1. Introducing Competition in the ESI Naresh Singh Head: Compliance

2. Presentation Overview SA ESI Present Structure Present ESI Performance Government Objectives International Experience Competitive structure

3. End Use 171 TWh Domestiic 18.0% Agriculture 3.3% Mining 18.4% Manufact. (Industrial) 43.8% Comm. 9.4% Transport 2.6% General 4.6 % SAPP Imports TransmissionTransmission Distribution Purchases for End Use 181 TWh Municipal and Other Distributors 42.3% Eskom Distributors 57.7% 41.4% 58.5%.1% Gross Generation 190 TWh Eskom 95.7% Munic. 1.5% Private 2.7% SAPP - Exports from South Africa Present Structure in SA ]

4. ESI Performance Approx 4.5 million new households connected - from one third to nearly 70% of population in 9 years Security and Reliability of supply generally good Eskom commercially run - no recourse to fiscus - raises its own finance Power Station availability has improved drastically Power Station load factors have improved Employee numbers have halved Internationally very competitive prices At a glance – healthy sector

5. ESI Performance – Cont Low prices does not necessarily imply efficiency Factors affecting present electricity price in SA: –Cost of Coal –Exemptions from tax and dividends –Major generator capitalisation of 80’s largely amortised

6. Rationale for ESI Reform b Promoting economic growth through efficient electricity sector b reducing government debt through unlocking value in state assets b Introduce Competition b black economic empowerment b attracting foreign direct investment and Private sector participation b promoting the African Renaissance b ensuring security of electricity supply b Give Customers the right to choose b

7. International experience Categories of reform Commercialisation and corporatisation Structural changes to increase competition –vertical unbundling - separate competitive components from natural monopoly - i.e. generation and retail from transmission and distribution with open non-discriminatory access –horizontal unbundling - competing generators and retailers Introduce market trading mechanisms Increased private sector participation Changes in regulatory oversight

8. International Experience - cont A transition process from single Monopolies to, Single Buyer Model, to wholesale competition and to retail competition, monitored by a regulator Monopolies Single Buyer? Wholesale Competition Retail Competition

9. International Experience - cont Growing Consensus for introduction of full wholesale competition Separating generation from Transmission Permitting Non discriminatory Access Breaking up generation into competing companies Creating a wholesale electricity market

10. Proposed SA ESI Structure Introduction of multiple trading platforms Introduction of market service providers Introduction of non producer/consumer participants Introduction of open access on transmission Possible independent Transmission Divesting in Generation to BEE and PSP

11. GenCo 2 GenCo 1 GenCo n Eskom Holdings Eskom Enterprises Imports Power Exchange RED 2 RED 1 RED 6 Special Customers State owned independent Transmission Company Eskom Generation Customers

12. Proposed SA ESI Structure In preparation for Competition: –A Grid Code has been developed and approved by the NER for non discriminatory access –A Multi Market Model has been developed with provision for governance, rules and transitional arrangements –A generation clustering study has been completed which will inform the generator divestment process

13. Market Structure

14. Market Platforms

15. Private sector and competition –Power exchange separated from transmission company –Opportunities for BEE to buy Existing power stations (about 10% of Eskom’s capacity) –Additional sale of one or more generation clusters (portfolios) –Private sector encouraged to invest in new capacity –Eskom to be left in the end with a 70% share of the market

16. Envisaged outcomes of ESI restructuring Achieves government’s policy goals Competition results in improved efficiency and lower prices than would have been the case Less market power to control prices Significant BEE is achieved Fiscal revenue for debt reduction Considerable inward investment Private sector participation attracts international strategic investors Benefits to electricity consumers

17. Conclusion Open, non-discriminatory access to Transmission grid for all market participants No market power in generation Multiple electricity trading mechanisms Present preparation has gone a long way to addressing these requirements

18. THANK YOU