NEW MULTI-PRODUCT PIPELINE (NMPP) PROJECT UPDATE
09 March 2010
2Presentation to Media09 March 2010
OUTLINE OF PRESENTATION
CHRIS WELLS• Introduction
CHARL MOLLER• Operating Philosophy and Network Configuration
NEVILLE EVE• Project Life Cycle / Risk Reduction Process • Cost Revision Explanation• Risk and Mitigation• Schedule Variance Explanation
CHARL MOLLER• Actions to mitigate risks associated with late completion of the NMPP
project
CHRIS WELLS• Concluding remarks
3Presentation to Media09 March 2010
OPERATING PHILOSOPHY & NETWORK CONFIGURATION
CHARL MOLLER
4Presentation to Media09 March 2010
MAP OF TPL’s PRESENT GAS - CRUDE - REFINED PRODUCTS PIPELINES CURRENT OPERATING PHILOSOPHY
DOUBLE PUMP STATION
DELIVERY STATIONS / METERS
PUMP STATIONS
REFINED PRODUCTS
CRUDE OILGAS
AVTUR INDIANOCEAN
DURBAN
HOWICK
LADYSMITH
BETHLEHEM
VOLKSRUST
NEWCASTLEKROONSTAD
KLERKSDORP
POTCHEFSTROOM
WITBANKKENDAL
WALTLOOPRETORIA WEST
SECUNDA
STANDERTON
ALRODE
COALBROOKSASOLBURG
SCHEEPERSNEK
MAHLABATINI
HILLCREST
TARLTON
LESOTHO
NATAL
FREESTATE
GAUTENG
ø457,2
ø406,4ø323,8
QUAGGA
ø457,2
N
RUSTENBURG
MAGDALA
NORTH - WESTMPUMALANGA
KWAZULU /
AIRPORT
VRYHEID
RICHARDS BAY
CAPE TOWN
DURBAN
GAUTENG
SOUTH AFRICA RICHARDSBAY
PPT-0231-/J
( 18" )
( 16" )( 12" )
( 18" )
ø457,2( 18" )
ø406,4( 16" )
BHT
INTAKE STATIONS
AFRICA
MEYERTON
MNGENI
VAN REENEN
LESOTHO
SECUNDA
DUZI
INGOGO
WILGE
LANGLAAGTE
FORT MISTAKE
EMPANGENI
VREDE
MOOIRIVER
5Presentation to Media09 March 2010
CURRENT OPERATIONS
Continuous system with intake (Supply/Refineries) & delivery pointsinterdependent on each otherNetwork has grown over the years, resulting in various intake anddelivery flowrates. Hence, the network is not balancedNetwork optimisation is restricted by up & downstream capabilityof infrastructure (e.g. batch sizes)Interruptions at any point in the network has an impact on thewhole networkNetwork efficiency is therefore not only dependent on TPL but allinvolved in the supply chainWhen there are capacity constraints, this arrangement leads tosecurity of supply concerns as “lost time” cannot be recoveredInterruptions are caused by:
Power failures along the pipelineAvailability of product at intake
Refinery performanceQualityImports
CURRENT VS FUTURE OPERATING PHILOSOPHY OF THE PIPELINE NETWORK
OPERATING PHILOSOPHY & NETWORK CONFIGURATION
6Presentation to Media09 March 2010
CURRENT OPERATIONS (Continued)
Interruptions are caused by:Inability of clients to accept deliveries
Ullage constraintsDemand volatilityPrice volatility
Equipment failurePersonnel
The key lever be overcome these constraints with the currentoperating philosophy in the current network is to substantiallyincrease the capacity of infrastructure integrated to the pipelinee.g. Storage at refineries & depots, feederline size & volumeincrease and distribution throughput at client depotsChange the operating philosophy – can only be done withreconfiguration of the network.The NMPP provides this opportunity and its design reflects that theabove issues have been addressed
OPERATING PHILOSOPHY & NETWORK CONFIGURATION
7Presentation to Media09 March 2010
INDIANOCEAN
FYNNLAND
HOWICK
LADYSMITH
BETHLEHEM
