Economic Impact Assessment of five of Eskom’s coal power stations Camden | Grootvlei | Hendrina | Komati | Kriel

Eskom Holdings SOC Ltd July 2017 Presentation roadmap

TART Economic contribution 2 Approach and method

1

Introduction Estimated impact on local Overview of the 5 Eskom 4 power stations communities 3

Estimated economic 5 impacts Capital and operational impacts Quality of jobs 6

Conclusion Way forward

2 Overview of the five Eskom power stations Five selected Eskom coal power stations Camden | Grootvlei | Hendrina | Komati | Kriel

CAMDEN GROOTVLEI HENDRINA KOMATI KRIEL

323 548 802 532 808

Permanent & Permanent & Permanent & Permanent & Permanent & temporary employees temporary employees temporary employees temporary employees temporary employees Primarily from: Primarily from: Primarily from: Primarily from: Primarily from: Ermelo 96% Rest of SA 67% Middelburg 52% Rest of MP 55% Kriel 55% Breyten 2% Balfour 12% Pullenshope 13% Middelburg 40% Witbank 20% Lothair 0.8% Grootvlei 11% Hendrina 10% Komati 5% Rest of MP 18%

Installed Installed Installed Installed Installed capacity of capacity of capacity of capacity of capacity of 1 561 MW 1 180 MW 1 893 MW 1 000 MW 3 000 MW

Potentially contributes Potentially contributes Potentially contributes Potentially contributes Potentially contributes to the national 2.5%to the national 4.1%to the national to the national 6.5%to the national 3.4% energy grid energy grid energy grid 2.2% energy grid energy grid

Source: Eskom data

4 Approach to estimating the power stations’ economic contributions Approach: Overview

What did we do? How did we do it? What data did we use?

We measured the We used the Social The analysis that follows broader economic Accounting Matrix (SAM) uses the 2014 SAMs for methodology to estimate impact of five of Mpumalanga and South how the activities of the power Africa, built by KPMG. We Eskom’s power station’s stations in one or more parts utilised the following data investment spending of the economy, could affect from a number of different and operational other sectors of the economy, sources: capital investment expenditure in and how the industry values and generation Mpumalanga and the investment and operational capacity, operational rest of South Africa impact is distributed in the expenditure and income between 2014/15 and economy. It thereby highlights from Eskom, National 2016/17 the economic linkages Accounts, income and within the economy and has expenditure surveys, labour the ability to show the direct, force surveys, GDP indirect and induced effects statistical release from of a given expenditure and/or SARB and StatsSA investment

6 Approach: SAM model outputs

Contribution to economic growth Contribution to public Contribution to Contribution to through the Gross Value finance through tax employment poverty alleviation Added created revenue creation

Impact on public Direct jobs This included each finance through associated with The impact on of the five Eskom the tax revenue the power stations poverty alleviation power stations’ generated due to and indirect due to each power direct, indirect and each power employment station’s induced GDP station’s sustained through investment and contributions to investment and inputs purchased operations the economy operations from suppliers

7 Estimated economic impact of the five Eskom power stations’ activities Combined economic impact in South Africa Camden | Grootvlei | Hendrina | Komati | Kriel Impact on GDP Impact on government revenue

R32.8 billion was the average* An estimated increase of R9 billion estimated economic activity created per on average per year in government year due the total capital and operational revenue expenditure by five of Eskom's coal power stations (2014/5 - 2016/17) (0.8%** of South African GDP)

Impact on employment Impact on households

An estimated 92 961 jobs have An estimated R21.1 billion was the been sustained on average per year total income received by households on (0.6%*** of total number of jobs in South Africa) average per year (6.1% flows to low-income households)

* The average per year is the total impact over the period, divided by number of years ** Average annual GDP of South Africa from 2014 to 2016 = R4 063 808 million (Source: South African Reserve Bank). *** Average annual number of jobs in South Africa from 2014 to 2016 was 15 802 333 (Source: StatsSA Statistical release P0211, Quarterly Labour Force Survey (QLFS), Quarter 4, 2016).

