Shift performance, grow sustainably Integrated Report for the year ended 31 March 2012 Contents Profile 1 Value chain performance 57 Value chain of Eskom 1 Construction 58 Our performance 3 Primary energy 65 Key facts and figures 4 Generating electricity 68 South African grid map 5 Transmission 73 Highlights of 2011/12 6 Distribution 75 About this report 8 Group Customer services 79 Leadership overview 11 Service and strategic functions 84 Letter from the chairperson 12 Safety 85 Report of the chief executive 14 Skills 88 About the company 22 Transformation and employment equity 88 Regulation and legal 92 Nature of business and client base 23 Supplier development and localisation 93 Legal and operational structure 24 Group information technology 94 Purpose, values and strategic objectives 25 Delivery unit 94 Corporate governance 27 Research and technology 95 Board of directors 28 Environmental management 95 Executive management committee 31 Climate change 96 Shareholder’s compact 35 Corporate social investment 97 Remuneration 38 Financial performance 99 Operating context: material issues 41 Results of operations 100 and risks Funding update 104 Linking strategic objectives and material 42 Summarised financial statements 107 issues and risks Risk and resilience 44 Group value added statement 138 Becoming a high-performance 44 organisation Future priorities 140 Leading and partnering to keep the 47 Appendices 143 lights on Reducing the carbon footprint and 51 A. Key indicators 144 pursuing low-carbon growth B. Stakeholder engagement matrix 152 Securing future resource requirements, 53 C. Sustainability responsibilities, 156 mandate and the enabling environment approval and assurance Pursuing private sector participation 54 D. Glossary 158 Ensuring financial sustainability 55 E. Abbreviations and acronyms 162 F. Contact details IBC Navigation icons Leading and partnering to keep the lights Pursuing private sector on participation Reducing our carbon footprint and 1st building block: pursuing low-carbon growth opportunities Setting ourselves up for success Implementing coal haulage and the road-to- 2nd building block: rail migration plan Ensuring our financial sustainability Securing future resource requirements, 3rd building block: mandate and the required enabling Become a high-performance utility environment Reasonable assurance provided by the independent assurance provider Our value chain Imported 2012 2011 13 038 13 613 Imported includes wheeling Generated 2012 2011 Coal 218 212 220 219 Nuclear 13 502 12 099 Hydro 1 904 1 960 Pump storage 2 962 2 953 Gas turbines 709 197 Windpower 2 2 GE AM PA / IPPs 4 107 1 833 DIAGR DESIGNED 241 398 239 263 B E – TO IED – SUPPL Other 2012 2 011 7 653 7 539 Maintenance plays Other includes wheeling, pumping and internal a big part in the sales generating business Eskom Holdings SOC Limited Integrated Report 2012 01 Value chain of Eskom Showing the generation and sale of electricity in GWh: Losses 2012 2011 Transmission 7 686 8 157 Distribution 14 312 12 734 21 998 20 891 GE AM PA / DIAGR DESIGNED B E – TO IED – SUPPL Sales 2012 2011 Municipalities 92 141 91 564 Residential 10 521 10 539 Commercial 9 270 9 020 Industrial 58 632 59 611 Mining 32 617 32 630 Agricultural 5 139 4 919 Traction 3 270 2 867 International 13 195 13 296 224 785 224 446 Eskom Holdings SOC Limited Integrated Report 2012 02 Our performance 25 Employees and System average contractors passed away interruption duration during the current year, the index improved to 45.75hrs same number as the previous from 52.61hrs in the previous year year Generated capacity IPP power purchased installed and commissioned increased from 1 833GWh during the year was 535MW, the previous year to up from 315MW the 4 107GWh previous year The energy availability Coal transported by rail factor decreased from increased from 7.1Mt to 84.59% the previous year to 8.5Mt in the last year 81.99% the current year Key facts and figures Average coal stock days Key industrial and international Customer service index customers average debtors days 45 20 87 18 85 16 40 Average debtors days 14 83 12 Index (%) Days 35 10 81 8 79 6 30 4 77 2 25 0 75 2009 2010 2011 2012 2012 2009 2010 2011 2012 2012 2009 2010 2011 2012 2012 Target Target Target Coal stock days at 39 days are 2 days The debtors days for key industrial and The customer service index improved lower than the previous year. international customers improved from from 84.37% the previous year to 15.5 the previous year to 14.4 for the 85.55% for the current year. current year. Eskom Holdings SOC Limited Integrated Report 2012 03 Key facts and figures Total electricity sales Engineering, technician Employment equity and artisan learners (company level) 230 6 80 70 225 5 60 % of black employees 220 4 Learners (’000) 50 GWh (’000) 215 3 40 30 210 2 20 205 1 10 200 0 0 2009 2010 2011 2012 2012 2009 2010 2011 2012 2012 2009 2010 2011 2012 2012 Target Target Target ● Engineering learners ● Racial equity in senior management ● Technician learners ● Racial equity in professionals and ● Artisan learners middle management Sales grew 0.2% year-on-year. Eskom Engineering, technician and artisan The percentage of senior management bought back 1 078 gigawatt-hours learners in the pipeline have grown that is black grew from 46.9% in (GWh) of power from business and from 3 535 in 2008/09 to 5 715 at 2008/09 to 53.9% in 2011/12. purchased 4 107GWh from the end of 2011/12. Professional and middle-management independent power producers. There equity levels have improved from 62.1% has been no load-shedding. in 2008/09 to 65.7% in 2011/12. Number of employee and Eskom net profit Electricity revenues and contractor fatalities (company level) operating costs (excluding depreciation) 30 14 50 12 25 10 8 40 6 20 4 2 30 Fatalities R billion c/kWh 15 0 -2 20 10 -4 -6 -8 10 5 -10 0 -12 0 -14 0 2009 2010 2011 2012 2012 2009 2010 2011 2012 NERSA 2009 2010 2011 2012 NERSA Target Target Target 2012 2012 ● Operating costs ● Revenues Safety remains a priority for 2012/13. The full R13.2 billion group profit will 1 The margin between electricity be reinvested in the business. revenues and operating costs (excluding depreciation) has increased steadily over the past three years. 1. 2011/12 profit at group level was R13.2 billion and R12.7 billion at company level. 04 Eskom Holdings SOC Limited Integrated Report 2012 South African grid map Eskom’s power grid Eskom in Africa While most of Eskom’s business is within South Africa, the company also buys and sells electricity in the SADC region. Eskom’s involvement in African markets beyond South Africa is currently focused on projects that have a direct impact on ensuring a secure supply of electricity for South Africa itself. Eskom is investigating additional opportunities in the SADC region. Eskom Enterprises SOC Limited has two subsidiaries, Rotek Industries SOC Limited and Roshcon SOC Limited, with an interest in electricity operation and maintenance concessions in Mali, Senegal, Mauritania and Uganda. Eskom Holdings SOC Limited Integrated Report 2012 05 Highlights of 2011/12 For the year No load shedding March 2011 Despite supply-demand 49M campaign launched challenges, Eskom Eskom initiated the 49M campaign, which calls for a continued to avoid load partnership with all South Africans to keep the lights on shedding in 2011/12, by calling on them to use energy efficiently. as it has since April 2008. June 2011 Minister of Public New board appointed Enterprises The Eskom board was reconstituted in June 2011. Mpho Mr Malusi Gigaba, Makwana retired as the chairperson, having served as a actively championing the 49M campaign director for three terms, and was replaced by Zola Tsotsi. July 2011 Grootvlei unit 5 commissioned Consumer On 18 July, Grootvlei power station’s unit 5 was awareness commissioned, adding 160MW to the national power grid. Eskom’s Power This completed the full return-to-service commissioning Alert system, of Grootvlei. which uses television to inform the September 2011 public about the load on the Sustainability award electricity grid, contributed to Eskom’s 2010/11 Integrated Report won second place in the saving of 261MW during the Ernst & Young Sustainability Reporting Awards. Eskom evening peaks in also received an Ernst & Young award for excellent SYSTEM ON NEW POWER ALERT ALSO ON DSTV SABC AND ETV NOW hereby invite you to partner 2011/12. in saving energy challenges and 2012 poised to be an especially difficult year, we Power Alert programme has been developed to enable corporate reporting in September 2011. With South Africa experiencing efficient South Africa. Luckily, the new user-friendly an energy electricity and achieving you to do just that. Supersport, VUZU, Kyknet to DStv: Mnet, Action, Series, any eTV and now extended on the national grid on on your TV screens (SABC, about what is happening Already a familiar presence source of real time information Alert system is a critical and Mzansi Magic), the Power the seasons. work particular night throughout People arrive home from demand in South Africa. the period of peak electricity televisions, microwave ovens, between 5pm and 9pm is climate control systems, Late afternoon to mid-evening on everything; the lights, home; the hot water geyser and by taking a bath and switching hungriest appliances in the and start their evening routines out of sight are the two the big evening switch-on and tumble dryers. Working quietly add greatly to the huge demand for electricity during stoves, dishwashers These two notorious energy-guzzlers the swimming pool pump. and should be used sparingly. well as remind you of the October 2011 the electricity status as messages to clearly communicate boards will use colour-coded The Power Alert message TV. a message appears on your steps to take whenever electricity status bars, means Alert message with full GREEN - A green Power off lights in unoccupied rooms. but increasing. Please switch electricity usage is stable Preparations for independent system and market status only three full electricity Power Alert message with switch off lights, the geyser ORANGE - An orange is increasing rapidly. Please bars means electricity usage pump. pool as well as the swimming operator started electricity status bar message with just one full RED - A red Power Alert off lights, the geyser, is too high. Please switch warns that electricity usage all non-essential appliances. and the swimming pool pump situation is critical as demand Alert message means the BLACK - A black Power and one light. The System and Market Operator division, operating under everything, except the TV exceeds supply. Switch off grandma and grandpa. – mom, dad, the children, this includes every member of the family remember to switch off, So be “Power Alert” and powered up. Together let us keep SA the Eskom board, was established on 1 October 2011. This regular updates go to www.poweralert.co.za For more information and 2012/02/15 9:01 AM 1 NEWSPAPER_1.5.indd is the first step towards establishing an independent system and market operator (ISMO), a separate state-owned Four million company. homes electrified JSE Spire Awards 2011 Eskom Holdings awarded Best The 4.2 million Issuer households This award goes to the issuer that is most committed to mark was reached in the transparency, as demonstrated by regular and consistent electrification programme, sharing of information with investors and other market since 1991. participants. It has clearly shown innovation and responsiveness to market conditions and investor needs. All market participants must feel they can trade the borrower’s debt with confidence. 