Eskom Presentation to the Parliamentary Portfolio Committee on Energy

21 Aug 2012
Paul O Flaherty
Finance Director and Group Executive Group Capital

Disclaimer
This presentation does not constitute or form part of and should not be construed as, an offer to sell, or the solicitation or invitation of any offer to buy or subscribe for or underwrite or otherwise acquire, securities of Eskom Holdings SOC Limited (Eskom), any holding company or any of its subsidiaries in any jurisdiction or any other person, nor an inducement to enter into any investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation does not constitute a recommendation regarding any securities of Eskom or any other person. Certain statements in this presentation regarding Eskoms business operations may constitute forward looking statements. All statements other than statements of historical fact included in this presentation, including, without limitation, those regarding the financial position, business strategy, management plans and objectives for future operations of Eskom are forward looking statements. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute Eskoms current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to continued normal levels of operating performance and electricity demand in the Distribution and Transmission divisions and operational performance in the Generation and Primary Energy divisions consistent with historical levels, and incremental capacity additions through our Group Capital division at investment levels and rates of return consistent with prior experience, as well as achievements of planned productivity improvements throughout our business activities. Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. Eskom neither intends to nor assumes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In preparation of this document we used certain publicly available data. While the sources we used are generally regarded as reliable we did not verify their content. Eskom does not accept any responsibility for using any such information.
In support of 2

Table of contents

In support of 3

The structure of SA's electricity industry is changing

Change of the industry value chain
ISMO
Independent System and Market Operator

The ISMO Bill was tabled in Parliament on 13 May 2011 The actual path to be followed is being finalised

Eskom
Primary energy sourcing Generation

To be moved out System Transmission operations Distribution Customer Service Construction

Support functions

In support of 4

Eskom Corporate Overview

Context for creating a world class EPCM organisation

Infrastructure is the foundation of economic growth and leads it. For electricity supply, a 1% GDP increase requires a 1,5% increase in electricity supply Eskom was established in 1923 as the Electricity Supply Commission. In July 2002, it was converted into a public limited liability company, wholly owned by the SA government We are one of the top 20 utilities in the world by generation capacity (41 647MW). We generate 95% of the electricity used in SA and about 45% of that used in Africa We are vertically integrated - generating, transmitting and distributing electricity to approximately 4.8 million customers in the residential, mining, industrial, commercial, and agricultural sectors To meet the increasing electricity needs of South Africa, Eskom managed the construction of 31 000MW of new capacity between 1970 and 1990. In the following decade from 1991 to 2005, electricity was in over supply and little was invested in new electricity generation. This resulted in a gradual loss of skills, knowledge and know-how from Eskom and from South Africa. We have now returned to the cycle of under supply. We are committed to meeting the electricity and related infrastructure needs of our customers and contributing to the developmental needs of South Africa

During the last decade we have invested in re-establishing our engineering, procurement, construction and project management expertise to support a massive expansion programme .

Eskom Corporate Overview

Context for creating a world class EPCM organisation

Project Development

Sustainability & Innovation

Project Management

Eskom EPCM Organisation Overview

Delivering world class Engineering, Procurement, Construction and Project Management in Africa

Safety

EPCM Organisation

Construction Management

Governance

Engineering

Procurement

Eskoms EPCM organisation is undertaking and managing amongst the largest construction projects in the world. The Medupi and Kusile Projects rank amongst the top 5 power generation projects in the world by capacity Our portfolio is diverse and includes projects in the energy, transportation, water and communications sectors. Geographically, our portfolio of newly constructed projects are positioned all across South Africa. We are also actively engaging in projects in Southern Africa Through delivery of large construction projects, Eskom has and continues to invest on improving its engineering, procurement, construction and project management (EPCM) capability, its people and its systems, processes and tools We have aligned our contract management, financial systems, project controls, project system and processes, quality standards and safety with that of our peers. Together with lessons learnt, we are embedding this into the EPCM organisation. Increasing supply from local industry and creating jobs is critical. This requires knowledge, skill and technology transfer. We continue to actively drive this by incentivising industry partnerships, employing local labour and through training Since 2005, we have delivered 5 756 MW of generation capacity , 4 163.9 km of transmission network, and 20 195 MVA of substation transformers. The infrastructure currently under construction will create approximately 40 000 jobs and more than 50% of the spend will be local
7

