Eskom Briefing To Portfolio Committee On Public Enterprises 12 November 2003

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Eskom Briefing To Portfolio Committee On Public
Enterprises 12 November 2003

• Thulani S Gcabashe
• Chief Executive

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1. Eskom Group Strategy
Existing Organisational Structure
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1. Eskom Group Strategy cont.
Strategic Intent
To be the pre-eminent African energy and related
services business of global stature

• African Power Sector based company operating
  primarily in Africa
• Committed to African development through its
  products and services
• Pre-eminent top performer, market presence
• Energy based on core business of electricity
• Related services derived directly from the core
  business
• Global stature global company performing on at
  least equal footing to international peers

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1. Eskom Group Strategy cont.
Mission

• Eskom will grow shareholder value by exceeding
  its local and international customers needs for
  energy and related services

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1. Eskom Group Strategy cont.
Competitive Advantage of Eskom

• Key Competency
• The ability to develop and manage the entire
  extended electricity value chain so as to deliver
  high quality, low cost electricity using low
  grade and scarce resources (eg coal, water) in a
  challenging business, social, natural and
  political environment

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1. Eskom Group Strategy cont.
Eskoms Core Strategy

• Retaining building existing markets whilst
  mitigating impact of industry structure on
  business growth
• Retention of vertical integration through
  globalisation as local industry restructuring
  reduces local market share
• Diversification based on core business
• Enhancing Eskoms long term competitive edge
  through innovative development of new business
  opportunities aligned with our core competencies
• High level of corporate social responsibility

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Eskom Group Strategy cont.Lines Of Business

• A - Production of power
• B - Transportation of power
• C - Trading of power among producers
  wholesalers / bulk
• users
• D - Retailing to end users of power
• E - Related Services
• Bulk telecommunications
• Engineering services
• Consulting
• F - Backward linkage in primary energy
• to enhance A or C

• Competency
• If competitive advantage exists
• Managed for cost reduction or value enhancement

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Other Africa SADC South Africa
Active Investment Portfolio Management
Markets
Markets
Synergy Maximisation - Bundled Products Services
New Business Development, Market Building
Globalisation
Engineering
Bulk Telecomms
Retail
Bulk Telecomms
Surplus Sales
Support
Trading
External Market
Support
Gas
Transport
Focussed Financial Services
Coal
Generation
IT
Nuclear
Core Business Electricity
Derived Competencies Assets
Support Competencies Assets
Core Competencies Strategic Assets
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2. Industry Restructuring

• Generation
• Creation of Generation clusters
  subsidiarisation
• 30 external participation in Generation
• 10 BEE
• 20 Private Sector Participant
• Transmission
• Creation of power exchange as ring-fenced entity
  (SAPEX)
• Retain system planning system operations
• Prepare for separation - Govt owned SA Tx Company

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2. Industry Restructuring cont.

• Distribution
• EDI Holdings created
• REDs boundaries approved by EDI Holdings
• Eskom moving from 7 to 6 regions
• Alignment with Govts objectives
• Draft Restructuring Bill

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3. Shareholder Compact Business Plan
Economic Objective Improving management of
resources
Social Objective Demonstrating exemplary
corporate citizenship harmony with society
Corporate Objectives
Revised Business Model Objective Demonstrating
progress towards achieving Eskoms intended
business model
Environmental Objective Demonstrating exemplary
corporate commitment to a sustainable environment
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3. Shareholder Compact Business Plan cont.
ECONOMIC

• Improve the management of resources through
• Long term financial viability
• Economical, efficient and effective usage of
  resources
• Focus on customer satisfaction
• Excellent technical performance
• Improvement of safety performance

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3. Shareholder Compact Business Plan cont.
SOCIAL

• Demonstrate exemplary corporate citizenship and
  harmony with society through
• Continued focus on affirmative action and
  actively promoting women and disability equity
• Electrification as implementation agen for
  government
• Supply of free basic electricity, taking into
  account the sustainability of the business
• Support for socio-economic development
• Support for NEPAD

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3. Shareholder Compact Business Plan cont.

• ENVIRONMENTAL
• Manage ESKOMs impact on the environment
• REVISED BUSINESS MODEL
• Demonstrate progress towards achieving ESKOMs
  intended business model through
• Diversification of markets, products and services
• Restructuring ESKOM to support the strategic
  intent and align with Government policy

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3. Shareholder Compact Business Plan cont.
Financial Ratios 2003 2004 2005
Sales growth, GWh () 2.7 4.3 2.5
Revenue (Rm) 30 414 33 993 36 866
Net income after finance charges (Rm) 5 481 7 277 8 240
Net income after taxation (Rm) 3 442 4 588 5 164
Historic cost return on total assets () 11.1 12.4 13.0
Real return on total assets () 1.6 2.6 3.2
Productivity () 1.3 0.7 1.1
DebtEquity (excl. long-term provisions) 0.31 0.30 0.21
DebtEquity (incl. long-term provisions) 0.54 0.53 0.45
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3. Shareholder Compact Business Plan cont.
Key Shareholder Compact Components Unit 2003
New direct connections No. (000) 200
Electrification costs per connection - Capital expenses (real) R 2 995
Electrification sales per connection kWh 92
Contact fatalities - ESKOM No. 0
Disabling Incidence Injury Rate Rate lt0.4
Affirmative action - Blacks as total of CU-F 56
Affirmative action - Females as total of CU-F 27
BEE procurement expenditure R 000 4 400
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3. Shareholder Compact Business Plan cont.
Key Shareholder Compact Components Unit 2003
Maxicare 80
Technical Sustainability Index 80
HR Sustainability Index 80
Unplanned Automatic Grid Separations / 7000 hours No. 2.2
Unit Capability Factor 90.8
Total system minutes lost No. 4.70
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4. Key Challenges
4.1 DEMAND GROWTH

• Accelerate Simunye RTS
• Contingency plan for high growth
• Implementation
• Build Braamhoek pumped storage
• Decide to build next (Steelpoort) 3X333MW Pumped
  Storage
• Fuel sourcing, siting selection optimisation,
  including EIA
• New 6x700 MW PF station
• Repowering Komati half station with FBC
• Greenfield FBC 500MW options
• 2 new CCGT options (1600MW Coega, 800MW W-Cape)

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4.2 CAPITAL PROJECTS (RM)
4. Key Challenges cont.

• 2004 2005 2006 2007
  2008 Total
• Generation 3921 5678 5482 6183
  6313 27577
• Transmission 2061 3118 1029 861
  640 7709
• Distribution 3062 3210 3134 3196
  3199 15801
• Total 9044 12006 9645 10240 10152
  51087

• Investment in new generation capacity included
• Braamhoek pumped storage R1585m
• New coal power station R 846m

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4. Key Challenges cont.
4.3 SADC POWER PROJECTS

• Northern Mozambique Power Pool
• Cohora Bassa
• Mepanda Uncua
• Kudu
• Western Power Corridor (Inga 1, 2 3)
• Tanzania-Zambia
• Mozambique Malawi

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4.4 FREE BASIC ELECTRICICTY
4. Key Challenges cont.

• Funding Terms Between Eskom Municipalities
• Municipalities identify households
• lt 20Amp supply (Pre-paid)
• lt 150kWh per month (Conventional)
• Subsidy based on 50 kWh
• Retail Price of 34,5c per kWh nationally
• Municipalities invoiced monthly
• Annual renewal of contracts
• On default can approach National Treasury

Govt FBE Task Team to facilitate distribution
signing of agreement
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4. Key Challenges cont.
4.4 FREE BASIC ELECTRICICTY CONT.
Impact (Rm)
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Questions?