NEWCASTLEKROONSTAD
KLERKSDORP
WITBANKKENDAL
WALTLOOPRETORIA WEST
SECUNDA
STANDERTON
ALRODE
COALBROOKSASOLBURG
TARLTON
LESOTHO
NATAL
FREESTATE
GAUTENG
ø406,4 (16”)
ø323,8 (12”)
QUAGGA
ø457,2 (18”)
N
RUSTENBURG
MAGDALA
NORTH - WESTMPUMALANGA
KWAZULU /
AIRPORT
BHT
AFRICA
MEYERTON
VAN REENEN
DUZI
LANGLAAGTE
FORT MISTAKE
MOOIRIVER
JAMESON
ø502 (20”)
ø457,2(18")
ø323,8 (12”)
Ø168,3 (6”)
Ø219,1 (8”)
Ø219,1 (8”)
ø323,8 (12”)
Ø219,1 (8”)
Ø457,2 (18”)
ø323,8 (12”)
DURBAN
ø323,8 (12”)
Ø406,4(16”)
PARK
ø457,2 (18”)
ø406,4 (16”)
ø323,8 (12”)
CAPE TOWN
DURBAN
GAUTENG
SOUTH AFRICARICHARDS
BAYLESOTHO
SECUNDA
DOUBLE PUMP STATION
DELIVERY STATIONS / METERS
PUMP STATIONS
REFINED PRODUCTS
CRUDE OIL
AVTUR
INTAKE STATIONS
NMPP PIPELINES
NMPP PUMP STATIONS
NMPP ACCUMULATION TERMINAL
ELARDUS PARK
PPT-1747/-C
HILLCREST
MNGENI
VREDE“T”
WILGE
ø457,2 (18”)
TWINI
HILLTOP
MNAMBITHI
FUTURE NMPP PUMP STATIONS
TPL’S PRESENT PETROLEUM PIPELINE NETWORK AND POSITION OF FUTURE NMPP FUTURE OPERATING PHILOSOPHY
8Presentation to Media09 March 2010
FUTURE OPERATIONS WITH COMPLETE NMPP
Ensure that the pipeline performance is shielded from immediate impact ofinterruptions. Provide a buffer (Accumulation facilities) in the system to“smooth” the shocksAdvantage of this is less changes in the total supply chain is requiredNMPP therefore designed to have an UNINTERRUPTED trunkline operationfrom TM1 to TM2. Hence, no supply to Ladysmith & BethlehemTM2 increases flexibility of distribution to the inland network
Natref to inland network and/or TM2Secunda to inland network and/or TM2TM2 to inland network without excessive changes to inland facilities
TM1 facilitates NMPP trunkline requirementsMinimizes “supply shocks” from the coastal refineries & importsEnsure coastal suppliers meet the NMPP future flowrates
NMPP accumulators designed on an average 2/3 day security of supplyprinciple
Inland supply can be maintained for 3 days if there is an interruption incoastal supplyCoast can supply into TM2 for 2 days if there is an inland interruption
Hence there is a lag of the impact interruptions have on the performance ofthe system – SECURITY OF SUPPLY is improved dramaticallyFrom an operating & security of supply perspective this is still the preferredoption
OPERATING PHILOSOPHY & NETWORK CONFIGURATION
9Presentation to Media09 March 2010
PROJECT LIFE CYCLE / RISK / COST & SCHEDULE VARIANCE
NEVILLE EVE
10Presentation to Media09 March 2010
INDIANOCEAN
FYNNLAND
HOWICK
LADYSMITH
BETHLEHEM
NEWCASTLEKROONSTAD
KLERKSDORP
WITBANKKENDAL
WALTLOOPRETORIA WEST
SECUNDA
STANDERTON
ALRODE
COALBROOKSASOLBURG
TARLTON
LESOTHO
NATAL
FREESTATE
GAUTENG
ø406,4 (16”)
ø323,8 (12”)
QUAGGA
ø457,2 (18”)
N
RUSTENBURG
MAGDALA
NORTH - WESTMPUMALANGA
KWAZULU /
AIRPORT
BHT
AFRICA
MEYERTON
VAN REENEN
DUZI
LANGLAAGTE
FORT MISTAKE
MOOIRIVER
JAMESON
ø502 (20”)
ø457,2(18")
ø323,8 (12”)
Ø168,3 (6”)
Ø219,1 (8”)
Ø219,1 (8”)
ø323,8 (12”)
Ø219,1 (8”)
Ø457,2 (18”)
ø323,8 (12”)
DURBAN
ø323,8 (12”)
Ø406,4(16”)
PARK
ø457,2 (18”)
ø406,4 (16”)
ø323,8 (12”)
CAPE TOWN
DURBAN
GAUTENG
SOUTH AFRICARICHARDS
BAYLESOTHO
SECUNDA
DOUBLE PUMP STATION
DELIVERY STATIONS / METERS
PUMP STATIONS
REFINED PRODUCTS
CRUDE OIL
