Pipelines 2018 TRANSNET Pipelines 2
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A A U D Pipelines 2018 TRANSNET Pipelines 2 Highlights • Revenue of R4,1 billion, excluding clawback and levy • A 1,43% increase in petroleum allowable revenue • EBITDA margin of 71% • Operationalisation of the Coastal Terminal (TM1) tightlining solution that enabled multi-product operation of the 24” Multi Product Pipeline (MPP) • Operationalisation of the Inland Terminal (TM2) which provides for an inland accumulation facility of 180 million litres • Achieved a disabling injury frequency rate DIFR of 0,09 (target: 0,68) • Maintenance of service delivery levels to customers Business overview Transnet Pipelines (Pipelines) is the largest multi-product operator in southern Africa, transporting hydrocarbons and methane-rich gas through a network of 3 800 km of pipeline infrastructure. Pipelines offers fully integrated supply chain solutions from source to destination while ensuring the best safety practices and optimum service reliability, and exceeding customer expectations through the division’s proficient human capital. To this effect, Pipelines currently transports: • More than 65% of all refined products to the inland market; • More than 70% of all jet fuel required at OR Tambo International Airport; • 100% of the crude requirements for the Natref Refinery; • 100% of the methane-rich gas requirements to KwaZulu-Natal for Sasol Energy and its gas clients; and • 100% of Tarlton’s volumes, of which 60% is distributed cross-border. The initiative to secure a direct import terminal in the port of Durban and a Terminal Operating Licence has become a key strategic objective for Pipelines, in alignment with the Transnet Liquid Fuels Master Plan to enable: • New market participants in line with the charter expectations, which emphasises the promotion of broad-based black economic empowerment and overall sector transformation; and • The Department of Energy’s Clean Fuels II Programme, which will necessitate increased import terminals due to changes in fuel specifications in the short to medium term. The MPP 24” trunkline is in full multi-product operation, transporting two diesel grades and two unleaded petrol grades as well as jet fuel. The inland accumulation facility was operationalised in December 2017 and will further facilitate security of supply to the market. A seamless integrated rail and pipeline service offering is currently in operation to OR Tambo International Airport, and other routes are being considered and optimised in this regard. The Regional Integration Strategy’s primary objective is to grow beyond South Africa’s borders, thereby repositioning Pipelines to be a liquid and gas operator of choice across Africa. The business diversification ambition also places emphasis on revenue streams that are non-regulated. Opportunities to diversify into the liquefied natural gas (LNG) market are also being pursued. TRANSNET Pipelines 3 Transnet Corporate Centre Johannesburg Pipeline LIMPOPO Key Refined products Waltloo Pretoria West MPUMALANGA Crude oil Rustenburg Witbank Airport Kendal Tarlton Gas Langlaagte Alrode GAUTENG Park Avtur NORTH Secunda Klerksdorp Coalbrook WEST Sasolburg Standerton NMPP pipelines Volksrust Kroonstad Vryheid Newcastle Sishen Bethlehem Van Reenen LIMPOPO FREE STATE Ladysmith Empangeni GAUTENG MPUMALANGA NORTH WEST KWAZULU- Richards Bay Sishen KWAZULU- NATAL FREE STATE NATAL LESOTHO LESOTHO NORTHERN CAPE EASTERN CAPE Durban INDIAN OCEAN WESTERN CAPE Figure 1: Petroleum and gas pipeline network RegulatoryEASTERN environment CAPE Performance context Pipelines is regulated by the National Energy Regulator of South Pipelines creates value by fulfilling a strategic role in the South Africa (Nersa) and governed by the Petroleum Pipelines Act, No 60 African logistical fuel supply chain by making pipeline capacity of 2003 and the Gas Act, No 48 of 2001. INDIAN OCEANavailable ahead of demand, thereby facilitating the supply of product to the inland market. On 31 October 2017, Pipelines filed its 2019 and 2020 Petroleum Pipelines System multi-yearEast tariff applications requesting In the 2018 financial year Pipelines operationalised the inland R5,7 billion and R6,2London billion allowable revenue respectively, which accumulation facility (TM2) located in Heidelberg and the Coastal Ngquratranslated into a 36% and 10% increase in allowable revenue Terminal (TM1) tightlining solution. The operationalisation of the respectively. This increase is attributed to: tightlining solution enabled the introduction of multi products into • Transnet bringing its tightlining assets at Island View Terminal in the 24” MPP. TM2 has provided Pipelines with about 180 million Mossel Bay PortDurban (TM1) and its