financial Year 2009 and the six months ended 30September 2009, respectively. Commodities transported by general freight customers include coaland iron ore for domestic use, minerals, chemicals, containers and vehicles.

Transnet has renewed and/or concluded key transportation contracts for export coal that becameeffective as of June 2008. Iron ore customers generally have long-term contracts in place, whichare typically for initial terms of 20 years or more. The typical general freight contract is for a termof one year or on a best endeavour basis.

Source of Revenue and Pricing

Transnet Freight Rail’s primary source of revenue is generated by the bulk transportation of coal,iron ore, and other commodities together with general container freight business. Any otherrevenue sources are incidental to the division’s business.

Pricing has, on average, increased since 2005 for each of export coal, export iron ore and generalfreight. See also ‘‘Operating and Financial Review – Significant Factors Affecting the Group’sFinancial Condition and Results of Operations – Volume and Pricing’’. Freight rail tariffs currentlyare not subject to approval by any external agencies. However, the Department of Transport mayinstitute tariff controls or approvals in the future through the potential establishment of a railregulator.

Export coal is currently transported under ‘‘take or pay’’ contractual arrangements betweenTransnet and coal exporter customers. These contracts provide for payments to Transnet if thevolume of transportation contracted is not provided to Transnet. Reciprocal arrangements in favourof coal exporters also exist. Reciprocal arrangements work in the following way. First, export coalparties guarantee that they will make available a certain level of export coal for Transnet FreightRail to transport. If the customer does not supply the required coal, Transnet Freight Rail is entitledto receive a penalty payment equivalent to 80 per cent. of the average coal export tariff per tonneapplicable to that customer for coal not provided to be transported. Second, if Transnet Freight Railis not able to transport the minimum guaranteed tonnages it will pay a penalty equal to 80 percent. of the average coal export tariff per tonne not transported. Third, Transnet Freight Rail mustoffer transportation capacity to export coal customers in proportion to their contractual rights.Should a customer not receive their equitable share, then the prejudiced party is entitled to receivea penalty payment equal to 100 per cent. of the applicable export tariff.

Assets, Capacity and Development

Transnet Freight Rail owns most of the tracks it uses for transport, the underlying land, theoverhead lines used for distributing the electricity from Eskom and all of the rolling stock that itcurrently uses. Rolling stock capacity has generally grown with volume transported. Volumescarried and number of rolling stock are reflected for the three main categories of freight carried asset out below.

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The following table sets forth certain business performance statistics relating to Transnet FreightRail’s operations for Financial Years 2007, 2008 and 2009 and for the six months ended30 September 2008 and 2009.

As at or for the sixmonths ended30 September

As at or for the Year ended31 March

2009 2008 2009 2008 2007

CustomerGeneral Freight departing times(per cent. on time) ......................... 40.78 40.58 45.5 51.8 45.0General Freight arrival times (percent. on time)................................. 29.96 28.68 30.8 30.2 27.9

OperationalGeneral freightVolumes (mt) ................................. 35.6 43.45 78.4 84.5 84.3Price (Rand/tonne)......................... 165.94 153.73 151.3 134.0 118.1Locomotives (number) ................... 1,369 1,624 1,574.0 1,704.0 1,730.0Locomotive productivity(GTK (000)/month)......................... 5,118 5,072 4,720.0 4,654.0 4,620.0Wagons (number) .......................... 64,607 66,660 65,714.0 64,423.0 67,572.0Wagon productivity (wagon TAT)days ............................................... 14.91 12.91 13.8 12.6 13.1

Export coal lineVolumes (mt) ................................. 30.20 29.90 61.9 63.5 67.0Price (Rand/tonne)......................... 81.24 51.51 70.1 51.4 49.0Locomotives (number) ................... 295 273 281.0 295.0 289.0Wagons (number) .......................... 7,321 7,080 7,121.0 7,324.0 7,094.0

Export iron ore lineVolumes (mt) ................................. 21.09 15.91 36.8 31.9 30.0Price (Rand/tonne)......................... 49.57 45.40 46.4 38.2 34.9Locomotives (number) ................... 126 104 119.0 105.0 105.0Wagons (number) .......................... 4,589 4,429 4,509.0 3,887.0 3,309.0

SafetyDerailments (rate/mkm) – Freight .. 2.23 3.18 3.4 3.2 3.3Derailments (rate/mkm) – Shunting 132 157 147.0 157.0 145.0Collisions (rate/mkm) ..................... 0.07 0.19 0.2 0.2 0.2Signals passed at ‘‘danger’’ withoutauthority ......................................... 32 64 113 117 95

Human capitalNumber of full time employees(period end) ................................... 24,330 25,705 24,177 24,577 24,811

In recent years, Transnet Freight Rail has not always been able to meet the high customerdemand for freight carriage by Transnet’s customers seeking to take advantage of high commodityprices by increasing export volumes. This increase in demand for freight carriage has beencompounded by internal disruptions caused by derailments and theft. In order to better meetcustomer demand for freight carriage, Transnet’s Capital Expenditure Programme is focused onboth increasing capacity and maintaining and replacing infrastructure and rolling stock, particularlywith respect to general freight. See also ‘‘Business – Capital Expenditure Programme – Plannedcapital expenditure by operating division and sector’’.

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Transnet Rail Engineering

Transnet Rail Engineering provides rolling stock engineering and maintenance services to TransnetFreight Rail, PRASA and other rail operators in Southern Africa. The division comprises thefollowing eight product focused businesses:

* Locomotive;

* Coach;

* Wagon;

* Rotating machines;

* Rolling stock equipment;

* Wheel;

* Auxiliary equipment; and

* Foundry.

Transnet Rail Engineering had total segment revenue of R 8,228 million in Financial Year 2009, anincrease of less than 1 per cent. as compared to Financial Year 2008. In Financial Year 2009, itssegment external revenues accounted for 4.2 per cent. of the Group’s total external revenue.

The eight product-focused businesses operate from six centres, namely Cape Town, Uitenhage,Bloemfontein, Durban, Germiston and Pretoria. These centres are supported by approximately 120maintenance depots close to the main rail corridors, providing in-service maintenance and out-of-service refurbishing, repair, upgrade, conversion and new build on locomotives, wagons andcoaches as well as the re-manufacturing of major sub-components.

The division’s competency is based on its technological knowledge relating to its ongoing productresearch and development and its product application experience. The division seeks to establish acomprehensive ‘total service’ solution for railway operators in order to achieve optimum fleetavailability and reliability by applying a high standard of precision, combined with integratedmaintenance and lifecycle management. Together, these businesses have the capacity to support afleet size of 75,000 freight wagons, 2,500 locomotives and 5,000 coaches. Upgrade, conversionand build capacity extends to approximately 2,000 new wagons, 250 locomotives and 800 coachesper year. Work is performed in accordance with railway standards and codes of practice, and allRail Engineering depots are ISO 9001:2000 accredited.

Strategy

Transnet Rail Engineering’s strategic objectives are designed to support the overall GrowthStrategy. To this end, Transnet Rail Engineering focuses on improving availability and reliability ofrolling stock.

By the end of Financial Year 2010, the division aims to have increased efficiencies and helped tolower rail transport costs in the Republic of South Africa by investing in skills development,employee retention and safety programmes. Transnet Rail Engineering plans to continue tointegrate planning with its national operating centre and develop and execute maintenance plans toaddress reliability and availability of rolling stock. Transnet Rail Engineering plans to pay particularattention to quality control and quality-assurance systems, non-conformance reporting and theintroduction of timely corrective measures to increase product reliability.

Services

Transnet Rail Engineering comprises eight product-focused businesses, each dedicated to aspecific group of railway rolling stock equipment. While distinct in their operations, the businessescomplement one another to enable the division to supply a wide range of specialised products.

Transnet estimates it has significant market share in the Republic of South Africa for new andremanufactured locomotives and for locomotive repair work. It also provides maintenance andrefurbishment services in the Republic of South Africa on rolling stock from other African countriesthat is sent to the Republic of South Africa for service. Transnet’s locomotive business equipsvehicles with microprocessor controls, high-level adhesion, glass-screen control panels, andergonomic cabs. Transnet Rail Engineering established an assembly line in conjunction with anoriginal equipment manufacturer and delivered 18 new diesel locomotives to Transnet Freight Railin calendar year 2009, and expects to deliver 32 new diesel locomotives by 31 March 2010.

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In previous financial years, the wagon build business supplied approximately 500 new wagons ayear to domestic and foreign customers, including 100 per cent. of the rolling stock, excludinglocomotives, supplied to Transnet Freight Rail. In the future, however, Transnet anticipates that thewagon build business will start to supply a decreasing number of new wagons for the coal and ironore lines as the expansion projects to ramp up iron ore and export coal capacity come to an end.It is anticipated that this will limit the requirement for new wagons to those required for normal endof life replacement. Currently wagons for total expansion capacity and replacement capacity arebeing produced.

The coach business refurbishes, converts, upgrades and provides repair services for a wide rangeof passenger coaches, guards’ vans, motor-wagons and steam-heated vehicles.

Transnet Rail Engineering also services components, and has production lines for rolling stockequipment, rotating machinery and wheels. Transnet also manufactures PVC-coated fabrictarpaulins to the highest international standards. Tarpaulins are also repaired, cleaned and leasedto rail and road transport operators throughout Africa. Transnet Rail Engineering also manufacturesa range of auxiliary products including lashing chains.

Transnet Rail Engineering’s performance is assessed in terms of locomotive reliability andavailability. A locomotive is considered unavailable for service during the time it is not under thecontrol of the operating department. An unavailable locomotive will be either undergoing or awaitingservice, maintenance or repair in a maintenance facility such as a depot, shed or workshop or itwill be broken down outside maintenance facilities. Conversely, a locomotive is consideredavailable for service during the time it is not deemed unavailable. Availability is typically measuredin locomotive hours. Reliability is measured in failure per million kilometres. These metrics are setout below, broken down for the three principal categories of freight transported by Transnet FreightRail for Financial Years 2007, 2008 and 2009 and for the six months ended 30 September 2008and 2009.

Six months ended30 September Year ended 31 March

2009 2008 2009 2008 2007

EfficiencyLocomotive reliabilityGeneral freight (faults per millionkm)................................................. 16.5 27.2 26.3 30.3 48.0Coal (faults per million km) ............ 49.9 27.8 32.2 55.6 43.0Iron ore (faults per million km)....... 32.8 50.5 50.5 37.6 57.0Locomotive availabilityGeneral freight (availablelocomotive hours as a percentageof total locomotive hours) .............. 89.9 88.3 88.3 86.0 85.0Coal (available locomotive hoursas a percentage of total locomotivehours)............................................. 89.2 89.3 89.6 89.0 85.2Iron ore (available locomotivehours as a percentage of totallocomotive hours) .......................... 87.5 84.9 86.1 86.0 85.9

Customers

Transnet Rail Engineering is the major provider of services in the South African market formaintenance, repair, refurbishment, conversion, and new build of locomotives, wagons and coachesfor use in freight and passenger rail operations. Further, Transnet Rail Engineering is responsiblefor the availability and reliability of Transnet Freight Rail’s rolling stock. The principal customer ofTransnet Rail Engineering is Transnet Freight Rail, the only domestic mainline freight railwayoperator, which provided 83 per cent. and 79 per cent. of the segment total revenue for TransnetRail Engineering for Financial Year 2009 and for the six months ended 30 September 2009,respectively. Transnet Rail Engineering’s principal external customer is PRASA, which provided17 per cent. and 21 per cent. of the total segment revenue for the division in Financial Year 2009and for the six months ended 30 September 2009, respectively.

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Transnet Rail Engineering also provides refurbishment services to customers located outside of theRepublic of South Africa primarily in the member states of the Southern Africa DevelopmentCommunity, who send their rolling stock to the Republic of South Africa for servicing.

Source of Revenue and Pricing

Rail engineering tariffs are not subject to approval by any external agencies. Tariffs are currentlyset on a cost-recovery basis to assist Transnet Rail Engineering in generating a reasonablecommercial return on work performed for other divisions in the Group. In Financial Year 2008,decisions were taken at the Group level to provide Transnet Rail Engineering’s services toTransnet Freight Rail at reduced internal pricing margins.

Intellectual Property and Technology

Technology is fundamental to Transnet Rail Engineering’s business. Transnet has establishedrelationships with original equipment manufacturers and railway engineering specialists across theglobe. Transnet is working with original equipment manufacturers and others to addressobsolescence in rolling stock manufacturing and refurbishment. These range from technologies toreplace single components to major upgrades of locomotives in collaboration with originalequipment manufacturers.

Transnet Rail Engineering incorporates leading practices in engineering into its product portfolio.Transnet Rail Engineering has its own in-house design office, which was also enhanced by theintegration with the maintenance department of Transnet Freight Rail on 1 April 2006.

Transnet National Ports Authority

Transnet National Ports Authority is responsible for the safe and efficient and effective economicfunctioning of the national ports system which it manages, controls and administers on behalf ofthe Government. The Division owns and manages seven ports within South Africa: Richards Bay,Durban, Saldanha Bay, Cape Town, Port Elizabeth, East London and Mossel Bay. The Port ofNgqura, which became operational at the end of 2009 (save for certain sections which are partiallyoperational) is the eighth port managed by Transnet National Ports Authority. The National PortsAuthority’s business is divided into two service segments: the provision of Port Infrastructure; andMaritime Services which include dredging, navigation aids, ship repair and marine operations.

The following map indicates the locations of Transnet National Ports Authority’s seven fullyoperational ports and the Port of Ngqura as well as the key corridors in which Transnet operates:

Transnet National Ports Authority offers a combination of complementary port facilities andservices. Each port has a natural geographic territory with a defined market, which drives thenature of services, facilities and the types of cargo handled at each port. A fundamental factor thatlinks these ports is the backdrop of rapidly increasing trade resulting from the country’s economic

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growth and globalisation. See ‘‘Operating and Financial Review – Significant Factors Affecting theGroup’s Financial Condition and Results of Operations – International Trade’’.

South African ports have experienced compound annual growth in volume of 2.3 per cent. fromFinancial Year 2005 to Financial Year 2009. Further, South African ports experienced a 9.5 percent. increase in cargo handled from the ports over this period. To meet the volume demandresulting from economic growth, ports were under pressure to create capacity and increaseefficiencies. Transnet National Ports Authority contributed approximately 20 per cent. to the Group’stotal external revenue in Financial Year 2009, with container, break-bulk, automotive, dry bulk andliquid bulk contributing R 3,002 million, R 180 million, R 500 million, R 542 million and R 455million, respectively, of external revenues in Financial Year 2009. Transnet National Ports Authorityhad total segment revenue of R 7.1 billion in Financial Year 2009, an increase of 3.9 per cent. ascompared to R 6.8 billion in Financial Year 2008. This increase was primarily due to tariffincreases. In Financial Year 2009, Transnet National Ports Authority received an average tariffincrease of 4.9 per cent. as compared with the previous year. Overall cargo volumes decreasedduring Financial Year 2009, in large part due to the global economic downturn which has to a largeextent negatively affected external revenue, particularly for cargo dues. Transnet National PortsAuthority’s total segment revenue decreased by 3.24 per cent. from R 3,765 million in the sixmonths ended 30 September 2008 to R 3,643 million in the six months ended 30 September 2009.This decrease was principally attributable to lower than anticipated volumes on container imports,break-bulk exports, dry-bulk imports and exports, and in the automotive sector. The decrease wasalso attributable to a continued decline in coal exports due mainly to derailments in the rail corridorand a softening of demand for commodities on world markets.

Strategy

Transnet National Ports Authority’s strategic goal is to enable the safe, efficient and effectiveeconomic functioning of the South African port system, and to create a ports system that will leadeconomic growth for the Republic of South Africa. The division’s three-part strategy focuses oncreating port infrastructure capacity ahead of demand, improving the efficiency of port and portoperations (as evidenced by vessel and cargo turnaround time) and enhancing the ports’ positionsas gateways for trade.

Port Infrastructure

Durban: The Port of Durban has a total land and water area of 1,854 hectares. The port has 57berths and over 4,000 commercial vessels call at the port each year. It was developed primarily forimport cargo. However, over the years cargo flows have changed significantly and exports havebecome more important.

The Port of Durban is the Republic of South Africa’s main general cargo, bulk liquid and containerport and handled 40.0 million metric tonnes of cargo and 2.6 million TEUs in Financial Year 2009.In the six months ended 30 September 2009, it handled 18.34 million metric tonnes of cargo and1.2 million TEUs. In Financial Year 2009 an average of 213,411 TEUs per month were handled atthe Port of Durban Container Terminal, the largest in Africa based on TEUs processed. The portalso has a drydock for ship repair. In the six months ended 30 September 2009 an average of199,304 TEUs per month were handled at the Port of Durban Container Terminal.

The Port of Durban has generally experienced growth in volumes since the development of theDurban Container Terminal in 1977. The port has two container terminals that handle automobilesand petrochemicals.

Cape Town: The Port of Cape Town is a full service, general cargo port, operating 24 hours a day,7 days a week. Marine services include port navigation, pilotage, towage, mooring, pollutioncontrol, security and a 200 tonne floating crane. Bunkers are supplied at most berths. Two drydocks and a synchrolift are available for ship repairs. Conventional cargo is worked in the Duncandock where undercover, open and cold storage is available. Extensive pre-cooling facilities at thefruit terminal cater for deciduous fruit exports, whilst the port also has one of the few cold stores inthe world that can hold products down to -60˚C with a capacity of 10,000 tonnes. A containerterminal is situated at the Ben Schoeman dock.

All quays are equipped with modern cranes and mechanical lifting equipment. The Port of CapeTown is fully equipped to handle all types of general break-bulk and containerised cargo via itsspecialised terminals. It has the benefit of a wide variety of well-equipped cargo terminals linked toa significant inland transport infrastructure.

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The port is well positioned to serve as a hub for cargoes between Europe, the Americas, Africa,Asia and Oceania. Regular interport feeder services benefit the container terminal which isregarded as a gateway for African countries. The container terminal also benefits from direct raillinks with the Gauteng area, which can decrease transit time for some containers. This is madepossible by the direct railage of containers which eliminates the sailing time to other ports in theRepublic of South Africa.

Richards Bay: The port at Richards Bay was initially built as a bulk port to export 26 million tonnesof coal over the first ten years. The port has since diversified and now handles other types ofcargoes. Currently, Richards Bay handles in excess of 82 million tonnes annually. This makes itthe Republic of South Africa’s leading port in terms of volume handled. The port is also the largestin the Republic of South Africa in terms of surface area, with total land and water surfaces of2,174 hectares and 1,443 hectares respectively. To date, only half of that land has beendeveloped.

The port has six cargo handling terminals including a dry bulk terminal for imports and exports ofores, minerals and woodchips; a multi-purpose terminal for break-bulk cargoes, includingferrochrome, pig iron, steel, forest products, granite, aluminium, bagged cargo, containers, heavyand abnormal loads; a coal terminal (one of the largest export coal terminals in the world with acurrent capacity to export 71 million tonnes per annum), as well as a chemical tank farm for liquidbulk products stored in tanks.

Port Elizabeth: Port Elizabeth is the fifth largest port in the Republic of South Africa, based ontonnage handled, and the fourth largest in terms of revenue earned, based on information forFinancial Year 2009. The port has one of the Republic of South Africa’s five container terminals,as well as a car terminal and bulk, dry bulk, liquid bulk, general cargo and cold storage facilities.

Most of the cargo flowing through Port Elizabeth is generated in, or is destined for, the greaterAlgoa Bay area, reaching up to the Sundays River and Langkloof Valleys. Some cargo istransported by rail and road to and from the Free State and Gauteng. The Port Elizabeth area isheavily industrialised and intensively farmed. Traditionally, Port Elizabeth and nearby Uitenhage,which is part of the Nelson Mandela Metropolitan Municipality, have been the centre of the SouthAfrican automotive industry. As a result, the port imports large volumes of containerisedcomponents and raw materials for this industry.

The bulk of exports consist of agricultural products: timber, wool, textiles, skins and hides incontainers, as well as palletised citrus and deciduous fruit. Manganese ore, motor vehicle industryrelated products and steel are also exported.

Saldanha: The Port of Saldanha is the only iron ore handling port in the Republic of South Africa.It exports iron ore from the mines at Sishen (some 861 km north-east of Saldanha). The port alsohandles base metals, and serves as an import port for a crude oil storage facility situated near theport.

Although the Port of Saldanha was originally constructed during the early 1970s to facilitate theexport of iron ore, bulk crude oil and break-bulk terminals were subsequently added to the facilitiesin the port. Port facilities consist of a 990 m long jetty with two iron ore berths and one crude oilberth joined to the north shore of the harbour by a 3,100 m causeway. In addition, an 874 m multi-purpose terminal quay facilitates break-bulk cargo handling.

East London: The East London port is the only river-based port in the Republic of South Africa andis serviced by a national rail network system providing access to all major cities within the bordersof the Republic of South Africa and neighbouring states. There are a total of 11 commercial berthsthat offer container, automotive, break-bulk, bulk grain and bulk liquid (refined petroleum products)handling facilities. In addition, the port has a drydock and modern car terminal with real timetracking and monitoring of units that is linked directly to an adjacent automobile production plantvia a private road and bridge that was commissioned by the port.

Mossel Bay: Mossel Bay has historically been a fishing port with limited commercial cargo activity.The port is unique as it provides off-shore handling facilities that enable import and export ofrefined products from a refinery situated close to the port. A road and rail network connects MosselBay to the consumer markets and industrial zones of the Republic of South Africa and other partsof Southern Africa.

Ngqura: The Port of Ngqura was largely operational as of 31 December 2009, although its berthswere only partly operational as of the same date. The port will be a deepwater port capable of

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handling the larger new generation container vessels, such as the Super Post-Panamax containervessel. The Port, once operational, will consist of basic port infrastructure, i.e. breakwater, entrancechannels, sand bypass system and appropriate landside infrastructure. The Port is planned to havefive berths and back-up areas. There are plans to build two berths for containers, two berths formulti-purpose/bulk cargo and a liquid bulk berth. The Port is planned to provide increased capacityfor the national ports system. The Ngqura container terminal is a greenfield project of a full servicecontainer terminal, with inland rail links. Two berths are expected to be operational and thecontainer terminal is expected to be fully equipped with rubber-tyre gantries and ship-to-shorecranes, by the second half of calender year 2009. Tug boats have been ordered for the Port.

Services

Each of the Republic of South Africa’s major ports serves the market of its adjacent hinterland. Toa large extent, these markets determine the nature and types of cargo handled by each port.Transnet National Ports Authority’s core services include:

* planning, providing, maintaining and improving port infrastructure;

* providing and coordinating marine related services;

* providing port services, including managing port activities and the port regulatory function atall South African ports; and

* providing navigation aids to assist the navigation of vessels within port limits and along thecoast.

Cargo imported and exported through South African ports is categorised into containers, break-bulk, bulk (including liquid bulk and dry bulk) and automotive. The volume of each of thesecategories handled at the seven ports operated by the National Ports Authority (excluding the Portof Ngqura) is set out below for Financial Years 2007, 2008 and 2009 and for the six months ended30 September 2008 and 2009:


2009 2008 2009 2008 2007

VolumeDry bulk (mt) .................................. 63.6 55.6 122.8 122.0 116.2Liquid bulk (mt) .............................. 22.2 26.7 49.1 43.9 42.6Break-bulk (mt) .............................. 4.3 4.7 7.5 10.4 10.4Automotive (‘000 units) .................. 163.3 298.9 527.4 580.4 566.5Containers (‘000 TEUs) ................. 1,764.5 2,025.1 3799.7 3738.0 3551.2

Bulk Cargo: The bulk segment consists of dry bulk and liquid bulk. The major commodities in thedry bulk segment are coal, iron ore and manganese. Iron ore contributed approximately 29 percent. of dry bulk export volumes in Financial Year 2009 and approximately 37.55 per cent. in thesix months ended 30 September 2009. Coal contributed approximately R 158.6 million andR 76.7 million for Financial Year 2009 and for the six months ended 30 September 2009,respectively and 55 per cent. and 46.23 per cent. of dry bulk export volumes, respectively. Thechemical industry contributes the majority of volumes in the liquid bulk segment, withpetrochemicals and the oil industries/sectors being the two major contributors. Transnet’s portshandled 45.9 million kilolitres and 20.48 million kilolitres of petroleum products in Financial Year2009 and in the six months ended 30 September 2009, respectively.

Bulk cargo handled by the seven ports totalled 171.9 million metric tonnes and 85.8 million metrictonnes for Financial Year 2009 and for the six months ended 30 September 2009, respectively, ofwhich the export tonnage was over twice as great as the import tonnage. Richards Bay handled45.7 per cent. and 40.53 per cent. for Financial Year 2009 and for the six months ended30 September 2009, respectively. The Port of Durban accounted for 19.9 per cent. and 18.81 percent. for Financial Year 2009 and for the six months ended 30 Septembe 2009, respectively.Saldanha handled 28.8 per cent. and 34.71 per cent. of these totals for Financial Year 2009 andfor the six months ended 30 September 2009, respectively. Cape Town accounted for 1.5 per cent.and 1.46 per cent. of the total bulk cargo handled by the seven ports for Financial Year 2009 andfor the six months ended 30 September 2009, respectively, while Port Elizabeth handled 2.2 percent and 2.48 per cent. for Financial Year 2009 and for the six months ended 30 September 2009,

93


respectively. The breakdown of bulk landed (both imported and coastwise), shipped (both exportedand coastwise) and transhipped at the seven ports in the Republic of South Africa in FinancialYear 2009 and in the six months ended 30 September 2009 are set out below (coastwise meansany cargo moving between two South African coastal cities).

Year ended 31 March 2009

RichardsBay Durban

EastLondon

PortElizabeth Mossel Bay Cape Town Saldanha Total

(in metric tonnes)Bulk Cargo HandledLandedImports .................................... 5,718,934 26,768,424 105,213 213,356 598,891 1,317,289 13,164,861 47,886,968Coastwise ............................... 220,369 300,162 836,604 897,147 63,902 507,817 801,382 3,627,383

Total Bulk Landed................. 5,939,303 27,068,586 941,817 1,110,503 662,793 1,825,106 13,966,243 51,514,351ShippedExports.................................... 72,471,097 5,496,419 354,116 2,711,533 160,963 153,048 34,017,504 115,364,680Coastwise ............................... 26,831 1,554,485 — — 958,114 661,182 — 3,200,612

Total Bulk Shipped ............... 72,497,928 7,050,904 354,116 2,711,533 1,119,077 814,230 34,017,504 118,565,292Transhipment Cargo ............... — 81,898 — — — — 1,707,374 1,789,272

Total Bulk Handled ............... 78,437,231 34,201,388 1,295,933 3,822,036 1,781,870 2,639,336 49,691,121 171,868,915

Six months ended 30 September 2009

RichardsBay Durban

EastLondon Ngqura

PortElizabeth

MosselBay

CapeTown Saldanha Total

(in metric tonnes)Bulk Cargo HandledLandedImports ...................... 1,809,654 12,640,846 30,998 — 104,043 376,076 658,033 4,291,638 19,683,556Coastwise .................. 140,632 71,769 462,084 — 410,420 18,456 150,911 134,727 1,388,969

Total Bulk Landed ... 1,950,286 12,712,615 493,052 — 514,463 394,532 808,945 4,426,365 21,072,525ShippedExports ...................... 32,801,107 2,937,499 230,435 — 1,611,577 89,147 81,160 23,432,577 61,183,507Coastwise .................. 6,968 674,087 — — — 520,078 362,024 — 1,563,157

Total Bulk Shipped . 32,808,075 3,611,586 230,435 — 1,611,577 609,227 443,184 23,438,577 63,020,443Transhipment Cargo.. — 32,367 — — — — — 1,905,307 1,837,674

Total Bulk Handled . 34,758,361 16,128,835 723,487 — 2,126,040 1,003,759 1,252,129 29,764,250 85,756,863

Break-bulk Cargo and Automotive: The main commodity contributors for break-bulk (excludingautomotives) are steel, ferrochrome, fruit and granite. These commodities collectively represented68 per cent. and 76.4 per cent. of break-bulk volumes at the ports (excluding automotives) inFinancial Year 2009 and the six months ended 30 September 2009, respectively.

94


The breakdown of break bulk cargo landed (both imported and coastwise), shipped (both exportedand coastwise) and transhipped at the seven ports in the Republic of South Africa in FinancialYear 2009 and the six months ended 30 September 2009 are set out below:

Year ended 31 March 2009

RichardsBay Durban

EastLondon

PortElizabeth Mossel Bay Cape Town Saldanha Total

(in metric tonnes)Break-bulk Cargo HandledLandedImports .................................... 135,690 2,619,003 224,154 328,493 (846) 76,392 47,414 3,430,300Coastwise ............................... — 288 — — 28,488 199 — 28,975

Total Break-bulk Landed ...... 135,690 2,619,291 224,154 328,493 27,642 76,591 47,414 3,462,275ShippedExports.................................... 3,776,300 2,925,110 397,444 520,575 — 159,860 544,460 8,323,749Coastwise ............................... — 37,378 — — 42,621 3,217 — 83,216

Total Break-bulk Shipped..... 3,776,300 2,962,488 397,444 520,575 42,621 163,077 544,460 8,406,965Transhipment Cargo ............... 109 189,445 1,346 4,579 — 87,026 — 282,505

Total Break-bulk Handled..... 3,912,099 5,771,224 622,944 853,647 70,263 326,694 591,874 12,151,744

Six months ended 30 September 2009

RichardsBay Durban

EastLondon Ngqura

PortElizabeth

MosselBay

CapeTown Saldanha Total

(in metric tonnes)Break-bulk Cargo

HandledLandedImports ...................... 27,295 928,806 50,022 720 190,942 — 28,928 1,661 1,228,374Coastwise .................. 24,386 5,705 — — — 15,566 3,953 — 49,610

Total Break-bulkLanded ............... 51,681 934,511 50,022 720 190,942 15,566 32,881 1,661 1,277,984

ShippedExports ...................... 2,016,689 1,189,359 151,170 — 132,229 — 147,470 289,748 3,926,665Coastwise .................. — 14,671 — — — 18,525 895 — 34,091

Total Break-bulkShipped .............. 2,016,689 1,204,030 151,170 — 132,229 18,525 148,365 289,748 3,960,756

Transhipment Cargo.. — 69,708 — — 44 — 78,228 — 147,980

Total Break-bulkHandled .............. 2,068,370 2,208,249 201,192 720 323,215 34,091 259,474 291,409 5,386,720

95


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96


Customers

Transnet National Ports Authority’s customers include terminal operators, shipping lines, shipagents, cargo owners and the clearing and forwarding industry. No single customer contributedmore than 9 per cent. and 11 per cent. of the division’s segment external revenues in FinancialYear 2009 and in the six months ended 30 September 2009, respectively. Transnet National PortsAuthority’s largest customers are Bidvest Group (Pty) Limited and Grindrod Limited whichaccounted for approximately 8 per cent. and 7 per cent. of Transnet National Ports Authority’sexternal revenue in Financial Year 2009, respectively, and for approximately 9 per cent. and 8 percent., respectively, of external revenue in the six months ended 30 September 2009.

Source of Revenue, Pricing and Tariffs

Transnet National Ports Authority earns the majority of its revenue by charging tariffs for theprovision of three basic services: marine services, provision and maintenance of port infrastructureand leasing of port land to terminal operators. Marine services include the provision of pilotservices to bring vessels into port (basic fee plus an amount per 100 tonnes gross tonnage ‘‘GT’’),tug services to vessels in the port (per service based on vessel GT plus an amount per 100tonnes as part thereof) and berthing services to vessels tying-up alongside the berth in port (basicfee per service plus an amount per 100 tonnes or part thereof). The provision and maintenance ofport infrastructure, port terminals and port facilities generates revenues through port dues (basicfee per 100 tonnes or part thereof plus per 100 tonnes or part thereof per 24 hour period) for theprovision and maintenance of entrance channels, breakwaters, basins, navigational aids andmaintenance dredging inside port limits, cargo dues for the provision and maintenance of portinfrastructure and berth dues for vessel occupying quays or repair quays while not engaging in theloading or unloading of cargo. In addition, Transnet National Ports Authority generates revenue byleasing port land to terminal operators for a rental fee. Finally, Transnet National Ports Authorityalso generates revenue through vessel traffic service charges (per vessel GT per port call) andlight dues for the provision of navigational aids alongside the coast of the Republic of South Africaand within ports (per 100 tonnes GT or part thereof).

Regulation of Transnet National Ports Authority

Transnet National Ports Authority operates within a ports regulatory environment that is regulatedby, amongst other pieces of legislation, the National Ports Act. The National Ports Act was signedinto law by the President of the Republic of South Africa on 31 July 2005 and thereafter publishedin the Government Gazette on 4 August 2005. It became effective on 26 November 2006. Themain purpose of the National Ports Act is to provide for the establishment of the National PortsAuthority and a Ports Regulator.

Section 11 of the National Ports Act prescribes the core function of Transnet National PortsAuthority as the National Ports Authority, which is to own, manage, control and administer ports toensure their efficient and economic functioning. In fulfilling its function Transnet National PortsAuthority must, inter alia:

* plan, provide, maintain and improve port infrastructure;

* provide or arrange marine-related services;

* ensure the provision of port services, including the management of port activities and the portregulatory function at all South African ports; and

* provide navigation aids to assist the navigation of vessels within port limits and along thecoast.

Apart from setting out the functions of Transnet National Ports Authority, the National Ports Actauthorises Transnet National Ports Authority to enter into agreements with persons, whereby thatperson is authorised to design, construct, rehabilitate, develop, finance, maintain or operate a portterminal or port facility in the Republic of South Africa. Transnet National Ports Authority is thenrequired to monitor and review the performance of that person in accordance with the agreement.

Section 29 of the National Ports Act establishes an independent ports regulatory body to be knownas the Ports Regulator. The main functions of the Ports Regulator will be to:

* exercise economic regulation of the ports system in line with the Government’s strategicobjectives, which includes the annual approval of National Ports Authority’s tariffs;

* promote equity of access to ports and to facilities and services provided in ports; and

97


* monitor the activities of the National Ports Authority to ensure that it performs its functions inaccordance with the Act.

The National Ports Act creates a dual role for Transnet National Ports Authority. As the manager,controller and administrator of ports, Transnet National Ports Authority must, amongst other things,control port services through licensing or entering into agreements with operators, and as aregulated entity, it must have its tariffs approved by the Ports Regulator and may have itsdecisions overturned by the Ports Regulator.

The National Ports Act has had a significant impact on Transnet National Ports Authority. In itspreparation to comply with the provisions of the Act, Transnet National Ports Authority has:

* drafted Port Rules, which have been approved by the Minister of Transport. These Port Rulesaim to ensure proper control and management of ports, the regulation and control ofnavigation with the approaches to ports and the maintenance of safety, security and goodorder in ports as well as the protection of the environment;

* prepared guidelines, approved as Transnet policy, for the issuing of agreements, licences andpermits;

* submitted a tariff application for Financial Year 2009/10 for approval to the Ports Regulator on1 August 2008 and received a response from the Ports Regulator on 19 January 2010 thatthe Ports regulator approved a 4.42 per cent. increase in Transnet National Ports Authority’stariffs for the Financial Year 2010; and

* commenced the provision of a framework for conversion of deemed licences to deal with thetransitional arrangement for existing port service providers (i.e. parties that provided portservices on or before 26 November 2006 are deemed to hold licenses to provide suchservices and must apply to Transnet National Ports Authority for new licenses within sixmonths of a date to be set by the Minister of Public Enterprises).

Although provision for the establishment of a ports regulator was made at the inception of theNational Ports Act in 2006, the Ports Regulator only became operational in 2008, and for thisreason the impact of regulation on Transnet National Ports Authority’s operations and finances hasyet to be assessed. However, from an operational perspective, the Port Rules, approved atministerial level, provides each harbour master with a recognised framework for decision-making,compliance and control.

New security measures that affect Transnet National Ports Authority’s business include theInternational Ship and Port Facility Security Code (‘‘ISPS Code’’), which was implemented in 2004,and, to the extent that Transnet’s terminals handle cargo destined for the United States, the globalsecurity initiatives emanating from the US Safe Ports Act of 2006, specifically the ContainerSecurity Initiative and the Secure Freight Initiative.

Assets

Transnet National Ports Authority owns all port land, port infrastructure (such as breakwaters,seawalls and jetties), marine fleet and equipment utilised to serve vessels calling at its ports. TheICM, as originally drafted and ratified, contained certain sections that would have required Transnetto transfer ownership of all assets located in the coastal property zone to the Government. Beforethe ICM came into operation on 1 December 2009, the Government excluded these provisions,specifically, sections 11, 65, 66, 95, 96 and 98, from coming into operation with the rest of theICM.

Section 11 of the ICM provides for the ownership of coastal public property to vest in the citizensof the Republic of South Africa and to be held in trust by the Government on their behalf. It furtherprohibits the sale, alienation and transfer of coastal public property. Sections 65 and 66 of the ICMprevent, among other things, persons from occupying any part of, constructing, or erecting anybuilding, road, barrier or structure on or in coastal public property without being awarded a leaseby the Minister of Environmental Affairs and Tourism. Section 96 of the ICM provides for thedemolition of any structure constructed unlawfully on coastal public property prior to theimplementation of the Act. Finally, Section 98 of the ICM provides for the repeal of certainlegislation that currently governs the use of coastal property, including the Sea Shore Act, 1935,which legislation now continues in effect in parallel with the remaining provisions of the ICM. See‘‘Risk Factors – Transnet risks losing substantial assets to the Government should the NationalEnvironmental Management: Integrated Coastal Management Act, 2008 be enacted, in its currentform’’.

98


Transnet Port Terminals

Transnet Port Terminals was established in 2000 when Transnet’s then existing port division,Portnet, was divided into operations and landlord businesses, namely what is now Transnet PortTerminals and Transnet National Ports Authority. Since its inception, Transnet Port Terminals hasplayed a key role in supporting the South African government’s export-led growth strategy.Transnet Port Terminals contributed 15.0 per cent. and 14.35 per cent. to the Group’s totalexternal revenue in Financial Year 2009 and in the six months ended 30 September 2009,respectively.

As a result of the world economic crisis, Transnet Port Terminals’ volumes in Financial Year 2009in all sectors (with the exception of the bulk sector) were down or on par with the prior financialyear. Transnet Port Terminals’ revenue increased by 4 per cent. from Financial Year 2008 toFinancial Year 2009. The marginal increase in revenue for Financial Year 2009 was assisted byimproved commercial agreements in iron ore and manganese. Personnel costs were containedbelow inflation. Energy costs increased by 26.5 per cent. due to escalating fuel prices and higherelectricity tariffs. The increase in other operating costs was due to land rentals as a result of theexpansion programme. Transnet Port Terminals’ revenue for the six months ended 30 September2009 decreased by 8.5 per cent. compared to the six months ended 30 September 2008.

South African import and export commodities are handled through the Republic of South Africa’ssix largest ports: Richards Bay, Durban, Saldanha, Cape Town, Port Elizabeth and East London.The division not only handles these cargoes but also implements logistics management solutionsfor its container, bulk, break-bulk (multi-purpose) and car terminal operations. The largest of theseis the container sector, which contributed 58 per cent. of Transnet Port Terminals’ revenue and 63per cent. of its EBITDA in Financial Year 2009.

Strategy

Transnet Port Terminals’ strategic objectives under the Growth Strategy include the following:(i) increase revenues by developing new business opportunities, strategic partnerships and realisingcorridor synergies; (ii) create capacity ahead of demand in line with Transnet’s commitments;(iii) grow market position by ensuring that Transnet Port Terminals is recognised as an efficient,safe, reliable and cost competitive operator; and (iv) contain operating costs per unit of volume toan increase less than CPIX cost increases.

Services

Transnet Port Terminals provides a range of cargo-handling and warehouse services to a widevariety of customers, including shipping lines, freight forwarders and cargo owners in the container,bulk, break-bulk and automotive cargo sectors. It provides these services at the 16 cargo terminalsit operates across seven South African ports.

Bulk Terminals: Transnet Port Terminals has five bulk terminals located at Richards Bay, Saldanha,Durban, East London and Port Elizabeth that handle a variety of commodities including iron ore,manganese, magnetite, anthracite and steam coal. The Saldanha Iron Ore Terminal is thecountry’s only iron ore terminal and has the largest iron ore export facility in Africa as measured byvolume passing through the terminal. Between Financial Year 2007 and Financial Year 2009,expansions to the Saldanha Iron Ore Terminal increased the terminal’s iron ore export offloadingcapacity from 31 million tonnes a year in Financial Year 2007 to 45 million tonnes per year inFinancial Year 2009. Expansions to increase the terminal’s export capacity from 45 million tonnes ayear in Financial Year 2009 to 58 million tonnes per year in Financial Year 2012 are underway.The Richards Bay dry bulk terminal handles a variety of commodities such as magnetite and steamcoal through its conveyor system. A high volume woodchip loader commissioned in 2004 has madethis terminal one of the world’s most efficient woodchip loading facilities.

Break-Bulk Terminals: Transnet Port Terminal’s break-bulk or multi-purpose terminals are located inCape Town, Durban, East London, Port Elizabeth, Richards Bay and Saldanha. Cargoes at thoseterminals range from fresh produce, grains and animal feed, to woodchip, metals and coal.

Automotive Terminals: Transnet Port Terminals operates automotive terminals at the ports ofDurban, Port Elizabeth and East London, which were involved in the export and import of 521,475vehicles in Financial Year 2009 and 160,574 vehicles in the six months ended 30 September2009. See also ‘‘– Transnet National Ports Authority – Services – Break-Bulk Cargo andAutomotive’’. The Durban automotive terminal handles approximately two-thirds of all the seabornevehicles leaving or entering the Republic of South Africa.

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Container Terminals: Transnet Port Terminals includes five container terminals, with two in Durban,and one in each of Cape Town, Port Elizabeth and East London. A sixth container terminal at thePort of Ngqura became operational in October 2009. Durban, Africa’s busiest port as measured bycapacity and throughput has Africa’s largest container terminal as measured by volume passingthrough. Transnet plans to increase its capacity of approximately 2.3 million TEUs a year over thenext three financial years to 2.9 million TEUs a year by 2013 to cope with the anticipated globalgrowth in container traffic. Cape Town’s container terminal is a well-located hub for traffic from thewest of the Northern hemisphere and to South America and the Far East. The container-handlingfacility at Port Elizabeth handles approximately 400,000 TEUs a year and specialises in cargoes forthe vehicle manufacturing and vehicle components industries. See also ‘‘– Transnet National PortsAuthority – Services – Containers’’.

Customers

Transnet Port Terminals’ major customers represent a broad spectrum of the economy and includethe shipping industry, vehicle manufacturers, the agriculture, timber and forest industries, themining industry and exporters of minerals, metals and granite. Transnet Port Terminals’ majorcustomers are Maersk and Mediterranean Shipping Company, which accounted for 22 per cent.and 19 per cent., respectively, of Transnet Port Terminals’ segment total revenue for the yearended 31 March 2009.

Source of Revenue, Pricing and Tariffs

Transnet Port Terminals earns revenues through the levying of charges for loading, offloading andother cargo handling charges as well as for the storage of cargo.

Assets

Transnet Port Terminals operates each of its terminals, and owns all equipment used in thetransportation of cargo from the ships to the stacking areas, including cranes.

Regulation

The regulations and directives for Transnet Port Terminals were published by the Ports Regulatoron 6 August 2009 and Transnet currently intends to challenge the new tariff directives, particularlyas they relate to mathematical caps applied to Transnet National Ports Authority’s tariffs anddiscretion given to the Ports Regulator to prohibit Transnet National Ports Authority from recoveringits investments and costs in ports and making a profit commensurate with the risk of owning,managing, controlling and administering ports and providing port services and facilities.

Transnet Pipelines

Transnet Pipelines owns and operates the Republic of South Africa’s 3,000 kilometres of strategicpetroleum and gas pipeline infrastructure, transversing five provinces: KwaZulu-Natal, Free State,Gauteng, North West and Mpumalanga. Transnet Pipelines contributes significantly to the SouthAfrican economy as it is charged with securing the supply of liquid fuels in the country, especiallyto Gauteng, the Republic of South Africa’s economic heartland. South African pipelines areregulated by NERSA. The regulator is responsible for, among other things, establishing tariffs aswell as technical regulation. Transnet Pipelines’ total segment revenue decreased by 10.44 percent. from R 757 million in the six months ended 30 September 2008 to R 678 million in the sixmonths ended 30 September 2009. This decrease in revenue resulted principally from NERSA’sdecision to reduce tariffs by 10.40 per cent. per annum.

The pipeline system transported approximately 17 billion litres of liquid fuel and over 490 millioncubic metres of gas in Financial Year 2009 and approximately 8.9 billion litres of liquid fuel and234.9 million cubic metres of gas in the six months ended 30 September 2009. Volume distributionof liquids in the pipeline system, measured according to megalitre kilometre (ml.km) increased by6.1 per cent. in Financial Year 2009 compared to Financial Year 2008 and increased by 7.1 percent. in the six months ended September 2009 compared to the six months ended 30 September2008.

Strategy

The strategic objective of Transnet Pipelines under the Growth Strategy is to ensure the securesupply of petroleum products to the inland market, notably through the timely completion andcommissioning of the NMPP.

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In the Financial Year 2010, Transnet Pipelines plans to focus on managing its relationship withNERSA and facilitating the achievement of the requirements of the Energy Security Master Plan forLiquid Fuels of the then South African Department of Minerals and Energy (now the Department ofEnergy). In addition, Transnet Pipelines plans to reinforce the importance of safety within its depotsand for petroleum products in transit, as well as manage the limited capacity in the existingpipeline network.

Services

Transnet Pipelines currently transports gas, crude oil, aviation turbine fuel, diesel and variousgrades of petrol. Transnet’s petroleum network covers the provinces of KwaZulu-Natal, Free State,Gauteng, North West and Mpumalanga. Transnet’s gas network runs between Secuda and Durbanvia Newcastle and Empangeni.

The table below sets out key statistics for Transnet Pipelines for Financial Year 2009, 2008 and2007 and the six months ended 30 September 2009 and 2008:


2009 2008 2009 2008 2007

InfrastructureCapital expenditure (R millions) ..... 1,252 584 2,772 865 315

EfficiencyTotal operating costs per millionlitres km of product conveyed (inRand) (Nominal) ............................ 47.97 48.88 53.60 42.20 38.63

VolumeTotal petroleum volumes (billionlitres km) ........................................ 3,694 3,449 7,023 6,619 6,466Total gas volumes (million m3) ...... 235 237 494 473 399

Customers

Transnet Pipelines’ customers include the Republic of South Africa’s largest fuel companies: BritishPetroleum, Chevron, Engen, Sasol Oil, Sasol Gas, Shell and Total. Transnet Pipelines’ customersalso include smaller local South African companies, the largest of which is Vuyo Petroleum. Thesecustomers together accounted for 98 per cent. of Transnet Pipelines’ segment external revenues inFinancial Year 2009.

Sources of Revenue and Pricing

Transnet Pipelines’ petroleum pipeline tariffs are set by NERSA pursuant to the PetroleumPipelines Act. NERSA is empowered, under the Petroleum Pipelines Act, to license petroleumpipelines and storage facilities and to set and approve tariffs as a condition of licence. Under theGas Act 2001 (the ‘‘Gas Act’’), NERSA is authorised to regulate prices and to monitor andapprove, and, if necessary, regulate gas transmission and storage tariffs.

NERSA has adopted a rate of return approach for the regulation of the petroleum pipelinesindustry. This approach requires the determination of the allowable revenue and then the use ofthis figure to set tariffs such that the total revenue from those tariffs equals the allowable revenue.

In November 2008, Transnet applied to NERSA for a petroleum revenue requirement of R 2,043.4million, which translated into an average petroleum pipeline tariff increase of 74.42 per cent. forFinancial Year 2010. Transnet Pipelines intended to use the proceeds from the requested tariffincrease to fund the operation of its existing pipeline network and support the construction of theNMPP which is to replace parts and increase the capacity of the existing pipeline network.However, NERSA set tariffs only for the operation of the existing (assets in use) system andapproved an allowable revenue of R 1,093.03 million, which has translated into a tariff decrease of10.38 per cent. over a 12 month period for Financial Year 2010.

One of the main reasons for the decrease in tariffs is NERSA’s rejection of the ‘‘F-Factor’’, whichis an allowance for Transnet Pipelines to maintain a reasonable debt service cover ratio. NERSA’sinterpretation of the applicable legislative framework is that such a factor cannot be included in

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Financial Year 2010 allowable revenue. However, Transnet’s view is that NERSA’s rejection of theF-factor postpones the recovery of such amount to some future date.

Assets

Transnet Pipelines currently owns approximately 3,000 kilometres of pipeline infrastructure with acurrent volume distribution of 7.023 billion litre kilometres per annum. Transnet Pipelines’ networkconsists of four main lines, including the refined product network, the crude oil pipeline, the gaspipeline and the Avtur pipeline. Transnet Pipelines also has 13 intake and delivery depots and astorage facility in the form of a tank farm with a capacity of approximately 29.4 million litres whichis primarily used for the distribution of petroleum into Botswana.

Transnet expects that the NMPP, which is currently scheduled for completion in late 2011, willreplace ageing assets and increase Transnet Pipelines’ current capacity and refined petroleumproduct transportation market share. The NMPP is anticipated to consist of 550 kilometres of24 inch pipeline between Durban and Jameson Park in Gauteng and 170 kilometres of 16 inchpipeline for the inland network. Transnet’s current pipelines range from six inches to 20 inches indiameter. Through the NMPP, Transnet Pipelines aims to decrease the volume of road traffic andimprove security of petroleum product supply to the inland market.

Capital Expenditure Programme

Introduction

The Group’s capital investment strategy consists of a five-year Capital Expenditure Programme forFinancial Years 2010 to 2014. The Capital Expenditure Programme is focused on key corridors andsector investments. The five-year Capital Expenditure Programme, as reflected in the 2010Corporate Plan, amounts to R 80.5 billion, excluding the capitalisation of borrowing costs, whichamounts to an additional R 7.1 billion. Transnet currently estimates that of the R 80.5 billion, R 39billion will be spent on expanding capacity and R 41.5 billion will be spent on maintaining existinginfrastructure and equipment. Although the Capital Expenditure Programme has been reviewed andrevised in the context of the economic downturn and the impact the downturn has had on volumesas well as capacity requirements, Transnet is still committed to investing in infrastructure to providecapacity ahead of demand, provided that such investment is commercially viable. All priority,strategic and sustaining capital projects that are currently under way are provided for within thecurrent scope of the Capital Expenditure Programme. Transnet’s commitment to the CapitalExpenditure Programme underscores its intention to support its infrastructure and services in orderto assist the manufacturing, petroleum and mining sectors to take advantage of future economicgrowth or demand.

Given the current economic downturn and the slowdown in volumes experienced in the first ninemonths of calendar year 2009, the Group will continue to reprioritise its focus in accordance withcurrent business requirements and growth expectations for key corridors.

Capital Planning and Execution

The capital investment planning process has been aligned with the Government’s NationalInfrastructure Plan, and the projects identified are part of the Transnet rolling five-year capitalplanning cycle. The proposal for a capital project may arise from a number of areas which includebusiness needs, safety requirements, client requests, revenue opportunities identified throughmarket research, a necessity to refurbish a facility that has reached the end of its useful life andinvestments that are considered strategic. Divisions are expected to identify opportunities andpresent their proposals to the governing structures to obtain approval to commence with the capitalproject.

Transnet has adopted an integrated approach to the planning and execution of capital projects tocreate capacity throughout the value chain and across the divisions. In this way, all divisionscontribute cumulatively to the growth strategy. A specialist unit, Transnet Capital Projects, executescentrally focused projects that cross multiple divisions within the Group, in addition to a number ofmega-projects on behalf of individual divisions. It is Transnet Capital Projects’ responsibility to rollout projects within its control from the initial feasibility phase to the eventual handover to theoperating divisions. This enables divisions to focus on their core activities.

The economic downturn has necessitated that Transnet reprioritises projects to be aligned with thescaled down volume requirements of major clients. This has primarily resulted in a reallocation ofthe planned capital expenditure over the five Financial Years commencing with Financial Year

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2010. Transnet will closely monitor and control spending of the planned amount during the year tohelp limit spending to the set Group financial parameters and funding thresholds. Where businessopportunities identified during the year require further investments, these will be subject toadditional evaluations and governance processes. This process aims to meet all the set criteria andmitigate financial and operational risks in future. Transnet is committed to both sustaining thecurrent infrastructure and to expanding the business. Cumulatively, R 39.0 billion (48 per cent. ofthe Investment Plan) will be spent on the expansion of the business and R 41.5 billion onmaintaining infrastructure over the five Financial Years commencing with Financial Year 2010. Ofthe total R 39.0 billion expected to be spent on the expansion of the business, Transnet expectsthat approximately R 33.3 billion of this amount will be spent over the three Financial Yearscommencing with Financial Year 2010. This expenditure will mainly serve to increase capacity inthe ports (R 16.1 billion), rail infrastructure and rolling stock (R 11.2 billion) and to increase pipelinethroughput (R 11.1 billion) over the period. Of the planned R 80.5 billion investment, R 57.2 billion(71 per cent.) relates to existing projects while R 23.3 billion (29 per cent.) relates to new projects.

The approval and governance process of capital investments is as follows:

Capital Investment Proposals

Capital investment proposals submitted to Transnet Capital Projects generally indicate whether theproject is an expansionary or maintenance project. The proposal also generally includes adescription of business trends and the benefits that the new capital project are expected to yield.The estimated total cost together with the project plan and key milestones are drafted in thesubmission. The various asset classes involved (for example rolling stock and equipmentinfrastructure) and the result of the financial evaluation model (net present value, internal rate ofreturn and discounted payback period) are key inclusions generally contained in the capitalinvestment proposals. Other criteria included in the business cases are cost, time, quality, localcontent, safety and risk.

Divisional Investment Committees

Divisions may approve projects with an estimated total cost of up to R 100 million to the extent theprojects have been included in the Capital Expenditure Programme.

Group Capital Investment Committee

The Capital Expenditure Programme is overseen by the Capital Investment Committee (‘‘CAPIC’’),a committee of the Transnet Limited Group Executive Committee. CAPIC is responsible for:(i) ensuring that capital investment projects are consistent with the strategic focus of the Group;(ii) ensuring that capital expenditure decisions are in accordance with budget and business plansapproved by the Board of Directors; (iii) prioritising capital expenditure projects; (iv) monitoring theimplementation of project plans to ensure approved capital expenditure projects are carried out withminimal or no delays; (v) reviewing and amending expenditure plans in the event of anyunforeseen and unavoidable circumstances, subject to Group limits of authority and the limitationsof the Board-approved budget; (vi) ensuring proper compliance with applicable processes such asrisk management and making sure that such projects reflect value for money; and (vii) conductingpost-implementation reviews to determine whether value has indeed been derived by Transnet fromthe relevant capital investment.

Construction and infrastructure maintenance projects with a value of between R 20 million andR 300 million (‘‘major projects’’) and construction type projects with a value greater thanR 300 million (‘‘mega projects’’) are also overseen and project managed by Transnet CapitalProjects (‘‘TCP’’), a support unit to Transnet’s business units. TCP assists Transnet’s divisions inthe implementation of the Capital Expenditure Programme, and focuses on prioritising rehabilitation,maintenance and emergency projects to ensure sustainability and proper functioning of Transnet’sassets.

CAPIC may approve projects that have been supported by the divisional investment committees upto an estimated total cost of R 400 million.

Other responsibilities of CAPIC include:

* approval of capital projects within the delegated authority;

* monitoring capital expenditure against the budget and business plans, as approved byTransnet’s Board of Directors;

* determining criteria for the prioritisation of capital investments; and

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* monitoring the physical progress of projects to prevent delays and cost overruns andcompletion of projects on time and within budget.

Board of Directors

The Board of Directors considers and approves the annual capital expenditure budget and the four-year projections of capital expenditures of the Group. Furthermore the Board of Directors evaluatesand approves the nature and scope of a proposed variation to any previously approved capitalexpenditure project in excess of R 700 million. The Board of Directors also approves capitalexpenditure funding for the Group, subject to shareholder approval as may be required by law. Inaddition, the Board of Directors aims to ensure that an adequate capital planning process is put inplace and that performance is measured against set criteria, including budgets and project plans.

Planned Capital Expenditure by Operating Division and Sector

The following table summarises the Group’s planned capital expenditures, by operating division, foreach Financial Year 2010 through 2014. See ‘‘Cautionary Note Regarding Forward LookingStatements’’ and ‘‘Risk Factors – Risks Related to Transnet’s Business’’.

Year ended 31 March

Division 2010 2011 2012 2013 2014

Five-year

plan

(Budget) (Projections) (Projections) (Projections) (Projections)

(R millions)

Transnet Freight Rail .................... 10,063 10,482 8,277 7,869 6,840 43,531

Transnet Rail Engineering ............ 487 345 341 428 495 2,096

Total Rail ..................................... 10,550 10,827 8,618 8,297 7,335 45,627

Transnet National Ports Authority. 3,974 3,144 3,815 3,742 1,576 16,251

Transnet Port Terminals ............... 2,743 1,526 1,298 563 144 6,274

Total Ports................................... 6,717 4,670 5,113 4,305 1,720 22,525

Transnet Pipelines ........................ 4,356 3,722 2,368 491 189 11,126

Total Pipeline .............................. 4,356 3,722 2,368 491 189 11,126

Specialist units.............................. 289 223 237 238 236 1,223

Total capital expenditure ........... 21,912 19,442 16,336 13,331 9,480 80,501

Capitalised borrowing costs.......... 1,850 1,854 2,212 663 489 7,068

Total ............................................. 23,762 21,296 18,548 13,994 9,969 87,569

In response to the effects of the global economic downturn, Transnet has re-prioritised some of itsinvestment projects to reflect decreasing volume requirements of its major clients.

Transnet closely monitors and controls spending of planned amounts during each year to helpensure that spending remains within the set financial parameters and funding thresholds. Ifbusiness opportunities identified during the year require further investments, CAPIC subjects anyrelated request to robust evaluations and governance processes. This approach is designed toassist in meeting all the set criteria and help mitigate and protect against increased financial andoperational risks in the future.

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The following table summarises how much of the Group’s planned capital expenditures (excludingcapitalised borrowing costs) are anticipated to be applied to maintenance projects and expansionprojects, for Financial Years 2010 through 2014. See ‘‘Cautionary Note Regarding Forward LookingStatements’’ and ‘‘Risk Factors – Risks Related to Transnet Business’’.

Year Ended 31 MarchExpansion

ProjectsMaintenance

Projects Total

(R millions) (R millions) (R millions)

2010 (Budgeted) .......................................................... 12,841 9,071 21,9122011 (Projections) ....................................................... 11,321 8,121 19,4422012 (Projections) ....................................................... 9,156 7,180 16,3362013 (Projections) ....................................................... 3,892 9,439 13,3312014 (Projections) ....................................................... 1,762 7,718 9,480

Total for five years .................................................... 38,972 41,529 80,501

The following table summarises the Group’s planned capital expenditures (excluding capitalisedborrowing costs) by major asset class for Financial Years 2010 through 2014.

Five-year Capital Investment Split per Major Asset Class

Rail

(R millions)Land and buildings ......................................................................................................... 1,611Infrastructure................................................................................................................... 16,842Machinery and equipment .............................................................................................. 1,424Rolling stock and containers........................................................................................... 25,750

Total ............................................................................................................................... 45,627

Ports

(R millions)Land, buildings and infrastructure................................................................................... 1,317Machinery and equipment .............................................................................................. 1,461Port facilities ................................................................................................................... 16,743Floating craft................................................................................................................... 3,004

Total ............................................................................................................................... 22,525

Pipelines andSpecialist

Units

(R millions)Pipeline networks............................................................................................................ 10,576Buildings and structures ................................................................................................. 419Machinery and equipment .............................................................................................. 131Specialist Units ............................................................................................................... 1,223

Total ............................................................................................................................... 12,349

Under its Growth Strategy, Transnet intends to concentrate its efforts on the following commoditiesduring Financial Year 2010: containers, export coal, export iron ore, and liquid bulk. Transnet alsointends to invest a substantial amount under the Capital Expenditure Programme to service allother commodities and to maintain existing services.

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The following table summarises the Group’s planned capital expenditures (excluding capitalisedborrowing costs) by commodity for Financial Year 2010 to Financial Year 2014:

Commodity

Five-yearcapital

expenditure

(R billions)Containers........................................................................................................................... 12.7Export coal .......................................................................................................................... 8.8Export iron ore .................................................................................................................... 10.2Bulk (Ports) ......................................................................................................................... 2.4Break-bulk (Ports) ............................................................................................................... 0.9General freight .................................................................................................................... 24.0Manganese ......................................................................................................................... 0.4Petroleum............................................................................................................................ 11.1Other* ................................................................................................................................. 10.0

Total ................................................................................................................................... 80.5

* The category ‘‘Other’’ includes non-commodity specific investments in addition to Transnet’s investments in othercommodities.

Based on the different strategies and initiatives applicable to each corridor, Transnet’s plannedinvestment in the key corridors is set out below:

* Richards Bay corridor – predominantly Coal Line investments;

* NatCor – Container (Durban container terminal, Pier 1 and Salisbury Island) and bulk liquid(NMPP) investments;

* Port Elizabeth/Ngqura/East London Corridor – investments pertain mainly to the new containerterminal at Ngqura;

* Cape Corridor investments – predominantly investments at the Cape Town ContainerTerminal; and

* Investment on the Sishen to Saldanha corridor – predominantly export iron ore investments.

Western corridor development plans

Planned development relates mainly to iron ore and containers for the western corridor. Iron orecapacity on the channel and through the Port of Saldanha is expected to increase to 93mtpa, whilecontainer capacity at the Port of Cape Town is expected to increase to 1.4 million TEUs perannum.

Central corridor development plans

Central corridor investments relate mainly to the manganese, container and automotive sectors.General freight investments will be undertaken to support activities of the Coega IndustrialDevelopment Zone and influence development at the Port of Ngqura.

Planned expansions at the East London and Port Elizabeth car terminals are intended to supportthe development plans of the motor industry.

Additional container capacity at the Ngqura Container Terminal are intended to support andcontribute to the South African ports system and will be reviewed as part of the container hubstrategy.

Plans at the Port of Ngqura include provisions for new cargoes, namely dry and liquid bulk type,generated by the Coega Industrial Development Zone, and a potential privately funded refinery.

Eastern corridor development plans

The entrance channel of the Port of Durban is in the process of being expanded and, oncecomplete, is planned to facilitate safer navigation and allow larger vessels to enter the port.Investments in containers (Durban container terminal and Pier 1), automotive (Point Car Terminal)and bulk liquid (Island View) are also being rolled out to address capacity increases and to

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accommodate the trend in vessel size growth. Transnet is currently pursuing the acquisition ofSalisbury Island for future container development.

Work on the NatCor is ongoing, with the objective of creating capacity through efficiencyimprovements and the elimination of bottlenecks.

Construction of the NMPP has commenced and a bridging plan is in place to ensure the securityof the petroleum and gas supply while construction and commissioning of the NMPP takes place.

Expansion at the Port of Richards Bay relates mainly to the dry and liquid bulk sector. Expansionof the Richards Bay Corridor is ongoing, with upgrades planned for the infrastructure andacquisition of 110 dual voltage locomotives and wagon building to support the growth in coalexports.

Gauteng and interior corridor plans

The container terminal at City Deep has reached capacity; a major refurbishment is thereforeplanned. A rail freight ring is planned to be constructed around Gauteng, which is intended toenable better access to destinations inside Gauteng from all directions, facilitate better flowsthrough Gauteng and contribute to more efficient operations.

The Waterberg and Botswana regions are expected to develop significantly over the next 20 years,with coal being the main commodity to be transported.

Major Capital Projects

This section outlines anticipated major capital projects in the Capital Expenditure Programme andthe estimated total cost and planned spending for these projects over the next five financial years.The economic downturn has necessitated that Transnet reprioritises certain projects to be reflectthe reduced volume requirements of Transnet’s principal clients. Transnet will closely monitor andcontrol spending on the approved projects, to ensure that Transnet remains within the set financialparameters and funding thresholds. Cash requirements will also be reallocated accordingly.

Coal Export Line

Coal Line capacity expansion:

This project is intended to increase capacity on the coal export line to more than 71 mtpa. Theproject includes locomotives upgrades, running line upgrades and improvements in infrastructureand signalling. This project also provides the platform for further expansionary programmes shouldfuture exports exceed planned capacity. The additional coal berth constructed at the Port ofRichards Bay has been completed and has been operating since July 2008. This additional berthhas provided capacity for volume increases, indicating that the port is ready to handle theprojected future volumes in the rail component of the supply chain. The estimated cost for theentire project is R 3.9 billion. The estimated spending for the next five financial years, commencingfrom the end of Financial Year 2010 is R 1.6 billion.

Coal Line acquisition of 110 Dual Voltage Locomotives:

Additional locomotives are required for the increased volumes on the Coal Line. Direct current(‘‘DC’’) traction is used on the route to Ermelo. From Ermelo to Richards Bay, alternating current(‘‘AC’’) is used. The dual voltage locomotives are capable of traversing both sections rather thanhaving to change locomotive types at the Ermelo changeover yard. The aim of this project is toprovide sufficient tractive capacity to accommodate volume increases, improve the reliability andavailability of the locomotive fleet, free up locomotives to be used in GFB, and reduce maintenanceand fuel costs. The estimated cost for the entire project is R 3.4 billion. Estimated spending for thenext five financial years commencing from the end of Financial Year 2010 is R 2.8 billion.

Iron Ore export

Iron Ore Line capacity expansion to 41mtpa:

This iron ore export project includes expanding the rail line from Sishen to the Port of Saldanhathat will continue through the port terminal onto export carrier vessels. Recent increases in globaldemand for mining commodities has led to increases in production capacities at the Sishen IronOre and Assmang mines, which, in turn, has resulted in an increase in volumes of goodstransported to Saldanha for export. The expansion project includes acquiring rolling stock andupgrading existing infrastructure. This capacity expansion project will impact several of Transnet’soperating divisions, including Transnet Freight Rail, Transnet National Ports Authority and Transnet

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Port Terminals. The estimated cost for the entire project is R 5.1 billion. Estimated spending forthe next five financial years commencing in 2010 year end is R 2.2 billion.

Iron Ore Line capacity expansion to 47mtpa:

This project is the second phase of the Iron Ore expansion programme discussed above. This ironore expansion project aims to increase the capacity of existing infrastructure to accommodatetransportation of 47mtpa on the iron ore line. This project is the second phase of the Iron Oreexpansion programme discussed above. This project is in large part driven by increases inproduction of iron ore by the mines. The project includes the acquisition of rolling stock; alterationsto crossing loops; and the construction of a new loop; and upgrades to rolling stock workshops andthe power supply. The expansion project will affect the National Ports Authority and Port Terminalsand is expected to be completed by Financial Year 2012. The estimated cost for the entire projectis R 3.4 billion. Estimated spending for the next three financial years is R 1 billion.

Acquisition of 50 Electromotive Diesel (‘‘EMD’’), Diesel Electric Locomotives:

This project entails purchasing of 50 ‘‘like new’’ locomotives to be built by EMD in conjunction withRail Engineering. The body, underframe, bogies and all other components are brand new, with theexception of the diesel engines and related equipment which have been refurbished to originalequipment manufacturer standards. These locomotives will be operated on the GFB lines. Projectbenefits include the improvement in fuel consumption; savings on maintenance; and flexibility ofusing these locomotives over the entire network. The estimated cost for the entire project is R 0.9billion. Total spending in the current financial year 2009/10 is R 0.3 billion.

Acquisition of 100 new Diesel Electric Mainline Locomotives:

The aging nature of Transnet Freight Rail’s fleet of rolling stock has impacted service reliability andpredictability. Transnet Freight Rail intends to reverse this trend through the acquisition of newlocomotives to be deployed on the Richards Bay (GFB), Steelpoort, South African DevelopmentCommunityy and Maputo routes to transport magnetite, copper, vermiculite and rock phosphate.The estimated cost for the entire project is R 2.3 billion. Estimated spending for the next threefinancial years is R 2.36 billion.

Ngqura investments

Construction of the Port of Ngqura:

This project entails the provision and construction of basic port infrastructure for the Port ofNgqura, consisting of breakwater construction; the dredging of basin and channels; construction ofa sand bypass system, five berths and back-up areas; and the provision of the initial landsideinfrastructure, pilot boat and tug boats. Benefits from this project should include the establishmentof an additional commercial port and increased capacity in the national ports system. Ngqura isintended to be a deepwater port capable of handling the larger new generation container vessels,such as the Super Post Panamax container vessel. The estimated cost for the entire project isR 3.5 billion. Estimated spending in the next five financial years commencing from Financial Year2010 is R 0.5 billion.

Ngqura Container Terminal development:

The Ngqura Container Terminal is a greenfield project with the objective of providing a full-servicecontainer terminal together with rail links to the Port of Ngqura. The rail component of the projectconsists of road access at Ngqura station; a container rail terminal; the construction of the Ngqurastation; connection to the main line, hinterland infrastructure, bridges and structures; as well as theacquisition of rolling stock. The National Ports Authority component of the project involvesdeveloping a four-berth container terminal in two stages and further extending the portinfrastructure to include a small craft basin, tugs, and buildings. The provision of the associatedlandside infrastructure required for a functional container terminal and other future operations isalso within the current scope of the project. The ultimate objective for the project is to increasecapacity in the national port system. The project is being run across the operating divisions. Theestimated cost for the entire project is R 7.9 billion. Estimated spending for the next five financialyears commencing from Financial Year 2010 is R 3.7 billion.

Maintenance Projects

Wagon maintenance

Part of Transnet Freight Rail’s operating policy is to ‘lift’ wagons at two-year intervals for heavyhaul wagons and at five-year intervals for GFB wagons. The body of the wagon is lifted off the

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bogies for inspection, maintenance and replacement as required. This is a safety-related procedureto enable access to components of the wagons that would normally not be visible. The estimatedcost for the next five financial years, commencing in Financial Year 2010, is R 4.6 billion. Thisproject is ongoing and the estimated total cost is represented by the 5 year spend.

Infrastructure maintenance

The project entails periodic heavy maintenance or replacement of the essential infrastructurecomponents (ballast, sleepers and rail lines) so that the integrity of the track remains intact. Theestimated cost for the next five financial years, commencing in Financial Year 2010, is R 7.8 billion.This project is ongoing and the estimated total cost is represented by the 5 year spend.

Locomotive maintenance

The project entails maintenance intervention capitalisation during the life of the locomotive. Theseinterventions typically include a ‘mini overhaul’ every six years and a ‘general overhaul’ every 12years. The estimated cost for the next five financial years, commencing in Financial Year 2010, isR 4.2 billion. This project is ongoing and the estimated total cost is represented by the five yearspend.

Port of Durban projects

Durban container sector

Durban Harbour entrance channel widening and deepening:

The project entails dredging, deepening and widening of the channel on the north side, with theprovision of a new northern groyne; the improvement and strengthening of the south breakwater;and construction of a fixed sand bypass system. Project benefits include drastically reducing therisk of vessels grounding in the entrance channel; increasing the availability of the channel,resulting in reduced waiting times for vessels at the port due to adverse weather; accommodatinglarger vessels in the entrance channel, thereby enabling development of berths inside the port forlarger vessels; and increasing the efficiency of port operations with lower costs to the port and thenational economy. This will also enable the port to accommodate the projected container growthand the ability to accommodate larger vessels which increases the prospects of developing Durbanas a hub port for the region. The estimated cost of the entire project is R 3.0 billion. Estimatedspending for the next five financial years commencing in Financial Year 2010 is R 1.8 billion.

Durban Container Terminal reengineering:

The project entails reconfiguring the stacking area; installing automated gate access; relocatingworkshops to increase the quayside stacking area; and creating a greater truck staging area forthe smoother flow of vehicles. The objective is to increase capacity of the Durban ContainerTerminal to 2.9 million TEUs by 2009. This is a joint project by National Ports Authority and PortTerminals. The estimated cost for the entire project is R 1.5 billion. Estimated spending for thenext two financial years is R 0.7 billion.

Acquisition of 60 replacement straddle carriers for Durban Container Terminal:

The 60 replacement straddle carriers should facilitate the handling of the eventual capacity of theterminal of 2.9 million TEUs per annum. The straddles are ‘‘1-over-3’’ type, as opposed to thecurrent ‘‘1-over-2’’ type fleet. The new straddles will enable containers to be stacked ‘three high’ asopposed to the current method of stacking containers ‘two high’. This facilitates more efficient useof the stacking area, thereby improving volumes handled at the terminal. The estimated cost forthe next five financial years, commencing in Financial Year 2010, is R 0.5 billion.

Ship-to-Shore Crane replacements at Durban Container Terminal:

The Durban Container Terminal plans to phase in the replacement of nine Ship-to-Shore Cranes,spread over three years commencing in 2011. These cranes are required to maintain existing andplanned operations in the foreseeable future. The estimated cost for the entire project is R 0.7billion. The estimated cost for the next five financial years commencing from Financial Year 2010 isR 70 million.

Durban – break-bulk

Reconstruction of sheet-pile quay walls at Maydon Wharf in Durban:

The results of a feasibility study and other inspections conclude that the steel sheet-piled quaywalls have deteriorated severely and are reaching the end of their serviceable lifecycle. Severe

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loading and equipment restrictions were placed on the quayside for safety purposes, whichincreases the time needed for vessel loading and unloading. The possible collapse of one or morequay walls is a serious risk. Transnet intends to reconstruct the steel sheet-pile berths commencingin Financial Year 2010. The key benefits include safe berths, protection of current and futurerevenue streams, and construction of berths that will accommodate long-term future generationvessels, with the flexibility to accommodate future changes in types of cargo handled in thisprecinct, including container handling. The estimated cost for the the entire project is R 1.6 billion.Estimated spending for the next four financial years commencing in the 2010 financial year is R0.5 billion.

Port of Cape Town

Expansion and reconfiguration of Cape Town Container Terminal:

The project entails the increase of stacking capacity and the deepening of container berths to meetnew vessel depth requirements. It further provides for additional container handling equipmentsuitable for servicing larger vessels and handling higher stacks. Through this project, National PortsAuthority and Port Terminals will be well positioned to continue facilitating container trade in thePort of Cape Town as well as establish a foundation for future growth. When the project iscompleted, the Port will be able to handle 1.4 million TEUs. The estimated total cost is R 4.1billion. The estimated cost for the next five financial years commencing in 2010 financial year is R3.7 billion.

Transnet Pipelines

New Multi-Products Pipeline:

The aim of this project is to build a 550 kilometre new trunk line from Durban to Gauteng, that is24-inches in diameter and addresses the increased demand for fuel in Gauteng and surroundingareas. The trunk line will connect an inland and a coastal terminal with significant haulage capacityfor optimising operational capacity. The existing pipeline is 40 years old and is due to be replaced.It also does not have the capacity to meet future demand. With the front-end engineering designphase completed, NERSA granted Transnet the licence to construct the NMPP. The project alsoentails the replacement of two northern network pipelines that have outlived their sustainable life.Given the energy challenges facing South Africa, the Board of Directors granted unconditionalapproval to commence construction in February 2008. This project is considered a strategic projectfor the Group and is of national importance and is anticipated to be completed within the licencetimeframe of December 2011. The estimated cost of the NMPP is R 12.6 billion. Estimatedspending for the next four financial years commencing with Financial Year 2010 is R 9.6 billion.

Competition

Transnet believes that it holds a strong market position among South African bulk freighttransportation companies because of its integrated platform.

Transnet Freight Rail faces competition from a number of companies providing bulk commoditytransport by road instead of rail and in particular from trucking companies on the corridor betweenDurban and Gauteng. Transnet’s three principal freight and logistics competitors on this corridor areGrindrod Limited, Barloworld Logistics and Imperial Logistics.

Although, Transnet Rail Engineering faces competition in maintenance and fabrication, there is asignificant backlog of maintenance and construction work at Transnet Freight Rail, which TransnetRail Engineering believes will continue to provide it with work.