Eskom EPCM organisation has a diverse infrastructure portfolio and which it continues to deliver upon
Actual delivery since 2005 (as at end June
2012)

Project Development

Sustainability & Innovation

Project Management

Safety

EPCM Organisation

Construction Management

Governance

Engineering

Procurement

Capital investment allocation over the five financial years from 1 April 2012 R323 bn

Within a global context, we continue to benchmark ourselves and embed improvements

The world has changed since the last built power stations

Project Development

Within a global context, we continue to benchmark ourselves and embed improvements

Sustainability & Innovation

Project Management

Safety

EPCM Organisation

Construction Management

Governance

Engineering

Procurement

Aspect of Project

Ranked by # of Associated Lessons-Learned 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Construction Industry Institute

Project Definition Readiness Assessment

Cost Planning & Develop. Specifications Schedule Design Criteria Contract. Strategy & Scoping Mechanical Civil & Structural Project Management Execution Procurement Executive Management Permitting Boiler Turbine Siting Communication & Coordination Site Layout Construction Management Material Handling Geotech Project Staffing & Organization Electrical and Controls & Instrumentation Construction

No. of Associated LessonsLearned 79 73 69 65 56 49 48 39 37 36 32 28 27 25 22 22 22 16 16 14 13 13 13 10 10

10

New Generation Capacity and Transmission Networks 20052018

Development

0 MW

TBD

200 MW

0 MW

3 253 KM

12 065MVA

Construction

Installed In Construction Total

3 370 MW 330MW 3 700MW

0 MW 9 564 MW 9 564MW

2 084.3 MW 1 332.0 MW 3 416.3 MW*

300 MW 0 MW 300 MW

4 164 KM 2 339 KM 6 503 KM

20 195 MVA 10 210 MVA 30 405 MVA

~ 16 980 MW of new capacity (~5 756 MW installed and commissioned) ~ 9 756 KM of new transmission network (~4 164 KM installed) ~ 42 470 MVA of new transmission strengthening (20 195 MVA installed)

Medupi is the first coal-generation plant in Africa to use supercritical power generation technology
CSP: Concentrated Solar Power PV: Photovoltaic

11

Programme challenges since inception (I/III)

The market within which Eskom is operating was extremely tight, with significant demands on supplier capacity and basic commodities being a feature since 2005

The market

New thinking on contracting and risk sharing was essential based on the following Global demand for new plant was high The supplier market was global and limited Supplier market was experiencing shortages of material, Contracting and components and engineering capacity risk sharing Fixed price or construction commitments were unable to be secured Increased demand for power plants leading to significant escalation in prices Sellers market, not a buyers market Contract and risk-sharing profiles fundamentally changed

Timeline
In support of

Given the reserve margin, the Eskom programme was and is working with very tight timelines

12

Programme challenges since inception (II/III)

Funding

Eskom clearly found itself in a very challenging funding environment. Until October 2010, Eskom did not have a full funding plan to complete the capacity expansion programme; it now has one Despite the importance of executing projects on a tight schedule and within a tight budget, it is Eskoms firm belief that safety is the most important objective of all. The inherent risky nature of major construction activities requires constant management and leadership

Safety

Skills development

The build programme is used to contribute to skills development and facilitate manufacturing capability in South Africa Skills remain a significant factor for Eskom. The competition for skills is fierce, both internationally and locally The new build began with capabilities, processes and systems undefined; the reality is that Eskom currently needs to spend R323bn for the 5 years starting 1 April 2012 and be part of the Integrated Resource Plan 2010 beyond
13

Project Management
In support of

Programme challenges since inception (III/III)

Contractor capacity and competence at all levels to support the execution of build programme is still maturing. This requires greater supervision by Eskom to improve quality, cost, schedule and safety performance

