1. 1 Eskom Distribution (An Integrated Development Approach) Presentation to the Portfolio Committee on Public Services and Administration 5 June 2006

2. 2 Contents 1.Brief Introduction/Background 2.Eskom’s Electrification programme 3.Alignment of Projects with IDP Process 4.Electricity Universal Access Approach [2012] 5.National RED – Conceptual Design 6.Progress on Billing Systems [Revenue Enhancement] 7.Electricity Power Challenges in the Western Cape

3. 3 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

4. 4 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

5. 5 Contents 1.Brief Introduction/Background 2.Electrification programme 3.Alignment of Projects with IDP Process 4.Electricity Universal Access Approach [2012] 5.National RED – Conceptual Design 6.Progress on Billing Systems [Revenue Enhancement] 7.Electricity Power Challenges in the Western Cape

6. 6 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]

7. 7 Eskom’s Electrification Programme 3,3m households have been electrified since 1994 Approx. R9b capital expenditure – average cost R3900 per connection National Government subsidised INEP since 2001 R873m allocated for 2006/7 programme 120 000 connections to be realised in 2006/7 [after adjustments (target was 160 000 connections] Connections mainly in rural areas Capacity building programmes achieved through ESDEF Rural Development initiatives in Nodal areas

8. 8 Challenges Different challenges for current and proposed programme compared to the 1994 programme Limited Infrastructure [mostly in rural areas] Integration with Government prioritiess 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

9. 9 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]

10. 10 CONTRIBUTION TO INTEGRATED SUSTAINABLE RURAL DEVELOPMENT (ISRDP) MANDATE AND STRATEGY The programme was established in 2001 to support the Integrated Sustainable Rural Development Programme in the 15 identified rural nodes. Eskom will continue with other development initiatives as per their mandates. The programme will be reviewed in 2010. MANDATE AND STRATEGY

11. 11 Spread of Projects [In Nodal Areas] Region/AreaAmount (R) Eastern Cape [8 Projects]17 145 282 Northern Cape [5 Projects]8 278 350 Central Karoo [2 Projects]2 400 000 Free State [1 Project]1 200 000 Limpopo [8 Projects]8 762 355 KwaZulu Natal [11 Projects]21 690 000 TOTAL CONTRIBUTION59 475 987

12. 12 Type of Projects Funded Rural Development Projects include the following: Upgrading of Classrooms Contributing towards infrastructure for water projects Food security programmes Multi-Purpose Centres – Electricity Provision Agricultural Development

13. 13 Additional Eskom’s Programmes For Social Upliftment Eskom Development Foundation Training and Development Expo for Young Scientists Proudly South African Selected environmental initiatives Chairman and Chief Executive Funds HIV / AIDS / SAAVI, Health Care training / immune boosters Business Against Crime Scholarship Programme Assets donations / BUs donations

14. 14 Contents 1.Brief Introduction/Background 2.Electrification programme 3.Alignment of Projects with IDP Process 4.Electricity Universal Access Approach [2012] 5.National RED – Conceptual Design 6.Progress on Billing Systems [Revenue Enhancement] 7.Electricity Power Challenges in the Western Cape

15. 15 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

16. 16 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

17. 17 Contents 1.Brief Introduction/Background 2.Electrification programme 3.Alignment of Projects with IDP Process 4.Electricity Universal Access Approach [2012] 5.National RED – Conceptual Design 6.Progress on Billing Systems [Revenue Enhancement] 7.Electricity Power Challenges in the Western Cape

18. 18

19. 19 National Backlog to date A current backlog of electrification connections of 3.4 million households. An estimated requirement of 5 million connections by 2012. If electrification continues at the current rate: 43% of current backlog (excluding growth) will be electrified by 2012. 29% of backlog (including growth) will be electrified by 2012.