9 Estimated combined role in economic development Camden | Grootvlei | Hendrina | Komati | Kriel Future capital expenditure Day-to-day operations

Every R1 investment Every R1 spend potentially adds GDP potentially adds an additional an additional R1.22 to the impact R1.05 to the national economy national economy

Additional R1 million Additional R1 million spend Employment investment implies an implies an additional 3 jobs impact additional 3 jobs sustained sustained

Tax Every R1 new investment, Every R1 spend potentially adds potentially adds 18 cents to the 35 cents to the national impact national government revenue government revenue

Every R1 investment potentially Every R1 spend potentially adds Household adds 43 cents to total 81 cents to total household household income; out of this income; out of this 81 cents, 6% impact 43 cents, 3% is distributed to is distributed to lower income lower income households households

10 Source: KPMG analysis from 2014 Social Accounting Matrix for South Africa Camden’s economic impact and role in South Africa

GDP Employment Tax Households CAMDEN Impact on Mpumalanga R4.4 bn 11 106 jobs R982 mn R1.5 bn

Every R1 investment adds… R0.39 2 jobs* R0.05 8.8%** Every R1 operational spend adds… R0.88 2 jobs* R0.05 10.2%**

Impact on the rest of South Africa R2.4 bn 8 064 jobs R916 mn R2.8 bn

Every R1 investment adds… R 1. 5 3 5 jobs* R0.29 2.6%** Every R1 operational spend adds… R0.38 1 job* R0.17 4.7%**

* Every R1 million investment/operational spend adds… ** …of household income generated will flow to low-income households Source: KPMG analysis from 2014 Social Accounting Matrix for South Africa 11 Grootvlei’s economic impact and role in South Africa

GDP Employment Tax Households GROOTVLEI Impact on Mpumalanga R3.6 bn 7 348 jobs R793 mn R1.2 bn

Every R1 investment adds… R0.25 1 job* R0.03 8.9%** Every R1 operational spend adds… R0.85 2 jobs* R0.03 11. 7 % * *

Impact on the rest of South Africa R2.1 bn 7 845 jobs R770 mn R2.3 bn

Every R1 investment adds… R 1. 12 3 jobs* R0.20 2.9%** Every R1 operational spend adds… R0.37 2 jobs* R0.16 4.9%**

* Every R1 million investment/operational spend adds… ** …of household income generated will flow to low-income households Source: KPMG analysis from 2014 Social Accounting Matrix for South Africa 12 Hendrina’s economic impact and role in South Africa

GDP Employment Tax Households HENDRINA Impact on Mpumalanga R3.4 bn 10 014 jobs R880 mn R1.3 bn

Every R1 investment adds… R0.27 1 job* R0.04 9.1%** Every R1 operational spend adds… R0.76 2 jobs* R0.04 8.5%**

Impact on the rest of South Africa R2.9 bn 8 780 jobs R797 mn R2.9 bn

Every R1 investment adds… R 1. 2 9 4 jobs* R0.23 2.7%** Every R1 operational spend adds… R0.44 1 job* R0.14 4.3%**

* Every R1 million investment/operational spend adds… ** …of household income generated will flow to low-income households Source: KPMG analysis from 2014 Social Accounting Matrix for South Africa 13 Komati’s economic impact and role in South Africa

KOMATI GDP Employment Tax Households Impact on Mpumalanga R2.9 bn 5 938 jobs R693 mn R1 bn

Every R1 investment adds… R0.37 1 job* R0.05 9.3%** Every R1 operational spend adds… R0.84 2 jobs* R0.05 10.9%**

Impact on the rest of South Africa R1.7 bn 5 468 jobs R530 mn R2 bn

Every R1 investment adds… R 1. 2 7 4 jobs* R0.23 2.5%** Every R1 operational spend adds… R0.40 1 job* R0.14 4.6%**

