Briefing on Eskom Portfolio Committee on Public Enterprises 18 February Top Secret - 1

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 -

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 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 -

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 -

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 -

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 -

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 MYPD spend is roughly apportioned as follows, Generation (72%), Transmission (14%), Distribution (9%) and Corporate (5%). 7 - Top Secret -

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 -

Year-on-Year Net Energy Sent Out 9 - Top Secret -

Indicative Generation Capacity Expansion Programme Status/Plan – Committed Projects 2 899MW of new generation capacity has been added to the system since Top Secret -

THE END 11 - Top Secret -