06 Eskom Holdings SOC Limited Integrated Report 2012 November 2011 February 2012 COP 17 EMEA Finance Award Eskom showcased its commitment to Eskom Finance Company’s Nqaba Finance 1 reducing its carbon footprint and making Limited won the award for the best its energy mix less dependent on coal at securitisation deal in Europe, the Middle East the 17th Conference of the Parties to and Africa. Nqaba is a R5 billion residential the United Nations (UN) Convention mortgage-backed securitisation programme that on Climate Change (COP 17), which finances mortgage loans with funding from the took place in Durban in November and South African capital market. ABSA Capital, the December 2011. sole lead arranger of the transaction, was Camden unit 6 commissioned named the best securitisation house of the year. On 24 November, Camden power Komati unit 5 commissioned station’s unit 6 which was originally On 3 February, Komati power station’s unit 5 returned to service at a lower capacity, was commissioned, adding 100MW to the grid. had its capacity upgraded by 20MW. March 2012 December 2011 Staff and learner complement grew Komati unit 4 commissioned The number of group employees increased by Komati power station’s unit 4 was 1 695 during the reporting period, bringing the commissioned on 29 December, staff complement to 43 473 employees at adding 100MW to the grid. 31 March 2012. The number of learners (engineers, technicians and artisans) with three- to four-year learning/bursary contracts increased by 1 475 during the reporting period to 5 715 learners. Approved tariff increase lowered In March 2012 Eskom requested that the 25.9% tariff increase granted by the National Energy Restoration work at Komati power station Regulator of South Africa (NERSA) be revised downwards to 16% for the period from 1 April 2012 to 31 March 2013. NERSA approved the January 2012 request. Public Sector Excellence Award Eskom won the gold medal at the 2011 Komati unit 6 commissioned Public Sector Excellence Awards for On 5 March, Komati power station’s unit 6 was excellence in the energy and minerals commissioned, adding 125MW to the grid. This sector. leaves 3 units at Komati to be commissioned. Arnot unit 5 commissioned On 5 March, Arnot power station’s unit 5 capacity upgrade was commissioned, adding 30MW. Eskom Holdings SOC Limited Integrated Report 2012 07 About this report Eskom’s 2011/12 annual report is an integrated report that Eskom’s material issues discussed sets out an in-depth, contextual review of the company’s overall performance for the year 1 April 2011 to 31 March 2012. It outlines business operations as they stand now, reviews challenges the company has faced over the past year and how it has overcome them or plans to do so, and presents Eskom’s assessment of the period ahead. Determining materiality in partnership with our stakeholders An integrated report This report focuses on qualitative and Eskom has combined sustainability and quantitative issues arising in 2011/12 that financial reporting for a number of years, are material to Eskom’s business operations but this is the first integrated report and strategic objectives. The question that aligns with the principles contained of what is “material” has been determined in discussion papers published by in extensive consultation with the the International Integrated Repor t Council and the Integrated Reporting company’s stakeholders, while taking into Committee of South Africa. Integrated consideration its core objectives and the reporting is a new international initiative way in which its value chain operates. that has emerged in response to the shortcomings of traditional reporting, Eskom’s stakeholders include employees which emphasises financial results without and unions; the government and taking account of the broader context in Parliament; lenders, analysts and investors; which companies operate, and fails to customers and regulators; industry weave together different reporting strands. experts, academics and the media; business groups, civil society and non-governmental Integrated reporting allows for reporting organisations (NGOs); and suppliers on financial results, governance, and contractors (see the stakeholder sustainability and other material factors in engagement matrix on page 152.) an interdependent manner. It addresses the challenges that companies face, the The report includes information about advantages they enjoy, the external factors Eskom’s shareholder compact and its that influence them and the way they in summarised financial statements. The turn influence the external environment. statutory annual financial statements and a more detailed divisional performance To support this new approach to reporting, Eskom formed an integrated reporting repor t, are available online at steering committee1 to ensure alignment www.eskom.co.za/IR2012/001.html. with other reporting processes. This demonstrates that the management of the business and internal reporting is closely aligned to the requirement for the year- end integrated report. 1. The steering committee is a subcommittee of Eskom’s executive management committee, and is responsible for the co-ordination of the integrated report for Eskom Holdings SOC Limited. 08 Eskom Holdings SOC Limited Integrated Report 2012 The integrated reporting pilot programme Eskom is a member of the International Integrated Reporting Council’s pilot programme (http://www.theiirc.org/). All annual reports published by the more than 60 programme members worldwide in the period October 2011 to September 2012 (including this report) will be reviewed and analysed for their strengths and weaknesses. Lessons learnt during this cycle will contribute to a global standard for integrated reporting. Material issues navigation Eskom has applied Global Reporting Initiative (GRI) principles in compiling this report. These principles ensure that the Leading and partnering to keep company incorporates the views of its the lights on stakeholders, as well as internal planning Eskom’s material issues discussed reporting and risk-management processes. Reducing our carbon footprint Eskom has declared a B+ application level in and pursuing low-carbon growth terms of the GRI. Refer to the assurance opportunities provider’s report on page 157 which confirms this declaration.The list of relevant Securing future resource GRI indicators is available online at: requirements, mandate and the www.eskom.co.za/IR2012/002.html. required enabling environment KPMG has provided assurance on selected Implementing coal haulage and sustainability information in this report (see page 157). Eskom follows a combined the road-to-rail migration plan assurance approach (refer to page 33 for more details). Pursuing private sector participation Eskom’s reports are also prepared with due consideration of the King Report on 1st building block: Corporate Governance (King III). Refer Setting ourselves up for success to www.eskom.co.za/IR2012/003.html for more information on King III. 2nd building block: Ensuring our financial Structure of the report This new global reporting platform takes sustainability cognisance of the need to present information succinctly. Consequently, this 3rd building block: report is structured in a concise and Become a high-performance accessible manner: utility Leadership overview sets out Eskom’s 1.  view of the environment in which it operates, the central achievements of the reporting period, priorities for the year ahead, strategic objectives and long-term challenges for the business. Eskom Holdings SOC Limited Integrated Report 2012 09 About this report continued About the company outlines the 2.  Future priorities cover Eskom’s 9.  nature of the business and its legal priorities over the next five years. structure, as well as its purpose, strategic objectives and values. 10. Appendices include: A.  Key indicators, comparing perfor- Corporate governance reports on the 3.  mance against Eskom’s internal targets composition of the board and the B.  Stakeholder engagement matrix, executive management committee. It highlighting the material issues that reviews committees and initiatives arose through dialogue with designed to ensure good governance stakeholders and the nature of and statutory compliance, and sets out these interactions Eskom’s remuneration philosophy. C.  Sustainability responsibilities, approval and assurance statements Operating context: material issues 4.  from Eskom and the external assesses the primary material factors assurance provider, detailing that have a bearing on Eskom’s assurance provided on selected performance and discusses steps taken sustainability information to manage associated risks. D. Glossary E. List of acronyms Value chain performance reviews the 5.  F. Eskom’s contact details. contributions of Eskom’s operating line divisions during the reporting period, Refer to: discussing material issues as they affect www.eskom.co.za/IR2012/005.html operations. where the following reports can be found:  Statutory annual financial statements Service and strategic functions 6.   Divisional reports (detail performance outlines the key challenges of the information from a divisional service and strategic functions. perspective)   The Eskom Development Foundation 7. Financial performance presents an report (provides a review of Eskom’s overview of the financial performance Corporate Social Investment (CSI) for 2011/12. activities)   The Eskom Factor Report (details Summarised financial statements for 8.  Eskom’s broader impact and contribution 2011/12 (the statutory annual to society) financial statements are available at  Supplementary fact sheets www.eskom.co.za/IR2012/004.html). Throughout the integrated report links to supplementary information are provided. Snow covers the intake canal of the Ingula pumped storage scheme under construction near Ladysmith 10 Eskom Holdings SOC Limited Integrated Report 2012 Leadership overview Lowering of the spherical valve distance piece at Palmiet pumped storage scheme Eskom Holdings SOC Limited Integrated Report 2012 11 Letter from the chairperson Our mandate is to “provide sustainable electricity solutions Eskom’s material issues discussed to grow the economy and improve the quality of life of the people of South Africa and the region”. At a time when global economic Eskom’s objectives are not limited to uncertainty is forcing many companies to commercial concerns. We are a state- curtail operations and limit growth, Eskom owned company and our performance is is hard at work on one of the largest also measured by the overall value we capital expansion programmes in South add to the lives of the public. Our Africa’s history. This R340 billion developmental responsibilities range from programme, which commenced in 2005, building and maintaining power plants and will have added 17GW of much-needed networks, to supplying households, schools electricity-generating capacity to the and factories with electricity, supporting national grid by 2018/19. local industries, and stimulating skills and job creation. Eskom faces several challenges during the transition to increased generating capacity. Our mandate, as outlined by the The first new generating unit – unit 6 at Department of Public Enterprises, to Medupi power station in Limpopo – is which we are accountable, is to “provide expected to come online in 2013. Until sustainable electricity solutions to grow the then, the supply/demand balance will economy and improve the quality of life of remain tight. If we want to ensure a stable the people of South Africa and the region”. power system, all of us – households and businesses – will have to reduce demand We are working to reduce our and use energy efficiently.To keep the lights environmental footprint, diversify our on, Eskom counts on the support of all energy mix and lower carbon emissions, as South Africans. endorsed by President Jacob Zuma at Summary of chairman’s statement 17GW of much-needed electricity-generating capacity to be added to the national grid by 2018/19 We are working to reduce our environmental footprint, diversify our energy mix and lower carbon emissions The government has adopted the Integrated Resource Plan 2010, which represents a major step forward in identifying South Africa’s energy options. Urgent decisions are required concerning how the plan will be implemented, how it will be paid for and what role Eskom, as the country’s primary electricity utility, will play 12 Eskom Holdings SOC Limited Integrated Report 2012 COP 17 in Durban in 2011. In addition to reducing our carbon emissions in a manner consistent with South Africa’s economic growth objectives, we are also committed to planning for the impact of climate change. In the months ahead, several critical policy decisions need to be taken that will shape the future of the electricity industry. The government has adopted the Integrated Resource Plan 2010, which represents a major step forward in identifying South Africa’s energy options. Urgent