Primary Energy Division

COAL HAULAGE: ROAD COAL HAULAGE: ROAD TO RAIL MIGRATION

14 October 2010

Transport Forum

COAL LOGISTICS STRATEGY DEVELOPED TO ENSURE SECURITY OF SUPPLY & TO IMPROVE THE COST & SAFETY OF PED’S COAL LOGISTICS

Security of supply

• Put the appropriate and relevant logistics solutions into place to ensure that power stations are supplied with coal from the targeted sources

• Where possible, build in the ability to switch modes of transport/or sources of supply in the event of supply problems

• Ensure that the transport of coal is done in the most cost optimal manner i.e., conveyor or rail

Objectives of the PED logistics’ strategy

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Safety and social

responsibility

Cost optimisation manner i.e., conveyor or rail

• Limit road transport due to high cost, and unacceptable safety / social impact and risk.

• Minimise additional cost of road repairs

• Ensure that all coal logistics are done in a safe and socially responsible manner

• Minimise adverse environmental impact of coal transport

• Involve BEE participants, where possible

• Where possible, accelerate reduction in trucking

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NECCESSITY OF THE RAIL MIGRATION STRATEGY

2010/10/28 3

LONG TERM COAL SUPPLY STRATEGY WAS APPROVED BY BOARD IN DECEMBER 2008

Pursue long term contracts with mines

• Enter into long term contracts with mines in close proximity to the power stations, in order to ensure

the mines actually develop the projects in a timely fashion, and will help avoid the higher costs

associated with short-term contracts

Minimize long term transportation costs and increase flexibility

• For all logistics routes, Eskom should pursue the financially optimal solution for the long term, which will be either a conveyor or a rail based solution

• Establish an effective rail backbone in Mpumalanga to increase flexibility and improve supply security

• Maintain some trucking capability (<5%) to provide sufficient transport flexibility

Improve coal consistency and

• Assess and implement opportunities to improve coal consistency and quality (potentially including

changes to existing contracts), or affect operational changes in the plant, based on plant by plant

analyses

1

2

3

4

qualityanalyses

Develop the Waterberg Rail-link

• Upgrade the existing Waterberg Rail-link connecting the Waterberg coal fields to the Mpumalanga power stations in order to – Improve security of supply through increasing the available supply sources for Mpumalanga

stations

Develop risk based stock-days

• Formalise stockpile levels per station based on a full assessment of the specific risks per station

• Conduct a regular risk review and adjustment to re-assess appropriate stock days per station

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4

Engage Transnet to develop short and long-term rail solutions

Establish a logistics department in PED

reporting to the MD

• Transnet to be engaged in the development of the proposed short and long-term rail solutions primarily in the Mpumalanga area - other than the Waterberg Rail Link - and to negotiate the required outcomes for PED

• Pursue Waterberg feasibility study with Transnet

• Pursue alternative ownership models, including Eskom participation

• A logistics department will be structured within PED and staffed with skilled personnel to manage road (with assistance from the lead logistics provider, ROTRAN) and rail transportation.

• This department will also drive the PED relationship with all stakeholders such as Transnet and will be responsible to ensure the implementation of short- to long-term logistics solutions and optimisation initiatives

LONG TERM LOGISTICS STRATEGY APPROVED BY BOARD IN APRIL 2009 ON FOUR KEY PRINCIPLES

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Appoint a Lead Logistics Provider to manage road deliveries

• Pursue alternative ownership models, including Eskom participation

• To pursue a Lead Logistics Provider model, and to investigate the possibility of ROTRAN developing an in-house competency to be able to fulfil this function, failing which, to pursue alternative recognised service providers.

• Funding for long term logistics solutions, incorporating rail and conveyor options, is estimated at Rxbn over the next 5 years, including the Majuba Heavy Haul Line.

• Eskom will invest in PS infrastructure and certain loading sites .