* Every R1 million investment/operational spend adds… ** …of household income generated will flow to low-income households Source: KPMG analysis from 2014 Social Accounting Matrix for South Africa 14 Kriel’s economic impact and role in South Africa

KRIEL GDP Employment Tax Households Impact on Mpumalanga R5.7 bn 16 998 jobs R1.4 bn R2.1 bn

Every R1 investment adds… R0.22 1 job* R0.03 8.5%** Every R1 operational spend adds… R0.81 2 jobs* R0.03 9.5%**

Impact on the rest of South Africa R3.4 bn 10 780 jobs R1.2 bn R2.9 bn

Every R1 investment adds… R 1. 4 4 4 jobs* R0.26 2.7%** Every R1 operational spend adds… R0.39 1 job* R0.16 4.6%**

* Every R1 million investment/operational spend adds… ** …of household income generated will flow to low-income households Source: KPMG analysis from 2014 Social Accounting Matrix for South Africa 15 The five Eskom power station’s estimated impact on local communities Estimated impact on local municipalities Camden | Grootvlei | Hendrina | Komati | Kriel

CAMDEN GROOTVLEI HENDRINA KOMATI KRIEL

Msukaligwa Local Dipaleseng Local Steve Tshwete Steve Tshwete Emalahleni Local Municipality Municipality Local Municipality Local Municipality Municipality

Estimated GDP impact Estimated GDP impact Estimated GDP impact Estimated GDP impact Estimated GDP impact R1.1 billion R0.5 billion R2 billion R1.4 billion R4.6 billion (9.3% of local (1% of local (4.3% of local (2.9% of local (7.7% of local municipality GDP) municipality GDP) municipality GDP) municipality GDP) municipality GDP)

Estimated Estimated Estimated Estimated Estimated employment impact employment impact employment impact employment impact employment impact 3 315 1 102 6 085 2 729 13 297 (8.2% of local (1.2% of local (6.5% of local (2.9% of local (8.9% of local municipality labour) municipality labour) municipality labour) municipality labour) municipality labour)

Source: KPMG analysis from 2014 Social Accounting Matrix for Mpumalanga

17 Quality of jobs at the five Eskom power stations Quality of Jobs Camden | Grootvlei | Hendrina | Komati | Kriel

WANTED What determines job quality*?

Earnings Workers’ well-being in terms of Top 100 occupations in high average earnings and earnings demand in South Africa features quality inequality  many skills associated with the electricity sector that are in Job loss Low unemployment risk for a worker short supply and benefits received in case of risk unemployment 

Work Balance between job demands and environment job resources 

The semi-skilled and skilled jobs offered by Eskom comes with above-average salaries to recruit and retain Compared to the utilities industry** in employees with scarce Mpumalanga, employees at the five power stations skills earn more than the industry average

* OECD, Job Quality, nd. http://www.oecd.org/statistics/job-quality.htm ** Utilities industry/sector includes electricity, gas and water

19 Conclusion Way Forward Camden | Grootvlei | Hendrina | Komati | Kriel

As South Africa looks to intensify productivity and bolster economic growth, the full range of role players need to draw on their strengths and synergies to address South Africa’s changing electricity requirements

With so many linkages in the economy the five power station’s have an important role to play in the economy through their various activities. In addition by contributing to the country’s energy needs, the power stations also support economic growth in Mpumalanga and the rest of South Africa

The five power stations, with a combined installed capacity of 8 634 MW*, potentially contributes 18.7% to the national grid

The five power station’s contribute to the local economy, Mpumalanga and the rest of South Africa through contributing to economic growth, sustaining jobs, uplifting the community and contributing to the fiscus.

*Capacity data supplied by Eskom

21 Questions Thank you

Lullu Krugel Jeaunes Viljoen Partner and Chief Economist Senior Economist Tel: +27 (0)82 712 4049 Tel: +27 (0)82 719 3214 Email: [email protected] Email: [email protected]

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