Pursuant to the Legal Succession to the South African Transport Services Act, 1989 (subsequentlyamended in 1995 and in 2002) and the National Ports Act, Transnet National Ports Authoritycurrently serves as landlord for all commercial ports within the Republic of South Africa. Hence,Transnet National Ports Authority faces no competition within the Republic of South Africa in termsof the management and provision of port infrastructure and marine services for the seven majorcommercial ports operating in the country (excluding the Port of Ngqura which will become theeighth port once it becomes fully operational). There is a possibility Transnet may face competitionregionally or globally, i.e. in cases where shipping companies, freight forwarders and other portcustomers use other nearby ports, such as Maputo, Mozambique, instead of the South Africanports.

Transnet Port Terminals faces domestic competition from some smaller private ports with respectto break-bulk cargo. It also faces competition from other terminal operators at the seven ports

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operated by Transnet National Ports Authority. At Richards Bay, for example, the coal terminal isowned and operated by the coal mining exporters rather than Transnet. Regionally, Transnet faceslimited competition from port terminals operated by Dubai Ports World in Mozambique and Djibouti,and Transnet recently experienced the loss of some granite export business to the port at Maputo,Mozambique. Competition is most acute in the break-bulk sector in which private entities operate.

Transnet Pipelines faces some competition from road transport providers, specifically on theDurban – Gauteng corridor.

Property

The following table sets out information on Transnet’s real property as at 30 June 2009.

Type of Property LocationNumber of

Title DeedsTotal Area

in Hectares

Transnet Freight RailLand Owned Eastern Cape, Free State,

Gauteng, KwaZulu-Natal,Northern Cape, Mpumalanga,Limpopo, North West andWestern Cape

15,853 69,691

Transnet Rail EngineeringLand Owned Bloemfontein, Germiston,

Soutriver and Uitenhage26 63

Transnet PropertyLand Owned Eastern Cape, Free State,

Gauteng, KwaZulu-Natal,Northern Cape, Limpopo, NorthWest, Mpumalanga and WesternCape

1,844 3,892

Transnet National Ports AuthorityLand Owned Cape Town, Durban, East

London, Mossel Bay, Port Nolloth,Port Elizabeth, Richards Bay andSaldanha

179 66,119

Transnet FoundationLand Owned Eastern Cape and Western Cape 77 160

Transnet PipelinesLand Owned Gauteng and KwaZulu-Natal 64 35

18,043 139,960

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Employees

The table below presents the number of actual employees employed by each operating division ofTransnet as at 31 March 2009, 2008 and 2007 and 30 September 2009 and 2008.


20082009 200720082009

Operating DivisionTransnet Freight Rail

ManagerialPPPPPPPPPPPPPPPPPPP 1,7081,631 1,7651,5473,423Non-managerial PPPPPPPPPPPPPP 23,26920,876 23,04623,03020,754

Transnet Rail EngineeringManagerialPPPPPPPPPPPPPPPPPPP 829861 719806873Non-managerial PPPPPPPPPPPPPP 12,85512,106 13,01012,68012,749

Transnet National PortsAuthorityManagerialPPPPPPPPPPPPPPPPPPP 678679 908679682Non-managerial PPPPPPPPPPPPPP 2,5392,510 2,3432,4942,572

Transnet Port TerminalsManagerialPPPPPPPPPPPPPPPPPPP 327343 292311363Non-managerial PPPPPPPPPPPPPP 5,0234,822 4,7575,0845,206

Transnet PipelinesManagerialPPPPPPPPPPPPPPPPPPP 93101 9198103Non-managerial PPPPPPPPPPPPPP 371404 392368374

Other* PPPPPPPPPPPPPPPPPPPPPPPP 1,2921,593 1,2551,6761,679

48,98445,926 48,57848,77348,778

* Other includes Corporate Centre; Transnet Fuel Solutions; Transnet Capital Projects; Transnet Heritage Foundation andTransnet Property.

A significant feature of Transnet’s workforce is a high level of unionisation. Union recognition andcontracts are renegotiated annually. Transnet currently recognises two unions, the members ofwhich account for approximately 81 per cent. of Transnet’s workforce. In the past, Transnet’srelationship with its formally recognised unions was poorly managed. However, Transnet believesthat its pursuit of progressive labour relations policies and practices has improved its relationshipswith its formally recognised unions.

Transnet has a rapidly aging workforce. As at 31 March 2009, the average age of Transnet’sfreight rail engineers was 44.5. Transnet estimates that it will need approximately 17,800 newemployees over the next six years. This figure also takes into account an attrition rate ofapproximately 20 per cent. per year.

The Group operates several defined benefit funds and a defined contribution fund. The assets ofeach scheme are held separately from those of the Group and are administered by the schemes’trustees. The defined benefit funds are actuarially valued by professional independent consultingactuaries on an annual basis. In addition, the Group provides post-retirement medical benefits toqualifying employees and pensioners.

Health and Safety

Transnet believes that health and safety is a critical foundation for reliable operations and effectiveservice delivery to customers. The unreserved commitment by Transnet’s management and labourleadership is essential in leading, facilitating and demonstrating appropriate behaviour at all levelsof Transnet. Transnet has consequently established a single framework for the management ofhealth and safety risks across the Group.

The Group Risk Committee, nominated by the Board of Directors, is responsible for reviewing andassessing the risk control processes and systems of Transnet and ensuring that health and safetypolicies are effectively communicated throughout the Group. Transnet has established a mandatoryincident reporting process and believes that its stringent safety, health, environment and qualityperformance targets are aligned with international best practices.

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Operating in a heavily industrialised industry, Transnet’s operations are not without risk. However,Transnet aspires to achieve a zero injury and fatality rate in all of its operations. The number ofemployee fatalities dropped from 26, five of which were principally attributable to road accidents onpublic roads, for Financial Year 2007 to 11, of which three were the result of traffic accidents onpublic roads, for Financial Year 2008 and 13 in respect of Financial Year 2009. Transnet isseeking to reduce the number of public fatalities, most of which are attributable to rail relatedincidents, by educating the public about the dangers of railroad level crossings. For Financial Year2009, there were 197 such fatalities involving members of the public compared with 151 forFinancial Year 2008.

Transnet’s employee wellness programmes aim to reduce workplace absenteeism and improveproductivity. Transnet established its Lifestyle Management Programme on HIV/AIDS in July 2001to provide resources, training and education to its employees. Transnet continues to provide healthmanagement to HIV-positive employees and provides them with access to appropriate medicationregardless of whether they are eligible for Transnet’s medical insurance schemes. See ‘‘RiskFactors – Risks Related to Transnet’s Business – Transnet is exposed to risks related to healthand safety considerations’’.

Security

Fraud Risk Management Plan

Treasury Regulations (Regulation 29.1.1) prescribed under the Public Finance Management Actrequire companies operating in the Republic of South Africa to establish a fraud prevention plan tomitigate the risk of economic crimes and acts of dishonesty. Transnet has implemented a FraudRisk Management Plan from Financial Year 2008 in order to effectively manage and combat thefraud risk to which it may be exposed. Transnet emphasised the development and implementationof fundamental fraud risk management initiatives, which were used to create the foundation for arobust fraud risk management strategy aligned with Transnet’s Forensic Maturity Model. Some ofthese initiatives included the formation of the relevant governance reporting structures; thedevelopment of several fraud related policies; the development of an electronic case managementdatabase; and the identification of high fraud risk areas through the fraud risk assessment process.

This plan was enhanced in Financial Year 2009 to have a multi-dimensional focus of beingstrategic, tactical and operational. As part of such focus, and in order to address the root causesof fraud, greater attention has been given to fraud risks emanating from people, processes andsystems. To ensure the effective implementation of the 2009 Fraud Risk Management Plan, focushas also been placed on fraud prevention and detection of fraud elements categorised as high andmedium priority for Financial Year 2009. During this period, Transnet developed and rolled out aSupplier Code of Conduct. This code informs Transnet’s suppliers of Transnet’s expectations inrespect of the behaviour and conduct of entities that do business with Transnet. Further ongoingand enhanced fraud awareness and anti-fraud training was conducted and forensic data analyticswas also performed.

In addition, as part of its fraud prevention plan, Transnet has established a Tip-Offs AnonymousHotline for reporting fraud and has established a committee to investigate and report to theGroup’s internal control committee on the results of its investigations.

Security Management

During Financial Year 2009, Transnet developed the Transnet Security Management (‘‘TSM’’)strategy through an interactive process that incorporated input from key internal and externalstakeholders, such as the South African Police Service (‘‘SAPS’’) and the National IntelligenceAgency.

The overall strategy development took into consideration applicable legislative requirements andinternational codes, including the International Ship and Port Facilities Security Code (‘‘ISPSCode’’) of 2004 and the National Ports Act, both of which are applicable to the ports, and theNational Key Points Act, 1980 (‘‘National Key Points Act’’), which is applicable to the pipelines.Other key drivers in the security environment are the ERM Framework and the Transnet FreightCorridor strategy.

The TSM strategy aims to protect Transnet’s customers and employees, as well as to secureTransnet’s assets, income and infrastructure. This is achieved by integrating and focusing TSMthrough intelligence based operations; the application of technology; and the collective inputs of

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Transnet’s internal and external stakeholders. In implementing the TSM strategy, operationalframeworks have been developed in all the operating divisions in line with the security strategy.

Transnet Freight Rail is particularly vulnerable to theft and has instituted a plan to convert coppercables in high-risk areas to cables comprising other materials in order to reduce theft, and hasengaged railway police to patrol its lines of track. In addition, Transnet Pipelines’ pump stationshave been declared national key points and Transnet is in the process of upgrading these facilitiesin line with the prescribed standards. Furthermore, all security service providers and Transnet’ssecurity staff deployed at these sites are accredited as national key point service providers andguards, respectively.

In line with the National Ports Act and the ISPS Code, Transnet National Ports Authority andTransnet Port Terminals are in the process of security upgrade projects at all of Transnet’s ports.

The ISPS Code came into being as a result of a resolution by the United Nations Security Councilin response to vulnerabilities in the maritime sector. Transnet National Ports Authority believes ithas been fully compliant with the ISPS Code since 29 June 2004. In order to become compliant,Transnet upgraded its security, retrained its security personnel, refenced port boundaries andinstalled advanced security features including closed-circuit television for some of its terminals andautomatic identification systems that allow for remote ship identification by port control.

Environment

The responsibility for environmental management within Transnet rests with the respectiveoperating divisions and specialist units, all of which apply Transnet’s ERM Framework. There hasbeen a standardisation of rolling out environmental initiatives across Transnet, reporting on variousenvironmental indicators, including operational incidents. Transnet plans to streamline this roll-outgoing forward.

Transnet’s operational activities occur in a variety of sensitive environments. As a result, Transnetseeks to promote environmental awareness among its employees as well as the communities inwhich it operates. Transnet has begun to implement the ISO 14001 environmental managementsystems and principles in its operating divisions in order to institutionalise international bestpractices and to ensure a standardised approach throughout the Group to environmental safety.

Transnet launched several initiatives in 2008 to strengthen relationships with the communitiesaround the ports it operates, to mitigate dust at the Port of Saldanha and to research ways toreduce its carbon footprint. Transnet conducts annual environmental audits and is currentlyinvestigating the effects of ballast water discharge on the waters of its ports. Some of these auditshave established that Transnet has not complied with certain environmental laws. In response,Transnet is in the process of taking measures to rectify the non-compliances. It is Transnet’sintention that all of its operating divisions work progressively toward achieving internationallyaccepted standards of environmental management.

Transnet Pipelines experienced only one oil spill in Financial Year 2009 where more than 1,000litres of oil was spilled due to a technical failure. In Financial Year 2010 to date, Transnet Pipelinesexperienced one oil spill where more than 1,000 litres of oil was spilled. Transnet is working toavoid future oil spills by improving early detection of such incidents.

In addition, Transnet is currently involved in the voluntary clean-up of asbestos dust along its CapeCorridor rail lines.

Information Technology

Transnet’s information technology (‘‘IT’’) strategy is designed to enable local IT groups at itsoperating divisions to meet their requirements with all common services driven by the Company-wide IT infrastructure. Transnet aligns multiple business applications across the Group through itsenterprise-wide information and communication technology strategy. The strategy establishesframeworks for information management and responsible use of technology at the operational level.Transnet’s central IT department is involved in strategic planning, enterprise architecture andgovernance and provides guidance, consulting and reviews for each of the divisions.

As part of Transnet’s strategy to dispose of its non-core operations, Transnet intends to outsourcesome of its IT services to a third party provider. Transnet’s information and communicationtechnology (‘‘ICT’’) strategy provides the framework for enterprise-wide system integration,ultimately aimed at tangible performance improvements and business results. It is a strategic

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imperative for Transnet to integrate enterprise architecture to promote a virtual computingenvironment and a ‘services oriented’ approach to the operating divisions’ adoption of processesand systems. To achieve this, Transnet adopted a services architecture to drive standardisation.

Governance and Controls

In response to a growing demand for technology, it has become essential for Transnet to governits ICT environment through sound monitoring and controls. Transnet has prioritised the followingICT governance areas for Financial Year 2010:

* ICT general controls;

* critical financial reporting controls;

* Transnet electronic communication policy; and

* Transnet information security policy.

Transnet Business Intelligence Programme

The Transnet business intelligence programme facilitates the availability of relevant, timely andaccurate information by enhancing the processes and systems that enable informationmanagement. During the year, Transnet introduced several business intelligence initiatives in orderto standardise information access and knowledge sharing across Transnet, including:

* deploying a shared SAP system pilot project across Transnet Capital Projects, TransnetProperty, Transnet Corporate Centre and the Transnet Foundation;

* establishing a Business Intelligence Working Group with the mandate to focus on high qualityinformation for key performance indicators across Transnet. In the year ahead this WorkingGroup will mature into a formal centre of excellence; and

* establishing the Enterprise Content Management Working Group, laying the foundation forenhanced knowledge management across Transnet. This working group will evolve to aformal centre of excellence during the year ahead.

The business intelligence, furthermore, focused on providing systems for contract lifecyclemanagement, treasury management, investment and project management, real estate management,asset management and risk and safety management.

ICT Infrastructure Programme

In order to address some of the challenges relating to reducing its carbon footprint Transnet hasinitiated the Virtual Footprint Platform, which is intended to provide the basis for future Wintel (Inteland Windows) deployments. The first phase of the project was implemented at the TransnetCorporate Centre in Financial Year 2009. This involved the consolidation of the active directory andemail environments into the virtual platform where Transnet achieved a significant reduction in thecarbon footprint of its platforms. Transnet intends to implement other, similar projects in the future.

Insurance

Transnet’s operations are subject to normal hazards of operational and geographic risks, includingaccidents, fire and weather-related perils. Transnet maintains insurance policies necessary toreasonably protect against the financial impact arising from unexpected events when the amount ofthe potential loss would be significant enough to prevent normal business operations. The purchaseof these policies is coordinated by an internal insurance department, with applicable limits,coverage, scope and deductibles that Transnet, with the advice of its insurance advisers, believesis reasonable and prudent after all means of controlling or preventing the risk have beenconsidered. Transnet cannot, however, assure purchasers of the Notes that this insurance will beadequate to protect it from expenses related to potential future claims for personal injury andproperty damage or that these levels of insurance will be available in the future at commerciallyreasonable prices. Transnet does not fully insure against certain risks to the extent that such risksmay not be fully insurable or related coverage is unavailable at what Transnet considers to beappropriate price levels.

Litigation and Other Proceedings

Transnet is involved in legal proceedings, including commercial arbitration, employment matters,disputes with customers, concessionaires and partners and general commercial disputes that arisefrom time to time in the ordinary course of business.

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Transnet is currently the subject, along with 26 other parties, of an investigation into air freightcharges by the Commission of the European Communities. Transnet has been named solely basedon its previous ownership of South African Airways. The Commission of the EuropeanCommunities may impose a fine on South African Airways of as much as 10 per cent of SouthAfrican Airways’ worldwide group revenue. However, based on consultation with its legal advisers,Transnet believes that any fine that may be imposed on South African Airways would be unlikely toexceed EUR 30 million. In addition, Transnet has sought the advice of counsel who believes thatthe risk of liability for Transnet is remote. Furthermore, should any penalty be levied againstTransnet Limited, it believes, based on discussions with counsel, that it would have a claim torecover such amounts from South African Airways.

Judgment has been awaited since the middle of calendar year 2009. Transnet’s lawyers haveadvised that judgment can be expected around March 2010.

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MANAGEMENT

Board of Directors

The Board of Directors of Transnet has delegated the responsibility for running the operations ofTransnet to the Group Chief Executive. However, the Board of Directors has reserved responsibilityfor the following matters: recommending amendments to the Articles of Association of Transnet toits shareholder; approving Transnet’s strategy, business plans, annual budgets and borrowingstrategy; approving the annual financial statements and interim reports; and evaluating theperformance of the Group Chief Executive.

Transnet’s Articles of Association provide that there shall be not less than 10 and not more than18 directors of whom at least eight must be non-executive directors and two must be executivedirectors. The Board of Directors is currently comprised of 11 directors of whom two serve in anexecutive capacity. There are currently seven vacant seats. Nine of these directors, including theacting Chairman, believe that they are independent, non-executive directors free from any businessrelationship that could hamper their objectivity or independent judgement on the business ofTransnet.

Transnet’s directors are elected to three-year terms. At the 2009 Annual General Meeting on11 August 2009 all directors were re-elected, with the exception of three directors who retired.

The following table sets forth the 11 members of the Transnet Board of Directors at the date ofthis Base Prospectus.

NameYear of

Birth Current Position

Memberof theBoardSince

Professor Geoffrey Everingham 1949 Acting Chairman of the Board of Directors 2004Mr. Christopher Wells ............... 1949 Director and Acting Chief Executive Officer 2005Mr. Anoj Singh.......................... 1973 Director and Acting Chief Financial Officer 2009Ms. Nunu Ntshingila ................. 1963 Non-executive Director 2006Mr. Peter Joubert ..................... 1933 Non-executive Director 2004Mr. Michael Hankinson ............. 1949 Non-executive Director 2008Ms. Nolwazi Gcaba .................. 1970 Non-executive Director 2004Dr. Norman Haste OBE 1944 Non-executive Director 2006Ms. Christine Ramon................ 1967 Non-executive Director 2004Ms. Nomgando Matyumza ....... 1963 Non-executive Director 2004Mr. Peter Moyo......................... 1962 Non-executive Director 2008

The previous Group Chief Executive Officer, Ms. Maria Ramos, left the Group at the end ofFebruary 2009. Transnet’s Board of Directors plans to make an announcement regarding thesuccessor to Ms. Ramos in the near future.

The Issuer is not aware of any potential conflicts of interest between the duties to the Issuer of thedirectors listed below and their private interests or duties.

Professor Geoffrey Everingham – Acting Chairman of the Board of Directors

Professor Everingham assumed the role of acting Chairman of the Board of Directors on 11 August2009. As of the date of this Base Prospectus, Professor Everingham was still the acting Chairmanof the Board of Directors. Previously, Professor Everingham served as a non-executive member ofthe Board of Directors from 27 August 2004 to 10 August 2009. He is currently acting in capacityas the Chairman of the Board of Directors until an announcement relating to a successor is madeby the Shareholder. He also serves on the Board of Governors, Pathcare Group, director ofGK Everingham Investments (Pty) Limited and Motifprops 199 (Pty) Limited. He is also theChairman of the Council of Diocesan College (Bishops school) and of the Investment Committee ofthe Anglican Church of SA Pension Fund Advisory Board, Frater Asset Management. He iscurrently a member of the Accounting Principles Board and a member of King III working group onaccounting and auditing. He is a past member of the Public Accountants and Auditors Board, theIndependent Regulatory Board for Auditors, the GAAP Monitoring Panel of the JSE SecuritiesExchange, past chairman of the Accounting Practices Committee of the SA Institute of CharteredAccountants. Professor Everingham graduated with a Bachelor of Commerce degree from the

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University of Port Elizabeth, Bachelor of Commerce Honours from the University of Cape Town,Master of Arts in American Studies from the University of Illinois, he is also a qualified charteredaccountant and is a Professor of Accounting (since 1986) and Emeritus professor (from 2009) atthe University of Cape Town.

Mr. Christopher Wells

Mr. Wells assumed the role of acting Group Chief Executive Officer on 6 March 2009. Previously,Mr. Wells served as the Chief Financial Officer from 24 January 2005 to 5 March 2009 after whichhe assumed the position of acting Group Chief Executive Officer. He has been an executivemember of the Board of Directors since January 2005. He is currently acting in capacity as ChiefExecutive Officer until an announcement relating to a successor is made by the Shareholder. Heserves on the boards of directors of Sethani Limited, South African Airline Holdings (Pty) Limitedand Transpoint Properties (Pty) Limited. Mr Wells is also a member of Debchris CC and CharisTrading CC. Mr. Wells graduated from the University of Cape Town and brings more than 15 yearsof management experience to Transnet. Prior to joining Transnet Mr. Wells worked for RainbowChicken Limited, McCarthy Limited and Deloitte & Touche.

Mr. Anoj Singh

Mr. Singh is currently acting in the capacity of Chief Financial Officer and as an executive memberof the Board of Directors since March 2009. He also serves on the boards of directors of FreightLogistics International, Owner-Driver Management (Pty) Limited, Transhold Properties (Pty) Limited,Protekon (Pty) Limited, Crosskeys Security Services (Pty) Limited, Comazar (Pty) Limited and is aTrustee of the Transnet Retirement Fund. He is a member of Even Grand Trading 173 CC andSpring Green Trading 199 CC. He has served as Transnet’s General Manager: Group Financesince 2005. Mr. Singh graduated with a Bachelor of Accounting from the University of KwaZulu-Natal and brings more than 12 years of financial experience to Transnet. He is also a qualifiedchartered accountant.

Ms. Nunu R. Ntshingila

Ms. Ntshingila was appointed as an independent non-executive member of the Board of Directorsin May 2006. In addition, Ms. Ntshingila serves on the boards of directors of Ogilvy South Africa,PriceWaterhouseCoopers Corporate Social Investment Committee, Ntinta Investment, Old MutualLife Assurance Company (SA) Limited, Old Mutual Life Holdings (SA) Limited, Golden Dividend456 (Pty) Limited, and Kantar South Africa (Pty) Limited. She has been Chief Executive Officer ofOgilvy South Africa since 2005. Ms. Ntshingila graduated from the University of Swaziland andreceived a Masters of Business Administration with a Bachelor of Arts degree from Morgan StateUniversity and a diploma in Advertising from AAA School of Advertising.

Mr. Peter G. Joubert

Mr. Joubert was appointed as an independent non-executive member of the Board of Directors inAugust 2004. Mr. Joubert is the Chairman of the Boards of BDFM Publishers (Pty) Limited,Sandvik (Pty) Limited and a member of the boards of Sandvik Mining and Construction RSA (Pty)Limited, Sandvik Mining and Construction Delmas, Telkom SA Limited, Cycad Financial HoldingsLimited, the South African Brain Research Institute and the South African Institute of RaceRelations. Mr. Joubert has more than 35 years of management experience. He graduated fromRhodes University with a Bachelor of Arts degree and completed the Advanced ManagementProgramme at Harvard University.

Mr. Michael Hankinson

Mr. Hankinson was appointed as an independent non-executive member of the Board of Directorsin July 2008. In addition, Mr. Hankinson is Chairman for The Spar Group Limited, Brand CorpHoldings Pty Limited and Brand Corp (Pty) Limited and also serves on the boards of directors ofIllovo Sugar Limited, Pollock and Aiken (Pty) Limited, Main Street 63 (Pty) Limited, Sovereign FoodInvestments Limited, Grindrod Limited and Apollo Tyres Limited. Mr. Hankinson was appointed anon-executive member at Grindrod Limited on 15 December 2009. He is a qualified charteredaccountant with more than 15 years of executive experience.

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Ms. Nolwazi B. P. Gcaba

Ms. Gcaba was appointed as an independent non-executive member of the Board of Directors inAugust 2004. In addition, she is a Trustee of the Transnet Retirement Fund Property Trust and theTransnet Second Defined Benefit Fund. Ms. Gcaba has been a partner of the law firm Spoor &Fischer Attorneys for nine years. Ms. Gcaba graduated from the University of Fort Hare andreceived an LLB from the University of Natal.

Dr. Norman D. Haste OBE

Dr. Haste OBE was appointed as an independent non-executive member of the Board of Directorsin June 2006. Dr. Haste was awarded an OBE in 1996 for services to Civil Engineering. Inaddition, Dr. Haste has served as the Chief Executive Officer of the Aldar/Laing O’Rourke jointventure and has served as the Chief Operating Officer for Laing O’Rourke Middle East. Dr. Hasteserves on the Board of Directors of DLF-Laing O’Rourke (India) Private Limited.

Ms. Christine K. Ramon

Ms. Ramon was appointed as an independent non-executive member of the Board of Directors inAugust 2004. Ms. Ramon is currently Chief Financial Officer and executive director of SasolLimited, where she also serves as director of several Sasol group companies. Ms. Ramon is adirector at Melanini Investment (Pty) Limited and at Melanini Wohens’ Investment (Pty) Limited.Ms. Ramon was the former Chief Executive of Johnnic Holdings Limited. Prior positions includeActing Chief Operating Officer and Financial Director at Johnnic Holdings Limited and seniorpositions at Coopers & Lybrand both in South Africa and in Italy. Ms. Ramon also formerly servedon the Standing Advisory Committee to the International Accounting Standards Board.

Ms. Nomgando N. A. Matyumza

Ms. Matyumza was appointed as an independent non-executive member of the Board of Directorsin August 2004. Ms. Matyumza also serves on the boards of directors of Wilson Bayly Homes –Ovcor Limited, COASAD Southern Africa (Pty) Limited, KZN Growth Fund Managers (Pty) Limited,Khula Enterprise Finance Limited, Camden Bay Investment (Pty) Limited and Born FreeInvestments 42 (Pty) Limited. Ms. Matyumza is also a member of Imvusa Trading 1253 CC. Shegraduated from the University of Transkei, received a Bachelor of Laws degree from the Universityof Natal and is a qualified chartered accountant.

Mr. Peter M Moyo

Mr. Moyo was appointed an independent non-executive member of the Board of Directors in July2008. In addition, Mr. Moyo currently serves as an executive director of Amabhubesi Group. He isalso a director of Worldwide Capital Limited, Pinnacle Technology Holdings, Liberty HoldingsLimited, Liberty Group Limited, Vodacom Group (Pty) Limited, Bulawayo Electrical Supplies (Pty)Limited, Utafutaji Trading 36 (Pty) Limited, RZT Zelpy 4972 (Pty) Limited (Chariman), Lexshell 713Investments (Pty) Limited, Clorpique 149 (Pty) Limited, Corridor Infrastructure DevelopmentHoldings, Mtha-We-Mpumalelo Investments, Plexus Fundamental – Funds (Pty) Limited, STS Trustand Darting Trading 161 (Pty) Limited. Mr. Moyo has more than 15 years of experience, includingas the CEO of Alexander Forbes. Mr. Moyo is a qualified chartered accountant.

The business address of each Director is Carlton Centre, 150 Commissioner Street, Johannesburg2001, Republic of South Africa.

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Senior Management

The following table sets forth certain information on the members of Transnet’s senior managementas of the date of this Base Prospectus.

NameYear of

Birth Current Position

YearJoined

Transnet

Mr. Christopher Wells ......... 1949 Acting Chief Executive Officer 2005Mr. Anoj Singh .................... 1973 Acting Chief Financial Officer 2003Mr. Vuyo Kahla ................... 1970 Group Executive, Office of the Group Chief

Executive2004

Mr. Pradeep Maharaj .......... 1962 Group Executive, Human Resources 2004Mr. Khomotso Phihlela........ 1961 Chief Executive Officer, Transnet National Ports

Authority2003

Mr. Charl A. Moller ............. 1951 Chief Executive Officer, Transnet Pipelines 1975Mr. Tau Morwe ................... 1956 Acting Chief Executive Officer, Transnet Freight

Rail1997

Mr. Siyabonga I. Gama(1) ... 1967 Chief Executive Officer, Transnet Freight Rail 1994Mr. Richard Vallihu ............. 1964 Chief Executive Officer, Transnet Rail

Engineering1995

Mr. Karl-Bart X. T. Socikwa 1969 Acting Chief Executive Officer, Transnet PortTerminals

1995

Ms. Moira Moses ................ 1965 Group Executive, Transnet Capital Projects 2005Ms. Virginia Dunjwa ............ 1965 Chief Risk Officer 1998Mr. Mark Gregg-Macdonald 1960 Acting Group Executive, Commercial and

Freight Corridors2001

(1) Mr. Gama was suspended as Chief Executive Officer of Transnet Freight Rail on 1 September 2009.

Information regarding the senior management of the Group as at the date of this Base Prospectusis set out below to the extent that they are not members of the Board of Directors of Transnetdescribed above.

The Issuer is not aware of any potential conflicts of interest between the duties to the Issuer of thesenior managers listed below and their private interests or duties.

Mr. Vuyo Kahla

Mr Kahla was appointed to the Group Executive Committee in 2004 and held the position of GroupExecutive: Legal and Risk until his appointment as the Group Executive: Office of the Group ChiefExecutive in January 2007. In addition, Mr Kahla currently serves as the Chairman of the TransnetRetirement Fund Board of Trustees and Transpoint Properties (Pty) Limited He is the Chairman ofthe Council of St John’s College, Houghton and the Audit & Enterprise Risk Committee of theUniversity of South Africa. He is also a member of the Audit Committee of the South AfricanRevenue Services. Mr Kahla has more than five years five years of experience with Transnet. MrKahla’s previous experience includes positions as director of corporate governance and legalservices at the African division of the Standard Bank Group, and has served the Government innumerous positions, including as Assistant Legal Advisor to President Nelson Mandela, SpecialAdvisor to the National Director of Public Prosecutions, Chief Legal Advisor to the Minister ofFinance and to the National Treasury and Director of Corporate Strategy and Transformation at theDepartment of Justice and Constitutional Development. Mr Kahla also previously held a Researchposition at the University of the Western Cape’s Community Law Centre. Mr Kahla graduated fromRhodes University where he obtained BA and LLB degrees.

Mr. Pradeep Maharaj

Mr. Maharaj was appointed as the Group Executive: Strategy and Transformation in July 2004 andappointed as Group Executive: Human Resources in July 2006. Mr Maharaj currently serves on theboards of directors of Autopax Passenger Services (Pty) Limited, Southern African Airline Holdings(Pty) Limited, HSA Management Systems (Pty) Limited and Viamax Logistics (Pty) Limited.Mr. Maharaj has more than 25 years of experience, including ten years with the Gauteng ProvincialGovernment in the Department of Finance and Economic Affairs and ten years in the auditprofession. Mr. Maharaj graduated from the University of South Africa where he studied AccountingScience.

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Mr. Khomotso Phihlela

Mr. Phihlela was appointed as the Chief Executive Officer of Transnet National Ports Authority inJuly 2004. In addition, Mr. Phihlela currently serves on the Finance Committee of the EducationAfrica Investment Committee and on the boards of directors of Marine Data Systems (Pty) Limited,B2B Africa (Pty) Limited and Tru-South Group. Mr. Phihlela has more than five years of experiencewith Transnet including Transnet’s Group Executive Portfolio Management as well as experience inother companies including as managing director of Telcon and as an operations executive directorof the African Bank Limited, and as a board member of South Africa Express Airways (Pty)Limited, VAE Perway South Africa and the Council for Scientific and Industrial Research. Mr.Phihlela graduated from Northwestern University where he studied engineering, businessadministration (MBA) and executive development.

Mr. Charl A. Moller

Mr. Moller was appointed as the Chief Executive Officer of Transnet Pipelines in September 1992.Mr. Moller has almost 33 years of experience with Transnet, including as assistant regionalmanager in the then Spoornet (now Transnet Freight Rail) and as general manager at the thenAutonet (which has been discontinued). Mr. Moller graduated with a Bachelor of Science degreefrom Stellenbosch University where he studied civil engineering and with a Bachelor of CommerceHonours from the University of Johannesburg. He also holds a degree in Transport Economics.

Mr. Tau Morwe

Mr. Morwe was appointed as the Chief Executive Officer of Transnet Port Terminals in May 2000.In November 2009, Mr. Morwe was transferred to the position of Chief Executive Officer ofTransnet Freight Rail, in an Acting Capacity. Mr. Morwe has more than 25 years of experience,including as a board member on several bodies including KwaZulu-Natal Trade and Investment, theDurban Chamber of Commerce, Commercial Cold Storage (Pty) Limited, Agriport Partnership (withViamax (Pty) Limited), Durban Africa (eThekweni Unicity’s Tourism Authority), Durban EventsCorporation, and the Transnet Heritage Foundation Board of Trustees and has worked for NampakManagement Services, Shell South Africa and Apron Services in senior positions. Mr. Morwegraduated from Howard University where he studied Economics, and holds an AdvancedProgramme for Chief Executive Officers and an Executive Programme in Logistics andTransportation Management from the National University of Singapore and the Chartered Instituteof Logistics and Transport in Singapore.

Mr. Siyabonga I. Gama

Mr. Gama was appointed as the Chief Executive Officer of Transnet Freight Rail in May 2005. Inaddition, Mr. Gama currently serves on the boards of Italtile, Matumbuka Investment Holdings,Emerald Sky Trading 736 (Pty) Limited, Sales Affiliates 89 (Pty) Limited and is a trustee to thePhithikeza Trust. Mr Gama is also Chairman of the Centre for Logistic and Transport at theUniversity of Johannesburg. Mr. Gama has more than 20 years of management experienceincluding with Standard Bank as a consumer manager. Mr. Gama graduated from University ofSwaziland where he received a certified associate of the Institute of Bankers, New York, attendedthe City University of New York’s Advanced Executive Programme and the Delft Institute,Singapore University’s Port Manager Programme.

Mr. Gama was suspended from the position of Chief Executive Officer of Transnet Freight Rail.Transnet is currently pursuing internal disciplinary hearings against Mr. Gama on 1 September2009.

Mr. Richard Vallihu

Mr. Vallihu was appointed as the Chief Executive Officer of Transnet Rail Engineering inSeptember 2005. Mr. Vallihu has more than 14 years of experience, including as a ProjectManager at Standard Bank. Mr. Vallihu is also an activist for community work assisting on theWorld Alliance Civicus. Mr. Vallihu graduated from Loughborough University of Technology in theUK, having attained a BSc Honours degree, as well as from the University of SouthernQueensland, Australia, where he attained an MBA.

Mr. Karl-Bart X.T. Socikwa

Mr. Socikwa was appointed to the Executive Committee as the Head of Restructuring of Transnet’scommercial division in 2007 until his current appointment as Group Executive, Commercial. In

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November 2009, Mr. Socikwa was transferred to the position of Chief Executive of Transnet PortTerminals in an Acting Capacity. In addition, Mr. Socikwa currently serves as member of the Boardof Directors of Investec Bank Limited, RAM Hand-to-Hand Couriers, The Brand Union SA (Pty)Limited, Southern Palace Investments, Seasoned Investments (Pty) Limited, Square One GroupLimited, Mkhande Pianands (Pty) Limited, Umlibo Group (Pty) Limited, Dembhula Resources (Pty)Limited and Proudafrique Trading 66 (Pty) Limited. Mr. Socikwa has more than 13 years ofexperience, including with Deneys Reitz, Coopers & Lybrand and Kelly Stores Pty Limited. Mr.Socikwa graduated from Rhodes University with a Bachelor of Commerce and Bachelor of Law.

Ms. Moira Moses

Ms. Moses was appointed as the Group Executive of Transnet Capital Projects in March 2007. Inaddition, Ms. Moses currently serves as a Non-Executive director of the Board of the PublicInvestment Corporation. Ms. Moses is also a trustee of the Thusang Trust. Ms. Moses has morethan 12 years of experience, including as head of Re-Engineering at Transnet, and has heldexecutive management positions in the motor industry including Limited, Jaguar Cars Limited andVolvo Group. Ms. Moses graduated from the University of Witwatersrand with a Bachelor of Artsand completed the Management Advancement Programme.

Ms. Virginia Dunjwa

Ms. Dunjwa was appointed as the Group Chief Risk Officer in January 2007. In addition,Ms. Dunjwa currently serves on Transnet’s Risk Committee and Transnet’s Acquisition Council.Ms. Dunjwa has more than 15 years of experience, including senior and executive managementpositions at Transnet National Ports Authority, Transnet Port Terminals and Transnet Freight Rail.Ms. Dunjwa graduated from the College of Saint Rose, USA where she studied Chemistry and theUniversity of Witwatersrand, where she studied engineering.

Mr. Mark D. Gregg-Macdonald

Mr. Gregg-Macdonald was appointed Acting Group Executive, Commercial and Freight Corridors in2009, having joined Transnet in 2001 as the Chief Financial Officer for Transnet Port Terminals.Mr. Gregg-Macdonald graduated from the University of South Africa with a ‘‘B Compt’’ (Honors)degree and qualified as a Chartered Accountant (SA) in 1984 and has held executive positions inthe manufacturing, construction and cellular communications industries.

The business address for each member of senior management is Carlton Centre, 150Commissioner Street, Johannesburg 2001, Republic of South Africa.

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Compensation

The following table sets out the remuneration for the Group’s senior management for FinancialYear 2009.

Name Salary

Post-retirementbenefit fund

contributionsOther

ContributionsOther

payments Total

(in thousands of Rand)

Mr. Christopher Wells(1)... 3,621 385 — 8 4,014Mr. Vuyo Kahla................ 2,915 229 40 4 3,188Mr. Pradeep Maharaj....... 2,973 231 — 2 3,206Mr. Khomotso Phihlela .... 2,654 206 — 3 2,863Mr. Charl A. Moller .......... 2,152 207 102 8 2,469Mr. Tau Morwe ................ 2,811 223 56 2 3,092Mr. Siyabonga I. Gama ... 3,443 272 62 29 3,806Mr. Richard Vallihu .......... 2,709 252 42 21 3,024Mr. Karl-Bart X.T.

Socikwa ....................... 2,575 274 — 3 2,852Ms. Maria Ramos(2) ......... 4,882 441 — 5 5,328Mr. Anoj Singh(1)(3) .......... 1,534 145 42 13 1,734Mrs. Moira Moses ............ 2,991 152 15 10 3,168Ms. Virginia Dunjwa......... 2,196 201 — 7 2,404Mr. LL van Niekerk .......... 3,935 356 — 87 4,378

Total ................................ 41,391 3,574 359 202 45,526

(1) Group Executives who are members of the Board of Directors

(2) Resigned during Financial Year 2009

(3) Appointed during Financial Year 2009

In addition to the above amounts, Group executives are eligible for performance-based bonuses atthe discretion of the Board of Directors. The following table sets out the bonuses of the Groupexecutives for Financial Year 2009, which will be paid during Financial Year 2010.

Name 2009

(in thousandsof Rand)

Mr. Christopher Wells(1).................................................................................................. 2,825Mr. Vuyo Kahla ............................................................................................................... 2,151Mr. Pradeep Maharaj ...................................................................................................... 1,971Mr. Khomotso Phihlela ................................................................................................... 1,779Mr. Charl Moller .............................................................................................................. 1,551Mr. Tau Morwe ............................................................................................................... 1,438Mr. Siyabonga I. Gama .................................................................................................. 2,380Mr. Richard Vallihu ......................................................................................................... 2,119Mr. Karl-Bart X.T. Socikwa ............................................................................................. 1,924Ms. Maria Ramos(2) ........................................................................................................ —Mr Anoj Singh(1)(3) .......................................................................................................... 1,188Ms. Moira Moses ............................................................................................................ 2,180Ms. Virginia Dunjwa ........................................................................................................ 1,619Mr. LL van Niekerk ......................................................................................................... 2,796

Total ............................................................................................................................... 25,921

(1) Group Executives who are members of the Board of Directors

(2) Resigned during Financial Year 2009

(3) Appointed during Financial Year 2009

The compensation for the non-executive members of the Board of Directors is approved byTransnet’s shareholder representative, the Minister of Public Enterprises, after a recommendation is

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made by the Remuneration committee and approved by the Board of Directors. The following tablesets out the total compensation for the non-executive directors for Financial Year 2009.

Name of Board members FeesOther

paymentTotal2009

(in thousands of Rand)

Mr. Frederick Phaswana (Chairman) ....................................... 1,049 — 1,049Ms. Nunu Ntshingila ................................................................. 394 — 394Mr. Peter Joubert ..................................................................... 638 — 638Ms. Nolwazi Gcaba .................................................................. 569 — 569Dr. Norman Haste OBE............................................................ 450 — 450Ms. Christine Ramon................................................................ 379 — 379Mr. Bulelani Ngcuka ................................................................. 377 — 377Ms. Nomgando Matyumza ....................................................... 484 — 484Professor Geoffrey Everingham ............................................... 600 — 600Mr Peter Moyo(2) ...................................................................... 263 — 263Mr. Stavros Nicolaou(1)............................................................. 125 — 125MJ Hankinson(2) ....................................................................... 263 — 263

Total......................................................................................... 5,591 — 5,591

(1) Resigned during the current financial year

(2) Appointed during the year

None of the members of the Board of Directors or the senior management hold shares of Transnetor have share-based incentive plans. Employment contracts with directors and members of seniormanagement do not provide for special benefits upon termination and they did not provide for anysuch benefits in Financial Years 2007, 2008 and 2009.

Corporate Governance

Transnet subscribes to the principles of good corporate governance outlined in the King Report onCorporate Governance for the Republic of South Africa from 2002 (King II). Consistent with thatreport, the Board has established four committees: Group Audit, Group Risk, Remuneration andCorporate Governance and Nominations. The members of the committees are non-executivedirectors and the committees are chaired by independent non-executive directors.

Transnet is in the process of implementing corporate governance practices that are in line with theambit of King III, which was released in September of 2009.

Group Audit Committee

The audit committee meets five times during the year and is currently chaired by Ms. Ramon, withMr. Moyo, Mr. Joubert and Ms. Matyumza making up its membership. In line with the CorporateLaws Amendment Act, 2006, the Group Audit Committee assess financial risk reviews andapproves the Group’s audit plan (both internal and external) with its auditors after considering theproposed audit’s scope and approach, its effectiveness and the audit fees.

The Group Audit Committee is also responsible for, among other matters: (i) receiving andreviewing reports on adequacy of capital, impairment of receivables and other assets and thedetermination of provisions; (ii) reviewing all accounting policies adopted by the Group andproposed changes to those policies; (iii) recommending changes to the Group’s accounting policiesas may be considered appropriate under IFRS; (iv) reviewing reports on any forensic investigationand ensuring implementation of appropriate action; (v) evaluating the independence andeffectiveness of the internal audit function annually; and (vi) monitoring ethical conduct of theGroup.

Group Risk Committee

The Group Risk Committee meets throughout the year at the various operating sites of the Groupin order to review the major risks facing operations at each site as well as the progress achievedin improving risk management throughout the Group. The committee is currently chaired byMr. Joubert and its membership is made up of Mr. Hankinson, Ms. Matyumza, Ms. Ramon and

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Professor Everingham. The committee is responsible for reporting on the quality and reliability ofthe Group’s risk management procedures and formally reviewing the Group’s risk managementpolicies annually.

Remuneration Committee

The Remuneration Committee meets three times each year and is currently chaired by Dr. Haste.Its membership is made up of Ms. Gcaba, Mr. Joubert and Ms. Ntshingila. The committeeconsiders and approves policy frameworks and practice standards in respect of remuneration in theGroup. In particular the committee is responsible for: (i) approving compulsory employee benefitsapplicable to all levels and categories of the Group; (ii) reviewing the design and management ofsalary structures, policies and incentive schemes; and (iii) recommending the level of non-executivedirectors’ fees to the Board of Directors.

Corporate Governance and Nominations Committee

The Corporate Governance and Nominations Committee establishes the criteria for the nominationof directors to be recommended to Transnet’s shareholder representative for appointment. Thecommittee is currently chaired by Professor Everingham and consists of Ms. Gcaba, Mr. Hankinsonand Ms. Matyumza. In addition to establishing the criteria for the nomination of directors, thecommittee is responsible for ensuring that an annual assessment of the performance of the Boardof Directors and a periodic review of the effectiveness of the Board’s committees occurs.

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OVERVIEW OF SOUTH AFRICA AND THE SOUTH AFRICAN ECONOMY

The below description is extracted from an exhibit to the Republic of South Africa’s annual reporton Form 18-K (the ‘‘Form 18-K’’) for the Financial Year ended 31 March 2009 filed with the U.S.Securities and Exchange Commission on 7 December 2008 with respect to the Financial Yearended 31 March 2009, a prospectus supplement relating to a debt offering by the Republic ofSouth Africa filed with the U.S. Securities and Exchange Commission pursuant to rule 424(b)(3) on27 August 2009 and the June 2009 Quarterly Bulletin of the South African Reserve Bank.

References in this section to Financial Years are to the Republic of South Africa’s Financial Yearbeginning 1 April and ending 31 March. For example, 2009 refers to the Financial Year beginning1 April 2008 and ending 31 March 2009. Unless otherwise stated herein, references in thisdescription to the 2009-2010 Budget are to the 2009-2010 National Budget as released in February2009 and not as amended by the Medium Term Budget Policy Statement (‘‘MTBPS’’) 2009released on October 27, 2009. References to the 2009-2010 Consolidated Budget, which includesthe 2009-2010 National Budget as part thereof, shall be construed accordingly. The Issuerassumes responsibility for the accurate extraction of information, but neither the Issuer, the Dealersnor the Arrangers have verified the accuracy thereof or updated the information.

Introduction

The Republic of South Africa has been an established constitutional democracy since 1994, whenit held its first fully democratic national elections. The Republic of South Africa has the mostdeveloped economy in Sub-Saharan Africa, and accounts for one-third of the aggregate GDP ofSub-Saharan Africa. The South African economy is diverse and supported by a well developedlegal system and a sophisticated financial system. The major strengths of the South Africaneconomy are its services and manufacturing sectors, its strong physical and economicinfrastructure and its abundant natural resources, including gold, platinum, metals and coal.

The Republic of South Africa is situated on the southern tip of the African continent, with theAtlantic Ocean to the west and the Indian Ocean to the east. The north of the country sharescommon borders with Namibia, Botswana and Zimbabwe and, to the northeast, the country sharesa border with Mozambique. The Republic of South Africa also shares common borders with thekingdoms of Lesotho and Swaziland. The total surface area of the Republic of South Africa isapproximately 1,219,090 square kilometres, with over 3,000 kilometres of coastline.

According to the mid-year population estimates of 2009, the Republic of South Africa’s populationis estimated by Statistics South Africa to be approximately 49.3 million people, of which 25.5million people, representing 52 per cent. of the population, are female. Approximately 79.3 percent. were Black, 9.0 per cent. were Coloured, 2.6 per cent. were Indian/Asian and 9.1 per cent.were White.

The Republic of South Africa’s most recent phase of economic growth, which was its longestexpansionary period on record, began in September 1999 and came to an end in the fourthquarter of 2008, when the economy experienced a seasonally adjusted and annualized contractionin real GDP for the quarter. Interruptions in electricity supply in 2008, together with a generalcooling off of consumption by households, partly related to high debt levels, tighter interest ratepolicies and reduced consumer confidence, contributed to a loss of economic momentum, whichwas exacerbated by the global downturn. As a result, the Republic of South Africa experiencedfurther quarterly annualized contractions in real GDP and its first recession in 17 years, with realGDP contracting by an annualized 4.5 per cent. in the first half of calendar year 2009.

According to Statistics South Africa, the Republic of South Africa’s real GDP contracted at anannualised rate of 3.0 per cent. in the second quarter of 2009. The 2009 MTBPS South Africanreal GDP growth projections estimate a contraction of 1.9 per cent. in 2009, 1.5 per cent. growthin 2010, and 3.2 per cent. growth in 2012. This period of economic contraction is likely to becharacterized by rising unemployment, declining business profitability and the closure of somecompanies.

As in many other economies, the Government has taken steps to mitigate the impact of the globalcrisis on the economy through more expansionary fiscal and monetary policies and measures tosupport ailing industries. Healthy public finances and strong partnerships with business and laborhave facilitated the Government’s actions to reduce the impact of the crisis. Short-term initiativesincluded R 6.1 billion set aside to assist distressed companies in combating the effect of theeconomic turmoil, and an additional R 2 billion being allocated to support rural development. The

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principal aim of these interventions is to assist labor intensive industries (including agriculture,clothing, manufacturing and services industries) in an attempt to preserve jobs.

The Government had, prior to the global crisis, embarked on an extensive infrastructuredevelopment programme, which has mitigated the impact of the global crisis on the Republic ofSouth Africa’s economy although it could not fully offset the dramatic decline in external demand.In a continuation and expansion of its infrastructure development programme, infrastructureinvestments totaling R 872 billion between Financial Year 2010 and Financial Year 2012 areplanned to stimulate growth and development and reduce bottlenecks in the economy. Theinvestment will mainly be used to finance public transportation, roads and rail networks, provincialinfrastructure projects as well as municipal infrastructure and bulk water systems. Gross fixedcapital formation by the public sector increased from 5.9 per cent. of GDP in the second quarter ofcalendar year 2007 to 9.4 per cent. in the same period of calendar year 2009. In addition, theGovernment plans to shift resources to higher priorities, including job creation, education, health,rural development and fighting crime and corruption.

The contraction in GDP negatively impacted total employment, which declined by 5.3 per cent. inthe third quarter of calendar year 2009 compared with the previous year. Job creation is expectedto lag the return to economic growth. A declining inflation rate, coupled with deteriorating domesticeconomic conditions, prompted the Monetary Policy Committee of the SARB to lower interest ratesby 500 basis points between December 2008 and August 2009. In September 2009, inflation was6.1 per cent., remaining outside of the SARB’s target range of 3-6 per cent. However, in October2009, the CPI, for the first time in 31 months fell within the SARB’s inflation target range at 5.9 percent.

The Republic of South Africa’s response to the global downturn takes account of several factorsincluding (i) slowing export demand is leading to a contraction of production and employment incertain sectors, (ii) the extent of the drop in global demand is such that it cannot easily be off-setin a relatively small economy such as the Republic of South Africa’s, (iii) a substantialinfrastructure spending increase is already built into the Government’s expenditure plans and (iv) itis costly to raise financing in the present circumstances as global capital markets strongly favorreserve currencies such as the U.S. dollar and the euro. However, steps taken since 1996 toreduce public debt, and hence debt interest costs, have provided the required flexibility to managethe effects of the present downturn.

In February 2009, the Government, mindful of the deteriorating economic environment, and theneed to bolster confidence, improve infrastructure and combat the negative impact of theslowdown, announced an expansionary budget (‘‘2009-2010 National Budget’’), which provided fora national government deficit of 3.8 per cent of GDP in Financial Year 2010. Concurrently, theborrowing requirement of the non-financial public sector was projected to rise to 7.5 per cent of theGDP, almost double its value in Financial Year 2009. While recently expansionary policies havebeen embraced by fiscal authorities in most parts of the world, the Republic of South Africa was ina favourable position because it did not first need to design and gear up for new expenditureprogrammes, having already embarked on a much needed infrastructure drive that was gainingmomentum.

The improvement in the trade deficit and in the negative balance on the services account(principally as a result of lower dividend payments to non-resident investors in South African equitysecurities) resulted in a narrowing of the deficit on the current account of the balance of paymentsfrom 7.8 per cent. of GDP for the third quarter to 5.8 per cent. of GDP for the fourth quarter.Notwithstanding this improvement, the current account deficit for 2008 as a whole edged slightlyhigher to 7.4 per cent. compared with 7.3 per cent. recorded in 2007. The deficit on the currentaccount of the balance of payments deteriorated from 5.8 per cent. of GDP in the fourth quarter of2008 to 7.0 per cent. in the first quarter of 2009. The deficit on the current account continued tobe financed through savings from abroad amid less favorable conditions in world financial markets.

Tax reforms designed to decrease income tax rates while broadening the tax base have led tosignificant tax revenue growth in recent years, with general Government tax revenue increasingevery year from Financial Year 1995 to Financial Year 2007. However, since peaking in FinancialYear 2008, tax revenue has fallen, with the greatest declines in value added tax receipts, companytaxes and trade taxes. The main budget revenue outcome of R 608.3 billion for Financial Year2009 was R 17 billion lower than the original budget estimate of R 625.4 billion, and R 2.8 billionlower than the revised estimate of R 611.1 billion published in the 2009-2010 Budget.

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However, tax revenue is expected to reach 26.2 per cent. of GDP by Financial Year 2013, drivenby a recovery in household consumption and corporate profits, and supported by measures tobroaden the tax base and improve tax compliance.

Prior to the economic downturn, strong revenue growth resulted in a rising tax-to-GDP ratio. Theslowdown in economic activity has meant a significant reversal of cyclical revenue income and awidening of the budget deficit for Financial Year 2010. Over the next three years, the deficit isexpected to recover along with the recovery in revenue and the economy. The Governmentcontinues to strike a balance between the sustainability of financing government priorities and theimpact of the tax burden and changes in debt stock on economic activity. The budget deficit isexpected to increase from 1.0 per cent. of GDP in Financial Year 2009 to 7.6 per cent. of GDP inFinancial Year 2010. The deficit is projected to fall gradually after Financial Year 2010, resulting inan average budget deficit of 5.5 per cent. of GDP across Financial Years 2010, 2011 and 2012.The budget deficits is expected to be financed primarily through increased domestic andinternational borrowing.

Against this background, the Republic of South Africa continues to address a legacy of greatdivisions within the population, largely along racial lines, which have taken a heavy toll on humandevelopment and the economy. These divisions are evidenced by the chronically high formal sectorunemployment rate (which the official estimate puts at 23.6 per cent. as of June 2009) and thewidely divergent nature of the economy, in which vast sections of the populace still suffersignificant inadequacies in areas such as housing, sanitation, healthcare and education, while aminority enjoys the benefits associated with a highly developed society. The Government hasexpressed its firm intent to continue to address South Africa’s social and developmental challengeswithin a consistent, growth-oriented fiscal and budgetary framework.

The economic challenges facing South Africa are to support the economy in a sustainable fashionthrough the economic downturn while continuing to meet the Government’s commitments andspending priorities, which include broadening participation, increasing service delivery, minimizingthe effects of the global recession, extending opportunities to all, strengthening industrialdevelopment and trade performance and accelerating the pace of job creation and employment.These challenges are planned to be met, in part, through sound tax policy and the stabilization ofpublic spending within a fiscal framework that takes international and domestic risks into account.

Government and Political Parties

Under the Constitution, the executive authority of the Government is vested in the President, whoserves as both Head of State and Head of Government. The President must be elected by amajority vote of the members of the National Assembly following which the President must resignhis or her seat in the National Assembly. Thabo Mbeki of the African National Congress (‘‘ANC’’)succeeded Nelson Mandela as President after the June 1999 elections and served as Presidentfollowing the 2004 elections until September 2008. On 20 September 2008, after the ANCannounced its decision to recall President Thabo Mbeki from office, President Mbeki resigned andCabinet member Kgalema Motlanthe was sworn in as president on 25 September 2008. On 9 May2009, following the ANC’s victory in the April 2009 national elections, Jacob Zuma was inauguratedas the fourth democratically elected President of the Republic of South Africa, with KgalemaMotlanthe as his deputy. Although the newly-elected administration has repeatedly indicated thatthere will be no shift in economic policy, the impact of the change in administration on Transnet’sbusiness is uncertain.

Broad Based Black Economic Empowerment

Broad based black economic empowerment (‘‘BBBEE’’) is a core tenet of the Government’sinitiative to address the economic exclusion of previously disadvantaged South Africans byencouraging the redistribution of wealth and opportunities to such persons. As part of this initiative,the Government enacted the Broad Based Black Economic Empowerment Act of 2003 (‘‘BBBEEAct’’), which became effective in April 2004. For purposes of the BBBEE Act, ‘‘black people’’ is ageneric term which means Africans, coloureds and Indians. On June 18, 2008, the High Court ofSouth Africa ordered that South African Chinese be included within the ambit of the BBBEE Act.The BBBEE Act aims to facilitate BBBEE by promoting economic transformation to allowmeaningful participation by black people in the economy; changing the racial composition ofownership and management structures in enterprises; promoting investment programmes that leadto BBBEE; enabling access to economic activities, infrastructure and skills for black women and

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rural and local communities; increasing the extent in which workers, communities, cooperatives ownand manage enterprises; and promoting access to finance for black economic empowerment.

The Department of Trade and Industry has, as empowered by the BBBEE Act, issued Codes ofGood Practice (Codes) on Black Economic Empowerment (BEE). The Codes, which werepromulgated on February 9, 2007, must, as far as is reasonably possible, be applied by everyorgan of the Government and local government and every public entity in issuing licenses,implementing procurement policies, determining qualification criteria for the sale of state-ownedenterprises and developing criteria for entering into public private partnerships. The Codes coverconcepts such as the measurement of ownership and management control, preferentialprocurement, employment equity, skills development, enterprise development, residual (industryspecific and corporate social investment initiatives), and also qualifying small enterprise sections.Other issues covered include fronting practices, specified verification issues relating to the complexstructures, multinationals and state-owned/public entities. These Codes, which are subject to reviewby the Minister of Finance in 2017, are intended to encourage both public and private entities,through the issuing of licenses, concessions, sale of assets and preferential procurement, toimplement appropriate BEE initiatives.

The BBBEE Act places a legal obligation on state agencies to contribute to BBBEE, includingwhen developing and implementing their preferential procurement policies. The existing PreferentialProcurement Policy Framework Act No. 5 of 2000 (‘‘PPPFA’’) has had to be amended in order toalign it with the BBBEE Act and the Codes. The draft amended PPPFA was gazetted for publiccomment on August 20, 2009. The draft PPPFA provides that all spheres of government musthave a mechanism in place that would bring about categories of preference in contract allocationwhen procuring goods and services to advance previously disadvantaged individuals.

Land Reform

Land reform in South Africa is a complex issue, due both to the apartheid era’s legacy ofdispossessing black South Africans of their land and to current human development challenges.The Government seeks to, within the framework of the judicial process and the Constitution’sprotection of private property rights, facilitate the equitable transfer of land to South Africans whowere previously dispossessed of their land as a result of the land dispossession policies of theprevious regime in South Africa.

Mining Industry Reform

Mining in the Republic of South Africa has historically been undertaken largely by the privatesector. The most important mining houses in the Republic of South Africa include Anglo Americanplc, De Beers Corporation, Anglovaal Mining Limited, BHP Billiton SA, Gold Fields Limited, ImpalaPlatinum Holdings Limited, Xstrata plc and Rand Mines. These corporations, together with theiraffiliates, are responsible for the majority of the gold, diamond, uranium, zinc, lead, platinum, coaland silver production in the Republic of South Africa.

As of June 2009, over 494,000 people were directly employed by the mining sector, of which over169,000 were employed in the gold mining industry. As of December 2007, there were 1,515registered mines and quarries in the Republic of South Africa.

The Government enacted the Mineral and Petroleum Resources Development Act (‘‘MPRDA’’) in2002. The MPRDA recognizes the state’s sovereignty and custodianship over the country’s mineralresources. The MPRDA also provides for equitable access to mineral resources, expandsopportunities for historically disadvantaged individuals, and promotes economic growth, employmentand socio-economic welfare, and security of tenure. The function of processing and finalizingapplications and monitoring the evaluations of rights under the MPRDA is entrusted to the Ministerof Mineral Resources. In granting rights to historically disadvantaged individuals, the Minister’sobjective for Financial Year 2009 was to grant 27 such rights. The actual number of rights grantedwas 152. In the case of rights granted to women-led entities, the Minister granted 34 rights, farexceeding its original target of 18. By the end of March 2009, the Department of MineralResources had received 20,163 applications, of which 16,190 were accepted, 3,653 were rejectedand 5,805 were issued. The success of the MPRDA is demonstrated by the fact that by mid-2008,employment figures in the industry reached the half million mark for the first time in many yearsand, whereas only one junior mining company existed at the time the MPRDA was passed, bymid-2008 there were 21 junior mining companies.

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The Minister of Mineral Resources (formerly the Minister of Minerals and Energy) andrepresentatives of certain mining companies and the National Union of Mineworkers developed theBroad Based Socio-Economic Empowerment Charter for the South African Mining Industry inOctober 2002 (the ‘‘Mining Charter’’), as required in terms of the MPRDA.

The Mining Charter required that by August 2009, 40 per cent. of management should consist ofhistorically disadvantaged individuals, and that, within the same timeframe, women should comprise10 per cent. of the overall labor force in the mining industry.

The Mining Charter further mandates that 26 per cent. of industry assets be transferred tohistorically disadvantaged individuals by 2014. To ensure that substantive progress is made, theindustry aimed to achieve 15 per cent. of this target by August 2009. As a result, several largeBBBEE mining deals were concluded by various mining companies in the gold, platinum and coalsectors.

The Mining Charter is presently under review, as is required by its terms. The process is expectedto be concluded by the end of Financial Year 2010.

The Department of Mineral Resources (formerly the Department of Minerals and Energy) haspassed the MPRDA Amendment Act, 49 of 2008 on 21 April 2009 which will come into effect on adate still to be determined by the President by proclamation in the Government gazette, includingthe extent to which the aims and targets of the MPRDA have been achieved thus far. The MPRDAAmendment Act brings about improvements to the MPRDA framework aimed at policy certainty aswell as promoting investments in the mining sector. The MPRDA Amendment Act also deals withthe challenges of implementing the MPRDA, and has, as its main objective, implementing technicalimprovements to the MPRDA to improve efficiency in the management of the country’s mineralresources. The MPRDA Amendment Act also seeks to improve the handling of residual stockpilesand residue deposits. It also streamlines the process of getting ministerial approval forconcessions, transfers and other grants aimed at promoting and protecting new entrants into themining industry. In addition, the Government will evaluate the mining industry’s performance inachieving the various targets set out in the Mining Charter.

On 29 April 2009, Codes of Good Practice for the South African Minerals Industry together withHousing and Living Standards for the Minerals Industry were gazetted.

Crime Prevention

Reduced levels of criminal violence are expected to continue to be important determinants ofprivate sector confidence, foreign direct investment and sustainable economic growth in theRepublic of South Africa. The fight against crime has been identified as one of the five keypriorities of the Government.

Crime prevention and internal security in the Republic of South Africa are primarily theresponsibility of the South African Police Service.

Reducing the levels of serious and violent crime remains a top priority of the Government. Thebudget allocation was R 31 billion in Financial Year 2006, R 34.6 billion in Financial Year 2007, R38.7 billion in Financial Year 2008, and R44.4 billion in Financial Year 2009. The Financial Year2010 budget allocation is R 49.4 billion and is expected to reach R 59.1 billion by Financial Year2012.

To improve the capacity of the South African Police Service to perform its functions at ports ofentry and exit, sector policing at station level and the 2010 FIFA World Cup, security personnelnumbers have been increasing and are expected to reach 192,000 by March 2010, andapproximately 201,000 by the end of March 2011. An additional 22,447 police personnel areplanned to be recruited by Financial Year 2013, primarily to strengthen the detective services andcrime intelligence. This would increase the number of police personnel from 185,313 at present to207,760 in Financial Year 2013.

The fight against organised crime previously fell within the mandate of the Directorate of SpecialOperations (‘‘DSO’’), also known as the Scorpions. In 2001, the DSO was established as a divisionof the National Prosecuting Authority in order to act as a multidisciplinary agency in theinvestigation and prosecution of organized crime and corruption. Their mandate was focused on thefour strategic areas of organized crime, organized corruption, serious and complex financial crime,racketeering and money laundering.

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International Relations

After becoming a republic in 1961, the Republic of South Africa became increasingly politicallyisolated from other nations and subject to economic, cultural and political sanctions by theinternational community because of the apartheid system. With the transition to democracy, theRepublic of South Africa has re-established its links with the outside world.

The Republic of South Africa was a founding member of the United Nations (‘‘UN’’) in 1945. In1994, it resumed its seat in the UN General Assembly, from which it had been prevented fromparticipating since 1974. The Republic of South Africa was elected as a non-permanent member ofthe UN Security Council for a two-year period, which ended on 31 December 2008.

The Republic of South Africa is also a founding member of the World Trade Organization, theInternational Monetary Fund and the World Bank, and joined the World Bank’s private investmentarm, the International Finance Corporation, in 1957.

The Republic of South Africa is a member, and the first chair, of the New Partnership for Africa’sDevelopment, a policy framework for Africa’s development approved by several African leaders in2001. The Republic of South Africa promotes the interests of developing countries with regard topoverty reduction, debt relief and the democratisation of international relations through its work atthe G-20, participation in the IMF and discussions with the Group of Eight Industrialised Countries(G-8) at their summits.

HIV and AIDS

The socio-economic impact of the HIV and AIDS epidemic on the Republic of South Africa issignificant and the Government has made the curtailment and treatment of this disease a highpriority. This is part of the multi-pronged strategy to improve public health services which alsoincludes hospital revitalization, increasing the numbers of public health workers and levels ofremuneration of such workers, the introduction of new-generation child vaccines as well asimproved infectious disease and tuberculosis control Programmes.

The strategic focus of the Department of Health is to strengthen HIV prevention and AIDS-relateddisease management and control, which remains one of the priorities of the National Government.A multi-sectoral strategic approach is adopted in dealing with the spread of HIV and mitigating theimpact of AIDS-related morbidity and mortality. TIhis approach is intended to ensure that allrelevant stakeholders play an active role in combating HIV and AIDS.

Accordingly, during calendar 2007, the National Strategic Plan (‘‘NSP’’) was launched. The NSPcovers the period of 2007 to 2011. The plan consists of 18 high level goals and hundreds of sub-objectives. The broad groups of intervention are:

* prevention;

* treatment, care and support;

* research, monitoring and surveillance; and

* human rights and access to justice.

The NSP spells out clear, quantified targets and places a high priority on monitoring andevaluation. The primary goals are to reduce the rate of new HIV infections by 50 per cent. by 2011and to mitigate the impact of AIDS on individuals, families and communities. It provides a packageof treatment, care and support services, which include counseling and testing services, healthylifestyle intervention and nutritional support in order to meets these targets.

HIV rates are declining due to prevention and an increase in treatment, which is primarily attributedto a recent increase in the number of facilities providing antiretroviral therapy. Statistics SouthAfrica has estimated that by mid-year in 2009, 5.2 million or 10.6 per cent. of the population wasliving with HIV in the Republic of South Africa. According to the National HIV and SyphilisAntenatal Sero-Prevalence Survey (2008), the Department of Health estimates that there were anestimated 5.3 million HIV positive people in the Republic of South Africa.

By 2009, 96 per cent. of public health facilities offered voluntary counseling and testing serviceswhich is a marked improvement from the 64 per cent. of facilities offering these services in 2005.

The NSP states that the epidemics of tuberculosis and HIV are linked, with 50-80 per cent. oftuberculosis patients being HIV positive in Southern Africa. The high overall prevalence of HIV inthe Republic of South Africa has thus contributed to an increasing incidence of active tuberculosis,including multi drug resistant tuberculosis and extreme multi-drug resistant tuberculosis.

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South African Economy

The South African economy accounts for a third of sub-Saharan Africa’s GDP.

The South African economy varies widely, ranging from ‘‘first-world’’ levels of development to aninformal sector typical of developing countries, and to urban shantytowns and subsistenceagriculture. Inequality in the economy is a primary legacy of the apartheid era, in whichGovernment expenditures were channelled to whites in preference to other racial groups. Forexample, as of June 30, 2009, unemployment among the economically active white population was4.6 per cent., whereas the unemployment rate among the economically active blacks was 27.9 percent. In the period from 1995-2008, there was a 52.8 per cent. rise in employment of blacksbetween the ages of 15 to 65 years, being the largest percentage increase of any racial group.There is a small but rapidly growing black middle class. Research indicates that the number ofblack middle class households has risen by 30 per cent. with their numbers increasing from 2million to 2.6 million. Their collective spending power has increased from R 130 billion to R 180billion. Nevertheless, the Government continues to seek measures to redress imbalances in theeconomy through various initiatives, including its policy of BBBEE.

GDP

After 40 quarters of uninterrupted economic growth, the Republic of South Africa’s real GDPcontracted at a seasonally adjusted and annualized rate of 1.8 per cent. in the fourth quarter of2008. In the first half of 2009, real GDP contracted further at an annualized rate of 4.5 per cent.This could be attributed to the sharp and synchronized decline in global economic activity duringthe second half of calendar year 2008, which continued into the first half of calendar year 2009.The 2009 MTBPS South African real GDP growth projections estimate a contraction of 1.9 percent. in 2009, 1.5 per cent. growth in 2010, and 3.2 per cent. growth in 2012.

Prior to the current downturn, real GDP had increased at an annualized rate of about 4 per cent.from the final quarter of 1999 to the final quarter of 2007, the longest upward trend identified sincethe dating of business cycles began in 1945. This was notably higher than the growth rate of 3.1per cent. registered in the upward phases from 1986 to 1989 and 3.7 per cent. registered from1993 to 1996, but less than the growth rate of 5.3 per cent. attained in the upward phases from1978 to 1981 and 6.4 per cent. from 1983 to 1984. Real growth ran out of steam in the first threequarters of 2008, falling below trend and signaling the onset of a downswing, which intensified asgrowth subsequently turned negative. On balance, the level of real GDP in the second quarter of2009 shrank by 3 per cent. compared with its recent peak in the third quarter of 2008, reflectingthe negative impact of the deep recession in the world economy.

A sectoral analysis shows that during the prolonged 1999 to 2007 upward trend, the growth in realGDP was widely spread among the main sectors, with the exception of the mining industry whereproduction, on balance, rose very little. By contrast, real value added by the secondary and tertiarysectors increased at average annualized rates of 4.5 per cent. and 4.7 per cent., respectively. Theonset of the current downward phase of the business cycle mainly manifested itself in declines inreal value added by the manufacturing and commerce sectors, and in the further deterioration inmining production in the course of 2008. By the early months of 2009, the adverse impact of therecession was clearly evident as the declines in real value added became broad-based.Consequently, with the exception of construction, and community, social and personal services, allother sectors of the economy contracted in the first half of 2009 when compared with theircounterparts in the second half of 2008.

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The following table sets forth nominal and real GDP and expenditures for the periods indicated.

GDP Summary

As of and for the year endedDecember 31,

2005 2006 2007 2008

As of andfor the

six-monthperiodended

30 June2009(1)

Nominal GDP (R millions) atmarket prices ................................. 1,543,976 1,745,217 1,999,086 2,283,777 2,328,668Real GDP (R millions) at 2000prices ............................................. 1,114,758 1,174,078 1,233,930 1,271,717 1,245,732Real GDP Growth (percentages) ... 5.0 5.3 5.1 3.1 (1.8)Population (million) ........................ 47.4 48.0 48.6 49.1 49.5Per Capita GDP (nominal) ............. 32,604 36,381 41,173 46,507 47,050Per Capita GDP (real) ................... 23,540 24,475 25,414 25,897 25,170

(1) First half of 2009, seasonally adjusted and annualized.

Source: SARB and Statistics South Africa.

Principal Sectors of the Economy

The following table sets forth real gross value added (GVA) for the periods indicated.

Real Gross Value Added By Sector (at basic prices)

For the year ended December 31,

2006 2007 2008 2009(1)Contribution

in 2009

(R millions)

Manufacturing...................... 191,234 199,785 202,116 177,957 15.6Finance, insurance, realestate and businessservices ............................... 227,598 243,118 255,378 256,044 22.5General government ........... 148,399 153,961 160,013 164,199 14.4Wholesale and retail trade,catering andaccommodation ................... 165,804 174,479 175,436 171,299 15.1Transport, storage andcommunication .................... 116,232 122,705 127,552 128,270 11.3Mining and quarrying........... 68,591 68,570 64,145 58,472 5.1Agriculture, forestry andfishing.................................. 27,493 28,283 33,592 34,988 3.1Electricity, gas and water .... 24,926 25,683 25,376 24,748 2.2Construction (contractors) ... 35,494 41,552 47,322 51,802 4.6Other producers andservices (personal services) 63,170 65,703 68,382 70,161 6.2

Gross value added atbasic prices ....................... 1,068,941 1,123,839 1,159,312 1,137,940 100.0

Mining and Quarrying

The Republic of South Africa’s mineral wealth is found in diverse geological formations, some ofwhich are unique and very extensive by world standards. In terms of mining production, the mostimportant of these formations is the Witwatersrand Basin in Gauteng, which yields approximately93 per cent. of the Republic of South Africa’s gold output as well as much of its uranium, silver,pyrite and osmiridium. The Transvaal Supergroup, also in Gauteng Province, contains largedeposits of manganese and iron ore and the Bushveld Complex of the Gauteng, Mpumalanga and

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North West provinces holds a large percentage of the world’s reserves of a number of importantminerals, including platinum-group metals, chromium, vanadium, nickel, copper, fluorspar andandalusite.

The Republic of South Africa holds approximately 72.4 per cent. of the world’s chrome orereserves and 87.7 per cent. of the world’s platinum-group metals reserves. The Republic of SouthAfrica’s reserves of platinum, chromite and gold constitute an important global mineral source. Thedeposits of manganese ore in the Northern Cape are the largest proven reserve bases in theworld, totalling approximately 4 billion tonnes. The Republic of South Africa also has substantialreserves of other important industrial metals and minerals, including alumino-silicates, antimony,coal, fluorspar, lead, nickel, phosphates, titanium, uranium, vanadium, vermiculite, zinc andzirconium.

The Republic of South Africa’s total primary mineral sales increased by 15.4 per cent. toR 224.3 billion in calendar year 2007 compared to calendar year 2006 and increased again to atotal of R 300.3 billion in calendar year 2008 compared to calendar year 2007.

As a result of its reserve base, the Republic of South Africa is a large-scale mineral producer andto a large degree self-sufficient with respect to the supply of minerals. However, some mineralsand mineral products need to be imported. The country is the leading world supplier, andcontributes in excess of 30 per cent. of the world’s total, of chrome ore, manganese, ferrochrome,platinum-group metals, titanium, vanadium, vermiculite and zirconium.

The Republic of South Africa is the world’s sixth largest producer of natural diamonds, measured incarats, after Russia, the Democratic Republic of Congo, Botswana, Australia and Canada. A highpercentage of the country’s production is of gem and near-gem quality.

During calendar year 2008, the mining sector directly employed 518,519 workers, an increase of23,369 from the 495,150 employees in 2007. As of June 2009, the mining and quarrying sectordirectly employed 494,000 workers, a decrease from the number of employees employed in 2008.In calendar year 2008 approximately 53 different minerals were produced from 1,515 mines andquarries, of which 52 produced gold, 35 produced platinum-group minerals (‘‘PGMs’’), 100produced coal and 394 produced diamonds.

The Republic of South Africa’s mineral industry is export-oriented. The South African miningindustry is a leading exporter of vanadium, PGMs, gold, ferrochromium, chrome ore andmanganese ore. Other important export commodities include ferro-manganese, fluorspar, coal andtitanium minerals. Mineral export sales accounted for approximately 30.8 per cent. of total exportrevenues in calendar year 2008. The most important export destination for the Republic of SouthAfrica’s primary minerals remained Europe with 79.3 per cent., while Pacific Rim countriesexceeded all other destinations and accounted for 42.6 per cent. of the selected processedminerals.

The real value added by the mining sector declined in both calendar year 2006 and 2007, andcontracted at a seasonally adjusted annualized rate of 11.6 per cent. in the first half of calendaryear 2008, despite record high international commodity prices. The sizeable decline in real outputby the mining sector occurred predominantly in the sub-sectors for platinum, gold and diamondmining. Production volumes were directly affected by rolling electricity blackouts and rationing inearly calendar year 2008, which gave rise to a one week shutdown of mining operations in the firstquarter of the calendar year. The mining sector was exposed to rising input costs, occasionalflooding, industrial action and skills shortages, all of which were exacerbated by the demand forskilled labor arising from other capital projects, including those geared towards the 2010 FIFAWorld Cup. In addition, certain gold mines were subject to sporadic shutdowns due to safetyaudits.

