Background

Eskom was established in South Africa in 1923 as the Electricity Supply Commission. In July 2002, it was converted into a public, limited liability company, wholly owned by government.

Eskom is one of the top 20 utilities in the world by generation capacity (net maximum self-generated capacity: 41 194MW). Eskom generates approximately 95% of the electricity used in South Africa and approximately 45% of the electricity used in Africa. Eskom directly provides electricity to about 45% of all end-users in South Africa. The other 55% is resold by redistributors (including municipalities).

Eskom electricity sales for the year ended 31 March 2011 (31 March 2010)

Eskom generates, transmits and distributes electricity to customers in the industrial, mining, commercial, agricultural and residential sectors, and to redistributors. Eskom sells electricity directly to about 3 000 industrial customers, 1 000 mining customers, 49 000 commercial customers, 84 000 agricultural customers and more than four million residential customers (of whom the majority are pre-paid customers). Most of the sales are in South Africa, with other southern African countries accounting for a small percentage. (See: table 5.)

The demand-side management exhibition stand showcased energy-efficient technologies at various expos across the country.		The energy-efficient lighting exhibition drew great interest at the 2010 Design Indaba.

Capital programme

Additional power stations and major power lines are being built to meet South Africa’s rising demand for electricity. In 2005, Eskom embarked on a capacity expansion programme, the largest in its history, which will increase its generation capacity by 17 120MW and its transmission lines by 4 700km. The capacity expansion programme aims to both meet increasing demand and to diversify Eskom’s energy sources. In the six years ended 31 March 2011, the programme has cost R140 billion (including capitalised interest). The total cost of the programme to completion in 2018 is estimated to be R340 billion (excluding capitalised interest).

Eskom has approved and committed to:

• Building the Medupi and Kusile coal-fired power stations, two new gas-turbine plants, and the Ingula pumped storage plant
• Recommissioning three coal-fired plants that were previously mothballed
• Upgrading other existing plants
• Building new infrastructure, including new transmission lines and two renewable energy plants.

The completion of the Kusile power station in 2017/18 will constitute the last stage of Eskom’s committed capacity expansion programme. There has been no approval or commitment to any capacity expansion projects after that.

Eskom must raise capital to pursue its committed capacity expansion programme and improve and refurbish its current operations. Capital expenditure (including expenditure on the capacity expansion programme) up until the 2017 financial year is expected to be between R450 billion and R500 billion (excluding capitalised interest). Total capital expenditure will be funded from operating cash flows, shareholder loans and debt financing (raised locally and internationally), and from the proposed R20 billion government equity recapitalisation over the next three years.

Strategy

Eskom buys and sells electricity in the countries of the Southern African Development Community (SADC). The future involvement in African markets beyond South Africa1 is currently limited to projects that have a direct impact on ensuring a secure supply of electricity for South Africa itself. However, Eskom is investigating additional opportunities in the Southern African Development Community region (See: imperative 3 in the “Vision and values” section).

Much of Eskom’s strategy and many of its future projects are aligned with government’s Integrated Resource Plan 2010, which sets out a long-term electricity plan for South Africa.

Eskom is regulated under licences granted by the National Energy Regulator of South Africa² (NERSA) and the National Nuclear Regulator³. Eskom’s operations are also subject to authorisations issued by other relevant authorities, such as the departments of Environmental Affairs and provincial and local government. These are to protect the public interest and the environment. (See: “Regulatory and Legal Framework”)

The group’s facilities and operations are subject to environmental legislation and regulations to protect the public interest and ensure effective environmental control. In addition, much of the group’s strategy and many of its future priorities are set to be aligned with government’s Integrated Resource Plan 2010, which sets out a long-term electricity plan for South Africa. The National Energy Regulator of South Africa determines the price of electricity in South Africa. The approach is a cost recovery plus reasonable return on investment type, with annual revenues and tariff levels referenced to Eskom’s four main cost elements: fuel cost (primary energy); non-fuel operating and maintenance cost; depreciation; and return on assets (based on depreciated replacement value).

Subsidiaries

Eskom Enterprises (Pty) Limited, and its subsidiaries provide lifecycle support and plant maintenance, network protection as well as support for the capacity expansion programme for all Eskom Holdings Limited divisions. (See legal structure).

Eskom Finance Company (Pty) Limited grants employee home loans, and Escap Limited manages and insures business risk.

Eskom’s corporate social investment is principally channelled through the Eskom Development Foundation, a wholly owned subsidiary of Eskom Holdings and a section 21 company.

Offices and operations

Eskom’s head office is in Johannesburg and its operations are spread across South Africa. In December 2008, a small office was opened in London, primarily for quality control over the equipment being manufactured in Europe for the capacity expansion programme.

Eskom Enterprises operates primarily in South Africa, but it has two subsidiaries that have an interest in electricity operation and maintenance concessions in Mali, Senegal, Mauritania and Uganda.

1.	Southern African Development Community countries connected to the South African grid, and countries in the rest of Africa.
2.	Originally under the Electricity Act (41 of 1987) and more recently under the Electricity Regulation Act (4 of 2006).
3.	Under the National Nuclear Regulatory Act (47 of 1999).