Contractor Performance

In support of 14

Focus is on Medupi, Kusile, and Ingulathe first units will come on line between 2013 and 2014
Construction activities started First unit commissioned December 2013 Fully commissioned May 2017

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Construction activities started

Construction activities started

First unit commissioned 2014

Fully commissioned 2014

First unit commissioned December 2014

Fully commissioned August 2018

Medupi Power Station

Execution partner Coal supply Boiler Turbine Enabling Civils Main Civils Generator transformers

Ingula Power Station

Road works Civil works Infrastructure B&E Quanza Dam construction Silver Rock Concor -WBHO Edwin

Kusile Power Station

Execution partner Coal supply Boiler Main Civils Turbine Enabling Civils Generator transformers

Unit commissioning
Source: Eskom Group Capital Division (Construction Management)

15

Table of contents

In support of 16

The capex for Eskoms 3 largest new build projects ranks among the worlds largest construction projects and will result in the most ambitious infrastructure investment South Africa has ever undertaken
$ billions of capex

Funding required:

R227bn

5 yr capex on rail,
8 port and pipeline

upgrades

Capacity increase as % of Eskoms installed base: Base load increases from Medupi 25% (+9,564 MW) and Kusile Peaking capacity increase from 30% (+1,332 MW) Ingula

Will be 4th and 5th largest coal

Olympic Dam 20 worlds largest mining project plants in the world and 19th largest pumped storage scheme

Direct construction employment: People directly impacted Pace of build of Medupi is 30% faster than previous Eskom and main contractors coal builds

20,000 ~ 155,000

23

Medupi
Three Gorges dam
In support of

Kusile

Ingula

25

Worlds largest electricity project

plus they will keep the lights on for all of South Africa!

17

The contracting set-up at all stations is international and has a large number of interfaces
Medupi FIDIC contract (34) Package title Contractor Package title Contractor

Boiler Turbine Main Civils Accommodation Enabling works C&I LP services Ash Dump Infrastructure Part B

Hitatchi Power Africa Alstom S&E Africa MPS-JV Various Roshcon Alstom LP Serv. Consortium Basil Read

Terrace Coal & Ash ELB Engineering Services Coal Stockyard ThyssenKrupp Materials Electrical Power
Equipment

Actom

Handling

Installation Chimneys and Silos Water treatment 3rd party inspection LV switchgear

Actom Aqua Engineering SA Moodys Tatas, and others General Electric SA

Kusile FIDIC contract (46) Package title Contractor Package title Contractor Combustion Waste Terrace TBD Constr. (Phase 1 & 2) Electrical & Aux Power Siemens Coal Stockyard Bateman Africa Terrace Material Handling Bateman Africa Systems Railroad Construction TBD Water Treatment Plant PDNA Chimney Construction Concor Karrena JV Site Services Roschcon

Boiler area

Hitachi Power
Europe GmbH Alstom S&E Africa Kusile Civil JV Alstom Roshcon

Main turbine area Main Civils FGD Terracing Construction Control & instrumentation Miscellaneous structures

Alstom
SSBR JV

Ingula NEC contract (27)

engineering iWeNhle cost (Pty) Ltd

REPORT

62-7601 Tel/Fax: 27-11-4 (Cell: 082-457-3213)

thwa M R Nhlenge M C Webb

-6952) (Cell: 083-306

Package title Access Roads Infrastructure

Aveng (Africa) Ltd African Construction B&E International Braamhoek Dams

JV CMC Mavundla Impregilo Joint Venture Quanza Group JV (Pty) Ltd

Contractor

Quarry Dams In support of

Construction Main Underground & Access Tunnel 18 Construction

Package title Turbines & Generators, Electrical Auxiliary Plant, Transformers Mechanical Auxiliary Plant

Contractor ABB South Africa (Pty) Ltd, Siemens (Pty) Ltd

VOITH SIEMENS
HYDRO-VOITH FUJI TBD

Optic Fibre & IT

Comms

Build progress to date (as at 30 June 2012)