decisions are required concerning how the plan will be implemented, how it will be funded and what role Eskom, as the country’s primary electricity utility, will play. Delays in key decisions can have negative consequences for the planning of capital expenditure, construction and engineering. In 2013 we will be celebrating our 90th anniversary. For nine decades, Eskom has been adding quality to the lives of South Africans and enabling the country’s economic growth. My colleagues on the board and I are privileged to be given the Chairman Zola Tsotsi opportunity to build on these excellent foundations. With our very capable Transmission lines installed executive management committee, under during the year totalled the direction of Brian Dames, I am 631km, up from 443km the confident that our leadership team is previous year prepared for the year ahead. Eskom’s progress equates to that of South Africa’s advancement. In this regard, Relative particulates Eskom’s success is crucial. improved to 0.31kg/MWh from 0.33kg/MWh in the prior year Zola Tsotsi Chairperson Eskom Holdings SOC Limited Integrated Report 2012 13 Report of the chief executive We kept South Africa’s lights on, as we have now done Eskom’s material issues discussed consistently since April 2008. This achievement is the result of a focused approach by Eskom to managing the challenge of a tight power system, as well as expanded partnerships with businesses and households that aim to manage demand and raise awareness of the need to use electricity more efficiently. An integrated view of our explains how these factors interact and business affect our ability to create and maintain At all major turning points in the life of an value. Eskom has been a leader in economy, companies face a difficult choice: integrated reporting for a number of years. how to meet present demand while This report is the first in a new, more ensuring that they are investing to focused format, in response to safeguard the future. new international initiatives that are leading the way towards improved As this integrated report shows, Eskom is reporting. We welcome your comments achieving this balance. We are keeping the and suggestions on both the content and lights on and we are building the power the format of this report. stations and transmission infrastructure needed to power South African businesses The global challenges of energy and households well into the 21st century. supply South Africa is not alone, particularly Doing so has not been easy and, as this among developing countries, in facing the report describes, the road ahead is strewn challenges of energy supply. Around the with obstacles. But we are confident that world, electricity utilities are grappling with we are setting the utility up for success; how to provide energy to growing that our organisation is becoming financially populations and economies in a safe and sustainable; and that as a result of initiatives sustainable way. Doing so requires long- now under way, we will in time become term planning that takes into account the the high-performance organisation that complex interplay of economic growth, South Africa needs to grow its economy demographic shifts, a finite supply of and create jobs. primary energy resources (and countries’ specific allocation of those resources), Our goal is to provide South Africa with transmission requirements, protection of secure, affordable, accessible and cleaner the environment, and cost recovery. power in the decades to come. This report charts our progress along this path. It sets In Eskom’s case, these challenges are out, in a concise manner, the range of underlined by the company’s develop­ material concerns affecting our business. mental mandate. Providing reliable and Beyond our financial bottom line, it affordable electricity is not only a addresses issues of governance, commercial undertaking; it is also about remuneration, risk and sustainability, and creating a foundation on which South 14 Eskom Holdings SOC Limited Integrated Report 2012 Africa can grow, helping to transform the lives of the large percentage of the population that lives in poverty. As a state-owned company, Eskom is an enabler of the government’s vision and a supporter of economic growth in our country and the southern African region. Eskom buys and sells electricity in the countries of the Southern African Development Community (SADC). Eskom is investigating additional opportunities in SADC that have a direct impact on ensuring a secure supply of electricity for South Africa. Over the past year, the global economy registered a weaker-than-expected performance, marked by slow growth in most developed countries. These trends have been partially offset by strong growth in leading emerging markets – particularly China – which has helped to keep commodity prices at high levels. Slower growth in South Africa has softened electricity demand and, while this is certainly not a desirable outcome for the economy, it has coincided with a period of constrained electricity supply, reducing Chief executive Brian Dames demand on an overloaded system. As economic growth gathers pace in the The system average period ahead, and mines and factories interruption frequency increase their output, the margin between electricity supply and demand will narrow index improved to to uncomfortable levels. 23.73 from 25.31 in the previous year The only solution to this dilemma is to build generating capacity while encouraging energy efficiency and managing demand – and this is just what The maintenance backlog we are doing. Eskom’s capacity expansion decreased to 26 as at programme is fully under way, with 31 March 2012 from 36 as 5.8GW of the planned 17GW already at 31 March 2011 commissioned. At the same time, we are working with the national government and municipalities, businesses and households to increase energy efficiency, and to raise Eskom Holdings SOC Limited Integrated Report 2012 15 Report of the chief executive continued awareness of the need to manage demand First and foremost, we kept South Africa’s so that we can keep the lights on. lights on, as we have now done consistently since April 2008. This The business case for sustainability is achievement is the result of a focused getting stronger and we are committed to approach by Eskom to manage the embedding sustainability into our business challenge of a tight power system, as well culture and operations. We remain as expanded partnerships with businesses committed to supporting the UN Global and households that aim to manage Compact, including the associated LEAD demand and raise awareness of the need initiative – which aims to improve to use electricity more efficiently. At the sustainability performance – as well as the same time, we reached a milestone in the CEO Water Mandate1 and Caring for electrification programme: more than Climate. The UN has declared 2012 the 4.2 million additional households have “international year of sustainable energy for been provided with electricity since the all”. The UN secretary-general launched programme began in 1991. the Sustainable Energy for All initiative in September 2011 and I am personally We took major steps forward in our involved in the high-level advisory group capital expansion programme. Minister for this project. Gigaba launched the construction of the first boiler at Kusile power station in Eskom has extensive, on-going stakeholder Mpumalanga, which is due to start engagements across the whole spectrum generating power from the end of 2014, of Eskom’s stakeholders, ranging from and we are on track for Medupi power Government departments (including the station to deliver first power to the grid in Depar tment of Public Enterprises, 2013. We completed the return to service Department of Energy, Department of of the Grootvlei power station, along with Water Affairs and National Treasury) local three units at Komati power station. We government and trade unions. In addition, commissioned a new 2 000 megavolt Eskom has regular interactions with Eskom ampere (MVA), 765/400 kilovolt (kV) customer groupings, including the quarterly transformer at Perseus substation as part State of the System briefings, meetings of the strengthening of the transmission with industry forums, community groups, system to the Western Cape. The capital etc. Refer to page 152 for more details of expansion programme met its key these interactions. performance targets during the period, considerably exceeding the targets for the 2011/12 accomplishments amount of generation and transmission Shortly after I became chief executive in capacity commissioned. the autumn of 2010, we conducted a strategic review of Eskom’s operations. Significant progress has been made During 2011/12, with the support of our towards securing water supplies for shareholder, we have started to deliver on Medupi power station in Limpopo the strategic initiatives we put in place to province, and for Komati and Kusile power improve our long-term performance. stations in Mpumalanga. 1. United National Global Compact’s CEO Water Mandate is a unique public-private initiative designed to assist companies in the development, implementation and disclosure of water sustainability policies and practices. 16 Eskom Holdings SOC Limited Integrated Report 2012 We took steps to strengthen financial successful COP 17 meeting in Durban. We sustainability, earning a surplus which will expect construction of the Sere renewable- be re-invested to fund capital expansion energy wind project in the Western Cape over the next six years and to reduce debt. to begin during 2012. We installed solar Group net profit for the year to 31 March panels at Kendal and Lethabo power 2012 was R13.2 billion (2010/11: stations to supplement auxiliary power R8.4 billion). The 25.8% tariff increase consumption at these stations – the start (including the environmental levy) granted of a programme that will be rolled out by NERSA during 2011 contributed to a across our fleet of coal-fired stations. We 24.8% increase in revenue per kWh have improved performances regarding compared with the previous financial year. relative particulate emissions, water usage This was offset by a 25.9% increase in and contraventions of legislation, compared operating costs, mainly as a result of to 2010/11. increases in primary energy costs (including the environmental levy). Given our We have expanded our social investment improved financial health and operational commitments, including taking respon­ performance and the support of our sibility for the way operations affect the shareholder, we asked NERSA to reduce environment and promoting the objectives the electricity tariff increase granted for the of the government’s New Growth Path. year beginning 1 April 2012 from 25.9% to Eskom believes its social responsibility goes 16%. Eskom maintains healthy cash reserves beyond allocating funds to development and funding progress remains positive. By projects through corporate social 31 March 2012, Eskom had secured more investment. It is also about incorporating than 77% of the funding required for the an ethic of social responsibility into its capital expansion programme. business model, taking into account the ways its decisions will affect all its We registered some progress in improving stakeholders. the efficiency of our operations. We completed the first phase of our Eskom is building its human capital and Back2Basics programme in October 2011, contributing to the national skills base. rolling out an enhanced single-instance A significant number of engineering/ SAP system on schedule and within technical learners received training over budget. The Back2Basics programme is the past five years. In 2011/12, 5 715 an internal performance-improvement (2010/11: 4 240) learners with three- to initiative aimed at standardising, simplifying four-year learning/bursary contracts were and optimising our processes and systems. in the pipeline, with a focus on engineers, We also launched the Eskom Leadership technologists, technicians and artisans. This Institute to build and strengthen leadership number will increase to 6 100 learners in capacity and to intensify the development 2015/16. We also train existing staff on a outcomes of leadership assessments. continuing basis. We strengthened our