1. 1 Eskom : Distribution Division (Electrification) Select Committee : 08 March 2005 Presented by: Mongezi Ntsokolo Managing Director (Distribution Division)

2. 2 CONTENTS Distribution Business Model Electrification National Electrification fund allocation principles Electrification 1994 and onwards 2004/5 Plan Status Feedback Challenges Municipal Infrastructure Grant : Eskom Perspective Free Basic Electricity Black Economic Empowerment General Service Delivery

3. 3 ESKOM HOLDINGS: DIVISIONAL MANDATES Generation Transmission Eskom Enterprises 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 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 South African Electricity Industry Eskom Industry Business Residential Physical Energy Flow Financial Flow Municipalities Currently, South Africa operates in the traditional mode of vertical integration with financial and physical flows following the same path

5. 5 DISTRIBUTION STRATEGIC INTENT Within the Mandate and resulting Distribution Business Model, Distribution has defined its Strategic Intent: Eskom Distribution will lead in: the provision of electricity services and customer satisfaction through empowered, sustainable regional businesses, for the benefit of our country.

6. 6 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

7. 7 DISTRIBUTION REGIONS

8. 8 CONTENTS Distribution Business Model Electrification National Electrification fund allocation principles Electrification 1994 and onwards 2004/5 Plan Status Feedback Challenges Municipal Infrastructure Grant : Eskom Perspective Free Basic Electricity Black Economic Empowerment General Service Delivery

9. 9 The Integrated National Electrification Programme (INEP) recommends to the National Electrification Advisory Committee (NEAC) based on the following criteria: Focus on backlog Apply a rural bias Prioritise on Integrated Sustainable Rural Development Strategy (ISRDS) Nodal Zones Maximise on available infrastructure Past Performance Government priorities and initiatives such as Integrated Infrastructure Development Regional capacity e.g. resource NATIONAL ELECTRIFICATION FUND ALLOCATION PRINCIPLES

10. 10 CONTENTS Distribution Business Model Electrification National Electrification fund allocation principles Electrification 1994 and onwards 2004/5 Plan Status Feedback Challenges Municipal Infrastructure Grant : Eskom Perspective Free Basic Electricity Black Economic Empowerment General Service Delivery

11. 11 HOUSEHOLD ELECTRIFICATION - HISTORY SOUTH AFRICA COST PER CONNECTIONS (R) RURAL CONNECTIONS URBAN CONNECTIONS TOTAL CONNECTIONS 1994 3,176187,53066,853254,383 1995 3,370226,06587,114313,179 1996 3,417261,43845,609307,047 1997 3,159241,88043,662285,542 1998 3,008198,19793,155291,352 1999 2,899173,625125,622299,247 2000 2,647133,672122,351256,023 2001 2,532105,587103,948209,535 2002 2,614107,718103,910211,628 2003 3,384117,10858,288175,396 2004 4,207 126,47743,893170,370 GRAND TOTAL 1,879,297894,4052,773,702

12. 12 ELECTRIFICATION SUCCESS : CUMULATIVE CONNECTIONS 19941995199619971998199920002001200220032004 638 952 1280 1545 1836 2136 2392 2601 2813 2988 3159 Thousands

13. 13 PROVINCE until 1994 1995199619971998199920002001200220032004TOTAL E Cape 60,96746,98471,15776,89274,44561,78739,04128,91326,23533,36229,331 549,114 Free State 37,02418,98414,19323,51825,09912,5675,9726,7349,6816,2374,542 164,551 Gauteng 119,07746,97325,39314,19226,35429,66026,12117,61517,79610,72811,579 345,488 KZN 141,06349,56743,30931,52932,73523,64424,60526,48836,95936,17434,875 480,948 Limpopo 91,48568,46562,66354,47665,68669,47759,97049,21558,40544,18350,889 674,914 Mpumalanga 93,60537,94742,04834,82913,1143,05224,61219,4737,4375,82510,868 292,810 N West 65,63124,66537,26741,83245,21081,76859,20840,35734,15024,77716,879 471,744 N Cape 4,6516,8359,0242,3402,8181,3132,4584,1358,2143,2834,373 49,444 W Cape 25,79112,7591,9935,9345,89115,97914,03616,60512,75110,8277,034 129,600 TOTAL 639,294313,179307,047285,542291,352299,247256,023209,535211,628175,396170,3703,158,613 PROVINCIAL HOUSEHOLD ELECTRIFICATION HISTORY

