1. 1 The Eskom price adjustment Effective 1 July 2009

2. 2 This presentation provides information on the 1 July 2009 the price adjustment and impacts in three areas: Background and overall Large power user tariffs Megaflex, Miniflex, Ruraflex and Nightsave tariffs Small power user tariffs Businessrate, Homepower, Homelight and Landrate

3. 3 Operational expenditure Financing and access to finance Increase in Eskom costs Electricity generation costs Background on the Eskom price adjustment Effective 1 July 2009 31.3% increase effective 1 July 2009 (including the environmental levy) 2009 Eskom application to the NERSA 2007 Eskom submission the NERSA for tariff restructure Increased tariff structures cost reflectivity Tariff component changes primarily to the large power user tariffs. No change to the Homelight tariffs The NERSA Approval of the tariff restructure in December 2008 1 July 2009 Eskom standard average tariff adjustment 1) Restructured tariffs 2) 22.7% Price increase (excluding levy) 3) 8.8% Environmental levy 4) Lower price increase to the poor

4. 4 1 Restructure to the standard tariffs (max +3% per point of delivery)

5. 5 1 Restructure to the standard tariffs (max +2% per point of delivery ) Megaflex Municipal tariff

6. 6 The restructured standard tariffs Submitted to the NERSA in August 2007, approved by the NERSA in December 2008. Implementation aligned to the price adjustment with the price increase. The main features of the structural changes are: 1.The unbundling of transmission and distribution network charges (only for large power user tariffs). 2.A move to the use of technical loss factors to differentiate energy costs instead of the previous voltage and transmission surcharges. 3.An increase to the voltage differentials between the high and low voltage network charges. 4.An increase in the energy rates and a commensurate decrease in network charges to reflect the higher cost of energy. Total impact of the tariff restructuring is 0.1%. The 2009/10 standard tariffs are the restructured standard tariffs in 2008/9 rand value plus the 1 July price increase.

7. 7 Price increase = Δ (revenue requirement / volume) 1) Revenue requirement 2009/10 2) Calculation of tariff rates3) Price Increase Eskom’s revenue requirement 2007/8 normalized to 2008/9 Approved price increase Eskom’s revenue requirement Admin Networks Tariff E Energy Tariff C Tariff B Tariff A Tariff D Cost allocation to each tariff and provision for network subsidies Tariff restructuring The restructured standard tariffs The rates are calculated to ensure the structural changes and recover the approved revenue requirement. Normalized to the 2008/9 NERSA approved revenue requirement.

8. 8 The 1 July 2009 price change 1 Restructure to the standard tariffs (max +3% per account) Retail 7% Wires 25% Purchases 68% +22.7% (excld. total levy) 2 Price increase equally applied to all components excluding levy

9. 9 The Eskom standard tariffs’ effective 1 July 2009 The NERSA 25 June decision Effective 1 July 2009 31.3% on the average price of 25.4c/kWh – R65billion 2009/10 FY Implementation of the restructured rates 0.1% impact on the overall 1 July 2009 price adjustment 1.Stronger energy demand signal. 2.Increased cost reflectivity. 3.Affordability measures for the poor. 4.Implementation of Government initiatives to reduce the SA carbon footprint.

10. 10 Environmental levy average cost the generators’ gate The Environmental levy Methodology to ensure an equal signal on all electricity sales for the environmental levy Eskom non-renewable production @ 2c/kWh 187.3TWh Auxiliary -11.6TWh Eskom renewable production @ 0c/kWh 2.3TWh R3 747million for R0million on 178TWh R3 747million @ 2.1c/kWh Average cost allocation including net imports, pumping and technical losses 189.2TWh R3 747million @ 1.97c/kWh Explicit rate Embedded in the tariff prices/rates Average rate on electricity sales only (excluding auxiliary, line losses & pumping) @1.97 c/kWh @0.38 c/kWh 159.8TWh R3 747million @ 2.35 c/kWh Exclusions: Example Auxiliary and technical losses regulated by the NERSA

11. 11 The 1 July 2009 price change 1 Restructure to the standard tariffs (max +3% per account) Retail 7% Wires 25% Purchases 68% +22.7% (excld. total levy) 2 Price increase equally applied to all components excluding levy 0% Load factor (LF) 100% Average Energy Networks and retail 2008/9 structure 2009/10 structure Increase on 2009/10 structure Additional environ. Levy on 2009/10 restructured 3 Total change after levy Rands Average 22.7% +8.8% Tariff restructure: higher energy charges, lower network and retail charges +3%

12. 12 Large power user tariffs Megaflex, Miniflex, Ruraflex and Nightsave tariffs

13. 13 Customer impacts from the 1 July 2009 tariff adjustments Customer electricity costs are primarily subject to their consumption load factor, voltage of supply and location of the supply (urban / rural). The high-load customer will experience the higher cost portion of the electricity price more. % of total costs in electricity tariffs

14. 14 Customer impacts from the 1 July 2009 tariff adjustments The restructured tariffs have a higher increase to the energy rates than networks and retail charges Non-municipal Megaflex tariff at >132kV, Zone 0 Impact of ring-fencing key customer’s costs. Previously spread across the total base Energy related charges increasing the High-load factor customers’ impacts Higher impact in the high-demand season than the low –demand season Benefit from the removal of the >132kV Network access charge

15. 15 0% LF 100% 2008/9 structure 2009/10 structure Env Levy on 2008/9 Env Levy on 2009/10 Rands High LF customers see a higher than average increase The 2009/10 restructured network costs reduced compared to 2008/9 and the energy costs for 2009/10 increased compared to 2008/9. Low LF customers see a lower than average increase Customers tend to compare 2008/9 excluding the Env Levy with 2009/10 including Comparing the impact of the price adjustment Customer comparison requiring understanding of the load factor and the impact of the environmental levy. Ample tools and information on the Eskom internet site.

