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Briefing on Eskom

Briefing on Eskom. Portfolio Committee on Public Enterprises 18 February 2009. Eskom Presentation Contents. Multi-Year Price Determination (MYPD) Important MYPD Considerations Government Guarantees Government Subordinated Loan Capital Expenditure Programme Current Generation Build (Major)

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Briefing on Eskom

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  1. Briefing on Eskom Portfolio Committee on Public Enterprises 18 February 2009 - Top Secret -

  2. Eskom Presentation Contents • Multi-Year Price Determination (MYPD) • Important MYPD Considerations • Government Guarantees • Government Subordinated Loan • Capital Expenditure Programme • Current Generation Build (Major) • Net Energy Sent out (2008 vs. 2009) • Indicative Generation Capacity Expansion Programme Status/Plan (Committed & Approved Projects) - Top Secret -

  3. Eskom: Multi-Year Price Determination • Eskom applies to the National Energy Regulator of South Africa (Nersa) for its annual revenue allocation in 3 year tranches. • The first 3 year price application (MYPD1) started on 1 April 2006 and ends on 31 March 2009. Eskom must now apply for its annual revenue allocations for the next 3 years beginning 1 April 2009 (MYPD2). • The current regulatory model makes provision for Eskom to recover its cost of production (operational expenses, e.g. manpower, primary energy, cost of debt) as well as depreciation and a return on assets. - Top Secret -

  4. Eskom: Important MYPD Considerations • The model assumes access to equity or borrowings to fund capital expenditure. • The current regulatory model values Eskom’s assets on an indexed historic cost basis, which is not a true reflection of replacement cost. It is preferable that the Modern Equivalent Assets (MEA) valuation methodology is used. Indexation at CPI or CPIX is not a true reflection of capital cost inflation, which has been much higher. • Current global financial market conditions have resulted in limited access to debt financing. • Eskom’s credit rating was downgraded by Moody’s ratings agency in 2008, further reducing its access to debt from the capital markets. Other ratings agencies have put Eskom on a negative watch and adopted a “wait-and-see” approach. - Top Secret -

  5. Eskom: Government Guarantees • In order to support Eskom’s borrowing programme, government has agreed to provide some R175.97bn of guarantees on existing and new debt over the next 5 years. • R25.97bn of Eskom’s existing debt will be guaranteed to prevent existing bondholders from swapping out for new, guaranteed bonds. • The rest of the R150bn of guarantees will be allocated over the next 5 years according to Eskom’s needs, with an annual limit to be set on the amount of debt that Eskom can issue. • Government would either repay the debt in its entirety or step into the shoes of Eskom and continue to make payments on Eskom’s behalf. • Guarantee fees are payable to the fiscus. This increases Eskom’s operating cost and is recovered though the tariff. - Top Secret -

  6. Eskom: Government Subordinated Loan • The government guarantees are in addition to the R60 billion subordinated loan in support of Eskom’s capital expansion programme that has already been approved. • The Eskom Subordinated Loan Special Appropriation Act provides for a multi-year appropriation as follows: R10 billion in 2008/9, R30 billion in 2009/10 and R20 billion in 2010/2011. • Government’s rights will be subordinated to those of other un-guaranteed and commercial creditors. - Top Secret -

  7. Eskom: Capital Expenditure Programme • Eskom’s Committed and Approved 5 year Capex Plan amounts to R385bn over 5 years from 2008/9 to 2012/13. • In the region of R273.8bn of the expenditure is to be incurred over the 3 year MYPD period from 1 April 2009 to 31 March 2012. • MYPD spend is roughly apportioned as follows, Generation (72%), Transmission (14%), Distribution (9%) and Corporate (5%). - Top Secret -

  8. Eskom: Current Generation Build (Major) • Return to Service Stations(Camden, Grootvlei and Komati) • Open Cycle Gas Turbines(Ankerlig & Gourikwa) and extension thereof • Pumped Storage(Ingula) • Coal-fired Baseload, “6-pack”(Medupi and Kusile) - Top Secret -

  9. Year-on-Year Net Energy Sent Out - Top Secret -

  10. Indicative Generation Capacity Expansion Programme Status/Plan – Committed Projects 2 899MW of new generation capacity has been added to the system since 2004. - Top Secret -

  11. THE END - Top Secret -

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