AVTUR
INTAKE STATIONS
NMPP PIPELINES
NMPP PUMP STATIONS
NMPP ACCUMULATION TERMINAL
ELARDUS PARK
PPT-1747/-C
HILLCREST
MNGENI
VREDE“T”
WILGE
ø457,2 (18”)
TWINI
HILLTOP
MNAMBITHI
FUTURE NMPP PUMP STATIONS
TPL’S PRESENT PETROLEUM PIPELINE NETWORK AND POSITION OF FUTURE NMPP
11Presentation to Media09 March 2010
UNIQUENESS OF THE NMPP
• 160km of 16 inch pipelines plus • More than half of the pipeline is in and around very built up
areas with:• Extensive rock• Highways and Street crossings• Extensive wetlands
• 2 terminals• One in a remote area• Other in a live congested, requiring existing tenants to be
relocated and a highly complex sight for construction requiring piling of all heavy tanks and equipment
• 555km of 24 inch pipelines• Several major and minor river crossings• Half of the line in mountainous terrain• Wetlands
• Four Mainline Pump-stations• Pumping capacity to move product 1800 metres up the
escarpment
12Presentation to Media09 March 2010
Vaal River Crossing
13Presentation to Media09 March 2010
Bronkhorst River Crossing -rehabilitated
14Presentation to Media09 March 2010
Terrain
15Presentation to Media09 March 2010
Concept(FEL-1)
Pre-feasibility(FEL-2)
Feasibility(FEL-3)
Execution(FEL-4)
Confirm the business
need Generate options
§ Select the
preferred option
Plan to build the
asset
Build and commission
the asset
Gat
e 3
Rev
iew
Gat
e 2
Rev
iew
Gat
e 1
Rev
iew
Gat
e 4
Rev
iew
Transnet Capital Projects Project Life-cycle Process: Project Risk Reduction Process
Scope definition:Very Limited
Engineering: 0%
Risk:High
Contingency:50-100%
Scope definition:Limited
Engineering:3-5%
Risk:High - Reducing
Contingency:30 – 50%
Scope definition:Substantial
Engineering:10 – 30%
Risk:Med
Contingency:15 – 30%
Scope definition:Complete
Engineering: Complete
Risk:Low
Contingency:5 – 15%
16Presentation to Media09 March 2010
NMPP – Time Line Cost Evolution
November 2008 – Capex Cost Reduction Proposal• Final Forecast Cost (FFC) = R12.1 Billion
February 2009 – Board Submission• FFC = R12.67 Billion (23% Contingency + 9% Risk = 32% )
Late 2009 – Board Presentation• FFC = R15.42 Billion (13% Contingency + 8% Risk = 21%) • Change in Budget: R 2.75 Billion
17Presentation to Media09 March 2010
COST DRIVERS
Economics
• Economic downturn• Cost of equipment (Market & Escalation)• Cost of schedule (Market & Escalation)
Project related
• Internal Processes and Governance • Delivery & Contracting Strategy• Project Development / Life Cycle
• Power supply (Eskom)• Changes in scope • Market (Suppliers & Contractors) expertise & capacity• Security• DWAF & DEA & DME
18Presentation to Media09 March 2010
PROJECT BUDGET CHANGE SUMMARY
100%-
2,747,000,000ZAR
3% 70,000,000ZAR NKP Requirements7% 180,000,000ZAR Back-Up Power Generation
10% 280,000,000ZAR Terminal 1 Delay
18% 482,000,000ZAR Steel
21% 581,000,000ZAR Indirect Costs
42% 1,154,000,000ZAR Pipeline Construction
% VALUE GROWTH ITEM
BU
DG
ET G
RO
WTH
19Presentation to Media09 March 2010
SUMMARY OF COST CHANGESPipeline
The following costs resulted from events encountered in the NMPP project during execution
•Changes to valve type / spec / actuation due to completion of detail design
