Eskom Holdings Ltd

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Eskom Holdings Ltd
Standard Presentation 2008

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Context of this presentation

• This presentation consists of a set of
  slides which provide an overview of Eskom and are
  based on information contained in the 2007/2008
  Annual Report. Users are encouraged to add,
  delete or adapt slides to suit the requirements
  of their particular presentation.
• Figures are quoted in rands (SA), unless
  otherwise indicated. The exchange rate applied
  was that which applied at the time when the
  slides were created.
• The presentation is updated annually to coincide
  with the release of Eskoms annual financial
  results.
• The presentation is in a Power Point format and
  the design and colours have been specifically
  selected to complement our corporate identity,
  and for legibility.
• Comments, suggestions or requests may be
  directed to the Group Communications Department.

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Content of the presentation

• About Eskom
• Business performance of 2007/8
• System stabilisation
• Capital expansion programme
• Climate change and the environment
• Contribution to society

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About Eskom

• Vision, core business and target market
• Electricity value chain
• Structure
• Key facts
• Plant mix
• Southern African grid
• International comparisons

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Our business
Together building the power-base for
sustainable growth and development
Our core business is electricity
South Africa
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Electricity value chain
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Board of Directors

• Mr RM Godsell - Chairman
• Mr PJ Maroga - Chief Executive
• Mr B Nqwababa Finance Director
• Ms LCZ Cele
• Mr SD Dube
• Mr LG Josefsson (Swedish)
• Mr HB Lee (Korean)
• Ms WE Lucas-Bull
• Mr PM Makwana

• Mr E Marshall
• Mr J Mirenge (Rwandan)
• Mr JRD Modise
• Mr AJ Morgan
• Ms U Nene

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Board duties

• The Board has the authority to lead, control,
  manage and conduct the business of Eskom,
  including the authority to delegate. Its aim is
  to ensure that Eskom remains a sustainable and
  viable business of global stature.
• Its responsibilities are facilitated by a
  well-developed governance structure through board
  committees, including the executive management
  committee (Exco), as well as subcommittees of
  Exco and a comprehensive delegation of authority
  framework.
• This framework assists decision making without
  diluting director accountability and
  responsibility. The board reviews the framework
  regularly.

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Executive Management Committee

• Jacob Maroga - Chief Executive
• Bongani Nqwababa - Finance Director
• Brian Dames - Chief Officer Generation Business
• Erica Johnson - Chief Officer Networks and
  Customer Services
• Dr Steve Lennon - Managing Director Corporate
  Services Division
• Mpho Letlape - Managing Director Human
  Resources Division
• Mongezi Ntsokolo - Managing Director
  Transmission Division
• Johnny Dladla - Managing Director Special
  Project 2010 Division
• Ayanda Noah - Managing Director Distribution
  Division
• Thava Govender Managing Director Generation
  Division
• Kannan Lakmeeharan Acting Managing Director
  System Operations Planning
• Braam Conradie Acting Managing Director
  Enterprises Division

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Exco duties

• The Executive Management Committee (Exco)
  comprises the Chief Executive, Finance Director
  and divisional managing directors.
• The committee is chaired by the Chief Executive
• Exco assists the Chief Executive in guiding the
  business and controlling the overall direction of
  the business, and is responsible for ensuring the
  effective management of the day-to-day operations
  of the business

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Governance structure
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Key facts

• ? One of the top 13 utilities in the world by
  generation capacity and among the top 9 by sales
• ? Generates approximately 95 of electricity
  used in South Africa and 45 of electricity used
  in Africa
• ? Total assets R171 181 million
• ? Cash flows from operating activities R7 655
  million
• ? Capital expenditure R24 764 million
• ? Number of employees 35 404
• ? Electricity customers 4 152 312
• ? Electricity sales 224 366GWh
• ? Nominal capacity 43 037MW
• ? Net maximum capacity 38 744MW
• ? Power lines 366 203km (all voltages)

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Plant mix
TYPE
NUMBER
NET MAX CAPACITY
Coal-fired
13 stations
33 566 MW
Gas/liquid fuel turbine
4 stations
1 378 MW
Hydroelectric
6 stations
600 MW
Pumped storage
2 stations
1 400 MW
Nuclear
1 station
1 800 MW
TOTAL
26 STATIONS
38 744 MW
TOTAL
24 STATIONS
36 398 MW
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Power stations
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Power stations
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Power stations
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Southern African grid
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International comparisons
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International comparisons
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Business performance
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Inadequate reserve margin

• Security of supply threatened
• Unprecedented frequency of load shedding
• National emergency
• Escalating cost of operating the system
• Lack of flexibility
• Extensive usage of expensive generation plant
  (open cycle gas turbine stations)

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Context declining reserve margin
5.1
Net Reserve Margin ()
15 aspiration
2007
2006
2005
2004
2003
2002
2001
2000
1999
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Business performance 2007/8
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A year to remember

• Keeping the lights on massive challenge
• Escalating primary energy cost lowest profit
• Unprecedented stakeholder mobilisation
• Turning point in the regulatory environment
• Increasing momentum on the capital expansion
  programme