commitments to These accomplishments notwithstanding, environmental protection and mitigating Eskom faces some tough challenges that the effects of climate change. Eskom must be addressed in the year ahead and supported the government in hosting the beyond. Eskom Holdings SOC Limited Integrated Report 2012 17 Report of the chief executive continued Operational challenges facing our recorded a total of 13 Eskom fatalities and business 12 contractor fatalities. This is not Safety acceptable. Strong action is being taken to Safety is a business imperative. Power enforce our principles of zero harm and plants and transmission and distribution zero tolerance for unsafe practices. Our infrastructure must be run in a way that thoughts and prayers go to the families, protects surrounding communities and friends and colleagues of the employees ensures that our employees are safe and contractors who died in the line of and healthy. During the year we duty over the past year. Employees Contractor employees – Nkosinathi Emmanuel Gwetyana – Kanyiso Dlanjwa – Willem Jan Hendrick Jacobs – Muntungani Isaac Khumalo – Keyafisha Ernestina Lethuba – Wayne Klue – Neekesh Sibran Mahie – Mokete William Letsikhoane – Mfelani Timothy Malaza – Mokalabata Foster Madisa – Tshiro Alfred Mavuso – Maurice Mgadi – Phumowakhe Robert Mbatha – Sandile Miya – Setena Phineas Mekoa – Leronti Makalo Moeketsi – Johannes Mwiya – Mokhothu Stephen Pitso – Aifheli Joseph Nemavhidi – Siphamandla Cedrick Sithole – Stanley Mbongiseni Ngema – Nthabelang Gavin Sothoane – Philani Phakathi – Nxolosi Xhashimba – Daniël Jacobus Stols Maintenance and inconsistent imports of electricity We cannot continue the practice of from Mozambique’s Cahora Bassa facility. keeping the lights on by deferring There was some deterioration in the maintenance on our power stations. The energy availability factor performance – a existing generation maintenance plan and measure of a plant’s availability to provide system outlook underline the constraints electricity. on the system, with growing risks for plant and environmental performance All the power plant units need maintenance and safety. The deterioration in generating at some stage or another – while the performance over the past several years is backlog of 36 deferred outages as of the result of delayed maintenance and March 2011 was reduced, during the burning of poor-quality coal. During the repor ting period other scheduled reporting period, these conditions were maintenance outages had to be deferred. complicated in the summer months by As a result, the backlog as at 31 March high temperatures that affected the 2012 is 26 outages. operation of dry-cooled power stations 18 Eskom Holdings SOC Limited Integrated Report 2012 Eskom requires about 3 000MW of generating capacity in reserve to take generating units off-line to perform essential maintenance. Continuing to reduce the maintenance backlog while keeping the lights on requires other supply- and-demand levers to help maintain the generating capacity reserve. We have developed a plan to address the short- term supply/demand dilemma. We also launched the 49M campaign to encourage South Africans to embrace energy savings as a national culture and reduce the country’s electricity use by 10%. A mandatory national energy conservation scheme needs to be put in place and maintained until December 2013 as a safety net to ensure a stable system. Keeping the build programme on track and ensuring long-term capacity The Medupi project is not progressing as quickly as we had originally planned, mainly because of delays on the boiler contract. We announced during the year that the Employee and contractor safety remains first unit would come online only during a major concern 2013. The government has not yet announced how its Integrated Resource Plan will be implemented. Until these decisions are taken, the country has no new capacity commitments beyond the completion of Kusile in 2018/19. Eskom continues to develop a resource plan to cater for the anticipated technologies. Pricing for a sustainable electricity industry During 2012 Eskom will submit a proposal to NERSA for the third multi-year price determination (MYPD 3) which will be effective from 1 April 2013. NERSA’s Eskom Holdings SOC Limited Integrated Report 2012 19 Report of the chief executive continued decision in this matter will set an electricity pricing framework for the next period. An appropriate tariff structure that allows for cost recovery, including return on assets, is necessary to encourage investment in the electricity industry over the long term. This will ensure that South Africa has the energy infrastructure that it needs – and that the country can afford it. Tariffs need to be set at levels that are sustainable, by allowing an appropriate migration to cost-reflective tariffs while taking into account the impact on the economy with provision made to ensure Coal stock levels remain healthy that low-income households are able to obtain electricity in a sustainable manner. Vending system The online vending system, through which more than 4.2 million customers buy prepaid electricity, failed on several occasions during the period November 2011 to February 2012. Eskom regrets the inconvenience experienced by some customers during the system failures. The system is now operational and ongoing fine-tuning is improving its reliability. Coal supply Long-term coal supply remains a concern. Even though 80% of our requirements up to 2018 are secured, we need a framework to balance the development of South Africa’s coal-export industry with the need for a secure supply of coal for domestic power generation over the life of the power stations. Medupi power station near Lephalale 2012/13 outlook1 Over the year ahead, we will focus on five critical areas:  Improving safety  Keeping the lights on 1. R  efer to page 140 for information on Eskom’s future priorities 20 Eskom Holdings SOC Limited Integrated Report 2012  Strengthening financial sustainability and members of the board, including the new submitting our MYPD 3 application chairperson, Zola Tsotsi, and my thanks  Meeting timelines for the capital also go to them for their invaluable expansion programme, particularly support. Our restructured executive team Medupi is positioned to provide leadership and  Bringing about a step change in the ensure progress. Most important, of performance of our organisation course, are the more than 43 473 Eskom through the Back2Basics programme. employees and their families. Without them, our achievements would not have We will tackle these tasks with been possible. I thank them for their hard determination and with the benefit of work and commitment. strong support from our shareholder – the South African government. I would like to Over the year ahead, we look forward to thank Minister of Public Enterprises Malusi working with all of our stakeholders – Gigaba and Deputy Minister Ben Martins employees and unions, the government for their encouragement and insight. and Parliament, businesses and investors, During the year we welcomed several new suppliers and contractors, customers and regulators, civil society and community organisations – to keep the lights on and build for the future. Brian Dames Chief executive Eskom Holdings SOC Limited Integrated Report 2012 21 About the company High-voltage line running from Kendal power station in Mpumalanga 22 Eskom Holdings SOC Limited Integrated Report 2012 Nature of business and Eskom’s material issues discussed client base Eskom is South Africa’s primary electricity supplier. The company, which is wholly The Braamhoek dam is complete at the new Ingula pumped storage scheme owned by the South African government, generates, transmits and distributes electricity to industrial, mining, commercial, agricultural and residential customers, and to municipalities, which in turn redistribute electricity to businesses and households. Eskom sells electricity directly to about 3 000 industrial customers, 1 000 mining Rotek performs maintenance on many of the major power station components customers, 50 000 commercial customers and 84 000 agricultural customers. It also supplies electricity to more than 4.7 million residential customers – many of whom are in rural areas – who account for about 40% of all The underground coal gasification project near Volksrust is progressing well residential customers (which include prepaid customers) in the country. Eskom Holdings SOC Limited Integrated Report 2012 23 About the company continued Legal and operational structure Structure of Eskom Holdings SOC Limited (and major subsidiaries) Eskom Holdings SOC Limited Business Major subsidiaries Generation Eskom Enterprises SOC Limited Transmission Rotek Industries SOC Limited Distribution Roshcon SOC Limited Group Customer Services Escap SOC Limited Human Resources Eskom Finance Company SOC Limited Technology and Commercial Eskom Development Foundation NPC Finance and Group Capital Enterprise Development Sustainability Eskom line, service and strategic functions Chief executive Office of the chief executive Group Technology Finance Human Enterprise Sustainability Generation Transmission Distribution Customer and and Group Development Resources Commercial Services Capital Line functions Service functions Strategic functions 24 Eskom Holdings SOC Limited Integrated Report 2012  Escap SOC Limited, Eskom’s wholly Eskom’s new structure owned captive insurance company, Eskom has restructured its divisions manages and insures Eskom’s business as follows: risk.  Line functions operate the business  Eskom Finance Company SOC Limited and focus on creating value grants home loans to Eskom employees.  Ser vice functions safeguard   The Eskom Development Foundation Eskom’s assets, provide expertise NPC is a wholly owned non-profit on day-to-day standardised company that manages Eskom’s services and optimise functions corporate social investment. that cut across all aspects of the business Purpose, values and strategic  Strategic functions develop the objectives enterprise, bringing about step The company’s operations are underpinned changes in performance and by six values: providing broader strategic  Zero harm support to the group.  Integrity  Innovation The office of the chief executive,  Sinobuntu (caring) which incorporates the delivery unit  Customer satisfaction and the assurance and forensic  Excellence department, has been expanded. In September 2011 the Eskom board, informed by an extensive strategic review Eskom has its head office in Johannesburg, process, approved a six-year corporate with satellite operations across South plan that identified eight strategic Africa. It maintains a small office in London, objectives (identified in the figure overleaf primarily for quality control of the as the three building blocks and the five equipment being manufactured for the numbered blocks). capital expansion programme. Eskom has several subsidiaries:  The Eskom Enterprises group provides lifecycle support and plant maintenance, network protection and support for the capital expansion programme for all Eskom Holdings SOC Limited divisions. Eskom Holdings SOC Limited Integrated Report 2012 25 About the company continued Eskom’s purpose, values and strategic objectives Our purpose To provide sustainable electricity solutions to grow the economy and improve the quality of life of people in South Africa and in the region Accomplish Eskom’s purpose 1. Leading and 2. Reducing 3. Securing 4. Implementing 5. Pursuing partnering our carbon future resource coal haulage private sector Execute to keep the footprint and requirements, and the participation strategic lights on pursuing mandate and road-to-rail pillars low-carbon the required migration plan growth enabling opportunities environment Get foundation right, build capacity 1st building block: 2nd building block: 3rd building block: Setting ourselves up Ensuring our financial Becoming a high- for success sustainability performance utility ZIISCE: Zero Harm, Integrity, Innovation, Sinobuntu, Customer Satisfaction, Excellence Foundation: a focus on long-term nation building, electricity for all, new growth path initiatives, and balance the triple bottom line elements: commercial, environmental and socioeconomic roles The key measures and material stakeholder issues aligned with these strategic objectives are shown in the appendix on pages 144 to 155. 