Transnet completes review of NMPP

Transnet Limited's New Multi-Product Pipeline (NMPP) is a strategic asset for the South Africa Economy. Once complete, the state-of-the-art pipeline will contribute to security of supply of petroleum products for the inland market for the next 70 years, safely, cost effectively and in an environmentally friendly manner.

Transnet Limited today announced that it had completed an extensive review of all aspects of the New Multi-Product Pipeline (NMPP) and that the Company's Board of Directors had approved the schedule variation and resultant cost changes for the construction of the pipeline.

The review, led by the acting group chief executive, Mr. Chris Wells, under the direction of the Board of Directors covered a wide range of issues including project management, cost estimates, schedule, contracting, regulatory and licensing issues, the company said during a media briefing in Johannesburg on Wednesday.

"As promised in October and in line with our commitment to total transparency, we would like to share our findings with our key stakeholders. We've shared these details with the shareholder, regulators and our customers - the petroleum industry," says Mr. Wells.

He adds that this approval is a significant milestone in the development of this strategic asset for the country. It also confirms Transnet's commitment to vigorous governance procedures, as well as the company's commitment to playing its role as the custodian of South Africa's logistics network.

The construction of the NMPP, which consists of three inland 16-inch pipelines, a 24-inch NMPP trunk line from Island view in the Port of Durban to Jameson Park in Gauteng and accumulation facilities in Durban and Gauteng, is licensed by the National Energy Regulator of South Africa (NERSA) in terms of the Petroleum Pipelines Act.

Transnet announced that it has revised the schedule for the NMPP's 24-inch trunk line. The trunk line will be completed during the third quarter of 2011 and will be operational

by the last quarter of the same year, the company said. The 16-inch pipelines are complete and scheduled to be in operation by January 2011. The full system is scheduled to be completed and ready for operation by the end of 2013. The three 16-inch pipelines run from Kendall to Watloo, Alrode to Langlaagte and Alrode to Jameson Park.

"This is a complex project extending over long distances, going through different terrains and subject to a number of legislative and regulatory requirements. These have had a significant impact on our schedule and delivery," says Mr. Wells.

Some of the reasons for the variation include:

• Substantial delays in the acquisition of land and in obtaining the required statutory approvals such as environmental impact assessments
• Change of location for the coastal terminal and pump stations due to conditions imposed by Environmental Authorisations.
• Complex and protracted coastal terminal land lease negotiations.
• National Key Points Act and security of supply requirements

These changes resulted in a need for Transnet to alter its long lead equipment procurement strategy and as a result, a substantial re-work of engineering to accommodate the relocated and re-configured assets e.g. Terminal 1 and the location of pump stations.

Commenting on the changes, Mr. Wells says: "These were necessary to ensure that the NMPP, a key strategic investment for the country and the security of supply of petroleum products to the inland region, plays its role. We have also submitted an application to NERSA to amend our construction schedule for the pipeline in line with the revised forecasts. We await approval."

In addition to the schedule changes, Transnet revised the cost estimates for the NMPP to R23.4 billion. Transnet attributed the revision to a number of reasons including engineering and EIA driven changes in scope, too tight a construction schedule at the outset and significant increases to commodity (steel) and equipment costs compared to original estimates.

Transnet also said it completed a benchmarking exercise to review the costs of the pipeline in comparison to 20 projects of similar size and complexity in Asia, the United States and Australia.

"The benchmarking exercise confirmed that these costs are a fair reflection of total costs of an asset of this nature, complexity and magnitude. Additionally, we have appropriate controls in place to ensure that these costs and timelines will remain within the latest estimates," says Mr. Wells.

Transnet also confirmed that it had completed an integrity test (intelligent pigging) on the existing Durban-to-Johannesburg Pipeline. These tests indicated that the DJP will not need to be de-rated or operated at lower pressure by April 2011 as initially thought. This would have resulted in lower volumes in the pipeline and more on the road.

Transnet, through its pipelines and rail freight divisions, is at an advanced stage of developing a bridging plan which will enable it to move up to 10 million litres of fuel per week between Durban and Johannesburg. This gives the company a further opportunity to move more volumes from road.

Statement issued by Mboniso Sigonyela on behalf of Transnet Limited, December 8 2010

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