5 756 MWs

4 164 KMs

20 195 MVAs

In support of

Current capacity expansion plan

200

894

11256

In addition, Eskom has commenced the development of a 100MW CSP plant

In support of 20

Significant progress in build programme began in 2005 with completion in 2017/18

% of estimated total cost spent as at 30 June 2012
36% 118.5 64% 91.2

R billion spent and to be spent on the capacity expansion programme (excluding borrowing costs capitalised)
In addition, we plan to spend: More than R10 billion over each of the 5 years to strengthen, refurbish and expand our Distribution network; and R57 billion on refurbishing our generation plants over the 5 years 53.5%
50% 23.8 90% 19.7 33.5

In support of

23,7
21

Project cost benchmarks - overnight cost ($/kW) benchmarks

Source

Exchange Rate R/US$

7.4

Technology

Overnight cost ($/kW)

Cost Components

Medupi Overnight Cost ($/kW)

Kusile Overnight Cost ($/kW)

EPRI (May 2010) Data for IRP2010

Pulverized Coal 2,403 - 2,656 with FGD Pulverized Coal 2,091 - 2,281 without FGD Super-critical with and without carbon capture Super-critical from various countries

Basic cost Contingency

2,210

2,399

Lazard (June 2009)

8.3*

2,800 - 5,925 672 - 2,539

Basic cost Contingency ODC IDC Transmission

2,786

3,269

IEA (2010 Edition)

8.2

Basic cost Contingency ODC

2,048

2,325

EPRI: Electric Power Research Institute IRP: Integrated resource Plan FGD: Flue Gas Desulphurisation

ODC: Owners Development Cost IDC: Interest During Construction IEA: International Energy Agency

In support of 22

Funding plan R300 billion to 2017 as at 31 March 2012

Amount Draw-downs supported by to date Government Rbn Rbn 32.9 20.0 20.4 0.0

Source of funds

Funding sourced Rbn 90.0 70.0

Currently secured Rbn 32.9 70.0

Bonds Commercial paper

Export Credit Agency backed

World Bank loan AFDB loan DBSA loan Shareholder loan Other sources Totals Percentages
(1) As

32.9
27.8 20.9 15.0 20.0 23.4 300.0

32.9
27.8 20.9 15.0 20.0 13.2 232.7 77.6%(1)

15.6
5.6 5.9 3.0 20.0 0.8 103.8 44.6%(2)

0.0
27.8 20.9 0.0 20.0 4.9 94.0 40.4%(2)

In support of

(2) As

a percentage of the R300bn funding sourced a percentage of the currently secured total 23

Table of contents

In support of 24 24

Kusile and Medupi will be the third and fourth largest coal-fired power plants in the world, respectively

Higher than Sandton City Towers

4x more investment than Gautrain

Coal-fired power plants (MW) 1 Taichung (Taiwan, 7 1001) 2 Waigaoqiao (China, 5 000) 3 Kusile (South Africa, 4 800) 4 Medupi (South Africa, 4 764) 5 Zouxian (China, 4 540) 6 Kendal (South Africa, 4 374) 7 8

4x

~113m

Medupi

In support of 1 = 5 500 existing + 1 600 planned

25

In the construction of Medupi, Kusile and Ingula, Eskom will ensure that this contribution is aligned with SA macro economic principles
SA principle A united, democratic and prosperous South Africa Medupi, Kusile & Ingula planned contribution BEE contribution: BWO contribution: SME contribution: Local Content: R21.1 billion R 7.6 billion R7.3 billion R63.3 billion

Leveraging the role of state-owned companies (SOCs) to set a foundation for growth and development of the economy A thriving economy connected to the world and integrated with the broader African continent A sustainable economy, not harmful to the environment and committed to climate change mitigation initiatives

Electricity consumption is correlated to economic growth. Adding 10 897 MW of capacity supports SAs long-term growth objectives Contribution to economy ~R170 billion construction spend1

