1 Electrification: An Integrated Implementation Approach [Eskom’s Overview] Presentation to the Parliamentary Select Committee on Finance 22 nd August 2006

2 Contents 1.Brief Introduction/Background 2.Integrated National Electrification Programme [Eskom’s Area of Supply] 3.Alignment of Projects with IDP Process 4.Electrification Challenges 5.Universal Access to Electricity [2012] 6.Free Basic Electricity

POWER STATIONS GENERATION TRANSMISSION LINES TRANSMISSION SUBSTATIONS DISTRIBUTION LINES SERVICE CONNECTION RETICULATION HV LINE (11 & 22kV) TRANSMISSION (400/275 kV) RETICULATION LV LINE (380/220V) DISTRIBUTION SUBSTATIONS Electricity is Generated by burning of fossil fuels (coal, oil, or natural gas), use of nuclear technology and hydro capability High Voltage electricity is carried between Generation and required Distribution through Transmission networks (or Transmission grids) The distribution networks collect ‘stepped down’ electricity from the transmission networks and deliver it to Redistributors /End Users DISTRIBUTION (132/33 kV) The Eskom Regulated Business is currently organised in a vertically integrated structure whereby electricity is produced, transported and delivered to end users. The functional outputs of these activities are managed by Generation, Transmission and Distribution Business Divisions. Customer consumption is measured at the point of supply in KWh. This information is used to measure and bill consumption levels utilised/sold The voltage levels of electricity are further transformed to meet Distribution requirements Business Overview – An Integrated View MUNICIPALITIES

4 Eskom Holdings : Divisional Mandates Generation Transmission Enterprises Division Corporate Distribution To design, build & refurbish Eskom’s assets, act as a catalyst for globalisation for the group and to be the custodian of Eskom’s non- regulated businesses. Eskom Enterprises will also offer strategic and commercial lifecycle services to the line divisions To optimally operate and maintain the plant lifecycle of Eskom’s South African generation capacity assets. To assure regulatory compliance, ensure effective group wide governance, develop policies for compliance assurance and to provide strategic services. To optimally operate and maintain the lifecycle of the South African transmission network. To manage the retail business and optimally operate and maintain, the SA Distribution network, while playing an active role in the restructuring of the EDI. Key Customers Key Customer Division To proactively manage contestable client relationships and to trade energy from Generation and international sources to contestable clients in SA (consumers of >100GWh) and customers abroad

5 Distribution Division : Business Model Customer Categories Wires Business (Engineering/Network) Retail Business (Customer Service) Overall management of network infrastructure in delivery of electricity to end user Functional Areas: Construction of network infrastructure; Installation of meters; Inspection, testing, upgrade & maintenance of equipment Technical customer connections & disconnections Purchase electricity from the wholesale market and sell to end user/ Redistributors Residential Traction Agriculture Commercial Redistributors Prepaid Mining & Industrial Functional Areas: Sales & Marketing Energy Trading Customer Service Pricing & Tariff Planning Call Centre Billing

6 Red 1 Red 2 Red 3 Red 4 Red 5 Red 6

7 Contents 1.Brief Introduction/Background 2.Integrated National Electrification Programme [Eskom’s Area of Supply] 3.Alignment of Projects with IDP Process 4.Electrification Challenges 5.Universal Access to Electricity [2012] 6. Free Basic Electricity

8 Electrification - Energy White Paper Mentions the following key issues: Electrification Planning Unit [INEP BPU] National Electrification Fund [NEF] Economic Development Infrastructure creation Economic Nodal Areas identified/priorotised Integrated National Electrification Programme [INEP]

9 Eskom’s Electrification Programme 3,3m households have been electrified since 1994 Approx. R9b capital expenditure – average cost R3,900 per connection National Government subsidised INEP since 2001 R893m allocated for 2006/7 programme connections to be realised in 2006/7 [after adjustments (target was connections] Connections mainly in rural areas Capacity building programmes achieved through ESDEF Rural Development initiatives in Nodal areas

10 Contents 1.Brief Introduction/Background 2.Integrated National Electrification Programme [Eskom’s Area of Supply] 3.Alignment of Projects with IDP Process 4.Electrification Challenges 5.Universal Access to Electricity [2012] 6.Free Basic Electricity

11 The (INEP BPU) makes recommendations for the approval of the Integrated National Electrification Plan [INEP] to the National Electrification Advisory Committee (NEAC) comprising of inter alia DME, National Treasury, SALGA, AMEU, DWAF, IDT, DPLG and Eskom based on the following criteria: Focus on backlog and apply a rural bias Prioritise based on Integrated Sustainable Rural Development Strategy (ISRDS) Nodal Zones Maximise on available infrastructure Past performance taken into account Government priorities and initiatives such as Integrated Infrastructure Development considered Regional capacity e.g. resources National Electrification Fund Allocation Principles

12 NEF Process for Allocation of Funding to Provinces Use same criteria as in NEAC Adjust programme as per DME requirements and in line with the change process Provincial consultation done through: Provincial IDP/MIG Forums chaired by Provincial Local Govt officials Provincial Energy Forums [where applicable] Final funding allocations to Municipalities are based on the approved budget by DME and are consistent with IDP agreements signed between Eskom and Municipalities Project Life Cycle principles observed

13 Contents 1.Brief Introduction/Background 2.Integrated National Electrification Programme [Eskom’s Area of Supply] 3.Alignment of Projects with IDP Process 4.Electrification Challenges 5.Universal Access to Electricity [2012] 6.Free Basic Electricity

14 Challenges Different challenges for current and proposed programme compared to the 1994 programme Limited Infrastructure [mostly in rural areas] Integration with Government priorities A phased process for step-up programme Step-up of programme – 18 months lead time required Average lead time for bulk infrastructure – 27 months Availability of resources, funding, material, suppliers etc. Ensure availability of adequate capacity Electrical infrastructure in former TBVC states and self governing territories requires major upgrading and strengthening

