New Multi-Product Pipeline Project Media Presentation 8 December 2010 1
Objectives of the Presentation To provide an update of the progress of the NMPP Project; Provide the revised cost estimate and delivery schedule; Update on action plans to ensure security of supply; and To provide an overview of processes put in place to mitigate against any further delays and cost increases I ndex Speaker Introduction and Project Overview Mr Chris Wells Project Delivery Progress, Revised Project Mr Neville Eve Costs and Delivery Schedule Security of Supply Mr Charl Möller Conclusion Mr Chris Wells 2
I ntroduction and Project Overview New Multi-Product Pipeline Project NMPP GOVERNANCE STEERING COMMITTEE Mr Chris Wells (Dry Run for the Board on 26 November 2010) 17 November 2010 3
Background and Context: NMPP Project • To replace the existing 45-year old Durban-Johannesburg Pipeline (DJP - 12 inch) NMPP I nvestment: urgently as it is running at full capacity and nearing the end of its design life Strategic • To increase the capacity on this critical route (Durban-Gauteng) to meet projected I ntent demand and to ensure security of supply for the long term • 555km of 24 inch pipeline (mainline) and 160km of 16 inch pipelines • NMPP as a hybrid of ‘Greenfields’ and ‘Brownfields’ project executed over long distances I nvestment with difficult terrain would have significant cost and time delivery issues. Overview • Upgradable to meet projected demand to 2035 - assuming high GDP growth in future • 70 year design life •The Moerane Commission Report on fuel shortages in late 2005 noted, that additional pipeline capacity was " urgently required to supply the inland markets" and recommended that Petronet (now Transnet Pipelines) expedite the development of a new pipeline from Durban to Gauteng. •The DME in its strategic document entitled “ The Energy Security Master Plan – Liquid Fuels (August 2007)”, states that: “When it comes to infrastructure investments in the South African liquid fuels sector, in the next 5 years, the single most important recommendation is the approval of a new appropriately sized, properly integrated pipeline, which should come on line in the 2nd quarter of 2010 at the latest.” Urgent drive to secure the supply of fuel to the strategically important inland market 4
Overview of NMPP Project The process to determine the final changes to cost and schedule has been completed and in line with our commitment to be totally transparent, Transnet would like to share with ALL STAKEHOLDERS, a full explanation of these changes: The NMMP Project is within benchmark norms, is fair value and Transnet is confident that the project will be delivered within the revised schedule and cost forecast 5
Project Update New Multi-Product Pipeline Project Areas to be covered: • Project Progress • Forecast cost and schedule • Explanation of variances Mr Neville Eve • Benchmarking results • Project delivery assurance 6
NMPP Mainline Progress W a ltloo W a ltloo P re to ria W e s t P re to ria W e s t M p u m a la n g a M p u m a la n g a R u s te nb u rg R u s te nb u rg W itba nk W itba nk O R T IA O R T IA K e n d a l K e n d a l T a rlto n T a rlto n N o rth ‐ W e s t N o rth ‐ W e s t A lro d e A lro d e L a n g la a g te L a n g la a g te In lan d te rm in al In lan d te rm in al J A M E S O N P A R K J A M E S O N P A R K an d p u m p s ta tio n an d p u m p s ta tio n P otc he fs tro om P otc he fs tro om S e c u nd a S e c u nd a S a s o lbu rg S a s o lbu rg Mainline K le rk s d orp K le rk s d orp C o a lbroo k C o a lbroo k (474.3km) P S 8 P S 8 W ilg e W ilg e V o lk s ru s t V o lk s ru s t 94.6% F re e F re e V re d e V re d e S ta te S ta te K ro o ns ta d K ro o ns ta d P S 7 P S 7 Durban Mainlay (53.9km) B e th le he m B e th le he m K w a Z u lu ‐ N a ta l K w a Z u lu ‐ N a ta l P S 6 P S 6 V a n R e e n e n V a n R e e n e n 77.7% K e y K e y L a d ys m ith L a d ys m ith P S 5 P S 5 P rop o s e d N M P P T ru nk lin e P rop o s e d N M P P T ru nk lin e N o rth e rn c o rrid o r a lte rn a tiv e N o rth e rn c o rrid o r a lte rn a tiv e Durban L e s o th o L e s o th o E xis ting p ip e line (D J P ) E xis ting p ip e line (D J P ) M o oirive r M o oirive r Streetworks E xis ting inla n d n e tw ork E xis ting inla n d n e tw ork P S 4 P S 4 In d ia n O c e a n In d ia n O c e a n (26.5km) N MP P Inla nd lin e s N MP P Inla nd lin e s H ow ic k H ow ic k P um p s ta tion s P um p s ta tion s P S 3 P S 3 93.2% C itie s a n d to w ns C itie s a n d to w ns D U R B A N D U R B A N P S 2 P S 2 C o as ta l te rm in al C o as ta l te rm in al P S 1 P S 1 a n d p u m p s ta tio n a n d p u m p s ta tio n