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Income statement
Electricity sales growth was 2,9 against 4,9
in the previous year

• Primary energy increased by more than R5bn due
  to
• Steep increases in coal cost and
• Extended use of the diesel-powered open-cycle gas
  turbine stations

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Financial health
Group profit impacted by higher primary energy
costs
Electricity sales growth
Group profit before embedded derivatives

Rm
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Financial health
Return on total assets

• Return on assets decreasing
• Increasing asset base as a result of capital
  expansion
• Profit reducing

7,3 regulatory return
Interest cover
Funding of capital expansion, increased
finance costs, offset by lower profits
Ratio
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Financial health
Funds from operations insufficient to fund
increasing capital spend
Cash generated from operations and capex
Rm
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Funding activities
Net debt raised and repaid
Rm
Successfully issued new bonds during the year
under review
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Operating costs
Primary energy, manpower and maintenance
account for 85 of the operating costs
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Primary energy costs
Primary energy cost increased significantly
during the past two years

• Significant irrecoverable increase in primary
  energy cost
• Increase higher than MYPDallowed spend
• Cumulative variance of R7,5bn
• Mainly due to
• Increased coal cost (transport costs)
• Increased usage of the gas-fired power stations
  (peaking stations as base load)

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Primary energy costs

• Increased utilisation of individual stations due
  to inadequate reserve margin
• Dedicated collieries used above contractual
  volumes
• 85 of all coal purchased from top three coal
  suppliers
• Increased use of short-term contracts
• Increased from 2 in 2001 to 21 in 2008
• Higher cost due to road transportation
• High use of diesel-fired open cycle gas turbine
  stations

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Technical performance
Energy availability factor
Transmission - number of interruptions
Number

• Generation key technical performance measures
  under pressure due to the low reserve margin
• Transmission impacted mainly by equipment failure

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Safety
Employees
Contractors
Public
We are saddened by the high number of lives
lost. We have greatly enhanced the profile of
safety
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System stabilisation
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System stabilisation

• Since October 2007 there was a series of load
  shedding events which culminated in a national
  emergency on 24 January 2008
• Stabilisation programme is focusing on
• Exco restructuring
• Plant performance improvement
• Coal recovery
• Demand reduction

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System stabilisation Exco restructuring

• Introduced two chief officers
• Networks and Customer Services
• Generation Business

• Sys Ops and Planning Division
• Transmission Division
• Distribution Division
• Special Project 2010 World Cup

• Generation Division
• Primary Energy Division
• Enterprises Division

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Key highlights from the stabilisation

• Unprecedented stakeholder collaboration
• National response plan
• National Energy Response Team (NERT) process
• Key industrial customers contribution
• Improved technical performance of plant
• Recovery of coal stock piles
• No load shedding since 1 May 2008

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Total coal stock days Jan 15 June 2008
27 days
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Evidence of electricity savings

• Overall system savings
• Up to 4 of energy savings against forecast
• Key industrial customers
• Up to 6 savings against the forecast demand in
  June 2008

Need to increase level of savings to 10, and
every South African needs to support this process
in order to reduce the burden on the large
industrial customers
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Capital expansion programme
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Capacity expansion

• The Eskom build programme is on track to deliver
  the projects as planned.
• Over the next five years to March 2013, Eskom
  will spend R343 billion in nominal terms on
  capacity expansion significantly higher than
  the R150 billion reported for the five years to
  2012
• Eskom will deliver an additional 16 304MW in
  generating capacity by 2017. Of this, 4 644MW
  will come on stream within the next five years
• Since the programme started in 2005, an
  additional 2 582MW has been commissioned
• A team of more than 2 500 engineering, project
  management and commercial resources, supplemented
  by 19 local and foreign engineering and project
  management companies contracted as partners over
  the next five to 10 years, are actively involved
  in the execution of the build programme

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New build projects
Approved generation projects
Further generation projects for approval
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Approved generation projects
Projects totalling R260 billion approved since
2004
Open-cycle gas turbines 2 078MW
Lima Pumped storage scheme 1 500MW
Return to service stations 3600MW
Ingula Pumped storage scheme 1
352MW
18 886 MW of power generation capacity committed
since 2004

• Return to service stations 3 600MW
• Open cycle gas turbine stations 2 078MW
• Ingula pumped storage 1 352MW
• Medupi coal-fired station 4
  788MW
• Renewable wind facility 100MW
• Kusile coal-fired station 4
  818MW

Renewable 100MW Wind facility
Bravo (coal) 4 818MW
Medupi Coal 4 788MW
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Approved transmission projects
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Spending since 2004
Capital expenditure of R53 billion since 2004.
Budgeted R46 billion for 2008/9
R23m per working hour
Budgeted R46 billion
R12.2m per working hour
R24,7 billion
R17,7 billion
R10,6 billion
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Significant highlights return to service

• By 17 July 2008
• Return to service stations
• Camden all 8 units running
• Grootvlei 2 units running
• 6 500 people on site