15 Challenges Harmonisation of electrification and housing programmes Balancing cost against social economic requirements e.g. job creation Ensure availability of data and structural information Cater for household growth as part of step-up programme Development of policies regarding implementation issues such as un-proclaimed areas, land usages etc. Ensure political support in ensuring the speeding-up of housing allocation/tender processes etc. Integration of supply technologies Finalisation of the EDI restructuring Availability of funding up front [R2,5 billion per annum]

16 Contents 1.Brief Introduction/Background 2.Integrated National Electrification Programme [Eskom’s Area of Supply] 3.Alignment of Projects with IDP Process 4.Electrification Challenges 5.Universal Access to Electricity [2012] 6.Free Basic Electricity

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18 National Backlog to date A current backlog of electrification connections of 3.4 million households. An estimated requirement of 5 million connections by If electrification continues at the current rate: 43% of current backlog (excluding growth) will be electrified by % of backlog (including growth) will be electrified by 2012.

19 Universal Access Consideration Step-up programme planning to be phased in (+/- 18 Months) Master plan needs to be in place Cost per connection (Based on existing Eskom trends) R4,970 from 2006/7 R5,522 from 2008 to 2010 R6,075 for 2011 to 2012 High cost per connection to be influenced by : Less infrastructure available Catering for higher supply technology e.g. 10A, integrated development programmes Low density/long line length

20 Universal Access Considerations Cost for social economic developments e.g. job creation, BEE should be made available separately (Community based construction -Department of Labour) Eskom needs to identify risks and consequences of step-up programme Focus Universal Access as follows [shifting target] Western Cape /8 Northern Cape, Free State /9 North West and Mpumalanga /10 Universal Access for the rest – target 2012 Once universal access is reached – business as usual

21 Context ………. Farm worker houses included as part of connections The following were not factored in Non grid concessions/connections Local economic development planning Land restitution issues Emerging farmers [electrification, support and development] Impact of Municipal Infrastructure Grants (MIG) Schools and clinics electrification Planning Targets should be negotiated with Municipalities to ensure alignment

22 Contents 1.Brief Introduction/Background 2.Integrated National Electrification Programme [Eskom’s Area of Supply] 3.Alignment of Projects with IDP Process 4.Electrification Challenges 5.Universal Access to Electricity [2012] 6.Free Basic Electricity

23 FBE Approach National Task Team, comprising of DPLG, DME, National Treasury, Eskom, NER, DPE and SALGA Negotiated One National Contract, and one National Tariff country wide Criteria As per “indigent policy ” of the specific Municipality/Metro Prepaid < 20A circuit breaker or conventional < 150 KWhrs consumption per month Funds flow directly to Municipality through equitable share fund Eskom enters into Funding Agreements with Municipalities/Metros Eskom claims monthly from Municipalities/Metros as per National Tariff. Excess to be claimed from National Government annually

24 Funding Agreement Status [Status end of June 2006] FBE Customers across 242 Municipalities Funding agreements AgreementsExtensions Signed Not Signed10 Discussions to sign agreement still underway with 4 Munics New contracts are being signed for the new municipal year, starting July 2006.

25 FBE Status [Status end of June 2006] “Customers approved by municipality” are as per Funding Agreements and received from municipalities. “Configured customers” are customers that can collect their tokens. The difference between “Approved Customers” and “Configured Customers” is mainly due to data quality. MunicipalitiesCustomers FBE roll out Potential Number of Customers (2.5A To 20A) Customers approved by municipality Configured Actual2222,011,5421,272,8491,061,935

26 FBE – Munics Have Not Rolled Out Name of Munic Munic CodeProvinceNon Roll Out Reasons DipalesengMP 306MpumalangaConfiguration LesediGT 423GautengConfiguration DitsobotlaNW 384North WestList Outstanding UmzumbeKZ 213KwaZulu NatalList Outstanding MasingaKZ 244KwaZulu NatalList Outstanding UmziwabantuKZ 214KwaZulu NatalList Outstanding UmhlabuyalinganaKZ 271KwaZulu NatalList Outstanding KwaSaniKZ 5a2KwaZulu NatalList Outstanding Greater KokstadKZ 5a4KwaZulu NatalList Outstanding ZeerustNW 385North West Preferred Launch date Munics that have signed agreement and have not rolled out

27 Munics With No Agreements Name of MunicMunic CodeProvinceStatus Still Negotiating With Eskom Lekwa TeemaneNW 386North WestNegotiating EdumbeKZ 261KwaZulu NatalNegotiating AbaqulusiKz 263KwaZulu NatalNegotiating NalaFS 785Free StateOwn Distribution Disengaged from negotiations Reason MetsimaholoFS 204Free StateFBE Tariff High NalediFS 171Free StateNot Ready Overstrand WC 032 Western Cape Not Ready Khra Hais Nc 083 Northern CapeWants to increase and decrease cus. nos. monthly MatsikamaWC 011Western CapeDo not accept FBE Policy Govan MbekiMP 307MpumalangaNot ready

28 FBE – Munics In Arrears RegionMunicipalityMunicipality CodeAmount NorthernGreater TzaneenNP333R 19, Northern Total R 19, EasternUmzimkhuluECO5b1R 24, EasternThe UmsunduziKZ225R 3, Eastern Total R 27, CentralMoshawengNW1A1R 34, Maquassi HillsNW404R 423, MamusaNW393R 24, LekwaNW396R 58, Central Total R 540, SouthernQaukeniEC153R 97, Southern Total R 97, Grand Total R 684,931.12

29 Thank You !!