The unadjusted real value added by the mining and quarrying industry for the second quarter of2009 decreased by 9.5 per cent. compared to the second quarter of 2008, while the seasonallyadjusted real value added by the mining and quarrying industry increased at an annualized rate of5.5 per cent. during the second quarter of 2009 compared to the first quarter of 2009. Theincrease in the seasonally adjusted real value added by the mining and quarrying industry wasmainly due to the increase reflected in the mining of other metal ores (including platinum) andother mining and quarrying (including diamonds).

By contrast, real value added by the coal mining industry advanced partly due to increaseddemand from Eskom’s power stations to replenish severely depleted coal stockpiles. The coal

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mining industry is also less electricity intensive compared to other sub-sectors in the miningindustry.

The gold sector has been declining steadily since calendar year 1994, mainly due to falling gradesand the challenges of aging infrastructure in deep mines, a unique phenomenon for South Africanmines. In calendar year 2008 the electricity crisis was also blamed for the output reduction. Incalendar year 2008, the Republic of South Africa’s gold production totaled 213 tons, a 16 per cent.decline when compared to the 254 tons produced in calendar year 2007. Solutions including newways to mine the country’s remaining gold are planned to be investigated. South Africa’s PGMs(which include platinum, palladium, rhodium, ruthenium and osmium) production also decreasedfrom 311 tons in calendar year 2007 to 276 in calendar year 2008, mainly due to the energy crisisin the Republic of South Africa. The diamond industry was also affected severely by the globaleconomic recession as demand for luxury goods decreased drastically. This prompted miningcompanies to reduce production severely and even close mines in late-2008 and early-2009. DeBeers, the primary producer of rough diamonds in the Republic of South Africa, cut production by60 per cent.

Monetary and Financial System

The South African financial system consists of banks and non-bank financial institutions such asinvestment funds, portfolio management companies, securities investment firms, insurancecompanies, development funding institutions and pension funds.

South African Reserve Bank (SARB)

The SARB is the central bank of the Republic of South Africa. The SARB’s independence isenshrined in the Constitution and is subject only to acts of Parliament and to regular consultationwith the Minister of Finance. The principal responsibilities of the SARB include: formulating andimplementing monetary policy; issuing banknotes and coins; acting as banker to the Government;acting as a bank to banks licensed under the Banks Act, 1990; providing facilities for the clearingand settlement of claims between banks; acting as custodian of the country’s gold and otherforeign reserves; acting as a lender of last resort; conducting open-market operations; supervisingbanks; supervising large primary co-operative banks, secondary and tertiary co-operative bankscollecting, processing and interpreting economic statistics and related information; and formulatingand implementing exchange rate policies in cooperation with the Minister of Finance and theNational Treasury.

Unlike many other central banks, shares in the SARB are held privately, with none held by theGovernment.

Monetary Policy

The main objective of the SARB’s monetary policy has been the pursuit of price stability. Thispolicy forms part of broader macroeconomic policies of the Government by creating a stablefinancial environment and improving the standard of living of all inhabitants of the country. TheSARB does not have fixed exchange rate targets and allows the Rand to float freely againstinternational currencies.

Having reached a plateau at a level of 12 per cent. from early June to early December 2008, therepurchase rate was reduced by 50 basis points on December 12, 2008, and by a further 100basis points each at four of the meetings of the Monetary Policy Committee (‘‘MPC’’) that tookplace in the first half of 2009. The improved medium-term outlook for inflation and the wideningoutput gap were a key motivation underlying the decisions taken during the MPC meetings. Afterleaving it unchanged in its July meeting, the MPC lowered the repurchase rate by 50 basis pointsto 7.0 per cent. in August 2009 and kept at that level in the ensuing three MPC meetings toNovember 2009. Although cost-push pressures in the economy continued to pose risks to theinflation outlook, the MPC decided to keep the monetary policy stance unchanged because therisks to the inflation outlook appeared to be fairly evenly balanced. The frequency of the meetingsfor most of 2009 changed from bi-monthly to monthly (excluding July 2009) in order to monitor andrespond appropriately to the rapidly changing economic environment. However, in the MPCmeeting held on November 17, 2009, the MPC, in its first meeting under the newly appointedGovernor Gill Marcus, decided to revert back to its policy of meeting every alternate month, as theglobal economic environment appeared to have stabilized.

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During the calendar year 2009, monetary policy has been faced with new challenges. For the firsttime since the introduction of the inflation-targeting framework in 2000, monetary policy had to beimplemented in the context of a domestic recession against a backdrop of the severe synchronizeddownturn in the world economy. At the same time inflation remained well above the upper end ofthe inflation target range, and despite the downside pressures, targeted inflation was onlymoderating at a very slow rate. CPIX inflation (the year-on-year change in the headline CPIexcluding mortgage interest cost) peaked at 13.6 per cent. in August 2008 and declined to 10.3per cent. by December 2008. With the publication in March 2009 of the reweighed and rebasedinflation measure, headline CPI inflation for all urban areas was adopted as the new inflationtargeting measure, with the target range remaining at 3 per cent. to 6 per cent.

CPI measured 8.1 per cent. in January 2009, but increased to 8.6 per cent. in February 2009 anddeclined gradually thereafter. By August 2009, the year-on-year CPI inflation was 6.4 per cent.; inSeptember 2009, it was 6.1 per cent. and in October 2009, the CPI, for the first time in 31 monthsfell within the SARB’s inflation target range at 5.9 per cent.

In its role of implementing monetary policy, the SARB monitors and influences conditions in theSouth African money and credit markets and affects interest rates, growth in lending and growth ofdeposits. The SARB uses open-market operations to determine the amount of liquidity madeavailable to banks on a weekly basis in repurchase transactions. The interest rate for suchrepurchase transactions is set by the SARB’s Monetary Policy Committee (‘‘MPC’’) and has asignificant impact on all short-term interest rates in the economy. The monetary policy stance isdecided at the bi-monthly meetings of the MPC. There exists, however, a continuous process ofreview that takes new information and developments into consideration.

Foreign Trade

The Republic of South Africa’s imports and exports (including gold) accounted for roughly 63.2 percent. of GDP in calendar year 2008. The Republic of South Africa’s trade deficit narrowed from 2.0per cent. in 2007 to 1.6 per cent. in 2008.

Exports

The Republic of South Africa’s exports have traditionally consisted largely of primary products,especially mining products, with gold, diamonds, platinum group metals, coal and iron exported inlarge quantities.

The value of the Republic of South Africa’s merchandise exports, which had experienced anupward trend between calendar year 1997 and 2002, decreased by 12.5 per cent. in calendar year2003 before increasing again in the following years up to the second half of calendar year 2008.The upward trend was reversed in the fourth quarter of 2008 when the value of the republic ofSouth Africa’s merchandise exports declined by 6.3 per cent., after which it declined further by19.8 per cent. and 6.3 per cent. in the first and second quarters of 2009, respectively. Theincreases in the value of merchandise exports were boosted by increased export volumes of 8.3per cent. in calendar 2007 and 4.0 per cent. in 2008. For the first half of 2009, export volumeswere sharply down from the levels recorded in 2008. This was mostly due to the weak economicactivity experienced in the wake of the global financial crisis. Export prices, expressed in Rand,increased by 13.9 per cent. in calendar year 2007, 28.4 per cent. in calendar year 2008 and by a2 per cent. in the first quarter of 2009.

For 2007 as a whole, net proceeds from gold exports increased by 12.5 per cent., although exportvolumes declined by 5.5 per cent. This is a result of a combination of difficult gold miningconditions limiting supply, strong price growth caused by dollar weakening and the associatedincrease in the global appetite to hedge investments in secure commodities.

Imports

Firm and sustained growth in domestic expenditure and high oil volumes contributed to the physicalquantity of imports rising by a sizeable 11.1 per cent. in calendar year 2005, 20.6 per cent. incalendar year 2006 and a further 11 per cent. in calendar year 2007. Volumes increased further byalmost 4 per cent. in the first half of 2008 as a result of ongoing infrastructural investment.Volumes started to decline in the last quarter of 2008. Subdued domestic demand conditionsalongside weak business and consumer confidence levels gave rise to the third consecutivequarterly decline in the volume of merchandise imports in the second quarter of 2009. Thecontraction in the physical quantity of merchandise imports gained further momentum as various

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private-sector capital expenditure projects were postponed in view of the fall in global demand.Consistent with the slowdown in gross fixed capital formation, the imports, especially machineryand electrical equipment, and those of vehicles and transport equipment receded strongly in thesecond quarter of 2009. In addition, the imports of intermediate and consumer goods also taperedoff. Overall, the volume of imported goods shrank for the third consecutive quarter, declining by15.5 per cent. in the second quarter of 2009. Relative to gross domestic expenditure, the volumeof merchandise imports decreased from 24.4 per cent. in the first quarter of 2009 to 21.4 per cent.in the second quarter, significantly lower than the most recent peak of 28.1 per cent. recorded inthe third quarter of 2008. Over the same period, the strengthening of the exchange value of theRand more than offset the moderate increase in the international price of crude oil and otherimport commodities, leading to a decline of 7 per cent. in the Rand price of merchandise imports.The value of imported goods accordingly dropped by 21.4 per cent. from R 643 billion in the firstquarter of 2009 to R 505 billion in the second quarter.

Public Enterprises

The Government owns a number of public enterprises (otherwise known as state-owned entities).The Ministers under whose departments these enterprises fall act as the ‘‘Executive Authority’’ overthese entities, taking up the role of shareholder on behalf of government. The Ministers that act asthe Executive Authority include the Minister of Public Enterprises, the Minister of Communications,the Minister of Energy, the Minister of Transport and various other Ministers of the NationalGovernment. The relevant Executive Authority oversees the affairs of the public enterprise,including the appointment of board members, the entering into of shareholder compacts with thepublic enterprise, approving major transactions, and the monitoring of performance. The NationalTreasury is responsible for financial oversight over all the public enterprises, including the review ofmajor transactions, funding requests and applications for guarantees.

The infrastructure investment programmes of the public enterprises, in addition to deliveringinfrastructure to enhance economic growth and alleviate poverty are a key component of thegovernment stimulus package aimed at mitigating the effects of the global economic recession onthe South African economy. Public enterprises are expected to invest a total of R 652.0 billion overthe next five Financial Years in infrastructure.

Debt Record

On 1 September 1985, in response to a foreign currency liquidity crisis, the Republic of SouthAfrica prohibited repayments of certain foreign indebtedness to foreign creditors, while interestpayments were made as they became due. Final settlement of affected indebtedness was agreedin 1993. Other than this situation, the Republic of South Africa has not defaulted in the payment ofprincipal or interest on any of its internal or external indebtedness since becoming a Republic in1961.

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SHAREHOLDER

The Government of the Republic of South Africa is the sole shareholder of Transnet, owning itsentire issued share capital of 12,660,986,310 ordinary shares as at 30 September 2009. Transnetis defined as a Schedule 2 state-owned enterprise as envisaged by the Public FinanceManagement Act and consequently reports to its shareholder through the Department of PublicEnterprises.

Shareholder Compact

The Shareholder Compact between Transnet and the Government was signed in August 2009 inrespect of Financial Year 2010. The Shareholder Compact is required by Treasury Regulation 29.The Shareholder Compact confirms Transnet’s mandate to assist in lowering the cost of doingbusiness in the Republic of South Africa and enabling economic growth through providingappropriate ports, rail and pipeline infrastructure and operations in a cost effective and efficientmanner and within acceptable benchmark standards. The key performance areas include capitaland financial efficiency, operational efficiency and effectiveness, infrastructure investments as wellas developmental objectives. The targets set are measured quarterly and are reported quarterly tothe shareholder.

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REGULATION

Set out below is a summary of material information concerning the regulation of Transnet’sbusiness. This description does not purport to be a complete description of all applicable laws andregulations and should not be read as such.

Transnet is a public company whose sole shareholder is the Government. As a public entity,Transnet is governed by many laws and regulations. This section discusses certain material lawsand regulations that govern the everyday activities of Transnet.

Legislation Affecting Public Entities

Two significant laws applicable to Transnet are the Legal Succession to the South AfricanTransport Services Act, 1989 (the ‘‘LSSATSA’’) and the Public Finance Management Act. Transnetis established under the terms of the LSSATSA as a company that is owned by the Government,and its financial affairs are governed by the Public Finance Management Act. The object of thePublic Finance Management Act is to secure transparency, accountability, and sound managementof the revenue, expenditure, assets and liabilities of the institutions to which it applies.

Section 66(3)(a) of the Public Finance Management Act allows Transnet, as a Schedule 2 publicentity, to borrow money, issue a guarantee, indemnity or security, or enter into any othertransaction that binds Transnet, via its accounting authority. However, Transnet may not delegatesuch a power without the prior written approval of the Minister.

Section 56(1)(a) of the Public Finance Management Act allows Transnet to delegate, via itsaccounting authority, any of its functions such as granting its group chief executive the authority tosign certain documents on behalf of Transnet. The accounting authority for Transnet is its Board ofDirectors or the chief executive officer.

Occupational Safety and Environmental Regulation

Transnet and its operating divisions are subject to a number of safety and environmentalregulations. These include OHSA, the National Environmental Management Act, 1998 (the‘‘NEMA’’), the National Railway Safety Regulator Act, 2002 (the ‘‘National Railway Safety Act’’)and the Hazardous Substances Act, 1973 (the ‘‘Hazardous Substances Act’’). See ‘‘Risk Factors– Transnet is subject to a wide variety of laws and regulations and may incur material costs orface substantial liability if it fails to comply with existing or future laws or regulations applicable toits businesses’’.

Transnet’s operating divisions employ tens of thousands of employees. Some activities carried outby these operating divisions expose employees to various health and safety risks. As a result,Transnet is required to comply with various regulations that are aimed at protecting the health andsafety of its employees while at work against hazards to their health and safety arising out of or inconnection with their activities at work. Under the OHSA, Transnet is required to have health andsafety representatives in the workplace. The National Railway Safety Act requires railway operatorsto implement and maintain adequately resourced and documented safety measures that areconsistent with the South African Standard for Railway Safety Management.

Under the terms of the Hazardous Substances Act, Transnet is required to obtain a license to usecertain hazardous substances in its operations. A license is also required in order for Transnet tokeep or install some groups of hazardous substances in any premises of Transnet. The HazardousSubstances Act categorises hazardous substances into different groups. Under the terms of theNEMA, Transnet is required to submit environmental assessment reports for carrying on certainactivities that affect the environment. The NEMA provides for co-operative environmentalgovernance by establishing principles for decision-making on matters affecting the environment.

Employment Legislation

Transnet, as an employer, is required to comply with the Labour Relations Act, 1995 (the ‘‘LRA’’),the Basic Conditions of Employment Act, 1997 (the ‘‘BCEA’’) and the Employment Equity Act,1998 (the ‘‘EEA’’). The LRA aims to advance economic development, social justice, labour peaceand democratisation of the workplace. The LRA further aims to give effect to and regulates thefundamental rights (including the right to food, water and social security) conferred by section 27 ofthe Constitution of the Republic of South Africa.

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Transnet is expected to comply with the requirements of affirmative action in employing all levels ofemployees. Furthermore, Transnet is required to comply with the basic conditions of employmentas determined in the BCEA. As a Government owned company, Transnet is also required to fullycomply with the BBBEE Act and its codes in all its activities, and is required to promote economictransformation in its activities in order to enable meaningful participation of black people in theeconomy as required by the BBBEE Act. See ‘‘Risk Factors – Transnet’s operations and financialcondition may be adversely affected by labour disputes or changes in labour laws’’.

Transnet Pipelines

Transnet Pipelines operates under the regulatory framework of the Petroleum Pipelines Act, theGas Act and the National Energy Regulator Act, 2004 (the ‘‘National Energy Regulator Act’’).The aim of the Petroleum Pipelines Act is to establish a national regulatory framework forpetroleum pipelines; to establish a Petroleum Pipelines Regulatory Authority as the custodian andenforcer of the national regulatory framework and to provide for matters that are ancillary thereto.The Gas Act aims to promote the orderly development of a piped gas industry, establish a nationalregulatory framework; establish a National Gas Regulator as custodian and enforcer of the nationalregulatory framework and provide for matters that are ancillary thereto. The National EnergyRegulator Act endeavours to establish a single regulator to regulate the electricity, piped gas andpetroleum pipeline industries and to provide for matters that are ancillary thereto. More specifically,section 3 of the National Energy Regulator Act provides for the establishment of NERSA. Undersection 4 of the National Energy Regulator Act, NERSA is mandated, inter alia, to undertake thefunctions of the Petroleum Pipelines Regulatory Authority and the Gas Regulator, set out in section4 of the Petroleum Pipelines Act and the Gas Act, respectively. In achieving its mandate, NERSAassumes the role of custodian and enforcer of the national regulatory framework in the petroleumpipelines and piped-gas industries.

Under the Petroleum Pipelines Act, Transnet Pipelines is required to obtain licenses forconstruction and operation of petroleum pipelines, loading facilities and storage facilities, whichlicences are issued by NERSA. A license issued under the Petroleum Pipelines Act is valid for aperiod of 25 years and may be renewed.

Transnet has been granted a petroleum pipeline operating licence as well as a construction licencefor the NMPP. In November 2009, NERSA granted Transnet a licence for its gas transmissionpipeline.

National Key Points Act

Under the terms of the National Key Points Act, the Minister of Defence may at any time declareany place or area a National Key Point if, in the opinion of the Minister of Defence, such place orarea is so important that its loss, damage, disruption or immobilisation may prejudice the countryor whenever he considers it necessary or expedient for the safety of the Republic of South Africaor in the public interest. On receipt of a notice of such declaration by the Minister of Defence, theowner of the National Key Point concerned shall after consultation with the Minister of Defence, athis own expense take steps to the satisfaction of the Minister of Defence in respect of the securityof the said National Key Point. Transnet is required to comply with a Minister of Defence notice inrelation to Transnet Pipelines, as it has been declared a National Key Point. Transnet would alsobe required to comply with any additional Minister of Defence notices should any of its otherproperties be declared National Key Points.

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RELATED PARTY TRANSACTIONS

In the ordinary course of business the Group enters into transactions with companies controlled byits controlling shareholder, its directors and managers and associated parties. Services rendered torelated parties comprise principally transportation (aviation, rail and road) services. Servicespurchased from related parties comprise principally energy, telecommunications, informationtechnology and property related services. The Group believes that these transactions are enteredinto on an ‘‘arm’s length’’ basis and their terms do not substantially differ from standard marketterms. Furthermore, neither the Group nor any of its related parties is obligated to procure from orrender services to their related parties.

Public Enterprises

The following table sets forth the Group’s transactions with public enterprises, Government entitiesand associates of Transnet for Financial Years 2009, 2008 and 2007.

As at or for the year ended31 March

20092008

(Restated)2007

(Restated)

(R millions)Services renderedMajor public enterprises ........................................................... 1,020 904 1,045Other public enterprises ........................................................... 112 119 370National Government business enterprises.............................. 1,673 1,255 908Associates ................................................................................ 56 70 348

2,861 2,348 2,671

Services receivedMajor public enterprises ........................................................... 849 904 1,529Other public enterprises ........................................................... 210 174 475National Government business enterprises.............................. 890 1,519 983Associates ................................................................................ 203 261 357

2,152 2,858 3,344

Amount due from/(to)Major public enterprises ........................................................... (249) 257 309Other public enterprises ........................................................... 30 20 6National Government business enterprises(1) .......................... (6,407) (6,150) (6,782)Associates ................................................................................ 143 68 (39)

(6,483) (5,805) (6,506)

(1) Includes R 6,720 million relating to bonds issued to National Government business enterprises at 31 March 2009 (31 March2008: R 6,467million).

The Group expects that related party transactions similar to the ones disclosed above havecontinued from Financial Year 2009 until the date of this Base Prospectus. The Group expects thatthese transactions are entered into on an ‘‘arm’s length’’ basis and their terms do not substantiallydiffer from standard market terms.

Loans to Subsidiaries

As at 31 March 2009 the Group had no subordinated loans to subsidiaries compared tosubordinated loans of R 289 million as at 31 March 2008.

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South African Airways and South African Express Airways (Pty) Limited

South African Airways and South African Express Airways (Pty) Limited conduct a number oftransactions via intermediaries who act as their agents. Services rendered by these companies torelated parties are measured with reference to their frequent flyer corporate contracts. Thesecontracts qualify for rebates on reaching a specified qualifying limit, which are similar to other thirdparties who participate in this frequent flyer programme.

Employee Loans

In Financial Year 2008 the Group provided R 470,000 in secured loans bearing a variable interestrate linked to the prime interest rate to its senior executives. As at 31 March 2009, R 470,000 hadbeen repaid leaving a zero balance. None of the members of the Board of Directors or the seniormanagers has or had significant influence in any entity with which the Group had significanttransactions during Financial Year 2009. In addition, as at 31 March 2009 the Group had R 71million in outstanding employee housing and other loans compared with R 85 million as at 31March 2008. See, ‘‘Transactions with key management personnel’’ in footnote 37 of theConsolidated Financial Statements included in this Base Prospectus.

Other

Transnet also provides guarantees for certain debt of affiliates. As of 31 March 2009, Transnet hadprovided guarantees of liabilities of affiliates to third parties in the amount of R 3,005 million. Themost significant guarantee relates to a R 2.4 billion guarantee to MacQuarie Bank (amongst othersin a syndicate of lenders) pertaining to a sale and leaseback with respect to Transnet Freight Raillocomotives used in the Republic of South Africa.

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EXCHANGE CONTROLS

The information below is not intended as legal advice and it does not purport to describe all theconsiderations that may be relevant to a prospective investor in the Notes. Prospective investors inthe Notes who are non-South African residents or emigrants from the Common Monetary Area (asdefined below) are urged to seek further professional advice with regard to the purchase of Notes.

Exchange controls restrict the export of capital from the Republic of South Africa, Namibia and theKingdoms of Swaziland and Lesotho (collectively the ‘‘Common Monetary Area’’). Theseexchange controls are administered by ExCon and regulate transactions involving South Africanresidents. The purpose of exchange controls is to mitigate the decline of foreign capital reserves inthe Republic of South Africa. The Issuer expects that South African exchange controls will continueto operate for the foreseeable future. The Government has, however, committed itself to relaxingexchange controls gradually and significant relaxation has occurred in recent years. It is the statedobjective of the South African authorities to achieve equality of treatment between South Africanresidents and non-South African residents in relation to inflows and outflows of capital. This gradualapproach towards the abolition of exchange controls adopted by the Government is designed toallow the economy to adjust more smoothly to the removal of controls that have been in place fora considerable period of time.

Transnet has obtained the written blanket approval from ExCon to borrow a maximum of R 14billion in the foreign financial markets without the prior reference to ExCon. The approval in thisregard is granted conditional upon, amongst others, the Issuer furnishing ExCon with copies of allloan agreements entered into with foreign lenders within 30 days of signing such agreement.

In addition, non South African residents and/or their offshore subsidiaries may, without the priorwritten approval of ExCon, subscribe for or purchase any Note or beneficially hold or own anyNote.

ExCon may (and is currently expected to) impose certain conditions on the issue of each Trancheof Notes under the Programme, for example, with regard to maturity, issue size and listing.

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TERMS AND CONDITIONS OF THE NOTES

The following is the text of the terms and conditions that, subject to completion and amendmentand as supplemented or varied in accordance with the provisions of Part A of the relevant FinalTerms, which will be incorporated by reference into each Global Note or Global Certificate, shall beapplicable to the Notes in definitive form (if any) issued in exchange for the Global Note(s) orGlobal Certificate(s) representing each Series. Either (i) the full text of these terms and conditionstogether with the relevant provisions of Part A of the final Terms or (ii) these terms and conditionsas so completed, amended, supplemented or varied (and subject to simplification by the deletion ofnon-applicable provisions), shall be endorsed on such Bearer Notes or on the Certificates relatingto such Registered Notes. All capitalised terms that are not defined in these terms and conditionswill have the meanings given to them in Part A of the relevant Final Terms. Those definitions willbe endorsed on the definitive Notes or Certificates, as the case may be. References in these termsand conditions to ‘‘Notes’’ are to the Notes of one Series only, not to all Notes that may be issuedunder the Programme.

The Notes are issued pursuant to an Agency Agreement (as amended or supplemented as at theIssue Date, the ‘‘Agency Agreement’’) dated on or around 26 January 2010 between the Issuer,The Bank of New York Mellon, London Branch as fiscal agent, The Bank of New York Mellon(Luxembourg) S.A. as paying agent and transfer agent and The Bank of New York Mellon, NewYork Branch as registrar, paying agent and transfer agent and with the benefit of a Deed ofCovenant (as amended or supplemented as at the Issue Date, the ‘‘Deed of Covenant’’) dated onor around 26 January 2010 executed by the Issuer in relation to the Notes. The fiscal agent, thepaying agents, the registrar, the transfer agents and the calculation agent(s) for the time being (ifany) are referred to below respectively as the ‘‘Fiscal Agent’’, the ‘‘Paying Agents’’ (whichexpression shall include the Fiscal Agent), the ‘‘Registrar’’, the ‘‘Transfer Agents’’ and the‘‘Calculation Agent(s)’’, and which expressions include any successor fiscal agent, registrar,paying agent, transfer agent and calculation agent or additional agent appointed from time to timein connection with the Notes and, together, the ‘‘Agent(s)’’. References herein to the ‘‘Agents’’ areto the Registrar, the Fiscal Agent, the Paying Agents, the Transfer Agents and any references toan ‘‘Agent’’ is to any one of them.

The Noteholders (as defined below), the holders of the interest coupons (the ‘‘Coupons’’) relatingto interest bearing Notes in bearer form and, where applicable in the case of such Notes, talonsfor further Coupons (the ‘‘Talons’’) (the ‘‘Couponholders’’) and the holders of the receipts for thepayment of instalments of principal (the ‘‘Receipts’’) relating to Notes in bearer form of which theprincipal is payable in instalments are bound by, and deemed to have notice of, all of theprovisions of the Agency Agreement and the Deed of Covenant applicable to them.

In these Conditions, ‘‘Noteholder’’ means the bearer of any Bearer Note and the Receipts relatingto it or the person in whose name a Registered Note is registered (as the case may be), ‘‘holder’’(in relation to a Note, Receipt, Coupon or Talon) means the bearer of any Bearer Note, Receipt,Coupon or Talon or, as the case may be, the person in whose name a Registered Note isregistered in the register, as defined below (or, in the case of a joint holding, the first namedthereof). Capitalised terms have the meanings given to them hereon, the absence of any suchmeaning indicating that such term is not applicable to the Notes.

As used in these Conditions, ‘‘Tranche’’ means Notes which are identical in all respects (includingas to listing) and ‘‘Series’’ means a Tranche of Notes together with any further Tranche orTranches of Notes which are (i) expressed to be consolidated and form a single series and (ii)identical in all respects (including as to listing) except for their respective Issue Date, InterestCommencement Date and/or Issue Price.

Copies of the Agency Agreement and the Deed of Covenant are available for inspection at thespecified offices of each of the Paying Agents, the Registrar and the Transfer Agents, the initialspecified offices of which are set out in the Agency Agreement.

1. Form, Denomination and Title

The Notes may be issued in bearer form (‘‘Bearer Notes’’) or in registered form (‘‘RegisteredNotes’’) as specified hereon in each case in the Specified Denomination(s) shown hereon providedthat in the case of any Notes which are to be admitted to trading on a regulated market within theEuropean Economic Area or offered to the public in a Member State of the European EconomicArea in circumstances which require the publication of a Prospectus under Directive 2003/71/EC

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(the ‘‘Prospectus Directive’’), the minimum Specified Denomination shall be c50,000 (or itsequivalent in any other currency as at the date of issue of the relevant Notes). All RegisteredNotes shall have the same Specified Denomination.

This Note is a Fixed Rate Note, a Floating Rate Note, a Zero Coupon Note, an Index-LinkedInterest Note, an Index-Linked Redemption Note, an Instalment Note, a Dual Currency Note or aPartly Paid Note, a combination of any of the foregoing or any other kind of Note, depending uponthe Interest and Redemption/Payment Basis shown hereon.

Bearer Notes are serially numbered and are issued with Coupons (and, where appropriate, aTalon) attached, save in the case of Zero Coupon Notes in which case references to interest(other than in relation to interest due after the Maturity Date), Coupons and Talons in theseConditions are not applicable. Instalment Notes are issued with one or more Receipts attached.

Registered Notes are represented by registered certificates (‘‘Certificates’’) and, save as providedin Condition 2 (Transfers of Registered Notes), each Certificate shall represent the entire holding ofRegistered Notes by the same holder. Each Certificate will be numbered serially with an identifyingnumber which will be recorded in the register which the Issuer shall procure to be kept by theRegistrar in accordance with the provisions of the Agency Agreement (the ‘‘Register’’).

Title to the Bearer Notes, the Receipts, the Coupons and the Talons shall pass by delivery. Title tothe Registered Notes shall pass by registration in the Register maintained by the Registrar inaccordance with the provisions of the Agency Agreement. Except as ordered by a court ofcompetent jurisdiction or as required by law, the holder of any Note, Receipt, Coupon or Talonshall be deemed to be and may be treated as its absolute owner for all purposes whether or not itis overdue and regardless of any notice of ownership, trust or an interest in it, any writing on it (oron the Certificate representing it) or its theft or loss (or that of the related Certificate), other thanthe endorsed form of transfer, in the case of Registered Notes, and no person shall be liable forso treating the holder.

2. Transfers of Registered Notes

(a) Transfer of Registered Notes: Subject to Conditions 2(e) (Regulations Concerning Transfersand Registration) and 2(f) (Closed Periods), Registered Notes may be transferred upon thesurrender (at the specified office of the Registrar or any Transfer Agent) of the relevantCertificate representing such Registered Notes to be transferred, together with the form oftransfer endorsed on such Certificate (or another form of transfer substantially in the sameform and containing the same representations and certifications (if any), unless otherwiseagreed by the Issuer), duly completed and executed and any other evidence as the Registraror (as the case may be) such Transfer Agent may reasonably require to prove the title of thetransferor and the authority of the individuals who have executed the form of transfer;provided, however, that a Registered Note may not be transferred unless the principal amountof Registered Notes transferred and (where not all of the Registered Notes held by a holderare being transferred) the principal amount of the balance of Registered Notes not transferredare Specified Denominations. In the case of a transfer of part only of a holding of RegisteredNotes represented by one Certificate, a new Certificate shall be issued to the transferee inrespect of the part transferred and a further new Certificate in respect of the balance of theholding not transferred shall be issued to the transferor. In the case of a transfer ofRegistered Notes to a person who is already a holder of Registered Notes, a new Certificaterepresenting the enlarged holding shall only be issued against surrender of the Certificaterepresenting the existing holding.

(b) Exercise of Options or Partial Redemption in respect of Registered Notes: In the case ofan exercise of an Issuer’s or Noteholders’ option in respect of, or a redemption of, some onlyof a holding of Registered Notes represented by a single Certificate, a new Certificate shallbe issued to the holder to reflect the exercise of such option or in respect of the balance ofthe holding not redeemed. In the case of a partial exercise of an option resulting inRegistered Notes of the same holding having different terms, separate Certificates shall beissued in respect of those Notes of that holding that have the same terms. New Certificatesshall only be issued against surrender of the existing Certificates to the Registrar or anyTransfer Agent.

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(c) Delivery of New Certificates: Each new Certificate to be issued pursuant to Conditions 2(a)(Transfer of Registered Notes) or (b) (Exercise of Options or Partial Redemption in respect ofRegistered Notes) shall be available for delivery within five business days of receipt of therequest for exchange, form of transfer or Exercise Notice (as defined in Condition 6(e)(Redemption at the Option of Noteholders)) and surrender of the Certificate for exchange.Delivery of the new Certificate(s) shall be made at the specified office of the Transfer Agentor of the Registrar (as the case may be) to whom delivery or surrender of such request forexchange, form of transfer, Exercise Notice or Certificate shall have been made or, at theoption of the holder making such delivery or surrender as aforesaid and as specified in therelevant request for exchange, form of transfer, Exercise Notice or otherwise in writing, bemailed by uninsured post at the risk of the holder entitled to the new Certificate to suchaddress as may be so specified, unless such holder requests otherwise and pays in advanceto the relevant Transfer Agent the costs of such other method of delivery and/or suchinsurance as it may specify. In this Condition 2(d), ‘‘business day’’ means a day, other thana Saturday or Sunday, on which banks are open for business (including dealings in foreigncurrencies) in the place of the specified office of the relevant Transfer Agent or the Registrar(as the case may be).

(d) Exchange and Transfer Free of Charge: The exchange and transfer of Registered Notesand Certificates on registration, transfer, exercise of an option or partial redemption shall beeffected without charge by or on behalf of the Issuer, the Registrar or the Transfer Agents,but upon payment of any tax or other governmental charges that may be imposed in relationto it (or the giving of such indemnity as the Registrar or the relevant Transfer Agent mayrequire).

(e) Regulations Concerning Transfers and Registration: All transfers of Notes and entries onthe Register will be made subject to the detailed regulations concerning transfers of Notesscheduled to the Agency Agreement. The regulations may be changed by the Issuer, with theprior written approval of the Registrar and the Noteholders. A copy of the current regulationswill be made available by the Registrar to any Noteholder upon request.

(f) Closed Periods: No Noteholder may require the transfer of a Registered Note to beregistered (i) during the period of 15 days ending on the due date for redemption of, orpayment of any Instalment Amount in respect of, that Note, (ii) during the period of 15 daysprior to any date on which Notes may be called for redemption by the Issuer at its optionpursuant to Condition 6(d) (Redemption at the Option of the Issuer), (iii) after any such Notehas been called for redemption by the Issuer pursuant to Condition 6(d) (Redemption at theOption of the Issuer) or (iv) during the period of seven days ending on (and including) anyRecord Date (as defined in Condition 7(b) (Registered Notes)).

3. Status

The Notes and the Receipts and Coupons relating to them constitute direct, unconditional and(subject to Condition 4(a) (Negative Pledge)) unsecured obligations of the Issuer which will at alltimes rank pari passu and without any preference among themselves. The payment obligations ofthe Issuer under the Notes, the Receipts and the Coupons relating to them shall, save for suchobligations as may be preferred by provisions of law that are both mandatory and of generalapplication and subject to Condition 4(a) (Negative Pledge), at all times rank at least pari passuwith all other unsecured and unsubordinated indebtedness and other monetary obligations of theIssuer, present and future.

4. Covenants

(a) Negative Pledge: So long as any Note, Receipt or Coupon remains outstanding (as definedin the Agency Agreement), the Issuer shall not, and shall ensure that none of its MaterialSubsidiaries shall, create, or permit to create, any Encumbrance, other than a PermittedEncumbrance, upon the whole or any part of its present or future undertaking, assets orrevenues (including any uncalled capital) to secure any Relevant Indebtedness (save for thosethat have been accorded preferential rights by law), or any guarantee or indemnity in respectof any Relevant Indebtedness, without at the same time or prior thereto securing the Notes,the Receipts and the Coupons equally and rateably with any such Relevant Indebtedness,guarantee or indemnity or providing such other security for the Notes, the Receipts and the

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Coupons as shall be approved by an Extraordinary Resolution (as defined in the AgencyAgreement) of the Noteholders, unless the provision of any such security is waived by anExtraordinary Resolution of the Noteholders.

In these Conditions:

‘‘Encumbrance’’ means any mortgage, pledge, hypothecation, assignment, deposit by way ofsecurity or any other agreement or arrangement (whether conditional or not and whetherrelating to existing or to future assets), having the effect of providing a security interest to acreditor or any agreement or arrangement to give any form of security to a creditor butexcluding statutory preferences and any security interest arising by operation of law.

‘‘Group’’ means the Issuer and its Subsidiaries.

‘‘Indebtedness’’ means any indebtedness in respect of monies borrowed and (without doublecounting) guarantees (other than those given in the ordinary course of business) given,whether present or future, actual or contingent, excluding any intra-Group indebtedness.

‘‘Material Subsidiary’’ means any Subsidiary of the Issuer which represents more than 15per cent. of the total consolidated assets of the Issuer as reflected in the Issuer’s most recentconsolidated audited financial statements, or accounts for more than 15 per cent. of theIssuer’s total consolidated attributable income before tax, as reflected in the Issuer’s mostrecent consolidated audited financial statements.

‘‘Permitted Encumbrance’’ means:

(a) any Encumbrance existing as at the date hereof; or

(b) any Encumbrance with respect to the receivables of the relevant entity which is createdpursuant to any securitisation or like arrangement in accordance with normal marketpractice and whereby the Indebtedness is limited to the value of such receivables; or

(c) any Encumbrance with respect to inter-company Indebtedness incurred between theIssuer and its Subsidiaries; or

(d) any Encumbrance created over any asset owned, acquired, developed or constructed bythe relevant entity, being an Encumbrance created for the sole purpose of financing orrefinancing that asset owned, acquired, developed or constructed, provided that theIndebtedness so secured shall not exceed the bona fide market value of such asset orthe cost of that acquisition, development or construction (including all interest and otherfinance charges, adjustments due to changes in circumstances and other chargesreasonably incidental to such cost, whether contingent or otherwise) and where suchmarket value of costs both apply, the higher of the two; or

(e) any Encumbrance over deposit accounts securing the loan to the relevant entity of fundsequal to the amounts standing to the credit of such deposit accounts; or

(f) any Encumbrance created in the ordinary course of the relevant entity’s business overstock-in-trade, inventory, accounts receivable or deposit accounts including any cashmanagement system; or

(g) any Encumbrance subsisting over any asset of any Subsidiary of the Issuer prior to thedate of such entity becoming a Subsidiary of the Issuer and not created in contemplationof such entity becoming a Subsidiary of the Issuer and any substitute Encumbrancecreated over that asset (but in any such case the amount of the Indebtedness securedby such Encumbrance, may not be increased).

‘‘Relevant Indebtedness’’ means any Indebtedness which is in the form of, or represented orevidenced by, bonds, notes, debentures, loan stock or other securities which for the timebeing are, or are intended to be or capable of being, quoted, listed or dealt in or traded onany stock exchange or over-the counter or other securities market.

‘‘Subsidiary’’ means, in relation to any Person (the ‘‘first Person’’) at any particular time, anyother Person (the ‘‘second Person’’):

(a) whose affairs and policies the first Person controls or has the power to control, whetherby ownership of share capital, contract, the power to appoint or remove members of thegoverning body of the second Person or otherwise; or

(b) whose financial statements are, in accordance with applicable law and generallyaccepted accounting principles, consolidated with those of the first Person.

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(b) Change of Principal Business: So long as any of the Notes remains outstanding, the Issuerwill not cease to carry on any of the principal businesses carried on by it at the date hereof(being the business divisions of the Issuer comprising Transnet Freight Rail, Transnet RailEngineering, Transnet National Ports Authority, Transnet Port Terminals and TransnetPipelines), nor will it enter into any agreement to do so (a ‘‘Business Change’’), save for anycessation of business arising as a result of Government Intervention and save for any suchBusiness Change as will not lead to a Negative Rating Event or as is otherwise approved byan Extraordinary Resolution.

In these Conditions:

‘‘Government Intervention’’ means any administrative, executive or legislative act, whether ofa commercial, legal or political nature, of the Government of the Republic of South Africa orany administrative authority, department, political subdivision or taxing authority thereof ortherein;

‘‘Investment Grade Rating’’ means BBB- or better by S&P or Baa3 or better by Moody’s.

‘‘Negative Rating Event’’ means the Issuer failing to maintain an Investment Grade Ratingon a global rating scale from both Rating Agencies.

‘‘Rating Agency’’ means each of Standard & Poor’s Rating Services and its successors(‘‘S&P’’) and Moody’s Investors Service, Inc. and its successors (‘‘Moody’s’’) and theirsuccessors or any other rating agency of equivalent international standing specified from timeto time by the Issuer.

5. Interest and Other Calculations

(a) Interest on Fixed Rate Notes: Each Note paying a fixed rate of interest (a ‘‘Fixed RateNote’’) bears interest on its outstanding principal amount from the Interest CommencementDate at the Rate of Interest, such interest being payable in arrear on each Interest PaymentDate. The amount of interest payable shall be determined in accordance with Condition 5(h)(Calculations).

(b) Interest on Floating Rate Notes and Index-Linked Interest Notes:

(i) Interest Payment Dates: Each Note paying a floating rate of interest (a ‘‘Floating RateNote’’) and each Note the interest in respect of which is linked to an index (an ‘‘Index-Linked Interest Note’’) bears interest on its outstanding principal amount from theInterest Commencement Date at the Rate of Interest, such interest being payable inarrear on each Interest Payment Date. The amount of interest payable shall bedetermined in accordance with Condition 5(h) (Calculations).

(ii) Business Day Convention: If any date referred to in these Conditions that is specified tobe subject to adjustment in accordance with a Business Day Convention wouldotherwise fall on a day that is not a Business Day, then, if the Business Day Conventionspecified is (A) the Floating Rate Business Day Convention, such date shall bepostponed to the next day that is a Business Day unless it would thereby fall into thenext calendar month, in which event (x) such date shall be brought forward to theimmediately preceding Business Day and (y) each subsequent such date shall be thelast Business Day of the month in which such date would have fallen had it not beensubject to adjustment, (B) the Following Business Day Convention, such date shall bepostponed to the next day that is a Business Day, (C) the Modified Following BusinessDay Convention, such date shall be postponed to the next day that is a Business Dayunless it would thereby fall into the next calendar month, in which event such date shallbe brought forward to the immediately preceding Business Day or (D) the PrecedingBusiness Day Convention, such date shall be brought forward to the immediatelypreceding Business Day.

(iii) Rate of Interest for Floating Rate Notes: The Rate of Interest in respect of Floating RateNotes for each Interest Accrual Period shall be determined in the manner specifiedhereon and the provisions below relating to either ISDA Determination or Screen RateDetermination shall apply, depending upon which is specified hereon.

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(A) ISDA Determination for Floating Rate Notes

Where ISDA Determination is specified hereon as the manner in which the Rate ofInterest is to be determined, the Rate of Interest for each Interest Accrual Periodshall be determined by the Calculation Agent as the sum of the Margin and therelevant ISDA Rate. For the purposes of this sub-paragraph (A), ‘‘ISDA Rate’’ foran Interest Accrual Period means a rate equal to the Floating Rate that would bedetermined by the Calculation Agent under an interest rate swap transaction if theCalculation Agent were acting as a Calculation Agent for that interest rate swaptransaction under the terms of an agreement incorporating the ISDA Definitions andunder which:

(x) the Floating Rate Option is as specified hereon;

(y) the Designated Maturity is a period specified hereon; and

(z) the relevant Reset Date is the first day of that Interest Accrual Period unlessotherwise specified hereon.

For the purposes of this sub-paragraph (A), ‘‘Floating Rate’’, ‘‘Floating RateOption’’, ‘‘Designated Maturity’’ and ‘‘Reset Date’’ have the meanings given to thoseterms in the ISDA Definitions.

(B) Screen Rate Determination for Floating Rate Notes

(x) Where Screen Rate Determination is specified hereon as the manner in whichthe Rate of Interest is to be determined, the Rate of Interest for each InterestAccrual Period will, subject as provided below, be either:

(1) the offered quotation; or

(2) the arithmetic mean of the offered quotations,

(expressed as a percentage rate per annum) for the Reference Rate whichappears or appear, as the case may be, on the Relevant Screen Page as ateither 11.00 a.m. (London time in the case of LlBOR or Brussels time in thecase of EURlBOR) on the Interest Determination Date in question asdetermined by the Calculation Agent. If five or more of such offeredquotations are available on the Relevant Screen Page, the highest (or, if thereis more than one such highest quotation, one only of such quotations) and thelowest (or, if there is more than one such lowest quotation, one only of suchquotations) shall be disregarded by the Calculation Agent for the purpose ofdetermining the arithmetic mean of such offered quotations.

If the Reference Rate from time to time in respect of Floating Rate Notes isspecified hereon as being other than LIBOR or EURIBOR, the Rate ofInterest in respect of such Notes will be determined as provided hereon.

(y) If the Relevant Screen Page is not available or if sub-paragraph (x)(l) appliesand no such offered quotation appears on the Relevant Screen Page or ifsub-paragraph (x)(2) applies and fewer than three such offered quotationsappear on the Relevant Screen Page in each case as at the time specifiedabove, subject as provided below, the Calculation Agent shall request, if theReference Rate is LIBOR, the principal London office of each of theReference Banks or, if the Reference Rate is EURIBOR, the principal Euro-zone office of each of the Reference Banks, to provide the Calculation Agentwith its offered quotation (expressed as a percentage rate per annum) for theReference Rate at approximately 11.00 a.m. (London time, if the ReferenceRate is LIBOR or Brussels time, if the Reference Rate is EURIBOR) on theInterest Determination Date in question. If two or more of the ReferenceBanks provide the Calculation Agent with such offered quotations, the Rate ofInterest for such Interest Period shall be the arithmetic mean of such offeredquotations as determined by the Calculation Agent.

(z) If paragraph (y) above applies and the Calculation Agent determines thatfewer than two Reference Banks are providing offered quotations, subject asprovided below, the Rate of Interest shall be the arithmetic mean of the ratesper annum (expressed as a percentage) as communicated to (and at the

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request of) the Calculation Agent by the Reference Banks or any two or moreof them, at which such banks were offered at approximately 11.00 a.m.(London time, if the Reference Rate is LIBOR or Brussels time, if theReference Rate is EURIBOR) on the relevant Interest Determination Date,deposits in the Specified Currency for a period equal to that which wouldhave been used for the Reference Rate by leading banks in, if the ReferenceRate is LIBOR, the London inter-bank market or, if the Reference Rate isEURIBOR, the Euro-zone inter-bank market, as the case may be, or, if fewerthan two of the Reference Banks provide the Calculation Agent with suchoffered rates, the offered rate for deposits in the Specified Currency for aperiod equal to that which would have been used for the Reference Rate, orthe arithmetic mean of the offered rates for deposits in the Specified Currencyfor a period equal to that which would have been used for the ReferenceRate, at which, at approximately 11.00 a.m. (London time, if the ReferenceRate is LIBOR or Brussels time, if the Reference Rate is EURIBOR), on therelevant Interest Determination Date, any one or more banks (which bank orbanks is or are in the opinion of the Issuer suitable for such purpose) informsthe Calculation Agent it is quoting to leading banks in, if the Reference Rateis LIBOR, the London inter-bank market or, if the Reference Rate isEURIBOR, the Euro-zone inter-bank market, as the case may be, providedthat, if the Rate of Interest cannot be determined in accordance with theforegoing provisions of this paragraph, the Rate of Interest shall bedetermined as at the last preceding Interest Determination Date (thoughsubstituting, where a different Margin or Maximum or Minimum Rate ofInterest is to be applied to the relevant Interest Accrual Period from thatwhich applied to the last preceding Interest Accrual Period, the Margin orMaximum or Minimum Rate of Interest relating to the relevant Interest AccrualPeriod, in place of the Margin or Maximum or Minimum Rate of Interestrelating to that last preceding Interest Accrual Period).

(iv) Rate of Interest for Index-Linked Interest Notes: The Rate of Interest in respect of Index-Linked Interest Notes for each Interest Accrual Period shall be determined in the mannerspecified hereon and interest will accrue by reference to an Index or Formula asspecified hereon.

(c) Zero Coupon Notes: If the Redemption Amount of a Note the Interest Basis of which isspecified to be Zero Coupon is repayable prior to the Maturity Date and is not paid whendue, or improperly withheld or refused, the amount due and payable prior to the Maturity Dateshall be the Early Redemption Amount of such Note. As from the Maturity Date, the Rate ofInterest for any overdue principal of such a Note shall be a rate per annum (expressed as apercentage) equal to the Amortisation Yield (as defined in Condition 6(b)(i) (Zero CouponNotes)).

(d) Dual Currency Notes: In the case of Dual Currency Notes, if the rate or amount of interestfalls to be determined by reference to a rate of exchange or a method of calculating a rate ofexchange, the rate or amount of interest payable shall be determined in the manner specifiedhereon.

(e) Partly Paid Notes: In the case of Partly Paid Notes (other than Partly Paid Notes which areZero Coupon Notes), interest will accrue as aforesaid on the paid-up principal amount of suchNotes and otherwise as specified hereon.

(f) Accrual of Interest: Interest shall cease to accrue on each Note from the due date forredemption unless, upon due presentation, payment of the Redemption Amount is improperlywithheld or refused, in which event it shall continue to bear interest in accordance withCondition 5 (Interest and Other Calculations) (after as well as before judgement) at the Rateof Interest in the manner provided in this Condition 5 (Interest and Other Calculations) to theRelevant Date (as defined in Condition 8 (Taxation)).

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(g) Margin, Maximum/Minimum Rates of Interest, Instalment Amounts and Redemption Amountsand Rounding:

(i) If any Margin is specified hereon (either (x) generally, or (y) in relation to one or moreInterest Accrual Periods), an adjustment shall be made to all Rates of Interest, in thecase of (x), or the Rates of Interest for the specified Interest Accrual Periods, in thecase of (y), calculated in accordance with Condition 5(b) (Interest on Floating RateNotes and Index-Linked Interest Notes) by adding (if a positive number) or subtractingthe absolute value (if a negative number) of such Margin, subject always to the nextparagraph.

(ii) If any Maximum or Minimum Rate of Interest, Instalment Amount or Redemption Amountis specified hereon, then any Rate of Interest, Instalment Amount or Redemption Amountshall be subject to such maximum or minimum, as the case may be.

(iii) For the purposes of any calculations required pursuant to these Conditions (unlessotherwise specified), (x) all percentages resulting from such calculations shall berounded, if necessary, to the nearest one hundred-thousandth of a percentage point(with halves being rounded up), (y) all figures shall be rounded to seven significantfigures (with halves being rounded up) and (z) all currency amounts that fall due andpayable shall be rounded to the nearest unit of such currency (with halves beingrounded up), save in the case of yen, which shall be rounded down to the nearest yen.For these purposes ‘‘unit’’ means the lowest amount of such currency that is availableas legal tender in the country or countries, as the case may be, of such currency.

(h) Calculations: The amount of interest payable in respect of each Note for any Interest AccrualPeriod shall be equal to the product of the Rate of Interest, the Calculation Amount specifiedhereon, and the Day Count Fraction for such Interest Accrual Period, rounding the resultingfigure to the nearest sub-unit of the Specified Currency (half a sub-unit being roundedupwards) and multiplying such rounded figure by a fraction equal to the SpecifiedDenomination of such note divided by the Calculation Amount. For this purposes, a ‘‘sub-unit’’ means, in the case of any currency other than euro, the lowest amount of suchcurrency that is available as legal tender in the country of such currency and, in the case ofeuro, means one cent. provided that where an Interest Amount (or a formula for itscalculation) is applicable to such Interest Accrual Period, in which case the amount of interestpayable per Calculation Amount in respect of such Note for such Interest Accrual Period shallequal such Interest Amount (or be calculated in accordance with such formula). Where anyInterest Period comprises two or more Interest Accrual Periods, the amount of interestpayable per Calculation Amount in respect of such Interest Period shall be the sum of theInterest Amounts payable in respect of each of those Interest Accrual Periods. In respect ofany other period for which interest is required to be calculated, the provisions above shallapply save that the Day Count Fraction shall be for the period for which interest is required tobe calculated.

(i) Determination and Publication of Rates of Interest, Interest Amounts, Final RedemptionAmounts, Early Redemption Amounts, Optional Redemption Amounts and InstalmentAmounts: The Calculation Agent shall, as soon as practicable on each Interest DeterminationDate, or such other time on such date as the Calculation Agent may be required to calculateany rate or amount, obtain any quotation or make any other determination or calculation,determine such rate and calculate the Interest Amounts for the relevant Interest AccrualPeriod, calculate the Final Redemption Amount, Early Redemption Amount, OptionalRedemption Amount or Instalment Amount, obtain such quotation or make such determinationor calculation, as the case may be, and cause the Rate of Interest and the Interest Amountsfor each Interest Accrual Period and the relevant Interest Payment Date and, if required to becalculated, the Final Redemption Amount, Early Redemption Amount, Optional RedemptionAmount or any Instalment Amount to be notified to the Fiscal Agent, the Issuer, each of thePaying Agents, the Noteholders, any other Calculation Agent appointed in respect of theNotes that is to make a further calculation upon receipt of such information and, if the Notesare listed on a stock exchange and the rules of such exchange or other competent authorityso require, such exchange or other competent authority as soon as possible after theirdetermination but in no event later than (i) the commencement of the relevant Interest Period,if determined prior to such time, in the case of notification to such exchange of a Rate ofInterest and Interest Amount, or (ii) in all other cases, the fourth Business Day after such

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determination. Where any Interest Payment Date or Interest Period Date is subject toadjustment pursuant to Condition 5(b)(ii) (Business Day Convention), the Interest Amountsand the Interest Payment Date so published may subsequently be amended (or appropriatealternative arrangements made by way of adjustment) without notice in the event of anextension or shortening of the Interest Period. If the Notes become due and payable underCondition 10 (Events of Default), the accrued interest and the Rate of Interest payable inrespect of the Notes shall nevertheless continue to be calculated as previously in accordancewith this Condition but no publication of the Rate of Interest or the Interest Amount socalculated need be made. The determination of any rate or amount, the obtaining of eachquotation and the making of each determination or calculation by the Calculation Agent(s)shall (in the absence of manifest error) be final and binding upon all parties.

(j) Definitions: In these Conditions:

‘‘Business Day’’ means:

(i) in the case of a currency other than euro, a day (other than a Saturday or Sunday) onwhich commercial banks and foreign exchange markets settle payments in the principalfinancial centre for such currency and/or

(ii) in the case of euro, a day on which the TARGET system is operating (a ‘‘TARGETBusiness Day’’) and/or

(iii) in the case of a currency and/or one or more Business Centres a day (other than aSaturday or a Sunday) on which commercial banks and foreign exchange markets settlepayments in such currency in the Business Centre(s) or, if no currency is indicated,generally in each of the Business Centres.

(iv) ‘‘Day Count Fraction’’ means, in respect of the calculation of an amount of interest onany Note for any period of time (from and including the first day of such period to butexcluding the last) (whether or not constituting an Interest Period of Interest AccrualPeriod, the ‘‘Calculation Period’’):

(v) if ‘‘Actual/365’’ or ‘‘Actual/Actual-ISDA’’ is specified hereon, the actual number of daysin the Calculation Period divided by 365 (or, if any portion of that Calculation Period fallsin a leap year, the sum of (A) the actual number of days in that portion of theCalculation Period falling in a leap year divided by 366 and (B) the actual number ofdays in that portion of the Calculation Period falling in a non-leap year divided by 365);

(vi) if ‘‘Actual/365 (Fixed)’’ is specified hereon, the actual number of days in the CalculationPeriod divided by 365;

(vii) if ‘‘Actual/360’’ is specified hereon, the actual number of days in the Calculation Perioddivided by 360;

(viii) if ‘‘30/360’’, ‘‘360/360’’ or ‘‘Bond Basis’’ is specified hereon, the number of days in theCalculation Period divided by 360, calculated on a formula basis as follows:

Day Count Fraction =[360 6 (Y2 – Y1)] + [30 6 (M2 – M1)] – (D2 – D1)

360where:

‘‘Y1’’ is the year, expressed as a number, in which the first day of the Calculation Periodfalls;

‘‘Y2’’ is the year, expressed as a number, in which the day immediately following the lastday included in the Calculation Period falls;

‘‘M1’’ is the calendar month, expressed as a number, in which the first day of theCalculation Period falls;

‘‘M2’’ is the calendar month, expressed as a number, in which the day immediatelyfollowing the last day included in the Calculation Period falls;

‘‘D1’’ is the first calendar day, expressed as a number, of the Calculation Period, unlesssuch number would be 31, in which case D1 will be 30; and

‘‘D2’’ is the calendar day, expressed as a number, immediately following the last dayincluded in the Calculation Period, unless such number would be 31, in which case D2

will be 30;

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if ‘‘30E/360’’ or ‘‘Eurobond Basis’’ is specified hereon, the number of days in theCalculation Period divided by 360 , calculated on a formula basis as follows:


360where:





‘‘D1’’ is the first calendar day, expressed as a number, of the Calculation Period, unlesssuch number would be 31, in which case D1 will be 30; and

‘‘D2’’ is the calendar day, expressed as a number, immediately following the last dayincluded in the Calculation Period, unless such number would be 31 and D1 is greaterthan 29, in which case D2 will be 30.

(ix) if ‘‘30E/360 (ISDA) ‘‘ is specified hereon, the number of days in the Calculation Perioddivided by 360, calculated on a formula basis as follows:


360where:





‘‘D1’’ is the first calendar day, expressed as a number, of the Calculation Period, unless(i) that day is the last day of February or (ii) such number would be 31, in which caseD2 will be 30; and

‘‘D2’’ is the calendar day, expressed as a number, immediately following the last dayincluded in the Calculation Period, unless (i) that day is the last day of February but notthe Maturity Date or (ii) such number would be 31, in which case D2 will be 30; and

(x) if ‘‘Actual/Actual-ICMA’’ is specified hereon,

(A) if the Calculation Period is equal to or shorter than the Determination Period duringwhich it falls, the number of days in the Calculation Period divided by the productof (x) the number of days in such Determination Period and (y) the number ofDetermination Periods normally ending in any year; and

(B) if the Calculation Period is longer than one Determination Period, the sum of:

(x) the number of days in such Calculation Period falling in the DeterminationPeriod in which it begins divided by the product of (1) the number of days insuch Determination Period and (2) the number of Determination Periodsnormally ending in any year; and

(y) the number of days in such Calculation Period falling in the nextDetermination Period divided by the product of (1) the number of days in suchDetermination Period and (2) the number of Determination Periods normallyending in any year,

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where:

‘‘Calculation Amount’’ means the amount, if any, specified hereon.

‘‘Determination Date’’ means the date specified as such hereon or, if none is sospecified, the Interest Payment Date.

‘‘Determination Period’’ means the period from and including a Determination Date inany year to but excluding the next Determination Date.

‘‘Euro-zone’’ means the region comprising member states of the European Union thatadopt the single currency in accordance with the Treaty establishing the EuropeanCommunity, as amended.

‘‘Fixed Coupon Amount’’ means the amount, if any, specified hereon.

‘‘Fixed Interest Payment Date’’ means the date, if any, specified hereon.

‘‘Instalment Amount’’ means the amount (if any) specified as such hereon.

‘‘Instalment Date’’ means the date (if any) specified as such hereon.

‘‘Interest Accrual Period’’ means the period beginning on (and including) the InterestCommencement Date and ending on (but excluding) the first Interest Period Date andeach successive period beginning on (and including) an Interest Period Date and endingon (but excluding) the next succeeding Interest Period Date.

‘‘Interest Amount’’ means:

(i) in respect of an Interest Accrual Period, the amount of interest payable perCalculation Amount for that Interest Accrual Period and which, in the case of FixedRate Notes, and unless otherwise specified hereon, shall mean the Fixed CouponAmount or Broken Amount specified hereon as being payable on the InterestPayment Date ending the Interest Period of which such Interest Accrual Periodforms part; and

(ii) in respect of any other period, the amount of interest payable per CalculationAmount for that period.

‘‘Interest Commencement Date’’ means the Issue Date or such other date as may bespecified hereon.

‘‘Interest Determination Date’’ means, with respect to a Rate of Interest and InterestAccrual Period, the date specified as such hereon or, if none is so specified, (i) the firstday of such Interest Accrual Period if the Specified Currency is Sterling or (ii) the dayfalling two Business Days in London for the Specified Currency prior to the first day ofsuch Interest Accrual Period if the Specified Currency is neither Sterling nor euro or (iii)the day falling two TARGET Business Days prior to the first day of such Interest AccrualPeriod if the Specified Currency is euro.

‘‘Interest Payment Date’’ means the First Interest Payment Date and any date or datesspecified as such in, or determined in accordance with the provisions of, the relevantFinal Terms and, if a Business Day Convention is specified in the relevant Final Terms:

(i) as the same may be adjusted in accordance with the relevant Business DayConvention; or

(ii) if the Business Day Convention is the FRN Convention, Floating Rate Conventionor Eurodollar Convention and an interval of a number of calendar months isspecified in the relevant Final Terms as being the Specified Period, each of suchdates as may occur in accordance with the FRN Convention, Floating RateConvention or Eurodollar Convention at such Specified Period of calendar monthsfollowing the Interest Commencement Date (in the case of the first InterestPayment Date) or the previous Interest Payment Date (in any other case).

‘‘Interest Period’’ means the period beginning on (and including) the InterestCommencement Date and ending on (but excluding) the First Interest Payment Date andeach successive period beginning on (and including) an Interest Payment Date andending on (but excluding) the next succeeding Interest Payment Date.

‘‘Interest Period Date’’ means each Interest Payment Date unless otherwise specifiedhereon.

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‘‘ISDA Definitions’’ means the 2006 ISDA Definitions (as amended and updated as atthe date of issue of the first Tranche of the relevant Series (as specified hereon)) aspublished by the International Swaps and Derivatives Association, Inc., unless otherwisespecified hereon.

‘‘Principal Financial Centre’’ means, in relation to any currency, the principal financialcentre for that currency provided, however, that:

(i) in relation to euro, it means the principal financial centre of such Member State ofthe European Communities as is selected (in the case of a payment) by the payeeor (in the case of a calculation) by the Calculation Agent; and

(ii) in relation to Australian dollars, it means either Sydney or Melbourne and, inrelation to New Zealand dollars, it means either Wellington or Auckland; in eachcase as is selected (in the case of a payment) by the payee or (in the case of acalculation) by the Calculation Agent.

‘‘Rate of Interest’’ means the rate or rates (expressed as a percentage per annum) ofinterest payable in respect of this Note and that is either specified hereon or calculatedor determined in accordance with the provisions hereon.

‘‘Reference Banks’’ means, in the case of a determination of LIBOR, the principalLondon office of four major banks in the London inter-bank market and, in the case of adetermination of EURIBOR, the principal Euro-zone office of four major banks in theEuro-zone inter-bank market, and, in the case of any other determination, four majorbanks in the market most closely connected with the Reference Rate, in each caseselected by the Calculation Agent or as specified hereon.

‘‘Reference Rate’’ means the rate specified as such hereon.

‘‘Relevant Financial Centre’’ has the meaning specified hereon.

‘‘Relevant Screen Page’’ means such page, section, caption, column or other part of aparticular information service (including, without limitation, Reuters) specified as theRelevant Screen Page hereon, or such other page, section or other part as may replaceit on that information service or such other information service, in each case, as may benominated by the Person providing or sponsoring the information appearing there for thepurpose of displaying rates or prices comparable to the Reference Rate.

‘‘Relevant Time’’ has the meaning specified hereon.

‘‘Specified Currency’’ means the currency specified as such hereon or, if none isspecified, the currency in which the Notes are denominated.

‘‘TARGET System’’ means the Trans-European Automated Real-Time Gross SettlementExpress Transfer (TARGET2) System or any successor thereto.

(k) Calculation Agent: The Issuer shall procure that there shall at all times be one or moreCalculation Agents if provision is made for them hereon and for so long as any Note isoutstanding (as defined in the Agency Agreement). Where more than one Calculation Agent isappointed in respect of the Notes, references in these Conditions to the Calculation Agentshall be construed as each Calculation Agent performing its respective duties under theConditions. If the Calculation Agent is unable or unwilling to act as such or if the CalculationAgent fails duly to establish the Rate of Interest for an Interest Accrual Period or to calculateany Interest Amount, Instalment Amount, Final Redemption Amount, Early RedemptionAmount or Optional Redemption Amount, as the case may be, or to comply with any otherrequirement, the Issuer shall appoint a leading bank or investment banking firm engaged inthe inter-bank market (or, if appropriate, money, swap or over-the-counter index optionsmarket) that is most closely connected with the calculation or determination to be made bythe Calculation Agent (acting through its principal London office or any other office activelyinvolved in such market) to act as such in its place. The Calculation Agent may not resign itsduties without a successor having been appointed as aforesaid.

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6. Redemption, Purchase and Options

(a) Redemption by Instalments and Final Redemption:

(i) Final Redemption: Unless previously redeemed, or purchased and cancelled, each Notewill be finally redeemed on the Maturity Date specified hereon at its Final RedemptionAmount or, in the case of a Note falling within paragraph (ii) below, its final InstalmentAmount.

(ii) Redemption by Instalments: Unless previously redeemed, purchased and cancelled asprovided in this Condition 6, each Note that provides for Instalment Dates andInstalment Amounts shall be partially redeemed on each Instalment Date at the relatedInstalment Amount specified hereon. The outstanding principal amount of each suchNote shall be reduced by the Instalment Amount (or, if such Instalment Amount iscalculated by reference to a proportion of the principal amount of such Note, suchproportion) for all purposes with effect from the related Instalment Date, unless paymentof the Instalment Amount is improperly withheld or refused, in which case, such amountshall remain outstanding until the Relevant Date relating to such Instalment Amount.

(b) Early Redemption:

(i) Zero Coupon Notes:

(A) The Early Redemption Amount payable in respect of any Zero Coupon Note, theEarly Redemption Amount of which is not linked to an index and/or a formula, uponredemption of such Note pursuant to Condition 6(c) (Redemption for TaxationReasons) or upon it becoming due and payable as provided in Condition 10(Events of Default) shall be the Amortised Face Amount (calculated as providedbelow) of such Note unless otherwise specified hereon.

(B) Subject to the provisions of sub-paragraph (C) below, the Amortised Face Amountof any such Note shall be the scheduled Final Redemption Amount of such Noteon the Maturity Date discounted at a rate per annum (expressed as a percentage)equal to the Amortisation Yield (which, if none is shown hereon, shall be such rateas would produce an Amortised Face Amount equal to the issue price of the Notesif they were discounted back to their issue price on the Issue Date) compoundedannually.

(C) If the Early Redemption Amount payable in respect of any such Note upon itsredemption pursuant to Condition 6(c) (Redemption for Taxation Reasons) or uponit becoming due and payable as provided in Condition 10 (Events of Default) is notpaid when due, the Early Redemption Amount due and payable in respect of suchNote shall be the Amortised Face Amount of such Note as defined in sub-paragraph (B) above, except that such sub-paragraph shall have effect as thoughthe date on which the Note becomes due and payable were the Relevant Date.The calculation of the Amortised Face Amount in accordance with this sub-paragraph shall continue to be made (both before and after judgement) until theRelevant Date, unless the Relevant Date falls on or after the Maturity Date, inwhich case the amount due and payable shall be the scheduled Final RedemptionAmount of such Note on the Maturity Date together with any interest that mayaccrue in accordance with Condition 5(f) (Accrual of Interest).

Where such calculation is to be a made for a period of less than one year, it shallbe made on the basis of the Day Count Fraction shown hereon.

(ii) Other Notes: The Early Redemption Amount payable in respect of any Note (other thanNotes described in (i) above), upon redemption of such Note pursuant to Condition 6(c)(Redemption for Taxation Reasons) or upon it becoming due and payable as provided inCondition 10 (Events of Default), shall be the Final Redemption Amount unlessotherwise specified hereon.

(c) Redemption for Taxation Reasons: The Notes may be redeemed at the option of the Issuerin whole, but not in part, on any Interest Payment Date (if this Note is either a Floating RateNote, an Index-Linked Note or a Dual Currency Note) or at any time (if this Note is neither aFloating Rate Note, an Index-Linked Note nor a Dual Currency Note), on giving not less than

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15 nor more than 30 days’ notice to the Noteholders (which notice shall be irrevocable) attheir Early Redemption Amount (as described in Condition 6(b)(ii) (Other Notes)) (togetherwith interest accrued to the date fixed for redemption), if:

(i) the Issuer has or will become obliged to pay additional amounts as described underCondition 8 (Taxation) as a result of any change in, or amendment to, the laws orregulations of the Republic of South Africa or any authority therein or thereof havingpower to tax, or any change in the application or official interpretation of such laws orregulations, which change or amendment becomes effective on or after the date of issueof the first Tranche of the Notes; and

(ii) such obligation cannot be avoided by the Issuer taking reasonable measures available toit, provided that:

(A) where the Notes may be redeemed at any time, no such notice of redemption shallbe given earlier than 90 days prior to the earliest date on which the Issuer wouldbe obliged to pay such additional amounts were a payment in respect of the Notesthen due, or

(B) where the Notes may be redeemed only on an Interest Payment Date, 60 daysprior to the Interest Payment Date occurring immediately before the earliest date onwhich the Issuer would be obliged to pay such additional amounts if a payment inrespect of the Notes were then due.

Before the publication of any notice of redemption pursuant to this paragraph, the Issuer shalldeliver to the Fiscal Agent a certificate signed by two duly authorised officers of the Issuerstating that the Issuer is entitled to effect such redemption and setting forth a statement offacts showing that the conditions precedent to the right of the Issuer so to redeem haveoccurred, and an opinion of independent legal advisers of recognised standing to the effectthat the Issuer has or will become obliged to pay such additional amounts as a result of suchchange or amendment.

(d) Redemption at the Option of the Issuer: If Call Option is specified hereon, the Issuer may,on giving not less than 15 nor more than 30 days’ irrevocable notice to the Noteholders (orsuch other notice period as may be specified hereon) redeem all or, if so provided, part ofthe Notes on any Optional Redemption Date (Call). Any such redemption of Notes shall be attheir Optional Redemption Amount (Call) together with interest accrued (if any) to such date.

All Notes in respect of which any such notice is given shall be redeemed on the datespecified in such notice in accordance with this Condition.

In the case of a partial redemption the notice to Noteholders shall also contain the certificatenumbers of the Bearer Notes, or, in the case of Registered Notes, shall specify the principalamount of Registered Notes drawn and the holder(s) of such Registered Notes to beredeemed, which shall have been drawn in such place and in such manner as it deemsappropriate, subject to compliance with any applicable laws and stock exchange or otherrelevant authority requirements.

(e) Redemption at the Option of Noteholders:

(i) Put Option: If Put Option is specified hereon, the Issuer shall, at the option of the holderof any such Note, upon the holder of such Note giving not less than 15 nor more than30 days’ notice to the Issuer (or such other notice period as may be specified hereon),redeem such Note on the Optional Redemption Date(s) (Put) specified in the relevantPut Option Notice at its Optional Redemption Amount together (if applicable) withinterest accrued (if any) to the date fixed for redemption.

(ii) Change of Control: If a Change of Control Event occurs, the Issuer shall, at the optionof the holder of any such Note, upon the holder of such Note giving notice to the Issuerat any time during the Redemption Period, redeem such Note on the Redemption Dateat its principal amount (or such other amount as may be specified hereon) together (ifapplicable) with interest accrued to the date fixed for redemption.

Immediately upon the Issuer becoming aware that a Change of Control Event hasoccurred, the Issuer shall give notice (a ‘‘Change of Control Notice’’) to theNoteholders in accordance with Condition 14 (Notices) specifying the nature of theChange of Control Event.

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For the purpose of this paragraph (ii):

a ‘‘Change of Control Event’’ will occur if at any time the Government of the Republicof South Africa ceases to own, directly or indirectly, more than 50 per cent. of theissued share capital of the Issuer or ceases to control, directly or indirectly, the Issuer,save for any such change of control as will not lead to a Negative Rating Event or as isotherwise approved by an Extraordinary Resolution (as defined in the AgencyAgreement) of the Noteholders. For the purpose of this Condition, the Government ofthe Republic of South Africa will be deemed to ‘‘control’’ the Issuer if (whether directly orindirectly and whether by the ownership of share capital, the possession of voting power,contract, trust or otherwise) it has the power to appoint and/or remove all or the majorityof the members of the Board of Directors or other governing body of the Issuer orotherwise controls, or has the power to control, the affairs and policies of the Issuer.

‘‘Redemption Date’’ means, in respect of any Redemption Period, the date which falls14 days after the date on which the relevant holder exercises its option in accordancewith Condition 6(e)(iii) (Exercise Notice).

‘‘Redemption Period’’ means, in relation to any Change of Control Event, the periodfrom and including the date on which a Change of Control Event occurs (whether or notthe Issuer has given the notice referred to in the second paragraph of this Condition6(e)(ii) in respect of such event) to and including the date falling 60 days after the dateon which any such notice is given, provided that if no such notice is given, theRedemption Period shall not terminate.

(iii) Exercise Notice: In order to exercise the option contained in Condition 6(e)(i) (PutOption) or (ii) (Change of Control), the holder must, not less than 15 nor more than 30days before the relevant Option Redemption Date (Put) deposit (in the case of a BearerNote) such Note (together with all unmatured Receipts and Coupons and unexchangedTalons) with any Paying Agent or (in the case of a Registered Note) the Certificaterepresenting such Note(s) with the Registrar or any Transfer Agent at its specified office,together with a duly completed option exercise notice (‘‘Exercise Notice’’) in the formobtainable from any Paying Agent, the Registrar or any Transfer Agent (as applicable)within the relevant period. No Note, Receipt, Coupon or Certificate so deposited andoption so exercised may be withdrawn (except as provided in the Agency Agreement)without the prior consent of the Issuer.

(f) Partly Paid Notes: Partly Paid Notes will be redeemed, whether at maturity, early redemptionor otherwise, in accordance with the provisions of this Condition and the provisions specifiedhereon.

(g) Purchases: The Issuer and any Subsidiary may at any time purchase Notes (provided that allunmatured Receipts and Coupons and unexchanged Talons relating thereto are attachedthereto or surrendered therewith) in the open market or otherwise at any price. Notes sopurchased, while held by or on behalf of the Issuer or any Subsidiary, shall not entitle theholder to vote at any meeting of the Noteholders and shall not be deemed to be outstandingfor the purposes of calculating the quorum at any meeting of Noteholders or for the purposesof Conditions 10 (Events of Default) and l1(a) (Meetings of Noteholders).

(h) Cancellation: All Notes purchased by or on behalf of the Issuer or any Subsidiary may besurrendered for cancellation, in the case of a Bearer Note by surrendering such Note togetherwith all unmatured Receipts and Coupons and all unexchanged Talons to the Fiscal Agentand, in the case of a Registered Note, by surrendering the Certificate representing suchNotes to the Registrar and, in each case, if so surrendered, shall, together with all Notesredeemed by the Issuer, be cancelled forthwith (together with all unmatured Receipts andCoupons and unexchanged Talons attached thereto or surrendered therewith). Any Notes sosurrendered for cancellation may not be reissued or resold and the obligations of the Issuer inrespect of any such Notes shall be discharged.

7. Payments and Talons

(a) Bearer Notes: Payments of principal and interest in respect of Bearer Notes shall, subject asmentioned below, be made against presentation and surrender or, in the case of partpayment of any sum due, endorsement, of the relevant Receipts (in the case of payments ofInstalment Amounts other than on the due date for redemption and provided that the Receipt

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is presented for payment together with its relative Note), Notes (in the case of all otherpayments of principal and, in the case of interest, as specified in Condition 7(f)(vi)) orCoupons (in the case of interest, save as specified in Condition 7(f)(ii)), as the case may be,at the specified office of any Paying Agent outside the United States by a cheque payable inthe relevant currency drawn on, or, at the option of the holder, by transfer to an accountdenominated in such currency with, a bank. For the purpose of this Condition 7, ‘‘bank’’means a bank in the Principal Financial Centre for such currency.

(b) Registered Notes:

(i) Principal: Payments of principal (which for the purposes of this Condition 7(b) shallinclude final Instalment Amounts but not other Instalment Amounts) in respect ofRegistered Notes shall be made against presentation and surrender or, in the case ofpart payment of any sum due, endorsement, of the relevant Certificates at the specifiedoffice of any of the Transfer Agents or of the Registrar and in the manner provided inparagraph (ii) below.

(ii) Interest: Interest (which for the purpose of this Condition 7(b) shall include all InstalmentAmounts other than final Instalment Amounts) on Registered Notes shall be paid to theperson shown on the Register at the close of business on the fifteenth day before thedue date for payment thereof (the ‘‘Record Date’’). Payments of interest on eachRegistered Note shall be made in the relevant currency by cheque drawn on a Bankand mailed to the holder (or to the first named of joint holders) of such Note at itsaddress appearing in the Register. Upon application by the holder to the specified officeof the Registrar or any Transfer Agent before the Record Date, such payment of interestmay be made by transfer to an account in the relevant currency maintained by thepayee with a Bank.

