Long-term Electricity Supply Contracts (Negotiated Pricing Agreements - NPAs) 20 April 2010

2015/12/08Confidential & Restricted2 The Challenge The current environment made it necessary for Eskom to reflect on its experiences with negotiated pricing agreements (NPAs) and to review existing long-term supply agreements Eskom entered into NPAs with two large industrial customers during the period of excess capacity and low cost electricity in South Africa, with a view to stimulate economic development in the country and the region In the changed environment the sustainability of these NPAs became a matter of concern to Eskom due to: The future negative impact of the agreements on South Africa and Eskom The embedded derivative (ED) volatility arising from most of these agreements The key challenge in addressing this was engaging the counter-parties to amend the current price levels as there is no contractual obligation to review the existing NPAs

2015/12/08Confidential & Restricted3 Progress The counter-parties willingly engaged Eskom on the sustainability of the agreements with the objective of finding a mutually beneficial solution for both parties and for South Africa Eskom appointed Legal, Financial and Strategic advisors to assist and are involving the external auditors to ensure they are comfortable that no EDs at year end wrt renegotiated agreements BHP Billiton: Eskom and BHP Billiton have agreed in principle to amend their current long-term NPAs for the supply of power to BHP Billiton’s Mozal smelter in Mozambique and their smelters (ASA) in South Africa The Term Sheets for Mozal and ASA were agreed and signed on 31 March 2010 Anglo American: Eskom and counter-parties (NamPower & Anglo American (Skorpion Zinc)) have signed a ‘terms-of-reference’ for engagements No specific progress at this stage - initially expressed willingness but now a perceived reluctance by Skorpion Zinc to engage

2015/12/08Confidential & Restricted4 Way Forward Conditions Precedent of Term Sheets: Legally binding document put in place Boards approving and authorising both parties All legal and regulatory approvals are in place Parties’ auditors confirming there are no EDs and no onerous contracts Support by DPE, DoE, NT & Portfolio Committee Eskom is confident that the agreements with BHP Billiton will be finalised by 27 May 2010, once consultation has been finalised and approval has been received from the NERSA The Eskom team is to continue to pursue amending the NPA with Anglo American The proposed solutions for the future pricing agreements are driven by commercial, relationship, accounting, reputational and sustainability aspects and once concluded: will reduce the significance of commodity pricing and foreign currency on the NPAs thereby providing significantly more stability to the Eskom financial statements will result in a bigger overall contribution and could result in a new pricing path which will impact positively on future investment in the country