Eskom Information

Eskom Treasury is the pre-eminent monetary resource on Eskom. The around-the-clock treasury team covers general, and business breed, with an emphasis on rates from Eskom, South Africa and Africa.

The Treasury department acts as an in-house bank for the groups in Eskom and all financial market transactions are transacted through them.

The Treasury department also manages the organisation's financial risks that flows from its operating activities and transfers the cost thereof to the different groups in the organisation at agreed rates.

Risks Managed

As in-house bank the Treasury department manages the financial risks reported to them by the respective business units. The following strategic risks are managed in an active manner:

• Liquidity risk
• Cash requirements
• Price Risk
• Interest rate risk
• Currency risk
• Commodity risk

The risk management service that Treasury provides, in respect of the price risks above, is the same as that provided by a bank where the risk is taken from the business unit into Treasury's books by providing the business unit with a market related rate. Treasury then manages the risk according to the appropriate strategy dictated by the market. Treasury also provides an efficient financial evaluation service for tenders. Recommendations on the best financial alternatives are then submitted together with the technical and commercial recommendations by other departments. In the process of managing the above risks, another set of risks, i.e. procedural risks are incurred namely:

• Credit risk
• Risk of tainted script

Cash Flow

Treasury manages the cash requirements of the business units on a centralised basis, thereby ensuring that the optimum cash balances are available on their bank accounts so as to keep opportunity costs to a minimum. In terms of its transfer pricing philosophy, the Treasury Department also charges a penalty for overdraft balances not pre-arranged by the business units which emphasises the impact of incorrect cash flow forecasts and contributes to Treasury achieving this objective. Cash requirements are funded primarily by issuing long-term fixed-rate debt (e.g. E168), while the shorter-term mismatches between cash inflows and outflows are bridged by funding or investing it short term in the money market.

Market Making

Through its market-making activities, Treasury acts as buyer of last resort for its Rand bonds and commercial paper. It also sells options on its more popular bonds. This has the effect of enhancing liquidity in these instruments, thereby enticing the investor to accept lower returns on his investment which translates into a lower borrowing cost to Eskom. The popularity of Eskom bonds amongst the general public is borne out by the fact that an estimated 20% of Eskom's bonds are held by small investors and approximately 50% by overseas investors.

Portfolios

The management of Treasury is segregated along the lines of activities, the results of which are accounted for in separate portfolios, e.g. funding of Eskom's cash requirements, managing the different risks arising from existing liabilities, market making in Eskom's bonds, contracts and orders as well as commodity linked pricing agreements. The performance of all these activities is measured against strict benchmarks and is reported to the Electricity Council and Management Board on a quarterly basis.