(c) Payments in the United States: Notwithstanding the foregoing, if any Bearer Notes aredenominated in U.S. dollars, payments in respect thereof may be made at the specified officeof any Paying Agent in New York City in the same manner as aforesaid if (i) the Issuer shallhave appointed Paying Agents with specified offices outside the United States with thereasonable expectation that such Paying Agents will be able to make payment of the amountson the Notes in the manner provided above when due, (ii) payment in full of such amounts atall such offices is illegal or effectively precluded by exchange controls or other similarrestrictions on payment or receipt of such amounts and (iii) such payment is then permittedby United States law, without involving, in the opinion of the Issuer, any adverse taxconsequence to the Issuer.

(d) Payments subject to laws: All payments are subject in all cases to any applicable laws,regulations and directives in the place of payment, but without prejudice to the provisions ofCondition 8 (Taxation). No commissions or expenses shall be charged to the Noteholders orCouponholders in respect of such payments.

(e) Appointment of Agents: The Agents initially appointed by the Issuer and their respectivespecified offices are listed below. The Agents act solely as agents of the Issuer and do notassume any obligation or relationship of agency or trust for or with any Noteholder orCouponholder. The Issuer reserves the right at any time to vary or terminate the appointmentof any of the Agents and to appoint additional or other Paying Agents or Transfer Agents,provided that the Issuer shall at all times maintain (i) a Fiscal Agent, (ii) a Registrar in relationto Registered Notes, (iii) a Transfer Agent in relation to Registered Notes, (iv) one or moreCalculation Agent(s) where the Conditions so require, (v) a Paying Agent having its specifiedoffices in London so long as the Notes are admitted to the Official List of the FinancialServices Authority in its capacity as competent authority under the Financial Services andMarkets Act 2000 and admitted to trading on the London Stock Exchange’s RegulatedMarket, (vi) such other agents as may be required by any other stock exchange on which theNotes may be listed and (vii) a Paying Agent with a specified office in a European Unionmember state that will not be obliged to withhold or deduct tax pursuant to any lawimplementing European Council Directive 2003/48/EC or any other Directive implementing theconclusions of the ECOFIN Council meeting of 26-27 November 2000.

In addition, the Issuer shall forthwith appoint a Paying Agent in New York City in respect ofany Bearer Notes denominated in U.S. Dollars in the circumstances described in paragraph(c) above.

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Notice of any such change or any change of any specified office shall promptly be given tothe Noteholders.

(f) Unmatured Coupons and Receipts and unexchanged Talons:

(i) Upon the due date for redemption of Bearer Notes which comprise Fixed Rate Notes(other than Dual Currency Notes or Index-Linked Notes) they should be surrendered forpayment together with all unmatured Coupons (if any) relating thereto, failing which anamount equal to the face value of each missing unmatured Coupon (or, in the case ofpayment not being made in full, that proportion of the amount of such missingunmatured Coupon that the sum of principal so paid bears to the total principal due)shall be deducted from the Final Redemption Amount, Early Redemption Amount orOptional Redemption Amount, as the case may be, due for payment. Any amount sodeducted shall be paid in the manner mentioned above against surrender of suchmissing Coupon within a period of 10 years from the Relevant Date for the payment ofsuch principal (whether or not such Coupon has become void pursuant to Condition 9(Prescription)).

(ii) Upon the due date for redemption of any Bearer Note comprising a Floating Rate Note,Dual Currency Interest Note or Index-Linked Note, unmatured Coupons relating to suchNote (whether or not attached) shall become void and no payment shall be made inrespect of them.

(iii) Upon the due date for redemption of any Bearer Note, any unexchanged Talon relatingto such Note (whether or not attached) shall become void and no Coupon shall bedelivered in respect of such Talon.

(iv) Upon the due date for redemption of any Bearer Note that is redeemable in instalments,all Receipts relating to such Note having an Instalment Date falling on or after such duedate (whether or not attached) shall become void and no payment shall be made inrespect of them.

(v) Where any Bearer Note that provides that the relative unmatured Coupons are tobecome void upon the due date for redemption of those Notes is presented forredemption without all unmatured Coupons, and where any Bearer Note is presented forredemption without any unexchanged Talon relating to it, redemption shall be made onlyagainst the provision of such indemnity as the Issuer may reasonably require.

(vi) If the due date for redemption of any Note is not a due date for payment of interest,interest accrued from the preceding due date for payment of interest or the InterestCommencement Date, as the case may be, shall only be payable against presentation(and surrender if appropriate) of the relevant Note. Interest accrued on a Note that onlybears interest after its Maturity Date shall be payable on redemption of such Noteagainst presentation of the relevant Note or Certificate representing it, as the case maybe.

(g) Talons: On or after the Interest Payment Date for the final Coupon forming part of a Couponsheet issued in respect of any Bearer Note, the Talon forming part of such Coupon sheetmay be surrendered at the specified office of the Fiscal Agent in exchange for a furtherCoupon sheet (and if necessary another Talon for a further Coupon sheet) (but excluding anyCoupons that may have become void pursuant to Condition 9 (Prescription)).

(h) Non-Business Days: If any date for payment in respect of any Note, Receipt or Coupon isnot a business day, the holder shall not be entitled to payment until the next followingbusiness day nor to any interest or other sum in respect of such postponed payment. In thisparagraph, ‘‘business day’’ means a day (other than a Saturday or a Sunday) on whichbanks and foreign exchange markets are open for general business in the relevant place ofpresentation, in such jurisdictions as shall be specified as ‘‘Financial Centres’’ hereon and:

(i) (in the case of a payment in a currency other than euro) where payment is to be madeby transfer to an account maintained with a bank in the relevant currency, on whichforeign exchange transactions may be carried on in the relevant currency in the principalfinancial centre of the country of such currency; or

(ii) (in the case of a payment in euro) which is a TARGET Business Day.

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8. Taxation

All payments of principal and interest by or on behalf of the Issuer in respect of the Notes, theReceipts and the Coupons shall be made free and clear of, and without withholding or deductionfor, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied,collected, withheld or assessed by or within the Republic of South Africa or any authority therein orthereof having power to tax, unless such withholding or deduction is required by law. In that event,the Issuer shall pay such additional amounts as shall result in receipt by the Noteholders andCouponholders of such amounts as would have been received by them had no such withholding ordeduction been required, except that no such additional amounts shall be payable with respect toany Note, Receipt or Coupon:

(a) to, or to a third party on behalf of, a holder who is liable to such taxes, duties, assessmentsor governmental charges in respect of such Note, Receipt or Coupon by reason of his havingsome connection with the Republic of South Africa other than the mere holding of the Note,Receipt or Coupon; or

(b) presented or (if applicable) surrendered (or (if applicable) in respect of which the relevantCertificate is presented or (if applicable) surrendered) for payment more than 30 days afterthe Relevant Date except to the extent that the holder of it would have been entitled to suchadditional amounts on presenting or, as the case may be, surrendering it for payment onsuch thirtieth day; or

(c) where such withholding or deduction is imposed on a payment to an individual and is requiredto be made pursuant to European Council Directive 2003/48/EC or any other Directiveimplementing the conclusions of the ECOFIN council meeting of 26-27 November 2000 or anylaw implementing or complying with, or introduced in order to conform to, such Directive; or

(d) presented or (if applicable) surrendered (or (if applicable) in respect of which the relevantCertificate is presented or (if applicable) surrendered) for payment by or on behalf of a holderwho would have been able to avoid such withholding or deduction by presenting or, as thecase may be, surrendering the relevant Note, Receipt or Coupon (or (if applicable) therelevant Certificate) to another Paying Agent in a Member State of the European Union.

If the Issuer becomes subject generally at any time to any taxing jurisdiction, authority or agencyother than or in addition to the Republic of South Africa, references in this Condition 8 and inCondition 6(c) (Redemption for Taxation Reasons) to the Republic of South Africa shall be readand construed as references to the Republic of South Africa and/or to such other jurisdiction,authority or agency.

As used in these Conditions, ‘‘Relevant Date’’ in respect of any Note, Receipt or Coupon meansthe date on which payment in respect of it first becomes due or (if any amount of the moneypayable is improperly withheld or refused) the date on which payment in full of the amountoutstanding is made or (if earlier) the date seven days after that on which notice is duly given tothe Noteholders that, upon further presentation or, as the case may be, surrender of the Note,Receipt or Coupon (or (if applicable) the relevant Certificate) being made in accordance with theConditions, such payment will be made, provided that payment is in fact made upon suchpresentation. References in these Conditions to (i) ‘‘principal’’ shall be deemed to include anypremium payable in respect of the Notes, all Instalment Amounts (except as provided in Condition7(a) (Bearer Notes)), Final Redemption Amounts, Early Redemption Amounts, Optional RedemptionAmounts, Amortised Face Amounts and all other amounts in the nature of principal payablepursuant to Condition 6 (Redemption, Purchase and Options) or any amendment or supplement toit, (ii) ‘‘interest’’ shall (except as provided in Condition 7(a) (Bearer Notes) be deemed to includeall Interest Amounts and all other amounts payable pursuant to Condition 5 (Interest and OtherCalculations) or any amendment or supplement to it and (iii) ‘‘principal’’ and/or ‘‘interest’’ shall bedeemed to include any additional amounts that may be payable under this Condition.

9. Prescription

Claims against the Issuer for payment in respect of the Notes, Receipts and Coupons (which, forthis purpose, shall not include Talons) shall be prescribed and become void unless made within 10years (in the case of principal) or five years (in the case of interest) from the appropriate RelevantDate in respect of them.

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10. Events of Default

If any of the following events (‘‘Events of Default’’) occurs, the holder of any Note may by writtennotice addressed by the holder thereof to the Issuer and delivered to the Issuer or to the specifiedoffice of the Fiscal Agent, declare that such Note is immediately due and repayable, whereuponthe Early Redemption Amount of such Note together with accrued interest to the date ofredemption shall become immediately due and payable, unless such event of default shall havebeen remedied prior to the receipt of such notice by the Fiscal Agent:

(a) Non-Payment: default is made in the payment on the due date of principal in respect of anyof the Notes, or default is made for more than five Business Days in the payment on the duedate of interest in respect of any of the Notes; or

(b) Breach of Other Obligations: the Issuer does not perform or comply with any one or moreof its other obligations in the Notes which default is incapable of remedy or is not remediedwithin 30 calendar days after written notice of such default addressed to the Issuer shall havebeen delivered to the Issuer or the Fiscal Agent at its specified office by any Noteholder; or

(c) Cross-Default: (i) any other present or future indebtedness of the Issuer or any MaterialSubsidiary for or in respect of Material Indebtedness becomes due and payable (or becomescapable of becoming due and payable) prior to its stated maturity by reason of any event ofdefault or the like (howsoever described), or (ii) any such Material Indebtedness is not paidwhen due or, as the case may be, within any applicable grace period, or (iii) the Issuer orany Material Subsidiary fails to pay when due or, as the case may be, within any applicablegrace period any amount payable by it under any present or future guarantee for, orindemnity in respect of, any moneys borrowed or raised, save in each case where the liabilityin respect of the relevant indebtedness, guarantee or indemnity is being contested by theIssuer or such Material Subsidiary, as the case may be, in good faith and by all appropriatemeans; or

(d) Enforcement Proceedings: a distress, attachment, execution or other legal process is levied,enforced or sued out on or against the whole or a material part of the property, assets orrevenues of the Issuer or any Material Subsidiary and is not discharged, withdrawn or stayedwithin 30 calendar days; or

(e) Security Enforced: any mortgage, charge, pledge, lien or other encumbrance, present orfuture, created or assumed by the Issuer or any Material Subsidiary in respect of all or amaterial part of the property, assets or revenues of the Issuer or such Material Subsidiary, asthe case may be, becomes enforceable and any step is taken to enforce it (including thetaking of possession or the appointment of a receiver, administrative receiver, manager orother similar person); or

(f) Insolvency: the Issuer or any Material Subsidiary (i) is (or is deemed by a court to be)insolvent or bankrupt or unable to, or admits inability to, pay its debts (or any class of itsdebts) as they fall due, (ii) stops, suspends or threatens to stop or suspend payment of itsdebts, (iii) proposes or makes a general assignment or an arrangement or composition with orfor the benefit of the relevant creditors in respect of any of such debts, or (iv) a moratorium isagreed or declared in respect of or affecting all or any part of the debts of the Issuer, or anyMaterial Subsidiary; or

(g) Winding-up: (i) the Issuer or any Material Subsidiary is placed in liquidation, dissolved orwound up, whether provisionally or finally or is placed under judicial management, whetherprovisionally or finally, or any process similar thereto, or an order is made or an effectiveresolution is passed for the winding-up, dissolution or liquidation of the Issuer or any MaterialSubsidiary, or (ii) the Issuer or any Material Subsidiary ceases or threatens to cease, or isrequired to cease, to carry on the whole or a substantial part of its business or operations ordisposes of the whole or a substantial part of its business or operations, in each case exceptfor the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger orconsolidation (i) on terms approved by an Extraordinary Resolution of the Noteholders or (ii)in the case of a Material Subsidiary, whereby the undertaking and assets of the MaterialSubsidiary are transferred to or otherwise vested in another Subsidiary; or

(h) Judicial Proceedings: the Issuer or any Material Subsidiary initiates or consents to judicialproceedings relating to itself under any applicable compromise with creditors, liquidation,winding-up or insolvency or other similar laws or compromises or attempts to compromise,

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with its creditors generally (or any significant class of creditors) or any meeting of creditors isconvened by the Issuer or any Material Subsidiary to consider a proposal for an arrangementof compromise with its creditors generally (or any significant class of creditors); or

(i) Authorisation and Consents: any action, condition or thing (including the obtaining oreffecting of any necessary consent, approval, authorisation, exemption, filing, licence, order,recording or registration) at any time required to be taken, fulfilled or done in order (i) toenable the Issuer lawfully to enter into, exercise its rights and perform and comply with itsobligations under the Notes, (ii) to ensure that those obligations are legally binding andenforceable and (iii) to make the Notes admissible in evidence in the courts of the Republicof South Africa is not taken, fulfilled or done; or

(j) Unlawfulness: it is or will become unlawful for the Issuer to perform or comply with any oneor more of its obligations under any of the Notes; or

(k) Analogous Events: any event occurs which under the laws of the Republic of South Africahas an analogous effect to any of the events referred to in paragraphs (d)-(h) above.

For the purpose of this Condition,

‘‘Material Indebtedness’’ means any Indebtedness amounting in aggregate to an amountwhich equals or exceeds 0.5 per cent. of the total assets of the Issuer as set out in theIssuer’s most recent published financial statements from time to time (or its equivalent inother currencies) at the time of the relevant Event of Default.

11. Meetings of Noteholders and Modification

(a) Meetings of Noteholders: The Agency Agreement contains provisions for conveningmeetings of Noteholders to consider any matter affecting their interests, including thesanctioning by Extraordinary Resolution (as defined in the Agency Agreement) of amodification of any of these Conditions. Such a meeting may be convened by the Issuer andshall be convened by it upon the request in writing of Noteholders holding not less than 10per cent. of the aggregate principal amount of the Notes for the time being outstanding. Thequorum for any meeting convened to consider an Extraordinary Resolution shall be two ormore persons holding or representing a clear majority in aggregate principal amount of theNotes for the time being outstanding, or at any adjourned meeting, two or more personsbeing or representing Noteholders whatever the principal amount of the Notes held orrepresented, unless the business of such meeting includes consideration of proposals, interalia, (i) to amend the dates of maturity or redemption of the Notes, any Instalment Date orany date for payment of interest or Interest Amounts on the Notes, (ii) to reduce or cancelthe principal amount of, or any Instalment Amount of, or any premium payable on redemptionof, the Notes, (iii) to reduce the rate or rates of interest in respect of the Notes or to vary themethod or basis of calculating the rate or rates or amount of interest or the basis forcalculating any Interest Amount in respect of the Notes, (iv) if a Minimum and/or a MaximumRate of Interest, Instalment Amount or Redemption Amount is shown hereon, to reduce anysuch Minimum and/or Maximum, (v) to vary any method of, or basis for, calculating the FinalRedemption Amount, the Early Redemption Amount or the Optional Redemption Amount,including the method of calculating the Amortised Face Amount, (vi) to vary the currency orcurrencies of payment or denomination of the Notes, (vii) to modify the provisions concerningthe quorum required at any meeting of Noteholders or the majority required to pass anExtraordinary Resolution, (viii) to approve a Business Change pursuant to Condition 4(b)(Change of Principal Business), or (ix) to change the governing law of the Notes, in whichcase the necessary quorum shall be two or more persons holding or representing not lessthan 75 per cent., or at any adjourned meeting not less than 25 per cent., in principal amountof the Notes for the time being outstanding. Any Extraordinary Resolution duly passed shallbe binding on Noteholders (whether or not they were present at the meeting at which suchresolution was passed) and on all Couponholders.

These Conditions may be amended, modified or varied in relation to any Series of Notes bythe terms of the relevant Final Terms in relation to such Series.

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In addition, a resolution in writing signed by or on behalf of all Noteholders who for the timebeing are entitled to receive notice of a meeting of Noteholders will take effect as if it werean Extraordinary Resolution. Such a resolution in writing may be contained in one documentor several documents in the same form, each signed by or on behalf of one or moreNoteholders.

(b) Modification: The Notes, these Conditions and the Deed of Covenant may be amendedwithout the consent of the Noteholders or the Couponholders to correct a manifest error. Theparties to the Agency Agreement shall only agree to any modification of the AgencyAgreement (including any waiver or authorisation of any breach of proposed breach of or anyfailure to comply with, the Agency Agreement) which is of a formal, minor or technical nature,or is made to correct a manifest error, or which, in the opinion of such parties, could notreasonably be expected to be prejudicial to the interests of the Noteholders.

12. Replacement of Notes, Receipts, Coupons and Talons

If a Note, Certificate, Receipt, Coupon or Talon is lost, stolen, mutilated, defaced or destroyed, itmay be replaced, subject to applicable laws and stock exchange or other relevant authorityregulations, at the specified office of the Fiscal Agent in London (in the case of Bearer Notes,Receipts, Coupons or Talons) and of the Registrar (in the case of Certificates) or such otherPaying Agent or Transfer Agent, as the case may be, as may from time to time be designated bythe Issuer for the purpose and notice of whose designation is given to Noteholders, in each caseon payment by the claimant of the fees and costs incurred in connection therewith and on suchterms as to evidence, security and indemnity (which may provide, inter alia, that if the allegedlylost, stolen or destroyed Note, Certificate, Receipt, Coupon or Talon is subsequently presented forpayment or, as the case may be, for exchange for further Coupons, there shall be paid to theIssuer on demand the amount payable by the Issuer in respect of such Notes, Certificate,Receipts, Coupons or further Coupons) and otherwise as the Issuer may reasonably require.Mutilated or defaced Notes, Certificate, Receipts, Coupons or Talons must be surrendered beforereplacements will be issued.

13. Further Issues

The Issuer may from time to time, without the consent of the Noteholders or Couponholders,create and issue further notes having the same terms and conditions as the Notes in all respects(so that, for the avoidance of doubt, references in the conditions of such notes to ‘‘Issue Date’’shall be to the first issue date of the Notes) and so that the same shall be consolidated and forma single series with such Notes, and references in these Conditions to ‘‘Notes’’ shall be construedaccordingly.

14. Notices

Notices to the Noteholders shall be valid if published in a leading English language dailynewspaper published in London (which is expected to be the Financial Times). If any suchpublication is not practicable, notice shall be validly given if published in another leading dailyEnglish language newspaper with general circulation in Europe. The Issuer shall also ensure thatnotices are duly published in a manner that complies with any other relevant rules of any stockexchange or other relevant authority on which the Notes are for the time being or by which theyhave for the time being admitted to trading.

Any such notice shall be deemed to have been given on the date of such publication or, if requiredto be published more than once or on different dates, on the first date on which publication ismade in all required newspapers.

Couponholders shall be deemed for all purposes to have notice of the contents of any notice givento the Noteholders in accordance with this Condition.

15. Currency Indemnity

If any sum due from the Issuer in respect of the Notes or the Coupons or any order or judgmentgiven or made in relation thereto has to be converted from the currency (the ‘‘first currency’’) inwhich the same is payable under these Conditions or such order or judgment into another currency(the ‘‘second currency’’) for the purpose of (a) making or filing a claim or proof against the Issuer,(b) obtaining an order or judgment in any court or other tribunal or (c) enforcing any order orjudgment given or made in relation to the Notes, the Issuer shall indemnify each Noteholder, on

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the written demand of such Noteholder addressed to the Issuer and delivered to the Issuer or tothe Specified Office of the Fiscal Agent, against any loss suffered as a result of any discrepancybetween (i) the rate of exchange used for such purpose to convert the sum in question from thefirst currency into the second currency and (ii) the rate or rates of exchange at which suchNoteholder may in the ordinary course of business purchase the first currency with the secondcurrency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order,judgment, claim or proof.

This indemnity constitutes a separate and independent obligation of the Issuer and shall give riseto a separate and independent cause of action.

16. Contracts (Rights of Third Parties) Act 1999

No person shall have any right to enforce any term or condition of the Notes under the Contracts(Rights of Third Parties) Act 1999.

17. Governing Law and Jurisdiction

(a) Governing Law: The Notes, the Receipts, the Coupons and the Talons and any non-contractual obligations arising out of or in connection with the Notes, the Receipts, theCoupons and the Talons are governed by, and shall be construed in accordance with, Englishlaw.

(b) Jurisdiction: The Courts of England have jurisdiction to settle any disputes that may ariseout of or in connection with any Notes, Receipts, Coupons or Talons (including any disputerelating to their existence, validity or termination or any non-contractual obligations arising outof or in connection with them) and accordingly any legal action or proceedings arising out ofor in connection with any Notes, Receipts, Coupons or Talons (‘‘Proceedings’’) may bebrought in such courts. The Issuer irrevocably submits to the jurisdiction of the courts ofEngland and waives any objection to Proceedings in such courts on the ground of venue oron the ground that the Proceedings have been brought in an inconvenient forum. Thissubmission is made for the benefit of each of the holders of the Notes, Receipts, Couponsand Talons only, and shall not affect the right of any of them to take Proceedings in anyother court of competent jurisdiction nor shall the taking of Proceedings in one or morejurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrentlyor not).

(c) Service of Process: The Issuer appoints TMF Corporate Services Limited of Pellipar House,1st Floor, 9 Cloak Lane, London EC4R 2RU, United Kingdom as its agent in England toreceive, for it and on its behalf, service of process in any Proceedings in England. Suchservice shall be deemed completed on delivery to such process agent (whether or not, it isforwarded to and received by the Issuer). If for any reason such process agent ceases to beable to act as such or no longer has an address in London, the Issuer irrevocably agrees toappoint a substitute process agent and shall immediately notify Noteholders of suchappointment in accordance with Condition 14 (Notices). Nothing shall affect the right of anyNoteholder to serve process in any manner permitted by law.

(d) Waiver: The Issuer irrevocably agrees that, should any Proceedings be taken anywhere(whether for any injunction, specific performance, damages or otherwise), no immunity (to theextent that it may at any time exist, whether on the grounds of sovereignty or otherwise) inrelation to those Proceedings (including without limitation, immunity from the jurisdiction of anycourt or tribunal, suit, service of process, injunctive or other interim relief, any order forspecific performance, any order for recovery of land, any attachment (whether in aid ofexecution, before judgment or otherwise) of its assets, any process for execution of anyaward or judgment or other legal process) shall be claimed by it or on its behalf or withrespect to its assets, any such immunity being irrevocably waived. The Issuer irrevocablyagrees that it and its assets are, and shall be, subject to such Proceedings, attachment orexecution in respect of its obligations under the Notes.

(e) Consent: The Issuer irrevocably and generally consents in respect of any Proceedingsanywhere to the giving of any relief or the issue of any process in connection with thoseProceedings including, without limitation, the making, enforcement or execution against anyassets whatsoever (irrespective of their use or intended use) of any order or judgment whichmay be made or given in those Proceedings.

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SUMMARY OF PROVISIONS RELATING TO THE NOTESWHILE IN GLOBAL FORM

Initial Issue of Notes

Upon:

(a) in the case of Bearer Notes, the initial deposit of a Global Note with a Common Depositary;or

(b) in the case of Registered Notes, the registration of Registered Notes in the name of anynominee for Euroclear and Clearstream, Luxembourg and delivery of the relevant GlobalCertificate to the Common Depositary, Euroclear or Clearstream, Luxembourg will credit eachsubscriber with a nominal amount of Notes equal to the nominal amount thereof for which ithas subscribed and paid. Upon the initial deposit of a Global Certificate in respect of, andregistration of, Registered Notes in the name of a nominee for DTC and delivery of therelevant Global Certificate to the Custodian for DTC, DTC will credit each participant with anominal amount of Notes equal to the nominal amount thereof for which it has subscribedand paid. Notes that are initially deposited with the Common Depositary may also be creditedto the accounts of subscribers with (if indicated in the relevant Final Terms) other clearingsystems through direct or indirect accounts with Euroclear and Clearstream, Luxembourg heldby such other clearing systems. Conversely, Notes that are initially deposited with any otherclearing system may similarly be credited to the accounts of subscribers with Euroclear,Clearstream, Luxembourg or other clearing systems.

Relationship of Accountholders with Clearing Systems

Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg, DTC or anyother clearing system as the holder of a Note represented by a Global Note or a Global Certificatemust look solely to Euroclear, Clearstream, Luxembourg, DTC or such clearing system (as thecase may be) for its share of each payment made by the Issuer to the bearer of such Global Noteor the holder of the underlying Registered Notes, as the case may be, and in relation to all otherrights arising under the Global Notes or Global Certificates, subject to and in accordance with therespective rules and procedures of Euroclear, Clearstream, Luxembourg, DTC or such clearingsystem (as the case may be). Such persons shall have no claim directly against the Issuer inrespect of payments due on the Notes for so long as the Notes are represented by such GlobalNote or Global Certificate and such obligations will be discharged by payment to the bearer ofsuch Global Note or the holder of the underlying Registered Notes, as the case may be, in respectof each amount so paid.

Exchange

Temporary Global Notes

Each Temporary Global Note will be exchangeable free of charge to the holder, on or after itsexchange date (the ‘‘Exchange Date’’):

(i) if the relevant Final Terms indicate that such Global Note is issued in compliance with the CRules or in a transaction to which TEFRA is not applicable (see ‘‘Subscription and Sale –Selling Restrictions’’), in whole, but not in part, for the Definitive Notes defined and describedbelow; and

(ii) otherwise, in whole but not in part and on a day after the expiry of 40 days after its issueupon certification as to non-U.S. beneficial ownership in the form set out in the AgencyAgreement for interests in a Permanent Global Note or, if so provided in the relevant FinalTerms, for Definitive Notes.

Permanent Global Notes

Each Permanent Global Note will be exchangeable, free of charge to the holder, on or after itsExchange Date in whole but not in part (except as provided under ‘‘– Partial Exchange ofPermanent Global Notes’’), for Definitive Notes if the Permanent Global Note is held on behalf ofEuroclear or Clearstream, Luxembourg or any other clearing system (an ‘‘Alternative ClearingSystem’’) and any such clearing system is closed for business for a continuous period of 14 days(other than by reason of holidays, statutory or otherwise) or announces an intention permanently tocease business or in fact does so.

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In the event that a Global Note is exchanged for Definitive Notes, such Definitive Notes shall beissued in Specified Denomination(s) only. A Noteholder who holds a principal amount of less thanthe minimum Specified Denomination will not receive a Definitive Note in respect of such holdingand would need to purchase a principal amount of Notes such that it holds an amount equal toone or more Specified Denominations.

Regulation S Global Certificates

If the applicable Final Terms state that the Notes are to be represented by a Regulation S GlobalCertificate on issue, the following will apply in respect of transfers of Notes held in Euroclear orClearstream, Luxembourg or an Alternative Clearing System. These provisions will not prevent thetrading of interests in the Notes within a clearing system whilst they are held on behalf of suchclearing system, but will limit the circumstances in which the Notes may be withdrawn from therelevant clearing system. Transfers of the holding of Notes represented by any Global Certificatepursuant to Condition 2(a) (Transfer of Registered Notes) may only be made:

(i) in whole, but not in part, if the relevant clearing system is closed for business for acontinuous period of 14 days (other than by reason of holidays, statutory or otherwise) orannounces an intention permanently to cease business or does in fact do so; or

(ii) in whole, or in part, with the Issuer’s consent,

provided that, in the case of any transfer pursuant to (i) above, the Registered Noteholder hasgiven the relevant Registrar not less than 30 days’ notice at its specified office of the RegisteredNoteholder’s intention to effect such transfer.

Rule 144A Global Certificates

If the Final Terms state that the Rule 144A Notes are to be represented by a Rule 144A GlobalCertificate on issue, the following will apply in respect of transfers of Notes held in DTC. Theseprovisions will not prevent the trading of interests in the Notes within a clearing system whilst theyare held on behalf of DTC, but will limit the circumstances in which the Notes may be withdrawnfrom DTC. Transfers of the holding of Notes represented by that Rule 144A Global Certificatepursuant to Condition 2(a) (Transfer of Registered Notes) may only be made:

(i) in whole, but not in part, if such Notes are held on behalf of a Custodian for DTC and if DTCnotifies the Issuer that it is no longer willing or able to discharge properly its responsibilitiesas depositary with respect to that Rule 144A Global Certificate or DTC ceases to be a‘‘clearing agency’’ registered under the Exchange Act or is at any time no longer eligible toact as such, and the Issuer is unable to locate a qualified successor within 90 days ofreceiving notice of such ineligibility on the part of DTC; or

(ii) in whole, or in part, with the Issuer’s consent,

provided that, in the case of any transfer pursuant to (i) above, the relevant Registered Noteholderhas given the relevant Registrar not less than 30 days’ notice at its specified office of theRegistered Noteholder’s intention to effect such transfer. Individual Certificates issued in exchangefor a beneficial interest in a Rule 144A Global Certificate shall bear the legend applicable to suchNotes as set out in ‘‘Transfer Restrictions’’.

Partial Exchange of Permanent Global Notes

For so long as a Permanent Global Note is held on behalf of a clearing system and the rules ofthat clearing system permit, such Permanent Global Note will be exchangeable in part on one ormore occasions for Definitive Notes if so provided in, and in accordance with, the Conditions(which will be set out in the relevant Final Terms) relating to Partly Paid Notes.

Delivery of Notes

On or after any due date for exchange the holder of a Global Note may, in the case of anexchange in whole, surrender such Global Note or, in the case of a partial exchange, present it forendorsement to, or to the order of, the Fiscal Agent. In exchange for any Global Note, or the partthereof to be exchanged, the Issuer will (i) in the case of a Temporary Global Note exchangeablefor a Permanent Global Note, deliver, or procure the delivery of, a Permanent Global Note in anaggregate nominal amount equal to that of the whole or that part of a Temporary Global Note thatis being exchanged or, in the case of a subsequent exchange, endorse, or procure theendorsement of, a Permanent Global Note to reflect such exchange or (ii) in the case of a GlobalNote exchangeable for Definitive Notes or (in the case of a Permanent Global Note) Registered

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Notes, deliver, or procure the delivery of, an equal aggregate nominal amount of duly executed andauthenticated Definitive Notes and/or Certificates, as the case may be. Global Notes and DefinitiveNotes will be delivered outside the United States and its possessions. In this Base Prospectus,‘‘Definitive Notes’’ means, in relation to any Global Note, the definitive Bearer Notes for whichsuch Global Note may be exchanged (if appropriate, having attached to them all Coupons andReceipts in respect of interest or Instalment Amounts that have not already been paid on theGlobal Note and a Talon). Definitive Notes will be security printed and Certificates will be printed inaccordance with any applicable legal and stock exchange requirements in or substantially in theform set out in the Schedules to the Agency Agreement. On exchange in full of each PermanentGlobal Note, the Issuer will, if the holder so requests, procure that it is cancelled and returned tothe holder together with the relevant Definitive Notes.

Exchange Date

Exchange Date means, in relation to a Temporary Global Note, the day falling after the expiry of40 days after its issue date and, in relation to a Permanent Global Note, a day falling not less than60 days, or in the case of an exchange for Registered Notes five days, after that on which thenotice requiring exchange is given or, where applicable, after the 15th day on which a clearingsystem is closed for business, and on which banks are open for business in the city in which thespecified office of the Fiscal Agent is located and in the city in which the relevant clearing systemis located.

Amendment to Conditions

The Temporary Global Notes, Permanent Global Notes and Global Certificates contain provisionsthat apply to the Notes that they represent, some of which modify the effect of the terms andconditions of the Notes set out in this Base Prospectus. The following is a summary of certain ofthose provisions:

Payments

No payment falling due after the Exchange Date will be made on any Global Note unlessexchange for an interest in a Permanent Global Note or for Definitive Notes is improperly withheldor refused. Payments on any Temporary Global Note issued in compliance with the D Rules willonly be made against presentation of certification as to non-U.S. beneficial ownership in the formset out in the Agency Agreement. All payments in respect of Notes represented by a Global Notewill be made against presentation for endorsement and, if no further payment falls to be made inrespect of the Notes, surrender of that Global Note to or to the order of the Fiscal Agent or suchother Paying Agent as shall have been notified to the Noteholders for such purpose. A record ofeach payment so made will be endorsed on each Global Note, which endorsement will be primafacie evidence that such payment has been made in respect of the Notes. Condition 7(f)(vi) andCondition 8(d) will apply to the Definitive Notes only.

Record Date

Each payment in respect of a Global Certificate will be made to the person shown as theNoteholder in the Register at the opening of business on the Clearing System Business Day beforethe due date for such payment (the ‘‘Record Date’’), where ‘‘Clearing System Business Day’’means a day on which each clearing system for which the Global Certificate is being held is openfor business.

Prescription

Claims against the Issuer in respect of Notes that are represented by a Permanent Global Notewill become void unless it is presented for payment within a period of 10 years (in the case ofprincipal) and 5 years (in the case of interest) from the appropriate Relevant Date (as defined inCondition 8 (Taxation)).

Meetings

The holder of a Permanent Global Note or of the Notes represented by a Global Certificate shall(unless such Permanent Global Note or Global Certificate represents only one Note) be treated asbeing two persons for the purposes of any quorum requirements of a meeting of Noteholders and,at any such meeting, the holder of a Permanent Global Note shall be treated as having one votein respect of each integral currency unit of the Specified Currency of the Notes. All holders of

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Registered Notes are entitled to one vote in respect of each Note comprising such Noteholder’sholding, whether or not represented by a Global Certificate.

Cancellation

Cancellation of any Note represented by a Permanent Global Note that is required by theConditions to be cancelled (other than upon its redemption) will be effected by a reduction in thenominal amount of the relevant Permanent Global Note or its presentation to or to the order of theFiscal Agent for endorsement in the relevant schedule of such Permanent Global Note or, in thecase of a Global Certificate, by a reduction in the aggregate principal amount of the Certificates inthe register of the Certificateholders, whereupon the principal amount thereof shall be reduced forall purposes by the amount so cancelled and endorsed.

Purchase

Notes represented by a Permanent Global Note or a Global Certificate may only be purchased bythe Issuer or any of its subsidiaries if they are purchased together with the rights to receive allfuture payments of interest and Instalment Amounts (if any) thereon.

Issuer’s Option

Any option provided to the Issuer in the Conditions of any Notes while such Notes are representedby a Permanent Global Note or a Global Certificate shall be exercised by the Issuer giving noticeto the Noteholders within the time limits set out in and containing the information required by theConditions, except that the notice shall not be required to contain the serial numbers of Notesdrawn in the case of a partial exercise of an option and accordingly no drawing of Notes shall berequired. In the event that the Issuer’s option is exercised in respect of some but not all of theNotes of any Series, the rights of accountholders with a clearing system in respect of the Noteswill be governed by the standard procedures of Euroclear, Clearstream, Luxembourg, DTC or anyother clearing system (as the case may be).

Noteholders’ Option

Any option of the Noteholders provided for in the Conditions of any Notes while such Notes arerepresented by a Permanent Global Note or a Global Certificate may be exercised by the holder ofthe Permanent Global Note or Global Certificate, as the case may be, by giving notice to theFiscal Agent within the time limits relating to the deposit of Notes with a Paying Agent or TransferAgent set out in the Conditions substantially in the form of the notice available from any PayingAgent or Transfer Agent, as the case may be, except that the notice shall not be required tocontain the serial numbers of the Notes in respect of which the option has been exercised, andstating the nominal amount of Notes in respect of which the option is exercised and at the sametime presenting the Permanent Global Note to the Fiscal Agent, or to a Paying Agent acting onbehalf of the Fiscal Agent, for notation or, in the case of a Global Certificate, by reduction in theaggregate principal amount of the Certificate in the register of the Certificateholders.

Notices

So long as any Notes are represented by a Global Note or a Global Certificate and such GlobalNote or Global Certificate is held on behalf of a clearing system, notices to the holders of Notes ofthat Series may be given by delivery of the relevant notice to that clearing system forcommunication by it to entitled accountholders in substitution for publication as required by theConditions or by delivery of the relevant notice to the holder of the Global Note or GlobalCertificate.

Partly Paid Notes

The provisions relating to Partly Paid Notes are not set out in this Base Prospectus, but will becontained in the relevant Final Terms and thereby in the Global Notes. While any instalments ofthe subscription moneys due from the holder of Partly Paid Notes are overdue, no interest in aGlobal Note representing such Notes may be exchanged for an interest in a Permanent GlobalNote or for Definitive Notes (as the case may be). If any Noteholder fails to pay any instalmentdue on any Partly Paid Notes within the time specified, the Issuer may forfeit such Notes and shallhave no further obligation to their holder in respect of them.

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CLEARING AND SETTLEMENT

Book-Entry Ownership

Bearer Notes

The Issuer may make applications to Euroclear and/or Clearstream, Luxembourg for acceptance intheir respective book-entry systems in respect of any Series of Bearer Notes. In respect of BearerNotes, a Temporary Global Note and/or a Permanent Global Note in bearer form without couponsmay be deposited with the Common Depositary for Euroclear and/or Clearstream, Luxembourg oran Alternative Clearing System as agreed between the Issuer and the Dealer. Transfers ofinterests in such Temporary Global Notes or Permanent Global Notes will be made in accordancewith the normal Euromarket debt securities operating procedures of Euroclear and Clearstream,Luxembourg or, if appropriate, the Alternative Clearing System.

Registered Notes

The Issuer may make applications to Euroclear and/or Clearstream, Luxembourg for acceptance intheir respective book-entry systems in respect of the Notes to be represented by a Regulation SGlobal Certificate. Each Regulation S Global Certificate deposited with the Common Depositary for,and registered in the name of, a nominee of Euroclear and/or Clearstream, Luxembourg will havean ISIN and a Common Code.

The Issuer, and a relevant U.S. agent appointed for such purpose that is an eligible DTCparticipant, may make application to DTC for acceptance in its book-entry settlement system of theRegistered Notes represented by a Rule 144A Global Certificate. Each such Rule 144A GlobalCertificate will have a CUSIP number. Each Rule 144A Global Certificate will be subject torestrictions on transfer contained in a legend appearing on the front of such Global Certificate, asset out under ‘‘Transfer Restrictions’’. In certain circumstances, as described below in ‘‘Transfer ofRegistered Notes,’’ transfers of interests in a Rule 144A Global Certificate may be made as aresult of which such legend may no longer be required.

In the case of a Tranche of Registered Notes to be cleared through the facilities of DTC, theCustodian, with whom the Rule 144A Global Certificates are deposited, and DTC, will electronicallyrecord the nominal amount of the Rule 144A Notes held within the DTC system. Investors mayhold their beneficial interests in a Rule 144A Global Certificate directly through DTC if they areparticipants in the DTC system, or indirectly through organisations which are participants in suchsystem.

Payments of the principal of, and interest on, each Rule 144A Global Certificate registered in thename of DTC’s nominee will be to, or to the order of, its nominee as the registered owner of suchRule 144A Global Certificate. The Issuer expects that the nominee, upon receipt of any suchpayment, will immediately credit DTC participants’ accounts with payments in amountsproportionate to their respective beneficial interests in the nominal amount of the relevant Rule144A Global Certificate as shown on the records of DTC or the nominee. The Issuer also expectsthat payment by DTC participants to owners of beneficial interests in such Rule 144A GlobalCertificate held through such DTC participant will be governed by standing instructions andcustomary practices, as is now the case with securities held for the accounts of customersregistered in the names of nominees for such customers. Such payments will be the responsibilityof such DTC participants. Neither the Issuer, the Fiscal Agent or any Paying Agent or any TransferAgent will have any responsibility or liability for any aspect of the records relating, to or paymentsmade on account of, ownership interests in any Rule 144A Global Certificate or for maintaining,supervising or reviewing any records relating to such ownership interests.

All Registered Notes will initially be in the form of a Regulation S Global Certificate and/or a Rule144A Global Certificate. Individual Certificates will only be available, in the case of Notes initiallyrepresented by a Regulation S Global Certificate, in amounts specified in the relevant Final Terms,and, in the case of Notes initially represented by a Rule 144A Global Certificate, in minimumamounts of U.S.$100,000 (or its equivalent rounded upwards as agreed between the Issuer andthe relevant Dealer(s), or higher integral multiples of U.S.$1,000, in certain limited circumstancesdescribed below.

Payments through DTC

Payments in U.S. Dollars of principal and interest in respect of a Rule 144A Global Certificateregistered in the name of a nominee of DTC will be made to the order of such nominee as the

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registered holder of such Note. Payments of principal and interest in a currency other than U.S.Dollars in respect of Notes evidenced by a Rule 144A Global Certificate registered in the name ofa nominee of DTC will be made or procured to be made by the Paying Agent in such currency inaccordance with the following provisions. The amounts in such currency payable by the PayingAgent or its agent to DTC with respect to Notes held by DTC or its nominee will be received fromthe Issuer by the Paying Agent who will make payments in such currency by wire transfer of sameday funds to the designated bank account in such currency of those DTC participant entitled toreceive the relevant payment who have made an irrevocable election to DTC, in the case ofpayments of interest, on or prior to the third business day in New York City after the Record Datefor the relevant payment of interest and, in the case of payments of principal, at least 12 businessdays in New York City prior to the relevant payment date, to receive that payment in suchcurrency. The Paying Agent will convert amounts in such currency into U.S. Dollars and deliversuch U.S. Dollar amount in same day funds to DTC for payment through its settlement system tothose DTC participants entitled to receive the relevant payment that did not elect to receive suchpayment in such currency. The Agency Agreement sets out the manner in which such conversionsare to be made.

Transfer of Registered Notes

Transfers of interests in Global Certificates within Euroclear, Clearstream, Luxembourg and DTCwill be in accordance with the usual rules and operating procedures of the relevant clearingsystem. The laws of some states in the United States require that certain persons take physicaldelivery in definitive form of securities. Consequently, the ability to transfer interests in a Rule 144AGlobal Certificate to such persons may be limited. Because DTC can only act on behalf ofparticipants, who in turn act on behalf of indirect participants, the ability of a person having aninterest in a Rule 144A Global Certificate to pledge such interest to persons or entities that do notparticipate in DTC, or otherwise take actions in respect of such interest, may be affected by thelack of a physical certificate in respect of such interest.

Beneficial interests in a Regulation S Global Certificate may only be held through Euroclear orClearstream, Luxembourg. In the case of Registered Notes to be cleared through Euroclear,Clearstream, Luxembourg and/or DTC, transfers may be made at any time by a holder of aninterest in a Regulation S Global Certificate to a transferee who wishes to take delivery of suchinterest through a Rule 144A Global Certificate for the same Series of Notes provided that anysuch transfer made on or prior to the expiration of the distribution compliance period (as used in‘‘Subscription and Sale’’) relating to the Notes represented by such Regulation S Global Certificatewill only be made upon receipt by any Transfer Agent of a written certificate from Euroclear orClearstream, Luxembourg, as the case may be, (based on a written certificate from the transferorof such interest) to the effect that such transfer is being made to a person whom the transferor,and any person acting on its behalf, reasonably believes is a QIB within the meaning of Rule 144Ain a transaction meeting the requirements of Rule 144A and in accordance with any applicablesecurities laws of any state of the United States. Any such transfer made thereafter of the Notesrepresented by such Regulation S Global Certificate will only be made upon request throughEuroclear or Clearstream, Luxembourg by the holder of an interest in the Regulation S GlobalCertificate to the Fiscal Agent of details of that account at DTC to be credited with the relevantinterest in the Rule 144A Global Certificate. Transfers at any time by a holder of any interest in theRule 144A Global Certificate to a transferee who takes delivery of such interest through anRegulation S Global Certificate will only be made upon delivery to any Transfer Agent of acertificate setting forth compliance with the provisions of Regulation S and giving details of theaccount at Euroclear or Clearstream, Luxembourg, as the case may be, and DTC to be creditedand debited, respectively, with an interest in each relevant Global Certificate.

Subject to compliance with the transfer restrictions applicable to the Registered Notes describedabove and under ‘‘Transfer Restrictions,’’ cross-market transfers between DTC, on the one hand,and directly or indirectly through Euroclear or Clearstream, Luxembourg accountholders, on theother, will be effected by the relevant clearing system in accordance with its rules and throughaction taken by the Custodian, the Registrar and the Fiscal Agent.

On or after the Issue Date for any Series, transfers of Notes of such Series betweenaccountholders in Euroclear and/or Clearstream, Luxembourg and transfers of Notes of such Seriesbetween participants in DTC will generally have a settlement date three business days after thetrade date. The customary arrangements for delivery versus payment will apply to such transfers.

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Cross-market transfers between accountholders in Euroclear or Clearstream, Luxembourg and DTCparticipants will need to have an agreed settlement date between the parties to such transfer.Because there is no direct link between DTC, on the one hand, and Euroclear and Clearstream,Luxembourg, on the other, transfers of interests in the relevant Global Certificates will be effectedthrough the Fiscal Agent, the Custodian, the relevant Registrar and any applicable Transfer Agentreceiving instructions (and where appropriate certification) from the transferor and arranging fordelivery of the interests being transferred to the credit of the designated account for the transferee.Transfers will be effected on the later of (i) three business days after the trade date for thedisposal of the interest in the relevant Global Certificate resulting in such transfer and (ii) twobusiness days after receipt by the Fiscal Agent or the Registrar, as the case may be, of thenecessary certification or information to effect such transfer. In the case of cross-market transfers,settlement between Euroclear or Clearstream, Luxembourg accountholders and DTC participantscannot be made on a delivery versus payment basis. The securities will be delivered on a freedelivery basis and arrangements for payment must be made separately.

For a further description of restrictions on transfer of Registered Notes, see ‘‘Transfer Restrictions’’.

DTC has advised the Issuer that it will take any action permitted to be taken by a holder ofRegistered Notes (including, without limitation, the presentation of Rule 144A Global Certificates forexchange as described above) only at the direction of one or more participants in whose accountwith DTC interests in Rule 144A Global Rule 144A are credited and only in respect of such portionof the aggregate nominal amount of the relevant Rule 144A Global Certificates as to which suchparticipant or participants has or have given such direction. However, in the circumstancesdescribed above, DTC will surrender the relevant Rule 144A Global Certificates for exchange forIndividual Certificates (which will, in the case of Rule 144A Notes, bear the legend applicable totransfers pursuant to Rule 144A).

DTC has advised the Issuer as follows: DTC is a limited purpose trust company organised underthe laws of the State of New York, a ‘‘banking organisation’’ under the laws of the State of NewYork, a member of the U.S. Federal Reserve System, a ‘‘clearing corporation’’ within the meaningof the New York Uniform Commercial Code and a ‘‘clearing agency’’ registered pursuant to theprovisions of Section 17A of the Exchange Act. DTC was created to hold securities for itsparticipants and facilitate the clearance and settlement of securities transactions betweenparticipants through electronic computerised book-entry changes in accounts of its participants,thereby eliminating the need for physical movement of certificates. Direct participants includesecurities brokers and dealers, banks, trust companies, clearing corporations and certain otherorganisations. Indirect access to DTC is available to others, such as banks, securities brokers,dealers and trust companies that clear through or maintain a custodial relationship with a DTCdirect participant, either directly or indirectly.

Although Euroclear, Clearstream, Luxembourg and DTC have agreed to the foregoing proceduresin order to facilitate transfers of beneficial interests in the Global Certificates among participantsand accountholders of DTC, Clearstream, Luxembourg and Euroclear, they are under no obligationto perform or continue to perform such procedures, and such procedures may be discontinued atany time. None of the Issuer, any Paying Agent nor any Transfer Agent will have any responsibilityfor the performance by Euroclear, Clearstream, Luxembourg or DTC or their respective direct orindirect participants or accountholders of their respective obligations under the rules andprocedures governing their operations.

While a Rule 144A Global Certificate is lodged with DTC or the Custodian, Restricted Notesrepresented by Individual Certificates will not be eligible for clearing or settlement throughEuroclear, Clearstream, Luxembourg or DTC.

Individual Certificates

Registration of title to Registered Notes in a name other than a depositary or its nominee forClearstream, Luxembourg and Euroclear or for DTC will be permitted only (i) in the case of Rule144A Global Certificates in the circumstances set forth in ‘‘Summary of Provisions Relating to theNotes while in Global Form – Exchange – Rule 144A Global Certificates’’ or (ii) in the case ofRegulation S Global Certificates in the circumstances set forth in ‘‘Summary of Provisions Relatingto the Notes while in Global Form – Exchange – Regulation S Global Certificates’’. In suchcircumstances, the Issuer will cause sufficient individual Certificates to be executed and deliveredto the Registrar for completion, authentication and despatch to the relevant Noteholder(s). A personhaving an interest in a Global Certificate must provide the Registrar with:

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(i) a written order containing instructions and such other information as the Issuer and theRegistrar may require to complete, execute and deliver such Individual Certificates; and

(ii) in the case of a Rule 144A Global Certificate only, a fully completed, signed certificationsubstantially to the effect that the exchanging holder is not transferring its interest at the timeof such exchange, or in the case of a simultaneous resale pursuant to Rule 144A, acertification that the transfer is being made in compliance with the provisions of Rule 144A.Individual Certificates issued pursuant to this paragraph (ii) shall bear the legends applicableto transfers pursuant to Rule 144A.

Pre-issue Trades Settlement

It is expected that delivery of Notes will be made against payment therefore on the relevant IssueDate, which could be more than three business days following the date of pricing. Under Rule15c6-1 of the Exchange Act, trades in the U.S. secondary market generally are required to settlewithin three business days (‘‘T+3’’), unless the parties to any such trade expressly agree otherwise.Accordingly, in the event that an Issue Date is more than three business days following therelevant date of pricing, purchasers who wish to trade Registered Notes in the United Statesbetween the date of pricing and the date that is three business days prior to the relevant IssueDate will be required, by virtue of the fact that such Notes initially will settle beyond T+3, to specifyan alternative settlement cycle at the time of any such trade to prevent a failed settlement.Settlement procedures in other countries will vary. Purchasers of Notes may be affected by suchlocal settlement practices and, in the event that an Issue Date is more than three business daysfollowing the relevant date of pricing, purchasers of Notes who wish to trade Notes between thedate of pricing and the date that is three business days prior to the relevant Issue Date shouldconsult their own adviser.

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TAXATION

The following summary of certain South African, United States, and European Union consequencesof ownership of Notes is based upon laws, regulations, decrees, rulings, income tax conventions,administrative practice and judicial decisions in effect at the date of this Base Prospectus.Legislative, judicial or administrative changes or interpretations may, however, be forthcoming thatcould alter or modify the statements and conclusions set forth herein. Any such changes orinterpretations may be retroactive and could affect the tax consequences to holders of the Notes.This summary does not constitute a legal opinion or tax advice. In addition this summary does notpurport to address all tax aspects that may be relevant to a holder of Notes. Each prospectiveholder is urged to consult its own tax adviser as to the particular tax consequences to such holderof the ownership and disposition of Notes, including the applicability and effect of any other taxlaws or tax treaties, and of pending or proposed changes in applicable tax laws as of the date ofthis Base Prospectus, and of any actual changes in applicable tax laws after such date.

The Republic of South Africa

Withholding Tax

Under current taxation law in the Republic of South Africa, all payments made under the Notes toresident and non-resident Noteholders will be made free of withholding or deduction for or onaccount of any taxes, duties, assessments or governmental charges in the Republic of SouthAfrica.

Securities Transfer Tax

No securities transfer tax is payable on the issue or transfer of the Notes in terms of the SecuritiesTransfer Tax Act, 2007.

Income Tax

Under current taxation law effective in the Republic of South Africa a ‘‘resident’’ (as defined insection 1 of the South African Income Tax Act, 1962 (the ‘‘Income Tax Act’’) is subject to incometax on his/her world-wide income. Accordingly, all Noteholders who are tax resident in the Republicof South Africa will generally be liable to pay income tax, subject to available deductions,allowances and exemptions, on any interest earned in relation to the Notes. Non-residents of theRepublic of South Africa are subject to income tax on all income derived from a South Africansource (subject to applicable double taxation treaties). Interest income is deemed to be derivedfrom a South African source if it is derived from the utilisation or application in the Republic ofSouth Africa by any person of funds or credit obtained in terms of any form of ‘‘interest-bearingarrangement’’. The Notes will constitute an ‘‘interest-bearing arrangement’’. The place of utilisationor application of funds will, unless the contrary is proved, be deemed, in the case of a juristicperson, to be that juristic person’s place of effective management. The Issuer has its place ofeffective management in the Republic of South Africa as at the date of this Base Prospectus.Accordingly, if the funds raised from the issuance of any Tranche of Notes are applied by theIssuer in the Republic of South Africa, the interest earned by a Noteholder will be deemed to befrom a South African source and subject to South African income tax unless such interest incomeis exempt from South African income tax under section 10(1)(h) of the Income Tax Act (seebelow).

Under section 10(1)(h) of the Income Tax Act, interest received by or accruing to a Noteholderwho, or which, is not a resident of the Republic of South Africa during any year of assessment isexempt from income tax, unless that person:

(a) is a natural person who was physically present in the Republic of South Africa for a periodexceeding 183 days in aggregate during that year of assessment; or

(b) at any time during that year of assessment carried on business through a permanentestablishment in the Republic of South Africa.

If a Noteholder does not qualify for the exemption under section 10(1)(h) of the Income Tax Actexemption from or reduction of any South African tax liability may be available under an applicabledouble taxation treaty. Furthermore, certain entities may be exempt from income tax. Purchasersare advised to consult their own professional advisers as to whether the interest income earned onthe Notes will be exempt under section 10(1)(h) of the Income Tax Act or under an applicabledouble taxation treaty.

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In terms of section 24J of the Income Tax Act, broadly speaking, any discount or premium to thenominal amount of a Note is treated as part of the interest income on the Note. Interest incomewhich accrues (or is deemed to accrue) to a Noteholder is deemed, in accordance with section 24Jof the Income Tax Act, to accrue on a day-to-day basis until that Noteholder disposes of the Noteor until maturity unless an election has been made by the Noteholder (if the Noteholder is entitledunder Section 24J of the Income Tax Act to make such election) to treat its Notes as trading stockon a mark-to-market basis. This day-to-day basis accrual is determined by calculating the yield tomaturity (as defined in Section 24J) and applying this rate to the capital involved for the relevanttax period. The premium or discount is treated as interest for the purposes of the exemption undersection 10(1)(h) of the Income Tax Act.

Capital Gains Tax

Capital gains and losses of residents of the Republic of South Africa on the disposal of Notes aresubject to capital gains tax unless the Notes are purchased for re-sale in the short term as part ofa scheme of profit making, in which case the proceeds will be subject to income tax. Any discountor on acquisition which has already been treated as interest for income tax purposes under section24J of the Income Tax Act will not be taken into account when determining any capital gain orloss. Under section 24J(4A) of the Income Tax Act a loss on disposal will, to the extent that it haspreviously been included in taxable income (as interest), be allowed as a deduction from thetaxable income of the holder when it is incurred and accordingly will not give rise to a capital loss.

Capital gains tax under the Eighth Schedule to the Income Tax Act will not be levied in relation toNotes disposed of by a person who is not a resident of the Republic of South Africa unless theNotes disposed of are attributable to a permanent establishment of that person through which atrade is carried on in the Republic of South Africa during the relevant year of assessment.

Purchasers are advised to consult their own professional advisers as to whether a disposal ofNotes will result in a liability to capital gains tax.

Definition of interest

The references to ‘‘interest’’ above mean ‘‘interest’’ as understood in South African tax law. Thestatements above do not take any account of any different definitions of ‘‘interest’’ or ‘‘principal’’which may prevail under any other law or which may be created by the Terms and Conditions ofthe Notes or any related documentation.

United States

The discussion of tax matters in this Base Prospectus is not intended or written to beused, and cannot be used by any person, for the purpose of avoiding U.S. federal, state orlocal tax penalties, and was written to support the promotion or marketing of theProgramme. Each prospective investor should seek advice based on such person’sparticular circumstances from an independent tax adviser.

The following summary discusses the principal U.S. federal income tax consequences of theacquisition, ownership and disposition of the Registered Notes issued pursuant to Rule 144A.Except as specifically noted below, this discussion applies only to:

* Registered Notes purchased on original issuance at their ‘‘issue price’’ (as defined below);

* Registered Notes held as capital assets; and

* U.S. holders (as defined below).

This discussion does not describe all of the tax consequences that may be relevant in light of aholder’s particular circumstances or to holders subject to special rules, such as:

* financial institutions;

* insurance companies;

* dealers in securities or foreign currencies;

* persons holding Registered Notes as part of a hedging transaction, ‘‘straddle,’’ conversiontransaction or other integrated transaction;

* U.S. holders whose functional currency is not the U.S. Dollar; or

* partnerships or other entities classified as partnerships for U.S. federal income tax purposes.

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This summary is based on the Internal Revenue Code of 1986, as amended to the date hereof(the ‘‘Code’’), administrative pronouncements, published rulings, judicial decisions and final,temporary and proposed U.S. Treasury Regulations, changes to any of which subsequent to thedate of this Base Prospectus may affect the tax consequences described below. Personsconsidering the purchase of the Registered Notes should consult the applicable pricing supplementfor any additional discussion regarding U.S. federal income taxation and should consult their taxadvisers with regard to the application of the U.S. federal income tax laws to their particularsituations as well as any tax consequences arising under the laws of any state, local or foreigntaxing jurisdiction.

The tax treatment of certain Registered Notes, such as Index Linked or other variable linked Notes,Dual Currency Notes, high interest Notes, low interest Notes, step-up Notes, step-down Notes,reverse dual currency Notes, optional dual currency Notes, Partly Paid Notes and any Notes thatare not principal protected, will be specified in the applicable pricing supplement. Moreover, thissummary does not discuss Bearer Notes. In general, U.S. federal income tax law imposessignificant limitations on U.S. holders of Bearer Notes. U.S. holders should consult their taxadvisers regarding the U.S. federal income and other tax consequences of the acquisition,ownership and disposition of Bearer Notes.

As used herein, the term ‘‘U.S. holder’’ means a beneficial owner of a Registered Note that is forUnited States federal income tax purposes:

* a citizen or individual resident of the United States;

* a corporation (or any other entity treated as a corporation) created or organised in or underthe laws of the United States or any state thereof (including the District of Colombia);

* an estate the income of which is subject to U.S. federal income taxation regardless of itssource; or

* a trust over which administration a court within the United States is able to exercise primarysupervision and all of the substantial decisions of which one or more U.S. persons have theauthority or control.

The term ‘‘U.S. holder’’ also includes certain former citizens and residents of the United States.

If an entity that is classified as a partnership for U.S. federal income tax purposes holdsRegistered Notes, the U.S. federal income tax treatment of a partner will generally depend on thestatus of the partner and upon the activities of the partnership. Partners of partnerships holdingRegistered Notes should consult with their tax advisers.

Payments of Stated Interest

Interest paid on a Registered Note will be taxable to a U.S. holder as ordinary interest income atthe time it accrues or is received in accordance with the holder’s method of accounting for U.S.federal income tax purposes, provided that the interest is ‘‘qualified stated interest’’ (as definedbelow). Interest income earned by a U.S. holder with respect to a Registered Note will constituteforeign source income for U.S. federal income tax purposes, which may be relevant in calculatingthe holder’s foreign tax credit limitation. The rules regarding foreign tax credits are complex andprospective investors should consult their tax advisers about the application of such rules to themin their particular circumstances. Special rules governing the treatment of interest paid with respectto original issue discount Registered Note, and foreign currency Registered Notes (‘‘foreigncurrency Registered Notes’’) are described under ‘‘– Original Issue Discount,’’ ‘‘– ContingentPayment Debt Instruments’’ and ‘‘– Foreign Currency Registered Notes’’.

Original Issue Discount

A Registered Note that has an ‘‘issue price’’ that is less than its ‘‘stated redemption price atmaturity’’ will be considered to have been issued at an original discount for U.S. federal income taxpurposes (and will be referred to as an ‘‘original issue discount Registered Note’’) unless theRegistered Note satisfies a de minimis threshold (as described below) or is a short-term RegisteredNote (a ‘‘short-term Registered Note’’) (as defined below). The ‘‘issue price’’ of a Registered Notegenerally will be the first price at which a substantial amount of the Registered Notes are sold tothe public (which does not include sales to bond houses, brokers or similar persons ororganisations acting in the capacity of underwriters, placement agents or wholesalers). The ‘‘statedredemption price at maturity’’ of a Registered Note generally will equal the sum of all paymentsrequired to be made under the Registered Note other than payments of ‘‘qualified stated interest’’.

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‘‘Qualified stated interest’’ is stated interest unconditionally payable in cash or in property (otherthan in debt instruments of the issuer) at least annually during the entire term of the RegisteredNote and equal to the outstanding principal balance of the Registered Note multiplied by a singlefixed rate of interest. In addition, qualified stated interest includes, among other things, statedinterest on a ‘‘variable rate date instrument’’ that is unconditionally payable in cash or in property(other than in debt instruments of the issuer) at least annually at a single qualified floating rate ofinterest or at a rate that is determined at a single fixed formula that is based on objective financialor economic information. A rate is a qualified floating rate if variations in the rate can reasonablybe expected to measure contemporaneous fluctuations in the cost of newly borrowed funds in thecurrency in which the Registered Note is denominated.

If the difference between a Registered Note’s stated redemption price at maturity and its issueprice is less than a de minimis amount, i.e., 1/4 of 1 per cent. of the stated redemption price atmaturity multiplied by the number of complete years to maturity, the Registered Note will not beconsidered to have original issue discount. U.S. holders of Registered Notes with a de minimisamount of original issue discount will include this original issue discount in income, as capital gain,on a pro rata basis as principal payments are made on the Registered Note.

A U.S. holder of original discount Registered Notes will be required to include any qualified statedinterest payments in income in accordance with the holder’s method of accounting for U.S. federalincome tax purposes. U.S. holders of original issue discount Registered Notes that mature morethan one year from their date of issuance will be required to include original issue discount inincome for U.S. federal tax purposes as it accrues in accordance with a constant yield methodbased on a compounding of interest, regardless of whether cash attributable to this income isreceived.

A U.S. holder may make an election to include in gross income all interest that accrues on anyRegistered Note (including stated interest, acquisition discount, original issue discount, de minimisoriginal issue discount, market discount, de minimis market discount and unstated interest, asadjusted by any amortisable bond premium or acquisition premium) in accordance with a constantyield method based on the compounding of interest, and may revoke such election only with thepermission of the IRS (a ‘‘constant yield election’’).

A Registered Note that matures one year or less from its date of issuance, a short-term RegisteredNote, will be treated as being issued at a discount and none of the interest paid on the RegisteredNote will be treated as qualified stated interest. In general, a cash method U.S. holder of a short-term Registered Note is not required to accrue the discount for U.S. federal income tax purposesunless it elects to do so. Holders who so elect and certain other holders, including those whoreport income on the accrual method of accounting for U.S. federal income tax purposes, arerequired to include the discount in income as it accrues on a straight-line basis, unless anotherelection is made to accrue the discount according to a constant yield method based on dailycompounding. In the case of a U.S. holder who is not required and who does not elect to includethe discount in income currently, any gain realised on the sale, exchange, or retirement of theshort-term Registered Note will be ordinary income to the extent of the discount accrued on astraight-line basis (or, if elected, according to a constant yield method based on dailycompounding) through the date of sale, exchange or retirement. In addition, those U.S. holders willbe required to defer deductions for any interest paid on indebtedness incurred to purchase or carryshort-term Registered Notes in an amount not exceeding the accrued discount until the accrueddiscount is included in income.

The Issuer may have an unconditional option to redeem, or U.S. holders may have anunconditional option to require the Issuer to redeem a Registered Note prior to its stated maturitydate. Under applicable regulations, if the Issuer has an unconditional option to redeem aRegistered Note prior to its stated maturity date, this option will be presumed to be exercised if, byutilising any date on which the Registered Note may be redeemed as the maturity date and theamount payable on that date in accordance with the terms of the Registered Note as the statedredemption price at maturity, the yield on the Registered Note would be lower than its yield tomaturity. If the U.S. holders have an unconditional option to require the Issuer to redeem aRegistered Note prior to its stated maturity date, this option will be presumed to be exercised ifmaking the same assumptions as those set forth in the previous sentence, the yield on theRegistered Note would be higher than its yield to maturity. If this option is not in fact exercised,the Registered Note would be treated solely for purposes of calculating original issue discount as ifit were redeemed, and a new Registered Note were issued, on the presumed exercise date for an

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amount equal to the Registered Note’s adjusted issue price on that date. The adjusted issue priceof an original issue discount Registered Note is defined as the sum of the issue price of theRegistered Note and the aggregate amount of previously accrued original issue discount, less anyprior payments other than payments of qualified stated interest.

Market Discount

If a U.S. holder purchases a Registered Note (other than a short-term Registered Note) in thesecondary market for an amount that is less than its stated redemption price at maturity or, in thecase of an original issue discount Registered Note, its adjusted issue price, the amount of thedifference will be treated as market discount for U.S. federal income tax purposes, unless thisdifference is less than a specified de minimis amount.

A U.S. holder will be required to treat any principal payment (or, in the case of an original issuediscount Registered Note, any payment that does not constitute qualified stated interest) on, or anygain on the sale, exchange, retirement or other disposition of a Registered Note, includingdisposition in certain non-recognition transactions, as ordinary income to the extent of the marketdiscount accrued on the Registered Note at the time of the payment or disposition unless thismarket discount has been previously included in income by the U.S. holder pursuant to an electionby the holder to include market discount in income as it accrues, or pursuant to a constant yieldelection by the holder as described under ‘‘– Original Issue Discount’’ above. In addition, the U.S.holder may be required to defer, until the maturity of the Registered Note or its earlier disposition(including certain non-taxable transactions), the deduction of all or a portion of the interest expenseon any indebtedness incurred or maintained to purchase or carry such Registered Note.

If a U.S. holder makes a constant yield election (as described under ‘‘– Original Issue Discount’’)for a Registered Note with market discount, such election will result in a deemed election for allmarket discount bonds acquired by the holder on or after the first day of the first taxable year towhich such election applies.

Acquisition Premium and Amortisable Bond Premium

A U.S. holder who purchases a Registered Note for an amount that is greater than the RegisteredNote’s adjusted issue price but less than or equal to the sum of all amounts payable on theRegistered Note after the purchase date other than payments of qualified stated interest will beconsidered to have purchased the Registered Note at an acquisition premium. Under theacquisition premium rules, the amount of original issue discount that the U.S. holder must includein its gross income with respect to the Registered Note for any taxable year will be reduced by theportion of acquisition premium properly allocable to that year.

If a U.S. holder purchases a Registered Note for an amount that is greater than the amountpayable (other than payments of qualified stated interest) at maturity, or on the earlier call date, inthe case of a Registered Note that is redeemable at the Issuer’s option, the holder will beconsidered to have purchased the Registered Note with amortisable bond premium equal inamount to the excess of the purchase price over the amount payable at maturity. The holder willnot be subject to the original issue discount rules and may elect to amortise this premium, using aconstant yield method, over the remaining term of the Registered Note (where the Registered Noteis not optionally redeemable prior to its maturity date). If the Registered Note may be optionallyredeemed prior to maturity after the holder has acquired it, the amount of amortisable bondpremium is determined by substituting the call date for the maturity date and the call price for theamount payable at maturity only if the substitution results in a smaller amount of premiumattributable to the period before the redemption date. A holder who elects to amortise bondpremium must reduce his tax basis in the Registered Note by the amount of the premiumamortised in any year. An election to amortise bond premium applies to all taxable debt obligationsthen owned and thereafter acquired by the holder and may be revoked only with the consent ofthe IRS.

If a U.S. holder makes a constant yield election (as described under ‘‘– Original Issue Discount’’)for a Registered Note with amortisable bond premium, such election will result in a deemedelection to amortise bond premium for all of the holder’s debt instruments with amortisable bondpremium.

Sale, Exchange or Retirement of the Registered Notes

Upon the sale, exchange or retirement of a Registered Note, a U.S. holder will recognise taxablegain or loss equal to the difference between the amount realised on the sale, exchange or

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retirement and the holder’s adjusted tax basis in the Registered Note. A U.S. holder’s adjusted taxbasis in a Registered Note generally will equal the acquisition cost of the Registered Noteincreased by the amount of OID and market discount included in the Holder’s gross income anddecreased by the amount of any payment received from the Issuer other than a payment ofqualified stated interest and the amount of any amortisable bond premiums that the U.S. holdertook into account. Gain or loss, if any, will generally be U.S. source income for purposes ofcomputing a U.S. holder’s foreign tax credit limitation. For these purposes, the amount realiseddoes not include any amount attributable to accrued interest on the Registered Note. Amountsattributable to accrued interest are treated as interest as described under ‘‘– Payments of StatedInterest’’.

Except as described below, gain or loss realised on the sale, exchange or retirement of aRegistered Note will generally be capital gain or loss and will be long-term capital gain or loss if atthe time of sale, exchange or retirement the Registered Note has been held for more than oneyear. Exceptions to this general rule apply to the extent of any accrued market discount or, in thecase of a short-term Registered Note, to the extent of any accrued discount not previously includedin the holder’s taxable income. See ‘‘– Original Issue Discount’’ and ‘‘– Market Discount’’. Inaddition, other exceptions to this general rule apply in the case of foreign currency RegisteredNotes, and contingent payment debt instruments. See ‘‘– Foreign Currency Registered Notes’’ and‘‘– Contingent Payment Debt Instruments’’.

Contingent Payment Debt Instruments

If the terms of the Registered Notes provide for certain contingencies that affect the timing andamount of payments (including Registered Notes with a variable rate or rates that do not qualify as‘‘variable rate debt instruments’’ for purposes of the original issue discount rules) they will be‘‘contingent payment debt instruments’’ for U.S. federal income tax purposes. Under the rules thatgovern the treatment of contingent payment debt instruments, no payment on such RegisteredNotes qualifies as qualified stated interest. Rather, a U.S. holder must account for interest for U.S.federal income tax purposes based on a ‘‘comparable yield’’ and the differences between actualpayments on the Registered Note and the Registered Note’s ‘‘projected payment schedule’’ asdescribed below. The comparable yield is determined by the Issuer at the time of issuance of theRegistered Notes. The comparable yield may be greater than or less than the stated interest, ifany, with respect to the Registered Notes. Solely for the purpose of determining the amount ofinterest income that a U.S. holder will be required to accrue on a contingent payment debtinstrument, the Issuer will be required to construct a ‘‘projected payment schedule’’ that representsa series of payments the amount and timing of which would produce a yield to maturity on thecontingent payment debt instrument equal to the comparable yield.

Neither the comparable yield nor the projected payment schedule constitutes a representation bythe Issuer regarding the actual amount, if any, that the contingent payment debt instrument willpay.

For U.S. federal income tax purposes, a U.S. holder will be required to use the comparable yieldand the projected payment schedule established by the Issuer in determining interest accruals andadjustments in respect of an optionally exchangeable Registered Note, unless the holder timelydiscloses and justifies the use of a different comparable yield and projected payment schedule tothe IRS.

A U.S. holder, regardless of the holder’s method of accounting for U.S. federal income taxpurposes, will be required to accrue interest income on a contingent payment debt instrument atthe comparable yield, adjusted upward or downward to reflect the difference, if any, between theactual and the projected amount of any contingent payments on the contingent payment instrument(as set forth below).

A U.S. holder will be required to recognise interest income equal to the amount of any net positiveadjustment, i.e., the excess of actual payments over projected payments, in respect of a contingentpayment debt instrument for a taxable year. A net negative adjustment, i.e., the excess ofprojected payments over actual payments, in respect of a contingent payment debt instrument for ataxable year:

* will first reduce the amount of interest in respect of the contingent payment debt instrumentthat a holder would otherwise be required to include in income in the taxable year; and

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* to the extent of any excess, will give rise to an ordinary loss equal to so much of this excessas does not exceed the excess of the amount of all previous interest inclusions under thecontingent payment debt instrument over the total amount of the U.S. holder’s net negativeadjustments treated as ordinary loss on the contingent payment debt instrument in priortaxable years.

A net negative adjustment is not subject to the two per cent. floor limitation imposed onmiscellaneous deductions. Any net negative adjustment in excess of the amounts described abovewill be carried forward to off-set future interest income in respect of the contingent payment debtinstrument or to reduce the amount realised on a sale, exchange or retirement of the contingentpayment debt instrument. Where a U.S. holder purchases a contingent payment debt instrument fora price other than its adjusted issue price, the difference between the purchase price and theadjusted issue price must be reasonably allocated to the daily portions of interest or projectedpayments with respect to the contingent payment debt instrument over its remaining term andtreated as a positive or negative adjustment, as the case may be, with respect to each period towhich it is allocated.

Upon a sale, exchange or retirement of a contingent payment debt instrument, a U.S. holdergenerally will recognise taxable gain or loss equal to the difference between the amount realisedon the sale, exchange or retirement and the holder’s adjusted basis in the contingent payment debtinstrument. A U.S. holder’s adjusted basis in a Registered Note that is a contingent payment debtinstrument generally will be the acquisition cost of the Registered Note, increased by the interestpreviously accrued by the U.S. holder on the Registered Note under these rules, disregarding anynet positive and net negative adjustments, and decreased by the amount of any non-contingentpayments and the projected amount of any contingent payments previously made on theRegistered Note. A U.S. holder generally will treat any gain as interest income, and any loss asordinary loss to the extent of the excess of previous interest inclusions in excess of the total netnegative adjustments previously taken into account as ordinary losses, and the balance as capitalloss. The deductibility of capital losses is subject to limitations. In addition, if a holder recognisesloss above certain thresholds, the holder may be required to file a disclosure statement with theIRS (as described under ‘‘– Reportable Transactions’’).

A U.S. holder will have a tax basis in any property, other than cash, received upon the retirementof a contingent payment debt instrument including in satisfaction of a conversion right or a callright equal to the fair market value of the property, determined at the time of retirement. Theholder’s holding period for the property will commence on the day immediately following its receipt.

Foreign Currency Registered Notes

The following discussion summarises the principal U.S. federal income tax consequences to a U.S.holder of the ownership and disposition of Registered Notes that are denominated in a specifiedcurrency other than the U.S. Dollar or the payments of interest or principal on which are payable ina currency other than the U.S. Dollar (foreign currency Registered Notes).

The rules applicable to foreign currency Registered Notes could require some or all gain or loss onthe sale, exchange or other disposition of a foreign currency Registered Note to be recharacterisedas ordinary income or loss. The rules applicable to foreign currency Registered Notes are complexand may depend on the holder’s particular U.S. federal income tax situation. For example, variouselections are available under these rules, and whether a holder should make any of these electionsmay depend on the holder’s particular U.S. federal income tax situation. U.S. holders are urged toconsult their own tax advisers regarding the U.S. federal income tax consequences of theownership and disposition of foreign currency Registered Notes.

A U.S. holder who uses the cash method of accounting and who receives a payment of qualifiedstated interest in a foreign currency with respect to a foreign currency Registered Note will berequired to include in income the U.S. Dollar value of the foreign currency payment (determined onthe date the payment is received) regardless of whether the payment is in fact converted to U.S.Dollars at the time, and this U.S. Dollar value will be the U.S. holder’s tax basis in the foreigncurrency. A cash method holder who receives a payment of qualified stated interest in U.S. Dollarspursuant to an option available under such Registered Note will be required to include the amountof this payment in income upon receipt.