14. 14 PROVINCIAL SCHOOLS ELECTRIFICATION HISTORY PROVINCE19941995199619971998199920002001200220032004 GRAND TOTAL E CAPE1054118095214149757220390326 1,802 FREE STATE9295894144433164734252 666 GAUTENG48758429146122561523 445 KZN1418217299193866445215256196 1,549 LIMPOPO192340891408010411158246195364 1,919 MPUMALANGA882281762223111362454116 761 NORTH WEST12867123101397089131177136104 1,165 N CAPE643658642511251028 267 W CAPE29265716170323697 328 TOTAL8879901,0285499514834113329811,0941,1968,902

15. 15 PROVINCIAL CLINICS ELECTRIFICATION HISTORY PROVINCE19941995199619971998199920002001200220032004 GRAND TOTAL E CAPE 41228001143549 FREE STATE 8410004000017 GAUTENG 110000000002 KZN 500001300410261 LIMPOPO 523500001013350 MPUMALANGA 7000001000311 NORTH WEST 7080100481433 N CAPE 7100000303216 W CAPE 6700000100014 TOTAL50371628113610532019253

16. 16 CONTENTS Distribution Business Model Electrification National Electrification fund allocation principles Electrification 1994 and onwards 2004/5 Plan Status Feedback Challenges Municipal Infrastructure Grant : Eskom Perspective Free Basic Electricity Black Economic Empowerment General Service Delivery

17. 17 SUMMARY OF 2004/5 PLAN 46,094140,455186,639159,982573,241733,223 TOTAL 1,78811,05712,8456,39926,19032,589 Gauteng 9,47515,75925,23431,72968,741100,470 North West 18.89546,09965,08439,981157,466197,447 Limpopo -388,5008,4627,37915,42422,803 Mpumalanga 6,58016,33022,91034,320121,106155,526 Kwa-Zulu Natal 573,8783,9351,6669,04010,706 Free State 8,05327,67835,73140,360136,032176,392 Eastern Cape 2,1804,7336,9131,41627,58529,001 Northern Cape -8966,4215,525-3,36811,6578,289 Western Cape VARIANCE YTD ACTUAL (Jan 05) BUDGET Year End (March ’05) VARIANCE YTD ACTUAL (Jan 05) BUDGET Year End (March ’05) PROVINCE CONNECTIONSCAPEX - R'000

18. 18 SUMMARY OF 2004/5 PLAN Province Capital R'000 Year to date Expenditure as % of rojection Year End Projected Capital R'000 Year to Date Expenditure as % of Year End Projected Capital ConnectionsYTD Connec tions as % of YTD Connections Projection Year End Projected Connections YTD Actual Connections as % of Year End Projected Connections YTD ActualYTD Projection YTD ActualYTD Projection Western Cape11,6577,359158.4%8,289140.6%6,4214,200152.88%5,525116.22% Northern Cape27,58528,74896.0%29,00195.1%4,7336,08177.83%6,91368.47% Eastern Cape136,032138,09598.5%176,33377.1%27,67830,00792.24%35,85177.20% Free State9,0409,57994.4%10,70684.4%3,8783,285118.05%3,93598.55% Kwa-Zulu Natal121,106132,29391.5%155,52677.9%16,33018,70687.30%22,91071.28% Mpumalanga15,42419,58278.8%23,34366.1%8,5006,925122.74%8,462100.45% Limpopo157,466163,26096.5%197,44779.8%46,09948,85494.36%65,08470.83% North West68,74184,34681.5%100,47068.4%15,75914,961105.33%25,23462.45% Gauteng26,19028,54591.7%32,58980.4%11,05710,375106.57%12,84586.08% Sub Total573,240611,80693.7%733,70378.1%140,455143,39497.95%186,75975.21% 14% VAT80,25485,65393.7%102,71878.1% Total National Government653,493697,45993.7%836,42178.1% 140,455143,39497.95%186,75975.21%

19. 19 ALLOCATION OF ESKOM 2004/5 REGAZETTED FUNDING PER PROVINCE PROVINCE% Western Cape1.13 Northern Cape3.95 Eastern Cape24.04 Free State1.46 KZN21.20 Mpumalanga3.18 Limpopo26.91 North West13.69 Gauteng4.44 TOTAL100.00

20. 20 2004/5 PROJECTION The target for end March 2005 includes all special and roll over projects form the previous financial year. The year to date performance stands at 75.3% of year end target. This rate of delivery is satisfactory. The biggest backlog on the YTD performance is in the Limpopo province. Plans are in place to address the shortcomings in the Limpopo province especially. It is important to note that to complete all the projects in the 2004/5 financial year, it is expected that the programme will be overspent.