26 Eskom Holdings SOC Limited Integrated Report 2012 Corporate governance Steel linings being transported to the Ingula pumped storage scheme near Ladysmith Eskom Holdings SOC Limited Integrated Report 2012 27 Corporate governance 1 2 3 4 5 6 Eskom’s corporate governance focuses on effective ethical leadership to integrate strategy, governance and sustainability. Eskom takes its strategic direction from its board of directors. The executive management committee is responsible for putting decisions made at board level into effect and overseeing the company’s day-to-day operations. Board of directors Eskom has a unitary board structure with a majority of independent non-executive directors. The company’s memorandum of incorporation stipulates that the shareholder will appoint a chairperson, chief executive, finance director and non-executive directors after consulting the board. The directors are drawn from diverse backgrounds and bring a wide range of experience and professional skills to the board, supplemented at committee level by external members. The performance of the board and individual directors is evaluated each year. The term of office of non-executive directors is three years, subject to review at the annual general meeting. Retiring directors are eligible for reappointment. The shareholder reconstituted the board in June 2011. Membership of the board at 31 March 2012 was as follows: 28 Eskom Holdings SOC Limited Integrated Report 2012 7 8 9 10 11 12 13 14 1. Zola Tsotsi (65) Independent non-executive director 9. Collins Matjila (50) Chairman of the board Independent non-executive director 2. Brian Dames (46) 10. Boni Mehlomakulu (39) Chief executive Independent non-executive director 3. Bernie Fanaroff (64) 11. Mafika Mkwanazi (58) Independent non-executive director Independent non-executive director 4. Queendy Gungubele (53) 12. Paul O’Flaherty (49) Independent non-executive director Finance director 5. Neo Lesela (42) 13. Phenyane Sedibe (42) Independent non-executive director Independent non-executive director 6. Bejabulile Luthuli (39) 14. Lily Zondo (43) Independent non-executive director Independent non-executive director 7. Chwayita Mabude (42) Independent non-executive director 8. Yasmin Masithela (38) Independent non-executive director Eskom Holdings SOC Limited Integrated Report 2012 29 Corporate governance continued Changes in board composition in Delegation of authority 2011/12 The board has the authority to delegate its  Zola Tsotsi was appointed chairperson power to executive structures and board after Mpho Makwana retired as committees. A delegation-of-authority chairperson, having served as a director framework is in place to facilitate this for three terms and acting as interim delegation without diluting the board’s chief executive. accountability. This framework is  The following members were appointed undergoing an extensive review process. during the year: Queendy Gungubele, Neo Lesela, Bejabulile Luthuli, Chwayita Board committees exercise their delegated Mabude,Yasmin Masithela, Collins Matjila, authority in accordance with board- Mafika Mkwanazi, Phenyane Sedibe and approved policies. Each board committee Lily Zondo. comprises a majority of independent non-  The following board members retired executive directors and each is chaired by during the year: Zee Cele, Daniel Dube, an independent non-executive director. Lars Josefsson, Hee-Beom Lee, Wendy Lucas-Bull, John Mirenge, Jacob Modise The board delegates management of day- and Uhuru Zikalala. to-day operations to the chief executive. The chief executive is assisted by the Please see: executive management committee and its www.eskom.co.za/IR2012/006.html subcommittees. for details of directors’ qualifications, dates appointed and significant directorships. Corporate governance structure Eskom board Chief executive Social ethics Executive Audit Investment People and Tender and management and risk and finance governance committee sustainability committee committee committee committee committee 30 Eskom Holdings SOC Limited Integrated Report 2012 Executive management committee members 1. Brian Dames (46) Chief executive 2. Paul O’Flaherty (49) 1 2 Finance director and group executive – Group Capital 3. Bhabhalazi Bulunga (56) Group executive – Human Resources 4. Thava Govender (44) 3 4 Group executive – Generation 5. Erica Johnson (43) Group executive – Enterprise Development 6. Steve Lennon (53) Group executive – Sustainability 5 6 7. Dan Marokane (40) Group executive – Technology and Commercial 8. Tsholofelo Molefe (43) Group executive – Customer Service 9. Ayanda Noah (45) 7 8 Group executive – Distribution 10. Mongezi Ntsokolo (51) Group executive – Transmission 9 10 Eskom Holdings SOC Limited Integrated Report 2012 31 Corporate governance continued The board committees held the following   Tsholofelo Molefe, Ayanda Noah and number of meetings during the year: Mongezi Ntsokolo became members of  Audit and risk committee: six Exco in April 2011.  Investment and finance committee: four  Tender committee: nine Please see:  Social ethics and sustainability www.eskom.co.za/IR2012/008.html committee: five for details of executive management  People and governance committee: four. committee members’ qualifications, dates appointed and significant directorships. Please see: www.eskom.co.za/IR2012/007.html Corporate citizenship and sustainability for more information on the committees’ The board and its committees guide the activities throughout the year. strategy and set performance targets for Eskom’s broad approach to corporate Director induction and orientation citizenship. This includes the following: A comprehensive programme is in place  A social, ethics and sustainability to train and orientate new directors committee that focuses on sustainability and external committee members on an and corporate citizenship. ongoing basis.  A tender committee that ensures that transformation, including skills Executive management committee development and empowerment, is (Exco) encouraged through Eskom’s The executive management committee procurement activities. helps the chief executive guide the overall  An executive management committee direction of the business and exercise assesses occupational health, safety and executive control in the management of environmental performance and reviews the day-to-day operations. major incidents to ensure that corrective action is taken. Other than the chief executive and finance   The Eskom Development Foundation director, who are executive directors, runs development programmes for Eskom’s group executives are appointed disadvantaged communities. by the board. Group executives are full-  The board works to align its decision time employees subject to Eskom’s making with the government’s New conditions of service. Growth Path.  A subsidiary governance framework is Changes in executive management in place to facilitate the flow of committee composition in 2011/12 information between the holding   Thava Govender became acting chief company and its subsidiary companies, officer – Generation business in which ensures that sustainability goals September 2010; he attended Exco are aligned across the organisation. meetings, but was not a member. In April 2011 he became a member of Exco. 32 Eskom Holdings SOC Limited Integrated Report 2012 Ethical business conduct committee monitors and evaluates the Eskom’s board is accountable for the responsibilities of management and of group’s ethics-management programme, internal and external audit to ensure that which is run on an operational level by the all major issues reported have been executive management committee, satisfactorily resolved. It reports any assisted by the ethics office. The unresolved important matters to the programme includes the following: board.  Assessing the organisational risks and opportunities Combined assurance  Fostering ethical standards in the form In line with King III, Eskom is applying a combined assurance model to ensure of a code of ethics, conflict of interest coordinated assurance activities. The board policy, including business courtesies and audit and risk committee oversees private work assurance activities. The committee also  Raising awareness regarding ethics oversees the establishment of effective (training, reporting, advices) systems of internal control to provide  The ethics helpdesk and whistleblowing reasonable assurance that Eskom’s financial hotline. and non-financial objectives are achieved. The assurance and forensic department Quarterly ethics status reports are used to provides independent and objective monitor the progress of this programme. assurance, consulting and investigative Eskom is also a signatory to the UN Global services to improve the organisation’s Compact, which includes an anti- operations. The depar tment has corruption clause, as well as the World unrestricted access to all functions, records, Economic Forum’s Partnership Against property and personnel. The general Corruption Initiative. manager – audit and forensics attends executive management committee meetings. Internal control The board is responsible for ensuring that Eskom’s internal forensic capacity will be internal controls at all levels are effective strengthened through a partnership with and has approved the implementation of the Special Investigating Unit (SIU). A an integrated framework to systematically proclamation by the President in the evaluate and improve controls across current year formalised the SIU’s mandate the company. following an agreement in February 2011. External auditors independently audit The internal audit department reviews and report on the financial statements internal control systems and reports its and selected sustainability information in findings to management and the audit and this report. risk committee. The audit and risk Eskom Holdings SOC Limited Integrated Report 2012 33 Corporate governance continued During 2011/12, Eskom implemented the are directly accountable to the group compliance management charter and the executive: Generation. The nuclear safety compliance strategic framework that had assurance function is a separate been approved by the board in 2010. department in Generation with its own Legislation pertaining to Eskom was technical experts and resources reporting reviewed and governance, management directly to the group executive: Generation and reporting capability created to and is thus kept independent of the enhance Eskom’s capacity to manage production function. compliance. Baseline principles have been established and Eskom will develop the necessary supportive capacity in the coming year. During the last quarter of 2011/12, Eskom conducted a comprehensive review of compliance with important acts and regulations. The review highlighted the importance of adequate and timely plant maintenance to reduce safety risks. Specific attention was also given to compliance An executive delegation visits Koeberg power with PFMA and NERSA requirements. station Eskom is substantially in compliance with In line with global best practice, Eskom has significant legislation affecting its operations. a three-tier system of nuclear safety governance: Security risk management  The top tier is the board’s social, ethics The board is responsible for ensuring that and sustainability committee, whose an integrated crime-prevention plan is in meetings are attended by international place to minimise Eskom’s exposure to nuclear experts. crime, particularly fraud. The security risk-  The middle tier consists of the nuclear management depar tment develops management subcommittee presided strategies to protect assets, interests, over by the group executive: Generation. information, people and processes and This makes recommendations on issues gives assurance that the required measures such as nuclear policy, standards and are implemented. The executive manage­ benchmarks, and overall business ment committee is kept informed about requirements. security issues.  The third tier, the safety review committees, brings together experts Nuclear safety from various parts of Eskom to evaluate All aspects of electricity production – nuclear-safety issues and make including safety – at Koeberg power station recommendations. 