16. 16 Incremental electricity costs from the 2009/10 tariff charges The increase in the electricity costs is primarily from the higher energy charges. Comparison of July 2009 impact on a 80% versus 30% load factor at 132kV (increase in bill) UC / CD: 120MVA HL factor:61GWh LL factor:23GWh Non-municipal Megaflex tariff at >132kV, Zone 0

17. 17 Non-Municipal customer impact 2008/9 tariffs compared to new structures + 1 July increase Previous years’ prices during April to June. Lower increase due to adjusting 2007/8 prices with 34.2%

18. 18 Non-Municipal customer impact 2008/9 tariffs compared to new structures + 1 July increase Previous years’ prices during April to June i.e. 35.9%

19. 19 Non-Municipal customer impact 2008/9 tariffs compared to new structures + 1 July increase

20. 20 Small power user tariffs Businessrate, Homepower, Homelight and Landrate

21. 21 Rates including the environmental levy in 2009/10 Impacts for customers on the Homepower tariffs (average month) For residential customers on the Homepower tariffs, reduced consumption would also provide an advantage of lower electricity costs. The reduction in the network charges due to the tariff restructure provides some relief with an overall increase lower than 33.6%

22. 22 Rates including the environmental levy in 2009/10 Impacts for customers on the Businessrate tariffs (average month) For small to medium sized commercial supplies, the incremental cost of electricity after the price increase is reduced for energy but higher on network charges. The average impact on the Businessrate tariffs in a typical month is lower than the price increase of 33.6%

23. 23 Rates including the environmental levy in 2009/10 Impacts for customers on the Landrate tariffs (average month) Rural customers (e.g. farmers) see a lower than the 33.6% increase especially for the low consumption Landrate Dx tariff customers.

24. 24 The increase in electricity prices is further reduced for those customers that receive FBE.

25. 25 Summary : Price changes effective 1 July 2009 1.Smaller power users see lower than the 33.6% increase on the total. 2.Homelight sees the lowest impact at 15% 0% Load factor (LF) 100% Average Energy Networks and retail 2008/9 structure 2009/10 structure Increase on 2009/10 structure Additional environ. Levy on 2009/10 restructured Rands Average 22.7% +8.8% Tariff restructure: higher energy charges, lower network and retail charges +3% Large power users Small power users

26. 26 Summary : Subsidies 1 July 2009 TariffAverage costAverage revenueSubsidy% MegaflexR 41,292R 44,619R 3,3277% Nightsave UrbanR 4,526R 5,318R 79115% MiniflexR 840R 904R 647% Nightsave RuralR 2,349R 1,907-R 442-23% RuraflexR 1,835R 1,151-R 685-59% BusinessrateR 456R 540R 8416% HomepowerR 1,548R 1,438-R 110-8% HomelightR 6,151R 4,031-R 2,120-53% LandrateR 4,284R 3,274-R 1,010-31%

27. 27 ESKOM’s MYPD2 APPLICATION

28. 28 Introduction: Process  We have submitted the proposed MYPD 2 application to NERSA, National Treasury and SALGA on 30 September 2009  This marks the beginning of a consultative dialogue with South Africa  NERSA will hold public hearings to obtain further input on the application  Decision is expected from NERSA early in 2010 in order to allow for the tabling of that decision in Parliament  Implementation on 1 April 2010 for Eskom customers and on 1 July 2010 for municipal customers

29. 29 Key pillars of the application 1.The role of Eskom in the economy 1 1.Resolving the funding model for the build 2 1.Invest for the future needs of the country 4 1.Allow for entrance of IPPs 5 6 1.The cost of keeping the lights on 3 Address the impact on economically vulnerable communities

30. 30 The regulatory and funding model New plant funded from… –Retained earnings (reserves) –New equity –Borrowings Regulatory return allows for… –Recovery of prudently incurred: Primary energy Operating Expenditure A recovery of the existing assets: Depreciation A return on the existing assets: Return on Revalued assets

31. 31 The Application Eskom has considered two alternatives Smoothing option Smoothed over three years 45%, per year, over three years Price increase over period to 99c/kWh  R30bn cash shortfall in Eskom  Eskom will look into other funding interventions to address the expected shortfall 146% increase in the first year from 33c to 83c 12% increase in year two from 83c to 93c 12 % increase in year three from 93c to 104c AB Significant increase in year one will have major impact on customers and economy Preferred option as it is progressive over a period. Once-off increase

32. 32 Average monthly bill FBE excluded *revised * * *

33. 33 Conclusion The value proposition of this application Ensuring the continuous supply of power - power is the oxygen of the economy Setting a foundation for a cleaner and greener future Build capacity for the future needs of the country Empower the industrial development and economic growth of the country Create employment opportunities Build confidence in the future