Open-cycle gas turbines 2 078MW
Renewable 100MW Wind facility
Medupi Coal 4 788MW
Add pictures
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Significant highlights OCGT stations

• By 17 July 2008
• 1 050 MW operational for over one year at
  Ankerlig and Gourikwa stations
• 1 000 MW under construction

Open-cycle gas turbines 2 078MW
Lima Pumped storage scheme 1 500MW
Renewable 100MW Wind facility
Bravo (coal) 4 818MW
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Significant highlights - Medupi

• By 17 July 2008
• First concrete pouring
• 1 000 people on site, 50 of which are locals

Medupi Coal 4 788MW
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Significant highlights - Kusile

• By 17 July 2008
• Site preparation underway
• Work commenced on 1 April 2008

Open-cycle gas turbines 2 078MW
Lima Pumped storage scheme 1 500MW
Renewable 100MW Wind facility
Bravo (coal) 4 818MW
Medupi Coal 4 788MW
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Significant highlights - Ingula

• By 17 July 2008
• Construction on the upper and lower reservoirs
  started
• The total volume excavated in the tunnels is 11
  546 m3

Open-cycle gas turbines 2 078MW
Lima Pumped storage scheme 1 500MW
Bravo (coal) 4 818MW
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Transmission highlights

• 1 000km commissioned
• Six main substations completed
• The Apollo substation refurbishment is on track
  for completion by June 2008
• Servitude rights pose a risk to the transmission
  expansion

Open-cycle gas turbines 2 078MW
Ingula Pumped storage scheme 1
352MW
Medupi Coal 4 788MW
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The funding challenge

• Significant tariff increases by NERSA
• Pass-through of prudent costs accepted as a
  principle
• 20-25 per annum in the next three years
• Significant shareholder support
• R60bn committed
• Significant borrowings
• Up to R150bn both local and foreign in the next
  five years

Lima Pumped storage scheme 1 500MW
Bravo (coal) 4 818MW
Medupi Coal 4 788MW
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Climate change
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Eskoms climate change strategy

• Our intent is to decrease our relative CO2 (Mt
  CO2/MWh), footprint until 2025
• Beyond 2025, we will continually reduce absolute
  emissions in support of national and global
  targets

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Eskoms climate change strategy

• Diversification of the generation mix to lower
  carbon emitting technologies
• Energy efficiency measures to reduce demand and
  greenhouse gas and other emissions
• Innovation through research, demonstration and
  development
• Investment through carbon market mechanisms
• Adaptation to the negative impacts of climate
  change
• Progress through advocacy, partnerships and
  collaboration

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Energy efficiency

• There is a need to remove a certain amount of
  energy demand from the system before 2012, when
  the supply side options will assist in energy
  supply.
• Demand Side Management (DSM) needs to be
  accelerated to achieve the required 10 000GWh
  saving by 2011/12. This requires 3 800MW of
  energy saving devices to be installed over the
  next four years
• Current DSM initiatives include roll-out of
  compact fluorescent lights, solar heating and
  load management projects
• Verified DSM savings of 650,4MW were achieved for
  the year against the Eskom target of 400MW (2007
  169,8MW against the Eskom target of 213MW). The
  mass rollout of compact fluorescent lights (CFLs)
  in early 2008 contributed 389,9MW to these
  savings.

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Renewable energy

• Policy and strategy in place
• Extensive research programme for more than 10
  years
• Focus of research is on overcoming barriers and
  building local capacity
• Klipheuwel wind farm Western Cape - now
  commercial
• Committed to expand to 1 600 MW over the next 20
  years
• Involved in ongoing policy discussions with
  Department of Minerals and Energy

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Environmental performance
Our objective is to ensure continual improvement
in our environmental performance by setting
environmental performance indicators and
management systems and using balanced criteria in
our decision-making processes
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Contribution to society
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Eskom Development Foundation

• Eskom Development Foundation (Foundation) is a
  wholly owned subsidiary of Eskom Holdings
  Limited.  It is an association incorporated on 12
  December 1998 under section 21 of the Companies
  Act.
• The Foundation provides support to economic and
  social projects through grants and donations,
  targeting communities where Eskom implements its
  new build programme and the communities in
  which it operates, and in broad terms supporting
  the theme of energy.
• Annually the Eskom Small Business Expo stimulates
  entrepreneurship and contributes to the
  development of small, medium and micro
  enterprises 159 exhibitors in 2007

New classrooms for Bester Primary School near
Ladysmith
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Contribution to society

• Corporate social investment (CSI) forms an
  integral part of the way Eskom does business.
• Various CSI programmes are executed through
  Eskoms support to governments rural development
  programme, its contribution to the Accelerated
  Shared Growth Initiative for South Africa
  (Asgisa) and through the development work done by
  the Eskom Foundation.

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Electrification
Cumulative number of homes electrified

• 168 538 new connections in 2007/8
• Electrified more than 3,6 million households
  since 1991
• Free Basic Electricity
• 98 of municipalities participating
• Improved the lives of more than one million people

15 month period
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Together, rising to the challenge
Eskom Holdings Ltd
Thank You