Eskom MYPD2 Nersa Public Hearings Fri 22 Jan Doug Kuni – Managing Director South African Independent Power Producers Association.(SAIPPA)

How did we get here? Eskom carries ZERO risk Monopoly structure and regulatory model. Eskom choices and current situation. Where are the IPP’s? Recommendations.

Eskom carries ZERO risk Eskom revenue: R = (RAB*WACC)+Dep+(O&M)+Cf -Previous applications addressed increases in Opex. -MYPD2 addresses new build Opex and Returns(interest on debt,tax,dividends) to enable balance sheet to fund expansions.(D:E) (New assets funded from RetEarnings,debt,equity) -Formula ensures that consumers pay shortfalls. ALL RISK PASSED ON TO CONSUMER and TAXPAYER(Shareholder ).

Monoply structure and regulatory model. Current structure is “open chequebook.” eg: imprudent decisions, bad choices,all increase in costs passed on to consumer – who has no choice. -NERSA is an IMPLEMENTER of POLICY which is made by DoE. Nersa does NOT determine Policy or Structure. -We are where we are: because the consumer has no choice and Eskom has no competition. No institutional model to facilitate entry of IPP’s.

Eskom choices on new Gx CAPEX Options A %BCDEF Eskom IPP’s Max risk to IPP’sMax risk to consumer 1.Each option has Capex plan: (Medupi,Kusile,Ingula) 2.Each option has Funding plan - no idea at decision point 3.Each option has Tariff plan - no idea at decision point Eskom chose maximum risk to consumer with NO IDEA on 2,3.

Where are the IPP’s? IPP’s have been queuing to get into SA market. They saw the opportunities. Low tariffs(unrealistic) and regulatory environment have kept them out. Eskom control of the market has dampened appetite & frustrated IPP’s. If structure does not change, IPP’s will be cautious to engage SA.

IPP required environment: Competition in Gx and neutral Grid. Independent System Operator & Tx Grid. IPP generators bid into SO with PPA Eskom generators structured as stand alone generators and bids on SAME BASIS as IPP’s to SO. Above structure ensures least cost to consumer as generators are dispatched by merit order.

Recommendations. 1.Smooth shocks to tariff by lower hikes, to cushion economic recovery.(35%x3yrs is risking further economic decline post global credit crisis!) 2.The Shareholder CANNOT abscond and should address the funding plan for the current committed Gx plan (not more!). Economic survival is a priority ! (Should I be mentioning this?) 3.Further new Gx capacity taken up by IPP’s. 4.Eskom costs need to be sanitised.(Tariff is funding a lot more than electricity.)

SAIPPA Thank you!