Use super critical technology (less CO2 emissions per kg coal than subcritical) FGD will be installed New jobs (Direct + Indirect ) ~40 000 jobs created

Eradication of poverty and unemployment

Enhancing the potential of each citizen through an integrated education and skills development system
1 Total cost of projects excluding interest, cost of cover, ODC, and contingency In support of The completion of Medupi, Kusile and Ingula is important as it

Training and skills development is a critical component of all of the new jobs that will be created

will contribute substantially towards the achievement of the six macro economic principles of South Africa 26 26 26

As such, the programme will have significant impact on local industry, skills, jobs, infrastructure and regional development

Local content
>50% of local content directly benefiting the SA economy

2Local skills
development
Rapid growth in SAs skills pool

Jobs
~40 000 jobs created, directly and indirectly

Infrastructure
Development of roads and railways

5Regional
development
Spend and investment in local areas

SOURCE: Eskom Enterprises division and Medupi project, STATS-SA

1 Based on GDP in 2008

In support of 27

1 A large share of the Medupi, Kusile and Ingula spend will go to the local economy, thereby also benefitting local construction
companies
%

Composition of total project spend

Examples from Medupi, Kusile, and Ingula Main civils

Medupi

42%
Foreign

58%
Local

Main civils (MPS-JV): 84% of contract are spent locally Main civils

Kusile

44%

56%
Local

Foreign

Main civils (KCW-JV): 65% of contract are spent locally Access roads package

26%
Ingula
Foreign

74%
Local SOURCE: Medupi, Kusile, and Ingula project management In support of

Main civils (Grinaker-LTA): 100% of contract are spent locally

28

2 Many skills are being developed as local content

requirements kick-start whole new industries in SA

90% of major orders placed on mechanical equipment
Equipment Local content >90%

New fabrication and training facilities established

Brand new fabrication facility built in Nigel Boiler Membrane Wall Workshop Two new CNC Benders commissioned New welding training centre CNC header drilling machine

Air Cooled Condenser (ACC)

Major pumps Heaters LP outer casing Unit 6 Feedwater tank Heaters Drain recovery pumps

>55%
>45% 100% >80%

Training facilities in Pretoria and in Wadeville

>20%

In support of SOURCE: Medupi project management 29

2 The programme will fuel demand for relevant graduates

and artisans and will grow the wide required skill base
Medupi would
consume 43% of a years relevant university graduation (engineering, project planning, etc.)

deploy 48% of a years output of artisans

rapidly grow South Africas supply of engineers, artisans, R&D and project management experts

develop a wide range of additional skills through Asgi-SA commitments

In support of

SOURCE: Eskom Enterprises division and Medupi project 30

3 opportunities will touch the lives of ~160 000 people

Across Medupi, Kusile, and Ingula new employment

DIRECT
On site construction Supporting project staff Coal mine expansion Transmission expansion Crocodile River expansion Ongoing operations Subtotal

Medupi 8 2 2 2 3 300 200 100 700 000 700

Kusile 7 200 2 000 2 000 200 600 ~12 000

Ingula 4 100 300

100 ~4 500

~19 000

INDIRECT
Social services + local business
Total employed x family multiplier (4/family)

1 700
20 700

1 700
13 700

1 100
5 600

x4

People directly impacted by Medupi, Kusile & Ingula

~160 000

In support of

Other projects such as 765kV and RTS provide ~ 11 000 direct employment opportunities during construction and a further ~1 700 during operation
31

SOURCE: Eskom Enterprises division and Medupi project

4 infrastructure
National infrastructure

Medupi, Kusile and Ingula will support local and national

Area of impact Roads Example Richards Bay to Lephalale and Lephalale bypass 22 km of new roads reinforcing of 3 bridges: >R500bn, 500 jobs

Ongoing roads maintenance

Maintenance of local access roads: > R100m p.a.