•Delay / remobilisation cost associated with expropriation delay
•Value of Compensation Event’s (“CE's”) agreed in addendum to Main Pipeline Works Contract
•Additional trench rock volumes identified by construction geotechs
•Trenchless crossings emergent scope
•Pipeline contractor fee on change in Estimated Total Cost (“ETC”) on pipeline construction contract
•SUB-TOTAL FOR PIPELINES R1,154,000,000
Rands
20Presentation to Media09 March 2010
SUMMARY OF COST CHANGESSteel / Materials & EPCM
•Change in pipe length due to completion of end of line facilities engineering & rounding off wall thickness
•Mass of steel due to specification and required designChanges
•Pipe manufacture - conversion cost
•Additional tons for mix change
SUB-TOTAL FOR STEEL R 482,030,243
•EPCM R 581,000,000
TOTAL R 1,063,030,243
Rands
21Presentation to Media09 March 2010
SUMMARY OF COST CHANGESLate Inclusion of Cost Items
• Costs excluded from the TCP / NMPP Nov FFC (R12.66 Bn) as presented to the Transnet Board in February 2009 and as reported to NERSA
• Back-up Power Generation R180,000,000
• Balance of NKP Compliance R 70,000,000
Total R250,000,000
22Presentation to Media09 March 2010
SUMMARY OF COST CHANGES AS APPROVED BY TRANSNET BOARD LATE 2009
• Pipeline costs R 1,154,000,000
• Steel & Materials & EPCM R 1,063,000,000
• Balance of National Key PointsCompliance R 70,000,000
• Back-up Power Generation R 180,000,000
• TM1 later completion date R 280,000,000
TOTAL R 2,747,000,000 (Detail)
23Presentation to Media09 March 2010
Summary of Risk Allowances per Asset
ASSET PRE MITIGATED POST MITIGATED
TOTAL R 2 896m R 994m
Main Automation Contract
Pump Stations
TM1 Specific to IV
TM2 Specific to JP
Integrated Pipeline Team
Project Wide
Risk mitigation for these asset classes
24Presentation to Media09 March 2010
•PL4 (Kendal to Waltloo line)• Schedule engineering of critical path viz. end of line facilities• Cost / schedule benefit review: Anglo Coal mobilisation cost• Focus on safety performance risk mitigations
•PL1 (Trunk Line + Pump Stations)• Expedite supply of pipe from Impumelelo JV
• Commissioning of Bandera Plant (Hall Longmore)• Review of UTI Logistics planning / delivery ramp up capacity• Acceleration of “ready-to-award” PS construction contract• Focus on safety performance risk mitigations• IPT Contracting strategy
•TM1 & 2 (Coastal & Inland Terminals)• FEL4 engineering of revised TM1 construction strategy• “Live site” hazops (Sapref new tank construction)• Interface management - Oil Company feeder line tie in schedule • Aggressive acceleration of TM2 to support “tight line” multi-
product operation via PL1
CRITICAL CONSTRUCTION SCHEDULE RISK / MITIGATIONS
•Contracting Strategy
25Presentation to Media09 March 2010
• Land acquisition• Statutory Approvals & Appeals
• EIA• Section 53 (MPRDA)• Section 79 (NPA)• DWAF
• Water Abstraction• Disposal• Waterway Crossings
• Rezoning of:• Pump Station Sites• Terminal 2
• Engineering Development• Pipe Manufacture & Delivery• Field Joint Coating (Inland network)• Contractor Performance
SCHEDULE DRIVERS
26Presentation to Media09 March 2010
Contract Award NERSA License Time Now