An accrual method U.S. holder will be required to include in income the U.S. Dollar value of theamount of interest income (including original issue discount or market discount, but reduced byacquisition premium and amortisable bond premium, to the extent applicable) that has accrued and

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is otherwise required to be taken into account with respect to a foreign currency Registered Noteduring an accrual period. The U.S. Dollar value of the accrued income will be determined bytranslating the income at the average rate of exchange in effect during the accrual period or, withrespect to an accrual period that spans two taxable years, at the average rate for the partial periodwithin the taxable year. The U.S. holder will recognise ordinary income or loss with respect toaccrued interest income on the date the income is actually received. The amount of ordinaryincome or loss recognised will equal the difference between the U.S. Dollar value of the foreigncurrency payment received (determined on the date the payment is received) in respect of theaccrual period (or, where a holder receives U.S. Dollars, the amount of the payment in respect ofthe accrual period) and the U.S. Dollar value of interest income that has accrued during theaccrual period (as determined above). Rules similar to these rules apply in the case of a cashmethod taxpayer required to currently accrue original issue discount or market discount.

An accrual method U.S. holder may elect to translate interest income (including original issuediscount) into U.S. Dollars at the spot rate on the last day of the interest accrual period (or, in thecase of a partial accrual period, the spot rate on the last day of the taxable year) or, if the date ofreceipt is within five business days of the last day of the interest accrual period, the spot rate onthe date of receipt. A U.S. holder that makes this election must apply it consistently to all debtinstruments from year to year and cannot change the election without the consent of the IRS.

Original issue discount, market discount, acquisition premium and amortisable bond premium on aforeign currency Registered Note are to be determined in the relevant foreign currency. Where thetaxpayer elects to include market discount in income currently, the amount of market discount willbe determined for any accrual period in the relevant foreign currency and then translated into U.S.Dollars on the basis of the average rate in effect during the accrual period (or portion thereofwithin the U.S. holder’s taxable year). Exchange gain or loss realised with respect to such accruedmarket discount shall be determined in accordance with the rules relating to accrued interestdescribed above.

If an election to amortise bond premium is made, amortisable bond premium taken into account ona current basis shall reduce interest income in units of the relevant foreign currency. Exchangegain or loss is realised on amortised bond premium with respect to any period by treating the bondpremium amortised in the period in the same manner as on the sale, exchange or retirement ofthe foreign currency Registered Note. Any exchange gain or loss will be ordinary income or loss asdescribed below. If the election is not made, any loss realised on the sale, exchange or retirementof a foreign currency Registered Note with amortisable bond premium by a U.S. holder who hasnot elected to amortise the premium will be a capital loss to the extent of the bond premium.

A U.S. holder’s tax basis in a foreign currency Registered Note, and the amount of anysubsequent adjustment to the holder’s tax basis, will be the U.S. Dollar value amount of the foreigncurrency amount paid for such foreign currency Registered Note, or of the foreign currency amountof the adjustment, determined on the date of the purchase or adjustment. A U.S. holder whopurchases a foreign currency Registered Note with previously owned foreign currency willrecognise ordinary income or loss in an amount equal to the difference, if any, between such U.S.holder’s tax basis in the foreign currency and the U.S. Dollar fair market value of the foreigncurrency Registered Note on the date of purchase.

Gain or loss realised upon the sale, exchange or retirement of a foreign currency Registered Notethat is attributable to fluctuation in currency exchange rates will be ordinary income or loss whichwill not be treated as interest income or expense. Gain or loss attributable to fluctuations inexchange rates will equal the difference between (i) the U.S. Dollar value of the foreign currencyprincipal amount of the Registered Note, determined on the date the payment is received or theRegistered Note is disposed of, and (ii) the U.S. Dollar value of the foreign currency principalamount of the Registered Note, determined on the date the U.S. holder acquired the RegisteredNote. Payments received attributable to accrued interest will be treated in accordance with therules applicable to payments of interest on foreign currency Registered Notes described above.The foreign currency gain or loss will be recognised only to the extent of the total gain or lossrealised by the holder on the sale, exchange or retirement of the foreign currency RegisteredNotes. The source of the foreign currency gain or loss will be determined by reference to theresidence of the holder or the ‘‘qualified business unit’’ of the holder on whose books theRegistered Note is properly reflected. Any gain or loss realised by these holders in excess of theforeign currency gain or loss will be capital gain or loss except to the extent of any accrued marketdiscount or, in the case of short-term Registered Note, to the extent of any discount not previously

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included in the holder’s income. Holders should consult their own tax advisor with respect to thetax consequences of receiving payments in a currency different from the currency in whichpayments with respect to such Registered Notes accrue.

A U.S. holder will have a tax basis in any foreign currency received on the sale, exchange orretirement of a foreign currency Registered Note equal to the U.S. Dollar value of the foreigncurrency, determined at the time of sale, exchange or retirement. A cash method taxpayer whobuys or sells a foreign currency Registered Note is required to translate units of foreign currencypaid or received into U.S. Dollars at the spot rate on the settlement date of the purchase or sale.Accordingly, no exchange gain or loss will result from currency fluctuations between the trade dateand the settlement date of the purchase or sale. An accrual method taxpayer may elect the sametreatment for all purchases and sales of foreign currency obligations provided that the RegisteredNotes are traded on an established securities market. This election cannot be changed without theconsent of the IRS. Any gain or loss realised by a U.S. holder on a sale or other disposition offoreign currency (including its exchange for U.S. Dollars or its use to purchase foreign currencyRegistered Notes) will be ordinary income or loss.

Backup Withholding and Information Reporting

Information returns may be filed with the IRS in connection with payments on the Registered Notesand the proceeds from a sale or other disposition of the Registered Notes. A U.S. holder may besubject to U.S. backup withholding on these payments if it fails to provide its tax identificationnumber to the paying agent and comply with certain certification procedures or otherwise establishan exemption from backup withholding. The amount of any backup withholding from a payment toa U.S. holder will be allowed as a credit against the holder’s U.S. federal income tax liability andmay entitle them to a refund, provided that the required information is furnished to the IRS.

Reportable Transactions

A U.S. taxpayer that participates in a ‘‘reportable transaction’’ will be required to disclose itsparticipation to the U.S. IRS. The scope and application of these rules is not entirely clear. A U.S.holder may be required to treat a foreign currency exchange loss from the Registered Notes as areportable transaction if the loss exceeds U.S.$50,000 in a single taxable year, if the U.S. older isan individual or trust, or higher amounts for other U.S. holders. In the event the acquisition,ownership or disposition of Registered Notes constitutes participation in a ‘‘reportable transaction’’for purposes of these rules, a U.S. holder will be required to disclose its investment by filing Form8886 with the IRS. A penalty in the amount of U.S.$10,000 in the case of a natural person andU.S.$50,000 in all other cases is generally imposed on any taxpayer that fails to timely file aninformation return with the IRS with respect to a transaction resulting in a loss that is treated as areportable transaction. In addition, the Issuer and its advisors may also be required to disclose thetransaction to the IRS, and to maintain a list of U.S. holders, and to furnish this list and certainother information to the IRS upon written request. Prospective purchasers should consult their taxadvisers regarding the application of these rules to the acquisition, ownership or disposition ofRegistered Notes.

The United States federal income tax discussion set forth above is included for generalinformation only and may not be applicable depending upon a holder’s particular situation.Holders should consult their own tax advisers with respect to the tax consequences tothem of the ownership and disposition of the Registered Notes, including the taxconsequences under state, local, foreign and other tax laws and the possible effects ofchanges in U.S. federal or other tax laws.

European Union

EU Savings Directive

Under the EU Savings Directive, Member States are required to provide to the tax authorities ofanother Member State details of payments of interest (or similar income) paid by a person withinits jurisdiction to an individual resident in that other Member State. However, for a transitionalperiod, Luxembourg and Austria are instead required (unless during that period they electotherwise) to operate a withholding system in relation to such payments. Under such withholdingsystem, tax will be deducted unless the recipient of the payment elects instead for an exchange ofinformation procedure. The current rate of withholding is 20% and it will be increased to 35% witheffect from 1 July 2011. Belgium had previously operated a withholding system in relation to suchpayments, but has elected to apply the provision of information provisions that apply to the

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Member States (other than Austria and Luxembourg during the transitional period), with effect from1 January 2010. The transitional period is to terminate at the end of the first full fiscal yearfollowing agreement by certain non-EU countries to exchange of information procedures relating tointerest and other similar income.

A number of non-EU countries and certain dependent or associated territories of certain MemberStates have adopted or agreed to adopt similar measures (either provision of information ortransitional withholding) in relation to payments made by a person within their respectivejurisdictions to, or collected by such a person for, an individual resident in, or certain limited typesof entity established in, a Member State. In addition, the Member States have entered intoprovision of information or transitional withholding arrangements with certain of those countries andterritories in relation to payments made by a person in a Member State to an individual resident in,or certain limited types of entity established in, one of those countries or territories.

On 13 November 2008, the European Commission published a proposal for amendments to the EUSavings Directive. The proposal included a number of suggested changes which, if implemented,would broaden the scope of the rules described above. The European Parliament approved anamended version of this proposal on 24 April 2009.

Prospective investors in the Notes should consult their professional advisers if they have concernsabout the potential impact of the EU Savings Directive.

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ERISA AND CERTAIN OTHER U.S. CONSIDERATIONS

The U.S. Employee Retirement Income Security Act of 1974, as amended (‘‘ERISA’’), imposescertain requirements on ‘‘employee benefit plans’’ (as defined in Section 3(3) of ERISA) subject toERISA, including entities such as collective investment funds and separate accounts whoseunderlying assets include the assets of such plans (collectively, ‘‘ERISA Plans’’) and on thosepersons who are fiduciaries with respect to ERISA Plans.

Under ERISA and the Code, any person who exercises any discretionary authority or control overthe administration of such an ERISA Plan or the management or disposition of the assets of suchan ERISA Plan, or who renders investment advice for a fee or other compensation to such anERISA Plan, is generally considered to be a fiduciary of the ERISA Plan. In considering aninvestment in the notes of a portion of the assets of any Plan, as defined below, a fiduciary shoulddetermine, among other things, whether the investment is in accordance with the documents andinstruments governing the Plan and the applicable provisions of ERISA, the Code or any federal,state, local, non-U.S. or other laws, rules or regulations that are similar to such provisions ofERISA or the Code (collectively, ‘‘Similar Laws’’) relating to a fiduciary’s duties to the Planincluding, without limitation, the prudence, diversification, delegation of control and prohibitedtransaction provisions of ERISA, the Code and any other applicable Similar Laws.

Section 406 of ERISA and Section 4975 of the Code which are among the ERISA and Codefiduciary provisions governing plans, prohibit certain transactions involving the assets of an ERISAPlan (as well as those plans that are not subject to ERISA but which are subject to Section 4975of the Code, such as individual retirement accounts (together with ERISA Plans, ‘‘Plans’’)) andcertain persons (referred to as ‘‘parties in interest’’ or ‘‘disqualified persons’’) having certainrelationships to such Plans, unless a statutory or administrative exemption is applicable to thetransaction. Prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 ofthe Code may arise if any Notes are acquired by a Plan with respect to which any of the Issuer,the Arrangers or the Dealers or any of their respective affiliates are a party in interest or adisqualified person. Certain exemptions from the prohibited transaction provisions of Section 406 ofERISA and Section 4975 of the Code may be applicable, however, depending in part on the typeof Plan fiduciary making the decision to acquire Notes and the circumstances under which suchdecision is made. There can be no assurance that any exemption will be available with respect toany particular transaction involving the Notes, or that, if an exemption is available, it will cover allaspects of any particular transaction. By its purchase of any Notes (or any interest in a Note),each purchaser (whether in the case of the initial purchase or in the case of a subsequenttransfer) will be deemed to have represented and agreed either that (i) it is not and for so long asit holds a Note (or any interest therein) will not be an ERISA Plan or other Plan, an entity whoseunderlying assets include the assets of any such ERISA Plan or other Plan (each of the foregoing,a ‘‘Benefit Plan Investor’’), or a governmental or other employee benefit plan which is subject toany U.S. federal, state or local law, that is substantially similar to the provisions of Section 406 ofERISA or Section 4975 of the Code, or (ii) its purchase and holding of the Notes will not result ina prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the caseof such a governmental or other employee benefit plan, any such substantially similar U.S. federal,state or local law) for which an exemption is not available.

Governmental plans and certain church and other U.S. plans, while not subject to the fiduciaryresponsibility provisions of ERISA or the provisions of Section 4975 of the Code, may neverthelessbe subject to state or other federal laws that are substantially similar to ERISA and the Code.Fiduciaries of any such plans should consult with their counsel before purchasing any Notes.

The foregoing discussion is general in nature and not intended to be all-inclusive. Any Planfiduciary who proposes to cause a Plan to purchase any Notes should consult with its counselregarding the applicability of the fiduciary responsibility and prohibited transaction provisions ofERISA and Section 4975 of the Code to such an investment, and to confirm that such investmentwill not constitute or result in a prohibited transaction or any other violation of an applicablerequirement of ERISA.

The sale of Notes to a Plan is in no respect a representation by the Issuer, the Arrangers or theDealers that such an investment meets all relevant requirements with respect to investments byPlans generally or any particular Plan, or that such an investment is appropriate for Plans generallyor any particular Plan.

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SUBSCRIPTION AND SALE

Subject to the terms and on the conditions contained in a dealer agreement dated on or about26 January 2010 (the ‘‘Dealer Agreement’’) between the Issuer, the Permanent Dealers and theArrangers, from time to time the Notes will be offered by the Issuer to the Permanent Dealers, andthe Permanent Dealers may agree to purchase such Notes. However, the Issuer has reserved theright to sell Notes directly on its own behalf to Dealers that are not Permanent Dealers. The Notesmay be resold at prevailing market prices, or at prices related thereto, at the time of such resale,as determined by the relevant Dealer. The Notes may also be sold by the Issuer through theDealers, acting as agents of the Issuer. The Dealer Agreement also provides for Notes to beissued in syndicated Tranches that are jointly and severally underwritten by two or more Dealers.

The Issuer will pay each relevant Dealer a commission as agreed between them in respect ofNotes subscribed by it. The Issuer has agreed to reimburse the Arrangers for certain of itsexpenses incurred in connection with the establishment of the Programme and the Dealers forcertain of their activities in connection with the Programme.

The Issuer has agreed to indemnify the Dealers against certain liabilities in connection with theoffer and sale of the Notes. The Dealer Agreement entitles the Dealers to terminate any agreementthat they make to subscribe Notes in certain circumstances prior to payment for such Notes beingmade to the Issuer.

Certain of the Dealers and their respective affiliates have, in the past, performed investmentbanking and advisory services for, and provided credit facilities to, the Issuer for which they havereceived customary fees and expenses.

Each of the Dealers and their respective affiliates may, from time to time, engage in furthertransactions with, and perform services for, the Issuer in the ordinary course of their respectivebusinesses. The Issuer may apply all or part of the proceeds of any Notes issued pursuant to theProgramme in repayment of all or part of any such credit facilities.

The Dealer Agreement makes provision for the resignation or termination of appointment of existingDealers and for the appointment of additional or other Dealers either generally in respect of theProgramme or in relation to a particular Tranche.

Selling Restrictions

United States

The Notes have not been and will not be registered under the Securities Act and may not beoffered or sold within the United States except in certain transactions exempt from the registrationrequirements of the Securities Act. Terms used in this paragraph have the meanings given to themby Regulation S.

Each Dealer has agreed and each further Dealer appointed under the Programme will be requiredto agree that, except as permitted by the Dealer Agreement, it will not offer or sell Notes (i) aspart of their distribution at any time or (ii) otherwise until 40 days after the completion of thedistribution of an identifiable tranche of which such Notes are a part, as determined and certified tothe Fiscal Agent by such Dealer (or, in the case of an identifiable tranche of Notes sold to orthrough more than one Dealer, by each of such Dealers with respect to Notes of an identifiabletranche purchased by or through it, in which case the Fiscal Agent shall notify such Dealer whenall such Dealers have so certified), within the United States and it will have sent to each Dealer towhich it sells Notes during the distribution compliance period (other than resales pursuant to Rule144A) a confirmation or other notice setting out the restrictions on offers and sales of the Noteswithin the United States. Terms used in the preceding sentence have the meanings given to themby Regulation S.

The Notes are being offered and sold outside the United States to non-U.S. persons in reliance onRegulation S. The Dealer Agreement provides that the Dealers may directly or through theirrespective U.S. broker-dealer affiliates arrange for the offer and resale of Notes within the UnitedStates only to QIBs in reliance on Rule 144A.

Bearer Notes are subject to U.S. tax law requirements and may not be offered, sold or deliveredwithin the United States or its possessions or to a U.S. person, except in certain transactionspermitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to themby the U.S. Internal Revenue Code of 1986, as amended, and regulations thereunder.

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(A) Where the D Rules are specified in the relevant Final Terms as being applicable in relation toany Tranche of Notes, each Dealer will be required to represent, undertake and agree (andeach additional Dealer appointed under the Programme will be required to represent,undertake and agree) that:

(i) except to the extent permitted under the D Rules (a) it has not offered or sold, and willnot offer or sell, any Bearer Notes to a person who is within the United States or itspossessions or to a U.S. person, and (b) it has not delivered and will not deliver withinthe United States or its possessions Bearer Notes in definitive form that are sold duringthe restricted period;

(ii) it has, and throughout the restricted period will have, in effect procedures reasonablydesigned to ensure that its employees and agents who are directly engaged in sellingBearer Notes are aware that such Notes may not be offered or sold during the restrictedperiod to a person who is within the United States or its possessions or to a U.S.person, except as permitted by the D Rules;

(iii) if it is a U.S. person, it is acquiring the Bearer Notes for purposes of resale inconnection with their original issuance and, if it retains Bearer Notes for its own account,it will only do so in accordance with the requirements of United States TreasuryRegulations §1.163-5(c)(2)(i)(D)(6);

(iv) with respect to each affiliate (if any) that acquires from such Dealer Bearer Notes for thepurposes of offering or selling such Notes during the restricted period, such Dealereither repeats and confirms the representations, undertakings and agreements containedin sub-clauses (i), (ii), (iii) and (v) on such affiliate’s behalf or agrees that it will obtainfrom such affiliate for the benefit of the Issuer the representations, undertakings andagreements contained in such sub-clauses (i), (ii), (iii) and (v); and

(v) shall obtain for the benefit of the Issuer the representations, undertakings andagreements contained in sub-clauses (i), (ii), (iii), (iv) and (v) of this paragraph from anyperson other than its affiliate with whom it enters into a written contract (a ‘‘distributor’’as defined in United States Treasury Regulations §1.163-5(c)(2)(i)(D)(4)), for the offer orsale during the restricted period of the Bearer Notes.

(B) In addition, where the C Rules are specified in the relevant Final Terms as being applicablein relation to any Tranche of Notes, such Notes must in their original issuance, be issued anddelivered outside the United States and its possessions and, accordingly, each Dealer will berequired to represent, undertake and agree (and each additional Dealer will be required torepresent, undertake and agree) that, in connection with the original issuance of the Notes:

(i) it has not offered, sold or delivered, and will not offer, sell or deliver, directly orindirectly, any Bearer Notes within the United States or its possessions; and

(ii) it has not communicated, and will not communicate, directly or indirectly, with aprospective purchaser if either such purchaser or such Dealer is within the United Statesor its possessions and will not otherwise involve the United States office of such Dealerin the offer and sale of Bearer Notes.

Terms used in sub-clauses (A) and (B) have the meanings given to them by the Code and theregulations thereunder, including the C Rules and the D Rules.

In addition, until 40 days after the commencement of the offering of any identifiable tranche ofNotes, an offer or sale of Notes within the United States by any dealer (whether or notparticipating in the offering of such tranche of Notes) may violate the registration requirements ofthe Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A.

This Base Prospectus has been prepared by the Issuer for use in connection with the offer andsale of the Notes outside the United States and for the resale of the Notes in the United States.The Issuer and the Dealers reserve the right to reject any offer to purchase the Notes, in whole orin part, for any reason. This Base Prospectus does not constitute an offer to any person in theUnited States or to any U.S. person, other than any QIB within the meaning of Rule 144A towhom an offer has been made directly by one of the Dealers or its U.S. broker-dealer affiliate.Distribution of this Base Prospectus by any non-U.S. person outside the United States or by anyQIB in the United States to any U.S. person or to any other person within the United States, otherthan any QIB and those persons, if any, retained to advise such non-U.S. person or QIB withrespect thereto, is unauthorised and any disclosure without the prior written consent of the Issuer

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of any of its contents to any such U.S. person or other person within the United States, other thanany QIB and those persons, if any, retained to advise such non-U.S. person or QIB, is prohibited.

Public Offer Selling Restriction Under the Prospectus Directive

In relation to each Relevant Member State, each Dealer has represented, warranted and agreed,and each further Dealer appointed under the Programme will be required to represent, warrant andagree, that with effect from and including the date on which the Prospectus Directive isimplemented in that Relevant Member State (the ‘‘Relevant Implementation Date’’) it has notmade and will not make an offer of Notes which are the subject of the offering contemplated bythis Base Prospectus as completed by the Final Terms in relation thereto to the public in thatRelevant Member State except that it may, with effect from and including the RelevantImplementation Date, make an offer of such Notes to the public in that Relevant Member State:

(i) if the Final Terms in relation to the Notes specify that an offer of those Notes may be madeother than pursuant to Article 3(2) of the Prospectus Directive in that Relevant member State(a ‘‘Non-exempt Offer’’), following the date of publication of a prospectus in relation to suchNotes which has been approved by the competent authority in that Relevant Member Stateor, where appropriate, approved in another Relevant Member State and notified to thecompetent authority in that Relevant Member State, provided that any such prospectus hassubsequently been completed by the final terms contemplating such Non-exempt Offer, inaccordance with the Prospectus Directive, in the period beginning and ending on the datesspecified in such prospectus or Final Terms, as applicable;

(ii) at any time to legal entities which are authorised or regulated to operate in the financialmarkets or, if not so authorised or regulated, whose corporate purpose is solely to invest insecurities;

(iii) at any time to any legal entity which has two or more of (a) an average of at least 250employees during the last financial year; (b) a total balance sheet of more than c43,000,000and (c) an annual net turnover of more than c50,000,000, as shown in its last annual orconsolidated accounts;

(iv) at any time to fewer than 100 natural or legal persons (other than qualified investors asdefined in the Prospectus Directive) subject to obtaining the prior consent of the relevantDealer or Dealers nominated by the Issuer for any such offer; or

(v) at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive,

provided that no such offer of Notes referred to in (ii) to (v) above shall require the Issuer or anyDealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement aprospectus pursuant to Article 16 of the Prospectus Directive.

For the purposes of this provision, the expression an ‘‘offer of Notes to the public’’ in relation toany Notes in any Relevant Member State means the communication in any form and by anymeans of sufficient information on the terms of the offer and the Notes to be offered so as toenable an investor to decide to purchase or subscribe the Notes, as the same may be varied inthat Member State by any measure implementing the Prospectus Directive in that Member Stateand the expression ‘‘Prospectus Directive’’ means Directive 2003/71/EC and includes any relevantimplementing measure in each Relevant Member State.

Selling Restrictions Addressing Additional United Kingdom Securities Laws

Each Dealer has represented, warranted and agreed, and each further Dealer appointed under theProgramme will be required to represent, warrant and agree that:

(i) in relation to any Notes which have a maturity of less than one year:

(a) it is a person whose ordinary activities involve it in acquiring, holding, managing ordisposing of investments (as principal or agent) for the purposes of its business;

(b) it has not offered or sold and will not offer or sell any Notes other than to persons:

(A) whose ordinary activities involve them in acquiring, holding, managing or disposingof investments (as principal or agent) for the purposes of their businesses; or

(B) who it is reasonable to expect will acquire, hold, manage or dispose of investments(as principal or agent) for the purposes of their businesses;

where the issue of the Notes would otherwise constitute a contravention of section 19 of theFSMA by the Issuer;

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(ii) it has only communicated or caused to be communicated and will only communicate or causeto be communicated an invitation or inducement to engage in investment activity (within themeaning of section 21 of the FSMA) received by it in connection with the issue or sale of anyNotes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and

(iii) it has complied and will comply with all applicable provisions of the FSMA with respect toanything done by it in relation to any Notes in, from or otherwise involving the UnitedKingdom.

The Republic of South Africa

In relation to the Republic of South Africa, each Dealer has represented, warranted and agreed,and each further Dealer appointed under the Programme will be required to represent, warrant andagree, that it will not make an ‘‘offer to the public’’ (as such expression is defined in the SACompanies Act) of Notes (whether for subscription, purchase or sale) in the Republic of SouthAfrica. Accordingly, no offer of Notes will be made to any person in the Republic of South Africaand, accordingly, this Base Prospectus does not, nor is it intended to, constitute a base prospectusprepared and registered under the SA Companies Act.

Republic of Italy

Each Dealer has acknowledged, and each further Dealer appointed under the Programme will berequired to acknowledge that the offer of the Notes has not been registered with the CommissioneNazionale per le Societa e la Borsa (‘‘CONSOB’’) (the Italian Securities and ExchangeCommisison) pursuant to Italian securities legislation and, accordingly, Notes may not be offered,sold or delivered, nor may copies of this Base Prospectus or any other document relating to theNotes be distributed in the Republic of Italy in a public offer at large (offerta al pubblico) within themeaning of Article 1, paragraph 1, letter (t) of Legislative Decree no. 58 of 24 February 1998,unless an exemption applies. Accordingly, in the Republic of Italy, the Notes:

(a) shall only be offered or sold to qualified investors (operatori qualificati), as defined in Article2(1)(e) paragraphs of the Prospectus Directive, pursuant to Article 100 of Legislative DecreeNo. 58 of 24th February 1998, as amended (‘‘Financial Services Act’’); or

(b) shall only be offered or sold in circumstances which are exempted from the rules on publicoffer pursuant to Article 100 of the Financial Services Act and Article 34-ter, of CONSOBRegulation No. 11971 of 14 May 1999, as amended (‘‘Regulation No. 11971’’).

Moreover, and subject to the foregoing, any offer, sale or delivery of the Notes or distribution ofcopies of this Base Prospectus or any other document relating to the Notes in the Republic of Italyunder (a) or (b) above must be:

(i) made by an investment firm, bank or financial intermediary permitted to conduct suchactivities in the Republic of Italy in accordance with the Financial Services Act, LegislativeDecree No. 385 of 1 September 1993 (the ‘‘Banking Act’’), CONSOB Regulation No. 16190of 29 October 2007 and any other applicable laws and regulations;

(ii) in compliance with any other applicable laws and regulations including any relevant notificationor limitations which may be imposed by CONSOB or the Bank of Italy.

Provisions relating to the secondary market

Any investor purchasing the Notes should also note that in connection with the subsequentdistribution of Notes (with a minimum denomination lower than c50,000 or its equivalent in anothercurrency) in Italy, in accordance with Article 100-bis of Financial Services Act, where no exemptionfrom the rules on solicitation applies under (a) and (b) above, the subsequent distribution of theNotes on the secondary market in Italy must be made in compliance with the public offer and theprospectus requirement rules provided under the Financial Services Act and Regulation No. 11971.Failure to comply with such rules may result in the sale of such Notes being declared null and voidand in the intermediaries transferring the Notes being liable for any damages suffered by potentialpurchasers.

Japan

The Notes have not been and will not be registered under the Financial Instruments and ExchangeAct of Japan (Law No. 25 of 1948, as amended, the ‘‘FIEA’’) and each Dealer has representedand agreed, and each further Dealer appointed under the Programme will be required to representand agree, that it has not, directly or indirectly, offered or sold and will not, directly or indirectly,

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offer or sell any Notes in Japan or to, or for the benefit of, any resident of Japan (as definedunder Item 5 Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Control Law (LawNo. 228 of 1949, as amended)) or to others for re-offering or re-sale, directly or indirectly, in Japanor to, or for the benefit of, any resident of Japan, except pursuant to an exemption from theregistration requirements of, and otherwise in compliance with, the FIEA and other relevant laws,regulations and ministerial guidelines of Japan.

General

These selling restrictions may be modified by the agreement of the Issuer and the Dealersfollowing a change in a relevant law, regulation or directive. Any such modification will be set outin the Final Terms issued in respect of the issue of Notes to which it relates or in a supplement tothis Base Prospectus.

No representation is made that any action has been taken in any jurisdiction that would permit apublic offering of any of the Notes, or possession or distribution of this Base Prospectus or anyother offering material or any Final Terms, in any country or jurisdiction where action for thatpurpose is required.

Each Dealer has agreed (and each further Dealer appointed under the Programme will be requiredto agree) that it will comply with all relevant laws, regulations and directives in each country orjurisdiction in which it purchases, offers, sells or delivers Notes or has in its possession ordistributes or publishes this Base Prospectus, any other offering material or any Final Terms (in allcases at its own expense) and neither the Issuer nor any other Dealer shall have responsibilitytherefor. Other persons into whose hands this Base Prospectus or any Final Terms comes arerequired by the Issuer and the Dealers to comply with all applicable laws and regulations in eachcountry or jurisdiction in or from which they purchase, offer, sell or deliver Notes or possess,distribute or publish this Base Prospectus or any Final Terms or any related offering material, in allcases at their own expenses.

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TRANSFER RESTRICTIONS

Rule 144A Notes

Each purchaser of Rule 144A Notes, by accepting delivery of this Base Prospectus, will bedeemed to have represented, agreed and acknowledged that:

1. It is (a) a QIB, (b) acquiring such Notes for its own account, or for the account of one ormore QIBs and (c) aware, and each beneficial owner of such Notes has been advised, thatthe sale of such Notes to it is being made in reliance on Rule 144A.

2. The Rule 144A Notes have not been and will not be registered under the Securities Act andmay not be offered, sold, pledged or otherwise transferred except (a) in accordance with Rule144A to a person that it and any person acting on its behalf reasonably believe is a QIBpurchasing for its own account or for the account of one or more QIBs or (b) in an offshoretransaction in accordance with Rule 903 or Rule 904 of Regulation S or (c) pursuant to anexemption from registration under the Securities Act provided by Rule 144 thereunder (ifavailable), in each case in accordance with any applicable securities laws of any State of theUnited States.

3. The purchaser of the Notes will be deemed to represent, warrant and agree that either (A) itis not and for so long as it holds a Note (or any interest therein) will not be (i) an ‘‘employeebenefit plan’’ as defined in Section 3(3) of ERISA that is subject to Title I of ERISA, (ii) a‘‘plan’’ as defined in and subject to the Code, (iii) an entity whose underlying assets includethe assets of any such employee benefit plan subject to ERISA or other plan subject toSection 4975 the Code, or (iv) a governmental or other benefit plan which is subject to anyU.S. federal, state or local law, that is substantially similar to the provisions of Section 406 ofERISA or Section 4975 of the Code, or (B) its purchase and holding of the Notes will notresult in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code(or, in the case of such a governmental or other employee benefit plan, any suchsubstantially similar U.S. federal, state or local law) for which an exemption is not available.

4. The Rule 144A Notes, unless the Issuer determines otherwise in compliance with applicablelaw, will bear a legend substantially to the following effect:

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S.SECURITIES ACT OF 1933 (THE ‘‘SECURITIES ACT’’) OR WITH ANY SECURITIESREGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITEDSTATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISETRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THESECURITIES ACT (‘‘RULE 144A’’) TO A PERSON THAT THE HOLDER AND ANY PERSONACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONALBUYER WITHIN THE MEANING OF RULE 144A (A ‘‘QIB’’), THAT IS ACQUIRING THISNOTE FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ONE OR MORE QIBS, (2)IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OFREGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTIONFROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144THEREUNDER, IF AVAILABLE, IN EACH CASE IN ACCORDANCE WITH ANYAPPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NOREPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTIONPROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THE NOTES.

EACH PURCHASER OF THIS NOTE WILL BE DEEMED TO REPRESENT, WARRANT ANDAGREE THAT EITHER (A) IT IS NOT AND FOR SO LONG AS IT HOLDS THIS NOTE (ORANY INTEREST THEREIN) WILL NOT BE (I) AN ‘‘EMPLOYEE BENEFIT PLAN’’ ASDEFINED IN SECTION 3(3) OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITYACT OF 1974, AS AMENDED (‘‘ERISA’’) THAT IS SUBJECT TO TITLE I OF ERISA, (II) A‘‘PLAN’’ AS DEFINED IN AND SUBJECT TO THE U.S. INTERNAL REVENUE CODE OF1986, AS AMENDED (THE ‘‘CODE’’), (III) AN ENTITY WHOSE UNDERLYING ASSETSINCLUDE THE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN SUBJECT TO ERISAOR OTHER PLAN SUBJECT TO SECTION 4975 THE CODE, OR (IV) A GOVERNMENTALOR OTHER BENEFIT PLAN WHICH IS SUBJECT TO ANY U.S. FEDERAL, STATE ORLOCAL LAW, THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406OF ERISA OR SECTION 4975 OF THE CODE, OR (B) ITS PURCHASE AND HOLDING OFTHIS NOTE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406

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OF ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF SUCH AGOVERNMENTAL OR OTHER EMPLOYEE BENEFIT PLAN, ANY SUCH SUBSTANTIALLYSIMILAR U.S. FEDERAL, STATE OR LOCAL LAW) FOR WHICH AN EXEMPTION IS NOTAVAILABLE.

5. It understands that the Issuer, the Registrar, the relevant Dealer(s) and their affiliates, andothers will rely upon the truth and accuracy of the foregoing acknowledgements,representations and agreements. If it is acquiring any Notes for the account of one or moreQIBs, it represents that it has sole investment discretion with respect to each of thoseaccounts and that it has full power to make the foregoing acknowledgements, representationsand agreements on behalf of each account.

6. It understands that the Rule 144A Notes will be evidenced by a Rule 144A Global Certificate.Before any interest in the Rule 144A Global Note may be offered, sold, pledged or otherwisetransferred to a person who takes delivery in the form of an interest in the Regulation SGlobal Certificate, it will be required to provide a Transfer Agent with a written certification (inthe form provided in the Agency Agreement) as to compliance with applicable securities laws.

Prospective purchasers are hereby notified that sellers of the Notes may be relying on theexemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

Regulation S Notes

Each purchaser of Notes outside the United States pursuant to Regulation S and each subsequentpurchaser of such Notes pursuant to resales prior to the expiration of the distribution complianceperiod, by accepting delivery of this Base Prospectus and the Notes, will be deemed to haverepresented, agreed and acknowledged that:

(i) It is, or at the time Notes are purchased will be, the beneficial owner of such Notes and ispurchasing the Notes in an offshore transaction pursuant to Regulation S.

(ii) It understands that such Notes have not been and will not be registered under the SecuritiesAct and that, prior to the expiration of the distribution compliance period, it will not offer, sell,pledge or otherwise transfer such Notes except (a) in accordance with Rule 144A under theSecurities Act to a person that it and any person acting on its behalf reasonably believes is aQIB purchasing for its own account or the account of a QIB or (b) in an offshore transactionin accordance with Rule 903 or Rule 904 of Regulation S, in each case in accordance withany applicable securities laws of any State of the United States.

(iii) The purchaser of the Notes will be deemed to represent, warrant and agree that either (A) itis not and for so long as it holds a Note (or any interest therein) will not be (i) an ‘‘employeebenefit plan’’ as defined in Section 3(3) of ERISA that is subject to Title I of ERISA, (ii) a‘‘plan’’ as defined in and subject to the Code, (iii) an entity whose underlying assets includethe assets of any such employee benefit plan subject to ERISA or other plan subject toSection 4975 the Code, or (iv) a governmental or other benefit plan which is subject to anyU.S. federal, state or local law, that is substantially similar to the provisions of Section 406 ofERISA or Section 4975 of the Code, or (B) its purchase and holding of the Notes will notresult in a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code(or, in the case of such a governmental or other employee benefit plan, any suchsubstantially similar U.S. federal, state or local law) for which an exemption is not available.

(iv) It understands that such Notes, unless otherwise determined by the Issuer in accordance withapplicable law, will bear a legend substantially to the following effect:

THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S.SECURITIES ACT OF 1933 (THE ‘‘SECURITIES ACT’’) OR WITH ANY SECURITIESREGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITEDSTATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISETRANSFERRED WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTIONFROM REGISTRATION UNDER THE SECURITIES ACT.

EACH PURCHASER OF THIS NOTE WILL BE DEEMED TO REPRESENT, WARRANT ANDAGREE THAT EITHER (A) IT IS NOT AND FOR SO LONG AS IT HOLDS THIS NOTE (ORANY INTEREST THEREIN) WILL NOT BE (I) AN ‘‘EMPLOYEE BENEFIT PLAN’’ ASDEFINED IN SECTION 3(3) OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITYACT OF 1974, AS AMENDED (‘‘ERISA’’) THAT IS SUBJECT TO TITLE I OF ERISA, (II) A

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‘‘PLAN’’ AS DEFINED IN AND SUBJECT TO THE U.S. INTERNAL REVENUE CODE OF1986, AS AMENDED (THE ‘‘CODE’’), (III) AN ENTITY WHOSE UNDERLYING ASSETSINCLUDE THE ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN SUBJECT TO ERISAOR OTHER PLAN SUBJECT TO SECTION 4975 THE CODE, OR (IV) A GOVERNMENTALOR OTHER BENEFIT PLAN WHICH IS SUBJECT TO ANY U.S. FEDERAL, STATE ORLOCAL LAW, THAT IS SUBSTANTIALLY SIMILAR TO THE PROVISIONS OF SECTION 406OF ERISA OR SECTION 4975 OF THE CODE, OR (B) ITS PURCHASE AND HOLDING OFTHIS NOTE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406OF ERISA OR SECTION 4975 OF THE CODE (OR, IN THE CASE OF SUCH AGOVERNMENTAL OR OTHER EMPLOYEE BENEFIT PLAN, ANY SUCH SUBSTANTIALLYSIMILAR U.S. FEDERAL, STATE OR LOCAL LAW) FOR WHICH AN EXEMPTION IS NOTAVAILABLE.

(v) It understands that the Issuer, the Registrar, the Dealers and their affiliates, and others willrely upon the truth and accuracy of the foregoing acknowledgements, representations andagreements.

(vi) It understands that the Notes offered in reliance on Regulation S will be represented by theRegulation S Global Certificate. Prior to the expiration of the distribution compliance period,before any interest in the Rule 144A Global Certificate may be offered, sold, pledged orotherwise transferred to a person who takes delivery in the form of an interest in theRegulation S Global Certificate, it will be required to provide a Transfer Agent with a writtencertification (in the form provided in the Agency Agreement) as to compliance with applicablesecurities laws.

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SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES

Transnet is a limited liability company incorporated in the Republic of South Africa and the majorityof its assets and the assets of its subsidiaries are currently located outside the United States andthe United Kingdom. In addition, the majority of Transnet’s directors and executive officers areresidents of countries other than the United States and the United Kingdom. As a result, it may beimpossible for Noteholders to:

* effect service of process within the United States or the United Kingdom upon Transnet orany of its directors or executive officers named in this Base Prospectus; or

* enforce, in the U.S. or English courts, judgments obtained outside U.S. or English courtsagainst Transnet or any of Transnet’s directors and executive officers named in this BaseProspectus, including actions under the civil liability provisions of the U.S. securities laws orany state or territory of the United States.

In addition, it may be difficult for Noteholders to enforce, in original actions brought in courts injurisdictions located outside the United States or the United Kingdom, liabilities predicated uponU.S. securities laws or upon English laws.

Choice of law

In any proceedings for the enforcement of the obligations of the Issuer, the South African courtswill generally give effect to the choice of foreign law as contemplated in the Notes as thegoverning law thereof.

Jurisdiction

Subject to what is set out below, the Company’s (i) irrevocable submission under the Notes to thejurisdiction of a foreign court; and (ii) agreement not to claim any immunity to which it or its assetsmay be entitled, is generally legal, valid, binding and enforceable under the laws of the Republic ofSouth Africa, and any judgment obtained in the foreign jurisdiction will be recognised and beenforceable by the courts of the Republic of South Africa without the need for re-examination ofthe merits. The appointment by the Company of an agent within the jurisdiction of a foreign courtto accept service of process in respect of the jurisdiction of the foreign courts is generally valid andbinding on the Company.

Under South African law, a court will not accept a complete ouster of jurisdiction, althoughgenerally it recognises party autonomy and gives effect to choice of law provisions. However,jurisdiction remains within the purview of the court and a court may, in certain instances, assumejurisdiction provided there are sufficient jurisdictional connecting factors. South African courts may,in rare instances, choose not to give effect to a choice of jurisdiction clause, if, for example, suchchoice is contrary to public policy. Proceedings before a court of the Republic of South Africa maybe stayed if the subject of the proceedings is concurrently before any other court.

Recognition of foreign judgments

In cases connected with the mining, production, importation, exportation, refinement, possession,use or sale of or ownership to any matter or material, of whatever nature, whether within, outside,into or from the Republic of South Africa the permission of the South African Minister of Trade andIndustry is required in terms of the Protection of Businesses Act, 1978, before a South AfricanCourt will give effect to a foreign judgment. Even if permission from the Minister of Trade andIndustry is obtained, a South African Court will not enforce a foreign judgment for multiple orpunitive damages. Subject to these qualifications, an authenticated judgment obtained in a court ofcompetent jurisdiction other than the Republic of South Africa will be recognised and enforced byordinary action in accordance with procedures ordinarily applicable under South African law for theenforcement of foreign judgments; provided that the process is properly served, judgment waspronounced by a proper court of law, was final and conclusive (in the case of a judgment formoney, on the face of it), has not become stale, and has not been obtained by fraud or in anymanner opposed to natural justice or contrary to the international principles of due process andprocedural fairness, the enforcement thereof is not contrary to South African public policy and theforeign court in question had jurisdiction and competence according to the applicable rules onconflict of laws. South African courts will not enforce foreign revenue or penal law and SouthAfrican courts have, as a matter of public policy, generally not enforced awards for multiple orpunitive damages.

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Where obligations are to be performed in a jurisdiction outside the Republic of South Africa theymay not be enforceable under the laws of the Republic of South Africa to the extent that suchperformance would be illegal or contrary to public policy under the laws of the Republic of SouthAfrica, or the foreign jurisdiction or to the extent that the law precludes South African courts fromgranting extra territorial orders.

Under the Recognition and Enforcement of Foreign Arbitral Awards Act, 1977 (the ‘‘EnforcementAct’’), any foreign arbitral award may, subject to the provisions of sections 3 and 4 thereof, bemade an order of court by any court. Any such award which has been made an order of courtpursuant to the provisions of the Enforcement Act may be enforced in the same manner as anyjudgment or order to the same effect (subject to the provisions of the Protection of Business Act,1978, which apply mutatis mutandis to foreign arbitral awards).

Effect of liquidation on civil proceedings

In general and subject to certain exceptions, civil proceedings (including arbitration proceedings)instituted by or against an insolvent entity are automatically stayed on the liquidation of theinsolvent entity’s estate until the appointment of a liquidator. A plaintiff/creditor wishing to continuewith such proceedings against the insolvent entity must give notice of its intention to do so within aperiod of three weeks from the date of the first meeting of creditors, in accordance with theprovisions of the Insolvency Act, 1936, failing which the proceedings lapse. In circumstances wherethe court finds that there was a reasonable excuse for a failure to give the requisite notice, it hasa discretion to allow a plaintiff/creditor to continue with proceedings on such conditions as it thinksfit. Execution against the insolvent entity’s assets is similarly stayed.

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LEGAL MATTERS

Certain matters of U.S. law will be passed on for Transnet by Clifford Chance LLP, Transnet’sEnglish and U.S. counsel and certain matters of South African law will be passed on for Transnetby Deneys Reitz Inc, Transnet’s South African counsel.

Certain matters of English law and U.S. law will be passed on for the Arrangers and the Dealersby Latham & Watkins (London) LLP, the Arrangers’ and the Dealers’ English and U.S. counsel andcertain matters of South African law will be passed on for the Arrangers and the Dealers byWebber Wentzel, the Arrangers’ and the Dealers’ South African counsel.

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INDEPENDENT AUDITORS

Transnet’s Consolidated Financial Statements as at and for the years ended 31 March 2009, 2008and 2007 included in this Base Prospectus have been audited by Deloitte & Touche, independentauditors as stated in their audit report appearing herein. The registered office of Deloitte & Toucheis The Woodlands, 20 Woodlands Drive, Woodmead 2196, Republic of South Africa.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

The following summary of certain provisions of Transnet’s indebtedness does not purport to becomplete and is subject to, and qualified in its entirety by reference to, the underlying documents.

As of 30 September 2009, Transnet had outstanding total financial indebtedness of approximatelyR 42,957 million.

2010 Bonds

On or about 1 April 1990, Transnet issued approximately R 2.007 billion Open-Ended Issue SizeTO11 16.50 per cent. bonds due 1 April 2010 (the ‘‘2010 Bonds’’). The 2010 Bonds areguaranteed by an unconditional and irrevocable guarantee of the Government.

Covenants, Representations and Warranties

The 2010 Bond documentation contains customary operating and financial covenants common toagreements of this type which include covenants that restrict Transnet’s ability to dispose of thewhole or substantially the whole of its undertaking or the whole or the greater part of its assets.

2014 Bonds

On 2 July 2004, Transnet issued R 4.0 billion 10.75 per cent. bonds due 15 July 2014 (the ‘‘2014Bonds’’). On 27 October 2004, Transnet issued an additional R 2.0 billion of new 2014 Bonds,subject to the same terms as the original issuance. Both issuances were subscribed to by thePublic Investment Corporation Limited (PIC). The 2014 Bonds are guaranteed by an unconditionaland irrevocable guarantee of the Government.


The 2014 Bond documentation contains customary operating and financial covenants common toagreements of this type which include covenants that restrict Transnet’s ability to dispose of itswhole or substantially the whole of its undertaking or the whole or the greater part of its assets.

The indenture relating to the 2014 Bonds contains customary events of default, including, but notlimited to, non-payment, breach of other obligations set forth in the agreement, misrepresentationof or material non-compliance with a representation or warranty, and certain insolvency, winding-upand related events.

Euro Medium Term Note Programme

On 15 April 1998, Transnet established a U.S.$1.0 billion Euro Medium Term Note Programme(the ‘‘1998 Programme’’). On 17 April 1998, Transnet issued R2 billion 13.5 per cent. notes due18 April 2028 under (the ‘‘1998 Programme’’). On 29 March 1999, Transnet issued a further R 1.5billion 10 per cent. notes due 30 March 2029 under the 1998 Programme. The notes issued underthe 1998 Programme are guaranteed by an unconditional and irrevocable guarantee of theGovernment.

Covenants, Representations and Warranties and Events of Default

The 1998 Programme documentation contains representations and warranties and undertakingscommon to agreements of this type and include customary operating and financial covenants,subject to certain agreed exceptions, including covenants that restrict Transnet’s ability and theability of its principal subsidiaries (being subsidiaries of Transnet whose profit before tax, grossassets or net tangible worth represents 10 per cent. or more of the consolidated profits before taxof the Transnet Group, or consolidated net tangible worth of the Transnet Group) to create orpermit the creation of any encumbrances other than in certain circumstances including, but notlimited to: those created in the ordinary course of business as security only for indebtedness underexport, credit or trade finance facilities relating to those goods or documents of title; thoseotherwise prohibited but arising in the ordinary course of business but not exceeding U.S.$50million, those granted to secure project finance indebtedness granted, and those incumberancesarising out of rights of the consolidation, combination or set-off of any bank or financial institutioncreated in the course of a foreign exchange, swap or derivative transaction in the ordinary courseof business.

The 1998 Programme documents contain customary events of default, including, but not limited to,non-payment, breach of other obligations set forth in the terms and conditions of the notes and thetrust deed, ceasing to carry on or threatening to cease to carry on the whole or a substantial part

197


of its business operations, unlawfulness or repudiation of obligations, certain insolvency, winding-upor related events, any default in relation to certain indebtedness not being paid when due orbecoming due and payable before its specified maturity, denial, revocation or failure to receive anynecessary governmental authorisation, permit or license, failure of the guarantee to be in full forceand effect or repudiation of the guarantee by the guarantor, and repossession of any asset leased,hired or purchased by the Issuer with a value in excess of US$10,000,000 due to failure to payunder such lease or purchase agreement.

Domestic Medium Term Note and Commercial Paper Programme

On 13 September 2007, Transnet established its R 30.0 billion Domestic Medium Term Note andCommercial Paper Programme. Pursuant to the establishment of the Commercial PaperProgramme, Transnet issued several series of notes (collectively the ‘‘Programme Notes’’), andvarious commercial paper issuances under the Commercial Paper Programme. The issue date,description of the Programme Notes and the maturity dates for each of the Programme Notes andthe issue date range, description of the commercial paper and the maturity dates for each of thecommercial paper issuances appear below:

Notes Issues

ISSUE DATE DESCRIPTION OF NOTES MATURITY DATE

12 December 2008 R 300,000,000.00 9.81% Senior Unsecured UnlistedFixed Rate Note

15 December 2011


29 July 2008 R 500,000,000.00 Senior Unsecured Floating Rate Notes 29 July 2011Between 14November 2007 and 3September 2009

R 7,000,000,000.00 9.25% Senior Unsecured Fixed Rate Notes 14 November 2017

Between 17September 2009 and21 January 2010

R 1,948,000,000.00 10.50% Senior Unsecured Fixed Rate Notes 17 September 2020

Between 6 November2008 and 21 January2010


Between 14 November2007 and 21 January2010


Commercial Paper Issues


05 February 2009 R 20,000,000.00 Senior Unsecured Zero Coupon Notes 04 February 201005 March 2009 R 113,000,000.00 Senior Unsecured Zero Coupon Notes 04 March 201019 March 2009 R 79,000,000.00 Senior Unsecured Zero Coupon Notes 18 March 201002 April 2009 R 20,000,000.00 Senior Unsecured Zero Coupon Notes 01 April 201023 April 2009 R 100,000,000.00 Senior Unsecured Zero Coupon Notes 22 April 201015 October 2009 R 100,000,000.00 Senior Unsecured Zero Coupon Notes 22 April 201020 May 2009 R 335,000,000.00 Senior Unsecured Zero Coupon Notes 06 May 201019 June 2009 R 280,000,000.00 Senior Unsecured Zero Coupon Notes 10 June 201016 July 2009 R 200,000,000.00 Senior Unsecured Zero Coupon Notes 08 July 201006 August 2009 R 131,000,000.00 Senior Unsecured Zero Coupon Notes 11 February 201019 November 2009 R 30,000,000.00 Senior Unsecured Zero Coupon Notes 11 February 201006 August 2009 R 369,000,000.00 Senior Unsecured Zero Coupon Notes 05 August 201011 September 2009 R 160,000,000.00 Senior Unsecured Zero Coupon Notes 11 March 201011 September 2009 R 40,000,000.00 Senior Unsecured Zero Coupon Notes 09 September 201015 October 2009 R 20,000,000.00 Senior Unsecured Zero Coupon Notes 14 October 201019 November 2009 R 220,000,000.00 Senior Unsecured Zero Coupon Notes 20 May 201019 November 2009 R 50,000,000.00 Senior Unsecured Zero Coupon Notes 18 November 2010

198



The programme documents contain representations and warranties and undertakings common toagreements of this type and include customary operating and financial covenants, subject to certainagreed exceptions, including covenants that restrict Transnet’s ability and the ability of its materialsubsidiaries to: create or permit to the creation of any encumbrances other than those permittedunder the programme, and form or procure the formation of a trust or appoint or procure theappointment of an agent to hold any security rights for the benefit or on behalf of noteholders.

The programme documents contain customary events of default, including, but not limited to, non-payment, breach of other obligations set forth in the agreement, failure to obtain any necessaryconsent, license, approval or authorization, disposition of or ceasing to carry on the whole or asubstantial part of its business or assets, certain insolvency, winding-up or related events.

FNB Corporate Facility

On 31 August 2004, Transnet, as borrower, and FNB Corporate, as lender, entered into a facilityagreement which provides for limited types of borrowing by Transnet to fund certain types ofactivities as detailed in the table below.

Facility

OriginalPrincipalAmount

(R millions)

Asset Based Finance Facility ....................................................................................... 107Business Card Facility .................................................................................................. 100Working Capital ............................................................................................................ 140Guarantees ................................................................................................................... 10Forward Exchange Contracts ....................................................................................... 398*Derivative Products ...................................................................................................... 250*Forward Exchange Contracts ....................................................................................... 400*Bond Trading ................................................................................................................ 20*Electronic Funds Transfer ............................................................................................ 500*

Total ............................................................................................................................. 1,835

* Margined

Interest

Net credit balances attract interest at FNB Corporate’s corporate base rate as quoted from time totime plus 4.25 per cent. Interest accrues on the debit balances of any of the draft not forming partof the cash management group. Such interest is levied at the FNB Corporate’s prime rate,compounded monthly. Interest is calculated on a daily outstanding balance and capitalised monthlyin arrears.

Interest due on any form of utilisation that is subject to the completion of a transaction annexure ispaid in accordance with the terms set forth in each transaction annexure. In the absence of termsand conditions relating to interest in a transaction annexure, the terms and conditions relating tointerest as set forth in the facility agreement apply.

Covenants, Representations and Warranties and Events of Default

The facility agreement contains representations and warranties and undertakings common toagreements of this type and include customary operating and financial covenants, subject to certainagreed exceptions, including covenants that restrict Transnet’s ability and the ability of itssubsidiaries to: create or permit to exist any security or preference (other than one created byoperation of law) for any indebtedness or contingent indebtedness of Transnet; create or permit tosubsist any encumbrances, sell or dispose of its assets, incur or have outstanding certainborrowings, guarantees, loans or hedges, and reduce share capital.

The facility agreement contains customary events of default, including, but not limited to, non-payment, breach of other obligations set forth in the agreement, misrepresentation, certaininsolvency, winding-up or related events, and any cross default in relation to certain indebtednessnot being paid when due or becoming due and payable before its specified maturity.

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FORM OF FINAL TERMS

The form of Final Terms that will be issued in respect of each Tranche, subject only to the deletionof non-applicable provisions, is set out below:

Final Terms dated [*]

Transnet LimitedIssue of [Aggregate Nominal Amount of Tranche] [Title of Notes]

under the U.S.$2,000,000,000Global Medium Term Note Programme

PART A – CONTRACTUAL TERMS

Terms used herein shall be deemed to be defined as such for the purposes of the Terms andConditions of the Notes (the ‘‘Conditions’’) set forth in the Base Prospectus dated 26 January2010 [and the supplemental Base Prospectus dated [*]] which [together] constitute[s] a baseprospectus for the purposes of the Prospectus Directive (Directive 2003/71/EC) (the ‘‘ProspectusDirective’’). This document constitutes the Final Terms of the Notes described herein for thepurposes of Article 5.4 of the Prospectus Directive and must be read in conjunction with suchProspectus [as so supplemented]. Full information on the Issuer and the offer of the Notes is onlyavailable on the basis of the combination of these Final Terms and the Base Prospectus [as sosupplemented]. The Base Prospectus [and the supplemental Prospectus] [is] [are] available forviewing at [address] [and] [website] and copies may be obtained from [address].

The following alternative language applies if the first tranche of an issue which is being increased wasissued under a Prospectus with an earlier date.

Terms used herein shall be deemed to be defined as such for the purposes of the Conditions setforth in the Prospectus dated [original date] [and the supplemental Prospectus dated [*]]. Thisdocument constitutes the Final Terms of the Notes described herein for the purposes of Article 5.4of the Prospectus Directive (Directive 2003/71/EC) (the ‘‘Prospectus Directive’’) and must be readin conjunction with the Prospectus dated [current date] [and the supplemental Prospectus dated[*]], which [together] constitute[s] a base prospectus for the purposes of the Prospectus Directive,save in respect of the Conditions which are extracted from the Prospectus dated [original date][and the supplemental Prospectus dated [*]] and are attached hereto. Full information on theIssuer and the offer of the Notes is only available on the basis of the combination of these FinalTerms and the Prospectuses dated [original date] and [current date] [and the supplementalProspectuses dated [*] and [*]]. The Prospectuses [and the supplemental Prospectuses] areavailable for viewing at [address] [and] [website] and copies may be obtained from [address].

[Include whichever of the following apply or specify as ‘‘Not Applicable’’ (N/A). Note that the numberingshould remain as set out below, even if ‘‘Not Applicable’’ is indicated for individual paragraphs or sub-paragraphs. Italics denote guidance for completing the Final Terms.]

[When completing final terms or adding any other final terms or information consideration should begiven as to whether such terms or information constitute ‘‘significant new factors’’ and consequentlytrigger the need for a supplement to the Prospectus under Article 16 of the Prospectus Directive.]

1. Issuer: Transnet Limited

2. [(i)] Series Number: [*]

[(ii) Tranche Number: [*]

(If fungible with an existing Series, detailsof that Series, including the date on whichthe Notes become fungible).]

3. Specified Currency or Currencies: [*]

4. Aggregate Nominal Amount of Notes:

[(i)] Series: [*]

[(ii) Tranche: [*]]

200


5. Issue Price: [*] per cent. of the Aggregate Nominal Amount[plus accrued interest from [insert date] (ifapplicable)]

6. (i) Specified Denominations: [*]

(ii) Calculation Amount: [If only one Specified Denomination, insert theSpecified Denomination. If more than oneSpecified Denomination, insert the highestcommon factor.]

[Note: There must be a common factor in the caseof two or more Specified Denominations]

7. (i) Issue Date: [*]

(ii) Interest Commencement Date: [*]

8. Maturity Date: [Specify date or (for Floating Rate Notes) InterestPayment Date falling in or nearest to the relevantmonth and year]

9. Interest Basis: [[*] per cent. Fixed Rate]

[[Specify reference rate] +/- [*] per cent. FloatingRate] [Zero Coupon]

[Index Linked Interest]

[Other (specify)]

(further particulars specified below)

10. Redemption/Payment Basis: [Redemption at par]

[Index Linked Redemption]

[Dual Currency]

[Partly Paid]

[Instalment]

[Other (specify)]

[(N.B. If the Final Redemption Amount is less than100 per cent. of the nominal value, the Notes willconstitute derivative securities for the purposes ofthe Prospectus Directive and the requirements ofAnnex XII to the Prospectus Directive RegulationNo. 809/2004 will apply and the Issuer will prepareand publish a supplement to the BaseProspectus.)]

11. Change of Interest or Redemption/Payment Basis:

[Specify details of any provision for convertibility ofNotes into another interest or redemption/paymentbasis]

12. Put/Call Options: [General Put Option]

[Change of Control Put Option]

[Call Option]

[(further particulars specified below)]

13. [(i)] Status of the Notes: [Senior]

[(ii)] [Date approval for issuance of Notesobtained:

[*] [and [*], respectively]

[(N.B. Only relevant where authorisation isrequired for the particular tranche of Notes)]

14. Method of distribution: [Syndicated/Non-syndicated]

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PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE

15. Fixed Rate Note Provisions [Applicable/Not Applicable]

(If not applicable, delete the remaining sub-paragraphs of this paragraph)

(i) Rate[(s)] of Interest: [*] per cent. per annum [payable [annually/semi-annually/quarterly/monthly/other (specify)] inarrear]

(ii) Interest Payment Date(s): [*] in each year [adjusted in accordance with[specify Business Day Convention and anyapplicable Business Centre(s) for the definition of‘‘Business Day’’]/not adjusted]

(iii) Fixed Coupon Amount[(s)]: [*] per Calculation Amount

(iv) Broken Amount(s): [[*] per Calculation Amount payable on theInterest Payment date falling [in/on] [*]] [Insertparticulars of any initial or final broken interestamounts which do not correspond with the FixedCoupon Amount[(s)]]

(v) Day Count Fraction: [30/360 / Actual/Actual (ICMA/ISDA) / other]

(vi) [Determination Dates: [*] in each year (insert regular interest paymentdates, ignoring issue date or maturity date in thecase of a long or short first or last coupon. N.B.only relevant where Day Count Fraction is Actual/Actual (ICMA))]

(vii) Other terms relating to the method ofcalculating interest for Fixed RateNotes:

[Not Applicable/give details]

16. Floating Rate Note Provisions: [Applicable/Not Applicable]


(i) Interest Period(s): [*]

(ii) Specified Interest Payment Dates: [*]

(iii) First Interest Payment Date: [*]

(iv) Business Day Convention: [Floating Rate Convention/Following BusinessDay Convention/Modified Following BusinessDay Convention/Preceding Business DayConvention/other (give details)]

(v) Business Centre(s): [*]

(vi) Manner in which the Rate(s) ofInterest is/are to be determined:

[Screen Rate

Determination/ISDA

Determination/other (give details)]

(vii) Party responsible for calculating theRate(s) of Interest and InterestAmount(s) (if not the CalculationAgent):

[*]

(viii) Screen Rate Determination:

– Reference Rate: [*]

– Interest Determination Date(s): [*]

– Relevant Screen Page: [*]

(ix) ISDA Determination:

– Floating Rate Option: [*]

– Designated Maturity: [*]

– Reset Date: [*]

202


(x) Margin(s): [+/-][*] per cent. per annum

(xi) Minimum Rate of Interest: [*] per cent. per annum

(xii) Maximum Rate of Interest: [*] per cent. per annum

(xiii) Day Count Fraction: [*]

(xiv) Fall back provisions, roundingprovisions, denominator and anyother terms relating to the method ofcalculating interest on Floating RateNotes, if different from those set outin the Conditions:

[*]

17. Zero Coupon Note Provisions: [Applicable/Not Applicable]


(i) Amortisation Yield: [*] per cent. per annum

(ii) Any other formula/basis ofdetermining amount payable:

[*]

18. Index Linked Interest Note/other variable-linked interest Note Provisions

[Applicable/Not Applicable]


(i) Index/Formula/other variable: [give or annex details]

(ii) Party responsible for calculating theRate(s) of Interest and/or InterestAmount(s) (if not the [Agent]):

[*]

(iii) Provisions for determining Couponwhere calculated by reference toIndex and/or Formula and/or othervariable:

[*]

(iv) Interest Determination Date(s): [*]

(v) Provisions for determining Couponwhere calculation by reference toIndex and/or Formula and/or othervariable is impossible or impracticableor otherwise disrupted:

[*]

(vi) Interest Period(s): [*]

(vii) Specified Interest Payment Dates: [*]

(viii) Business Day Convention: [Floating Rate Convention/Following BusinessDay Convention/Modified Following BusinessDay Convention/Preceding Business DayConvention/other (give details)]

(ix) Business Centre(s): [*]

(x) Minimum Rate of Interest: [*] per cent. per annum

(xi) Maximum Rate of Interest: [*] per cent. per annum

(xii) Day Count Fraction: [*]

19. Dual Currency Note Provisions [Applicable/Not Applicable]


(i) Rate of Exchange/method ofcalculating Rate of Exchange:

[give details]

(ii) Party, if any, responsible forcalculating the principal and/orinterest due (if not the [Agent]):

[*]

203


(iii) Provisions applicable wherecalculation by reference to Rate ofExchange impossible orimpracticable:

[*]

(iv) Person at whose option SpecifiedCurrency(ies) is/are payable:

[*]

PROVISIONS RELATING TO REDEMPTION

20. Call Option [Applicable/Not Applicable]


(i) Optional Redemption Date(s): [*]

(ii) Optional Redemption Amount(s) ofeach Note and method, if any, ofcalculation of such amount(s):

[*] per Calculation Amount

(iii) If redeemable in part:

(a) Minimum Redemption Amount: [*] per Calculation Amount

(b) Maximum Redemption Amount: [*] per Calculation Amount

(iv) Notice period: [*]

21. General Put Option: [Applicable/Not Applicable]


(i) Optional Redemption Date(s): [*]

(ii) Optional Redemption Amount(s) ofeach Note and method, if any, ofcalculation of such amount(s):


(iii) Notice period: [*]

22. Change of Control Put Option: [Applicable/Not Applicable]


(i) Put Date: [*]

(ii) Change of Control RedemptionAmount:


(iii) Put Period: [*]

23. Final Redemption Amount of each Note: [*] per Calculation Amount

In cases where the Final RedemptionAmount is Index Linked or other variable-linked:

[If the Final Redemption Amount is linked to anunderlying reference or security, the Notes willconstitute derivative securities for the purposes ofthe Prospectus Directive and the requirements ofAnnex XII to the Prospectus Directive RegulationNo. 809/2004 will apply and the Issuer will prepareand publish a supplement to the Prospectus whichshall constitute a supplementary prospectuspursuant to Prospectus Rule 3-4 and Section87G of the FSMA.]

(i) Index/Formula/variable: [give or annex details]

(ii) Party responsible for calculating theFinal Redemption Amount (if not the[Agent]):

[*]

204


(iii) Provisions for determining FinalRedemption Amount where calculatedby reference to Index and/or Formulaand/or other variable:

[*]

(iv) Determination Date(s): [*]

(v) Provisions for determining FinalRedemption Amount wherecalculation by reference to Index and/or Formula and/or other variable isimpossible or impracticable orotherwise disrupted:

[*]

(vi) Payment Date: [*]

(vii) Minimum Final Redemption Amount: [*] per Calculation Amount

(viii) Maximum Final Redemption Amount: [*] per Calculation Amount

24. Early Redemption Amount

Early Redemption Amount(s) perCalculation Amount payable on redemptionfor taxation reasons or on event of defaultor other early redemption and/or themethod of calculating the same (if requiredor if different from that set out in theConditions):

[*]

GENERAL PROVISIONS APPLICABLE TO THE NOTES

25. Form of Notes: Bearer Notes:

[Temporary Global Note exchangeable for aPermanent Global Note which is exchangeablefor Definitive Notes in the limited circumstancesspecified in the Permanent Global Note].

[Temporary Global Note exchangeable forDefinitive Notes on [*] days’ notice]

[Permanent Global Note exchangeable forDefinitive Notes in the limited circumstancesspecified in the Permanent Global Note]

Registered Notes:

[Global Note Certificate exchangeable forIndividual Note Certificates on [*] days’ notice/atany time/in the limited circumstances specified inthe Global Note Certificate]

[Note: The exchange upon notice at any timeoptions as specified above and in the Conditionsshould not be expressed to be applicable if theSpecified Denomination of the Notes in paragraph6 includes language to the following effect:

[‘‘EUR50,000 and integral numbers of EUR1,000in excess thereof up to and including EUR99,000].

26. Financial Centre(s) or other specialprovisions relating to payment dates:

[Not Applicable/give details. Note that thisparagraph relates to the date and place ofpayment, and not interest period end dates, towhich sub-paragraphs 15(ii), 16(v) and 18(ix)relate]

27. Talons for future Coupons or Receipts tobe attached to Definitive Notes (and dateson which such Talons mature):

[Yes/No. If yes, give details]

205


28. Details relating to Partly Paid Notes:amount of each payment comprising theIssue Price and date on which eachpayment is to be made and consequences(if any) of failure to pay, including any rightof the Issuer to forfeit the Notes andinterest due on late payment:


29. Details relating to Instalment Notes:amount of each instalment, date on whicheach payment is to be made:


30. Redenomination, renominalisation andreconventioning provisions:

[Not Applicable/See Annex]

31. Consolidation provisions: [Not Applicable/The provisions [in Condition [*]]apply]

32. Other final terms: [Not Applicable/give details]

(When adding any other final terms considerationshould be given as to whether such termsconstitute a ‘‘significant new factor’’ andconsequently trigger the need for a supplementto the Prospectus under Article 16 of theProspectus Directive.)

DISTRIBUTION

33. (i) If syndicated, names of Managers: [Not Applicable/give names]

(ii) Stabilising Manager(s) (if any): [Not Applicable/give name]

34. If non-syndicated, name of Dealer: [Not Applicable/give name]

35. U.S. Selling Restrictions: [Reg S Compliance Category: TEFRA C/TEFRAD/not applicable]

36. Additional selling restrictions: [Not Applicable/give details]

[PURPOSE OF FINAL TERMS

These Final Terms comprise the final terms required for issue and admission to trading on the[specify relevant regulated market] of the Notes described herein pursuant to the U.S.$[*] GlobalMedium Term Note Programme of Transnet Limited].

RESPONSIBILITY

The Issuer accepts responsibility for the information contained in these Final Terms. [[*] has beenextracted from [*]. The Issuer confirms that such information has been accurately reproduced andthat, so far as it is aware, and is able to ascertain from information published by [*], no factshave been omitted which would render the reproduced information inaccurate or misleading].

Signed on behalf of the Issuer:

By: ________________________________

Duly authorised

By: ________________________________

Duly authorised

206


PART B – OTHER INFORMATION

1. LISTING

(i) Admission to trading: [Application has been made by the Issuer (or on itsbehalf) for the Notes to be admitted to trading on[specify relevant regulated market] with effect from[*]] [Application is expected to be made by theIssuer (or on its behalf) for the Notes to beadmitted to trading on [specify relevant regulatedmarket] with effect from [*].] [Not Applicable.]

(ii) Estimate of total expenses related toadmission to trading:

[*]

2. RATINGS

Ratings: The Notes to be issued have been rated:

[S & P: [*]]

[Moody’s: [*]]

[[Other]: [*]]

(The above disclosure should reflect the ratingallocated to Notes of the type being issued underthe Programme generally or, where the issue hasbeen specifically rated, that rating.)

3. [INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE [ISSUE/OFFER]

Need to include a description of any interests, including conflicting ones, that are material tothe issue/ offer, detailing the persons involved and the nature of the interest. May be satisfiedby the inclusion of the following statement:

‘‘So far as the Issuer is aware, no person involved in the offer of the Notes has an interestmaterial to the offer’’.]

4. [REASONS FOR THE OFFER, ESTIMATED NET PROCEEDS AND TOTAL EXPENSES]

[(i) Reasons for the offer: [*]

(See [‘‘Use of Proceeds’’] wording in Prospectus –if reasons for offer different from making profit and/or hedging certain risks will need to include thosereasons here.)]

[(ii)] Estimated net proceeds: [*]

(If proceeds are intended for more than one usewill need to split out and present in order of priority.If proceeds insufficient to fund all proposed usesstate amount and sources of other funding.)

[(iii)] Estimated total expenses: [*] [Include breakdown of expenses.]

(Only necessary to include disclosure of netproceeds and total expenses at (ii) and (iii)above where disclosure is included at (i) above.)]

5. [Fixed Rate Notes only – YIELD

Indication of yield: [*]

Calculated as [includes details of method ofcalculation in summary form] on the Issue Date.

As set out above, yield is calculated as at the IssueDate on the basis of the Issue Price. It is not anindication of future yield.]

207


6. [Index Linked or other variable-linked Notes only – PERFORMANCE OF INDEX/FORMULA/OTHER VARIABLE AND OTHER INFORMATION CONCERNING THE UNDERLYING]

Need to include details of where past and future performance and volatility of the index/formula/other variable can be obtained. Where the underlying is an index need to include thename of the index and a description if composed by the Issuer and if the index is notcomposed by the Issuer need to include details of where the information about the index canbe obtained. Where the underlying is not an index need to include equivalent information.Include other information concerning the underlying required by Paragraph 4.2 of Annex XII ofthe Prospectus Directive Regulation.]*

[(When completing this paragraph, consideration should be given as to whether such mattersdescribed constitute ‘‘significant new factors’’ and consequently trigger the need for asupplement to the Prospectus under Article 16 of the Prospectus Directive.)]

The Issuer [intends to provide post-issuance information [specify what information will bereported and where it can be obtained]] [does not intend to provide post-issuanceinformation].*

7. [Dual Currency Notes only – PERFORMANCE OF RATE[S] OF EXCHANGE

Need to include details of where past and future performance and volatility of the relevantrate[s] can be obtained.]

8. OPERATIONAL INFORMATION

ISIN: [*]

Common Code: [*]

CUSIP Number: [*]

Any clearing system(s) other thanEuroclear Bank S.A./N.V., ClearstreamBanking, societe anonyme and/or DTC andthe relevant identification number(s):

[Not Applicable/give name(s) and number(s) [andaddress(es)]]

Delivery: Delivery [against/free of] payment

Names and addresses of initial Paying andTransfer Agent(s):

[*]

Names and addresses of additional Payingand Transfer Agent(s) (if any):

[*]

* Required for derivative securities to which Annex XII to the Prospectus Directive Regulation applies.

208


GENERAL INFORMATION

1. Listing: The listing of the Notes on the Official List will be expressed as a percentage of theirnominal amount (exclusive of accrued interest). It is expected that each Tranche of the Noteswhich is to be admitted to the Official List and to trading on the Market will be admittedseparately as and when issued, subject only to the issue of one or more Certificates inrespect of each Tranche. The listing of the Programme in respect of the Notes is expected tobe granted on or about 28 January 2010. Prior to official listing and admission to trading,however, dealings will be permitted by the London Stock Exchange in accordance with itsrules. Transactions on the Market will normally be effected for delivery on the third workingday after the day of the transaction. However, unlisted Notes may be issued pursuant to theProgramme.

2. Authorisations: The Issuer has obtained all necessary consents, approvals andauthorisations in connection with the establishment of the Programme. The establishment ofthe Programme was authorised by a resolution of the Board of Directors of the Issuer passedon 18 June 2009. The Issuer has obtained or will obtain from time to time all necessaryconsents, approvals and authorisations in connection with the issue of the Notes and theperformance of its obligations under the Notes.

3. Significant/Material Change: There has been no material adverse change in the prospectsof the Issuer or the Issuer and its subsidiaries (taken as a whole) since 31 March 2009 nor,since 30 September 2009, any significant change in the financial or trading position of theIssuer or of the Issuer and its subsidiaries (taken as a whole).

4. Legal and Arbitration Proceedings: Neither the Issuer nor any of its subsidiaries has beeninvolved in any governmental, legal or arbitration proceedings (including any such proceedingswhich are pending or threatened of which the Issuer is aware) which may have or has hadduring the 12 months preceding the date of this Base Prospectus a significant effect on thefinancial position or profitability of the Issuer or the Group.

5. Clearing Systems: The Notes have been accepted for clearance through the Euroclear,Clearstream, Luxembourg and/or DTC systems (which are the entities in charge of keepingthe records). The appropriate Common Code, the ISIN and/or the CUSIP Number (and,where applicable, the identification number, together with any further appropriate information,for any other relevant clearing system) for each Series of Notes will be specified in therelevant Final Terms.

The address of Euroclear is 1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium. Theaddress of Clearstream, Luxembourg is 42 Avenue J.F. Kennedy, L-1855 Luxembourg. Theaddress of the DTC is 55 Water Street, New York, NY 10041. The address of any alternativeclearing system will be specified in the relevant Final Terms.

6. Bearer Notes: Each Bearer Note with an original maturity of more than one year issued incompliance with the D Rules, Receipt, Coupon and Talon will bear the following legend:

‘‘Any United States person who holds this obligation will be subject to limitations under theUnited States income tax laws, including the limitations provided in Sections 165(j) and1287(a) of the Internal Revenue Code of 1986, as amended’’.

7. Issue Price: The issue price and the amount of the relevant Notes will be determined, beforefiling of the relevant Final Terms of each Tranche, based on the prevailing market conditions.The Issuer does not intend to provide any post-issuance information in relation to any issuesof Notes.

8. Documents Available: For so long as Notes may be issued pursuant to this BaseProspectus, the following documents will be available, during usual business hours on anyweekday (Saturdays and public holidays excepted), for inspection at the office of the Issuer:

(i) the Agency Agreement (which includes the form of the Notes, Receipts, Coupons,Talons and Certificates);

(ii) the Dealer Agreement;

(iii) the Deed of Covenant;

(iv) the constitutional documents of the Issuer;

209


(v) the Consolidated Financial Statements of the Issuer at and for the three years ended 31March 2009, 2008 and 2007 and the Interim Consolidated Financial Statements of theIssuer at and for the six months ended 30 September 2009 and 2008;

(vi) each Final Terms (save that Final Terms relating to a Note which is neither admitted totrading on a regulated market within the EEA nor offered in the EEA in circumstanceswhere a Prospectus is required to be published under the Prospectus Directive will onlybe available for inspection by a holder of such Note and such holder must produceevidence satisfactory to the Issuer and the Fiscal Agent as to its holding of Notes andidentity);

(vii) a copy of this Base Prospectus together with any Supplement to this Base Prospectusor further Prospectus; and

(viii) the most recently prepared memorandum containing the disclosure requirements of theCommercial Paper Regulations published in Government Notice 2172 in GovernmentGazette 16167 of 14 December 1994 under section 90 of the South African Banks Act,1990 to the extent they are applicable.