Freight forwarding

Richards Bay facility: R90m, 150 jobs 3 x 38 wagon train per day for limestone, 2 x 12 tank carriers per year of oil maintenance or rail lines: 100 jobs Food, laundry, maintenance security supplied to workforce: >R2bn, 1 000 jobs Hotels to expand significantly

Trains

Local infrastructure

Catering and workforce supply Hotels

Local transport

Additional buses at peak, increased taxis: ~500 jobs

Vehicle maintenance

1 000+ extra vehicles maintained locally: 50 jobs

3 300 houses and accommodation units to be built by Eskom and suppliers: ~R4bn Benefit from Crocodile River diversion pipeline from Kendal

Housing

Water

Sanitation

Sewerage plant upgrade: R50m 7 schools impacted, increased policing, recruitment centre, fire, social club, ICT centre. Ongoing work with stakeholder forums

Social facilities

In support of SOURCE: Eskom Enterprises division and Medupi project 32

Each project will measurably impact the local towns through local spend & investment

Impact on local towns GDP from each project

Lephalale (Medupi)
Delmas (Kusile) Ladysmith (Ingula)

95% 25% 7%

Typical local businesses and infrastructure created

Shops

Civil infrastructure

Other businesses and infrastructure created: Catering Laundry Building companies House maintenance Hotels Entertainment Training facilities Security Schools / education Policing Churches Medical care Banks & financial services

Schools
In support of

Transport
SOURCE: Eskom Enterprises division and Medupi project 33

Table of contents

In support of 34

Build programme overview - Medupi

Greenfields Project - Lephalale (Limpopo Province) 6 unit coal-fired power station Planned capacity 4 764MW Projected project cost to completion ~ R91.2 bn (excl. IDC) Estimated 95% impact on Lephalale town GDP

Project summary

Financial & economic impact

Project development

Construction commenced March 2007 First Unit planned to generate power to the grid between May 2013 and September 2013 Subsequent Units at 6 to 9 month intervals thereafter

In support of

IDC: Interest During Construction GDP: Gross Domestic Product

35

Medupi has been delayed for various reasons, particularly related to the Unit 6 civil and boiler
Civil
~10mths delay

Boiler
~10mths delay

Key delay events

Civil access

Steel modifications

Erection

Root causes

Unanticipated difficulty in levelling site foundation Boiler foundation design not frozen Issues with civil contractor performance

Total delay from 3 events = ~20 months

In support of

Ongoing modifications to structural steel design delays manufacturing and erection timelines Manufacture of incorrect pieces leads to substantial rework

Poor tracking and logistics systems in terms of locating boiler material

Boiler materials not supplied in order needed to support efficient erection Issues with boiler erection contractor performance

36

The boiler is essential for the overall timeline, though it is just one of many construction packages
Medupi consists of 38 packages
P01 Coal Overland Conveyor

of which the boiler is the critical path Delay on the critical path imposes the same delay on the whole project timeline

Major Boiler packages P04 LP Services

P02 Boiler P03 Turbine P06 Water Treatment Plant

P22B Infrastructure & Ash dams & dumps P23 Diesel Generator
P27 Coal Stockyard

Turbine Equipment Main civil P28 Ash Dump P07 Chimney and Silos Accommodation Equipment and P08 Main Civils Ash Overland Enabling works P09 Technical Building P31A Reservoirs C&I Equipment LP services P10 Enabling Site Facilities P31B Clarifiers Ash dump infrastructure P32 Dust Handling P11 Electrical Power Installation and Conditioning P12 LV SwitchTerrace Coal and Ash Gear Coal P13 MV Switchgear stockyard equipmentP33 Terrace Coal Electrical power installation P14 Aux.Transformers and Ash Chimneys and silos P15 Gen Transformers P35A Buildings Water treatment Critical P16 UPS rd Party inspection 3 P17 C & I P35B Buildings Non-technical LV P21 Laboratory Switchgear
P22A Infrastructure & Ash dams & dumps P35C Buildings Technical

In support of 37

Build programme overview - Kusile

Project summary

Greenfields Project - Delmas (Mpumalanga Province) 6 unit coal-fired power station Planned capacity 4 800MW