A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
INLAND LICENSE
PL4 - KENDALL TO WALTLOO
PHASE 1 - LSD DELIVERY
PL2 & PL3 - JAMESON PARK TO LANGLAAGTE
PL1 - DURBAN TO JAMESON PARK *
FYNNLANDS BYPASS
TERMINAL 2 (INLAND) PHASE 1
PUMP STATIONS *
PHASES 2 TO 4 - MULTI-PRODUCT DELVERY
TERMINAL 1 (COASTAL)
TERMINAL 2 (INLAND) PHASES 2 - 4
LEGENDOriginal Plan
Current Plan
2011 20122010ASSET AREA
2007 2008 2009
NERSA License 1.3
NERSA License 10.4
NERSA License 1.2
BASELINE v. CURRENT PLANBY NERSA LICENCE CONDITION
Presentation to NERSA25 January 2010
SCHEDULE EVOLUTION WITH DELAY ISSUESAND NERSA LICENSE CONDITION
Ready for Operation Dates Given
27Presentation to Media09 March 2010
NMPP LICENCE CONDITIONSSCHEDULE REQUIREMENTS
…
…
…
NERSA CLAUSE ASSETS TO BE OPERATIONAL
DATE IN LICENSE
CURRENT FORECAST
Ch1 §1.3 KENDAL TO WALTLOO LINE CONSTRUCTION COMPLETE 31-Dec-09 30-Jun-10
Ch3 §10.4 COMMENCE OPERATION OF 24" TRUNKLINE 31-Mar-11 31-Mar-11
Ch1 §1.2 CONSTRUCTION OF ALL ASSETS COVERED BY THE LICENCE COMPLETE AND READY FOR OPERATION 20-Dec-11 20-Dec-12
28Presentation to Media09 March 2010
Authorisation Planned Actual
•PL4 (Kendal to Waltloo line) EIA April 2008 July 2008 (3 Months)•PL4 DWAF June 2008 Feb 2009 (8 Months)
•PL2/3 (Alrode/L’laagte/J’son Park) EIA April 2008 July 2008* (3Months)•PL2/3 DWAF June 2008 May 2009 (11Months)
•PL1 (Trunk Line) EIA Oct 2008 Aug 2009**(10Months)•PL1 DWAF (orig scope) Oct 2008 Jul 2009***(9Months)
* Amendment authorised 29 April 2009** SDCEA appeal dismissed 14 August 2009*** Processing of DWAF applications took on average 18 months from date of
application to date of authorisation.
SCHEDULE of EIA and DWAF APPROVALS
29Presentation to Media09 March 2010
MITIGATION & SECURITY OF SUPPLY
CHARL MOLLER
30Presentation to Media09 March 2010
1. Detail of Action Plans during 2011 and 2012
1.1. Key principle of actions based on concept of simultaneous use of present DJP (to a de-ratedservice-level) and the NMPP whilst by-passing Terminal 1 (TM1) in Island View (Port ofDurban).
1.2 Use of present Transnet Pipelines (TPL) Durban depot in Island View on a tight-lining basis iskey to concept.
Present TPL feederlines to Durban depot will be used.Present meters and pumps with a modified manifold will be used to feed both the DJP andNMPP simultaneously.On exit-side of present depot a link needs to be made to presently mothballed 18"pipeline of TPLThis 18" line will then be connected to the new 24" NMPP trunkline at exit-side of TM1,now to be commissioned later.
1.3 Through present TPL Durban depot the NMPP will be able to run on diesel at a flowrate of500m3/h.
1.4 Flowrate (as a multi-products pipeline) of the DJP will be decreased from present 520m3/hwith DRA’s to 400m3/h still with DRA’s in order to reduce operating pressures required forprescribed de-rated condition of pipeline for continued use (initial expert requirement; to bebacked-up with latest intelligent pigging results).
1.5 Above will provide the ability to by-pass TM1 on a tight-lining basis.
1.6 The above action plans envisaged are sufficient to cope with security of supply requirementsand challenges in 2011 and 2012.