This Base Prospectus and each Final Terms for Notes that are listed on the Official List andadmitted to trading on the Market will be published on the website of the Regulatory NewsService operated by the London Stock Exchange at www.londonstockexchange.com/prices-and-news/prices-news/home.htm.

9. Financial Statements: Copies of the Issuer’s Consolidated Financial Statements and theInterim Consolidated Financial Statements may be obtained, and copies of the AgencyAgreement will be available for inspection, at the specified offices of each of the PayingAgents during normal business hours, so long as any of the Notes is outstanding.

10. Auditors: The Consolidated Financial Statements of the Issuer have been audited withoutqualification for the years ended 31 March 2009, 2008 and 2007 by Deloitte & Touche,independent auditors, The Woodlands, 20 Woodlands Drive, Woodmead 2196, Republic ofSouth Africa. Deloitte & Touche has given, and not withdrawn, its written consent to theinclusion of its auditors’ report in this Base Prospectus in the form and content in which it isincluded. For the purposes of Prospectus Rule 5.5.4R(2)(f) Deloitte & Touche has authorisedthe contents of its auditors’ report referred to above as part of this Base Prospectus, hasstated that it is responsible for that report and has declared that it has taken all reasonablecare to ensure that the information contained in that report is, to the best of its knowledge, inaccordance with the facts and contains no omission likely to affect its import. This declarationis included in this Base Prospectus in compliance with Annex IX item 1.2 in Appendix 3 tothe Prospectus Rules. A written consent under the Prospectus Rules is different from aconsent filed with the US Securities and Exchange Commission under Section 7 of theSecurities Act. As the Notes have not and will not be registered under the Securities Act,Deloitte & Touche has not filed a consent under Section 7 of the Securities Act.

11. Registered and Telephone Number: Transnet Limited’s registered number is1990/000900/06. Transnet Limited’s telephone number is +27 11 308 2600.

210


INDEX TO FINANCIAL STATEMENTS

Audited Consolidated Financial Statements for Financial Year 2009, 2008 and 2007Independent auditors’ report ................................................................................................... F-2Consolidated balance sheets.................................................................................................. F-3Consolidated income statements............................................................................................ F-4Consolidated statement of recognised income and expense ................................................. F-5Reconciliation of movement in reserves ................................................................................. F-6Consolidated cash flow statements ........................................................................................ F-7Notes to the consolidated financial statements ...................................................................... F-8

Unaudited condensed consolidated financial statements for the six month periods ended 30September 2009 and 2008 ..................................................................................................... F-120Unaudited condensed consolidated statements of financial position...................................... F-120Unaudited condensed consolidated statements of income..................................................... F-121Unaudited condensed consolidated statements of comprehensive income ........................... F-122Unaudited condensed consolidated statement of changes in equity...................................... F-123Unaudited condensed consolidated statements of cash flows ............................................... F-123Notes to the unaudited condensed consolidated financial statements ................................... F-124

F-1


INDEPENDENT AUDITORS’ REPORT

To the Board of DirectorsTransnet LimitedJohannesburg, South Africa

We have audited the accompanying consolidated financial statements of Transnet Limited andsubsidiaries (the ‘‘Company’’), which comprise the consolidated balance sheets as at 31 March2009, 2008 and 2007, and the consolidated income statements, consolidated statements ofrecognised income and expenses, consolidated reconciliations of movement in reserves andconsolidated cash flow statements for the years then ended. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with International Standards on Auditing. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance whether the financialstatements are free of material misstatement. An audit includes consideration of internal controlover financial reporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express no such opinion. Anaudit also includes examining on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used, and significant estimates madeby management, as well as evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.

In our opinion the consolidated financial statements present fairly, in all material respects, theconsolidated financial position of the Company at 31 March 2009, 2008 and 2007, and the resultsof their operations and their cash flows for the years then ended in accordance with InternationalFinancial Reporting Standards as issued by the International Accounting Standards Board.

As discussed in Note 8, the accompanying consolidated financial statements as of and for theyears ended 31 March 2008 and 2007 have been restated.

Deloitte & ToucheRegistered Auditors

Per T KalanPartner

26 January 2010

Deloitte PlaceThe Woodlands20 Woodlands DriveWoodmead2199

National Executive: GG Gelink Chief Executive AE Swiegers Chief Operating Officer GM Pinnock Audit

DL Kennedy Tax & Legal and Risk Advisory L Geeringh Consulting L Bam Corporate Finance CR Beukman Finance

TJ Brown Clients & Markets NT Mtoba Chairman of the Board CR Qually Deputy Chairman of the Board

A full list of partners and directors is available on request

F-2


Transnet Limited Consolidated balance sheets as at 31 March

F-3

31 March

Note 2009

R million

2008 Restated R million


Assets Non-current assets Property, plant and equipment 19 96,459 78,256 53,908 Investment properties 20 5,961 4,515 3,223 Intangible assets 21 431 326 207 Investments in associates and joint ventures 22 24 48 47 Derivative financial instruments 24 178 533 321 Long-term loans and advances 25 77 90 123 Other investments and long-term financial assets 23 287 452 460 103,417 84,220 58,289 Current assets Inventories 26 2,589 2,319 1,798 Trade and other receivables 27 5,503 4,074 3,992 Derivative financial instruments 24 335 412 5,658 Other short-term investments 23 436 550 204 Cash and cash equivalents 28 5,880 5,980 3,847 Assets classified as held-for sale 32 374 1,131 3,570 15,117 14,466 19,069 Total assets 118,534 98,686 77,358

Equity and liabilities Capital and reserves Issued capital 33 12,661 12,661 12,661 Reserves 45,673 38,300 24,035 Attributable to the equity holder 58,334 50,961 36,696 Minority interests - - 122 Non-current liabilities Post-retirement benefit obligations 34 2,324 2,181 2,422 Long-term borrowings 29 29,758 16,890 17,535 Derivative financial instruments 24 18 453 240 Long-term provisions 35 2,509 1,989 1,605 Deferred taxation liabilities 18 8,589 6,695 1,726 43,198 28,208 23,528 Current liabilities Trade payables and accruals 30 6,491 6,988 5,875 Short-term borrowings 29 7,255 8,382 7,615 Current taxation liability 854 803 502 Derivative financial instruments 24 109 113 165 Short-term provisions 35 2,279 2,533 2,376 Bank overdrafts 28 - 22 26 Liabilities directly associated with assets classified as held-for-sale 32 14 676 453 17,002 19,517 17,012 Total equity and liabilities 118,534 98,686 77,358

The accompanying notes form an integral part of these consolidated financial statements.

Transnet Limited

Consolidated income statements for the three years ended 31 March 2009

F-4

31 March

Note 2009

R million



Continuing operations Revenue 9 33,592 30,091 26,899 Net operating expenses excluding depreciation and amortisation 11 (20,392) (17,281) (16,232)

Profit from operations before depreciation, amortisation and items listed below 13,200 12,810 10,667 Depreciation and amortisation 12 (4,779) (3,798) (2,952)

Profit from operations before the items listed below 8,421 9,012 7,715 Impairment of assets 16 (324) (153) (232) Post-retirement benefit obligation (costs)/income 15 (436) 686 (218) Dividends received - 122 36 Fair value adjustments 13 941 1,416 2,462

Profit before income/(loss) from associates and joint ventures and finance costs 8,602 11,083 9,763 Income/(loss) from associates and joint ventures 22 82 (59) 2 Finance costs 17 (2,233) (2,692) (2,472) Finance income 10 267 761 185

Profit before taxation 6,718 9,093 7,478 Taxation 18 (1,674) (2,642) (1,742)

Profit for the year after taxation from continuing operations 5,044 6,451 5,736

Discontinued operations (Loss)/profit from discontinued operations, including (loss)/profit on disposal of discontinued operations and impairments 32 (516) (1,921) 921

Profit for the year 4,528 4,530 6,657

Attributable to equity holder 4,528 4,526 6,640 Attributable to minority interests - 4 17


Transnet Limited

Consolidated statements of recognised income and expenditure for the three years ended 31 March 2009

F-5

At 31 March

2009

R million



Gains on revaluations Net realisation of the equity accounted non-distributable reserves relating to V&A Waterfront Holdings (Pty) Ltd - - (119) Net gain on revaluation of port facilities 3,506 13,622 963 Net gain on revaluation of pipeline networks 657 324 658 Decommissioning provision adjustment relating to Transnet Pipelines* 193 (103) - Net gain on revaluation of land, buildings and structures 67 58 - Gain/(loss) on revaluation of other investments 23 (5) 72

Total gains on revaluations before taxation** 4,446 13,896 1,574 Taxation effect from rate change - 182 - Taxation effect of revalued items (1,124) (3,994) (43)

Net gains on revaluation reserves 3,322 10,084 1,531

Net movement on foreign currency translation reserves (22) 51 (36) Actuarial (loss)/gain related to post-retirement benefit obligations - Actuarial loss on the Transport Pension Fund: Transnet Sub-Fund (208) (362) (167) - Actuarial loss on the Transnet Second Defined Pension Fund (191) (638) 1,646 - Actuarial gains on the Transnet Top Management Pension Fund 3 27 4 - Actuarial loss on the Transnet Workmen’s Compensation Act Pensioners (93) (43) - - Actuarial loss on the Transnet Black Widows’ Pension Fund - (3) 3 - Actuarial (loss)/gains on the Transnet SATS Pensioners medical benefits (117) 204 134 - Actuarial (loss)/gains on the Transnet employees medical benefits (20) 145 87

(626) (670) 1,707 Taxation effect from rate change - 41 - Taxation effect of net actuarial losses/(gains) 175 192 (495)

Net actuarial (loss)/gains on post-retirement benefit obligations (451) (437) 1,212

Net income recognised directly in equity 2,849 9,698 2,707 Transferred from other reserves - - (857) Transferred (from)/to accumulated profit (4) 41 857 Profit for the year 4,528 4,530 6,657

Total recognised income for the year 7,373 14,269 9,364

Attributable to equity holder 7,373 14,265 9,347 Attributable to minority interests - 4 17

7,373 14,269 9,364

* Relates to the decommissioning provision raised directly in equity pertinent to Transnet Pipelines.

** Includes R4 million in 2009 that is transferred into distributable reserves (2008: nil, 2007: nil).


Transnet Limited

Reconciliation of movement in reserves for the three years ended 31 March 2009

F-6

Issued capital

Revaluation reserves

Foreign currency

reserve translation

Actuarial gains and

losses Other

Accumu-lated

profit Total Minority interests Total

R million R million R million R million R million R million R million R million R million Opening balances as at 1 April 2006 14,710 5,623 28 2,070 1,106 5,861 29,398 113 29,511 Shares redeemed (2,049) - - - - - (2,049) - (2,049) Total recognised income and expenditure as previously reported - 1,574 (36) 1,707 - 7,387 10,632 17 10,649 Investment properties adjustment - - - - - 52 52 - 52 Borrowing costs adjustment - - - - - 71 71 - 71 Taxation effect of the above adjustments - - - - - (26) (26) - (26) Impairment of Viamax (Pty) Limited - - - - - (365) (365) - (365) Taxation effect of items recorded in equity - (190) - (495) - - (685) - (685) Dividends paid - - - - - - - (8) (8) Transfers into distributable reserves - - - - (857) 857 - - - Opening balance as at 1 April 2007 as previously reported 12,661 7,007 (8) 3,282 249 13,837 37,028 122 37,150 Borrowing costs adjustment - - - - - 38 38 - 38 Deferred taxation adjustment - 147 - - - - 147 - 147 Decommissioning and environmental adjustment - - - - - (703) (703) - (703) Taxation effect of the above adjustments - - - - - 186 186 - 186 Restated opening balances as at 1 April 2007 12,661 7,154 (8) 3,282 249 13,358 36,696 122 36,818 Total recognised income and expenditure as previously reported - 13,937 51 (519) - 4,307 17,776 4 17,780 Restatements

Deferred taxation adjustments - - - - - (63) (63) - (63) Borrowing costs adjustments - - - - - 16 16 - 16 Fair value foreign exchange adjustment - - - - - 64 64 - 64 Pension fund adjustment - - - (151) - 151 - - - Decommissioning and environmental provision adjustment - - - - - 110 110 - 110 Capital work in progress adjustment - - - - - 50 50 - 50

Taxation effect of the above adjustments - - - - - (109) (109) - (109) Taxation effect of items recorded in equity as previously reported - (3,812) - 191 - - (3,621) - (3,621) Taxation adjustment restatement - - - 42 - - 42 - 42 Minorities repurchased - - - - - - - (126) (126) Transfers into distributable reserves - (41) - - - 41 - - - Restated opening balances at 1 April 2008 12,661 17,238 43 2,845 249 17,925 50,961 - 50,961 Total recognised income and expenditure - 4,442 (22) (626) - 4,528 8,322 - 8,322 Transfers into distributable reserves - 4 - - - (4) - - - Taxation effect of items recorded in equity - (1,124) - 175 - - (949) - (949) Balances at 31 March 2009 12,661 20,560 21 2,394 249 22,449 58,334 - 58,334 The accompanying notes form an integral part of these consolidated financial statements.

Transnet Limited

Consolidated cash flow statements for the three years ended 31 March 2009

F-7

2009

R million



Cash generated from operations (see Note 41) 13,498 13,159 13,578 Changes in working capital (see Note 41) (2,647) 273 133

Cash generated from operations after working capital changes 10,851 13,432 13,711 Finance costs (2,996) (2,782) (2,791) Finance income 269 768 304 Taxation paid (703) (928) (1,961) Settlement of post-retirement benefit obligations (317) (227) (453) Derivatives raised and settled 296 24 139 Dividends paid to minorities - - (8)

Cash flows from operating activities 7,400 10,287 8,941

Replacements to property, plant and equipment (8,498) (8,729) (8,176) Expansions - property, plant and equipment (10,884) (7,051) (3,498) Additions to intangible assets (27) (34) (108) Borrowing costs capitalised (764) (303) (90) Proceeds on the disposal of investment property 7 - - Proceeds on the disposal of property, plant and equipment 222 519 315 Proceeds on the disposal of intangible assets - 11 3 Net proceeds on the disposal of subsidiaries/division 135 878 (1,922) C-Class preference shares redeemed - 5,622 - Proceeds on the disposal of associates - 47 1,854 Minorities acquired - (150) - Dividend income 19 9 36 Acquisition of associates (6) (1) (4) Net loans to subsidiaries and associates 426 (69) 4 Net (payments)/receipts of long-term loans and advances (7) 1,291 522 Decrease/(increase) in other investments 293 (290) 719

Cash flows used in investing activities (19,084) (8,250) (10,345)

Borrowings raised 30,479 8,952 6,465 Borrowings repaid (18,892) (8,943) (2,796)

Cash flows from financing activities 11,587 9 3,669

Net (decrease)/increase in cash and cash equivalents (97) 2,046 2,265 Cash and cash equivalents at the beginning of the year 6,002 3,956 1,691

Total cash and cash equivalents at the end of the year 5,905 6,002 3,956

Cash and cash equivalents at the end of the year 5,880 5,958 3,821 Disclosed as assets held-for-sale 25 44 135 Cash flows from discontinued operations Cash flows from operating activities 36 634 995 Cash flows used in investing activities (193) (466) (374) Cash flows from/(used in) financing activities 154 (376) 198

Net (decrease)/increase in cash and cash equivalents from discontinued operations (3) (208) 819


Transnet Limited

Notes to the consolidated financial statements for the three years ended 31 March 2009

F-8

1. General information

Transnet Limited ("Transnet" or "Transnet Ltd" or the "Company") is a company domiciled in South Africa.

The consolidated financial statements for the three years ended 31 March 2009 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group’s interest in associates and joint ventures.

Transnet Limited is responsible for the operation of South Africa’s freight transportation system according to world-class standards and as an integral part of the overall economy. Transnet Limited is a freight transport company that aims to provide efficient, safe, reliable and cost-effective services in line with industry standards. Transnet seeks to promote economic growth in South Africa by providing Transnet’s customers with access to integrated logistics solutions and creating transport capacity ahead of demand.

Substantially all of Transnet’s business and its revenues are generated in South Africa.

Over the past four years, Transnet Limited has transformed from a diversified conglomerate into a focused operator of ports, rail and pipelines in South Africa. Activities have been grouped along major transport modes, with central support services grouped under one unifying brand. Transnet is currently organised into five core business divisions: Transnet Freight Rail, Transnet Rail Engineering, Transnet National Ports Authority, Transnet Port Terminals and Transnet Pipelines.

Transnet Freight Rail (Freight Rail) is focused on transporting bulk and containerised freight along its 20,824 kilometre route rail network, of which 1,500 kilometres comprises heavy haul export lines. During Financial year 2009, Freight Rail transported approximately 177 million tonnes of freight for export and domestic customers. Its main business lines are the coal line, iron-ore export channel and the general freight business.

Transnet Rail Engineering (Rail Engineering) consists of eight product focused business units which provide services ranging from refurbishment, conversion and upgrades, to the manufacturing of rail related rolling stock. Whilst this division is largely focused on supporting Freight Rail, it now also boasts a growing external client base.

Transnet National Ports Authority (National Ports Authority) is responsible for the safe, efficient and effective economic functioning of the national ports system, which it manages in a landlord capacity. National Ports Authority is also a provider of port infrastructure and marine services at all seven fully operational commercial ports in South Africa, and will provide the same services for the Ngqura when it become fully operational.

Transnet Port Terminals (Port Terminals) manages 16 cargo terminal operations situated across seven South African ports (including the Port of Ngqura). It provides cargo handling services for container, dry bulk, break-bulk and automotive cargoes. Port Terminals is gearing itself to operate the Port of Ngqura when the terminal is commissioned in 2009.

Transnet Pipelines (Pipelines) transports a range of petroleum products and gas through 3,000 kilometres of underground pipelines traversing five provinces, thereby ensuring the secure supply of petroleum products in the country.

2. Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).

3. Basis of preparation

The consolidated financial statements of the Group ("financial statements") are presented in South African Rands, rounded to the nearest million.

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3. Basis of preparation (continued)

The financial statements are prepared on the historical cost basis, except for the following assets and liabilities that are stated at their fair value: unlisted investments, derivative financial instruments, financial instruments held for trading, financial instruments classified as available-for-sale, investment properties and non-current assets, which are classified as held-for-sale. Certain classes of property, plant and equipment are carried at revalued amounts.

The accounting policies have been applied consistently by Group entities.

4. Summary of significant accounting policies

Revenue Recognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the amounts of revenue can be reliably measured. Revenue is net of value added taxation.

Transportation and other related services Revenue from transportation and other related services is recognised by reference to the stage of completion of transactions at the balance sheet date. The stage of completion is assessed by reference to surveys of work performed. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due and associated costs.

Rental income Revenue arising from the rental of property is recognised on a straight-line basis over the term of the lease in accordance with the substance of the relevant agreements. Lease incentives granted are recognised as an integral part of the total rental income.

Construction contracts Construction contracts represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognised to date less progress billings and recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.

Construction work in progress is presented as part of trade and other receivables in the balance sheet. If payments received from customers exceed the income recognised, then the difference is presented as deferred income in the balance sheet.

As soon as the outcome of a construction contract can be estimated reliably, contract revenue and expenses are recognised in profit or loss in proportion to the stage of completion of the contract. Contract revenue includes the initial amount agreed to in the contract plus any variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue and can be measured reliably.

The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable in the period in which they are incurred. An expected loss on a contract is recognised immediately in the income statement.

Expected revenues and costs pertinent to a contract can change in terms of a variation order. Variation orders are negotiated with customers and upon consensus, the variation order is executed.

Dividend income Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established, which in the case of quoted securities is usually the ex-dividend date.

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4. Summary of significant accounting policies (continued)

Finance income Finance income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset’s net carrying amount.

Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all suspensive conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset on a straight-line basis.

Transactions giving rise to adjustments to revenue/purchases The Group accounts for cash discounts and rebates received (given) as follows:

• In the case of the Group as a purchaser, cash discounts and rebates received are estimated upfront and deducted from the cost of inventories purchased; and

• In the case of the Group as a seller, cash discounts and rebates given are estimated upfront and deducted from the amount of revenue recognised.

Where extended payment terms are granted by the Group, whether explicitly or implicitly, the effect of the time value of money is taken into account irrespective of other factors such as the cash selling prices of the goods.

Taxation

Income taxation on the profit or loss for the year comprises current and deferred taxation. Income taxation is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current taxation The charge for current taxation is the amount of income taxes payable in respect of the taxable profit for the current period and any adjustment to taxation payable in respect of previous years. It is calculated using taxation rates that have been enacted or substantially enacted by the balance sheet date.

Deferred taxation

Deferred taxation is provided using a balance sheet liability method on all temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and their taxation bases. The following temporary differences are not provided for:

• the initial recognition of goodwill;

• the initial recognition of assets and liabilities (other than in a business combination), which affect neither accounting nor taxable profit or loss; and

• differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities and is calculated using the taxation rates that have been enacted or substantively enacted at the balance sheet date.

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4. Summary of significant accounting policies (continued) Deferred taxation is charged or credited in the income statement except where it relates to items charged or credited directly to equity, in which case the deferred taxation is also dealt with in equity.

A deferred taxation asset is recognised to the extent that it is probable that future taxable profits will be available to be utilised against the associated unused taxation losses and deductible temporary differences.

Deferred taxation assets are reduced to the extent that it is no longer probable that the related taxation benefit will be realised.

Deferred taxation liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and joint ventures, except where the Group is able to control the timing of the reversal of the temporary differences and it is probable that it will not reverse in the foreseeable future.

Deferred taxation assets and liabilities are off-set when they relate to income taxes levied by the same taxation authority and the Group has the legal right to and intends to settle its current taxation assets and liabilities on a net basis.

Secondary taxation on companies (STC)

STC is provided in respect of the expected dividend payments net of STC credits and is recognised as a taxation charge in the year in which the dividend is declared. STC credits on dividends received are recorded as deferred taxation assets in the period that they arise limited to the reserves available for distribution. The STC asset is only recognised to the extent that it is likely that it will be settled through the payment of dividends.

Basis of consolidation

Subsidiaries

Subsidiaries (including special purpose entities, such as trusts) are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Typically, this will be where the Group has more than 50% of the voting power. In assessing control, potential voting rights that are presently exercisable or convertible are taken into account. The consolidated financial statements include the results of the Company and its subsidiaries, from the effective dates of acquisition to the effective dates of disposal.

The purchase method of accounting in terms of IFRS 3: Business Combinations is applied to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured, initially, at their fair values at the acquisition date, irrespective of the extent of any minority interest. Non-current assets acquired in a business combination that are classified as held-for-sale are measured in accordance with IFRS 5: Non-current Assets Held-for-Sale and Discontinued Operations and are measured at the lower of carrying value and fair value less costs to sell. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is recognised directly in the income statement. The interest of the minority shareholders is stated at the minority’s proportion of the fair value of the assets, liabilities and contingent liabilities recognised.

On subsequent disposal of a subsidiary, the profit or loss on disposal is the difference between the selling price and the lower of the fair value less cost to sell and carrying value of the net assets and liabilities disposed of. On disposal, the amount attributed to goodwill is included in the determination of the profit or loss on disposal.

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Special purpose entities are consolidated when the substance of the relationship between the Group and the special purpose entity indicates that it is controlled by the Group.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies of the Group.

Associates (equity accounted investees)

Associates are entities over which the Group is in a position to exercise significant influence, but not control or joint control of the financial and operating policies. Investments in associates are equity accounted in the consolidated financial statements for the period in which the Group exercises significant influence, except when the investment is classified as held-for-sale in accordance with IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations. In terms of IFRS 5, the investment in the associate will be recognised and measured at the lower of carrying value and fair value, less costs to sell. Significant influence is presumed in instances where the Group has an equity stake greater than 20% but less than 50% in an entity.

Equity accounted income represents the Group’s proportionate share of the post-acquisition profits of these entities and the share of taxation thereon. Losses incurred by associates (including impairment losses where such indications exist) are brought to account in the consolidated financial statements until the investment in such associates is written down to a nominal value. Thereafter, losses are accounted for only insofar as the Group is committed to providing financial support to such associates. The carrying amount of such investments is reduced to recognise any decline in the value of the investment.

Long-term loans to associates, which in fact are part of the long-term investment, are treated as a part of the investment in the associates.

The excess of cost of the acquisition over the fair value of the associate’s net assets is recorded as goodwill. Goodwill is included in the carrying value of the investment and is assessed for impairment as part of the investment. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is recognised directly in the income statement.

The Group’s interest in an associate is carried in the balance sheet at an amount that reflects its share of the cost, post-acquisition reserves, plus goodwill, less an impairment loss, if applicable.

Where the Group transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associate, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred. Joint ventures (equity accounted investees)

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control, that is when strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control.

Joint venture agreements that involve the establishment of a separate entity in which each venture has an interest are referred to as jointly controlled entities. The Group reports its interest in jointly controlled entities using the equity method except when the investment is classified as held-for-sale, in which case it is accounted for in accordance with IFRS 5: Non-current Assets Held-for-Sale and Discontinued Operations.

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4. Summary of significant accounting policies (continued) Equity accounted income represents the Group’s proportionate share of the post-acquisition profits of these entities and the share of taxation thereon, net of the Group’s proportionate share of intergroup profits. Losses incurred by joint ventures (including impairment losses where such indications exist) are brought to account in the consolidated financial statements until the investment in such joint ventures is written down to a nominal value. Thereafter, losses are accounted for only insofar as the Group is committed to providing financial support to such joint ventures. The carrying amount of such investments is reduced to recognise any decline in the value of the investment.

The excess of the cost of the acquisition over the fair value of the joint venture’s net assets is recorded as goodwill. Goodwill is included in the carrying value of the investment and is assessed for impairment as part of the investment. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is recognised directly in the income statement.

Where the Group transacts with a joint venture of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant joint venture, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred.

Foreign currency

Functional and presentation currencies Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The consolidated financial statements are prepared in South African rands, which is the Company’s functional currency and the Group’s presentation currency.

Foreign currency transactions

Transactions in currencies other than the entity’s functional currency are defined as foreign currency transactions. Transactions in foreign currencies are translated at exchange rates ruling on transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rate of exchange ruling at the balance sheet date.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated at the exchange rates ruling at the original transaction date. Non-monetary assets and liabilities that are carried at fair value denominated in the foreign currency are translated into South African rands at the exchange rate ruling when the fair value was determined.

Exchange differences are recognised in profit or loss in the period in which they arise except for:

• Exchange differences which relate to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on foreign currency borrowings.

• Exchange differences on transactions entered into in order to hedge certain foreign currency risks (see below for hedging accounting policies).

• Exchange differences on monetary items receivable from or payable to a foreign operating entity for which a settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognised in the foreign currency translation reserve and recognised in profit or loss on disposal of net investment.

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4. Summary of significant accounting policies (continued) Financial statements of foreign entities

The financial statements of foreign entities are translated into South African rands as follows:

• Assets and liabilities, at rates of foreign exchange ruling at the balance sheet date.

• Revenue and expenses at rates approximating the foreign exchange rates ruling at the dates of the transactions or appropriate average rates.

• Goodwill and fair value adjustments arising on acquisition, at rates of foreign exchange ruling at balance sheet date.

• Equity at historical rates.

Any foreign exchange differences arising on translation are recognised as a separate component of equity. Exchange differences arising from the translation of the net investment in foreign operations, and of related hedges are taken to the translation reserve.

On disposal, such translation differences are recognised in the income statement as part of the gain or loss on disposal.

Inventories

Inventories are stated at the lower of cost and estimated net realisable value. Net realisable value represents the estimated selling price in the ordinary course of business, less all estimated costs of completion and selling.

Cost is determined as follows:

• Raw materials and consumable stores are stated at weighted average cost.

• Manufactured goods and work in progress are stated at weighted average cost valued at raw material cost, plus direct labour cost, and an appropriate portion of related manufacturing overhead cost, based on normal capacity.

Write-downs to net realisable value and inventory losses are expensed in the period in which the write-downs or losses occur.

Property, plant and equipment

Recognition and measurement

Port operating assets, pipeline networks and port infrastructure assets are carried at revalued amounts. Revaluations are carried out every three years and appropriate indices are applied in the intervening periods to ensure that the assets are carried at fair value at the balance sheet date. Revaluation surpluses that arise are taken directly to the revaluation surplus in equity, except to the extent that they reverse a revaluation decrease for the same asset previously recognised as an expense, in which case the surplus is credited to the income statement to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of an asset is charged as an expense to the extent that it exceeds the balance, if any, held in the asset’s revaluation surplus relating to a previous revaluation of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus in the revaluation reserve is transferred to retained earnings.

Cost includes expenditure that is directly attributable to the acquisition of the asset and borrowing costs which are capitalised to qualifying assets (see borrowing costs).

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4. Summary of significant accounting policies (continued) Assets under construction, including capital work in progress, are stated at cost, less any impairment losses where the recoverable amount of the asset is estimated to be lower than its carrying amount. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads. Firm commitments on hedge accounted transactions are included in capital work in progress (see derivative instruments and hedging).

Where components of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment and depreciated separately over their respectful useful lives.

Property, plant and equipment are stated at cost, or revalued amounts, less accumulated depreciation where appropriate and any accumulated impairment losses.

Spare parts, stand-by and servicing equipment held by the Group are classified as property, plant and equipment if they are expected to be used in more than one period. If not, they are classified as inventory. Spare parts and servicing equipment that can be used only in connection with a specific item of property, plant or equipment are also accounted for as property, plant and equipment.

Subsequent costs

The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other costs are recognised in the income statement as expenses as incurred.

Exchangeable units, such as aircraft engines, are classified as property, plant and equipment. Costs of major repair and overhauls of those units are capitalised as separate components.

Depreciation

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Land and assets in the course of construction are not depreciated. All other property, plant and equipment, including capitalised leased assets, are depreciated on a straight-line basis over their estimated useful lives or the term of the lease, if shorter. Major repairs and overhauls are depreciated over the remaining useful life of the related asset or to the date of the next major repair or overhaul, whichever is shorter. Depreciation commences when the asset is available for its intended use by management. Owned assets are depreciated over the following periods:

Rate per annum Years

Buildings and structures 10 – 50 Buildings and structures components 5 – 25 Permanent way and works 3 – 95 Aircraft including components 8 – 15 Pipelines including network components 6 – 60 Port infrastructure 12 – 100 Floating craft including components 10 – 40 Port operating equipment including components 3 – 40 Rolling stock 30 – 60

– Rolling stock components 25 – 60 Containers 10 – 20 Motor vehicles 3 – 15 Machinery, equipment and furniture 3 – 50

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The useful lives, depreciation method and the residual values of assets are reviewed and adjusted annually, if appropriate. Changes resulting from this review are accounted for prospectively as changes in estimates. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying value exceeds its estimated recoverable amount (refer Note 16).

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Investment properties

Investment properties are properties held to either earn rentals and/or for capital appreciation and are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value. Gains and losses arising from changes in the fair value of investment properties are recognised in the income statement. Rental income from investment properties is accounted for in Revenue.

Intangible assets

Software and licenses are assessed as having a finite life and are amortised on a straight-line basis over a period of three to five years. The estimated useful lives are as follows:

Software - five years Licences - term of the licence

Software and licenses

Software and licences are recognised and measured at cost less accumulated amortisation and any impairment losses.

Costs associated with researching or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the development of identifiable software products controlled by the Group, and that will probably generate economic benefits beyond one year, as well as for which the costs can be measured reliably, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Costs relating to the acquisition of licences are capitalised and amortised on a straight-line basis when available for use in the manner intended by management.

Research and development

Research costs, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are charged against operating income as incurred. Development costs, arising from the application of the research findings to a plan or design for the production of new or substantially improved products and processes, are also charged against operating income as incurred, except where:

• an asset is created that can be identified;

• the development cost of the asset can be reliably measured;

• the development is evaluated as being technically or commercially feasible;

• the Group has sufficient resources to complete development; and

• the Group can demonstrate how the development will generate future economic benefits in which event the development costs are capitalised. The expenditure capitalised includes the cost of materials, direct labour and an appropriate portion of overheads.

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Capitalised development costs are stated at cost less accumulated amortisation and any accumulated impairment losses. Development costs that have finite useful lives are amortised on a straight-line basis over their useful lives. Development costs with indefinite useful lives are not amortised, but tested at each balance sheet date for impairment.

Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodies in the specific asset to which it relates. All other expenditure is expensed as incurred.

Impairment of tangible and intangible assets

The carrying amounts of the Group’s tangible and intangible assets with a definite life, other than financial assets, investment property, non-current assets classified as held-for-sale, inventories and deferred taxation assets are reviewed at each balance sheet date to determine if there is any indication of impairment. If such an indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where an asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. For goodwill and intangible assets that have an indefinite useful life, the recoverable amount is estimated at each balance sheet date, and whenever there is an indication that the asset may be impaired.

An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash-generating units (group of units) and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

Calculation of recoverable amount

The recoverable amount of an asset is the higher of the asset’s fair value less costs to sell and its value-in-use. Fair value less costs to sell is determined by ascertaining the current market value of an asset and deducting any costs relating to the realisation of the asset. In assessing the value-in-use, the expected future cash flows from the asset are discounted to their net present values using a post-taxation discount rate that reflects current market assessments of the time value of money and the risks specific to the asset and the business unit to which that asset belongs. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Reversals of impairment

An impairment loss in respect of goodwill is not reversed.

In respect of other assets, a previously recognised impairment loss is reversed if the recoverable amount increases as a result of a change in the estimates previously used to determine the recoverable amount, to an amount not higher than the carrying amount that would have resulted, net of depreciation or amortisation, had no impairment loss been recognised. A reversal of an impairment loss is recognised as income immediately, if the impairment was recognised previously as an expense, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

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Borrowing costs

The Group capitalises borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, as part of the cost of that asset, until such time that the asset is substantially ready for its intended use. The Group identifies a qualifying asset as one that necessarily takes six months or more to get ready for its intended use.

To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the Group capitalises the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of these borrowings.

To the extent that the qualifying asset is funded via general borrowings, the Group determines borrowing costs eligible for capitalisation by applying the weighted average cost of borrowings for the period, to the expenditures on that asset.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Assets classified as held-for-sale

Non-current assets and disposal groups are classified as held-for-sale if their carrying amount will be recovered principally through a sale transaction rather than continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Immediately before classification as held-for-sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable IFRS. Then, on initial classification as held-for-sale, non-current assets and disposal groups are recognised at the lower of carrying amount and the fair value less costs to sell.

Impairment losses on initial classification as held-for-sale are included in the income statement, even when the assets have been recorded at revalued amounts. The same applies to gains and losses on subsequent measurement. A gain or subsequent increase in fair value less costs to sell may not exceed the cumulative impairment losses previously recognised in terms of IFRS 5 or IAS 36.

Non-current assets classified as held-for-sale are not depreciated or amortised whilst classified as such.

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resell.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held-for-sale, if earlier. A disposal group that is to be abandoned may also qualify as a discontinued operation.


Transnet has three pension funds, two defined benefit pension funds and one defined contribution fund, namely the Transport Pension Fund: Transnet Sub-Fund, the Transnet Second Defined Benefit Fund and the Transnet Retirement Fund. Except for the Transnet Retirement Fund, which is a defined contribution fund, the IAS 19 Employee Benefits actuarial valuations for the funds are performed annually. The Transnet Pension Funds are governed by the Transnet Pension Fund Act, 62 of 1990, as amended.

The Group also offers post-retirement medical benefits to its employees. Specific retirement benefits are offered to top management and under the Workmen’s Compensation Act.

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4. Summary of significant accounting policies (continued) Defined contribution fund

The Group’s contributions to the defined contribution fund are charged to the income statement during the year to which they relate.

Defined benefit funds

The benefit costs and obligations under the defined benefit funds are determined separately for each fund using the projected unit credit method. The benefit costs are recognised in the income statement. All actuarial gains and losses are recognised in the period in which they occur outside of the income statement, in the statement of recognised income and expenditure.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by the employees is recognised as an expense in the income statement on a straight-line basis over the average period until the benefit becomes vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement.

With regard to the defined benefit funds, the expected return on plan assets has been calculated based on market expectations at the beginning of the period for returns over the entire life of the related obligation, except where settlements have occurred during the year. In these instances the return on assets is adjusted immediately before settlement. The estimated return is determined in conjunction with actuaries and market analysts based on the underlying asset base within each fund.

The post-retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost and reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to the unrecognised past service cost plus the present value of available refunds and reductions in the future contributions to the plan.

Post-retirement medical benefits

Post-retirement medical benefits are provided by the Group to qualifying employees and pensioners. The medical benefit costs are determined through annual actuarial valuations by independent consulting actuaries using the projected unit credit method. Actuarial gains or losses are recognised in line with the policy described above.

Short- and long-term benefits

The cost of all short-term employee benefits, such as salaries, bonuses, housing allowances, medical and other contributions is recognised during the period in which the employee renders the related service.

The Group’s net obligation in respect of long-term service benefits, other than pension plans and post-retirement medical benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods.

Termination benefits

Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it has demonstrated its commitment to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.

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4. Summary of significant accounting policies (continued) Leases

Group as a lessee

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance lease liabilities and leased assets are capitalised at the inception of the lease at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables.

The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term.

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Benefits received as an incentive to enter into an operating lease are recorded on a straight-line basis over the lease term.

Group as a lessor

When assets are leased out under a finance lease, the present value of the lease payments, as well as the initial direct costs, are recognised as a lease receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.

Assets leased to third parties under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to the lessee) is recognised on a straight-line basis over the lease term.

Sale and leaseback

Where a sale and leaseback agreement is classified as a finance lease, any excess of the sale proceeds over the carrying values is deferred and recognised in the income statement over the period of the lease.

Where a sale and leaseback agreement is classified as an operating lease and the transaction took place at fair value, any excess or deficit of the sale proceeds over the carrying values of the assets sold is recognised in the income statement in the year in which it arises. If the deficit is compensated for by future lease payments at below market price, the deficit is deferred and amortised in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair value shall be deferred and amortised over the period for which the asset is expected to be used.

Determining whether an arrangement contains a lease

The Group ensures that the following two requirements are met, in order for an arrangement transacted by the Group to be classified as a lease in terms of IAS 17:

• Fulfilment of the arrangement is dependent on the use of an asset or assets, and this fact is not necessarily explicitly stated by the contract but rather implied; and

• The arrangement conveys a right to use the asset, if one of the following conditions is met:

– The purchaser has the ability or right to operate the asset or direct others to operate the asset, (while obtaining or controlling more than an insignificant amount of the output of the asset); or

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4. Summary of significant accounting policies (continued) – the purchaser has the ability or right to control physical access to the asset, (while obtaining more than

an insignificant amount of the output of the asset); or

– there is only a remote possibility that parties other than the purchaser will take more than an insignificant amount of the output of the asset, and the price that the purchaser will pay is neither fixed per unit of output nor equal to the current market price at the time of delivery.

The Group’s assessment of whether an arrangement contains a lease is made at the inception of the arrangement, with reassessment occurring in the event of limited changes in circumstances as specified by IFRIC 4.

Share capital

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of taxation, from the proceeds. Incremental costs directly attributable to the issue of new shares for the acquisition of a business are included in the cost of a business acquisition.

When share capital is repurchased, the amount of consideration paid, including directly attributable costs, is deducted from equity. Repurchased shares are classified as treasury shares and presented as a deduction from the total equity until they are cancelled, reissued or disposed of.

Dividends are recognised as a liability in the period in which they are declared.

Provisions

Provisions are recognised in the balance sheet when the Group has a present legal or constructive obligation, as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-taxation rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Warranties

A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

Restructuring

A provision for restructuring costs is recognised when the Group has a detailed formal plan for the restructuring and the Group has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Restructuring provisions only include those direct expenditures which are necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. Future operating costs are not provided for. Environmental rehabilitation In accordance with the Group’s environmental policy and applicable legal requirements, a provision for environmental rehabilitation in respect of clean-up costs is recognised when it meets the recognition requirements for provisions. The provision also includes the estimated rehabilitation costs for the historical contamination caused by asbestos as well as other environmental costs.

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4. Summary of significant accounting policies (continued) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. Other provisions Other provisions, for example third-party claims, freight insurance, customer claims and leave pay provisions are recognised when they meet the recognition criteria per IAS 37: Provisions, Contingent Liabilities and Contingent Assets. Segment disclosure Segment disclosure is reported in terms of the requirements of IFRS 8 and is based on the components of the entity that management monitors in making decisions. Such components (operating segments) are identified on the basis of internal reports that the entity’s chief operating decision-maker reviews regularly in allocating resources to segments and in assessing their performance. Reportable segments are identified based on quantitative thresholds of revenue, profit or loss and assets.

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when the Group has become party to the contractual provisions of the instruments.

Measurement

Financial instruments are initially recognised at fair value plus transaction costs for a financial asset or financial liability that is not carried at fair value through profit or loss. Subsequent to initial recognition these instruments are measured as set out below.

Recognition

The Group applies trade date accounting for "regular way" purchases and sales and settlement date accounting is applied to the Transnet bonds. Financial instruments recognised on the balance sheet include:

• Investments, including subsidiaries, jointly controlled entities and associates.

Trade and other receiveables

Trade and other receivables, which generally have 30 to 90-day terms, are recognised and carried at amortised cost using the effective interest rate method. Allowances for irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. The allowance is measured as the difference between the carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

The allowance accounts in respect of trade and loan receivables are used to record impairment losses unless the Group is satisfied that no recovery of the amount is possible. At that point, the amount is considered irrecoverable and is written off against the financial asset directly.

The Group renegotiates terms for financial assets that would otherwise be past due or impaired in instances where the debtor provides evidence of ability to meet the obligations in terms of the renegotiated terms. The impact of renegotiated terms will be accounted for in the allowances for impairment amounts for these financial assets.

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Long-term loans and advances

Long-term loans and advances are measured at amortised cost, using the effective interest rate method, less any impairment recognised. Amortised cost is calculated by taking into account any transaction costs, and any discount or premium on settlement.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, and instruments which are readily convertible, within 90 days, to known amounts of cash and are subject to an insignificant risk of change in value. Cash and cash equivalents are measured at amortised cost.

For the purposes of the consolidated cash flow statements, cash and cash equivalents include bank overdrafts.

Investments

After initial recognition, investments in the Group’s market-making portfolios in both bonds and money market instruments, which are classified as held for trading, as well as those classified as available-for-sale, are measured at fair value. Fair value is the market value (listed investments) or either the market price of a substantially similar investment or the present value of expected future cash flows of the net asset base (unlisted investments). Gains or losses on investments held for trading are recognised in the income statement.

Other long-term investments that the Group is able to and intends to hold to maturity are subsequently measured at amortised cost using the effective interest rate method less any impairment losses recorded to reflect irrecoverable amounts. Amortised cost is calculated by taking into account any discount or premium on acquisition over the period to maturity.

Listed investments are held at market value, which is determined with reference to quoted share prices from the stock exchange at the balance sheet date.

Impairment of financial assets

An assessment is made at each balance sheet date to determine whether there is objective evidence that a financial asset or group of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of the asset is determined and an impairment loss is recognised for the difference between the recoverable amount and the carrying amount as follows:

• For financial assets held at either cost or amortised cost – the carrying amount of the asset is reduced to its discounted estimated recoverable amount (present value of estimated future cash flows, discounted at the original effective interest rate), and the resulting loss is recognised in the income statement for the period. Receivables with a short duration are not discounted. Assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 30 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

• For available-for-sale financial assets – where a loss has been recognised directly in equity as a result of a previous downward fair value adjustment, the cumulative net loss recognised in equity is transferred to the income statement for the period.

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4. Summary of significant accounting policies (continued) An impairment loss in respect of a held-to-maturity security or receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined if no impairment loss has been recognised.

An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. An impairment loss in respect of a debt instrument classified as available-for-sale is reversed through profit and loss if its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was originally recognised in profit or loss.

Financial liabilities and equity

Financial instruments issued by the Group are classified according to their substance and definitions of financial liabilities and equity.

Financial liabilities

After initial recognition, financial liabilities other than financial liabilities at fair value through profit or loss are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any transaction costs, and any discount or premium on settlement.

Financial liabilities at fair value through profit or loss are measured at fair value and the resultant gains and losses are included in profit or loss. Buy-backs on bonds are performed on a FIFO basis.

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less related transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.

Financial liabilities designated as at fair value through profit or loss

The financial liabilities designated as fair value through profit or loss represent a percentage of the Transnet bonds that otherwise would have been classified as financial liabilities measured at amortised cost.

Transnet makes a market in its bonds to ensure that the bonds remain attractive to investors. Positions in Transnet bonds are hedged with opposite positions in government or corporate bonds. These bonds are managed and their performance evaluated on a fair value basis in accordance with Transnet’s risk management strategy.

Trade payables and accruals

Liabilities for trade and other amounts payable which are settled within normal terms are stated at amortised cost.

Off-set

Where a legally enforceable right of off-set exists for recognised financial assets and financial liabilities, and there is an intention to settle the liability and realise the asset simultaneously, or settle on a net basis, all related financial effects are off-set.

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4. Summary of significant accounting policies (continued) Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at the value of the proceeds received, net of direct issue costs.

Financial guarantees

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of the debt instrument.

The Group recognises financial guarantee contracts initially at fair value. Subsequently these are recognised at the higher of:

• the amount determined in accordance with IAS 37: Provisions, Contingent Liabilities and Contingent assets; and

• the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with IAS 18: Revenue.

Derivative instruments and hedging

Both the Company and the Group use approved financial instruments, in particular forward exchange contracts, cross-currency swaps and interest rate swaps to hedge the financial risks associated with underlying business activities. All derivative financial instruments have been recorded at fair value with the resulting gains or loss taken to the income statement.

The Group uses derivative financial instruments, which include futures, forward exchange and currency option contracts, cross currency and interest rate swaps and interest rate options to hedge its exposures arising from operational, financing and investment activities.

In accordance with its Treasury policy, the Group does not speculate in the trading of derivative instruments.

Subsequent to initial recognition, derivative financial instruments are measured at fair value. The fair value changes are recognised directly in the income statement (even if the derivative is designated a hedging instrument (refer below).

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of the forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

The Group designates certain derivatives as hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedges). At the inception of the hedge relationship, the relationship between the hedging instrument and the hedged item is documented, along with its risk management objectives and its strategy for undertaking various hedge transactions. At the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in the hedging relationship is highly effective in off-setting changes in fair values of cash flows of the hedged item.

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss immediately, together with any changes in the fair value of the hedged items that is attributable to the hedged risk.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to the income statement from that date.

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4. Summary of significant accounting policies (continued) Derivatives embedded in other financial instruments or non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value with unrealised gains or losses reported in the income statement. The Group assesses whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the Group first becomes a party to the contract. Subsequent reassessment is only performed by the Group if there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract.

Qualifying hedge relationships

The Group has fair value hedges in place. In designating financial instruments as qualifying hedge relationships, the Group has determined that it expects the hedge to be highly effective over the life of the hedging instrument. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is highly effective in off-setting changes in fair values or cash flows of the hedged item.

Derecognition

Financial assets (or a portion thereof) are derecognised when the Group’s rights to the cash flow expire or when the Group transfers substantially all the risks and rewards related to the financial asset or when the entity loses control of the financial asset. On derecognition, the difference between the carrying amount of the financial asset and proceeds receivable and any prior adjustment to reflect fair value that had been reported in equity are included in the consolidated income statement.

Financial liabilities (or a portion thereof) are derecognised when the obligations specified in the contract are discharged, cancelled or expired. On derecognition, the difference between the carrying value of the financial liability, including related unamortised costs, and settlement amounts paid is included in the consolidated income statement.

Fair value methods and assumptions

The fair value of financial instruments traded in an active financial market is measured at the applicable quoted prices.

The fair value of financial instruments not traded in an active financial market, is determined using a variety of methods and assumptions that are based on market conditions and risks existing at balance sheet date, including independent appraisals and discounted cash flow methods.

The carrying amounts of financial assets and liabilities with a maturity of less than six months are assumed to approximate their fair value.

Gains and losses on financial instruments

Net gains or net losses on:

Financial liabilities designated as fair value through profit and loss represent fair value adjustments and arise as a result of the mark to market on the bonds using prices quoted on the Bond Exchange of South Africa, and as a result of derecognition. Interest is included in the fair value adjustments. These net gains or net losses are recognised directly in profit or loss for the period.

Financial liabilities at amortised cost represent the amortisation of discounts on or premiums given/received, interest costs as well as any derecognition gains or losses on these liabilities. Gains or losses on liabilities held at amortised cost are recognised directly in profit or loss.

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4. Summary of significant accounting policies (continued) Available for sale financial assets are determined with reference to quoted share prices on the stock exchange and represent fair value adjustments that are recognised directly in equity. Dividends are recognised in profit or loss when the right to receive payment is established. When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is removed from equity and recognised in profit or loss even though the financial asset has not been derecognised.

Loans and receivables represent impairment losses or reversal of impairment losses, interest earned on outstanding balances, as well as gains or losses recognised on derecognition of the asset. These gains or losses are recognised in profit or loss for the period.

Financial assets and liabilities held for trading represent fair value adjustments and arise as a result of the mark to market of these instruments using market curves and as a result of derecognition. Interest is included in the fair value adjustments. These gains or losses are recognised directly in profit or loss for the period.

Special purpose entities

Management has applied significant judgement in determining whether the substance of the relationship between the Group and a special purpose entity, SUBCO/Newshelf 697, indicates that the special purpose entity is controlled by the Group.

Valuation of C-class Preference Share

The carrying value of the C-class Preference Share was arrived at after utilising a model developed by an external valuer. Management further applied judgment to the valuation obtained, taking into account factors pertaining to the realisation of the asset. The C-class Preference Share was redeemed by Newshelf 697 in September 2007 for total proceeds of R5,692 million. At this date, the carrying value of the C-class Preference Share was determined to be R5,500 million. The total proceeds of R5,692 million were made up of R5,622 million in cash, of which R122 million related to dividend income receivable, and R70 million in interest.

5. Key sources of estimation uncertainty and critical judgements in applying accounting policies

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of equity, assets and liabilities, revenue and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that are considered to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRS that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed below.

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5. Key sources of estimation uncertainty and critical judgements in applying accounting policies (continued) Property, plant and equipment (PPE)

Revaluation and impairment of PPE

Port operating assets (Transnet Port Terminals), pipeline networks (Transnet Pipelines) and port infrastructure assets (Transnet National Ports Authority) are carried at revalued amounts. Formal revaluations are performed every three years by independent experts for all asset classes. Appropriate indices as determined by the independent experts continue to be applied in the intervening periods to ensure that the assets are carried at fair value at the balance sheet date. Fair value as determined by the independent experts is derived by applying internationally acceptable and appropriately benchmarked valuation techniques such as depreciated optimised replacement cost or modern equivalent asset valuation methods which are dependent on the asset class being revalued.

All asset classes that are subject to a revaluation are tested against a discounted cash flow model to ensure that the carrying value of the assets is recoverable and exceeds its recoverable amount based on future cash flows.

In addition the Group assesses at each reporting period whether there is any indication that an asset is impaired and if so, determines the recoverable amount of these assets. In Financial Year 2009 the global economic crisis lead to indicators of impairment being identified with respect to rail assets (Transnet Freight Rail) and consequently the recoverable amount of these assets were determined by using a discounted cash-flow model.

As with all discounted cash flow models various assumptions were made in order to derive the net present value of future cash flows. These assumptions were arrived at after wide consultation with subject matter experts, both internal and external, benchmarked with peer companies, compared to international trends and adjusted for local market conditions. The more critical assumptions made were as follows:

• Future cash flows were based on the five-year approved budgets, and operational plans and were amended for the latest available volume and pricing indicators as well as economic indicators.

• The rate used to discount cash flows for purposes of determining value in use was the individual operating divisions post-tax weighted average cost of capital (WACC) as this would ensure that the appropriate risk profile of the business was incorporated into the asset valuation.

• The WACC rates used were 11.86% for Transnet National Ports Authority, Transnet Pipelines 11.21% and Transnet Freight Rail 11.80% respectively.

• The cashflows utilised in the discounted cash-flow analysis were estimated into perpetuity based on varying terminal year growth rates after year 15. The elements considered in developing the discounting period for the operating divisions were the long-term use and asset life, long-term funding arrangements and long-term customer contracts.

Based on the above the carrying value of port infrastructure would have been adjusted from R25.1 billion to R40.2 billion (estimated replacement cost) at 31 March 2009, a proposed revaluation amount of R15.1 billion. However this amount was limited to R3.2 billion based on the recoverable amount of port infrastructure assets. In the case of all other classes of revalued assets their recoverable amount exceeded the carrying value. No impairment of rail assets was recorded as the recoverable amounts exceeded the carrying value of these assets.

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5. Key sources of estimation uncertainty and critical judgements in applying accounting policies (continued) Sensitivities:

Port Infrastructure

Assets Port Operating

Assets Pipeline

Network Rail Assets Carrying value of assets R28.2 billion R10.2 billion R4.5 billion R34.8 billion WACC 0.5% impact* R1.4 billion R1.9 billion R300 million R1.2 billion Revenue 0,5% impact* R196 million R370 million R62 million R1.5 billion

* Increasing WACC by 0.5% will result in the carrying value of assets decreasing by these values.

The useful lives of property, plant and equipment are reviewed at each balance sheet date. The useful lives are estimated by management based on historic analysis, benchmarking and other available information. In Financial Year 2009, based on the recommendation of independent experts and international benchmarking the useful lives of certain port infrastructure assets were increased from 50 to 100 years.

Fair value assumptions – investment properties

The services of internal experts are used to arrive at the fair value of investment properties. Assumptions used in these valuations are in line with the Property Valuers Profession Act, 47 of 2000.

The fair value of the Group’s investment properties was arrived at on the basis of valuations carried out at that date by Transnet Property valuers.

The valuations, which conform to the Property Valuers Profession Act, 47 of 2000, were arrived at by capitalising the first year’s normalised net operating income at a market derived capitalisation rate.

During the valuation of the properties, certain assumptions were made. The location and condition of the properties were also considered when performing the valuation. As a result a range of valuation parameters was used when applying the income capitalisation valuation method.

The parameters used were as follows:

1. Capitalization rate 10% - 15%, 2. The rental income achieved per investment property, and 3. Period of the lease relevant to each investment property.

In limited circumstances where the income capitalisation method was not appropriate market related information was applied to determine the value of the respective investment property.


The Group provides several post-retirement benefit plans for its employees. The cost of providing benefits, including actuarial gains and losses and past service costs, is determined on a regular basis by independent actuaries and recognised in the appropriate accounting periods as required by IAS 19: Employee Benefits. The post-retirement benefit obligations recognised in the balance sheet represent the present value of the defined benefit obligations as adjusted for unrecognised past service costs and reduced by the fair value of plan assets.

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5. Key sources of estimation uncertainty and critical judgements in applying accounting policies (continued) The main assumptions made in accounting for the Group’s post-retirement benefit plans relate to the mortality rate of plan members, the discount rate applied in discounting liabilities, the rate of return on assets and investments, and the rate of increase in the salaries of pensionable employees as well as other demographics. For each of these assumptions, there is a range of possible values and, in consultation with their actuaries, management decides which values most appropriately reflect the circumstances of the Group. Small changes in these assumptions can have a significant impact on the post-retirement obligation calculated under IAS 19.

More details have been disclosed in more detail in note 34.

Provisions

Various assumptions are applied in arriving at the carrying value of provisions that are recognised pursuant to the requirements of IAS 37: Provisions, Contingent Liabilities and Contingent Assets. Management further relies on input from the Group’s lawyers in assessing the probability of matters of a contingent nature.

In accordance with the Group’s environmental policy and applicable legal requirements, provisions for environmental rehabilitation in respect of clean-up costs are recognised when they meet the recognition requirements for provisions. The provision also includes the estimated rehabilitation costs for the historical contamination caused by asbestos as well as other environmental costs, which has been calculated by discounting the future expected costs, which have been determined by experts.

Transnet engaged external consultants, to perform a countrywide asbestos risk assessment on areas affected by the historical spillage of asbestos and its related pollution liability.

A number of factors were considered in determining the obligation which included:

• The cost of remediation per running line kilometre;

• The cost of yard remediation per hectare;

• The estimated yard area to be remediated;

• Project administration and monitoring costs;

• Follow-up maintenance and inspection costs; and

• The costs estimated are for the removal and replacement of asbestos roof sheeting and cladding.

The decommissioning and environmental liabilities provision for the dismantling and removal of an asset as a result of the requirements to restore the site on which the asset is located have been computed by discounting future cash flows, using a long-term inflation rate consistent with that used for the valuation of the pension funds and discount rates appropriate to the useful economic lives of the various assets being provided for.

Provisions for restructuring costs in terms of strategic plans are recognised in the balance sheet when the Group has a present legal or constructive obligation, as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-taxation rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

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6. Accounting Standards adopted in Financial Year 2009

During Financial Year 2009, the Group adopted IFRS 8 Operating Segments (IFRS 8). IFRS 8 replaces IAS 14 Segment Reporting ("IAS 14"). The core principle of IFRS 8 is that an entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. IFRS 8 is a disclosure standard and consequently has not impacted reported results. There were no changes to the operating segments upon adoption of IFRS 8 compared to the operating segments disclosed under IAS 14.

Furthermore, interpretations issued by the International Financial Reporting Interpretations Committee are applicable to the Group for the current period. The only one impacting the Group is IFRIC 14: IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction (IFRIC 14). The adoption of this interpretation has had an insignificant impact on the Group’s results.

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7. Accounting Standards issued but not yet effective

The following accounting standards have been issued but are not yet effective for the Group. This list has been obtained from the SAICA and IAS Plus websites.

Standard Annual periods beginning on or after

IFRS 2 (AC 139) – Share-Based Payments 01-Jan-09

IFRS 3 (AC 140) - Business Combinations 01-Jul-09

IFRS 8 (AC 145) - Operating Segments 01-Jan-09*

IAS 1 (AC 101) - Presentation of Financial Statements 01-Jan-09

IAS 23 (AC 114) - Borrowing Costs 01-Jan-09*

IAS 27 (AC 132) - Consolidated and Separate Financial Statements 01-Jul-09

IAS 28 (AC 110) - Investments in Associates 01-Jul-09

IAS 31 (AC 119) - Interests in Joint Ventures 01-Jul-09

IAS 39 (AC 133) - Financial Instruments: Recognition and Measurement 01-Jul-09

IFRIC 13 - Customer Loyalty Programs 01-Jul-08

IFRIC 15 - Agreements for the Construction of Real Estate 01-Jan-09

IFRIC 16 - Hedges of a Net Investment in a Foreign Operation 01-Oct-08

IFRIC 17 - Distributions of Non-cash Assets to Owners 01-Jul-09

IFRIC 18 - Transfers of Assets from Customers Transfers received on or after 1 July 2009

On 22 May 2008, the International Accounting Standards Board (IASB) issued its latest Standard, titled Improvements to International Financial Reporting Standards 2008.

IFRS 1 (AC 138) - First-time Adoption of International Financial Reporting Standards 01-Jan-09

IFRS 5 (AC 142) - Non-current Assets Held for Sale and Discontinued Operations 01-Jul-09

IAS 1 (AC 101) - Presentation of Financial Statements 01-Jan-09

IAS 16 (AC 123) - Property, Plant and Equipment 01-Jan-09

IAS 19 (AC 116) - Employee Benefits 01-Jan-09

IAS 20 (AC 134) - Accounting for Government Grants and Disclosure of Government Assistance

01-Jan-09

IAS 27 (AC 132) - Consolidated and Separate Financial Statements 01-Jan-09

IAS 28 (AC 110) - Investments in Associates 01-Jan-09

IAS 29 (AC 124) - Financial Reporting in Hyperinflationary Economies 01-Jan-09

IAS 31 (AC 119) - Interests in Joint Ventures 01-Jan-09

IAS 32 (AC 125) - Financial Instruments: Presentation 01-Jan-09

IAS 36 (AC 128) - Impairment of Assets 01-Jan-09

IAS 38 (AC 129) - Intangible Assets 01-Jan-09

IAS 39 (AC 133) - Financial Instruments: Recognition and Measurement 01-Jan-09

IAS 40 (AC 135) - Investment Property 01-Jan-09

IAS 41 (AC 137) - Agriculture 01-Jan-09 * Early adopted by Transnet.

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7. Accounting Standards issued but not effective (continued)

The following amendments were issued by the IASB during March 2009.

IFRS 7 – Financial Instruments: Disclosure 01-Jan-09

IAS 39 – Financial Instruments: Recognition and Measurement 01-Jul-09

IFRS 2 (AC 139) - Share-based Payment - Amendments resulting from April 2009 Annual Improvements to IFRSs 01-Jul-09

IFRS 2 (AC 139) - Share-based Payment - Amendments relating to group cash-settled share-based payment transactions 01-Jul-10

IFRS 5 (AC 142) - Non-current Assets Held for Sale and Discontinued Operations - Amendments resulting from April 2009 Annual Improvements to IFRSs 01-Jan-10

IFRS 8 (AC 145) - Operating Segments - Amendments resulting from April 2009 Annual Improvements to IFRSs 01-Jan-10

IAS 1 (AC 101) - Presentation of Financial Statements - Amendments resulting from April 2009 Annual Improvements to IFRSs 01-Jan-10

IAS 7 (AC 118) - Statement of Cash Flows - Amendments resulting from April 2009 Annual Improvements to IFRSs 01-Jan-10

IAS 17 (AC 105) - Leases - Amendments resulting from April 2009 Annual Improvements to IFRSs 01-Jan-10

IAS 36 (AC 128) - Impairment of Assets - Amendments resulting from April 2009 Annual Improvements to IFRSs 01-Jan-10

IAS 38 (AC 129) - Intangible Assets - Amendments resulting from April 2009 Annual Improvements to IFRSs 01-Jul-09

IAS 39 (AC 133) - Financial Instruments: Recognition and Measurement - Amendments resulting from April 2009 Annual Improvements to IFRSs 01-Jan-10

Transnet Limited


F-34

8. Restatements of previously issued financial statements

During the reporting and closing process relating to the preparation of the 31 March 2009 consolidated financial statements, the Company determined that it had certain errors in the application of its accounting policies. As a result, the Company has restated its consolidated financial statements for Financial Years 2008 and 2007 herein. The nature and effects of these restatements on the consolidated financial statements for Financial Years 2008 and 2007 are as follows:

Balance sheet

31 March 2008

R million

31 March 2007

R million Equity attributable to equity holder as previously reported 51,183 37,028 Deferred taxation liabilities (1)(2)(5)(6) 221 333 Property, plant and equipment (2)(3)(5)(6) 142 12 Current taxation liability (3) (18) - Long-term provisions (6) (567) (677)

Net effect of restatements (222) (332)

Restatement equity attributable to equity holder 50,961 36,696

Income statement Net profit attributable to equity holder, as previously reported 4,307 7,119 Taxation (1) (63) - Finance costs (2) 16 38 Fair value adjustments (3) 64 - Post-retirement benefit obligation (costs)/income (4) 151 - Net operating expenses excluding depreciation and amortisation (5)(6) 160 (700) Depreciation and amortisation (6) - (3)

Gross effect of restatements 328 (665) Taxation effect of restatements (2)(3)(4)(5)(6) (109) 186

Net effect of restatement on net profit attributable to equity holder 219 (479)

Restated net profit attributable to equity holder 4,526 6,640

(1) Income Taxes: In the prior year management estimated the split between taxable depreciable assets and non-taxable depreciable assets in respect of Transnet Pipelines assets for the purposes of calculating the deferred taxation liability. This split was reviewed in the current financial year, which resulted in a decrease in the proportion of taxation depreciable assets to non-taxation depreciable assets. Accordingly an adjustment was required in the prior year.

Deferred taxation was duplicated on a finance arrangement in the prior year and was subsequently corrected.

As a result, deferred taxation liabilities were lower by R84 million and R147 million in Financial Year 2008 and 2007 respectively, which resulted in an additional deferred taxation charge of R63 million being recognised in Financial Year 2008.

Transnet Limited


F-35

8. Restatements of previously issued financial statements (continued) (2) Borrowing Costs: In accordance with IAS 23, all borrowing costs incurred on qualifying assets should be

capitalised to the cost of the qualifying asset. The Group incorrectly applied IAS 23 which resulted in an overstatement of finance costs and an understatement of the property, plant and equipment balance. Additionally, the misstatement of finance costs also affected the related taxation charges and corresponding profit for the year. The effect of this restatement resulted in a reduction in finance costs recognised in Financial Years 2008 and 2007 of R16 million and R38 million, respectively with a corresponding increase in the related deferred taxation charge of R4 million and R11 million for Financial Years 2008 and 2007, respectively. Additionally, this restatement generated an increase in property, plant and equipment of R54 million in Financial Year 2008 and R38 million in Financial Year 2007 with related increases in deferred taxation liabilities of R15 million and R11 million, respectively.

(3) The effects of changes in foreign exchange rates: An assessment of foreign exchange gains and losses on derivative financial instruments resulted in a restatement of fair value gains for Financial Year 2008. The financial impact of this restatement resulted in a reduction in the fair value gains in Financial Year 2008 of R64 million, an increase to property, plant and equipment of R64 million, a reduction in the current taxation charge of R18 million and a corresponding increase in the current taxation liabilities of R18 million.

(4) Employee Benefits: A reassessment of the manner in which transfers of members from the funds were treated resulted in a reduction of the actuarial gains and losses recognised in the statement of recognised income and expenditure for the 2008 Financial Year, of R151 million and a deferred taxation charge reduction of R42 million.

(5) Property, plant and equipment: In terms of an approved incentive bonus scheme, certain contractors that are engaged to construct assets were entitled to an incentive payment. This payment in terms of IAS 16 should have been recognised as part of the carrying value of the asset but was incorrectly expensed in Financial Year 2008. This misstatement resulted in an understatement of property, plant and equipment and an overstatement of net operating expenses excluding depreciation and amortisation in Financial Year 2008. Consequently, an adjustment of R50 million was recorded in Financial Year 2008 to property, plant and equipment with related increases in the deferred taxation charge and deferred taxation liabilities of R14 million and an adjustment of R50 million to net operating expenses excluding depreciation and amortisation.

(6) Provisions, contingent liabilities and contingent assets: The Group has had a legal obligation for the rehabilitation caused by asbestos contamination since the enactment of certain legislation in 1998, and accordingly a provision has been recorded for the estimated costs of the restoration. This restatement resulted in a reduction of R110 million in net operating expenses excluding depreciation and amortisation for Financial Year 2008 and an increase of R700 million in net operating expenses excluding depreciation and amortisation for Financial Year 2007, with a related deferred taxation charge for each financial year of R31 million and R197 million, respectively. Additionally, this resulted in a decrease in property, plant and equipment of R26 million in Financial Years 2008 and 2007 and an increase in long-term provisions of R567 million and R677 million for Financial Years 2008 and 2007 respectively, decreases in deferred taxation liabilities of R166 million and R197 million for Financial Years 2008 and 2007, respectively, and R3 million adjustment to depreciation and amortisation for Financial Year 2007.

Transnet Limited


F-36

9. Revenue

2009

R million


2007RestatedR million

Rendering of services 31,382 28,369 25,610 Rental income 911 683 515 Finance income from lending activities 29 34 236 Construction contracts (refer note 31) 1,270 1,005 538

Continuing operations 33,592 30,091 26,899

10. Other income and expenses

Dividend income 2009

R million



Dividends from associate - - 23 Dividend received on redemption of C - class preference share - 122 - Dividends from other investments - - 13 Discontinued operations - - -

Continuing operations - 122 36

Finance income 2009

R million



Interest received on disposal of C-class preference share - 70 - Interest received - Loans and receivables 269 698 304

269 768 304 Discontinued operations (2) (7) (119)

Continuing operations 267 761 185

Transnet Limited


F-37

11. Net operating expenses excluding depreciation and amortisation

2009

R million



Accommodation and refreshments 314 169 94 Electronic data costs 417 419 809 Energy costs 3,144 2,564 2,524 Health and sanitation 200 148 129 Insurance 188 192 170 Maintenance 159 386 460 Managerial and technical consulting fees 988 1,014 765 Material costs 1,745 1,098 319 Operating leases 1,338 1,179 991 Personnel costs 9,440 7,938 7,663 Printing and stationery 60 53 46 (Profit)/loss on disposal of property plant and equipment (44) 60 (16) Profit on sale of interest in divisions/subsidiaries - (40) - Promotions and advertising 117 98 49 Security 399 323 262 Telecommunications 223 8 28 Transport 69 3 34 Other 1,635 1,669 1,905

Net operating costs excluding depreciation and amortisation from continuing operations 20,392 17,281 16,232

Included within other operationg costs are research and development costs of R46 million (2008: R84 million, 2007: R67 million).

Auditors’ remuneration 2009

R million



Group auditors Audit fees 57 49 39 Audit fees – prior year under provision/(over provision) 4 5 (2) Fees for other services 2 14 4 Expenses 1 1 3 Other auditors Audit fees 2 2 -

Continuing operations 66 71 44

Managerial and technical consulting fees 988 1,014 765

Operating lease charges 2009

R million



Aircraft 1 4 - Land, buildings and structures 610 568 590 Other 727 607 401

1,338 1,179 991

Transnet Limited


F-38

11. Net operating expenses excluding depreciation and amortisation (continued)

2009

R million



Directors’ and executives’ emoluments Executive Directors 20 22 18 Non-Executive Directors 2 6 5 Senior Executives 65 63 32

87 91 55

12. Depreciation and amortisation

2009

R million



Depreciation and derecognition Depreciation – owned assets at historic cost Aircraft 9 63 42 Land, buildings and structures 353 311 304 Machinery, equipment and furniture 350 281 295 Permanent way and works 417 220 240 Pipeline networks 134 132 119 Port facilities 509 510 405 Rolling stock and containers 2,230 1,812 1,188 Vehicles 35 41 25 4,037 3,370 2,618 Depreciation – owned assets revalued portion Pipeline networks 112 111 118 Port facilities 451 231 126 563 342 244 Depreciation – leased assets at historic cost Aircraft - 10 25 Rolling stock and containers 48 35 16 Machinery, equipment and furniture 11 16 39 Permanent way and works 5 3 - 64 64 80 Total depreciation 4,664 3,776 2,942

Transnet Limited


F-39

12. Depreciation and amortisation (continued)

2009

R million



Continuing operations 4,664 3,704 2,871 Discontinued operations - 72 71

4,664 3,776 2,942

Amortisation of intangible assets (note 21)

Software and licenses – continuing operations 115 94 81

Total depreciation and amortisation

Continuing operations 4,779 3,798 2,952 Discontinued operations - 72 71 4,779 3,870 3,023

13. Fair value adjustments

2009

R million



Fair value adjustments Derivative fair value adjustments (145) 135 245 Revaluation of C-Class preference share - - 1,713 Fair value adjustment of investment property 1,376 1,151 561 Fair value adjustments to treasury bonds (9) (59) (86) Gains on hedging instruments 21 215 94 Other fair value adjustments (299) (52) (2)

Total fair value adjustments 944 1,390 2,525

Continuing operations 941 1,416 2,462 Discontinued operations 3 (26) 63

944 1,390 2,525

Reconciliation of fair value adjustments to note 24 Fair value adjustments as per above 944 1,390 2,525 Fair value adjustment of investment property (note 20) (1,376) (1,151) (561) Treasury bonds 9 59 - Fair value adjustments of firm commitments 408 101 86 Other realised fair value adjustments (19) (6) - Fair value adjustments relating to disposal groups classified as held-for-sale - - (69)

Fair value adjustments per note 24 (34) 393 1,981

Transnet Limited


F-40

14. (Loss)/profit on disposal of discontinued operations, net of taxation

2009

R million



Loss on sale of interest in freightdynamics - (298) - Loss on sale of interest in Viamax (Pty) Limited - (24) - Profit on sale of interest in VAE Perway (Pty) Limited - 6 - Loss on sale of interest in Equity Aviation (Pty) Limited - - (12) Profit on sale of interest in South African Airways (Pty) Limited* - - 938 Profit on sale of interest in V&A Waterfront Holdings (Pty) Limited 115 17 711 Loss on sale of interest in South African Airways Express (Pty) Limited (227) - - Loss on sale of interest in Shosholoza Meyl (71) - - Loss on sale of interest in Autopax Passenger Services (Pty) Limited (42) - - Taxation on disposal of discontinued operations (32) 33 (204)

Net (loss)/profit on disposal of discontinued operations (257) (266) 1,433

* Excluding the effects of the share buy back of R2,049 million. The total effect for the Group is a R1,011 million decrease in net equity.

15. Post-retirement benefit obligation cost

2009

R million



Transport Pension Fund (Formerly the Transnet Pension Fund) (182) (263) (34) Transnet Second Defined Benefit Fund (191) (638) 18 Top Management Pension Fund 7 11 9 Workmen’s Compensation Act Pensioners 25 18 18 Black Widows’ Pension Fund - 1 1 SATS Pensioners’ Post-retirement Medical Benefits 108 112 117 Transnet Employees Post-retirement Medical Benefits 64 67 81 SATS Pensioner’s Post-retirement Medical Subsidy 500 - - Other 105 - -

Net post-retirement benefit obligation cost 436 (692) 210

Continuing operations 436 (686) 218 Discontinued operations - (6) (8)

Net post-retirement benefit obligation cost 436 (692) 210

16. Impairment/(reversal of impairment) of assets

2009

R million


2007 RestatedR million

Property, plant and equipment 205 (1) 154 Loss-making subsidiaries and associates 3 1 - Loans and advances 20 - 31 Trade and other receivables 95 160 31

323 160 216 Discontinued operations - impairment/(reversal of impairment) 1 (7) 16

Continuing operations - impairment 324 153 232

Transnet Limited


F-41

16. Impairment/(reversal of impairment) of assets (continued)

An entity is required to assess at each reporting period whether there is any indication that an asset is impaired and if so the recoverable amount of these assets must be determined. In Financial Year 2009 the global economic crisis lead to indicators of impairment being identified with respect to rail assets (Transnet Freight Rail), Port operating assets (Transnet Port Terminals), pipeline networks (Transnet Pipelines) and port infrastructure assets (Transnet National Ports Authority) and consequently the recoverable amount of these assets were determined by using a discounted cash flow model.

As with all discounted cash flow models various assumptions were made in order to derive the net present value of future cash flows. These assumptions were arrived at after wide consultation with subject matter experts, both internal and external, benchmarked with peer companies, compared to international trends and adjusted for local market conditions.

17. Finance costs

Financing costs 2009

R million



Finance costs Net foreign exchange losses/(gains) on translation 45 15 (32) (Premium)/discounts on bonds amortised (25) 242 303 Finance lease obligations 12 21 40 Interest cost - financial liabilities at amortised cost 2,984 2,761 2,751

Gross finance costs 3,016 3,039 3,062 Borrowing costs capitalised (764) (303) (90)

Finance costs 2,252 2,736 2,972 Discontinued operations (19) (44) (500)


Financing costs comprise interest payable on borrowings calculated using the effective interest rate method, dividends on redeemable preference shares, amortisation of discounts on bonds and foreign exchange gains and losses, less amounts capitalised to qualifying assets.