20. 20 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

21. 21 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 - 2007/8 Northern Cape, Free State - 2008/9 North West and Mpumalanga - 2009/10 Universal Access for the rest – target 2012 Once universal access is reached – business as usual

22. 22 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

23. 23 Journey to Universal Access Eskom identified 3 phases for development of the Universal Access Planning approach: Phase 1 - (Short term): High level planning proposal to achieve universal access in line with Government objectives; Phase 2 - (Medium term): Detailed planning proposal per municipality for the current Medium Term Expenditure Framework 3 year cycle (with refined Phase 1 planning proposal); and Phase 3 - (Long term): Long Term approach on the development of the Universal Access Plan (UAP).

24. 24 Project Charter for Phase 3 (2 Stages) Project charter on how the plan might be prepared, based on 2 stages: Stage 1: UAP Business Case l Review the 3 year rolling electrification plan and related available data, for the 3 year MTEF cycle as per NT process and to be gazetted by February 2007; and l Develop DME Business Plan (Case Study). Agree upfront on what the DME requirements are for a BP. The minimum requirements are: l Scope and definition of what is required. l Resource requirements with a 2012 view broken down per year. l Scenario sketching and sensitivity studies. l Risk identification and mitigation The biggest risk is that Eskom must do more than 350 000 connections within any year.

25. 25 Project Charter for Phase 3 (2 Stages) Stage 2: National requirement for Universal Access l Compile the Connection Master Plan & Network Development Plan, noting needs of low density areas & small scale farming, & constraints of the 2012 target; l Assess impact on Eskom Generation & Transmission, other operational issues, financial viability, recommended subsidies, tariffs, & refurbishment; l Assess application of technologies (including non-grid), appropriate execution strategies, resource availability & timeframes; l Align to Electricity Supply Industry & Electricity Distribution Industry restructuring, development plans, other planning processes & government initiatives; and l Compile “next phase” detailed projects & timelines after Government decisions.

26. 26 Stage 2 Project Approach

27. 27 Programme & Journey Management (includes managed involvement of Government, metro REDs & indepe Master Planners Data Mgt Electrification Planning Refurbishment Commercial: Strategic Sourcing Operational: impact on -Maintenance -Systems -Headcount -Skills -Finance Geo Based Load Forecasting Business Support to Programme Programme and Journey Management Master Planning Data Mgt Electrification Plan Refurbishment Commercial: Strategic Sourcing Operations: Impact on -Maintenance -Systems -Headcount -Skills -Finance Geo Based Load Forecast Business Support to Programme Strategic Studies (includes managed involvement of Government, Metro REDs & independent) Steering Committee DME & Stakeholders Stage 2 Work Streams

28. 28 Contents 1.Brief Introduction/Background 2.Electrification programme 3.Alignment of Projects with IDP Process 4.Electricity Universal Access Approach [2012] 5.National RED – Conceptual Design 6.Progress on Billing Systems [Revenue Enhamcement] 7.Electricity Power Challenges in the Western Cape

29. 29 Background Cabinet decision of 14 September 2005: “… six metro REDs needed to be set up as soon as possible after the local government elections, and that other areas would be covered under separate local REDs or a national distributor. Eskom will continue to play a critical role particularly in the national RED” Meeting of the economic cluster ministers (DPE, DME, dplg, National Treasury) on 29 November 2005: 6 Metro REDs confined (for the 1st phase) to metro boundaries - to be confirmed by March 2006 Business model for national RED in place by June 2006, subject to realistic timeframes January 2006: Minister of Public Enterprises requested Eskom to conceptualise the national RED with concrete proposals on management & governance     February-May 2006: Financial Viability analysis. Awaiting Cabinet approval.

30. 30 Key Features of the National RED Use the Eskom national footprint as the basis of the National RED - enhanced economies of scale through proven technology, business processes & scaleable IT solutions - improved service delivery through customer focused value chains - sustained industry skills in various centres of excellence - national planning and infrastructure development -earlier progress - limited dependence on RED creation -a base for equitable national tariffs Staff Benefits -stability for industry employees Credible consolidation vehicle for municipal electricity undertakings - immediately address weak rural distribution - leverage on Eskom experience of TBVC and SGT take-overs - equalise the financial impact of restructuring through inclusion in the national rate base Support free basic electricity & universal access to electricity by 2012 -proven Eskom track record particularly in rural electrification -economies of scale with respect to planning, project management & national infrastructure development -delivery of national electrification infrastructure -government interaction on electrification funding and reporting limited to a single service provider (national RED) as opposed to multiple municipalities

