ESKOM

1
Global Power Company of the Year 2001
BDFM Breakfast Presentation by Thulani S Gcabashe
Proudly South African
20 March 2003
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Content

• Section A Background
• Section B Past performance
• Section C Business performance 2002
• Section D Future direction

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ESKOM

• Background
• Section A

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Eskom

• Strategic Intent
• Eskom will be the pre-eminent African energy
• and related services business of global stature.
• Values
• - Integrity - Excellence
• - Innovation - Customer satisfaction

5
Background
Eskom

• ESKOM REGULATED
• Generation
• Transmission
• Distribution

• ESKOM NON-REGULATED
• Engineering
• Power business operations
• Primary Energy
• Telecoms and Information Technology

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General features

• Wholly State-owned
• Is the ninth largest electricity utility in the
  world by sales
• Separate legal entity under Companies Act
  (previously Electricity Act and Eskom Act)
• Managed on business principles
• Is financed by net financial market liabilities
  investments as well as reserves
• Supplies approximately 95 of electricity in
  South Africa
• Electricity sales in 2002 were 187 957 GWh
• Internationally, among the lowest cost
  electricity providers

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Industrial electricity prices
Supplied by NUS Consulting Groups International
Electricity Report April 2002
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Sales (GWh)
Source Data Monitor UK, 2001
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Sustainability reporting Top ranking
international companies
Source SustainAbility Consultancy
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General features

• Generation
• Operates 24 power stations with a nominal
  capacity of 42 011 MW
• Operates the largest dry cooling power station in
  the world
• Technical performance at world class standards
• Satisfied a peak demand of 31 621 MW this year

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Transmission
26 500 km
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South African grid superimposed on Europe
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General features

• Distribution
• Has 298 500 km of distribution and reticulation
  lines
• Satisfies the electricity needs of 3 417 652
  customers
• Has electrified 2,8 million homes since 1991

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General features

• Eskom Enterprises
• Is the non-regulated subsidiary
• Is the vehicle for expansion into Africa and
  beyond.
• Presence in Europe, Asia and a substantial
  presence in Africa

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ESKOM

• Past performance trends
• Section B

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Electrification CUMULATIVE NUMBER OF HOMES
ELECTRIFIED
211 628
2.8 million homes electrified
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Black economic empowerment
Rm

• Spent R13.3bn over a five year period
• Spent R197m with women empowered enterprises in
  2002

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Employment equity (MANAGERIAL AND SUPERVISORY
CATEGORIES)

54.6
5.2
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Gender equity (MANAGERIAL AND SUPERVISORY
CATEGORIES)
24.5

10.4
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Real price decrease

• Tariff increase deflated by average consumer
  price index

Base 100 in 1990
Benefit to customer in excess of R72.6 billion
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ESKOM

• BUSINESS PERFORMANCE 2002
• Section C

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Summary of salient points
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Significant investment required into the future
2002 Rands
Rmillions
Total capital from 2003 2007 R46.3bn
(preliminary)
The above figures do not include construction of
new power stations
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ESKOMHoldings Ltd

• Future direction
• Section D

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Realising the Strategic Intent Broad Strategies

• Advance Eskoms role as the Leading Electricity
  Business in Africa
• Expand Eskoms Business through Energy and
  Related Products and Services
• Expand Eskoms Business Reach through
• E-Business
• Partner South African Industry in South Africa
  and into Africa

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Eskom going forward contextual framework

• Energy Policy Framework
• Energy White Paper 1998
• Shareholder Policy
• Eskom restructuring objectives

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Energy policy

• The Energy White Paper was finalised in December
  1998. The key objectives of the policy as
  applied to the electricity sector were as
  follows
• improve social equity by specifically addressing
  the energy requirements of the poor
• enhance the efficiency and competitiveness of the
  South African economy by providing low-cost and
  high quality energy inputs to industrial, mining
  and other sectors and
• achieve environmental sustainability in both the
  short and long-term usage of our natural
  resources.

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Energy policy

• In addition the policy defined longer term issues
  requiring attention, namely
• giving customers the right to choose their
  electricity supplier
• introducing competition into the industry,
  especially the generation sector
• permitting open, non-discriminatory access to the
  transmission system and
• encouraging private sector participation in the
  industry.

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Energy policy

• Generation
• The entry of multiple players into the generation
  market will be encouraged.
• In the long-term Eskom to be restructured into
  separate Generation and Transmission companies.

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Energy policy

• Transmission
• Government will legislate for transmission lines
  to provide for non-discriminatory open access to
  uncommitted capacity, transparency of tariffs,
  and disclosure of cost and pricing information to
  the National Electricity Regulator.
• Government will facilitate the development of the
  Southern African Power Pool (SAPP) to the mutual
  benefit of all its members.

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Energy policy

• Distribution
• The REDs will be owned by Government. Control of
  all distribution network assets must pass to the
  companies and Government will determine
  appropriate mechanisms for achieving this.
• Government will implement legal transitional
  structure as an interim phase before the
  end-state model of independent REDs is
  implemented. The transitional structure will
  consist of Eskom distribution as well as that of
  municipal distributors, and will be a separate
  company from Eskom Generation and Transmission,
  including other municipal services.

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Energy policy

• Distribution
• Cost-reflective tariffs will be applied at
  electricity distributor supply points in due
  course.
• Consolidate the electricity distribution industry
  into the maximum number of financially viable
  independent REDs.

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Energy policy

• Market Structure
• Government has initiated a comprehensive study on
  future market structures for the South African
  electricity supply industry.
• Government will initiate a study which will
  determine the sensitivity of the competitiveness
  of different industrial sectors to the price and
  quality of supply of electricity and will develop
  a set of differentiated policies and criteria
  which could allow choice of supply to those
  industrial customers where this is a critical
  issue.

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SOE restructuring policy

• Objectives
• To facilitate economic growth.
• To create wider ownership in the South African
  economy.
• To mobilise private sector capital.
• To reduce State debt.
• To enhance the competitiveness of SOEs.
• To promote fair competition.
• To finance growth and requirements for
  competitiveness.

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Eskom going forward

• Guiding principles
• Government as shareholder is responsible for
  restructuring policy decisions
• Achieve Eskom strategic intent whilst sustaining
  stability in the ESI
• Eskoms strategic intent is endorsed by
  shareholder
• Eskoms world-class performance and strengths
  will be used as anchors for change
• Build on existing strengths

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Eskom going forward

• Guiding principles
• Eskoms development role will continue (universal
  access / affordability)
• Must sustain lowest cost and access to
  electricity, whilst adding shareholder value
• Consistent with national policy and international
  experience applied in a South African context
• Adopt cautionary approach as the implications of
  restructuring errors are severe and difficult to
  reverse

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Eskom going forward

• Guiding principles
• Competition (in energy-generating sector) will be
  gradually introduced over time
• Introduction of significant private equity
  participation to be phased once regulatory and
  market framework is clarified

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Eskom going forward

• Key objectives
• Globally competitive
• African Renaissance
• Service Delivery - provision of energy services
  and rural development
• Maintaining our competitive advantage
• Price and quality
• Security of supply
• RD

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Eskom going forward

• Key objectives
• Instilling investor confidence
• Competitive market environment, etc.
• BEE and women economic empowerment.
• Unlock value - short and long term
• Sale of assets
• FDI

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ESKOM

• Thank you.