34 Eskom Holdings SOC Limited Integrated Report 2012 Legislation and guidelines Eskom adheres to the statutory duties and responsibilities set out in the Companies Act and augmented by the PFMA. In addition, Eskom is guided on best practices by King III and the Protocol on Corporate Governance in the Public Sector, as well as international guidelines. Eskom has applied the majority of the King III principles and practices. Because Eskom is a state-owned company, some of these cannot be applied and, in some instances, Eskom has adopted alternative practices to those recommended by King III. Eskom has amended its memorandum of incorporation to bring it into harmony with the Companies Act, 2008 and has submitted it to the Minister of Public Enterprises for comment. It is envisaged that the memorandum of incorporation will be approved by the shareholder Minister of Public Enterprises, Mr Malusi during 2012. Gigaba, hands a cheque to Drina Engelbrecht, National Director for Meals on Wheels Shareholder’s compact Community Services SA from funds raised at The government of the Republic of South Eskom’s inaugural 49M Charity Golf Day Africa is Eskom’s sole shareholder. The shareholder representative is the Minister of Public Enterprises. Each year Eskom, in consultation with the Minister of Public Enterprises, agrees on its performance objectives, measures and indicators in line with the PFMA. Annual targets are annexed to a list of principles agreed to by Eskom and its shareholder (the shareholder compact) and regular reports are provided. Eskom Holdings SOC Limited Integrated Report 2012 35 Corporate governance continued This table is an overview of performance against the key performance indicators in Eskom’s shareholder compact with the government, which is reported at an Eskom company level. See page 144 for a more detailed list of key indicators. Key performance areas of the shareholder’s compact Performance area Company level performance indicator Ensuring adequate future Generation capacity installed (MW) electricity Transmission lines installed (km) Transmission capacity installed (MVA) Ensuring reliable electricity Management of the national supply/demand supply constraints Demand-side management energy efficiency (GWh) Business sustainability Internal energy efficiency (GWh) Water usage (L/kWh) Cost of electricity (R/MWh) (excluding depreciation) Debt: equity Interest cover Supporting South Africa’s developmental objectives % local content in capital expansion contracts placed Total learners in the system (engineers) Total learners in the system (technicians) Total learners in the system (artisans) Pursuing private sector Set up a ring-fenced Systems and Market Operator participation division within Eskom 36 Eskom Holdings SOC Limited Integrated Report 2012 Target Target Actual Actual Actual 2012 achieved 2012 2011 2010 385 535 315 452 606 631 443 600 500 2 525 5 940 1 630 No load No load No load No load shedding shedding shedding shedding 1 051 1 422 1 339 n/a 25.5 44.96 26.20 n/a ≤1.35 1.34 1.35 1.34 387.02 374.19 296.36 255.09 ≤2.6 1.69 1.66 1.68 ≥1 3.27 1.40 0.77 52 77.2 79.7 73.9 1 800 2 273 1 335 955 700 844 692 681 2 350 2 598 2 213 2 144 Completed by year-end Done n/a n/a Eskom Holdings SOC Limited Integrated Report 2012 37 Corporate governance continued Remuneration Bargaining unit Remuneration philosophy Bargaining-unit employees (all those below Eskom’s approach to remuneration and middle management) receive a basic salary benefits is designed to position the and benefits. Major benefits include company as a preferred employer. Eskom membership of the pension and provident aims to attract and retain skilled, high- fund, medical aid and an annual bonus performing employees. To achieve this, (13th cheque). Basic salaries and conditions Eskom has established the following of service are reviewed annually through a remuneration principles: collective bargaining process. Bargaining-  Ensure that business requirements unit employees also participate in the determine market positioning annual short-term incentive scheme (see  Provide market-related remuneration overleaf). structures, benefits and conditions of service Managerial level  Maintain external competitiveness to Managerial-level employees are attract and retain key skills remunerated on a cost-to-company/  Ensure internal equity through defensible package basis. The package includes differentials in pay and benefits pensionable earnings, compulsory benefits  Remunerate employees in accordance and a residual cash component. Managerial with their job grade and at least at the employees also participate in the annual minimum of the applicable salary scale short-term incentive scheme.  Follow a lead-lag market approach. Executive remuneration Eskom’s remuneration structures fall into Executive remuneration links remuneration four categories, set out below. to the performance of the organisation and the individual’s contribution. Basic Non-executive remuneration salary is augmented by short- and long- Remuneration is paid in accordance with term incentives. International and local the approval of the shareholder and benchmarks are considered in determining consists of a fixed monthly fee. Non- remuneration. The remuneration strategy executives are reimbursed for company- is aligned with the shareholder guidelines. related expenses. 38 Eskom Holdings SOC Limited Integrated Report 2012 The board approves the remuneration of   Long-term incentives – rewards for the finance director and group executives. achieving objectives set by shareholder The chief executive’s remuneration is (refer to the key indicators on page 144). approved by the shareholder. Factors taken into account include level of skill, During the 2011/12 financial year, the experience, contribution to organisational following details are pertinent for executive performance and success of the group. management committee members:  On average, they received below- The balance between fixed and variable inflation increases on their guaranteed remuneration and short- and long-term portion of earnings incentives is reviewed annually.  Performance contracts indicate that only 20% of performance is based on The chief executive, finance director and individual performance, while 80% of group executives have permanent performance is based on the collective employment contracts based on Eskom’s Eskom performance weighted standard conditions of service. accordingly  Cognisance must be taken of the The remuneration of the executive responsibilities and risk carried by management committee members directors and executives, given their consists of the following: broad accountability   Guaranteed amount – fixed cash  On the key indicators table, the linkages portion and compulsory benefits. This is to the chief executive’s compact reviewed annually (performance targets) are indicated.   Short-term incentives – rewards for Refer to Appendix A on page 144, and achieving set objectives set by the chief footnote 2 and 3 on page 150. executive and approved by the board committee (refer to the key indicators The remuneration of the directors and the on page 144) group executives is disclosed on the following page. Eskom Holdings SOC Limited Integrated Report 2012 39 Corporate governance continued The remuneration of the directors and the group executives The table shows the total remuneration for the year ended 31 March 2012 of the directors and the Group executives in office at 31 March 2012. In order to improve comparability the comparatives for the new Exco members in their previous positions have been included. For the detailed analysis of remuneration see www.eskom.co.za/ IR2012/009.html. 2012 2011 Name R’000 R’000 Non-executive directors 6 149 6 997 ZA Tsotsi (chairman) 908 – PM Makwana (previous chairman as well as acting chief executive in 2010/11) 638 2 626 Other non-executives 4 603 4 371 Executive directors 13 776 12 544 BA Dames1 8 284 7 558 PS O’Flaherty 5 492 4 986 Other Exco members (group executives) 34 078 29 368 BE Bulunga 3 107 3 040 T Govender 4 228 3 190 EL Johnson 5 397 4 838 SJ Lennon 4 368 3 938 TBL Molefe 2 921 1 575 DL Marokane 4 375 4 155 A Noah 4 418 3 795 MM Ntsokolo 5 264 4 837 Total remuneration 54 003 48 909 1. The remuneration disclosed has been adjusted/restated to allocate the salary increase (backdated to the date of appointment of the director as CE) between the current and prior financial years. The increase was approved by the minister during October 2011. The remuneration for the 2011 year end has been restated with a total of R1.817 million consisting of a R1.201 million salary increase and a R616 000 short-term incentive scheme payment. The remuneration for the 2012 year end has been adjusted with an amount of R934 000 relating to the increase in the director’s 2012 salary. Refer to note 45 in the Annual Financial Statements. 40 Eskom Holdings SOC Limited Integrated Report 2012 Operating context: material issues and risks One of the three wind turbines at the Klipheuwel wind facility in the Western Cape Eskom Holdings SOC Limited Integrated Report 2012 41 Operating context: material issues The material issues and risks covered in this report are those that, in the view of both Eskom’s stakeholders and management, have the potential to significantly affect the company’s achievement of its strategic objectives. Linking strategic objectives and material issues and risks The table below links the strategic objectives and material issues/risks in this section to the value chain, the key indicators and stakeholder engagement. Material issues reference table Strategic objectives Becoming a high-performance organisation Leading and partnering to keep the lights on Reducing Eskom’s carbon footprint and pursuing low-carbon growth opportunities Securing future resource requirements, mandate and the required enabling environment Implementing coal haulage and the road-to-rail migration plan Pursuing private sector participation Ensuring financial sustainability Setting up for success 42 Eskom Holdings SOC Limited Integrated Report 2012 Maintenance at the Palmiet pumped storage scheme near Grabouw Page Material issues and risks reference Focus on safety 44, 85 Improve operations 45, 68, 73, 75, 92, 95 Put customer at centre 79 Internal organisational transformation 88 Build strong skills 88 Keep the lights on 47, 70, 74, 75, 82 Deliver capacity expansion 49, 58 51, 69, 72, 75, 95, Reduce environmental footprint in existing fleet 96, 101 Maximise socioeconomic contribution 54, 93, 97 Implementing coal haulage and the road-to-rail migration 67 plan Pursuing private sector participation 54  Independent power producer-contracted energy 55 ISMO Multi-year price determination (MYPD 3) 46, 55, 100, 108 Setting up for success 94 Eskom Holdings SOC Limited Integrated Report 2012 43 Operating context: material issues continued Risk and resilience What follows is a high-level examination of The Eskom board, through the audit and the key material issues and risks facing risk committee, manages Eskom’s risk and Eskom in the period under review, focusing resilience to provide greater security for its on how these issues affect each other and employees, customers and other what Eskom is doing to mitigate the risks stakeholders. they pose or capitalise on the advantages they offer. Greater detail on how these Risk-monitoring system implemented issues and risks affect the company’s value The executive committee has implemented chain is set out from page 57. a risk-monitoring system that enables management to respond appropriately to Becoming a high-performance all significant risks that could affect the organisation business. Eskom’s integrated emergency Focus on safety response structures manage emergencies Safe working conditions are a core Eskom that exceed the scope of normal business objective – alongside safe operation of its in a coordinated manner. power plants and transmission and distribution infrastructure in the Risk monitoring is done at departmental, communities in which it operates. Work- regional, operating unit and subsidiary level related fatalities are an unnecessary and is reported upwards to group level. tragedy with far-reaching consequences for After these integrated risk reports are staff morale and performance. Such events consolidated, the executive committee and also negatively affect Eskom’s reputation the board’s audit and risk committee and may in certain instances have review and evaluate the risk profile to repercussions in terms of labour law. While determine the major corporate and there are significant health and safety risks business risks. associated with an electricity business that cannot be avoided entirely, Eskom works Integrated risk and resilience framework to minimise these factors. under way An internal benchmark review of Eskom’s Incorporation of safety into performance- risk management maturity, conducted in management system the last quarter of the financial year, Eskom has included safety in its indicated that Eskom has a capability performance-management system across maturity close to the global benchmark for all divisions. Any accidents reported count electricity utility companies. An integrated against the achievement of key risk and resilience framework to make performance targets. Eskom a “risk intelligent” company in the medium term is being developed. 