Strategy in a Recession

Climate change and its accompanying sustainability challenges is a global phenomenon. The eyes of the world will be on South Africa during the 17th meeting of the Parties of the United Nations Framework Convention on Climate Change (COP 17), which will be held in Durban from 28 November to 9 December 2011. We are very proud to be a strong supporter of this conference, driving the issues around climate change both nationally and in the international arena. While this builds on our support for previous COPs, we believe the impact of the COP programme is accelerating, and we want to make sure we are as supportive and pro-active as we can be.

With 93% of Eskom's electricity generated from coal-fired stations, this already implies a major environmental footprint. This also means an impact on water - a critical issue for South Africa where water scarcity is an important matter. For this reason the new Medupi and Kusile power stations will use dry cooling technology. Our relative water usage is 1.35 L/kWh sent out and our plan is to reduce this by 10.4% to 1.21L/kWh by 2015/16.

The most topical of the environmental impacts is our carbon footprint. Due to the coal-centric nature of our generation mix, we are not satisfied with our current performance in this regard. Eskom's CO2 emissions for the period were 230.3Mt, an increase of 2.5% on the previous year's 224.7Mt. We remain committed to reducing our emissions as conveyed in our climate change strategy. Our commitment is to see a reduction by 2030. Subject to the support from the shareholder and the allocation of nuclear and renewables to Eskom, this reduction follows what we anticipate to be our peak at 283Mt in 2022 to 235Mt by 2030. This will see our relative CO2 emissions at 0.68t/MWh compared to the current 0.99t/MWh. No company takes pride in the negative impacts of its business, and Eskom is no different. One of Eskom's objectives is to become a greener energy company.

In this context, Eskom will contribute through a comprehensive six-step approach that includes supply measures, such as the diversification of the generation mix, as well as demand-side interventions, such as supporting energy efficiency measures to reduce demand. Some are more macro in nature, such as ensuring that we adapt to the impact of climate change by increasing the robustness of infrastructure designs, fostering innovation, investments in the emerging global CO2 market trading regime and progress through advocacy, partnerships and collaboration with environmental organisations. On all dimensions of this critical global debate, Eskom will seek to contribute and lead where necessary.

One change that we desperately need in South Africa is the more sustainable use of energy. Eskom has taken up the challenge and is leading a campaign to unlock the potential of 49 million South Africans to reduce their energy consumption and think of energy in a sustainable manner. The "49M" movement, launched and endorsed in March 2011 by Mr KP Motlanthe, the Deputy President of our Republic, together with the Ministers of Public Enterprises and Energy, is material to the continued mitigation of an extremely tight situation of supply versus demand. We also value the support from and partnerships with various key customers and organisations for this initiative. It is imperative that we pull together as a nation to harness our collective power in saving energy.

Eskom is busy organising itself to deliver on its mandate for the decades ahead. We believe we have now positioned the organisation's three major components - its managerial infrastructure and plans, its people, and the necessary financial resources - to help build South Africa and southern Africa's exciting future.

A message from the chief executive - Brian Dames

Eskom is working closely with the government to ensure that the Conference of the Parties of the United Nations Framework Convention on Climate Change (COP 17) in Durban later this year is a success.

I am personally involved in some specific initiatives around the event. Clean electricity is a fundamental solution to the challenge of climate change. Eskom has been working with its partners to develop a global electricity utilities initiative that will cut across political and geographical boundaries. The initiative will highlight the significant contribution that progressive electricity utilities can make, and demonstrate how early action is already having an impact.

Eskom's response to climate change includes initiatives to reduce the carbon intensity of our existing and future plant, and making our energy mix less dependent on coal. The Southern African Development Community region offers significant clean generation capacity and growth opportunities, both for Eskom and for South Africa. These include hydro and wind power, in addition to extensive coal and gas reserves in the region.

Electricity: from power station to customer

Electricity flow - from power station to customer

Input 2011 2010 2009

Coal Mt 124.7 122.7 121.2

Water ML 327 252 316 202 323 190

Liquid fuels (diesel and kerosene) ML 63.6RA 16.1RA 28.9LA

Output

Total electricity produced by Eskom GWh 237 430 232 812 228 944

Total electricity sold GWh 224 446 218 591 214 850

Carbon dioxide Mt 230.3RA 224.7RA 221.7RA

Nitrogen oxide (NOx) kt 977RA 959RA 957LA

Nitrous oxides t 2 906 2 825 2 801

Sulphur dioxide kt 1 810RA 1 856RA 1 874RA

Particulate emissions kt 75.8RA 88.2RA 55.6RA

Ash produced Mt 36.2RA 36.0RA 36.7LA

Calculated public effective radiation dose mSv 0.0043 0.0040 0.0045

RA - Reasonable assurance provided by the independent assurance provider. (Refer here).

LA - Limited assurance provided by the independent assurance provider. (Refer here).

The business model and the strategic review process