21. 21 CONTENTS Distribution Business Model Electrification National Electrification fund allocation principles Electrification 1994 and onwards 2004/5 Plan Status Feedback Challenges Municipal Infrastructure Grant : Eskom Perspective Free Basic Electricity Black Economic Empowerment General Service Delivery

22. 22 BACKLOG OVERVIEW OF ESKOM’s AREA OF SUPPLY PROVINCE HOUSEHOLD BACKLOG Nodal Zones (Rural) R’000 TOTAL ELECTRIFICATION 8 YEAR ACCELARATED PLANNING ESTIMATES March 2005March 2012 Households R’000 Infrastructure R’000 Grand Total R’000 Western Cape103,065120,0283,684540,1240 Northern Cape32,13138,27321,287172,22812,514184,742 Eastern Cape561,556721,4622,166,7943,562,220527,2534,089,472 FreeState136,640158,544300,551713,4460 KwaZulu Natal557,572787,0581,270,2923,886,100558,9544,445,054 Mpumalanga94,905121,238 0560,72676,918637,644 Limpopo287,308351,225491,4321,624,415156,0071,780,422 North West124,799148,417 0 667,87885,929753,807 Gauteng432,651742,13303,664,28483,4263,747,710 Grand Total2,330,6273,188,3784,254,04015,391,4211,501,00116,892,421

23. 23 ELECTRIFICATION CHALLENGES Current funding expectations exceeding available funds Universal Access to electricity by 20012/13 - funding Integrated planning involving all stakeholders (Provincial, DME, Eskom & Municipalities) Aligned policies to facilitate implementation process (e.g. un- proclaimed, land usages) Harmonization of government initiatives e.g. electrification and housing programmes Implementation of the Expanded Public Works Programme (EPWP)

24. 24 GOING FORWARD Align municipal requirements with available funding Energy forum to: confirm prioritised 2005/6 plan confirm the 2006/7 plan based on current electrification levels Develop universal access master plan (Draft by June 2005, Plan by October 2005) Stakeholder alignment Identify number of un-electrified households per municipality. Assess electrical network capacity requirements Quantify resource requirements (funding & capacity)

25. 25 CONTENTS Distribution Business Model Electrification National Electrification fund allocation principles Electrification 1994 and onwards 2004/5 Plan Status Feedback Challenges Municipal Infrastructure Grant : Eskom Perspective Free Basic Electricity Black Economic Empowerment General Service Delivery

26. 26 ASSUMPTIONS Cash Flow through Municipality Eskom will not challenge the decision The distributor with the money gets the targets Cash flow will follow: National Treasury - Municipality - Eskom. Who gets the money owns the networks and is responsible for the O&M

27. 27 BENEFITS TO ESKOM Closer relationships between Regions and Municipalities Should bulk funding be separated from connection funding, Bulk Infrastructure could be accelerated. Top-up funding from Municipalities by optimising the funds within the MIG’s.

28. 28 RISKS More decision makers Due to increased number of municipalities acting independently, the following risks might occur:- Quality Assurance; Public and contractor safety; Sustainability and network performance; Cost increase. Different design standards which will increase maintenance cost and spares keeping More stakeholder management will be required to get agreement on how to implement the programme Eskom might be requested to operate and maintain on behalf of the municipalities through service agreement contracts. This is not Eskom Distribution core business to be a service provider Optimisation of bulk infrastructure will be problematic and a lot of wheeling will take place between network owners Will in-fills on Eskom networks still be possible

29. 29 ESKOM’s PROPOSALS / VIEWS Separate bulk infrastructure from Household connections Appoint Eskom to co-ordinate Bulk Infrastructure creation Whoever build the household infrastructure must use National accepted Standards All work done by Eskom will be at cost and cash up-front Eskom will not be able to commit to any targets at Programme level but will contract at project level only DME to ensure medium to long-term team planning

30. 30 CONTENTS Distribution Business Model Electrification National Electrification fund allocation principles Electrification 1994 and onwards 2004/5 Plan Status Feedback Challenges Municipal Infrastructure Grant : Eskom Perspective Free Basic Electricity Black Economic Empowerment General Service Delivery

31. 31 FBE Approach National Task Team, comprising of DPLG, DME, National Treasury, Eskom, NER, DPE and SALGA Negotiated One National Contract, and one National Tariff country wide Criteria As per “indigenous criteria” of the specific Municipality/Metro or Prepaid < 20A circuit breaker or conventional < 150 KWhrs consumption per month Funds flow directly to Municipality through equitable share fund Eskom enters into Funding Agreements with Municipalities/Metros Eskom claims monthly from Municipalities/Metros as per National Tariff. Excess claimed from National Government annually

