26 January 2015

Hu Huaibang
Chairman of the Board of Directors
China Development Bank

Dear Sir,

Subject: Funding for major infrastructure projects to be rolled out in South Africa

I would like to thank you for the meeting held in December 2014 attended by South Africas
High Level delegation led by His Excellency Jacob Zuma, the President of the Republic of
South Africa.

The BRICS founding documents and the declaration made by our leaders signals clearly the
intent of our respective governments to play a significant role in promoting trade and financial
flows between BRICS member countries. The memorandum of understanding that was signed
two years ago in South Africa by the leaders of China and South Africa identified infrastructure,
energy and associated funding solutions as some of the main areas of cooperation. As you
are aware, some of the largest State Owned Companies including ESKOM (the largest
electricity generation company) and TRANSNET (the largest freight rail operator) have
embarked on capital expenditure programmes that will have a substantial impact on the South
African economy and cross border trade.

Promoting China-Africa relations and enhancing the contribution of China to Africas

development requires the concerted combined effort of businesses, financial and governance
structures. Financial institutions can play a catalytic role in achieving development and
fostering a strong partnership between China and South Africa. Chinas contribution towards
these objectives could be facilitated by measures that will improve the price competitiveness
of development funding originating from China. Some of these measures include:

- Availing reasonably priced funding to projects that benefit Chinese businesses

- As with Export Credit Agencies (ECAs) and other development finance institutions,
providing better credit terms to promote export of goods and machinery from China
- Loan pricing models of Chinese banks that take into account all credit enhancements
such as tangible collateral or guarantees provided to mitigate the risk that Chinese
banks may be facing
- Viewing any funding proposal between Chinese development finance institutions and
State Owned Companies from South Africa as a government-to-government
transaction by virtue of both countries being member states in BRICS

The competitive pricing that we would aspire to see should provide mutual benefits to all
Chinese and South African businesses that source funding from China.

This will encourage increased and ongoing trade and financial flows between our two countries
and ensures that the foundation of our partnership remains strong.
It was in the spirit of this cooperation that Transnet, as the government owned freight rail
operator in South Africa, decided to award the bulk of its major locomotive acquisition
programme to Chinese suppliers (China North Railways and China South Railways). This is
an example of South Africas full commitment to the cooperation that our leaders have
foreseen in their Sanya Declaration, Sanya, Hainan, China, April 14, 2011. We expect all
institutions from both China and South Africa to exhibit similar commitment towards the strong
cooperation envisioned by our Leaders.

China Development Bank (CDB) has been in negotiations with Transnet regarding the funding
of the locomotives sourced from China. It is our strong conviction that CDB and Transnet
should view this particular funding transaction as a government-to-government transaction
and to afford it all the required support to make it a reality. We strongly believe that CDB has
a meaningful role to play in fostering this relationship.

We would therefore like to urge CDB to re-consider the pricing of this strategic funding
transaction as well as other potential funding transactions with South African SOEs like Eskom
on the basis of the merit of each transaction, the credit enhancement provided, and above all,
the spirit of partnership and cooperation envisioned by the leaders of our Great Nations.

We look forward to your favourable response.

Sincerely,

Nhlanhla Musa Nene

Minister of Finance
Republic of South Africa