Eskom : Distribution Division (Electrification)

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

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

ESKOM HOLDINGS: DIVISIONAL MANDATES To assure regulatory compliance, ensure effective group wide governance, develop policies for compliance assurance and to provide strategic services. Corporate To optimally operate and maintain the plant lifecycle of Eskom’s South African generation capacity assets. Generation To optimally operate and maintain the lifecycle of the South African transmission network. Transmission 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. Distribution 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 Key Customers Key Customers 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 Eskom Enterprises

Eskom Industry Generation Transmission Distribution Municipalities Residential Physical Energy Flow Financial Flow Business South African Electricity Industry Currently, South Africa operates in the traditional mode of vertical integration with financial and physical flows following the same path

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.

DISTRIBUTION DIVISION – BUSINESS MODEL Customer Categories Retail Business (Customer Service) Wires Business (Engineering/Network) Residential Overall management of Purchase electricity from the network infrastructure in wholesale market and sell to Traction delivery of electricity to end end user/ Redistributors user Agriculture Functional Areas: Functional Areas: Commercial Construction of network Sales & Marketing • • infrastructure; Energy Trading • Redistributors Installation of meters; • Customer Service • Inspection, testing, upgrade & • Pricing & Tariff Planning • maintenance of equipment Prepaid Call Centre • Technical customer connections • & disconnections Billing • Mining & Industrial

DISTRIBUTION REGIONS

NATIONAL ELECTRIFICATION FUND ALLOCATION PRINCIPLES 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

HOUSEHOLD ELECTRIFICATION - HISTORY

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 ELECTRIFICATION SUCCESS : CUMULATIVE CONNECTIONS 3159 2988 2813 2601 2392 2136 1836 Thousands 1545 1280 952 638

PROVINCIAL HOUSEHOLD ELECTRIFICATION HISTORY

PROVINCIAL SCHOOLS ELECTRIFICATION HISTORY

PROVINCIAL CLINICS ELECTRIFICATION HISTORY

SUMMARY OF 2004/5 PLAN CAPEX - R'000 CONNECTIONS PROVINCE BUDGET Year End (March ’05) YTD ACTUAL (Jan 05) VARIANCE BUDGET Year End (March ’05) YTD ACTUAL (Jan 05) VARIANCE Western Cape 8,289 11,657 -3,368 5,525 6,421 -896 Northern Cape 29,001 27,585 1,416 6,913 4,733 2,180 Eastern Cape 176,392 136,032 40,360 35,731 27,678 8,053 Free State 10,706 9,040 1,666 3,935 3,878 57 Kwa-Zulu Natal 155,526 121,106 34,320 22,910 16,330 6,580 Mpumalanga 22,803 15,424 7,379 8,462 8,500 -38 Limpopo 197,447 157,466 39,981 65,084 46,099 18.895 North West 100,470 68,741 31,729 25,234 15,759 9,475 Gauteng 32,589 26,190 6,399 12,845 11,057 1,788 TOTAL 733,223 573,241 159,982 186,639 140,455 46,094

SUMMARY OF 2004/5 PLAN

ALLOCATION OF ESKOM 2004/5 REGAZETTED FUNDING PER PROVINCE

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.

BACKLOG OVERVIEW OF ESKOM’s AREA OF SUPPLY

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)

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)

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

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.

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

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

FBE Approach 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

FUNDING AGREEMENT STATUS • FBE Customers across 235 Municipalities

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 MUNICS NOT SIGNED

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

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

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.

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

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

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

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

BEE PROCUREMENT HISTORY Total YEAR BEE SMME BWO Other Total Empowerment 2002 R3555,5m R1767,3m Included in BEE R100,4m R1867,7m (53%) R1687,8m 2003 R3847,8m R973,8m R945,5m R266,5m R2185,8m (57%) R1662,0m 2004 R3703,2m R917,9m R903,0m R344,9m R2165,8m (59%) R1537,4m

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

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

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

Eskom : Distribution Division (Electrification)