18 September 2012

1. Independent System and Market Operator Bill. • Progress Report on further Due Diligence incorporating transfer of assets. 18 September 2012

2. Background on ISMO

3. The Conundrum SA urgently needs new generation capacity and, in turn, Eskom needs Scarce Government capital to fund new projects Tariff increases that have social and industrial impact Additional Debt that have, as prerequisite, a viable ESI to repay them Minimizing Government exposure requires Mobilizing private sector funding Private sector, in turn, needs a level playing field and clarity of rules Minimizing inevitable tariff increases requires Reducing overall sector risk with correct allocation of risks and reward Better allocation of resources with correct electricity pricing signals 3

4. What is an ISMO? Acronym for “Independent System and Market Operator” “Independent” = Autonomy from generation and distribution “System” = National Electricity Transmission System “Market” = Buying of electricity from electricity generators and Selling thereof to customers at a wholesale level ISMO = Operator of National Electricity Transmission System who buys electricity from generators and sells it to customers at a wholesale level 4

5. Impact of ISMO on IPPs • ISMO is key in facilitating introduction of IPPs • Inclusiveness, Transparency, Accountability for a level play field in Planning/Dispatch • Transparency in governance and decision making • No conflicts of interest as both player and referee • Benefits of IPP participation in electricity generation with limited demand for government support • Objective: purchase/sale of electricity in the best interests of the country • Correct risk allocation and pricing

6. ISMO Functions • ISMO Bill establishes, an autonomous state owned company, mandated to execute the following functions • Development of the Generation Resource Planning • Buying of power from generation • Electricity trading at a wholesale level • System Operations • A package empowering ISMO as an “honest broker” wholesale electricity buyer, a role Eskom, as generator, can never play. • Sends out message to the market to know that responsibility to meet these obligations rests with ISMO

7. Current industry structure ESKOM HOLDINGS SOC LTD PRODUCTION TRANSMISSION RETAIL WIRES Gn1… Gn1…. KSACS DX Gn2… GnX… MUNICS Imports Imports SYSTEM OPERATOR National Control Wholesaler IPP’s Single Buyer RE-IPP Dispatch Trading (Aggregation) MW Flow

8. Final Structure: (ISMO & Transmission separate entities ) ESKOM GX ESKOM TX ESKOM DX Generation Transmission Distribution “wires” DX Gn1… Gn1…. Gn2… GnX… ISMO SOC Imports Imports KSACS System Operator National Control MUNICS Wholesaler IPP’s Single Buyer RE-IPP ISMO-TX agreement

9. Main Presentation

10. Introduction • Pursuant to the public consultation process on the ISMO Bill the PPC requested a due diligence to be conducted on the establishment of a TSO. • A multi-party project under leadership of the DoE has been launched, including Eskom, DPE and NT • In his letter dated 8 August 2012 the Minister of Public Enterprises authorised Eskom to participate in the due diligence and provided the terms of reference

11. Scope • Due diligence was undertaken Eskom upon publication of ISMO Bill by the Department of Energy (13 May 2011 –GG34289). • Scope of ISMO due diligence was confined to the functions in the ISMO bill (Energy Planning, Procurement, Market Administration and System operator). • The due diligence currently undertaken includes the transmission grid, assets, people, systems and all support functions. Given limited time constraints this will be a very high level impact assessment. • A comprehensive implementation plan may be required in future, before final implementation of the chosen option.

12. Scope • Impact to be assessed on: • Eskom • The future SOC (ISMO or TSO) • The Fiscus (for support) • The due diligence will consider the following areas: • Financial • Legal and Regulatory • Technical • Human Resources • A business case for a way forward is not part of the scope of work.

13. Scenarios • Two scenarios will be modelled: • Scenarios 1 & 2 will be modelled with and without the transfer of Eskom customers to the SOC.

14. Project Plan • A project plan has been developed (see spread sheet). • Target completion date is mid December 2012 to January 2013 • The financial impact assessment is on the critical path • The appointment of consultants, permitting them adequate time to perform a proper job and a review by government will take the bulk of the amount of time indicated. • Consultation with principals could affect time-line • National Treasury nominated 3 people to participate in the review of Eskom’s credit rating and to provide government oversight.

15. Conclusion • The team will endeavour to shorten the project duration as far as possible, however the project plan indicates a minimum project duration of 4 to 6 months (subject to approval by principals). • Resources are now fully mobilised to perform the work and there is a high level commitment to complete as soon as possible. • The PPC chair will be provided with fortnightly progress reports, via the DoE (as project leader). Setting of dates for the next written reports and presentations will assist the team with forward planning.

16. Thank You

17. Project Plan (1) Present time

18. Project Plan (2)

19. Project Plan (3)

20. Project Plan (4)

21. Project Plan (5)

22. Project Plan (6)