44 Eskom Holdings SOC Limited Integrated Report 2012 Safety-management system established Safety-improvement initiatives A safety-management system has been Several initiatives to improve safety were established. Eskom will continue to focus introduced: on training of safety practitioners which  The Zero Harm campaign was launched emphasises Eskom’s policies and follow it   Peer reviews on risk-control inter­ up with compliance audits. Safety ventions were conducted at selected performance features strongly in Eskom’s sites remuneration strategy (refer to page 144,  Work was stopped on a number of and footnote 2 on page 150). occasions to discuss and embed safety issues Safety training and monitoring for staff   Management took robust action on Eskom ran several safety awareness and repeat incidents training programmes for staff throughout   Boot camps were held to focus on the year. Employees are expected to specific safety issues. follow the cardinal rules of safety or be disciplined. This has resulted in a Regulation considerable increase in safe behaviours As a state-owned company and South (such as use of safety belts) since 2008. Africa’s primary electricity provider, Targeted initiatives for specific types of Eskom is subject to extensive regulation health and safety incidents were also of many aspects of its operations. conducted. These include licensing, tariff structure, trade commitments and environmental impacts. Such regulation has the potential to affect Eskom and its stakeholders by changing its structures and operations (for instance, through the new ISMO Bill), by affecting its revenue stream (through regulating tariffs and imposing penalties for environmental Eskom manages around 11 000 people on the emissions). Kusile power station site. Eskom is engaging its shareholder (the Contractor safety forums conducted government) and all relevant regulatory Eskom held contractor forums to ensure bodies to factor possible changes to its that the standard of safety management at mandate, role and national commitments Eskom sites was in line with best practice. into all planning initiatives. Refer to Contractors are expected to comply with www.eskom.co.za/IR2012/010.html for Eskom’s safety, health and environmental more information on regulation. policy; deviation from this policy is not tolerated and can lead to the termination of a contract. Eskom Holdings SOC Limited Integrated Report 2012 45 Operating context: material issues continued Preparation for MYPD 3 application What is multi-year price Eskom is preparing to submit its application determination? for the third MYPD to NERSA in the As a regulated state-owned company, second half of 2012. The application will Eskom’s revenues and South Africa’s address the following: electricity prices are determined by  The transition to cost-reflective tariffs, NERSA through the process of a which is expected to continue based on multi-year price determination. a real return on replacement values for Eskom is currently in its second assets, but over a longer period. The MYPD cycle, which began on 1 April Electricity Pricing Policy states that cost- 2010 and ends on 31 March 2013, reflective tariffs should be reached and it is preparing its submission for within a five-year period ending the third cycle (MYPD 3). March 2015. However, given the importance of electricity in the economy, The price-determination process requires Eskom to submit its Eskom will suggest phasing in the proposed application to the South increase over a longer period. African Local Government  Building a financially sustainable and Association, which represents the viable electricity industry municipalities that constitute the  Supporting economic growth and job single largest buyer group of electricity, creation and the National Treasury, for  Ensuring the security of supply. comment and takes into account their input into its application to Whereas previous determinations spanned NERSA. three years, Eskom proposes that MYPD 3 should cover a five-year period. This will NERSA analyses Eskom’s application allow customers to plan for price increases, to ensure that the utility is operating provide rating agencies and lenders with efficiently and that customers are getting value for their money. It also certainty of revenue inflows over a longer consults with various stakeholders period, and ensure that cost-reflective and the public before making its pricing is achieved. decision. Stakeholder engagement Should any of the corporate or business Revision of 2012/13 increase in MYPD 2 risks Eskom faces materialise and result in NERSA approved an average tariff increase significant financial loss, price increases or of 24.8% for 2010/2011, 25.8% for 2011/12 load shedding, in isolation or in aggregate, and 25.9% for the 2012/13 period of it will have a significant negative impact on MYPD 2. In March 2012, at Eskom’s Eskom’s shareholder and stakeholder request and after due consideration to relationships, and its brand and reputation ensure no negative impact, NERSA revised – all of which may constrain Eskom’s ability the second increase downwards to 16% to raise capital. A strategy has been put in for the period from 1 April 2012 to place to manage these risks and to engage 31 March 2013. with stakeholders. 46 Eskom Holdings SOC Limited Integrated Report 2012 Weekly system status bulletin the integration environment, poor data Eskom releases weekly system status security and deliberate cyber-attacks. bulletins as well as quarterly briefings to the media, to keep stakeholders informed as to These risks could result in loss of day-to- the status of its constrained supply system. day production and critical information, as well as the inability to recover the network Building strong skills as a result of inadequate disaster-recovery South Africa has limited availability of plans. contractors with the required skills and capacity to support the capital expansion The controls in place to prevent system programme, and competition for skilled failure include information standards and workers is intense. control frameworks, third-party security assessments, vulnerability assessments, To deepen the skills pool for the benefit of reviews of infrastructure and applications, both the capital expansion programme automated application testing, change- and for future grid maintenance, Eskom control management and development has in the current year: and monitoring of disaster-recovery and  Partnered with six leading South African business continuity management plans. universities to train engineers in areas relevant to Eskom. Leading and partnering to keep  Launched the Eskom Welding School of the lights on Excellence to develop in-house skills Keep the lights on and bring down the company’s welding Electricity demand levels for 2011/12 were reject rate. The 150 learners enrolled in similar to the previous year, with peak the programme will receive a dual demand during the winter of 2011 South African and international reaching 37 065MW at the end of May, qualification. including non-Eskom generation (May 2010: 36 970MW). The supply-demand Critical information-systems failure balance is expected to remain tight Effective and secure information systems throughout 2012 and 2013, until the first are essential for efficient management, unit of Medupi power station starts coming accurate billing of customers, payment of online. Eskom has put in place a recovery suppliers and employees and effective team to ensure that load shedding is power generation and transmitting of avoided, but energy conservation and electricity over the national grid. The partnership with all stakeholders will be confidentiality, integrity and availability of essential to achieve this. information systems could be affected by ineffective design or controls, frequent This is one of Eskom’s key performance failure of critical applications, inadequate targets: ensuring that the lights stay on by disaster-recovery plans, lack of stability in managing supply and demand in such a Eskom Holdings SOC Limited Integrated Report 2012 47 Operating context: material issues continued way that essential maintenance can be Demand-side management has reduced done. peak electricity demand by 2 997MW for the combined financial years 2005 to 2012. Reductions in energy demand achieved A single power station unit contributes Eskom runs several energy and demand- about 600MW to national electricity reduction programmes to encourage supply, so demand-side management has industrial customers, municipalities and now conserved five generators’ worth of households to reduce their energy output (a typical power station has six). consumption. This makes more capacity available on the electricity supply system, The challenge of infrastructure deterioration creating opportunities for maintenance Eskom’s ageing electricity supply network work and reducing the likelihood of load and power stations require essential shedding in the future. These programmes maintenance and upgrades. Given the include: constraints on the power system, there has  Power buy-back agreements with been a reduction in the maintenance industrial customers. window, which has resulted in a backlog,   The Energy Conservation Scheme, which increases the probability of network which sets energy allocations for the or plant failure and, in some cases, country’s 500 largest electricity users. contraventions of environmental This voluntary scheme may become regulations. mandatory in future. To date 96 of Eskom’s 135 key industrial customers A project to coordinate a comprehensive, (using ≥100GWh per year) have been synchronised maintenance and refurbish­ contracted. ment plan is under way. This project uses  Residential power-reduction initiatives demand-side initiatives to create windows (installing low-flow shower heads, LED of opportunity to do the required work lights, pool timers, geyser blankets and and so improve plant and grid efficiency subsidising solar water-heating systems). while reducing the possibility of plant  The Power Alert system, broadcast on failure and load shedding. television between the hours of 17:00 and 21:00, indicates the status of the Eskom’s drive to become a high load on the grid and urges viewers to performance organisation by creating a turn off non-essential appliances in times step change in its technical performance is of excessively high demand. enabled by the deliverables of the   The 49M campaign, which aims to Back2Basics programme launched. This encourage energy-efficient attitudes and includes a more consistent and world-class habits in all consumers, particularly approach to engineering, maintenance and residential users. operating practices. 