• To form, and/or participate in, joint ESKOM task teams to develop funding structures and to investigate and select appropriate funding partners for the long-term logistics solutions, including Majuba HH

Develop funding options for long-term logistics solutions

Camden

2.1Mtpa/

5Mtpa

Hendrina

2.5Mtpa

5 OF THE 6 ESKOM PS WHERE RAIL IS PLANNED ARE LINKED TO MAIN RAIL NETWORK WITH ESKOM OWNED LINES

Duvha

~18Mtpa – a

challenge

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Grootvlei *

2.5Mtpa

Majuba GFB

9Mtpa

Tutuka

7Mtpa

* Grootvlei is not linked directly by an Eskom rail line, but there is a TFR branch line between Balfour and Grootvlei

Majuba HH

14Mtpa

ESKOM, TFR AND THE MINES MUST MAKE NECESSARY INVESTMENTS* TO ENSURE RAIL SYSTEM MEETS VOLUME ASPIRATIONS

Capital Planning StrategyOrganisation

• Invest in world class off-loading infrastructure at all Power Stations

• Ensure private sidings are constructed between main-line and Power Station

• Invest in Inland Consolidation Terminals to allow for rail solutions where Mine/Power Station are not close to railhead

• Invest in Containers and handling equipment where required (or outsource)

• May require bi-modal / multi-modal solutions to link railhead with Power Station, if infrastructure is prohibitively expensive

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• Invest in main-line upgrades to provide for growth in Eskom traffic volumes

• Invest (with Eskom) in Inland Consolidation Terminals to allow for rail solutions where Mine/Power Station are not close to railhead Includes track and overhead power

• Provide rolling stock (wagons and locomotives)

• Rolling stock could be ex-Coal Line fleet, or newly built

• All investments are recovered by way of rail tariff

• Invest in world class loading infrastructure at all Mines serving Eskom (rapid loaders)

• Ensure private sidings are constructed between main-line and Mines serving Eskom

• May require multi-modal solution (Containers) to link railhead with Mine, if infrastructure prohibitively expensive

* May require Supply Chain funding approach so as to achieve optimal funding structure

NATIONAL TREASURY REQUIRES THAT THE RAIL MIGRATION PLAN BE IMPLEMENTED

• National Treasury has agreed to provide funding to DPE/Eskom for the road repair program

• This is contingent on 3 objectives being achieved:

• Coal Haulage Network Roads (~1,400km) be transferred to SANRAL

• Rail Migration plan be contractually concluded between ESKOM and TFR

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TFR

• Robust performance mechanism put in place to monitor and manage both:

• The progress on road repairs as well as

• rail migration.

3. Road repairs

• The road repair program is at maximum reconstruction capability per annum

• Delayed rail migration causes deteriorating road conditions to be accelerated

• Security of supply will be threatened

• SANRAL indicates that if

IMPACT OF RAIL DELAYS ARE BOTH QUANTITATIVE & QUALITATIVE - QUANTITATIVE

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• SANRAL indicates that if

� a poor road is left for 3 – 5 years, cost of upgrade goes up 3.5 times; and

� if left for 5 – 8 years, the cost goes up 18 times

Rail Migration shared (high level) with all affected Communities

• Communities accept that roads are being repaired, but have now moved on to a campaign to rid their towns/streets from Coal Trucks

� Accidents

� Fatalities

� Noise/dust pollution

� Negative impact on economies of these towns

IMPACT OF RAIL DELAYS ARE BOTH QUANTITATIVE & QUALITATIVE - QUALITATIVE

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� Negative impact on economies of these towns

• Communities agitated and threaten action; blockades (Ermelo/Bethal)

• Security of supply and lives of drivers threatened

Rail Migration shared with all Road Transporters delivering for Eskom

• Rail delays will affect the truck reduction strategy, and more specifically the phasing out of fleets of vehicles over a staggered period in 3 year tranches

• Transporters will not invest in vehicles for short periods of time to cover for any rail delays; impacting on security of supply

CURRENT RAIL INITIATIVES4

1. Majuba GFB – operating at 8.5Mtpa (annualised)

2. Camden Container Solution – first train due 5th October 2010

3. Tutuka – approved by Board

4. Grootvlei – ERA phase

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5. Hendrina – concept design

6. Duvha – mode selection

7. Majuba Heavy Haul – project launched with World Bank funding

8. Waterberg – concept study completed

9. Kusile Sorbent – mode selection

THANK YOUTHANK YOU