31. 31 Benefits to Municipalities MUNICIPAL REQUIREMENT NATIONAL RED OFFERING Financial Position not adversely affected Secure cash flow through asset compensation (sale or lease) Effective and efficient electricity service provision Effective service provision based on regulatory standards Delivery on Electrification and FBE targets based on contractual agreements Effective and Efficient non- electricity service provision Opportunity for focused attention to non- electricity services Eskom support for non-electricity municipal services e.g. billing, cash collection & contact centres Equitable electricity tariffs Low equitable tariffs in the long term due to enhanced business efficiencies through consolidation and economies of scale National RED a base for equitable national tariffs

32. 32 Non-Electricity Municipal Service Provision [Conceptual Design] 3 rd Party cash collection Customer Water Meter Elect. Meter Finance Water / Sewage Operations Municipality Finance Contact Centre Billing & Account Ops Electricity Dispatching Copy Billing & Account Ops Dispatching Water / Sewage Trouble Calls Electricity Account All trouble calls & bill queries Refer to municipal account Copy Billing & Account Ops Copy Billing & Account Ops Electricity Wires Electricity Trouble Calls Refer to Electricity account Shared Service KSACS Meter Reads Meter Reads Rates & Services Account Municipal Services Revenue 3 rd Party water credit Management National Distributor ESKOM Single Customer Data Base Information & Cost for service Electricity Revenue Information

33. 33 Summary The proposed conceptual design of the national RED fully supports the national objectives The national RED will be an effective consolidation vehicle for non-metro municipalities Initially, minimal restructuring effort is required to immediately address the problems of rural distribution The national RED will significantly contribute to meeting the target of universal access to electricity by 2012 Eskom’s national footprint will provide the base for significant benefits through economies of scale and skill

34. 34 Summary Municipalities will benefit from the process through: secure cash flows from asset compensation enhanced non-electricity service provision through a service provided by the National RED The financial implications of the national RED divesting of its business in the Metro boundaries as well as transferring in municipalities are manageable

35. 35 Contents 1.Brief Introduction/Background 2.Electrification programme 3.Alignment of Projects with IDP Process 4.Electricity Universal Access Approach [2012] 5.National RED – Conceptual Design 6.Progress on Billing Systems [Revenue Enhancement] 7.Electricity Power Challenges in the Western Cape

36. 36 Strategy Target 6 Munics from the list of 12 as a pilot Liaise with DPLG Service Delivery Facilitators locally Customised offering per Munic from: Electricity provision Contact Centre Account Operations Water, rates, sewerage, refuse billing Systems

37. 37 List of 12 Munics with Service Delivery Facilitators Proposed MunicipalitiesPopulation# of Households Other services 1st phase suggestion Eskom Region 1Mafikeng Local Municipality (NW)259,47864,674 C 2Makhuduthamaga Local Municipality (LP)262,90353,156 N 3Matjhabeng Local Municipality (FS)408,170120,28830,000 NW 4City of Johannesburg (GP)3,225,8121,006,931 5Tsantsabane Local Municipality (NC)31,0137,227 6Greater Kokstad Local Municipality (KZN)56,52819,625 7UMngeni Local Municipality (KZN)73,89620,488 E 8Dr. J S Moroka Local Municipality (MP)243,31353,582 9Cederberg Local Municipality (WC)39,32610,366 W 10Nelson Mandela Metropolitan Municipality (EC)1,005,778260,799 11Buffalo City Local Municipality (EC)701,890191,04650,000 S 12Moretele Local Municipality (NW)177,90543,008 TOTAL6, 486, 0121,851,190 228,684

38. 38 High Level Assessment and Recommendations There appears to be no major technical obstacles We can use Eskom’s Billing and Contact Centre Systems Staff and systems are scalable Municipal customer impacts One municipal bill for all services separate from any Eskom bill No change to current municipal bill layout and logo New account id will be allocated to the customer Need to convert sufficient history to enable accurate estimates Time Frames At least 10 months to set up systems