ACTIONS TO MITIGATE SECURITY OF SUPPLY AND DJP RISKS ASSOCIATED WITH THE LATE FINAL COMPLETION OF THE NMPP PROJECT
31Presentation to Media09 March 2010
DIAGRAMMATIC LAYOUT OF THE PROPOSED PUMPING PROCEDURE WHEN USING BOTH DJP AND NMPP AND BY – PASSING TERMINAL1 (TM1) (PRINCIPLE OF TIGHT - LINING)
TIGHT-LINING: FEEDER LINES THROUGH METERS AND DIRECT TO PUMPING STATION
AND INTO PIPELINES
FUTURE NMPP: FEEDER LINES THROUGH METERS AND DIRECT TO ACCUMULATOR TANKS
–
FROM TANKS TO PUMPING STATION AND INTO PIPELINE
TANKS
NEW COMPANYFEEDER LINES
INTO TM1
PUMPINGSTATION
TM1 (TERMINAL 1)
LINK LINE
TRANSNETPIPELINESEXISTINGFEEDER LINES
METERSPUMPINGSTATION
EXISTING DURBAN PUMP STATION
LINK LINE
METERS
DURBAN MANIFOLD SPLIT TO RUN BOTH DJP AND NMPP AT THE SAME TIME
ACTIONS TO MITIGATE SECURITY OF SUPPLY AND DJP RISKS ASSOCIATED WITH THE LATE FINAL COMPLETION OF THE NMPP PROJECT
32Presentation to Media09 March 2010
TABLE 3: SUMMARY OF NMPP CAPITALISATION SCHEDULE USED IN REGULATORY ASSET BASE (RAB) FORTHE CALCULATION OF THE ALLOWABLE REVENUES (AR) IN TABLE .2.
ACTIONS TO MITIGATE SECURITY OF SUPPLY AND DJP RISKS ASSOCIATED WITH THE LATE FINAL COMPLETION OF THE NMPP PROJECT
YEAR MAIN COMPONENTS VALUE - Rbn
10/11 Inland Network 1.6
11/12 24”Dia. Trunkline incl. Pump Stations 10.1
12/13Island View – TM.1.
Jameson Park – TM.2.3.8
33Presentation to Media09 March 2010
CONCLUDING REMARKS
CHRIS WELLS
34Presentation to Media09 March 2010Presentation to Media03 March 2010
• The Minister of Finance has announced in his budget speech for the
10/11 fiscal year that Government has decided to provide Transnet
with a grant for the construction of the NMPP to ensure security of
supply• This grant represents the cost difference between a 24 inch
pipeline versus the 16 inch pipeline that Transnet proposed to build• The levy compensates Transnet for the security of supply
component of the pipeline investment. • If the levy was not put in place, future tariffs (adjusted for the time
value of money) would have been increased by the same amount • On a net present value basis, Transnet is placed in exactly the
same position as it would have been (no better off, nor worse off) –
the advantage is that cash flow at the time of the investment in the
security of supply component of the pipeline is received
SECURITY OF SUPPLY LEVY AND IMPACT ON TARIFFS
35Presentation to Media09 March 2010Presentation to Media03 March 2010
• The grant will be paid over a three year period at R1,5 billion (including
VAT) per annum commencing 1 April 2010• The grant will be payable directly to Transnet Pipelines for exclusive
use on NMPP expenditure• For regulatory purposes and for the determination of allowable
revenue, the net grant will be deducted from the regulatory asset base
– this ensures that the security of supply component of the asset base
will be excluded from the asset base of future tariffs• In its 2010/11 tariff application, TPL has applied for a revenue increase
of 51.3% compared to the 2009/2010 determination of NERSA• This increase is largely due to new assets being commissioned in this
financial year (2010/2011) as well as application of sound technical
and widely accepted regulatory principles
SECURITY OF SUPPLY LEVY AND IMPACT ON TARIFFS
36Presentation to Media09 March 2010Presentation to Media03 March 2010
• The NMPP, probably the world’s largest diameter multiproduct pipeline, is a
legacy project for SA• Its flexible design enables the addition of pump stations to increase capacity
by approximately 200%• Because of its technical construction, material selection, type of welding,
quality control and field joint coating, this will enable the NMPP to have an
economic life of at least 75 years• With the strategies in place, Transnet is confident of the security of supply in
the years 2011/12 – until the full NMPP is brought into use• This has been difficult, but the governance process are sound and the
pipeline will be of high quality and will be cost-effective• This project was commenced and continued amidst uncertainty; and the law
provides for a fair return to be earned and we’re confident that these will be
resolved• Transnet’s capital investment programme, which is supported by a
successful funding strategy, remains solidly on track
CONCLUSION
37Presentation to Media09 March 2010
END OF PRESENTATION
THANK YOU
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