Financial & economic impact

Projected project cost to completion ~ R118.5 bn (excl. IDC) Estimated 25% impact on Delmas town GDP Construction commenced Mid 2008 First Unit planned to be commissioned December 2014 Subsequent Units 2 & 3 at 12 month intervals and Units 4, 5 & 6 at 8 months thereafter

Project schedule

In support of

IDC: Interest During Construction GDP: Gross Domestic Product

38

Build programme overview - Ingula

Project summary

Greenfields Project - Ladysmith (KwaZulu-Natal Province) 4 unit pumped-storage power station Planned capacity 1 352MW

Financial & economic impact

Projected project cost to completion ~ R23.8 bn (excl. IDC) Estimated 7% impact on Ladysmith town GDP

Project schedule

Construction commenced Mid 2006 First Unit planned to be commissioned 2014 Subsequent Units at 3-month intervals thereafter

In support of

IDC: Interest During Construction GDP: Gross Domestic Product

39

Build programme overview - Return to Service

Project summary

Refurbishment and return to service of previously moth-balled coal fired power stations in Mpumalanga. Camden (8 unitstotal 1 520MW) Grootvlei (6 units1 180MW) Komati (9 units1 000MW)

Financial & economic impact

Projected RTS cost to completion ~ R25.5 bn (excl. IDC)

Project schedule

All 8 units at Camden power plant are now in commercial operation All 6 units, have been commissioned at Grootvlei. 6 units, each rated at 125MW, have been commissioned at Komati power station. 3 final units expected to be commissioned by 31 March 2013
IDC: Interest During Construction 40

In support of

Build programme overview Transmission Construction Portfolio 2005 to 2018

Transformers - ~42 470 MVA planned with 20 195 MVA installed. Large projects in construction include: 765kv (Planned: 12,000 MVA) Cape Grid (Planned: 1,500 MVA) Northern Grid (Planned: 3,500 MVA) Central Grid (Planned: 3,600 MVA) Transmission Lines ~9 756 km planned with 4 164 km installed. Large projects in construction include: 765kv (1,689.9 km) Northern Grid (1,253.6 km) Cape Grid (621 km) Central Grid (413 km)
Remaining spend in 5 years starting 1 April 2012 is R56 bn excl. IDC (R16 bn for projects in construction and R40 bn for projects in development)

Project summary

Financial & economic impact

Project schedule
In support of

765kV: December 2013 Northern Grid: June 2015 Central Grid: Mar 2015 Cape Grid: Aug 2016

Transmission Development Plan is reviewed regularly with NERSA and the future plan can change depending on IDC: Interest During Construction country needs

41

Table of contents

In support of 42

SA national planning process - driven by Regulations on New Generation

IRP
Feasibility

Fund IPP Procurement PPA

Build

Responsible

Background

The IRP determines which technologies will be built

A feasibility study is conducted and IRP capacity is allocated to the most suitable; IPPs or Eskom

Suitable IPPs are procured through the IPP procurement process

Buyer of electricity signs Power Purchase Agreements (PPAs) with power producer

IPPs often require PPAs prior to obtaining external funding. Such PPAs will require government backing
Eskom, IPPs

Building for Eskom or IPPs can only commence once investment decision has been taken
Eskom, IPPs

DoE

DoE - According to New Generation Regulations

DoE / Single Buyer Minister must Office assign a buyer of each PPA

Regulations state new generation capacity must be represented in the IRP to receive generation and distribution licenses or receive a Section 34 exemption from the minister

This process has not yet been executed and is required for subsequent planning actions

The IPP procurement process must be finalised to ensure participation of these producers

Currently, the Single Buyer Office is ring-fenced within Eskom to sign PPAs based upon the DoE procurement decision

Eskom may receive funding with government backing. Costs are recovered via the MYPD submissions electricity tariff

Construction of IRP projects may be delayed due to required upstream decisions

Status

In support of 43

IRP outcomes
IRP 2010
Total additional new capacity (without committed) until 2030 in GW 25 15% 20 15 10 6,3 5 2,6 3,9 2,4 9,6 1,0 CSP 23% 6% 6% 9% 42% 17,8 8,4 Share of total new GW