39. 39 Contents 1.Brief Introduction/Background 2.Electrification programme 3.Alignment of Projects with IDP Process 4.Electricity Universal Access Approach [2012] 5.National RED – Conceptual Design 6.Progress on Billing Systems [Revenue Enhamcement] 7.Electricity Power Challenges in the Western Cape

40. 40 Eskom Peaking Generation 400 MW Palmiet Western Cape Network Note: The above excludes The City of Cape Town’s generation Load Winter Max : 4250 MW Summer Max : 3900 MW Transmission Capacity 2400 - 2800 MW Koeberg Generation 1800 MW

41. 41 What happened? DateIncidentResulting Impact on Supply 11 November 2005 Switchgear failed Transmission lines and transformers tripped Loss of supply 16 November 2005 Fire under the line Koeberg Unit 2 shutdown Loss of supply 23 November 2005 Controlled shutdown of Koeberg Unit 2 Load shedding due to network limitations 25 December 2005 Controlled shutdown of Koeberg Unit 1, foreign object detected Loss of supply 18 to 19 February 2006 High pollution levels and misty conditions Kendal Unit 6 and Koeberg Unit 2 shutdown Loss of supply Full black-out Subsequent load shedding 28 February 2006 Multiple line faults Shutdown of Koeberg Unit 2 Subsequent load shedding

42. 42 What does this mean? – Supply Capacity End July 27 March 2006 24 April 2006 19 June 2006 22 May 2006 25 Sept 2006 28 Aug 2006 Both Koeberg units operational Limited electricity supply Sufficient electricity supply Koeberg Unit 2 Koeberg Unit 1 One Koeberg unit operational at a time Koeberg Unit 1 Koeberg Unit 2 Shut down Koeberg Unit 2 for refuelling at end of May Complete repairs to Koeberg Unit 1 before end of May Shutdown Generating electricity Key: Transmission System Intact Palmiet Pumped Storage

43. 43 What does this mean? – Supply Forecast End July Electricity supply forecast (Illustrative) Key: 27 March 2006 24 April 2006 19 June 2006 22 May 2006 25 Sept 2006 28 Aug 2006 Limited electricity supply Sufficient electricity supply Koeberg Unit 900 MW Transmission System 2400 to 2800 MW (varies according to Koeberg output) Koeberg Unit 480 to 900 MW Palmiet Up to 400 MW

44. 44 What does this mean? – Supply Shortfall End July We need more electricity than can be supplied Enough electricity to meet needs Electricity supply forecast Electricity need/demand forecast Key: Gap = Electricity Supply Shortfall of 300 to 400 MW during morning and evening peak times through the winter 27 March 2006 24 April 2006 19 June 2006 22 May 2006 25 Sept 2006 28 Aug 2006

45. 45 What are our Action Plans? Koeberg Repairs and refueling Transmission Grid activities Load Shedding Plan Demand Side Management (DSM) No shortage of electricity supply after the end of July since supply will be provided by: Koeberg Unit 1 Koeberg Unit 2 Palmiet (during peaks) Transmission System End July We need more electricity than can be supplied Enough electricity to meet needs

46. 46 Koeberg - Update AreaProgress UpdateRisks Unit 1 Synchronised on to the grid at 10h30 on 17th May Steadily increasing its power output Currently generating 99% (890 MW sent out) power Final adjustments to be made before increasing to full power At this stage there are no major known risks on the plant Unit 2 Unit 2 shutdown during the early hours of the 22nd May for its routine refuelling shutdown Shutdown is planned for 59 days Should synchronise on to the grid on the 19th July As it is early days in the outage no new risks or threats have been identified

47. 47 Issues to note Electrification Progress to date and funding requirements Universal Access Approach/Strategy Co – ordination of projects to meet IDP requirements Training, development and capacity building initiatives as part of Eskom’s social responsibility programme Revenue Enhancement pilot project REDS and associated benefits Western Cape recovery Plan

48. 48 Thank You