32. 32 FUNDING AGREEMENT STATUS FBE Customers across 235 Municipalities Funding agreements AgreementsExtensions Signed1961 Not Signed38N/A

33. 33 MUNICS NOT SIGNED SOUTHERN REGION Engcobo Makana Mbashe NORTH WEST Dihlabeng Emthanjeni Ekurhuleni Dipaleseng Phumelela Beaufort West Gariep CENTRAL Mafikeng Ditsobotlo Zeerust Naledi WESTERN Stellenbosch Saldanha Bay Matsikama Langerberg Overstrand Laingsberg

34. 34 MUNICS NOT SIGNED cont….. KZN Msinga Dannhauser Edumbe Abaqulusi Ulundi Umhlabuyalingana Jozini Big 5 Munic Umhlatuze KwaDukuza Ingwe NORTHERN Umjindi Govan Mbeki Emalahleni

35. 35 Rolled out non-FBE Compliant Method SOUTHERN Inxuba Yethemba NORTH WEST Nala Lesidi Metsimaholo

36. 36 FBE STATUS “Customers approved by municipality” are as per Funding Agreements and received from municipalities. “Configured customers” are customers that can collect their tokens. The difference between “Approved Customers” and “Configured Customers” is mainly due to data quality. MunicipalitiesCustomers FBE roll out Number of Customers Customers approved by municipality Configured Actual1411,885.998866,445498,802

37. 37 FBE STATUS Action to increase token collection  Install “Auto Vend” software. Software will be installed at all vendors by end of January 2005. This will issue FBE tokens to customer on first buying of token if FBE token was not yet issued  Increased customer awareness through targeted communication campaigns  Customer education on “Key Change Tokens”  Significant increase in vending facilities  Research new distribution channels e.g. distribution via SMS messaging FBE Tokens Collected 2004 JanFebMarAprMayJunJulAugSepOctNovDec 66,34193,533197,228204,843204,754214,882242,075261,110220,759238,340226,481232,034 11%16%17% 15%14%15% 12%10%9%

38. 38 GENERIC ISSUES RAISED BY MUNICIPALITIES No Indigent Register Political repercussions should they give FBE whilst many are without electricity Awaiting Council Resolution No funds available Municipality not ready to sign, wants to use own method

39. 39 FBE – WAY FORWARD Communication structure between stakeholders: Workshops per District Municipalities Energy forums Agreed accountable persons for both Eskom and Municipalities All contracts to be signed Resolve all data quality issues for FBE Confirm current configured FBE customers as per Eskom database with municipalities Propose use of Eskom data base in absence of indigent register Improve turnaround time for configuration on system Increase FBE token collection External Factors Municipal Budget Limitations FBE to farm workers Get agreement on invoicing process and details required

40. 40 CONTENT Distribution Business Model Electrification National Electrification fund allocation principles Electrification 1994 and onwards 2004/5 Plan Status Feedback Challenges Municipal Infrastructure Grant : Eskom Perspective Free Basic Electricity Black Economic Empowerment General Service Delivery

41. 41 BEE PROCUREMENT HISTORY YEARBEESMMEBWO Total Empowerment OtherTotal 2002 R1767,3mIncluded in BEER100,4mR1867,7m (53%)R1687,8m R3555,5m 2003 R973,8mR945,5mR266,5mR2185,8m (57%)R1662,0m R3847,8m 2004 R917,9mR903,0mR344,9mR2165,8m (59%)R1537,4m R3703,2m

42. 42 CONTENTS Distribution Business Model Electrification National Electrification fund allocation principles Electrification 1994 and onwards 2004/5 Plan Status Feedback Challenges Municipal Infrastructure Grant : Eskom Perspective Free Basic Electricity Black Economic Empowerment General Service Delivery

43. 43 ISSUES IMPACTING SERVICE DELIVERY Ageing networks Standards of networks in takeover areas Illegal connections Revenue losses Safety of public and staff Debt management

44. 44 GENERAL SERVICE DELIVERY IMPROVEMENTS Increased Regional capacity to plan and execute services Implemented a new customer service system Investment of R1352m on network strengthening and refurbishment during 2004 Intensified maintenance and vegetation management Regional Customer Executives appointed to improve service to municipalities Increasing number of Vending stations Focused training on service delivery improvement Focused action to get all customers legally connected to network

45. 45 REVIEW OF VENDING Deployment criteria: Vending station within 5 kilometers One station for every 3000 customers Review service at vending point: Checking queuing times at vending stations Determining tolerance for queuing Review vending process: Upfront vending Expansion of footprint Cell phone vending