Transnet Limited


F-42

18. Taxation

Current taxation

2009

R million



South African normal taxation - Current year 739 1,237 1,004 - Release of current tax provision - - 41 Deferred taxation - Current year 1,057 1,322 874 - Prior year (33) 122 (36) - Rate change - (18) - Secondary taxation on dividends - Current year - - 3 Capital gains taxation - Current year 15 - 150 Foreign taxation - Current year 7 5 7

1,785 2,668 2,043 Discontinued operations (111) (26) (301)


Reconciliation of tax rate % % % Standard rate - South African normal taxation 28.00 29.00 29.00 Expenses/(income) not included for taxation purposes (2.81) (1.08) (8.07)Capital gains taxation 0.22 - - Exempt local dividends (secondary taxation on dividends) - - 0.04 Deferred taxation not provided - - 3.19 Rate change - (0.20) - Release of current tax provision - - 0.55 Adjustment to prior year deferred taxation charge (0.49) 1.34 (0.48)Assessed loss utilised - (0.94)

Effective rate of taxation 24.92 29.06 23.29

Continued operations 24.92 29.06 23.68 Discontinued operations (27.41) 1.37 24.63

Total effective rate of taxation for continuing and discontinuing operations 28.27 37.07 23.48

R million R million R million Total estimated taxation losses - 608 552 Discontinued operations - (489) (95)

Continuing operations - 119 457

Transnet Limited


F-43

18. Taxation (continued)

Deferred taxation

2009

R million



Deferred taxation liabilities Opening balance 6,695 1,726 378 Income statement charge 1,024 1,426 838 Raised in reserves 949 3,802 510

Total deferred taxation liability 8,668 6,954 1,726 Effect of rate change recorded in equity - (223) - Disposal of division/subsidiaries - - - Transferred to liabilities directly associated with assets classified as held-for-sale (79) (36) -

8,589 6,695 1,726

Analysis of major categories of temporary differences Deferred taxation assets Provisions 1,351 970 1,271 Estimated taxation loss - 133 148 Post-retirement benefit obligation 650 608 702 Income received in advance 46 69 18 Capitalised lease liability 1,247 1,182 1,031 Derivatives - - 93 Revaluation of assets - 52 147 Other - 1 4

3,294 3,015 3,414

Deferred taxation liabilities Deferred expenditure 194 3 14 Property, plant and equipment 11,429 9,618 5,076 Future expenditure allowance 19 10 25 Doubtful debts 80 82 35 Other 161 - 56

11,883 9,713 5,206

Net deferred taxation liability (8,589) (6,698) (1,792) Deferred taxation assets not raised* - (33) (29) Transferred to liabilities directly associated with assets classified as held-for-sale - 36 95

Total deferred taxation liability (8,589) (6,695) (1,726)

Estimated taxation losses available for off-set against future taxable income - 608 552

* The subsidiaries have not raised deferred taxation assets in the current and prior year. The probability of there being sufficient taxable

profit against which the deferred taxation asset can be utilised is uncertain. As the capital losses arising on the sale of SA Express (Pty) Limited and Autopax (Pty) Limited to the Government and PRASA respectively, will not be available for set off against capital gains realised on the sale of assets to non-Government third parties, the deferred taxation asset arising on the sales has not been recognised.

No deferred taxation asset has been raised in respect of Secondary Tax on Companies credits available as they are unlikely to be utilised given the capital requirements of the company and the change in regime from Secondary Taxation on Companies to a Dividend Tax, from which the company is exempt.

Transnet Limited


F-44

19. Property, plant and equipment

Property, plant and equipment reconciliation at 31 March 2009

Group Aircraft

Land, buildings

and structures

Machinery, equipment

and furniture

Permanent way and

works Pipeline

networks Port

facilities

Rolling stock and

containers Vehicles

Capital work in

progress Total R million R million R million R million R million R million R million R million R million R million

Historical cost and revaluation 65 11,219 4,039 9,036 12,482 41,306 21,958 671 11,417 112,193 Accumulated depreciation (29) (1,966) (2,158) (2,535) (8,420) (11,026) (6,495) (418) - (33,047) Accumulated impairment - (201) (42) (20) (57) (527) - (1) (42) (890)

Restated opening net carrying value at 1 April 2008 36 9,052 1,839 6,481 4,005 29,753 15,463 252 11,375 78,256

Additions - 434 360 9 57 45 129 2 18,250 19,286 Disposals - (9) (3) (1) - (8) (110) (1) (35) (167) Depreciation (9) (350) (361) (317) (246) (960) (1,952) (35) - (4,230) Derecognition - (3) - (105) - - (326) - - (434) Revaluation - 67 - - 636 3,522 - - - 4,225 (Impairment)/reversal – historical cost and revaluation - 19 2 16 (25) 24 (216) - (25) (205) Transferred to intangible assets - - - - - - - - (193) (193) Transfers to non-current assets classified as held-for-sale - (106) (7) - - - (216) (1) (20) (350) Transfer (to)/from investment property - (85) - - - - - - - (85) Transfers within categories - 27 (3) 1 (21) 1 - - (5) - Borrowing cost capitalised - 1 5 - - - - - 758 764 Release of firm commitment to income statement* - - - - - - - - (138) (138) Transfer from derivative assets and liabilities - - - - - - - - (270) (270) Transfer from capital work in progress to assets - 642 431 4,027 76 987 3,865 85 (10,113) - (9) 637 424 3,630 477 3,611 1,174 50 8,209 18,203 Closing carrying value 27 9,689 2,263 10,111 4,482 33,364 16,637 302 19,584 96,459

Transnet Limited


F-45

19. Property, plant and equipment (continued)

Aircraft

Land, buildings

and structures


and furniture

Permanent way and

works Pipeline

networks Port

facilities

Rolling stock and

containers Vehicles

Capital work in

progress Total Group R million R million R million R million R million R million R million R million R million R million

Made up as follows:

Historical cost and revaluation 65 12,120 4,672 12,961 13,365 47,499 24,874 728 19,651 135,935 Accumulated depreciation (38) (2,251) (2,374) (2,849) (8,801) (13,628) (8,143) (426) - (38,510) Accumulated impairment - (180) (35) (1) (82) (507) (94) - (67) (966) Closing carrying value at 31 March 2009 27 9,689 2,263 10,111 4,482 33,364 16,637 302 19,584 96,459

* Provided the relevant hedge accounting conditions are met, when a firm commitment transaction is entered into to acquire property, plant or equipment that has been hedged, the initial carrying amount of that asset is adjusted to include the cumulative changes in the fair value of the firm commitment and recognised in profit or loss. This has been defined as "release of firm commitment to income statement". Gains and losses on the hedging instrument that were recognised in equity are taken to the initial cost or carrying amount of the asset (defined as "transferred from cash flow hedge").

Transnet Limited


F-46

19. Property, plant and equipment (continued) Property, plant and equipment reconciliation at 31 March 2008

Group Aircraft

Land, buildings and

structures


and furniture

Permanent way and

works Pipeline

networks Port facilities

Rolling stock and

containers Vehicles Capital work

in progress Total R million R million R million R million R million R million R million R million R million R million

Historical cost and revaluation 1,123 9,937 3,533 7,830 10,376 21,485 17,715 585 9,524 82,108 Accumulated depreciation (536) (1,696) (1,991) (2,313) (6,648) (8,084) (5,415) (407) - (27,090) Accumulated impairment - (135) (41) - (153) (451) (127) (1) (202) (1,110) Restated opening net carrying value at 1 April 2007 587 8,106 1,501 5,517 3,575 12,950 12,173 177 9,322 53,908

Current year movements Additions 217 534 446 319 10 235 261 - 13,596 15,618 Disposals (1) (10) (23) (11) - (40) (184) - (44) (313) Depreciation (73) (311) (297) (223) (243) (741) (1,490) (41) - (3,419) Derecognition - - - - - - (357) - - (357) Revaluation - 58 - - 324 13,568 - - - 13,950 (Impairment)/reversal – historical cost and revaluation - (88) (4) (20) 87 (37) 127 - (64) 1 Disposal of division - - (3) - - - - - - (3) Transferred to intangible assets - - - - - - - - (182) (182) Transfers to non-current assets classified as held-for-sale (727) 59 (111) - - 1 (295) (1) 1 (1,073) Transfer to investment property - (140) - - - - - - - (140) Transfers with categories - 8 (8) - (5) - 67 - (62) - Borrowing cost capitalised - 1 1 - - 15 - - 286 303 Release of firm commitment to income statement* - - - - - - - - (37) (37) Transfer from derivative assets and liabilities - - - - - - - - - - Transfer from capital work in progress to assets 33 835 337 899 257 3,802 5,161 117 (11,441) - (551) 946 338 964 430 16,803 3,290 75 2,053 24,348 Closing carrying value 36 9,052 1,839 6,481 4,005 29,753 15,463 252 11,375 78,256

Transnet Limited


F-47


Group Aircraft

Land, buildings and

structures


and furniture

Permanent way and

works Pipeline


Rolling stock and

containers Vehicles Capital work

in progress Total R million R million R million R million R million R million R million R million R million R million Made up as follows: Historical cost and revaluation 65 11,219 4,039 9,036 12,482 41,306 21,957 671 11,417 112,193 Accumulated depreciation (29) (1,966) (2,158) (2,535) (8,420) (11,026) (6,494) (418) - (33,047) Accumulated impairment - (201) (42) (20) (57) (527) - (1) (42) (890) Closing carrying value at 31 March 2008 36 9,052 1,839 6,481 4,005 29,753 15,463 252 11,375 78,256 * Provided the relevant hedge accounting conditions are met, when a firm commitment transaction is entered into to acquire property, plant or equipment that has been hedged, the initial carrying amount

of that asset is adjusted to include the cumulative changes in the fair value of the firm commitment and recognised in profit or loss. This has been defined as "release of firm commitment to income statement". Gains and losses on the hedging instrument that were recognised in equity are taken to the initial cost or carrying amount of the asset (defined as "transferred from cash flow hedge").

Transnet Limited


F-48

19. Property, plant and equipment (continued) Property, plant and equipment reconciliation at 31 March 2007

Group Aircraft

Land,buildings and

structures

Machinery,equipment and

furniture

Permanent way and

works Pipeline


Rolling stock and

containers Vehicles Capital work in

progress Total R million R million R million R million R million R million R million R million R million R million Historical cost and revaluation 1,045 9,552 3,914 7,515 9,340 18,995 13,142 445 7,482 71,430 Accumulated depreciation (469) (1,447) (2,542) (2,096) (6,094) (7,296) (4,836) (374) - (25,154) Accumulated impairment - (300) (39) - (152) (442) (54) (1) (182) (1,170) Restated opening net carrying value at 1 April 2006 576 7,805 1,333 5,419 3,094 11,257 8,252 70 7,300 45,106

Current year movements Additions 78 267 682 (48) (12) 48 513 1 9,568 11,097 Disposals - (33) (190) (6) - (110) (56) (1) (10) (406) Depreciation (67) (283) (319) (226) (237) (531) (839) (25) - (2,527) Derecognition - (21) (13) (14) - - (365) - - (413) Revaluation - - - - 662 1,072 - - - 1,734 (Impairment)/reversal – historical cost and revaluation - (19) (5) - - (9) (73) - (20) (126) Transferred to intangible assets - - (20) - - - (142) - (103) (265) Transfers to non-current assets classified as held-for-sale - (127) (126) - - (1) (198) - - (452) Transfer to investment property - 18 - - - - - - - 18 Transfers with categories - - - 52 - - 73 - (125) - Borrowing cost capitalised - - - - - - - - 90 90 Release of firm commitment to income statement* - - - - - - - - - - Transferred from cash flow hedge - - - 52 - - - - - 52 Transfer from capital work in progress to assets - 499 159 288 68 1,224 5,008 132 (7,378) - 11 301 168 98 481 1,693 3,921 107 2,022 8,802 Closing carrying value 587 8,106 1,501 5,517 3,575 12,950 12,173 177 9,322 53,908

Transnet Limited


F-49


Group Aircraft

Land,buildings and

structures

Machinery,equipment and

furniture

Permanent way and

works Pipeline


Rolling stock and

containers Vehicles Capital work in

progress Total R million R million R million R million R million R million R million R million R million R million Made up as follows: Historical cost and revaluation 1,123 9,937 3,533 7,830 10,376 21,485 17,715 585 9,524 82,108 Accumulated depreciation (536) (1,696) (1,991) (2,313) (6,648) (8,084) (5,415) (407) - (27,090) Accumulated impairment - (135) (41) - (153) (451) (127) (1) (202) (1,110) Closing carrying value at 31 March 2007 587 8,106 1,501 5,517 3,575 12,950 12,173 177 9,322 53,908

* Provided the relevant hedge accounting conditions are met, when a firm commitment transaction is entered into to acquire property, plant or equipment that has been hedged, the initial carrying amount of that asset is adjusted to include the cumulative changes in the fair value of the firm commitment and recognised in profit or loss. This has been defined as "release of firm commitment to income statement". Gains and losses on the hedging instrument that were recognised in equity are taken to the initial cost or carrying amount of the asset (defined as "transferred from cash flow hedge").

Transnet Limited


F-50

19. Property, plant and equipment (continued) 2009 2008 2007

R million Restated R million

Restated R million

Aircraft

Included in aircraft are capitalised leased assets with a net carrying value of - 186 9

These capitalised aircrafts were encumbered as security for the repayment of lease commitments.

Land, building and structures

A register of land, buildings and structures is open for inspection at the Company.

During the year, the Group transferred R85 million (2008: R140 million, 2007: R662 million) from property, plant and equipment to investment properties. The carrying values of these properties were fair valued in accordance with IAS 16. These properties ceased being owner occupied and consequently the fair value adjustments have been recognised in reserves.

Rolling stock

Included in rolling stock are locomotives that were leased and leased back. The locomotives are leased to a third party, refurbished and then leased to a financier who in turn leases the assets back to the Company. This has been treated as a structured loan. The loan is secured by lease agreements and a collateral covering bond over the refurbished locomotives. 2009 2008 2007


Restated R million

Book value of refurbished locomotives which are encumbered 1,491 1,477 1,390 Carrying value of capitalised leased assets included in rolling stock 463 426 405

Pipeline networks

An external revaluation was performed in the current year by an independent firm of professional valuers on the basis of the modern equivalent asset value. The current year’s revaluation resulted in a net increase of R636 million (2008: R324 million, 2007: R662 million) to the carrying value of the Group’s pipeline networks. 2009 2008 2007


Restated R million

Historic cost carrying values of revalued pipeline assets 2,267 2,231 2,032

Port infrastructure assets

The estimated replacement cost of port infrastructure assets that are subject to revaluation amounts to R40.2 billion (2008: R38 billion, 2007: R11.7 billion) as determined by independent valuation experts, however the revaluation was limited to the present value of future discounted cash flows, amounting to R28.2 billion in the current year. 2009 2008 2007


Restated R million

Historic carrying values of port infrastructure assets 11,345 10,168 7,614

Included in Port facilities are incumbered assets of R1,179 million (2008: R1,061 million, 2007: R525 million) as security for the repayment of the finance arrangement of these assets.

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Useful lives and residual values

In the current year, based on the recommendation of independent experts and international benchmarking, the useful lives of certain port infrastructure assets were increased from 50 to 100 years, resulting in a decrease in depreciation of R142 million.

20. Investment properties

2009

R million



Fair value at the beginning of the year 4,515 3,224 2,662 Transferred from property, plant and equipment 85 140 - Recognised in income statement 1,376 1,151 561 Disposal (7) - - Transferred to assets held-for-sale (8) - -

Fair value at the end of the year 5,961 4,515 3,223

The gross property rental income earned by the Group from its investment properties, which are leased out under operating leases amounted to R911 million (2008: R683 million, 2007: R387 million).

Direct operating expenses arising on the investment properties during the year amounted to R245 million (2008: R184 million, 2007: R169 million).

21. Intangible assets 2009 2008 2007


Restated R million

Finite life intangible assets

Cost Balance at the beginning of the year 829 623 600 Additions 27 34 6 Disposals (11) (4) (49)Transferred to assets classified as held-for-sale - (6) (36)Transfers in from property, plant and equipment 193 182 102

Balance at the end of the year 1,038 829 623

Accumulated amortisation and impairment Balance at the beginning of the year (503) (416) (428)Disposals 11 4 48 Amortisation (115) (94) (81)Transferred to assets classified as held-for-sale - 3 25 Transfers in from property, plant and equipment - - 20

Balance at the end of the year (607) (503) (416)

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21. Intangible assets (continued) 2009 2008 2007


Restated R million

Carrying amount At the beginning of the year 326 207 172

At the end of the year 431 326 207

Finite intangible assets relate to software and licenses.

22. Investments in associates and joint ventures 2009 2008 2007


Restated R million

Balance at the beginning of the year 48 47 98 Acquisitions 6 1 4 Equity accounted earnings/(losses) 82 (59) 4 Dividends received (19) (9) - (Repayments)/advances of loans (90) 69 19 Impairments (3) (1) - Transferred to assets classified as held-for-sale - - (78)

Balance at the end of the year 24 48 47

Directors’ valuation of unlisted investments in associates and joint ventures 24 48 47

Total income/(loss) from associates and joint ventures

Discontinued operations 82 (59) 4 Continuing operations - - (2)

82 (59) 2

Aggregated amounts relating to associates Assets - 837 691 Liabilities - (345) (285)Revenues - 1,552 1,356 Profit/(loss) before taxation - 119 (29)Income tax (expense)/credit - 37 12 Net profit/(loss) for the year - 82 (7)

The aggregated amounts relating to associates in the table above relate to Arivia.kom (Pty) Limited which was impaired and disclosed as assets classified as held-for-sale at 31 March 2009.

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22. Investments in associates and joint ventures (continued)

List of associates and joint ventures* Principal activity Effective holding Cost

Interest of holding company indebtedness

Accumulated impairment and losses

Share of post-acquisition reserves Total

2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 % % R million R million R million R million R million R million R million R million R million R million Associates Arivia.kom (Pty) Ltd** IT service provider 42 42 214 214 - - 219 141 5 5 - 78 Commercial Cold Storage (Ports) (Pty) Ltd Storage and bondage 30 30 - - 1 1 - - 14 14 15 15 Comazar (Pty) Ltd Transport logistics 32 32 13 13 8 8 21 21 - - - - Mossel Bay Waterfront Development (Pty) Ltd†

Property development and management 15 15 2 2 - - 2 2 - - - -

Cape Town Bulk Storage (Pty) Ltd # Port operations 50 50 1 1 2 2 - - - 1 3 4 Belldev Properties (Pty) Ltd Port operations 50 50 - - - - - - - - - - AllPort Logistic Port operations - - - - - - - - - - - - Terminal (Ghana)+ - - - - RainProp (Pty) Ltd Property

development and management 20 20 3 3 - - 3 - - (2) - 1

Gaborone container Terminal Container terminal 36 - 6 - - - - - - - 6 - Joint ventures Transpoint Properties (Pty) Ltd # Telecommunication 50 50 - - - 90 - 62 - (62) - 28

239 233 11 101 245 226 19 (44) 24 126 Investments in associates classified as held-for-sale (214) (214) - - (219) (141) (5) (5) - (78)

25 19 11 101 26 85 14 (49) 24 48

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22. Investments in associates and joint ventures (continued) 2007 Associates and joint ventures* Principal activity

Effective holding Cost

Interest of holding

company indebtedness

Provision for losses

Share acquisition

reserves Total % R million R million R million R million R million Associates Arivia.kom (Pty) Ltd** IT service provider 42 214 - 141 5 78 VAE Perway (Pty) Ltd@ Refurbishment of Perway 35 6 - - 17 23 Commercial Cold Storage (Ports) (Pty) Ltd Storage and bondage 30 - 1 - 18 19 Comazar (Pty) Ltd Transport logistics 32 13 8 20 - 1 Mossel Bay Waterfront Development (Pty) Ltd † Property development and management 15 2 - 2 - - Cape Town Bulk Storage (Pty) Ltd # Port operations 50 1 - - 3 4 Belldev Properties (Pty) Ltd Property development and management 50 - - - - - AllPort Logistic Terminal (Ghana) + Port operations - - - - - - RainProp (Pty) Ltd Property development and management 20 2 - - (2) - Joint ventures Transpoint Properties (Pty) Ltd # Telecommunication 50 - 23 - - 23

238 32 163 41 148 Investments in associates classified as held-for-sale (220) - (141) (22) (101)

Total 18 32 22 19 47

* Incorporated in the Republic of South Africa, unless stated otherwise.

** Impaired and disclosed as assets classified as held-for-sale

† Dormant and in the process of winding up.

# Transnet does not have the power to govern the financial and operating policies of these associates.

@ sold in October/November 2007.

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23. Other investments and long and short term financial assets 2009 2008 2007


Restated R million

Listed investments at market value 149 126 131 Other financial assets 138 326 329

Total long-term investments and long-term financial assets 287 452 460

Short-term portion of other investments including market making positions held-for-trading 436 550 204

Total short-term investments 436 550 204

24. Derivative financial instruments 2009 2008 2007


Restated R million

Derivative financial assets Opening balance 945 5,979 4,091 Income statement credit 85 761 1,954 Redemption of "C" class preference share - (5,500) - Transferred to property, plant and equipment (147) - - Derivative raised and settled (370) (295) (66)

Closing balance 513 945 5,979

Derivative financial liabilities Opening balance 566 405 561 Income statement debit/(credit) 119 368 (27)Transferred to property, plant and equipment (417) - - Derivatives raised and settled (141) (207) (129)

Closing balance 127 566 405

Comprise the following financial instruments:

Non-current assets Forward exchange contracts 178 352 166 Cross-currency swaps and options - 181 147 Interest rate swaps and options - - 8

178 533 321

Current assets Forward exchange contracts 292 290 84 Cross-currency swaps and options 43 114 58 Interest rate swaps and options - 8 16 C-class preference share* - - 5,500

335 412 5,658

Total derivative assets 513 945 5,979

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24. Derivative financial instruments (continued) 2009 2008 2007


Restated R million

Current liabilities Forward exchange contracts 93 111 77 Cross-currency swaps and options 16 2 88

109 113 165

Non-current liabilities Forward exchange contracts 11 258 45 Cross-currency swaps and options 7 195 195

18 453 240

Total derivative liabilities 127 566 405

Net income statement (credit)/debit (34) 393 1,981

* Included in the Group’s assets being an investment in a "C" class preference share which is owned by Newshelf 697 (Pty) Limited in Newshelf 664 (Pty) Limited. The share was subscribed for at a cost of R1,511 million as part of the sale process of the 309 million MTN Group Limited shares. The value of these preference shares moved in concert with movements in the MTN Group Limited’s share price in terms of a gain share redemption formula. The share was valued by a professional valuer in 2007. The shares were redeemed in the 31 March 2008 financial year for R5,692 million. The difference between the proceeds and the carrying value at 31 March 2008 has been disclosed in note 4. The effects of the fair valuation are disclosed in note 13.

The Group entered into fair value hedges of the foreign exchange risk on firm commitments of the Group to imported items of equipment (i.e. locomotives and port equipment). The Group is settling the contract price of these items by making pre-determined progress payments (in foreign currency) to the relevant suppliers as specified milestones are achieved.

At 31 March 2009, the Group held a series of forward exchange contracts as hedging instruments for this purpose. These hedges were assessed to be effective. The ineffective portion of the hedge has been recorded in the income statement.

The fair values of these forward exchange contracts at 31 March were as follows: 2009 2008 2007


Restated R million

Currency bought forward – Japanese yen – gain/(loss) 367 409 (36)Currency bought forward – Euros (loss)/gain (3) 217 49

The net fair value gain recognised in the income statement on these fair value hedges during the year was R22 million (2008: R48 million, 2007: R13 million). This net fair value gain comprised a loss of R201 million (2008: R435 million, 2007: R214 million) with respect to foreign exchange risk on the firm commitments, and a gain of R179 million (2008: R483 million, 2007: R201 million) on the forward exchange contracts.

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24. Derivative financial instruments (continued)

The nominal values of these forward exchange contracts at 31 March were as follows: 2009 2008 2007


Restated R million

Currency bought forward – Rand

Japanese yen 2,407 2,080 2,139 Euros 987 983 501

3,394 3,063 2,640

Currency bought forward – foreign currency

Japanese yen 27,643 27,454 28,608 Euros 74 93 56

25. Long term loans and advances

2009 2008 2007


Restated R million

Balance at the beginning of the year 90 123 2,019 Advances 11 37 772 Capitalised interest 29 34 - Repayments (33) (104) (1,294)Impairment (20) - (95)Transferred to non-current assets classified as held-for-sale - - (1,258)Less: Short-term portion transferred to trade and other receivables - - (21)

77 90 123

Comprising:

Directors’ and managers’ loans Balance at the beginning of the year - 1 3 Repayments - (1) (2)

- - 1

Employee housing and other loans Balance at the beginning of the year 85 117 2,002 Advances 10 37 772 Capitalised interest 29 34 - Payments (33) (103) (1,252)Impairment (20) - (126)Transferred to non-current assets classified as held-for-sale - - (1,258)Less: Short-term portion - - (21)

71 85 117

Other loans and advances Balance at the beginning of the year 5 5 14 Advances 1 - - Repayments - - (40)Reversal of impairment - - 31

6 5 5

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25. Long term loans and advances (continued)

Included in Directors’ and managers’ loans are the following loans to senior executives:

Opening balance

R thousand

Capitalised interest/

advances R thousand

Repaid R thousand

Total 2009

R thousand

Total 2008

Restated R thousand

Total 2007

Restated R thousand

Mr S Gama 317 - (317) - 317 318 Mr T Morwe 146 - (146) - 146 226 Mr KXT Socikwa 7 - (7) - 7 209

470 - (470) - 470 753

These loans are secured and bear variable interest that is linked to the prime interest rate. The current rates are 15% to 16.5% and relate to housing loans. Housing loans are secured by first mortgage bonds over the related property and other guarantees. During the 2009 financial year these loans were repaid.

26. Inventories

2009

R million


2007Restated R million

At weighted average cost Maintenance material 2,175 1,716 1,101 Consumables 91 105 86 Finished goods 51 70 164 Work in progress* 135 86 169 Provision for stock obsolescence (443) (417) (272)

2,009 1,560 1,248

At net realisable value Maintenance material 631 852 547 Consumables 26 33 59 Provision for stock obsolescence (70) (82) (55)

587 803 551

Transferred to assets classified as held-for-sale

(7) (44) (1)

2,589 2,319 1,798

* Included in work in progress are costs for construction contacts in progress.

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26. Inventories (continued)

Provisions for stock obsolescence:

2009

R million



At weighted average cost Opening balance (417) (272) (335)Raised (45) (165) (186)Utilised 19 20 249

Provision for stock obsolescence (443) (417) (272)

At net realisable value Opening balance (82) (55) (188)Raised (5) (33) (10)Utilised 17 6 143


Total Opening balance (499) (327) (523)Raised (50) (198) (196)Utilised 36 26 392


27. Trade and other receivables 2009 2008 2007


Restated R million

Trade receivables – net of allowances for credit losses 4,653 3,440 3,170 Prepayments and other amounts receivable 850 900 818 Short-term portion of loans and advances 1 2 180

5,504 4,342 4,168 Transferred to assets classified as held-for-sale (1) (268) (176)

5,503 4,074 3,992

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27. Trade and other receivables (continued)

Reconciliation of allowance account for credit losses 2009 2008 2007


Restated R million

Low risk*

Opening balance (3) (16) (15)Raised (4) - (3)Utilised 2 13 2

Closing balance (5) (3) (16)

Medium risk **

Opening balance (83) (48) (50)Raised (38) (35) (11)Utilised 2 - 13 Disposal 2 - -


High risk ***

Opening balance (125) (128) (127)Raised (53) (15) (21)Utilised 9 18 19 Transferred to assets held-for-sale - - 1


Total provisions

Opening balance (211) (192) (192)Raised (95) (50) (35)Utilised 13 31 34 Transferred to assets held-for-sale 2 - 1


* No guarantee is required from the customer.

** 50% – 75% guarantee required by the customer.

*** Customers are required to provide 100% guarantee on transaction on a cash basis only.

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28. Cash and cash equivalents

2009 2008

Restated 2007

Restated R million R million R million Cash and cash equivalents Cash and cash equivalents 5,880 5,986 3,847 Transferred to assets classified as held-for-sale - (6) -

5,880 5,980 3,847

Bank overdrafts - (22) (26)

- (22) (26)

29. Borrowings

2009 2008 2007


Restated R million

Long-term borrowings Total long-term borrowings at the beginning of the year 16,890 17,535 19,352 Raised 14,595 6,763 1,222 Repaid (512) (1,328) (997)Foreign exchange movement 15 22 27 Amortisation of discount (25) 242 303 Current portion of long-term borrowings redeemable within one year transferred to short-term borrowings (1,205) (6,282) (2,372)Transferred to liabilities directly associated with assets classified as held-for-sale - (62) -

29,758 16,890 17,535

Unsecured liabilities Rand denominated

Bonds at nominal value 19,584 17,987 15,486 Unamortised discounts (770) (396) (638)

Bonds at carrying value 18,814 17,591 14,848 Other unsecured liabilities 7,795 - 5

26,609 17,591 14,853

Unsecured foreign currency denominated - 30 44

Secured loans and capitalised leases

Rand denominated 4,252 3,018 2,623 Foreign currency denominated 102 144 177 Transferred to liabilities directly associated with assets classified as held-for-sale - (62) -

4,354 3,100 2,800

Rand denominated promissory notes* - 2,451 2,210

Total long-term borrowings 30,963 23,172 19,907 Current portion of long-term borrowings redeemable within one year transferred to short-term borrowings (1,205) (6,282) (2,372)

29,758 16,890 17,535

*The promissory notes were redeemed on 23 December 2008.

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29. Borrowings (continued)

The Rand denominated unsecured local guaranteed bonds were the T004 bond which was redeemed on 1 April 2008 and the rest are redeemable between 1 April 2010 and 15 July 2014 and bear interest at rates ranging between 10.5% and 16.5%. Rand denominated unsecured Eurorand bonds bear interest between 10% and 13.5% and are repayable in 2028 and 2029.

The rand denominated unsecured and non guaranteed bonds are redeemable between 15 December 2011 and 14 November 2027 and bear interest at a rate between 8.9% and 10.8%.

Rand denominated capitalised finance lease liabilities bear interest at rates ranging between 11.00% and 16.93% with all rates linked to prime. These liabilities are repayable over periods between 2009 and 2027.

Rand denominated domestic loans bear interest rates ranging between 8.81% and 15.33%. These liabilities are repayable over periods between 17 April 2009 and 20 December 2021.

Foreign currency secured loans are denominated in Japanese Yen and United States Dollars and bear interest between 3.00% and 6.02%. One USD loan was redeemed on 24 November 2008 and the rest are repayable between 24 March 2009 and 24 November 2010.

Interest-bearing borrowings are recognised initially at fair value less related transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.

2009

R million



Short-term borrowings Current portion of long-term interest-bearing borrowings 1,205 6,282 2,372 Other short-term borrowings 6,050 2,248 5,243 Transferred to liabilities directly associated with assets classified as held-for-sale - (148) -

7,255 8,382 7,615

The promissory notes were redeemed on 23 December 2008. Other short-term borrowings relate to the market making portfolio and comprises the Group’s position on bonds and other financial instruments.

The short-term borrowings bear interest at rates between 9.745% and 13.08%, is repayable between 2 May 2009 and 2 April 2010 and are not guaranteed.

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30. Trade payables and accruals

2009

R million



Trade payables 1,212 2,398 1,259 Accruals Accrued expenditure 3,000 2,263 2,119 Deposits received 42 37 41 Deferred income 4 88 56 Interest 1,083 900 922 Personnel costs 378 743 614 Public creditors 529 690 528 Revenue received in advance 199 76 50 South African Revenue Services - value added taxation 58 41 354

5,293 4,838 4,684 Transferred to liabilities directly associated with assets classified as held-for-sale (14) (248) (68)

6,491 6,988 5,875

Liabilities for trade and other amounts payable which are settled within normal terms are stated at amortised cost.

31. Construction contracts

2009

R million



Contracts in progress at the balance sheet date: Construction costs incurred plus recognised profits less losses to date 303 190 122 Less: progress billings (7) (1) - Less: Probable losses due to onerous contracts - - (7)

296 189 115

Recognised and included in the financial statements: Income statement Contract revenue 1,270 1,005 538

Balance sheet Amounts due from customers under construction contracts 240 96 199

Advances received - 18 1

Retention debtors 33 13 20

Retention creditors - - 13

Contract revenue for coaches is recognised when the completed stage has been signed off as proof of quality satisfaction by the external customer.

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32. Non-current assets classified as held-for-sale and discontinued operations

Discontinued operations The loss from discontinued operations, including (loss)/profit on disposal of discontinued operations and impairments comprises:

2009

R million



Loss from discontinued operations (refer below) (146) (661) (145)(Loss)/profit on disposal of discontinued operations, net of taxation (257) (266) 1,433 Impairments – Lower of carrying value and fair value less costs to sell (113) (994) (367)

(516) (1,921) 921

Loss from discontinued operations Revenue 2,294 2,980 23,402 Net operating expenses excluding depreciation and amortisation (2,348) (3,440) (23,079)

Loss from operations before depreciation and amortisation and items listed below (54) (460) 323 Depreciation and amortisation - (72) (71)

Loss from operations before the items listed below (54) (532) 252 Impairment/(reversal of impairment) of assets 1 (7) 16 Fair value adjustments 3 (26) 63

Loss from operations before net finance costs (50) (565) 331 Income from associates - - 2 Finance costs (19) (44) (500)Finance income 2 7 119

Loss before taxation (67) (602) (48)Taxation (79) (59) (97)

Net loss for the year after taxation (146) (661) (145)

Attributable to the shareholder (146) (665) (162)Attributable to minority interests - 4 17

In the 2007 financial year, South African Airways (Pty) Limited (the national airline of South Africa), V&A Waterfront Holdings (Pty) Limited (the commercial property development situated in Cape Town) and Equity Aviation (Pty) Limited (an airport baggage handling company) were disposed off by the Transnet Group.

The disposal of South African Airways (Pty) Limited was done in terms of a share sale agreement and included a Transnet share buy back of R2,049 million.

The disposal of Equity Aviation (Pty) Limited was a complete share sale agreement for a purchase consideration of R70 million, which required the final settlement of the existing R113.5 million loan owed by Equity Aviation (Pty) Limited to Transnet.

In the 2008 financial year, Viamax (Pty) Limited (motor vehicle rental fleet business), freightdynamics (a trucking business), and VAE Perway (Pty) Limited (involved in the business of providing rail infrastructure and associated products to Transport companies) were disposed off by the Transnet Group.

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32. Non-current assets classified as held-for-sale and discontinued operations (continued)

The disposal of V&A Waterfront Holdings (Pty) Limited was done in terms of a complete share sale agreement for a purchase consideration of R1.8 billion.

The disposal of Viamax (Pty) Limited was done in terms of a complete share sale agreement, for a purchase consideration of R1.2 billion.

The disposal of the interest in VAE Perway was complete disposal of Transnet’s interest in VAE Perway, for a purchase consideration of R30 million.

The disposal of freightdynamics was done as transfer of a going concern, for a purchase consideration of R1 million.

In the 2009 financial year, South African Express Airways (Pty) Limited (a commercial passenger airline business), Autopax Passenger Services (Pty) Limited (a passenger bus transport business), Shosholoza Meyl (a passenger rail transport business), and the Group’s interest in Neotel (a telecommunications business) were disposed of by the Transnet Group.

The disposal of South African Express Airways (Pty) Limited was a complete share sale agreement for a purchase consideration of R140 million, which included a final loan repayment of the loan extended to South African Express (Pty) Limited of R328 million.

The disposal of Autopax Passenger Services (Pty) Limited was a complete share sale agreement for a purchase consideration of R1 million.

The disposal of Shosholoza Meyl was a transfer of business agreement for a purchase consideration of R1, and included a R500 million reimbursement payment for costs incurred by Transnet for the operation of the business for the 2009 financial year.

The Group disposed of its interest in Neotel for R135 million (including a R196 million settlement payment for loans owed by Neotel to Transnet). Assets classified as held-for-sale and liabilities directly associated with assets classified as held-for-sale

2009

R million



Non-current assets classified as held-for-sale Property, plant and equipment 331 37 251 Investment properties 8 - 10 Intangible assets and goodwill - - - Investments in subsidiaries - - - Investments in associates - 78 101 Loans and advances - - 1,258 Inventory - - 171

339 115 1,791

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32. Non-current assets classified as held-for-sale and discontinued operations (continued) Assets classified as held-for-sale and liabilities directly associated with assets classified as held-for-sale (continued)

2009

R million



Effect of the sale of disposal groups Non-current assets classified as held-for-sale Luxrail 82 80 29 Shosholoza Meyl - 472 178 Autopax Passenger Services (Pty) Limited - 78 75 freightdynamics - - 341 Freight Dynamics Guardrisk 25 25 21 South African Express Airways (Pty) Limited - 1,096 - Viamax (Pty) Limited - - 963 Effect of intercompany eliminations and impairment of disposal groups (72) (735) 172

35 1,016 1,779

Total assets transferred to non-current assets classified as held-for-sale 374 1,131 3,570

2009

R million



Liabilities directly associated with assets classified as held-for-sale Post-retirement benefit obligations - 3 - Borrowings - 210 - Provisions 1 30 55 Deferred taxation liabilities - 36 95 Trade payables and other payables 12 392 274 Current taxation liability 1 5 (8)

14 676 430

Trade and other payables - - 41

Effect of the sale of disposal groups Luxrail 10 9 7 Shosholoza Meyl - 119 37 Autopax Passenger Services (Pty) Limited - 181 124 freightdynamics - - 626 Freight Dynamics Guardrisk 4 7 8 South African Express Airways (Pty) Limited - 1,025 - Viamax (Pty) Limited - - 591 Effect of intercompany eliminations and impairment of disposal groups - (665) (981)

14 676 412

Total liabilities transferred to liabilities directly associated with assets classified as held-for-sale 14 676 453

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33. Share capital

2009

R million



Authorised 30,000,000,000 ordinary par value shares of R1 each 30,000 30,000 30,000

Issued 12,660,986,310 ordinary par value shares of R1 each (2008: 12,660,986,310) 12,661 12,661 12,661*

*During the year ended 31 March 2007, Transnet repurchased a total of 2,049,000,000 of its issued shares at par value or R1 each as part of the sale of South African Airways (Pty) Limited. The unissued share capital is under the control of the South African Government, the sole shareholder of the Company. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of taxation, from the proceeds. Incremental costs directly attributable to the issue of new shares for the acquisition of a business are included in the cost of a business acquisition.

When share capital is repurchased, the amount of the consideration paid, including directly attributable costs, is deducted from equity. Repurchased shares are classified as treasury shares and presented as a deduction from the total equity until they are cancelled, reissued or disposed of.

Dividends are recognised as a liability in the period in which they are declared.

34. Employee benefits

The Group operates several defined benefit funds and a defined contribution fund. The assets of each scheme are held separately from those of the Group and are administered by the schemes’ trustees. The defined benefit funds are actuarially valued for accounting purposes by professional independent consulting actuaries on an annual basis.

2009

R million



Balance at the beginning of the year 2,181 2,422 4,348 Income statement (credit)/debit (169) (686) 218 Settlements during the year (317) (225) (419)Actuarial loss/(gain) 626 670 (1,725)Transfers from assets held-for-sale 3 - -

2,324 2,181 2,422

Comprising: Transport Pension Fund (formerly the Transnet Pension Fund) - - - Transnet Second Defined Benefit Fund - - - Top Management Pension 84 89 113 Workmen’s Compensation Act pensioners 368 280 238 Black Widows’ Pension - - (4)SATS pensioners’ post-retirement medical benefits 1,240 1,223 1,369 Transnet employees post-retirement medical benefits 632 589 706

2,324 2,181 2,422

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34. Employee benefits (continued)

Transnet retirement fund

The fund was structured as a defined contribution fund from 1 November 2000. All employees of the Group are eligible members of the fund. There were 61,407 members at 31 March 2009 (2008: 63,039, 2007: 63,165). Actuarial valuations are done at intervals not exceeding three years to determine the financial position. An actuarial valuation was performed as at 31 March 2008. The actuaries were satisfied with the status of the members’ credit account then. The total contributions to this fund constitute member contributions of R677 million (2008: R604 million, 2007: R577 million) and employer contributions of R669 million (2008: R605 million, 2007: R578 million). The employer contributions were expensed in the corresponding year.

Transport pension fund: Transnet Sub-Fund

The fund is a defined benefit pension fund and is a closed fund. The fund has been closed to new members since 1 December 2000. Members are current employees of Transnet who elected to remain as members of the fund at 1 November 2000 and pensioner members who retired subsequent to that date.

The Transnet Pension Fund Amendment Act, promulgated in the latter part of 2007, changed the name of the fund with effect from 11 November 2005 to the Transport Pension Fund. This Act restructured the Transport Pension Fund (formerly the Transnet Pension Fund) into a multi-employer pension fund. From the date this Act came into operation, all existing members, pensioners, dependant pensioners, liabilities, assets, rights and obligations, of the Transport Pension Fund, were attributable to a Sub-Fund, with Transnet as the principal employer. In terms of these Act amendments a Sub-Fund in the name of South African Airways (Pty) Limited was also established as at 1 April 2006, with South African Airways (Pty) Limited as the principal Employer of that Sub-Fund, and a further Sub-Fund in the name of the South African Rail Commuter Corporation Limited was established with effect from 1 April 2006, with the South African Airways (Pty) Limited as the principal employer of that Sub-Fund.

All active members and pensioners members relating to South African Airways (Pty) Limited and the Passenger Rail Agency of South Africa (previously SARCC) have therefore been assigned to these new Sub-Funds. The Transport Pension Fund therefore comprises three independent and separate Sub-Funds, each with their own principal employer. An employer’s liabilities to the Transport Pension Fund are limited to those attributable to its members, pensioners and dependant pensioners assigned to its Sub-Fund.

There were 5,583 members and pensioners at 31 March 2009 (2008: 6,401, 2007: 11,420). The fund gives members the option to transfer to the Transnet Retirement Fund twice a year. Approximately 463 members opted to transfer to the Transnet Retirement Fund in the current year. The effect of this transfer is noted below.

An actuarial valuation was done as at 31 March 2009 based on the projected unit credit method. The principal actuarial assumptions used are as follows:

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F-69



2009

R million



Discount rate (%) 9.03% 9.07% 7.75% Salary increases - Inflation (%) 5.77% 6.15% 4.50%- Promotional (%) 1.00% 1.50% 1.50% Expected return on plan assets (%) 9.74% 11.50% 10.15%Pension increases (%) 2.00% 2.00% 2.00% The results of the actuarial valuation are as follows: Benefit liability Present value of obligation (2,957) (3,192) (4,456) Fair value of plan assets 3,658 4,924 5,610

Surplus 701 1,732 1,154 Unrecognised surplus (701) (1,732) (1,154)

Net liability per the balance sheet - - -

The surplus was not recognised as the rules of the fund do not provide for the surpluses to be distributed. Credit/(charge) to the income statement Expected return on assets 499 560 645 Current return on assets (36) (106) (166) Settlement (loss)/gain (18) 151 - Interest cost (263) (342) (460)

Net credit recognised in the income statement 182 263 19

Transnet Limited


F-70



2009

R million



The actual return on plan assets for the period amounted to R677 million (2008: return of R487 million, 2007: return of R1,844 million).

Actuarial loss recognised in statement of recognised income and expense - Actuarial (loss)/gain (1,239) 224 1,179 - Net surplus not recognised 1,031 (578) (991) - Disposal of businesses - (8) (355)

Net actuarial (loss)/gain recognised in the statement of recognised income and

expense (208) (362) (167)

Cumulative actuarial losses recognised in the statement of recognised income and expense (1,078) (870) (511) Disposal of businesses - - 2

(1,078) (870) (509)

Movements in the net asset/(liability) recognised in the balance sheet Opening net asset 1,732 1,154 163 Income as above 182 263 19 Actuarial (loss)/gain recognised in equity (1,239) 224 1,179 Disposal of businesses - (8) (355) Contributions paid 26 99 148

Surplus 701 1,732 1,154 Surplus not recognised (701) (1,732) (1,154)

Closing net asset - - -

Reconciliation of movement in benefit liability Opening benefit liability (3,192) (4,456) (5,405) Current service cost (36) (106) (166) Contributions by employer and members (18) - - Interest cost (263) (342) (460) Actuarial gain/(loss) recognised in equity (63) 297 (20) Benefits paid 323 268 225

(3,249) (4,339) (5,826) Disposal of businesses - 22 1,370 Transfer to the retirement fund 292 1,125 -

Closing benefit liability (2,957) (3,192) (4,456)

Reconciliation of movement in fair value of plan assets Opening fair value of plan assets 4,924 5,610 5,568 Expected return 499 560 645 Actuarial (loss)/gain (1,176) (73) 1,199 Contributions by employer and members 44 99 148 Benefits paid (323) (268) (225)

3,968 5,928 7,335 Disposal of businesses - (30) (1,725) Transfer to the retirement fund (310) (974) -

Closing fair value of plan assets 3,658 4,924 5,610

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F-71


Transnet Transport Pension Fund: Sub-Fund (continued) Summary of actuarial valuation results for past periods:

2009

R million 2008

R million 2007

R million 2006

R million 2005

R million 2004

R million Present value of defined benefit

obligation (2,957) (3,192) (4,456) (5,405) (4,950) (4,199) Fair value of plan assets 3,658 4,924 5,610 5,568 4,818 4,034

Surplus/(deficit) 701 1,732 1,154 163 (132) (165) Asset not recognised (701) (1,732) (1,154) (163) - -

Net liability - - - - (132) (165)

The estimated contributions by both employer and members for the year beginning 1 April 2009 amount to R44 million (2008: R99 million, 2007: R148 million). The major category of plan assets as a % of total plan assets are: Equity - Local and international 67% 65% 65%Property 2% 10% 10%Bonds 30% 20% 20%Cash 1% 5% 5%

Total 100% 100% 100%

Transnet Second Defined Benefit Fund

The fund was established on 1 November 2000 for the benefit of existing retired members and qualifying beneficiaries, as of the current financial year, the fund included the spouses of black pensioners who retired from Transnet, between 16 December 1974 and 1 April 1986 (as previously reported as the Black Widows’ Pension Fund). There were 32,521 members at 31 March 2009 (2008: 36,846, 2007: 39,533). This excludes widows and children of pensioners, as well as the black widows. The all inclusive membership is 78,780 at 31 March 2009 (2008: 79,467, 2007: 81,263). The entire obligation relates to Transnet Limited.

The actuarial valuation was based on the projected unit credit method. The principal actuarial assumptions used are as follows:

2009

R million



Discount rate (%) 8.49% 9.36% 7.30-8.91%Expected return on assets (%) 7.29% 9.00% 7.07-11.12%Inflation (%) 5.42% 6.25% 5.00%Pension increases (%) 2.00% 2.00% 2.00% The results of the actuarial valuation are as follows: Benefit liability Present value of obligation (17,550) (17,194) (19,548) Fair value of plan assets 20,316 19,966 21,477

Surplus 2,766 2,772 1,929 Unrecognised surplus (2,766) (2,772) (1,929)

Net liability per the balance sheet - - -

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F-72


Transnet Second Defined Benefit Fund (continued)

2009

R million



Credit/(charge) to the income statement Interest cost (1,512) (1,427) (1,496) Expected return on plan assets 1,703 2,065 1,478

191 638 (18)

The actual return on plan assets for the period amounted to R2,615 million in 2009 (2008: R757 million, 2007: R4,490 million). Actuarial (loss)/gain recognised in statement of recognised income and expense - Actuarial (loss)/gain (214) 205 3,575 - Net surplus not recognised 23 (843) (1,929)

Net actuarial (loss)/gain recognised in the statement of recognised income and expense (191) (638) 1,646

Cumulative actuarial gains recognised in equity were R4,559 million for the period (2008: R4,734 million, 2007: R5,372 million). The current period movement includes the loss for the period, and a transfer of the Black Widows Pension Fund cumulative loss of R17 million. Movements in the net liability recognised in the balance sheet Opening net asset/(liability) 2,772 1,929 (1,628) Transfer from Black Widows Pension Fund 17 - - Income as above 191 638 (18) Actuarial (loss)/gain recognised in equity (214) 205 3,575

Surplus 2,766 2,772 1,929 Surplus not recognised (2,766) (2,772) (1,929)

Net asset per balance sheet - - -

In the current year, the surplus was not recognised as the rules of the find do not provide for surpluses to be distributed. Reconciliation of movement in benefit liability Opening benefit liability (17,194) (19,548) (20,887) Transfer from Black Widows’ Pension Fund (59) - - Interest cost (1,512) (1,427) (1,496) Actuarial (loss)/gain (1,126) 1,513 563 Benefits paid 2,341 2,268 2,272


Reconciliation of movement in fair value of plan assets Opening fair value of plan assets 19,966 21,477 19,259 Transfer from Black Widows’ Pension Fund 76 - - Expected return 1,703 2,065 1,478 Actuarial gain/(loss) 912 (1,308) 3,012 Benefits paid (2,341) (2,268) (2,272)

Closing fair value of plan assets 20,316 19,966 21,477

Transnet Limited


F-73


Transnet Second Defined Benefit Fund (continued) Major categories of plan assets as a % of total plan assets: Equity (%) 21% 21% 35%Property 1% 2% 1%Bonds 73% 74% 57%Cash and net current assets 5% 3% 7%

Total assets at market value 100% 100% 100%

Summary of actuarial valuation results for past periods:

2009

R million 2008

R million 2007

R million 2006

R million 2005

R million 2004

R million Present value of defined benefit obligation (17,550) (17,194) (19,548) (20,887) (20,405) (18,463) Fair value of plan assets 20,316 19,966 21,477 19,259 16,090 15,024

Surplus/(deficit) 2,766 2,772 1,929 (1,628) (4,315) (3,439) Asset not recognised (2,766) (2,772) (1,929) - - -

Net liability - - - (1,628) (4,315) (3,439)

Top Management Pensions and Workmen’s Compensation Act pensioners

The Top Management Pensions are additional benefits to top up pensions received to eliminate the effects of any early retirement and resignation penalties applied under the Group’s existing pension fund schemes to management appointed prior to 1 April 1999. There were 424 members at 31 March 2009 (2008: 458, 2007: 530). The entire obligation relates to Transnet Limited.

The Workmen’s Compensation Act benefit related to the pension benefits that the Company pays to current and former employees who were disabled whilst in service prior to the corporisation of Transnet in 1990. There were 1,537 members at 31 March 2009 (2008: 1,612, 2007: 1,925).

Actuarial values for both benefits were performed to determine the present value of the obligations. Similar valuations were done at the previous balance sheet date. The projected unit credit method was used to value the obligations. There are no plan assets held to fund these obligations.

The following summarises the components of expense and liability recognised in the financial statements together within the assumptions adopted.

Transnet Limited


F-74


Top Management Pension Fund and Workmen’s Compensation Act Pensioners (continued)

The principal assumptions in determining the benefits are as follows:

2009

R million



Discount rate (%) 8.49% 9.36% 7.75%Salary increases Inflation (%) 5.42% 6.25% 4.75% Promotional (%) 1.00% 1.50% 1.50%Pension increase (%) 2.00% 2.00% 2.00% Benefit liability Present value of obligations (84) (89) (113)

Liability recognised in the balance sheet (84) (89) (113) Interest charge to the income statement Interest cost (6) (9) (10) Current service cost (1) (2) (1)

(7) (11) (11)

Actuarial gain recognised in the statement of recognised income and expense 3 27 4 The cumulative actuarial gains recognised in equity 35 32 5 Reconciliation movement in benefit liability Opening benefit liability (89) (113) (116) Expense as above (7) (11) (11) Actuarial gain 3 27 4 Contribution 9 8 10

Benefit liability at year-end (84) (89) (113)


2009

R million 2008

R million 2007

R million 2006

R million 2005

R million 2004

R million Present value of defined benefit obligation (84) (89) (113) (116) (99) (99)

Deficit (84) (89) (113) (116) (99) (99)

The estimated contributions (based on current year contributions) for the year beginning 1 April 2009 amounted to R9 million (2008: R8 million, 2007: R9 million).

Transnet Limited


F-75


Workmen’s Compensation Act pensioners

Principal assumptions in determining the benefits are as follows:

2009

R million



Discount rate (%) 9.03% 9.36% 7.75%Pension increase (%) 5.77% 6.25% 4.75%Inflation rate (%) 5.77% 6.25% 4.75% Benefit liability Present value of obligations (368) (280) (238)

Liability recognised in the balance sheet (368) (280) (238)

Interest charge to the income statement Interest cost (25) (18) (18)

(25) (18) (18)

Actuarial gain recognised in the statement of recognised income and expense (93) (43) - The cumulative actuarial gains recognised in equity (155) (62) (19) Reconciliation movement in benefit liability Opening benefit liability (280) (238) (247) Interest cost (25) (18) (18) Actuarial loss (93) (43) - Benefits paid 30 19 27

Benefit liability at year-end (368) (280) (238)


2009

R million 2008

R million 2007

R million 2006

R million 2005

R million 2004

R million Present value of defined benefit obligation (368) (280) (238) (247) (224) (204)

Deficit (368) (280) (238) (247) (224) (204)

The estimated contributions (based on current year contribution) for the year beginning 1 April 2009 amount to R30 million (2008: R19 million, 2007: R27 million).

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F-76


Black Widows’ Pension Benefit

The benefit related to payments (not pensions) that the Group during 2000 voluntarily elected to make payable to the widows of black pensions who retired from Transnet during the period 16 December 1974 to 1 April 1986, subsequently died prior to 1 November 2000, and whose spouses are currently not entitled to a spouse’s pension from either the Transport Pension Fund or the Transnet Second Defined Benefit Fund or just the period within which these benefits could be claimed, is now closed. During the current financial year, this obligation was transferred into the Transnet Second Defined Benefit Fund.

The actuarial valuation was based on the projected unit credit method. The principal actuarial assumptions used are as follows:

2009

R million



Discount rate (%) - 9.36% 7.75%Inflation rate (%) - 6.25% 4.75%Expected return on assets (%) - 6.36% 4.75%Pension increase (%) - 2.00% 2.00% Benefit liability Present value of obligations - (59) (73) Fair value of plan assets - 76 77 Surplus - 17 4 Unrecognised surplus - (17) - Net asset per the balance sheet - - 4 Charge to the income statement Expected return on assets - 4 5 Interest cost - (5) (5) - (1) -

Actual return on plan assets - 7 7 Actuarial loss recognised in the statement of recognised income and expense - Actuarial gains - 14 3 - Net asset not recognised - (17) - - (3) 3 Cumulative actuarial gains recognised in equity - 16 19 Movements in the net asset recognised in the balance sheet Opening net asset - 4 1 Expenses as above - (1) - Actuarial gain recognised in equity - 14 3 Surplus - 17 4 Surplus not recognised - (17) -

Net asset per balance sheet - - 4 Reconciliation movement in benefit liability Opening benefit liability (59) (73) (78) Transfer to Transnet Second Defined Benefit Fund 59 - - Interest cost - (5) (5) Actuarial gain - 11 1 Benefits paid - 8 9 Closing benefit liability - (59) (73)

Transnet Limited


F-77


Black Widows’ Pension Benefit (continued)

2009

R million



Reconciliation of movement in fair value of plan assets Opening fair value of plan assets 76 77 79 Transfer to Transnet Second Defined Benefit Fund (76) - - Expected return on assets - 4 5 Actuarial gains - 3 2 Benefits paid - (8) (9) Closing fair value of plan assets - 76 77


2009

R million 2008

R million 2007

R million 2006

R million 2005

R million 2004

R million Present value of defined benefit obligation - (59) (73) (78) (75) (64) Fair value of plan assets - 76 77 79 83 55

Surplus - 17 4 1 8 (9) Surplus not recognised - (17) - - - -

Net asset - - 4 1 8 (9)

HIV/Aids benefits

Transnet Group offers certain assistance to employees diagnosed with Aids. The related data is not sufficient to actuarially value any liability the Group may have in this regard.

Post-retirement medical benefits

SATS Pensioners’ post-retirement medical benefits

The SATS pensioners are the retired employees of the former South African Transport Services (SATS) and their dependants. The liability is in respect of pensioners and their dependants who have elected to belong to the Transnet in-house medical scheme, Transmed, whose membership is voluntary.

A post-retirement medical aid benefit liability was created at the corporisation of Transnet. With effect from 1 April 2000, the liability has been actuarially valued at each balance sheet date. Actual benefits contributed on behalf of the pensioners are settled against the provision.

Transnet subsidises members by way of a lump sum subsidy each year. The amount of the subsidy is calculated based on the number of SATS families as at 31 December of each year multiplied by a flat R800 per month for each family. The entire obligation relates to Transnet Limited.

During the 2009 fiscal year the Company took a decision to enhance the subsidy values. The consultation process was still in progress as at 31 March 2009 and accordingly a provision of R500 million has been raised in long term provisions.

Transnet Limited


F-78


Post-retirement medical benefits (continued)

Transnet employees post-retirement medical benefits

This includes the current and past employees of Transnet who are members of Transnet’s in-house medical aid, Transmed Medical Fund. Membership is voluntary.

Transnet subsidies members at a flat contribution of R213 per month per member family.

To enable the Company to fully provide for such post-retirement medical liabilities, since April 2000 actuarial valuations are obtained annually. There are no assets held to fund the obligation.

Analysis of benefit expense

The following summarises the components of the net benefit expense recognised in both the income statement and balance sheet as at 31 March for both SATS pensioners and Transnet Employees. The projected unit credit method has been used for the purposes of determining the actuarial valuation for both the funds.

SATS pensioners

2009

R million



Closing benefit liability based on changes in discount rate (%) 8.44% 9.36% 7.75% Benefit liability Present value of obligations (1,240) (1,223) (1,369)

Liabilities recognised in the balance sheet (1,240) (1,223) (1,369)

Charge to the income statement Interest cost (108) (112) (117)

(108) (112) (117)

Actuarial (loss)/gain recognised in the statement of recognised income and expense (117) 204 134 Cumulative actuarial gains recognised in equity (199) (82) (286) Reconciliation of movement in benefit liability Opening benefit liability (1,223) (1,369) (1,607) Expense as above (108) (112) (117) Member and Company contributions 208 54 221 Actuarial (loss)/gain (117) 204 134


Transnet subsidises members by way of a lump sum subsidy every year. The amount of the subsidy is calculated based on the number of SATS families as at 31 December of each year multiplied by a flat R800 per month for each family. The medical inflation has no impact on the aggregate current service cost and the benefit liability. However, the assumed discount rate has an impact. The sensitivity of the obligation to a change in the assumed discount rate of 8.44% on the present value of the obligation is as follows:

2009

R million



Closing benefit liability based on changes in discount rate: 7.44% (2008: 8.36%, 2007: 6.75%) (1,304) (1,286) (1,453) 9.44% (2008: 10.36%, 2007: 8.75%) (1,181) (1,166) (1,296)

Transnet Limited


F-79




2009

R million 2008

R million 2007

R million 2006

R million 2005

R million 2004

R million Benefit liability (1,240) (1,223) (1,369) (1,607) (1,629) (1,751)

Deficit (1,240) (1,223) (1,369) (1,607) (1,629) (1,751)

The estimated contribution (based on current year contribution) for the year beginning 1 April 2009 is R208 million (2008: R221 million, 2007: R221 million).

Transnet employees

2009

R million



Closing benefit liability based on changes in discount rate (%) 8.44% 9.36% 7.75% Benefit liability Present value of obligations (632) (592) (720)

Liabilities recognised in the balance sheet (632) (592) (720)

The liability recognised for this fund relating to the Company amounts to R632 million (2008: R589 million, 2007: R706 million) Charge to the income statement Current service cost (11) (12) (14) Interest cost (53) (55) (63)

(64) (67) (77)

The charge to the income statement relating to the Company amounts to R64 million (2008: R67 million, 2007: R72 million). Actuarial (loss)/gain recognised in the statement of recognised income and expense (20) 145 87 Cumulative actuarial gains recognised in equity 165 185 40 Reconciliation movement in benefit liability Opening benefit liability (592) (720) (812) Expense as above (64) (67) (77) Member and Company contributions 44 45 41 Actuarial (loss)/gain (20) 145 87

Closing benefit liability (632) (597) (761) Disposal of businesses - 5 41

Net benefit liability (632) (592) (720)

Discontinued operations - 3 14 Continuing operations (632) (589) (706)

Transnet subsidises members at a flat contribution of R213 per month per member family. The medical inflation has no impact on the aggregate current service cost and interest cost and the benefit liability.

Transnet Limited


F-80



However, the assumed discount rate has an impact. The sensitivity of the obligation to changes in the assumed discount rate of 8.44% on the present value of the obligation is as follows:

2009

R million



Closing benefit liability based on changes in discount rate: 7.44% (2008: 8.36%, 2007: 6.75%) (699) (658) (852) 9.44% (2008: 10.36%, 2007: 10.36%) (575) (549) (686)


2009

R million 2008

R million 2007

R million 2006

R million 2005

R million 2004

R million Benefit liability (632) (592) (720) (812) (808) (741)

Deficit (632) (592) (720) (812) (808) (741)

The estimated contribution (based on current year contribution) for the year beginning 1 April 2009 is R44 million (2008: R45 million, 2007: R41 million).

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F-81

35. Provisions

2009

R million



Comprising Total provisions at the beginning of the year 1,989 1,605 2,546 Provisions raised during the year and unwinding of discounts 3,684 3,853 3,499 Provisions utilised (3,411) (3,305) (2,047) Decrease/(increase) in short-term provisions classified as current liabilities 254 (157) (2,376) Transferred to liabilities directly associated with assets classified as held-for-sale (7) (7) (17)

2,509 1,989 1,605

Third-party claims Balance at the beginning of the year 129 96 109 Provisions made during the year 289 418 142 Utilised during the year (279) (385) (155)

139 129 96

Customer claims Balance at the beginning of the year 38 60 36 Provisions reversed during the year - (5) 31 Utilised during the year (12) (17) (7)

26 38 60

Leave pay Balance at the beginning of the year 973 1,030 928 Provisions made during the year 686 802 748 Utilised during the year (586) (853) (631) Transferred to liabilities directly associated with assets classified as held-for-sale (6) (6) (15)

1,067 973 1,030

Onerous contracts Balance at the beginning of the year 219 43 37 Provisions reversed during the year 39 201 6 Utilised during the year (109) (25) -

149 219 43

Decommissioning and environmental liabilities Balance at the beginning of the year 1,087 974 252 Provisions made during the year and unwinding of discounts 69 119 738 Utilities during the year (250) (6) (16)

906 1,087 974

Incentive bonuses Balance at the beginning of the year 1,511 1,232 643 Provisions reversed during the year 1,366 1,387 1,182 Utilised during the year (1,419) (1,107) (593) Transferred to liabilities directly associated with assets classified as held-for-sale (1) (1) -

1,457 1,511 1,232

Transnet Limited


F-82

35. Provisions (continued)

2009

R million



Restructuring Balance at the beginning of the year 127 237 471 Provisions reversed during the year - 117 81 Utilised during the year (49) (227) (315)

78 127 237

Other Balance at the beginning of the year 438 309 70 Provisions reversed during the year 1,235 814 571 Utilised during the year (707) (685) (330) Transferred to liabilities directly associated with assets classified as held-for-sale - - (2)

966 438 309

Total provisions 4,788 4,522 3,981

Less: Short-term provisions classified as current liabilities Third-party claims 139 129 96 Customer claims 26 37 34 Leave pay 602 555 548 Onerous contracts 149 207 20 Decommissioning liability 63 32 41 Incentive bonuses 907 1,174 1,102 Restructuring 23 62 235 Other 371 344 309 Transferred to liabilities directly associated with assets classified as held-for-sale (1) (7) (9)

Short term provisions 2,279 2,533 2,376

Total long-term provisions 2,509 1,989 1,605

Provisions are recognised in the balance sheet when the Group has a present legal or constructive obligation, as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-taxation rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Third-party claims

The provision represents the best estimate of known third-party claims together with an allowance for claims incurred but not yet reported based on historical experience.

Customer claims

Provisions for claims made by customers arising from non-performance on contracts or damage to goods in transit.

Settlement of claims is expected in the following year.

Leave pay

This is a provision for unutilised leave at year-end. The leave is expected to be taken over the next two financial years and is calculated based on employee total cost to company.

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F-83

35. Provisions (continued)

Onerous contracts

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract.

Provision for the maintenance and repairs of buildings and structures in terms of a lease agreement.

Estimated costs for the refurbishment and general overhaul of locomotives and coaches.

Provision for access and haulage costs on the Transnet rail network in terms of the sale agreement.

Decommissioning and environment liabilities

Provision for the dismantling and removal of an asset as a result of the requirements to restore the site on which the asset is located. The provision has been computed by discounting future cash flows. The provision also includes the estimated rehabilitation costs for the historical contamination caused by asbestos and other environmental costs.

Incentive bonuses

Provision for incentive bonuses in terms of the incentive bonus scheme.

Restructuring

A provision for restructuring costs is recognised when the Group has a detailed formal plan for the restructuring and the Group has raised a valid expectation with those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Restructuring provisions only include those direct expenditures which are necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. Future operating costs are not provided for.

Warranties

A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

Environmental rehabilitation

In accordance with the Group’s environmental policy and applicable legal requirements, a provision for known environmental rehabilitation in respect of clean-up costs is recognised when it meets the recognition requirements for provisions. The provision also includes the estimated rehabilitation costs for the historical contamination caused by asbestos as well as other environmental costs.

Other provisions

Other provisions, for example, freight insurance, are recognised when they meet the recognition requirements as per IAS 37: Provisions, Contingent Liabilities and Contingent Assets.

Transnet Limited


F-84

36. Segmental Analysis

Transnet’s reportable segments represent the core businesses of Transnet for which information is reported internally to the chief operating decision maker (the "CODM") for purposes of allocating resources and assessing performance.

These businesses are managed separately and each of the segment managers report directly to the CODM. Discrete financial information is available for each operating segment identified.

The services offered by each of these segments differ, and they do not have similar economic characteristics, customers or methods to provide their services

The following are the services from which each reportable segment derives its revenue:

• TFR: Operates freight trains and is focused on transporting bulk and containerised freight. Its business comprises the coal and iron ore export channels and the general freight business.

• TRE: Consists of eight product-focused business units which provide services ranging from refurbishment, conversion and upgrades, to the manufacturing of rail related rolling stock mainly for TFR and the Passenger Rail Agency of South Africa (PRASA).

• TNPA: Responsible for the safe, efficient and effective economic functioning of the national ports system which it manages in a landlord capacity. TNPA is also the provider of port infrastructure and marine services at all seven fully operational commercial ports in South Africa, and will provide the same services for the Port of Ngqura when it becomes fully operational.

• TPT: Manages 16 cargo terminal operations across seven South African Ports (including the Port of Ngqura). It provides cargo handling services for container, dry-bulk, break-bulk, and automotive cargoes.

• TPL: Transports a range of petroleum products and gas through 3 000 km of underground pipelines traversing five provinces.

Measurement

The accounting policies of the operating segments (including those applied to intersegment transactions) are the same as those described in the summary of significant accounting policies on pages F-9 to F-27, hence there are no differences in the measurement of profit or loss, assets and liabilities by the reportable segments and Transnet. There have been no changes in the measurement of profit and loss from the previous reporting period.

Transnet conducts intersegment sales transactions at arms length, and intersegment transfers of property, plant and equipment at net book value.

In terms of geographical split, South Africa accounts for 100% of the Transnet Group’s revenue.

Revenues from one customer of the Transnet Freight Rail operating segment represents approximately 6% (2008: 7%, 2007: 7%) of the Group’s total revenue.

Transnet Limited


F-85

36. Segmental Analysis (continued) Segmental information For the year ended 31 March 2009

Freight

Rail Rail

Engineering

National Ports

Authority Port

Terminals Pipelines

Total for reportable

segments All other segments

Elimination of intersegment transactions

Total Transnet

R million R million R million R million R million R million R million R million R million External revenues* 18,427 1,405 6,573 5,036 1,462 32,903 629 60 33,592 Internal revenues 256 6,823 537 1 1 7,618 2,288 (9,906) - Total revenue 18,683 8,228 7,110 5,037 1,463 40,521 2,917 (9,846) 33,592 Energy costs (2,434) (108) (151) (215) (107) (3,015) (125) (4) (3,144) Maintenance (2,513) (181) (195) (144) (29) (3,062) (97) 3,000 (159) Materials (453) (3,276) (62) (203) (12) (4,006) (383) 2,644 (1,745) Personnel cost (5,449) (3,250) (969) (1,593) (164) (11,425) (852) 2,837 (9,440) Other costs (2,161) (649) (482) (1,194) (103) (4,589) (1,161) (154) (5,904) Adjusted EBITDA 5,673 764 5,251 1,688 1,048 14,424 299 (1,523) 13,200 Depreciation and amortisation (3,036) (128) (649) (632) (268) (4,713) (53) (13) (4,779) Fair value adjustments, impairments and post-retirement benefit obligations (620) (42) 1,075 (7) (24) 382 236 (437) 181 Dividends received and income from associates 23 18 - - - 41 7 34 82 Finance cost (1,805) (310) (1,175) (419) (170) (3,879) (190) 1,836 (2,233) Finance income 6 2 10 120 4 142 221 (96) 267 Profit before taxation 241 304 4,512 750 590 6,397 520 (199) 6,718 Total assets 40,996 6,145 44,686 11,088 9,183 112,098 3,636 2,426 118,160 Total liabilities 24,470 4,059 22,894 6,920 5,284 63,627 235 (3,676) 60,186 Capital expenditure 8,593 568 4,237 3,144 2,772 19,314 48 (76) 19,286

* Revenues from segments below the quantitative thresholds are attributable to two operating segments of the Group. These segments include Transnet Property that manages internal commercial and residential property and Transnet Capital Projects.

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36. Segmental Analysis (continued) Segmental information For the year ended 31 March 2008 (restated)

Freight

Rail Rail

Engineering

National Ports

Authority Port

Terminals Pipelines




TotalTransnet

R million R million R million R million R million R million R million R million R million

External revenue* 16,044 1,057 6,373 4,842 1,290 29,606 410 75 30,091 Internal revenue 554 7,099 469 2 2 8,126 1,917 (10,043) -

Total revenue 16,598 8,156 6,842 4,844 1,292 37,732 2,327 (9,968) 30,091 Energy costs (1,945) (79) (115) (170) (61) (2,370) (99) (95) (2,564) Maintenance (2,189) (158) (142) (126) (24) (2,639) (54) 2,307 (386) Materials (258) (3,320) (51) (195) 5 (3,819) (317) 3,038 (1,098) Personnel cost (4,929) (2,865) (830) (1,516) (143) (10,283) (747) 3,092 (7,938) Other costs (2,167) (538) (513) (1,032) (87) (4,337) (950) (8) (5,295)

Adjusted EBITDA 5,110 1,196 5,191 1,805 982 14,284 160 (1,634) 12,810 Depreciation and amortisation (2,311) (129) (527) (500) (266) (3,733) (53) (12) (3,798) Fair value adjustments, impairments and post-retirement benefit obligations 192 129 779 53 87 1,240 242 467 1,949 Dividends received and income from associates - - - 9 - 9 - 54 63 Finance cost (1,725) (132) (694) (244) (271) (3,066) (196) 570 (2,692) Finance income 5 5 107 85 47 249 243 269 761

Profit before taxation 1,271 1,069 4,856 1,208 579 8,983 396 (286) 9,093

Total assets 34,865 5,183 36,734 7,939 5,810 90,531 3,308 3,716 97,555 Total liabilities 23,264 3,187 14,693 4,458 3,033 48,635 381 (1,967) 47,049 Capital expenditure 9,177 764 2,736 1,976 865 15,518 140 (90) 15,568


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36. Segmental Analysis (continued) Segmental information For the year ended 31 March 2007 (restated)

Freight

Rail Rail

Engineering

National Ports

Authority Port

Terminals Pipelines




TotalTransnet

R million R million R million R million R million R million R million R million R million

External revenue* 14,350 604 5,686 4,094 1,216 25,950 207 742 26,899 Internal revenue 224 6,713 421 3 2 7,363 1,467 (8,830) -

Total revenue 14,574 7,317 6,107 4,097 1,218 33,313 1,674 (8,088) 26,899 Materials (460) (3,081) (46) (171) (12) (3,770) (244) 3,695 (319) Energy costs (1,778) (64) (101) (128) (51) (2,122) (70) (332) (2,524) Personnel cost (4,686) (2,350) (769) (1,295) (123) (9,223) (493) 2,053 (7,663) Maintenance (1,770) (178) (118) (110) (25) (2,201) (41) 1,782 (460) Other costs (2,730) (715) (582) (832) (75) (4,934) (489) 157 (5,266)

Adjusted EBITDA 3,150 929 4,491 1,561 932 11,063 337 (733) 10,667 Depreciation and amortisation (1,704) (117) (418) (336) (259) (2,834) (38) (80) (2,952) Fair value adjustments, impairments and post-retirement benefit obligations 104 (29) 275 125 - 475 24 1,513 2,012 Dividends received and income from associates 23 - - 2 - 25 (1) 14 38 Finance cost (1,221) (56) (470) (32) (295) (2,074) (1) (397) (2,472) Finance income 6 8 337 28 73 452 39 (306) 185

Profit before taxation 358 735 4,215 1,348 451 7,107 360 11 7,478

Total assets 27,083 3,239 20,305 5,823 4,561 61,011 2,502 10,275 73,788 Total liabilities (17,818) (1,436) (2,108) (1,687) (1,060) (24,109) (1,391) (14,587) (40,087) Capital expenditure 7,402 623 1,026 1,764 315 11,130 88 456 11,674


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37. Related party transactions

The Transnet Group is a Schedule 2 Public Entity in terms of the Public Finance Management Act (PFMA). It therefore has a significant number of related parties including other State-owned entities, Government Departments and all other entities within the national sphere of Government. The Group has utilised the database maintained by the National Treasury to identify related parties. A list of all related parties is available at the National Treasury website at www.treasury.gov.za.

South African Airways (Pty) Limited and South African Express Airways (Pty) Limited conduct a number of transactions via intermediaries who act as agents. Services rendered by these companies to related parties are measured with reference to their frequent flyer corporate contracts. These contracts qualify for rebates on reaching a specified qualifying limit, which are similar to other third parties who participate in this frequent flyer programme. These transactions are included in the disclosure of transactions below. Transactions between related parties that are not reported in terms of these contracts are not disclosed as such.

The Group has related party relationships with its associates (see note 22) and with its directors and senior executives (key management).

Unless otherwise disclosed, all transactions with the above related parties are concluded on an arm’s length basis.

Furthermore, neither the Group nor any of its related parties is obligated to procure from or render services to their related parties.

Transactions with related entities

Services rendered to related parties comprise principally transportation (aviation, rail and road) services. Services purchased from related parties comprised principally energy, telecommunications, information technology and property related services.

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37. Related party transactions (continued)

The following is a summary of transactions with related parties during the year and balances due at year-end according to Transnet’s records:

2009

R million



Services rendered Major public enterprises 1,020 904 1,045 Other public enterprises 112 119 370 National Government business enterprises 1,673 1,255 908 Associates 56 70 348

Total services rendered 2,861 2,348 2,671

Services received Major public enterprises 849 904 1,529 Other public enterprises 210 174 475 National Government business enterprises 890 1,519 983 Associates 203 261 357

Total services received 2,152 2,858 3,344

Amounts due from/(to) Major public enterprises (249) 257 309 Other public enterprises 30 20 6 National Government business enterprises* (6,407) (6,150) (6,782) Associates 143 68 (39)

Net amounts due to related parties (6,483) (5,805) (6,506)

*includes R6,720 million relating to bonds issued to National Government business enterprises (2008: R6,467 million, 2007: R7,023 million).

During the year the Group expensed R nil (2008: R1 million, 2007: R3 million) in relation to bad debts on related parties and at year-end the Group had a provision of R nil (2008: R11 million, 2007: R34 million) against bad debts in relation to related parties.

Transactions with key management personnel

Loans to key management are included in "Long-term loans and advances" (refer note 25).

Details of key management compensation are set out below.

None of key management has or had significant influence in any entity with whom the Group had significant transactions during the year.

