1

Briefing on Eskom

Portfolio Committee on

Public Enterprises

18 February 2009

- Top Secret - 1

2

Eskom Presentation Contents• Multi-Year Price Determination (MYPD)• Important MYPD Considerations• Government Guarantees• Government Subordinated Loan• Capital Expenditure Programme• Current Generation Build (Major)• Net Energy Sent out (2008 vs. 2009)• Indicative Generation Capacity Expansion Programme

Status/Plan (Committed & Approved Projects)

2- Top Secret -

2

Eskom: Multi-Year Price Determination• Eskom applies to the National Energy Regulator of South Africa

(Nersa) for its annual revenue allocation in 3 year tranches.

• The first 3 year price application (MYPD1) started on 1 April 2006 and ends on 31 March 2009. Eskom must now apply for its annual revenue allocations for the next 3 years beginning 1 April 2009 (MYPD2).

• The current regulatory model makes provision for Eskom to recover its cost of production (operational expenses, e.g. manpower, primary energy, cost of debt) as well as depreciation and a return on assets.

3- Top Secret -

2

Eskom: Important MYPD Considerations• The model assumes access to equity or borrowings to fund capital

expenditure.• The current regulatory model values Eskom’s assets on an indexed historic

cost basis, which is not a true reflection of replacement cost. It is preferable that the Modern Equivalent Assets (MEA) valuation methodology is used. Indexation at CPI or CPIX is not a true reflection of capital cost inflation, which has been much higher.

• Current global financial market conditions have resulted in limited access to debt financing.

• Eskom’s credit rating was downgraded by Moody’s ratings agency in 2008, further reducing its access to debt from the capital markets. Other ratings agencies have put Eskom on a negative watch and adopted a “wait-and-see” approach.

4- Top Secret -

2

Eskom: Government Guarantees• In order to support Eskom’s borrowing programme, government has

agreed to provide some R175.97bn of guarantees on existing and new debt over the next 5 years.

• R25.97bn of Eskom’s existing debt will be guaranteed to prevent existing bondholders from swapping out for new, guaranteed bonds.

• The rest of the R150bn of guarantees will be allocated over the next 5 years according to Eskom’s needs, with an annual limit to be set on the amount of debt that Eskom can issue.

• Government would either repay the debt in its entirety or step into the shoes of Eskom and continue to make payments on Eskom’s behalf.

• Guarantee fees are payable to the fiscus. This increases Eskom’s operating cost and is recovered though the tariff.

5- Top Secret -

2

Eskom: Government Subordinated Loan• The government guarantees are in addition to the

R60 billion subordinated loan in support of Eskom’s capital expansion programme that has already been approved.

• The Eskom Subordinated Loan Special Appropriation Act provides for a multi-year appropriation as follows: R10 billion in 2008/9, R30 billion in 2009/10 and R20 billion in 2010/2011.

• Government’s rights will be subordinated to those of other un-guaranteed and commercial creditors.

6- Top Secret -

2

Eskom: Capital Expenditure Programme• Eskom’s Committed and Approved 5 year Capex Plan

amounts to R385bn over 5 years from 2008/9 to 2012/13.

• In the region of R273.8bn of the expenditure is to be incurred over the 3 year MYPD period from 1 April 2009 to 31 March 2012.

• MYPD spend is roughly apportioned as follows, Generation (72%), Transmission (14%), Distribution (9%) and Corporate (5%).

7- Top Secret -

2

Eskom: Current Generation Build (Major)

• Return to Service Stations(Camden, Grootvlei and Komati)

• Open Cycle Gas Turbines(Ankerlig & Gourikwa) and extension thereof

• Pumped Storage(Ingula)

• Coal-fired Baseload, “6-pack”(Medupi and Kusile)

8- Top Secret -

2

Year-on-Year Net Energy Sent Out

9- Top Secret -

3 500

3 700

3 900

4 100

4 300

4 500

4 700

4 900

5 100

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

En

erg

y (G

Wh

)

Week

Week-on-Week (2008 vs 2009): Net Energy Sent Out

2008 2009

Energy Sent Out 4 318 GWh

Estimated Reduced Load 0 GWh

Week-on-Week Growth -6.16 %

Year-on-Year Growth (Year-to-Date) Financial Year -3.18 %

Year-on-Year Growth (Year-to-Date) Annual -7.44 %

Week 6 (2/2 - 8/2/2009): Net Energy Sent Out Statistics

2

Indicative Generation Capacity Expansion Programme Status/Plan – Committed Projects

2 899MW of new generation capacity has been added to the system since 2004.

10- Top Secret -

Coal Coal Diesel Coal Coal Diesel Coal P/Storage Coal

Available Capacity

Capacity additions

Camden ArnotAnkerlig & Gourikwa

Grootvlei KomatiGas 1

(Ankerlig & Gourikwa)

Medupi Ingula Kusile

MW MW MW MW MW MW MW MW MW MW MW

2005/6 36 398 190 190

2006/7 37 781 1 383 760 40 583

2007/8 38 497 716 190 80 446

2008/9 39 107 610 380 30 200

2009/10 40 765 1 658 120 1 000 240 298

2010/11 41 965 1 200 30 430 740

2011/12 42 250 285 285

2012/13 43 044 794 794

2013/14 46 784 3 740 1 588 1 352 800

2014/15 49 178 2 394 794 1 600

2015/16 51 566 2 388 1 588 800

2016/17 53 166 1 600 1 600

16 958 1 520 300 1 029 1 200 955 1 038 4 764 1 352 4 800

Type of Plant

Totals

Calendar Year

Indicative Generation Capacity Expansion Programme Progress

Medupi (Coal Fired) 794 1,588 794 1,588 4,764 Kusile (Coal Fired) 800 1,600 800 1,600 4,800 Ingula (Pumped Storage) 1,352 1,352 Wind Farm (Renewable) 100 100.0 Coal - 3 800 800.0 YEARLY TOTALS 928.4 2,100.0 560.0 285.0 794.0 3,740.0 2,394.0 2,388.0 2,400.0 15,589.4 CUMULATIVE TOTAL 928.4 3,028.4 3,588.4 3,873.4 4,667.4 8,407.4 10,801.4 13,189.4 15,589.4 NOTE: Coal - 3 as per Indicative ISEP 12 Plan M2 Dated Dec 18 2008

- Delivered and Supplying to the Grid

2

THE END

11- Top Secret -