assets at the Inland Terminal (TM2) into litres of accumulation facility, creating a necessary buffer in the operation; and pipeline system to ensure that the division will be able to continue Elizabeth• The anticipated clawback adjustment due to the timing or date to operate and supply product into the market even if there are at which these assets were admitted into the regulatory asset product supply interruptions at the coast. The commissioning of base. the 24” MPP to multi product allowed Pipelines to retire the Durban to Kroonstad section of the Durban to Johannesburg Pipeline (DJP), On 15 March 2018, Nersa set the tariffs for the 2019 financial year thus eliminating the risk of failure of this pipeline. only, i.e. a single-year application. Nersa set the Petroleum Pipelines System tariffs that will allow Transnet to realise a 26% increase in allowable revenue compared to the 2018 tariff period. TRANSNET Pipelines 4 Operational performance Core initiatives for 2018 • Execute capital expenditure of R1,5 billion, inclusive of NMPP. • Achieve the petroleum volume of 17,345 billion litres. • Ensure financial performance targets are achieved in a • Maintain and improve key operational efficiencies. challenging economic environment. • Achieved a gas volume throughput of 489 million m3. Overview of key performance indicators 2017 2018 2018 2019 Key performance area and indicator Unit of measure Actual Target Actual Target Financial sustainability EBITDA margin % 77,5 71,5 71,1 78,3 Operating profit margin % 57,3 50,9 48,3 57,7 Gearing % 41,0 41,1 38,3 32,3 Net debt to EBITDA times 3,8 4,9 3,9 2,2 Return on average total assets – excluding CWIP % 10,7 6,3 7,0 8,8 Asset turnover –excluding CWIP times 0,2 0,1 0,1 0,15 Cash interest cover times 2,6 1,9 2,7 4,0 Capacity creation and maintenance Infrastructure and maintenance Capital expenditure R million 1 706 2 216 1 544 1 338 Actual vs planned maintenance % 95 n/a n/a n/a Production interruptions hours 249 438 371 438 Operational excellence Capacity utilisation (actual usage: capacity) DJP and MPP Mℓ/week 116:152 118:148 115:148 128:148 Crude Mℓ/week 98:134 94:134 87:134 94:134 Avtur Mℓ/week 22:24 20:24 20:24 20:24 Gas (actual usage: capacity) million m3 /month 50:57 51:57 40:57 42:57 Operating cost per Ml.km (a) R/Mℓ.km 119 151 135 168 Electricity efficiency Mℓ.km/MWh (year-on-year percentage improvement) (0,4) n/a n/a n/a Service delivery litres per billion litres “Off spec” volumes delivered 253 022 97 330 162 519 228 271 Number “off spec” delivery events per thousand dockets number 0,3 0,3 0,4 0,3 Ordered vs delivered volume % 96 95 93 95 Planned vs actual delivery time % 86 88 86 88 Market segment competitiveness Volume and revenue growth Total petroleum products Mℓ 16 978 17 564 16 345 17 516 Refined Mℓ 10 563 11 617 10 678 11 476 Crude Mℓ 5 254 4 910 4 534 4 970 Avtur Mℓ 1 161 1 037 1 133 1 130 Gas million m3 595 574 489 506 Storage Mℓ 415 511 315 338 Sustainable developmental outcomes Human capital Training spend % of personnel cost 3,3 3,5 3,0 Employee headcount number 642 701 639 684 Employment equity % of black employees 88 n/a n/a n/a Female employees % of headcount 33 n/a n/a n/a People with disabilities % of headcount 3,0 n/a n/a n/a Employee turnover % 4,8 n/a n/a n/a Absenteeism index % 1,7 n/a n/a n/a Risk, safety and health DIFR rate 0,37 0,68 0,09 0,65 TRANSNET Pipelines 5 Financial performance review Year ended Year ended 31 March 31 March 2018 2017 % Salient features R million R million change Revenue 4 488 4 355 3,1 – Refined 2 502 2 411 3,8 – Aviation fuel 66 50 32,0 – Crude 1 445 1 660 (13,0) – Gas 96 120 (20,0) – Handling 19 27 (29,6) – Other (31) 16 (293,8) – Clawback and Levy 391 71 450,7 Operating expenses (1 296) (978) (32,5) – Energy costs (264) (255) (3,5) – Maintenance (98) (100) 2,0 – Materials (305) (8) (3 712,5) – Personnel costs (427) (394) (8,4) – Other costs (202) (221) 8,6 Profit from operations before depreciation, derecognition, amortisation and items listed below (EBITDA) 3 192 3 377 (5,5) Depreciation, derecognition and amortisation (1 026) (883) (16,2) Profit from operations before items listed below 2 166 2 494 (13,2) Impairments and fair value adjustments (20) (63) 68,3 Net finance costs (233) 373 (37,5) Profit before taxation 1 913 2 804 (31,8) Total assets (excluding CWIP) 38 000 23 174 64,0 Profitability measures EBITDA margin1 % 71,1 77,5 (6,4) Operating margin2 % 48,3 57,3 (9,0) Return on average total assets (excluding CWIP)3 % 7,04 10,6 (3,6) Asset turnover (excluding CWIP)4 times 0,15 0,19 (21,1) Capital investments5 R million 1 544 1 706 (9,5) Employees Number of employees (permanent) number 639 642 (0,5) Revenue per employee Rand million 7,02 6,78 3,5 1 EBITDA expressed as a percentage of revenue.