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37. Related party transactions (continued) Key management personnel Executive remuneration - guaranteed

Name Salary

Post-retirement

benefit fund contributions

Other contributions

Other payments

Total 2009

Total 2008 2007

R thousand R thousand R thousand R thousand R thousand R thousand R thousand C F Wells** 3,621 385 - 8 4,014 3,717 3,501 V Dunjwa 2,196 201 - 7 2,404 1,971 - S Gama 3,443 272 62 29 3,806 3,833 3,436 V Kahla 2,915 229 40 4 3,188 3,112 2,783 P Maharaj 2,973 231 - 2 3,206 3,131 2,873 C Möller 2,152 207 102 8 2,469 2,425 2,152 T Morwe 2,811 223 56 2 3,092 3,190 2,762 M Moses 2,991 152 15 10 3,168 2,925 - K Phihlela 2,654 206 - 3 2,863 2,983 2,613 M Ramos + 4,882 441 - 5 5,328 5,411 5,056 A Singh **# 1,534 145 42 13 1,734 - - K X T Socikwa 2,575 274 - 3 2,852 2,133 - R Vallihu 2,709 252 42 21 3,024 2,897 2,640 L L van Niekerk 3,935 356 - 87 4,378 3,922 3,704

Total 41,391 3,574 359 202 45,526 41,650 31,520

+ Resigned during the 2009 financial year.

** Group Executives who are members of the Board of Directors.

# Appointed during the 2009 financial year.

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37. Related party transactions (continued) Executive remuneration – non-guaranteed: Performance bonus (TSTI) The performance bonuses (excluded from guaranteed remuneration) reflected below are according to the principles of the approved bonus scheme for 2009 and will be paid during the 2010 financial year. Name 2009

R thousand 2008

R thousand 2007

R thousand CF Wells ** 2,825 4,053 2,100 V Dunjwa 1,619 1,945 - S Gama 2,380 3,655 1,877 V Kahla 2,151 3,083 1,570 P Maharaj 1,971 3,243 1,610 C Möller 1,551 2,458 1,040 T Morwe 1,438 2,896 1,434 M Moses 2,180 3,127 - K Phihlela 1,779 2,419 1,313 M Ramos † - 5,790 2,938 A Singh **# 1,188 - - KXT Socikwa 1,924 2,978 - R Vallihu 2,119 3,136 1,479 LL van Niekerk 2,796 4,285 2,266 Total 25,921 43,068 17,627

† Resigned during the 2009 financial year. ** Group Executives who are members of the Board of Directors. # Appointed during the 2009 financial year.

Non-executive Directors Non-executive Directors are appointed by the Shareholder for a three-year term. The Articles of Association of the Company, however, require that the Directors be submitted for re-election for each of the three years at the Company’s Annual General Meeting. Among the issues considered by the Shareholder prior to re-election is the individual Director’s performance.

The Shareholder approves, in advance, the fees payable to non-executive Directors.

Fees paid to non-executive Directors vary based on their appointments to the various committees of the Transnet Board.

Name of Board members

Total 2009

R thousand

Total 2008

R thousand

Total 2007

R thousand FTM Phaswana (Chairman) 1,049 1,050 1,050 I Abedian 614 579 510 GK Everingham 600 725 593 NBP Gcaba 569 557 560 MJ Hankinson ** 263 - - ND Haste OBE 450 300 300 PG Joubert 638 601 488 NNA Matyumza 484 376 484 MP Moyo ** 263 - - S Nicolaou † 125 427 459 BT Ngcuka 377 514 442 NR Ntshingila 394 451 376 KC Ramon 379 376 466 SE Jonah KBE - 429 451 Total 6,205 6,385 6,179

† Resigned during the 2009 financial year. ** Appointed during the 2009 financial year.

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F-92

37. Related party transactions (continued) Subsidiary Directors’ remunerations

Executive Directors

Name Salary

Post-retirement benefit fund

contributions Other

payments Total 2009

Total 2008

Total 2007

R thousand R thousand R thousand R thousand R thousand R thousand

South African Express Airways (Pty) Ltd

S Mzimela 3,635 - 1,267# 4,902 3,068 2,361 S Zulu 2,231 - - 2,231 1,761 939 Autopax Passenger Services (Pty) Ltd M Bester* 547 - 2,321† 2,868 4,269 2,086 Viamax (Pty) Ltd** N Hariparsad - - - - 650 1,512 South African Airways (Pty) Ltd

G Griffiths - - - - - 2,285 N Ngqula - - - - - 5,000 T Ramano - - - - - 3,056 SAA City Centre (Pty) Limited

T J Nzima - - - - - 1,082 SAA Technical (Pty) Limited

J Blake - - - - - 1,101 Airchefs (Pty) Limited J September - - - - - 1,094

Total 6,413 - 3,588 10,001 9,748 20,516

* Retired 31 July 2008 ** Subsidiaries disposed of in prior financial year. # Payment in terms of a long-term incentive scheme. † Comprises a retention and incentive bonus of R2,067 million and the payment of accumulated leave.

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Non-Executive Directors

Name of Board members Fees

R thousand

Other payments

R thousand Total 2009

R thousand 2008

R thousand 2007

R thousand Autopax Passenger Services (Pty) Ltd V Jack 21 21 42 32 39 South African Express Airways (Pty) Ltd L Boyle 613 - 613 13 - E Bunyenyezi 186 - 186 13 - C Christodoulou 269 - 269 13 20 G van Heerden 179 - 179 13 - N Madalane 204 - 204 13 - B Mohale 206 - 206 48 70 S Nicolaou 181 - 181 38 60 L Nyhonyha* - - - 33 70 A Richman* - - - 19 55 B Ssamula 186 - 186 13 - M Vuso 242 - 242 43 45 Viamax (Pty) Limited F Leppan - - - 78 76 S Y U Nhlapo - - - 64 84 South African Airways (Pty) Limited T J Dikgale - - - - 20 F du Plessis - - - - 75 J G Gerwel - - - - 500 P G Joubert - - - - 300 K P Kalyan - - - - 75 B Modise - - - - 75 M Moerane - - - - 230 L M Mojela - - - - 400 M V Moosa - - - - 150 N Moyo - - - - 75 A Ngwezi - - - - 310 P Nkuna - - - - 160 C Okeahalam - - - - 210 J Schrempp - - - - 75 I A M Semenya - - - - 20 M Whitehouse - - - - 75 Total 2,287 21 2,308 171 3,269

* Resigned during the prior year.

38. Minority interests

2009

R million



Balance at the beginning of the year - 122 113 Transfer from the income statement - 4 17 Dividends paid to minorities - - (8)Minorities repurchased - (126) -

Total minority interests - - 122

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39. Commitments

Capital commitments 2009

R million



Contracted for in US Dollars 53 33 489 Contracted for in Japanese Yen 2,432 7,848 909 Contracted for in Euros 1,667 406 1,545 Contracted for in SA Rands 21,475 20,953 20,086 Contracted for in various other currencies 7 3 7

Total capital commitments contracted for 25,634 29,243 23,036

Authorised by the Directors but not yet contracted for 54,867 51,100 55,950

80,501 80,343 78,986 Commitments directly associated with assets classified as held-for-sale - - (804)

80,501 80,343 78,182

Total capital commitments are expected to be incurred as follows: Within one year 21,912 19,965 17,906 Within two to five years 58,589 60,378 61,080

80,501 80,343 78,986 Commitments directly associated with assets classified as held-for-sale - - (804)

80,501 80,343 78,182

These capital commitments will be financed by the net cash flow from operations, debt capital markets, through project finance and the use of operating leases.

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39. Commitments (continued)

Operating lease commitments

Future minimum rentals under non-cancellable leases are as follows: 2009

R million



Aircraft Within one year 1 35 33 Within two to five years - 1 182 After five years - - 50

1 36 265 Commitments directly associated with assets classified as held-for-sale - (34) -

1 2 265

Land, buildings and structures Within one year 62 48 56 Within two to five years 157 131 168 After five years 245 271 323

464 450 547 Commitments directly associated with assets classified as held-for-sale - (12) (28)

464 438 519

Machinery, equipment, furniture and motor vehicles Within one year 327 267 256 Within two to five years 544 508 232 After five years 11 8 -

882 783 488 Commitments directly associated with assets classified as held-for-sale - - (82)

882 783 406

Security and maintenance contracts Within one year 77 25 11 Within two to five years 77 9 2 After five years - - -

154 34 13

Other Within one year 20 17 11 Within two to five years 11 36 16 After five years - 2 2

31 55 29 Commitments directly associated with assets classified as held-for-sale - (9) -

31 46 29

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39. Commitments (continued)

Finance lease commitments Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:

2009

R million



Aircraft, machinery, equipment and furniture Within one year 7 179 195 Within two to five years 6 51 257 After five years 60 166 177

73 396 629 Commitments directly associated with assets classified as held-for-sale - (171) (64)

73 225 565

Lease rentals receivable

Future minimum rentals under operating leases are as follows: 2009

R million



Property Within one year 739 656 581 Within two to five years 1,957 1,843 2,826 After five years 2,736 4,517 4,489

5,432 7,016 7,896

Other Within one year 114 105 89 Within two to five years 360 360 436 After five years 720 810 810

1,194 1,275 1,335

40. Contingent liabilities and guarantees

2009

R million



Various contingent liabilities where no material losses are expected to materialise 95 95 -

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F-97

41. Cash flow information

2009 R million



Cash generated from operations Profit/(loss) before taxation: Continuing operations 6,718 9,093 7,478 Discontinued operations (67) (602) (50)

Profit before taxation 6,651 8,491 7,428 Adjustment for: Finance costs (refer note below) 2,996 2,782 2,791 Finance income (269) (768) (304) Dividend income - (122) (36) Depreciation, amortisation and derecognition 4,779 3,870 3,023 Increase in provision for post-retirement benefit obligation (169) (692) 395 (Reversal of impairment)/impairment of loss making subsidiaries and associates 3 1 - Impairment/(reversal of impairment ) of trade and other receivables and loans and advances 115 160 64 Impairment of property, plant and equipment 205 (1) 154 Movement in provisions 602 305 1,408 Fair value adjustments of Treasury bonds 9 59 86 Earnings from associates (82) 59 (2) Fair value adjustments on derivatives (34) (393) (2,050) Unrealised foreign exchange losses /(gains) 1 22 356 (Profit)/loss on sale of property, plant and equipment (53) 62 (27) Write-off of loan accounts - - (23) (Profit)/loss on disposal of the division/subsidiary - (40) - Discount on bonds amortised (25) 242 303 Provision for inventory obsolescence 14 172 573 Release of firm commitments 138 101 - Fair value adjustment of investment property (1,376) (1,151) (561) Other non-cash items (7) - -

Cash generated from operations 13,498 13,159 13,578

Changes in working capital Increase in inventories (323) (747) (885) Increase in receivables (1,860) (483) (335) (Decrease)/increase in payables (464) 1,503 1,353

Net changes in working capital (2,647) 273 133

Transnet Limited


F-98

41. Cash flow information (continued)

2009 R million



Finance costs Gross finance costs before capitalisation of borrowing costs 3,016 3,039 3,062 Net foreign exchange (gains)/losses on translation (45) (15) 32 Discounts on bonds amortised 25 (242) (303)

Finance costs 2,996 2,782 2,791

Taxation paid Balance at the beginning of the year (803) (494) (1,320) Taxation as per income statement (754) (1,237) (1,205) Taxation liabilitites disposed of - - 70 Balance at the end of the year 854 803 494

Taxation paid (703) (928) (1,961)

Disposal of subsidiary Property, plant and equipment 708 1,289 8,577 Intangible assets and goodwill 3 - 108 Derivative financial assets - - 47 Other investments - - 1,123 Inventory 67 12 515 Accounts receivable and prepayments 668 300 3,305 Cash and cash equivalents/(bank overdraft) 5 108 1,922 Employee benefits - (6) (248) Borrowings (54) - (5,903) Deferred taxation liability (115) (95) - Provisions (51) (39) (518) Trade and other payables (415) (272) (7,831) Current taxation liability - (29) (70)

Net asset value 816 1,268 1,027

Selling Price 476 986 - Net cash (disposed of)/acquired (5) (108) (1,922) Loans repaid by the subsidiary (336) - -

Net proceeds 135 878 (1,922)

Transnet Limited


F-99

42. Financial instruments

Capital Management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence; to support future growth of the business. Capital efficiency is measured in terms of returns on equity and the asset base, and the gearing ratio. This is monitored by the Board. The capital structure of the Group consists of equity attributable to the equity holder, the South African Government, comprising issued capital, reserves and retained earnings as disclosed in the "Reconciliation of movement to reserves". Other than loan covenants, Transnet Limited is not subject to any other externally imposed capital requirements.

The Board seeks to maintain a balance between higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by sound capital position. Based on the risk profile of the Company and its revenue generating ability, the Group’s target debt to equity ratio is less than 50% and forms part of the Shareholders’ Compact with the Shareholder.

There were no changes to the Group’s approach to capital management during the year.

The Group has a centralised treasury function which performs a supporting role to the Transnet Business Units. It has the responsibility for the management of treasury and financial risks, which the Group is exposed to in pursuit of its business. Treasury is also charged with ensuring that Transnet is optimally funded.

The Financial Risk Management policies are contained in a Board approved Financial Risk Management Framework (FRM). The objectives of the FRM are to ensure that the financial, operational, and strategic risks applicable to the funding, trading and investment activities are identified, monitored and appropriately managed in compliance with the Group Enterprise Wide Risk Management Framework (ERM), Public Finance Management Act 1 of 1999 (as amended) (PFMA) and other applicable legislation and regulations.

Risk philosophy

The overall risk management philosophy of Transnet is to the extent possible, avoid undue risks and manage business risks. However, given the nature of Transnet’s business and its major capital investment programme, it is not always possible to avoid risk. Transnet accepts, reduces or transfers risks (particularly financial risks) provided that the residual exposure accepted is within the risk appetite or tolerance limits of Transnet as determined by the Board from time to time. Integral to Transnet’s risk management philosophy and process, is the ERM, which was developed by Transnet Management and approved by the Board. In pursuit of its business, the Group is exposed to a myriad of risks, including but not limited to market, credit, liquidity, and operational risks. The long term viability, continued success and reputation of Transnet are critically dependent on the credibility of risk management, and commitment to applying leading practice in risk management.

Risk profile and risk management

Financial risk assessment and analysis are disclosed on a monthly basis to the Group Finance Committee (Finco) and the Group Executive Committee (Exco). These committees are responsible for reporting financial risk exposures to the Transnet Board of Directors on a bi-monthly basis.

The Group’s business operations expose it to liquidity, credit, and market risk (comprising foreign currency, commodity, interest rate and other price risk), which are discussed under the headings below. Transnet does not envisage unmanageable change to risks, but given the level of volatility in the market, Treasury will continuously manage all risks closely so as to implement mitigating initiatives timeously when required. The Board approved an updated FRM during October 2008, which is an enhancement of the previous policy, but it does not incorporate any major changes.

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42. Financial instruments (continued)

Liquidity risk

Liquidity risk at Transnet refers particularly to the risk of the Group’s inability, to advance funds for capital expenditure, redeem and service loans in money and capital markets, finance operational costs and generate sufficient cash for unanticipated financial commitments.

Liquidity risk is managed by spreading the maturity profiles of new debt issues, doing prefunding for all major rollover risk exposures and by ensuring that daily operational cash requirements are adequately funded by means of cash on hand and/or commercial paper issues and/or bank facility utilisation. During the past financial year, Transnet’s commercial paper was extensively used under the DMTN programme as a bridging financing instrument, mainly as a result of the global credit crisis and risk aversion profile of Investors. A new fifteen year bond TN23 was issued in November 2008 to continue building a Transnet yield curve without a Government guarantee. Certain thresholds, which are a combination of available cash and unutilised credit facilities, are minimum requirements of the approved policy to ensure effective liquidity risk management. The maximum tenor of money market investments may not exceed 120 days. The focal points in managing liquidity risk include the following:

• Measuring and managing the contractual maturity mismatch gap between assets and liabilities, and management of current and projected cash flows; and

• Managing the level of reliance on particular funding sources by ensuring there are various diverse sources of funding that can be utilised at any point in time.

Transnet also produces a “five year cash flow projection” as part of the annual corporate planning process. These provide Treasury with an estimate of the Group’s future cash positions.

Credit risk

Credit Risk is the risk of an economic loss arising from the failure of the counterparty to fulfil its contractual obligations. Its effect is measured by the cost of replacing cash flows if the other party defaults resulting in a capital loss if the counterparty is unable to meet its obligation.

The credit risk policy of the Group is aligned with the detailed requirements of the Treasury Regulations as referred to in the PFMA:

• Selection of counterparties through credit risk analysis. • Establishment of investment limits per institution. • Establishment of investment limits per investment instrument. • Monitoring of investments against limits. • Reassessment of investment policies on a regular basis. • Reassessment of counterparty credit risk based on credit ratings. • Assessment of investment instruments based on liquidity requirements.

Financial assets that potentially subject the Group to concentrations of credit risk consist primarily of cash, short-term deposits, government and public corporations bonds listed on the Bond Exchange of South Africa and the market value of derivatives and trade receivables. The Group’s exposures to credit risks in respect of all Treasury related transactions are confined to credible counterparties and are managed within Board approved credit limits. Limits are reviewed and approved by the Board on an annual basis. Trade receivables are presented net of impairments. It is Treasury’s policy to perform ongoing credit evaluations of the financial position of its counterparties. Guarantees are issued under specific powers granted in terms of the PFMA, and in accordance with an approved Delegations of Authority Framework (DF).

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Investments are only allowed with international counterparties with a minimum international long term credit rating of A- and domestic counterparties with a minimum national long term credit rating of A- (zaf) as rated by a recognised rating agency and approved by the Board as an approved counterparty. In addition to this the counter party must have a minimum short term credit rating of A-1 (F1 zaf) to qualify for cash type of investments.

Market risk

This will be discussed under the following headings: Foreign currency, Commodity, Interest rate and other price risk.

Foreign currency risk

Foreign currency risk arises mainly as a result of the Group’s imports capital and operational expenditure programmes, where goods are imported from foreign countries and are exposed to currency fluctuations. Indirect foreign currency risk arises as a result of imports by local suppliers, resulting in fluctuating Rand payments as well as the inherent foreign currency component in fuel risk exposures. Transnet does not take foreign currency risk and all foreign currency risk exposures are hedged within the approved FRM and DF as soon as the supplier agreements are signed. It is Transnet’s preference to enter into Rand based financing contracts, if this can be achieved at an acceptable cost, with no FX risk recourse to Transnet. The net foreign currency position is monitored on a monthly basis, by obtaining the net foreign currency position in all the major currencies i.e. US Dollar (USD), EURO, Pound Sterling (GBP) and Japanese Yen (JPY) and other foreign currencies. Foreign currency risk exposures are fully hedged until maturity with vanilla hedging instruments after careful consideration and analysis of the tax and accounting implications. Hedge accounting is applied wherever possible to minimise income statement volatility.

Commodity risk

Commodity risk refers to the potential variability in Transnet’s financial condition owing to the changes in commodity prices such as Brent crude oil, steel, iron ore and others. Only fuel risk exposures are actively monitored on a regular basis and are hedged in terms of the approved FRM and DF. At the reporting date, no hedges have been entered into to hedge fuel risk exposures. Major customer agreements are structured in such a way that tariffs can be adjusted to compensate for changes in fuel prices and does provide an amount of natural risk off-set.

Interest rate risk

This refers to the potential variability in Transnet’s financial condition owing to changes in interest rate levels. The Group’s borrowings and investments in interest-bearing instruments creates an exposure to this risk. The Group’s objectives in managing interest rate risk are as follows:

• Manage the ratio of floating rate exposures versus fixed rate exposures. • Reduce the weighted average cost of debt to ensure the gap to prevailing market rates is reduced. • Take advantage of interest rate cycles. • Support the business strategy in so far as interest rates are concerned. • Minimise the negative impact of adverse interest rate movements on the Group’s net income to within an

acceptable risk profile. • Minimise the basis risk exposure where interest rate risk is netted between investments and borrowings. • Manage the duration of the debt portfolio to try and achieve alignment with the duration of the average

payback periods of assets. The Group measures interest rate risk by calculating the impact of standardised interest rate shocks on the annual external finance cost budget.

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Other price risks

The only other market risk the Group is exposed to, is equity price risk. Equity price risk is the risk of fair value changes in future cash flows of a financial instrument as a result of changes in the underlying share price. Transnet do not trade in equities and the only exposure of this nature at report date was a small exposure in Brazil.

Liquidity risk

Bonds at carrying and nominal values:

Domestic Rand bonds

Transnet Ltd issues domestic bonds listed on the Bond Exchange of South Africa. The following Rand bonds were in issue at 31 March 2009:

2009 2008 2007 Bond Redemption

date Coupon

rate Carrying

value Nominal

value Carrying

value Nominal

value Carrying

value Nominal

value % Rm Rm Rm Rm Rm Rm

T004* 1-Apr-08 7.50 Redeemed Redeemed 4,122 4,128 4,343 4,661 T011* 1-Apr-10 16.50 1,089 1,050 1,399 1,325 1,431 1,325 T018* 15-Jul-14 10.75 6,086 6,000 6,100 6,000 6,107 6,000 TN17 14-Nov-17 9.25 4,829 5,042 1,722 1,750 - - TN23 06-Nov-23 10.8 1,062 1,050 - - - - TN27 14-Nov-27 8.9 2,772 2,942 1,277 1,284 - - Euro 42* 18 –Apr-28 13.50 1,952 2,000 1,951 2,000 1,950 2,000 Euro 42A* 30-Mar -29 10.0 1,024 1,500 1,020 1,500 1,017 1,500

Total Bonds 18,814 19,584 17,591 17,987 14,848 15,486

* These domestic Rand bonds and Eurorand bonds are reflected on the balance sheets of the Group. The Bonds are guaranteed by the Government of the Republic of South Africa, and the Company paid R19.2 million in guarantee fees (2008: R19.2 million) (2007: R19million). The TN17, TN23 and TN27 bonds are not guaranteed. The amounts in the above tables are only in respect of bonds held at amortised cost, as the bonds designated at fair value through profit and loss are disclosed elsewhere in this annexure.

Concentration of liquidity risk

The Group’s sources of funding are tabled below. Seventy percent of the Group’s borrowings are widely held. (2008: eighty seven percent), (2007: eighty two percent).

2009 2008 2007 Rm Rm Rm

Standard Bank 4,023 1,725 1,573 Rand Merchant Bank 3,177 1,417 1,258 Absa Capital 1,000 - - Investec Bank 150 - - China Construction Bank 140 - - Citi Group 250 - - Nedbank 1,775 - - Momentum 100 - - Omsfin 650 - - Various holders of Promissory Notes, widely held, and traded - 2 451 2,210 Various holders of Transnet Bonds and Commercial Paper, widely held, and traded*

25,619 19,460 18,340

Cash and cash equivalents held on behalf of SAA (Pty) Limited - - 1,588 Other 129 219 181

37,013 25,272 25,150

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*Includes Bonds held at amortised cost R18,814 million, Bonds held at fair value R466 million, and commercial paper R6,339 million (*2008: Includes Bonds held at amortised cost R17,591 million, Bonds held at fair value R1,223 million, and commercial paper R645 million). (*2007: Includes Bonds held at amortised cost R14,848 million, Bonds held at fair value R1,492 million, and commercial paper R2,000 million)

Funding plan

As a result of the Group’s major capital expenditure programme, the funding requirements over the next five years will amount to R25,984 billion and is reflected below.

Funding option

2009/10budget

total Rm

2010/11projection

total Rm

2011/12 Projection

total Rm

2012/13 Projection

total Rm

2013/14 Projection

total Rm

Totalprojection

Rm

Total funding requirement 14,830 10,349 6,837 201 (6,233) 25,984

The following schedule indicates the probable sources of funding that will be utilised by Transnet during the 2009/2010 financial year.

Funding option Q1

Rm Q2

Rm Q3

Rm Q4

Rm Totals

Rm

Commercial Paper 500 500 500 330 1,830 Domestic Bonds 1,250 1,250 1,250 1,250 5,000 Bank Loans 250 250 250 250 1,000 ECA Supported 500 500 500 500 2,000 Development Funds - 2,000 - - 2,000 Other foreign market instruments - 3,000 * - - 3,000

Total funding 2,500 7,500 2,500 2,330 14,830

* Note: If foreign market bond issuance is too expensive, additional domestic bonds will be issued.

The Group has access to financing facilities of R34.4 billion (2008: R31.1 billion, 2007: R28.4 billion) of which R3.6 billion (2008: R2.7 billion, 2007: R2.4 billion) are available at the balance sheet date.

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Contractual maturity analysis

The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting arrangements for the Group.

2009Carrying

valueRm

2009Contractual

cash flowsRm

0 to 12 months

Rm

1 to 2years

Rm

2 to 3years

Rm 3 to 4 years

Rm 4 to 5 years

Rm

More than 5 years

Rm Non derivative financial liabilities 19,280 43,295 2,200 3,402 1,907 1,907 1,907 31,972 Bonds 3,548 7,468 (190) 625 574 766 1,742 3,951 Secured bank loans 7,795 10,607 444 970 7,075 276 271 1,571 Commercial paper 6,339 7,568 6,640 76 852 - - - Other short term borrowings 51 49 49 - - - - - Total borrowings Group 37,013 68,987 9,143 5,073 10,408 2,949 3,920 37,494 Trade payables and accruals 6,491 6,491 6,491 - - - - - Derivative financial liabilities Cross Currency Swap 24 29 17 12 - - - - Forward Exchange Contracts used for hedging - Outflow 99 1,923 1,642 281 - - - - - Inflow - (1,769) (1,519) (250) - - - - Other Forward Exchange - Outflow 4 357 357 - - - - - - Inflow (348) (348) - - - - - Total derivative financial liabilities 127 192 149 43 - - - -

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Contractual maturity (continued)

2008Carrying

valueRm

2008Contractual

cash flowsRm

0 to 12 months

Rm

1 to 2years

Rm

2 to 3years

Rm 3 to 4 years

Rm 4 to 5 years

Rm

More than 5 years

Rm Non derivative financial liabilities Bonds 18,814 38,889 5,551 1,745 3,228 1,478 1,478 25,409 Secured bank loans 5,755 11,533 1,977 (412)** 975 837 1,526 6,630 Unsecured bank loans 30 29 29 - - - - - Commercial paper 645 645 645 - - - - - Other short term borrowings 28 28 28 - - - - - Total borrowings Group 25,272 51,124 8,230 1,333 4,203 2,315 3,004 32,039 Trade payables and accruals 6,988 6,988 6,988 - - - - - Derivative financial liabilities Cross Currency Swap 197 245 111 69 65 - - - Forward Exchange Contracts used for hedging - Outflow 349 2,559 1,147 811 489 112 - - - Inflow - (2,510) (1,032) (802) (543) (133) - - Other Forward Exchange - Outflow 20 135 135 - - - - - - Inflow - (107) (107) - - - - - Total derivative financial liabilities 566 322 254 78 11 (21) - -

**In the period zero months to two years, drawdowns on certain structured loans exceed the repayments on all loans. Hence payments in those periods are shown as net inflows.

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Contractual maturity analysis (continued)

2007Carrying

valueRm

2007Contractual

cash flowsRm

0 to 12 months

Rm

1 to 2years

Rm

2 to 3years

Rm 3 to 4 years

Rm 4 to 5 years

Rm

More than 5 years

Rm Non derivative financial liabilities Bonds 16,341 32,422 1,750 7,028 1,338 2,858 1,065 18,403 Secured bank loans 4,952 10,773 (78) 2,125 (131) 659 997 7,201 Unsecured bank loans 227 252 90 80 41 41 - - Commercial paper 2,000 2,059 2,059 - - - - - Other short term borrowings 1,630 1,632 1,632 - - - - - Total borrowings 25,150 47,158 5,453 9,233 1,248 3,558 2,062 25,604 Trade payables and accruals 5,875 5,875 5,875 - - - - - Derivative financial liabilities Cross Currency Swap 283 263 74 71 60 58 - - Forward Exchange Contracts used for hedging - Outflow 36 2,140 162 660 720 481 117 - - Inflow - (1,757) (150) (566) (587) (369) (85) - Other Forward Exchange Contracts - Outflow 86 318 260 57 - - 1 - - Inflow - (223) (197) (25) - - (1) - Total derivative financial liabilities 405 741 149 197 193 170 32 -

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Credit risk Maximum exposure and analysis of exposures to credit risk The following maximum exposures to credit risk existed at 31 March 2009 date in respect of financial assets: 2009 2008 2007

Group

Carryingvalue

Rm

Neither past due

nor impaired

Rm

Past due but not

impaired Rm

ImpairedRm

Carrying value

Rm

Neither past due

nor impaired

Rm

Past due but not

impaired Rm

Impaired Rm

Carrying value

Rm

Neither past due

nor impaired

Rm

Past due but not

impaired Rm

Impaired Rm

Trade and other receivables: - Low risk 3,633 3,335 298 (5) 1,980 1,879 101 (3) 1,868 1,696 172 (19) - Medium risk 637 616 21 (117) 790 567 223 (83) 695 646 49 (45) - High risk 183 154 29 (169) 249 237 12 (125) 223 212 11 (205) - Other 200 200 - - 198 198 - - 384 384 - (46) Trade receivables**** 4,653 4,305 348 (291) 3,217 2,881 336 (211) 3,170 2,938 232 (315) Miscellaneous receivables** 654 615 39 (167) 514 476 38 (74) 488 468 20 - Prepayments** 196 - - - 386 - - - 310 - - - Investments - current 285 285 - - 550 550 - - 704 704 - - Other investments shareholders loan - - - - 198 198 - - 227 227 - - Long & short short-term loans and advances* 76 76 - - 92 4 88 - 303 172 131 (95) Guarantees issued 3,005 - - - 4,746 - - - 5,696 - - - Investments (call and fixed deposits, including cash) and price risk***

7,540 - - - 8,115 - - - 3,830 - - -

Bond risk - - - - 9 - - - 17 - - -

*** The high investment risk exposure for 2009 is as a result of pre-funding done to minimise liquidity risk to fund the capital expenditure programme. * Long term R76 million (2008: R90 million, 2007: R123 million)

Short term R nil million (2008: R2 million, 2007: R180 million) ** Miscellaneous receivables R654 million (2008: R514 million, 2007: R488 million)

Prepayments R196 million (2008: R386 million, 2007: R310 million) Total prepayments and miscellaneous receivables R850 million (2008: R900 million, 2007: R818 million)

**** Trade and other receivables as per above R4 653 million (2008: R3,217 million, 2007: R3,170 million) Transferred to non current assets held for sale R nil (2008: R223 million, 2007: Rnil) Group debtors R nil million (2008: R nil million, 2007: nil) Total trade and other receivables R4,653 million (2008: R3,440 million, 2007: R3,170 million)

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Credit risk (continued)

Low risk: No guarantee is required from the customer.

Medium risk: 50% – 75% guarantee required by the customer.

High risk: In such instances, customers are required either to provide 100% guarantee or transact on a cash basis only.

The balances for other receivables and loans and advances are not disaggregated for internal reporting purposes.

Bond risk: The risk that an issuer of bonds will not be able to fulfil its financial obligations on maturity date in accordance with the terms and conditions of the bond issues.

IFRS 7 Financial Instruments: Disclosure, defines credit risk as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. As such Transnet will suffer financial losses on guarantees issued as the Group would be required to make good the failure by a third party to discharge an obligation.

Credit enhancements in the form of title deeds and pension fund cessions for loans and advances and deposits and guarantees in respect of amounts included in trade and other receivables and loans and advances, are held by the Group. The Group did not take possession of any collateral during the current financial year (2008 and 2007: less than R1 million).

Transnet is a registered credit provider in terms of section 40 of the National Credit Act, No 34 of 2005 ("The Act") and ensures compliance thereto. Trading on credit with a customer only commences when a fully executed credit agreement, as defined in the Act, is established with the customer. Before accepting any new customer a full credit assessment is conducted. The Group ensures credit checks from an independent source are performed. Customers are assigned a credit risk profile based on the outcome of the credit risk assessment. Customers who are assessed to be a credit risk are required to provide security. Based on this process, Transnet are comfortable with the value of unimpaired trade receivables.

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F-109



The following represents the ageing of the carrying value of financial assets past due but not impaired at 31 March 2009 for the Group and Company: 1-30 days 31-60 days Greater than 60 days

2009 Past due Low risk

Medium risk

High risk Past due

Low risk

Medium risk

High risk Past due

Low risk

Medium risk

High risk

Trade receivables 252 210 24 18 18 19 (1) - 78 70 (2) 10 Other receivables 8 - - - 8 - - - 23 - - - Loans and advances - - - - - - - - - - - - 2008 Trade receivables 162 51 109 2 22 6 16 152 44 98 10 Other receivables 7 - - - 6 - - - 25 - - - Loans and advances - - - - - - - - - - - - 2007 Trade receivables 56 28 22 6 55 49 5 1 120 95 22 3 Other receivables 10 - - - 2 - - - 8 - - - Loans and advances - - - - - - - - 131 - - -

Guarantees and deposits to the value of R 91 million were held as collateral (2008: R78 million), (2007: R29 million).

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The following financial assets have been specifically impaired for the Group at 31 March 2009: 2009 2008 2007

Trade

receivables Other

receivables Trade

receivable Other

receivables Trade

receivable Other

receivables Loans and

advances

Low risk 267 1 80 - 31 - - Medium risk 158 - 150 - 29 - - High risk 18 - 405 2 72 46 455

Financial assets have been impaired based on the age of the debt and the inability to recover these specified assets. Guarantees and deposits amounting to R119 million (2008: R1 million and 2007: less than R1 million) are held with respect to these. Payment terms were renegotiated with certain counterparties in respect of trade receivables during the year.

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Concentration of credit risk

The Group’s twelve most significant customers (South African Industrial enterprises) comprise 46% of the trade receivables carrying amount at 31 March 2009 (2008: 43%), (2007: 33%).

The following table reflects the distribution of credit risk, expressed in terms of long-term credit ratings, excluding guarantees and trade receivables. The non-rated banks are financial institutions situated in Africa where rated banks are not available. These accounts are monitored on a regular basis to ensure that credit limits are not breached. The exposures below include cash investments (call and fixed deposits), price risk exposures, operational bank balances as well as long positions in bonds in the market making portfolio (bond issuer risk) as at 31 March 2009:

Transnet Ltd risk per long term rating 2009

R million 2008

R million 2007

R million A+ 287 91 522 A 256 142 - AA+ - 3,177 1,015 AA 3,586 1,482 1 AA- 1,693 1,245 1,237 AAA 1,714 1,986 1,072 Unrated - 2 1 Bond Exchange 4 - -

Total 7,540 8,125 3,848

Bond Exchange Exposures are guaranteed by the Bond Exchange of South Africa.

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Concentration of credit risk (continued)

The table below reflects the distribution of credit risk per financial instrument per long term credit rating category, excluding guarantees and receivables.

Transnet Ltd risk per instrument per long term rating 2009

R million 2008

R million 2007

R million Investments A+ 240 91 522 A 251 101 - AA+ - 2,685 1,015 AA 3,221 1,399 - AA- 1,674 1,190 1,233 AAA 1,714 1,930 1,072 Unrated - 2 1 Bond exchange 4 - -

Total investments 7,104 7,398 3,843

Derivatives A+ 47 - - A 5 40 - AA+ - 492 - AA 364 83 - AA- 20 55 4 AAA - 56 - Unrated - - - Bond exchange - - -

Total derivatives 436 726 4

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Market risk

Foreign currency risk

The Group’s net long (short) foreign currency risk exposures at 31 March 2009 report date are reflected below (expressed in notional amounts). 2009 2008

Group USD JPY EUR AUD

Other currencies exp

in USD USD JPY EUR AUD

Other currencies exp

in USD US$/m Y/m €m AU$m US$m US$/m Y/m €M Au$/M Us$/M

Secured bank loans (11) - - - - (17) - - - - Unsecured bank loans - - - - - - (355) - - - Brazil equity investment 16 - - - - 16 - - - - Gross balance sheet exposure 5 - - - - (1) (355) - - - Exposures for future expenditure (25) (27,634) (159) (2) - (116) (27,462) (190) - (5) Gross foreign currency exposure (20) (27,643) (159) (2) - (117) (27,817) (190) - (5) Forward exchange contracts and Currency Options

13

27,643

127

-

-

2

27,817

166

-

4

Cross currency swaps 11 - - - - 17 - - - - Net uncovered exposure 4 9 (32) (2) - (98) - (24) - (1)

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Market risk (continued)

Foreign currency risk (continued) 2007

USD

Group JPY EUR AUD m m m m

Secured bank loans (25) - - - Unsecured bank loans - (887) - - Brazil equity investment 18 - - - Gross balance sheet exposure (7) (887) - - Exposures for future expenditure (36) (28 491) (152) (10) Gross foreign currency exposure (43) (29 378) (152) (10) Forward exchange contracts and Currency Options

17

29 378

145

10

Cross currency swaps 24 - - - Net uncovered exposure (2) - (7) -

Sensitivity analysis

The table below shows the impact on profit and loss of a stronger and weaker Rand for the Group, as a result of fair value movements of cross currency interest rate swaps and forward exchange contracts.

2009 2008

Currency

Currency exposure

in millions of

currency

Fair value

in Rm

Impact of Rand

strengthening

Impact of Rand

weakening

Currency exposure

in millions

of currency

Fair value in

Rm

Impact of Rand

strengthening

Impact of Rand

weakening EUR* 50 6 (182) 182 67 148 (121) 121 JPY* 9 120 (0.5) 0.5 1,651 118 (28) 28 USD 13 (23) (55) 55 21 (55) (28) 28

2007

Currency

Currency exposure

in millions of currency

Fair value in Rm

Impact of Rand

strengthening

Impact of Rand

weakening EUR* 63 49 4 (4) JPY* 770 90 (7) 7 USD 44 (145) (46) 46

*Transactions in these currencies are designated as fair value hedges as detailed in note 24. The sensitivity analysis above includes the impact of fair value movements on derivative instruments that are part of effective fair value hedge accounting. The sensitivity analysis was calculated using a 95% confidence interval over a 90 day horizon, and assumes all other variables remain unchanged. There has been no change in the methods used since the previous financial year to calculate the sensitivities.

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Sensitivity analysis (continued)

The table below shows the impact on profit and loss of a stronger and weaker Rand for the Group as a result of fair value movements of foreign currency options. The numbers for the Group are:

2009 2008

Currency

Nominal amount of

options CCY/m

Fair market

value Rm

Impact of profit (loss)

Rm*


Rm**

Nominal amount

of options CCY/m

Fair market

value Rm

Impact of profit (loss) Rm*


Rm**

AUD - - - - 2 2 1 (1) EUR 21 43 60 (61) 64 153 51 (49) Total 21 43 60 (61) 66 155 52 (50)

2007

Currency

Nominal amount of

options CCY/m

Fair market

value Rm

Impact of profit (loss) Rm*


Rm** AUD 9 1 5 - EUR 79 31 33 (18) Total 32 38 (18) * Weaker Rand and higher volatilities are based on a 95% confidence level, with a 100 basis point (bp) increase in interest rates.

** Stronger Rand and lower volatilities are based on a 95% confidence level, with a 100 basis point (bp) decrease in interest rates.

Value at risk (fx)

The value at risk (VaR) for direct committed and uncommitted capital and operational exposures and the Brazilian equity investment is R94 million (2008: R183 million), (2007: R19 million). VaR calculates the maximum pre-tax loss expected (or worst case scenario) on a position held, over a 90 day horizon given a 95% confidence level. The VaR methodology is a statistically defined, probability-based approach that takes into account, inter alia, market volatilities relative to a position held. The Group uses historical simulation and the model assumes that historical patterns will repeat into the future.

Foreign exchange rates

The mid rates of exchange against Rand used for conversion purposes were:

2009 2008 2007

US dollar 9.5187 8.1085 7.2160 Pound Sterling 13.8784 16.1894 14.1838 Japanese Yen 10.2817 0.0813 0.0614 Euro 12.8274 12.6355 9.6132 Australian Dollar 6.6450 7.3958 5.8208

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Interest rate risk

The Group’s exposure to fixed and floating interest rates on domestic financial liabilities is as follows:

Group 2009 2008 2007 Rm Rm Rm

Fixed rate liabilities (27 764) (19 225) (16 701) Floating rate liabilities (10 088) (5 218) (6 725)

Totals (37 852) (24 443) (23 426)

(The above table excludes liabilities held at fair value of R485 million (2008: R1,248million), (2007: R1,492 million).

The exposure to floating interest rates on foreign financial liabilities is R100 million (2008: R140 million), (2007: R232 million) for the Group. The full foreign currency loan portfolio has been swapped to a fixed rand interest rate risk exposure by means of cross currency interest rate swaps. The Board approved a targeted range of fixed interest rates that may be managed to enable management to utilise interest rate yields.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to floating interest rates for both derivatives and non-derivative financial instruments at the balance sheet date. The analysis covers the 2009/2010 financial year and illustrates the possible impact on finance cost and profit and loss as a result of changes in domestic interest rates. Similar shifts are used internally when reporting interest rate risk to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

2009 2008 Impact Shift +

100bp R Million

Shift - 100bp

R Million

Shift + 200bp

R Million

Shift - 200bp

R Million

Shift + 100bp

R Million

Shift - 100bp

R Million

Shift + 200bp

R Million

Shift - 200bp

R Million Finance Cost impact (Increase) (68) 68 (135) 137 (35) 35 (70) 71 Impact on profit and (loss) as a result of fair value movements on market making bonds, designated funding bonds and repo’s (9) 10 (16) 21 (3) 4 (5) 8

2007 Financial instrument

Market value shift at 100bp

increase


decrease


increase


decrease Rand loans 37 (37) 70 (75)

Promissory notes 26 (27) 52 (54)

Liabilities designated as held at fair value 18 (18) 35 (37)

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F-117


The impact on profit and loss of higher and lower foreign interest rates on the Group is in significant as all foreign debt has been swapped to a fixed Rand interest rate risk.

The sensitivity analysis was performed by doing non parallel shifts of the swap curve (plus/minus 100 and 200 basis points). The sensitivity ranges utilized are based on historical trends. The above tables assume no change in other variables.

Other price risk

The Group has an exposure to equity price risk the risk of price movements on the Brazilian Stock Exchange. At year end, the quoted value of the Group’s investment in Brazil was R149 million (2008: R126 milion), (2007: R131 milion). Management believes that the foreign exchange exposure on this investment is significantly greater than that of equity price risk and as such the sensitivity for this investment has been included in the foreign currency risk net position and Var calculations.

Commodity price risk

The table below shows the cash flow at risk scenarios against budget at various levels of Brent crude and USD/ZAR ($/R) exchange rates as at 31 March 2009:

Fuel price in dollars per barrel Cash flow at risk in Rm: (negative: excess against budget) $/R5.26 $/R7.50 $/R9.52 $/R13.76 $/R15.00 Brent @ $28 817 719 630 444 390 Brent @ $53 612 426 259 (94) (196) Brent @ $78 406 133 (113) (633) (782) Brent @ $100 223 (128) (445) (1 112) (1 304)

The table below shows the cash flow at risk scenarios against budget at various levels of Brent crude and $/R exchange rates, as at 31 March 2008:

Fuel price in dollars per barrel Cash flow at risk in Rm: (negative: excess against budget) $/R6.87 $/R7.49 $/R8.11 $/R8.73 $/R9.35 Brent @ $71 108 40 (29) (97) (166) Brent @ $100 (208) (305) (402) (500) (597) Brent @ $120 (419) (535) (652) (768) (884) Brent @ $130 (524) (650) (776) (902) (1 028)

The table below shows the cash flow at risk scenarios against budget at various levels of Brent crude and $/R exchange rates, as at March 2007:

Fuel price in dollars per barrel Cash flow at risk in Rm: (negative: excess against budget) $/R6.25 $/R6.75 $/R7.25 $/R7.75 $/R8.25 Brent @ $44 438 363 321 279 194 Brent @ $64 238 137 80 23 (94)Brent @ $77 106 (14) (82) (149) (285)Brent @ $84 39 (90) (162) (234) (381)

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Analysis, classification and fair values of financial instruments

Categories of Financial Instruments Group 2009 2008 2007 Rm Rm Rm

Financial assets Loans and receivables (including bank and cash, trade and other receivables) 11,460 10,122 8,189 Held to maturity investments - - - Available for sale financial assets 149 126 131 Fair value through profit and loss - - - Held for trading 949 1,495 6,183 Designated as at fair value through profit and loss - - -

Financial liabilities Liabilities measured at amortised cost (including trade and other payables)

43,019 31,400 29,070

Fair value through profit and loss - - - Held for trading 224 453 629 Designated as at fair value through profit and loss 387 1,248 1,268 Other – Finance lease liabilities 78 225 489

Except as detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values:

Group 2009 2008 2007 Fair value

Rm Carrying

value Rm

Fair value Rm

Carrying value

Rm

Fair value Rm

Carrying value

Rm

Loans and advances 77 77 203 90 176 123 Borrowings 38,837 36,936 26,139 25,204 22,450 24,879 Finance lease obligations 36 77 21 68 1,487 271

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F-119


Analysis, classification and fair values of financial instruments (continued)

The net gains and losses on financial instruments are detailed below: 2009 2008

Group

Liabilities held for trading

Liabilities designated

at fair value through

profit and loss

Liabilities measured at

amortised cost

Loans and receivables

Available for sale

financial assets

Assets held for trading




profit and loss


amortised cost


Available for sale

financial assets

Assts held for trading

Net gain (loss) * (47) (2,972) 183 23 - - (39) 2,717 642 (5) - Less: Discontinued operations - 19 (1) - - - - 44 7 - - Continuing operations (47) (2,953) 182 23 - - (39) 2,673 635 (5)

2007

Group




profit and loss


amortised cost


Available for sale

financial assets

Assets held for trading

Net gain (loss * 88 (3,042) 476 72 *Less: Discontinued operations *** - (500) 67 - ***Continuing operations 88 (2,542) 409 72

*The net gain on Group financial assets and financial liabilities held for trading is R40 million (2008: R214 million, 2007: R2,052 million). ***The net gain on financial assets and financial liabilities held for trading pertinent to Discontinued Operations is R nil million (2008: R26 million, 2007: R75 million).

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Basis for determining fair values

Bonds

Bonds are fair valued by applying BESA closing rates on the SA Bond formula. This is in respect of bonds held for trading, and for bonds designated as held at fair value.

Other non derivative assets and liabilities

The fair values of other non derivative financial assets and liabilities are calculated by determining the net present value of all future cash flows, discounted at prevailing market curves of the different currencies at reporting date.

Derivatives

Black and Scholes principles are used for valuing options. No estimates are used as all market rates are sourced from Bloomberg and all are market related.

Other financial instruments

The carrying amounts of financial assets and liabilities with a maturity of less than six months are assumed to approximate their fair value.

Reconciliation of liabilities designated at fair value through profit and loss for the Group Contractual

value payable on maturity

Accrued interest

Fair value movements

Carrying value

2009 333 26 30 389 2008 1,153 56 39 1,248 2007 1,153 56 59 1,268

Based on the fact that the above liabilities are guaranteed by the South African Government and the fact that Transnet’s credit rating has not changed from the previous financial year, there has been no element of the change in the fair value that is attributable to credit risk.

Transnet Limited


F-121

43. Subsequent Events

The following significant issues have occurred since 31 March 2009.

Sale of Autopax Passenger Services (Pty) Ltd

Autopax Passenger Services (Pty) Ltd was sold to Passenger Road Agency of South Africa (PRASA) for R1 effective 31 March 2009, as this was the date on which risks and reward of ownership passed. The Sale of Shares agreement was signed on 1 April 2009.

The sale of this business was recorded at 31 March 2009.

Sale of Shosholoza Meyl

The long distance commuter passenger service known as Shosholoza Meyl was sold to PRASA for R100 effective 31 March 2009, as this was the date on which risks and reward of ownership passed. A Sale of Business agreement was signed on 7 May 2009. As part of the transaction, PRASA paid an amount of R500 million to Transnet on 22 May 2009. This amount related to the reimbursement for operating expenditure incurred by Transnet prior to transfer date.

The sale of this business was recorded at 31 March 2009.

Pipelines tariff application

The Transnet Pipelines tariff application for the 2010 financial year was rejected by NERSA. Instead NERSA decreased tariffs by 11%. This decrease is of a temporary nature due to the methodology used by the Regulator in the determination of tariffs by excluding assets under construction in the regulatory asset base (RAB) until they are brought into use, which is expected to occur progressively until 2012; the project completion date. In the interim the Company is in discussion with Government regarding an appropriate funding model for assets under construction.

The following significant issues have occurred since 30 June 2009:

Borrowings

Subsequent to the quarter-ended 30 June 2009, Transnet finalised the following funding initiative:

An additional R920 million in Transnet bonds were issued during July 2009.

Subsequent to 30 September 2009, Transnet entered into a sale agreement for the disposal of its share in arivia.kom (Pty) Limited to T-Systems South Africa. All conditions precedent were met by the 4th of Janaury 2010.

Subsequent to the period ended 30 September 2009, Transnet finalised the following funding initiatives:

● An additional R2.3 billion in Transnet bonds were issued.

● An additional R600 million of commercial paper was secured and R1.4 billion repaid.

● An additional R287 million in domestic loans was secured and R92 million repaid.

● An additional R1.3 billion in foreign loans was secured and R19 million repaid.

These funding initiatives were completed on the strength of Transnet’s balance sheet without Government guarantees.

Changes in Directors

Dr I Abedian (resigned 11 August 2009) BT Ngcuka (resigned 11 August 2009) FT Phaswana (resigned 11 August 2009) Professor GK Everingham (appointed Acting Chairman 11 August 2009)

Condensed consolidated statement of financial position as at 30 September2009, 31 March 2009 and 30 September 2008

Notes

Unaudited

30 September

2009R million

31 March

2009R million

Unaudited

and restated

30 September

2008R million

ASSETS

Non-current assets

Property, plant and equipment 4 105,844 96,459 85,543

Investment properties 5,742 5,961 4,514

Intangible assets and goodwill 407 431 330

Investments in associates and joint ventures 24 24 48

Derivative financial instruments 66 178 197

Long-term loans and advances 75 77 111

Other investments and long-term financial

assets 327 287 451

112,485 103,417 91,194

Current assets

Inventories 2,495 2,589 2,617

Trade and other receivables 5,103 5,503 4,314


Other short-term investments 2,304 436 679

Cash and cash equivalents 5 6,512 5,880 2,561

Assets classified as held-for-sale 6 321 374 1,311

16,816 15,117 11,755

Total assets 129,301 118,534 102,949

EQUITY AND LIABILITIES

Capital and reserves

Issued capital 12,661 12,661 12,661

Reserves 49,001 45,673 40,901

Attributable to the equity holder 61,662 58,334 53,562

Non-current liabilities

Post-retirement benefit obligations 9 2,228 2,324 2,144

Long-term borrowings 8 39,005 29,758 19,407


Long-term provisions 2,749 2,509 2,004

Deferred taxation liabilities 7 9,768 8,589 7,598

53,786 43,198 31,282

Current liabilities

Trade payables and accruals 6,693 6,491 7,118

Short-term borrowings 3,952 7,255 7,330

Current taxation liability 817 854 780


Short-term provisions 2,224 2,279 2,119

Bank overdraft 1 — —

Liabilities directly associated with assets

classified as held-for-sale 6 16 14 692

13,853 17,002 18,105

Total equity and liabilities 129,301 118,534 102,949

F-122


Condensed consolidated statement of income for the six month period ended30 September 2009

Note

Unaudited

1 April 2009

to 30

September

2009

R million

Unaudited

1 April 2008

to 30

September

2008

R million

Continuing operations

Revenue 17,335 16,849

Net operating expenses excluding depreciation and

amortisation (10,694) (10,299)

Profit from operations before depreciation and amortisationand items listed below 6,641 6,550

Depreciation and amortisation (2,925) (2,303)

Profit from operations before items listed below 3,716 4,247

Post-retirement obligation expenses 9 (19) 67

Impairment of assets (187) (110)

Fair value adjustments (157) (282)

Profit from operations before income/(loss) from associatesand net finance costs 3,353 3,922

(Loss)/income from associates — —

Finance costs (1,634) (1,089)

Finance income 263 89

Profit before taxation 1,982 2,922

Taxation (695) (861)

Profit after taxation 1,287 2,061

Profit for the period from continuing operations 1,287 2,061


(Loss)/profit from discontinued operations, including profit

on disposal of discontinued operations and impairments 6 (13) (400)

Net profit for the period 1,274 1,661

Attributable to the equity holder 1,274 1,661

F-123


Condensed consolidated statement of comprehensive income for the six monthperiod ended 30 September 2009

Unaudited

1 April 2009

to 30

September

2009

Unaudited

1 April 2008

to 30

September

2008

R million R million

Profit for the period 1,274 1,661

Other Comprehensive Income

Gains on revaluations 2,877 1,524

Actuarial loss on post-retirement benefit obligation (28) (179)

Movement in hedging reserves 41 —

2,890 1,345

Income tax relating to other components of Comprehensive Income (836) (405)

Other Comprehensive Income, net of tax 2,054 940

Total Comprehensive Income for the period 3,328 2,601

Attributable to equity holder 3,328 2,601

Headline earnings reconciliation

Unaudited

1 April 2009

to 30

September

2009

R million

Unaudited

1 April 2008

to 30

September

2008

R million

Net Profit for the period 1,274 1,661

(Loss)/profit on disposal of property, plant and equipment (24) 15

(Reversal of impairment) impairments on discontinued operations (4) 32

Impairment of property, plant and equipment 59 137

Total remeasurements 55 169

Total taxation effects of adjustments (9) (38)

Headline earnings 1,296 1,807

F-124


Condensed consolidated statement of changes in equity for the six month periodended 30 September 2009 (unaudited)

Issued

capital

Revaluation

reserves

Foreign

currency

translation

reserve

Actuarial

gains/

(losses) Other

Hedging

reserves

Accumulated

profit Total

Restated opening balances as at1 April 2008 12,661 17,238 43 2,845 249 — 17,925 50,961Total recognised comprehensiveincome and expenditure — 1,069 — (129) — — 1,661 2,601

Restated balances at 30 September2008 12,661 18,307 43 2,716 249 — 19,586 53,562Total recognised comprehensiveincome and expenditure — 2,253 (22) (322) — — 2,863 4,772

Balances at 31 March 2009 12,661 20,560 21 2,394 249 — 22,449 58,334Total recognised comprehensiveincome and expenditure — 2,033 — (20) — 41 1,274 3,328

Balances at 30 September 2009 12,661 22,593 21 2,374 249 41 23,723 61,662

F-125


Condensed consolidated statement of cash flows for the six month period ended30 September 2009

Unaudited

1 April 2009

to 30

September2009

R million

Unaudited

1 April 2008

to 30

September2008

R million

Cash flows from operating activities

Cash generated from operations 7,473 6,254

Changes in working capital 571 (1,104)

Cash generated from operations after working capital changes 8,044 5,150

Finance costs (2,157) (1,399)

Finance income 263 89Taxation paid (389) (381)

Settlement of retirement obligations (144) (148)

Derivatives raised and settled (339) (135)

5,278 3,176

Cash flows from investing activities

Replacement to property, plant and equipment (4,737) (3,862)

Expansion – property, plant and equipment (4,008) (4,433)

Changes in investments, and loans and advances (1,866) (285)

(10,611) (8,580)

Cash flows from financing activities

Borrowings raised 13,038 7,545

Borrowings repaid (7,075) (6,128)

5,963 1,417

Net increase/(decrease) in cash and cash equivalents 630 (3,987)

Cash and cash equivalents at the beginning of the period 5,905 6,589

Total cash and cash equivalents at the end of the period 6,535 2,602

Cash flows from discontinued operations

Cash flows from operating activities — 17

Cash flows used in investing activities — (77)

Cash flows from financing activities — 58

Net decrease in cash and cash equivalents from discontinued operations — (2)

F-126


1. Basis of preparation

The condensed consolidated interim financial statements of Transnet Limited (the ‘‘Group’’) (the

‘‘financial statements’’) are presented in South African Rands, rounded to the nearest million.These financial statements comply with IAS34, Interim Financial Reporting (‘‘IAS 34’’) and the

South African Companies Act 1973 (as amended). These financial statements do not include all

of the information and footnotes required by IFRS for complete financial statements. In the

opinion of the Group, all adjustments considered necessary for a fair presentation have been

included.

Results of operations for the period ended 30 September 2009 are not necessarily indicative of

results that may be expected for the full year. The 31 March 2009, consolidated statement of

financial position amounts are derived from the audited consolidated financial statements but do

not include all disclosures herein required by IFRS. These financial statements should be read in

conjunction with the audited consolidated financial statements and notes thereto, included in this

offering circular. The Group’s Financial Year end is 31 March.

2. Group accounting policies

The abridged report has been prepared using accounting policies that comply with International

Financial Reporting Standards. The accounting policies are consistent with those applied in theconsolidated financial statements for the year ended the 31 March 2009, except for the following

change:

IAS 1 Presentation of Financial Statements has been amended to require the disclosure of a

‘‘Statement of Comprehensive Income’’ (i.e., changes in equity during a period, other than thosechanges resulting from transactions with owners in their capacity as owners), which is presented

either in:

* one statement (i.e. a statement of comprehensive income); or

* two statements (i.e. an income statement and a statement beginning with profit or loss and

displaying components of other comprehensive income).

As a result certain income/(expense) items previously reported in the Statement of Recognised

Income and Expense will now be included in the Statement of Comprehensive Income.

The revised Standard also requires disclosure of the income tax relating to each component ofcomprehensive income in the notes to the financial statements.

The revised standard also requires the disclosure of a Statement of Changes in Equity

(previously this information could be presented in the notes to the financial statements if a

Statement of Recognised Income and Expense was presented).

Transnet has elected the two statement approach in terms of IAS 1 (revised). A condensed

version of the statement of comprehensive income is required for interim purposes in accordance

with IAS 34.

Furthermore, other new standards and interpretations issued by the International Accounting

Standards Board which are effective for the current period will have no impact on the Group’s

financial results.

3. Restatements

During the reporting and closing process relating to the preparation of the 31 March 2009

consolidated financial statements, the Group determined that it had certain errors in the

application of its accounting policies. As a result, the Group restated its consolidated financialstatements for the Financial Years 2008 and 2007 in the consolidated financial statements for

the year ended 31 March 2009. As such, the restatements as disclosed in Note 8 to the 31 March

2009 annual financial statements, have been reflected in the condensed consolidated statement of

financial position as at 30 September 2008 and the condensed consolidated statement of income

for the six month period ended 30 September 2008, herein.

F-127


Notes to the consolidated interim financial statements for the period ended30 September 2009 (unaudited)

4. Property, plant and equipment

Revaluation assessment:

The Group assessed the revaluation of its pipeline networks in line with its accounting policy,

which requires an independent valuation every three years as well as index valuations in the

intervening periods. Accordingly, a devaluation of R141 million was recognised as at

30 September 2009 (2008: R636 million).

Based on the applicable valuation methodology, the carrying value of port infrastructure

required a revaluation adjustment of R2.9 billion in accordance with IAS 16 Property, plant and

equipment (2008: R1.4 billion).

Impairment assessment:

As a result of the downturn in the global economy, the demand for logistics requirements has

been adversely affected, giving rise to an indicator of potential impairment.

Accordingly impairment calculations for all assets were performed in accordance with

International Financial Reporting Standards for the period ended 30 September 2009. The

impairment calculations were performed in accordance with IAS 36 Impairment of Assets and

based on a number of assumptions. Based on the results of the impairment calculations noimpairment was required, as the value in use of the assets exceed their book value.

Capital expenditure:

The capital investment expenditure for the six month period, excluding capitalised borrowing

costs, amounted to R8.3 billion compared to R8.2 billion in the 30 September 2008 period, with

an amount of R4.3 billion being spent on maintaining current infrastructure and equipment,

while R4.0 billion was spent on expanding capacity. The capital investment programme

continued to focus on the following key projects:

Rail – Expansion of the Iron Ore and Coal Lines; acquisition of locomotives; and the upgrading

of rolling stock and infrastructure.

Despite early production and design delays, significant progress has been made in the locomotive

acquisition programme with 6 of 110 coal line locomotives having been brought into service in

October 2009. It is estimated that a further 15 locomotives will be brought into use over the

remainder of this financial year. The delivery of the first locomotive of the 50 ‘like new’locomotive programme for deployment in the general freight business is imminent with the

delivery of all 50 locomotives expected by March 2010. The first of 44 iron ore locomotives has

been delivered for testing.

The current aging locomotive fleet will be augmented by approximately 150 new locomotives in

the next 18 months, which will improve service levels to customers. These service levels will

further improve with the commissioning of a further 100 locomotives over a 36 month period.

Ports – The widening and deepening of the Durban harbour entrance channel; expansion of

Durban Container Terminal; construction of the new Port of Ngqura and related rail

infrastructure, Cape Town Container Terminals and acquisition of new equipment; as well as

the upgrading of the Saldanha Terminal and equipment.

On 4 October 2009, history was made when the MSC Catania sailed into the new deepwater

Port of Ngqura to become the Ngqura Container Terminal’s first commercial vessel. The Port of

Ngqura and its 60 000 hectare container terminal provides future container capacity in

recognition of the considerable growth in container traffic in recent years.

F-128




To date, Transnet has invested in excess of R6.7 billion to develop the state-of-the-art port and

associated infrastructure, which will include the world-class two berth container terminal (with afurther two berths under construction), a two birth multi-purpose terminal and a one-berth

liquid bulk terminal. The Port of Ngqura’s advantage over other ports in Africa is that it is a

deepwater port with a depth of between 16 and 18 metres, which can accommodate the new

generation container vessels, carrying 6 000 to 10 000 TEUs. It will be able to have sufficient

stack and berth capacity to cater for future growth up to 2 million TEUs. The terminal also

boasts good inland connectivity for import and export traffic, currently able to handle 300 000

TEU’s via rail to the hinterland.

Pipeline – Construction of the New Multi-Product Pipeline (NMPP) from Durban to

Johannesburg.

The development and construction of the NMPP project is proceeding according to schedule.

The project has continued with the engineering of the two terminals and the three pumpstations

along the 24 inch trunkline. The two 16 inch pipelines are nearing completion and the project

remains on target for December 2011, in line with license conditions issued by NERSA.

Capital investment plans for the next five years amount to R80.5 billion and relate mainly to

the upgrade and expansion of rail infrastructure, port facilities and pipeline networks. Transnetis committed to both sustaining the current infrastructure and to expanding the business. The

capital investment plan will be continuously reviewed in the context of the global economic

downturn, as well as the associated impact of the economy on the volume levels of commodities

and capacity requirements of all major customers over the next five years.

5. Cash and cash equivalents

Cash generated from operations amounted to R7.5 billion, an increase of 19.49 per cent.compared to the prior period. The significant focus on working capital management has resulted

in an inflow of R3.2 billion since 31 March 2009, which resulted in cash generated from

operations after working capital changes increasing by 56.19 per cent. to R8.0 billion. The cash

interest cover ratio at 4.2 times (30 September 2008: 3.9 times) remains strong and, importantly,

it is above the target of 3.0 times. It is expected that this target will be maintained over the

medium term. The Group continues to demonstrate its ability to generate strong cash flows

from operations.

The cash and cash equivalents per the cash flow includes discontinued operations cash balances

of R24 million for the period ended 30 September 2009 (2008: R41 million).

F-129



6. Non-current assets classified as held-for-sale and discontinued operations


The loss from discontinued operations, including (loss)/profit on disposal of discontinuedoperations and impairments comprises:

Total Disposal groups* Other**

30 September

2009

30 September

2008

30 September

2009

30 September

2008

30 September

2009

30 September

2008

(R millions) Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited

Loss for the period (17) (368) (17) (463) — 95(Loss)/profit on disposal ofdiscontinued ops — — — — — —Impairments – lower of costand fair value less costs tosell 4 (32) 4 (32) — —

(Loss)/profit fromdiscontinued operations (13) (400) (13) (495) — 95

Revenue 14 1,346 14 1,353 — (7)Net operating expensesexcluding depreciation andamortisation (31) (1,681) (31) (1,674) — (7)

Loss from operationsbefore depreciation andamortisation and itemslisted below (17) (335) (17) (321) — (14)Depreciation andamortisation — — — (58) — 58

(Loss)/profit fromoperations before itemslisted below (17) (335) (17) (379) — 44Impairment of assets — — — — — —Fair value adjustments — 5 — 5 — —

(Loss)/profit fromoperations before netfinance costs (17) (330) (17) (374) — 44Finance costs — (6) — (57) — 51Finance income — — — — — —

(Loss)/profit beforetaxation (17) (336) (17) (431) — 95Taxation — (32) — (32) — —

(Loss)/profit after taxation (17) (368) (17) (463) — 95

(Loss)/income fromassociates — — — — — —Net (loss)/profit for theperiod (17) (368) (17) (463) — 95

Attributable to theshareholder (17) (368) (17) (463) — 95Attributable to minorityinterests — — — — — —

* Disposal groups comprise Luxrail, Shosholoza Meyl, Autopax Passenger Services (Pty) Limited and South African ExpressAirways (Pty) Limited

** Includes inter-company eliminations

F-130



6. Non-current assets classified as held-for-sale and discontinued operations (continued)

Businesses and investments meeting the criteria set out in IFRS 5 Non-current Assets Held-for-

Sale and Discontinued Operations, are classified as ‘‘non-current assets held-for-sale’’ and arereported as discontinued operations. These entities reported revenue of R14 million in the period

ended 30 September 2009, compared to R1.346 million in the prior comparative period. These

entities reported a loss of R13 million in the six month period, having reduced from R400

million due to the disposal of South African Express Airways (Pty) Limited, Autopax Passenger

Services (Pty) Limited and Shosholoza Meyl in the prior financial year.

The Group loss from discontinued operations of R13 million comprises an operating loss of

R17 million and impairment reversal of R4 million; with no profit or loss from disposals being

recognised in the period ended 30 September 2009.

Assets classified as held-for-sale and liabilities directly associated with assets classified as held-for-sale

Total Disposal groups* Other**

30 September

2009

31 March

2009

30 September

2009

31 March

2009

30 September

2009

31 March

2009

(In Rand million) Unaudited Unaudited Unaudited

Assets classified as held-for-

sale

Property, plant and

equipment 288 339 79 8 209 331

Investment property 8 8 — — 8 8

Intangible assets — — — — — —

Investment in associates

and joint ventures — — — — — —

Inventories — — 1 — (1) —

Trade and other receivables 1 2 1 2 — —

Cash and cash equivalents 24 25 — 25 24 —

321 374 81 35 240 339

Liabilities associated with

assets classified as held-for-

sale

Employee benefits — — — — — —

Borrowings — — — — — —

Provisions 1 1 1 1 — —

Deferred taxation liability — — — — — —

Trade and other payables 15 12 12 12 3 —

Current taxation liability — 1 — 1 — —

16 14 13 14 3 —

* Disposal groups comprise Luxrail, Shosholoza Meyl, Autopax Passenger Services (Pty) Limited and South AfricanExpress Airways (Pty) Limited

** Includes inter-company eliminations

F-131



7. Deferred taxation liabilities

The deferred taxation liability increased to R9.8 billion, primarily due to the revaluation of

property, plant and equipment which has been recorded directly in equity (31 March 2009: R8.6billion).

8. Borrowings

The funding strategy and funding plan sets out funding objectives as well as Transnet’s funding

requirements over the next three years amounting to R32.0 billion. It was estimated that the

funding requirement for the year excluding refinancing of maturing commercial paper amounting

to R7.0 billion would be approximately R15.0 billion. Funding raised up until September 2009amounts to R13.0 billion which is approximately 87 per cent. of the funding requirement for the

year.

The commercial paper programme and long-term bonds continues to be a significant portion ofthe funding programme with an amount of R9.1 billion being raised in the domestic markets.

An amount of R600 million has been raised from Finnvera, an export credit agency (ECA), and

a further draw down of R1.9 billion has been raised from the Japan Bank for International Co-

operation. The Club loan facility put in place in the prior year allowed the Group to raise an

amount of R1.1 billion as well.

The weighted average cost of debt (WACD) of the Group is 10.29 per cent. as at 30 September

2009, which has reduced since the prior period (31 March 2009: 11.24 per cent.). It reflects the

cost-effective manner in which the required borrowings are being raised.

In addition, Transnet repaid loans amounting to R7.0 billion, which related predominantly to

commercial paper and domestic unsecured floating rate loans that matured in the six month

period.

The gearing ratio increased to 37.22 per cent. compared to 36.23 per cent. as at 31 March 2009,

which is below the Group’s target range of 50.0 per cent., reflecting the significant debt capacity

to fund future capital expenditure.

The Company has cash on hand and deposits of R8.0 billion and adequate banking facilities to

meet its current commitments (31 March 2009: 5.9 billion).

9. Post-retirement benefit obligations

The Group provides various post-retirement benefits to its active and retired employees,

including pension, post-retirement medical and other benefits. The two defined benefit funds,

namely the Transnet Second Defined Benefit Fund (TSDBF) and the Transport Pension Fund

(TPF), are fully funded with actuarial surpluses of R2.8 billion and R752 million, respectively.

Transnet has not recognised any portion of the surplus on these funds as the fund rules at

present do not allow for the distribution of a surplus. The post-retirement medical benefitobligation for the medical funds has remained at approximately R1.8 billion as at 30 September

2009 (31 March 2009: R1.9 billion).

The post-retirement benefit obligation has decreased since 31 March 2009 to R2.2 billion as aresult of benefit obligation payments made, offset by the insignificant income statement expense

of R19 million for the six month period ended 30 September 2009.

F-132



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F-133


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F-134


10. Segmental information (continued)

Operating segment performance:

Transnet Freight Rail

Revenue increased by 7.38 per cent. to R9.9 billion compared to the prior period due to an

increase in iron ore volumes railed as a result of the Sishen expansion project, higher coal pricesin accordance with newly negotiated contracts and a better yield mix from the general freight

business. Service levels at Freight Rail are showing signs of improvement with the

implementation of the corridor view of the business that allows for integrated planning and

execution. This has resulted in the iron ore export corridor achieving a weekly tonnage record

of 955 800 tons, and the Natal corridor achieving a record 32 592 TEUs (twenty foot equivalent

units) transported. The challenge going forward is to ensure the sustainability of this

performance.

The continuation of a strict cost containment programme in the first six months of this financial

year and the focus on key operational efficiencies has improved operating yields and reduced

overhead costs resulting in a 25.14 per cent. improvement in EBITDA to R3.5 billion when

compared to the prior period.

Transnet Rail Engineering

Transnet Rail Engineering’s internal revenue decreased by 13.02 per cent. to R3.0 billion

compared to the prior period due to reduced back log maintenance that is being performed for

Transnet Freight Rail. Maintenance and refurbishment programmes for locomotives and wagons

continue to focus on the availability and reliability of rolling stock, which continues to improve,

impacting positively on the service delivery of Transnet Freight Rail.

The external revenue of Rail Engineering reflected an increase of 42.73 per cent. to R805 million

mainly due to the increased number of coach upgrades for the Passenger Rail Agency of SouthAfrica even though the number of coach upgrades were lower than anticipated.

The operating division has identified numerous cost reduction and service-optimisation initiatives

to target savings, particularly from lean manufacturing. Quality enhancements, the containmentof losses and skills-optimisation are important imperatives for the remainder of the year.

Transnet National Ports Authority

Revenue reflected a decrease of 3.24 per cent. to R3.6 billion. This decline is due predominantly

to negative growth in container and vehicle cargo volumes. Container volumes and vehicle

volumes declined by 12.90 per cent. and 45.40 per cent. respectively when compared to the prior

period.

Operating costs decreased by 5.51 per cent. compared to the prior period due to cost saving

initiatives implemented in the first half of the 2010 financial period. EBITDA decreased by 2.52

per cent. to R2.8 billion.

Transnet Port Terminals

The continuing effect of the global economic crisis has negatively impacted container volumes

and consequently, revenue for the period decreased by 8.53 per cent. to R2.5 billion. Container

volumes declined by 12.0 per cent. compared to the prior period.

Operating expenditure decreased by 5.68 per cent. to R1.6 billion. This decrease is mainly as a

result of a reduction in overtime costs and other cost saving initiatives adopted. Consequently,

EBITDA decreased by 13.48 per cent. to R860 million.

F-135



10. Segmental information (continued)

Transnet Pipelines

Revenue has decreased by 10.44 per cent. to R678 million for the six month period following a

decision by the National Energy Regulator of South Africa (NERSA) to impose a 10.40 per

cent. tariff decrease for the current financial year. Volumes transported increased by 5.0 per

cent. When compared to the prior period, despite the economic conditions and the pipelineoperating at capacity. Notwithstanding the focus on cost reduction programmes operating costs

increased by 13.89 per cent. resulting in EBITDA of R473 million a decrease of 18.02 per cent.

11. Contingencies and related commitments

There have been no material movements in contingencies and commitments since 31 March

2009.

12. Guarantees

The sole Shareholder in Transnet Ltd, namely the South African Government, has guaranteed

certain borrowings of the Group to the amount of R12.3 billion as at 30 September 2009,

compared to R11.7 billion as at 31 March 2009.

13. Changes in directors

Dr I Abedian (resigned 11 August 2009);

B T Ngcuka (resigned 11 August 2009); and

F T Phaswana (resigned 11 August 2009).

Professor G K Everingham (appointed Acting Chairman).

14. Post balance sheet events

The following significant issues have occurred since 30 September 2009:

Subsequent to the period ended 30 September 2009, Transnet finalised the following funding

initiatives:

* An additional R2.3 billion in Transnet bonds were issued (interest rates ranging from

10.63% to 11.07%).

* An additional R600 million of commercial paper was secured (interest rates ranging from

7.18% to 8.35%) and R1.4 billion repaid.

* An additional R287 million in domestic loans was secured (interest rates ranging from

7.69% to 10.32%) and R92 million repaid.

* An additional R1.3 billion in foreign loans was secured (interest rates ranging from 2.7%

to 12.22%) and R19 million repaid.

Subsequent to 30 September 2009, Transnet entered into a sale agreement for the disposal of its

share in Arivia.kom (Pty) Limited to T-Systems South Africa. All conditions precedent were met

by the 4th of January 2010.

F-136



PRINCIPAL OFFICE OF THE ISSUER

Transnet Limited(Registration number 1990/000900/06)

Carlton Centre150 Commissioner Street

Johannesburg, 2001South Africa

ARRANGERS

Barclays Bank PLC5, The North Colonnade

Canary WharfLondon E14 4BBUnited Kingdom

Goldman Sachs InternationalPeterborough Court

133 Fleet StreetLondon EC4A 2BB

United Kingdom

DEALERS

Barclays Bank PLC5, The North Colonnade

Canary WharfLondon E14 4BBUnited Kingdom

Goldman Sachs InternationalPeterborough Court

133 Fleet StreetLondon EC4A 2BB

United Kingdom

Barclays Capital Inc.745 Seventh Avenue

New York, New York 10019United States

Goldman, Sachs & Co.85 Broad Street

New York, New York 10004United States

FISCAL AGENT, EXCHANGE AGENT, PAYING AGENT, TRANSFER AGENT AND CALCULATIONAGENT

The Bank of New York MellonOne Canada Square

London E14 5ALUnited Kingdom

PAYING AGENT AND TRANSFER AGENT

The Bank of New York Mellon,(Luxembourg) S.A.

Aerogolf Center1A, Hoehenhof

L-1736 SenningerbergLuxembourg

REGISTRAR, PAYING AGENT AND TRANSFERAGENT

The Bank of New York Mellon, New York Branch101 Barclay Street

22nd FloorNew York, NY10286

LEGAL ADVISERS TO THE ISSUER

As to English and United States law As to South African law

Clifford Chance LLP10 Upper Bank Street

Canary WharfLondon E14 5JJUnited Kingdom

Deneys Reitz Inc.82 Maude Street

Sandton 2196South Africa

LEGAL ADVISERS TO THE ARRANGERS AND DEALERS

As to English and United States law As to South African law

Latham & Watkins (London) LLP99 Bishopsgate

London EC2M 3XFUnited Kingdom

Webber Wentzel10 Fricker RoadIllovo Boulevard

Johannesburg 2196South Africa

AUDITORS OF THE ISSUER

Deloitte & ToucheThe Woodlands

20 Woodlands DriveWoodmead, 2196

South Africa

imprima — C101680

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