Solar PV

8,4

Wind

Coal

Nuclear

Hydro

Gas CCGT

Peak OCGT

Renewables

in 2010 Energy share in 2030

= 260 TWh = 454 TWh

90% 65%

5% 20%

5% 5%

0% 1%

< 0,1% < 0,1%

0% 9%

In support of 44

Long lead times for power generators & related infrastructure require timely firm commitments
New build options
Coal (PF, FBC, imports, own build) MW 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total 0 0 0 5001 5001 0 0 0 250 250 250 250 250 250 250 1 000 250 1 000 250 1 000 6 250 Nuclear MW 0 0 0 0 0 0 0 0 0 0 0 0 0 1 600 1 600 1 600 1 600 0 1 600 1 600 0 9 600 Import hydro MW 0 0 0 0 0 0 0 0 0 0 0 0 1 1432 1 1832 2832 0 0 0 0 0 0 2 609 Gas CCGT MW 0 0 0 0 0 0 0 0 0 2373 2373 2373 0 0 0 0 0 0 474 237 948 2 370 Peak OCGT MW 0 0 0 0 0 0 0 0 0 0 0 0 805 805 0 805 0 0 690 805 0 3 910 Wind MW 0 0 0 0 400 400 400 400 4004 4004 400 400 400 400 800 1 600 400 1 600 0 0 0 8 400 CSP MW 0 0 0 0 0 0 100 100 1004 1004 100 100 100 100 100 100 0 0 0 0 0 1 000 Solar PV MW 0 0 300 300 300 300 300 300 3004 3004 300 300 300 300 300 1 000 500 500 500 1 000 1 000 8 400 0 0 300 300 1 200 1 200 800 800 800 1 287 1 287 1 287 2 998 4 638 3 333 5 355 3 500 2 350 4 264 3 892 2 948 42 539 Total

DoE first wave of renewables targeted 3750MW to be procured in 5 rounds First round of bids yielded 1 400MW (wind 600MW, CSP 150MW, PV 650MW). Advanced stage, contracts being finalised Second round yielded 1000MW. In earlier stages of procurement process

Firm commitment necessary now

Final commitment in IRP 2012

1. Built, owned & operated by IPPs 2. Commitment necessary due to required high-voltage infrastructure, which has long lead time 3. Commitment necessary due to required gas infrastructure, which has long lead time 4. Possibly required grid upgrade has long lead time and thus makes commitment to power capacity necessary

In support of 45

Electricity Potential in the SADC Region

Libya Egypt

Mali

Nigeria

Ethiopia

18 000 + MW Hydro in Ethiopia

+- 3 000 MW Geothermal in Kenya

Kenya

> 20 000 MW Hydro on Angola and DRC

DRC
Tanzania

East Transmission Corridor 1000 MW Hydro in Zambia

West transmission corridor 1200 MW Coal in Botswana 1000 MW Gas in Namibia

Angola
Zambia

Namibia

Botswana

5000 MW Hydro, Coal and Gas in Mozambique

Generation potential in SADC is significant, 275684-01-SADC-v01-11Apr11-DP-pf-CPT.ppt investments in Power Generation and Transmission are needed to unlock potential

46 46

In conclusion, since 2005 until today

The new build programme is significant by any measure. Cost increases are
understood and taken into account, lessons have been learnt and implemented for future projects and across existing projects Good progress has been made, but many serious risks, including contractor performance, will need to be carefully managed in the future. Strong mitigating measures have been and are being put in place to manage these risks The global financial crisis has affected all sectors of the economy, Eskom included. This led to a review of the build program taking into account
Financial contractions of the markets, Resultant re-prioritisation of certain capacity projects and

Delaying the execution of some of the full go ahead on Kusile was given in October 2010

projects

at

certain

times

since

2005;

Macro-economic factors have negatively impacted the build programme:

CPA, and Cost of cover and other market forces

Decisions are required on allocations of build for IRP 2010

In support of 47

Thank you