NMPP Mainline Progress Figure 2: Durban Street Works Figure 1: Road installation directly after Umlaas Canal Progress as of 5 December 2010 • PL1 Welded 474.3 km (100%) • PL1 Backfilled 459.1 km (95.1%) • PL1 Re-instated 386.1 km (81.4 %) • PL1 Hydrotest km 313.7 km (56.5%) • Durban Welded 70.0km (98.0%) • Durban Backfilled 59.0km (81.3%) • Durban Re-instated 11.5km (14.3 %) • Durban Hydrotest 0 km (0%) Figure 3: Typical Valve chamber construction
NMPP Terminal 2 Progress Intermediate Phase Scope • Planned 50% • Actual 42% Full Scope • Planned 17.6% • Actual 18.5% 9
NMPP Pump Stations Progress Construction Progress • Planned 35.5% • Actual 37.5%
NMPP Project Progress Achievements I nland Pipelines Construction completed PL4 – ready for operations by the end of December PL2 & PL3 – RFC by mid December Mainline Main River crossings complete (49) Major Wetland crossings complete (481) (95km) Land Acquisitions complete (1148 properties) All Environmental Approvals in place 550 km in the ground Pump Stations Major equipment procured On schedule Excellent safety record Terminals TM2 on schedule TM1 re-setup complete Excellent safety record This important strategic project is on track to meet the revised schedule 11
NMPP Project Scheduled Completion Revised Dates: Ready for Hot Commissioning / Operation (RFC / RFO) Component RFC RFO PL4 Inland Pipeline 1 Dec 2010 31 Dec 2010 PL2 & 3 Inland Pipelines 18 Dec 2010 mid Jan 2011 PL1 24 inch Trunk Line and Inland Pump 30 Sept 2011 31 Dec 2011 Stations (PS1, PS3, PS5) Inland Terminal (TM2) 30 Sept 2012 31 Dec 2012 Coastal Terminal (TM1) 30 Sept 2013 31 Dec 2013 12
NMPP Cost Changes: Context and Background Date Feb ‘08 Feb ‘09 Nov ‘09 Nov ‘10 ETC R11.1bn R12.67bn R15.4bn R23.4bn • Bottom-up detail • Forecast off • Forecast off Nov • Detail bottom-up Basis of Estimate analysis Feb 08 base 08 base analysis (re-based) • Aggressive • Optimistic • Optimistic • Realistic timelines Risks • Validated detail timelines timelines timelines • Full FEL3 Front • Substantial • Engineering engineering End Engineering Engineering changes (TM1) progress • Full FEL 3 not • Full FEL 3 achieved Design (FEED) Changes • Risks largely • MAC / MCC (terminals & achieved unknown facilities) • Definition reduced to FEL 2 (pre-FEED) Comments • Demand / • Opportunity • Re-estimate • High level of Schedule Driven missed to re- Opportunity confidence/ • Pre-engineering estimate project missed credibility of • Scope definition • Incomplete changes Impact estimated cost and • Scope defined reduced engineering schedule • Optimistic EPCM progress • Project re- costs / strategy data structured • Integrated EPCM & Owners team 13
Review of NMPP Estimation process followed • Bottom-up re-estimation process provides a high level of confidence in the cost estimates for both Transnet and AWP • Performed a detailed analysis of all related cost elements and estimates • Reconstructed the revised estimate • Performed a detailed risk analysis of all revised cost elements • The re-estimate was undertaken: By an international team of experienced corporate estimators In conjunction with Transnet’s Team With peer review assurance by Global & Regional experts Revised estimate provides a high level of confidence that the forecast final cost target will be achieved. 14
Reconciliation of Latest Estimated Total Cost (ETC) Analysis of Increase in ETC (R billion) 10.8 23.4 22.6 0.5 0.3 21.9 0.7 6.5 15.4 4.3 11.1 ETC ETC� Nov Revised Transnet Final ETC Cost Cost Risk Risk EPCM Risk Feb 2009 2009� (P AWP ETC ETC (All increase increase Adjustment Adjustment 50) (P50) (P50) to P70 risks)� (P 70) Revised ETC (P70) a fair reflection of cost based on detail reviews and benchmarks 15
Summary of Cost and Schedule Movements Movement in Schedule & Budget from February 2008 Board (R11,137bn) to November 2010 Board (R23,4bn) R15.4bn + R10,844bn appears reasonable and conservative when * compared to the validation of the AWP re- + estimate * Driven by regulatory and engineering design requirements 16
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