48 Eskom Holdings SOC Limited Integrated Report 2012 case of the amount of generation capacity The Back2Basics programme commissioned and the amount of The Back2Basics programme was transmission capacity installed and established in 2010 to improve commissioned. In total, the programme overall performance across Eskom by has increased Eskom’s generating and standardising, simplifying and transmission capacity by 5 756MW, optimising processes and systems. The programme aims to ensure that transmission lines by 3 899kms and management information is complete, transmission substation capacity by accurate, reliable, accessible and 20 195MVA since 2005. timely. The central challenge facing this Eskom is currently improving data quality to effectively manage process programme is to remain on schedule. risks, standardise reports and drive Eskom is using an integrated approach to process and system training. manage schedules, budgets and risks associated with the expansion programme Back2Basics includes the following and all of its capital expenditure programmes: services tools, project tools, engineering tools and programmes. operations, and maintenance and outage management tools and This has involved using lessons learnt to initiatives. Eskom has achieved the date and putting in place procedures, tools major milestone of implementing a and systems to make all capital programmes consolidated, standardised and improved SAP application on highly effective and efficient. These include schedule and within budget. a project lifecycle methodology, project development and readiness assessments, In 2012/13, the Back2Basics and the Eskom high-performance utility programme will continue to develop model. For more detail on these processes, and document standardised and optimised processes, focusing on the see www.eskom.co.za/IR2012/011.html. project and engineering tools and the maintenance and outage maintenance Capital expansion accomplishments areas to improve Eskom’s efficiency In 2011/12, Eskom achieved the following: and performance.  535MW of generating capacity was added to the electricity supply system Deliver capital expansion programme – Grootvlei power station 160MW Eskom’s capital expansion programme was – Komati power station 325MW initiated in 20051 and will increase – Camden power station 20MW generating capacity by 17GW by 2018.The – Arnot power station 30MW capital expansion programme met its key  631km of power lines were added to performance targets during the reporting the grid period, considerably exceeding them in the  2 525MVA substation capacity was added to the grid 1. Eskom’s total net maximum capacity in 2005 was 36.2GW. Eskom Holdings SOC Limited Integrated Report 2012 49 Operating context: material issues continued  The return-to-service commissioning of  Monitor performance and adjust capital Grootvlei power station was completed portfolio budgets based on new  The return-to-service Komati power projects originated, changes in strategic station commissioning was 74% direction and delivery performance. complete by the end of the year, ahead of its 73% target Ensuring timely capital investment  The new Ingula pumped storage power Until recently, decisions on capital station, due for completion in 2014/15, investment were not made in good time, was 41% complete, behind its target of leading to a delay in the country obtaining 48% due to the geological conditions sufficient generation capacity to meet related to the main turbine hall anticipated demand. A lingering consequence of the late start of the capital Improving capital expenditure execution expansion programme is that South Given the size and strategic importance of Africa’s supply-demand balance is the capital expansion programme as well expected to remain tight throughout as Eskom’s significant periodic on-going 2012 and 2013, when the first unit of capital expenditure, Eskom established the Medupi power station comes online. In the Group Capital division in September 2010 years ahead, a comprehensive capital to improve capital portfolio management investment schedule is required for the and the development and execution of IRP 2010 and the need for timely projects. investment decisions is being addressed in continual engagements between the The capital-allocation process is built on government and Eskom. successful divisional methodologies and Eskom’s integrated risk-management Delays on Medupi power station’s first unit approach. These are now standardised Delays in the boiler for the new dry- across the group and strongly informed by cooled, coal-fired station at Medupi, the practices of local and international the new power station being built in peer companies such as Sasol and Britain’s the Limpopo province, has resulted in the National Grid. completion date for the first unit (unit 6) being postponed to 2013. This unit was Eskom’s capital prioritisation and allocation initially due to come online in late 2012, processes are made up of a series of adding 794MW to the power grid. This stages that: unsatisfactory delivery performance is  “Scrub” and validate individual projects being addressed with the contractor at before inclusion into the portfolio the highest level and there has been  Rank projects based on risk scores and significant improvement in performance categories before accounting for since January 2012. constraints to project delivery   Translate an execution-constrained project list into divisional budgets 50 Eskom Holdings SOC Limited Integrated Report 2012 Securing servitudes for transmission lines Reducing the carbon Delays in acquiring servitudes are leading footprint and pursuing to project delays and cost increases. Eskom low-carbon growth opportunities continues to engage with land owners and The way in which Eskom generates, is working with the government to resolve transmits and distributes electricity these matters. unavoidably has an impact on the environment. This is particularly true in the case of Kusile and Medupi power stations which, when complete in 2018, will produce 4 800MW and 4 764MW of extra power, making them some of the largest coal-fired power stations in the world. Kusile and Medupi, power stations being built in Mpumalanga and Limpopo provinces respectively, have been the target of some protests because they will be coal-burning facilities. While the Servitude at Thabazimbi protests have not seriously disrupted construction, they have had a negative Ensuring better engineering scope definition reputational effect. Although Kusile and Inadequate engineering scope definition Medupi power stations will increase the during project planning and development total carbon footprint, the design and has led to delays in project timelines. technology of these power stations is Eskom is putting in place stronger controls more efficient compared with existing through project readiness assessments to coal-fired plants, resulting in a reduction in prevent this from happening in future. water usage and carbon dioxide emitted per unit of electricity generated. Addressing industrial action Industrial action as a result of employee Eskom is aware of its impact on the dissatisfaction – particularly contractors’ environment and strives to embed a relationships with their employees – has culture of environmentally responsible led to project delays and property damage. behaviour and decision making across This is being addressed through various the business. Eskom works hard to ensure mechanisms, including project labour that it operates as a responsible corporate agreements (for Medupi and Kusile) and citizen and takes its commitment to strong industrial relations policies (Ingula). environmental responsibility seriously. The Eskom/Endangered Wildlife Trust Changing technology (EWT) strategic partnership is in place to Eskom continues to develop a resource avoid or mitigate wildlife interaction with plan to cater for anticipated technologies electrical infrastructure. The partnership based on the possible energy-mix continues to ensure that Eskom reduces its allocations in the Integrated Resource impact on biodiversity. Plan 2010. Eskom Holdings SOC Limited Integrated Report 2012 51 Operating context: material issues continued Water scarcity Eskom actively supported the Department Eskom’s power stations depend on a of Energy in finalising the request for steady, adequate supply of water of a proposals and power-purchase agreement certain quality. Competing resource needs, for the Renewable Energy Independent drought in catchment areas, pollution and Power Producer (IPP) programme, formally poor water supply infrastructure all have launched in August 2011. The request for the potential to hinder Eskom’s access to proposals calls for 3 725MW of renewable- affordable water. energy technologies to be in commercial operation between mid-2014 and the end Involvement in COP 17 of 2016. Proposals have been received from Eskom and the South African government 28 preferred bidders so far, with the demonstrated their commitment to combined potential to provide 1 416MW reducing carbon emissions at the COP 17 of power. Eskom is working with government conference in November and December to connect successful IPPs to the grid. 2011. Government policy is already in place to determine national carbon Carbon tax discussions budgets to curb South Africa’s emissions. The National Treasury plans to introduce a Eskom is working with the government to carbon tax in 2013/14. Eskom has determine what carbon savings are participated in discussions with the possible from its side and what resources Treasury to identify ways to enhance the will be needed to achieve them. effectiveness of the tax and limit any unintended consequences for electricity Renewable-energy projects and tariffs and the economy. independent power producers Eskom is finalising plans for a wind farm at Gaseous emissions, water pollution and Sere, due for completion in December other environmental issues 2013, and a pilot concentrating solar Gaseous emissions have increased marginally thermal power plant near Upington, due across the fleet of power stations. The to start construction in December 2015. existing fleet does not have technology to Together, these will add 200MW of power reduce gaseous emissions. However Kusile to the grid when completed. will be commissioned with flue gas desulphurisation (FGD) and plans are in Eskom is in the process of installing solar place to retrofit Medupi during the first panels at 13 coal-fired power stations, four general overhaul. FGD will remove at least peaking stations and Megawatt Park 90% of sulphur emissions. Both power to supplement auxiliary electricity stations will be commissioned with consumption. The installations at Kendal technology to reduce nitrogen oxides. They and Lethabo power stations have been will also have the most efficient fabric filter completed, and the remaining 15 sites will technology in Eskom’s fleet of power be operational in 2013. stations, for the removal of particulate emissions. 52 Eskom Holdings SOC Limited Integrated Report 2012 In future Eskom will not only report on Compact fluorescent lamp programme these emissions, but targets will be Eskom has distributed more than 47 million determined once Medupi and Kusile compact fluorescent lamps (CFLs) power stations are online and abatement throughout South Africa since the technologies are retrofitted to existing inception of the CFL programme in power stations. December 2003. Lessons learnt from past environmental Engagement with civil society legal contraventions were shared with Eskom facilitated a number of meetings employees and contractors, contributing with environmental NGOs in the period to a significant decrease in the number of under review. In particular, a technical environmental contraventions, from 631 in workshop was held to share information 2010/11 to 50 in 2011/12. on Eskom’s water strategy and provide an opportunity for NGOs to present their Eskom formed a task team during the water-related initiatives and views on reporting period to reduce particulate water management. emissions and is implementing improvement plans. Securing future resource requirements, mandate and the A technical plan to eliminate liquid effluent enabling environment discharge by recycling polluted water for Competition for coal reuse by power plants was developed and Coal-fired power stations depend on a projects are under way to improve the continuous supply of coal of an acceptable water use performance at several power quality. However, long-term coal supply is stations. Projects have been initiated to threatened by international competition investigate the use of mine water for South Africa’s coal reserves and the and reduce the reliance on fresh water influence this has on coal prices. New in the longer term. While Eskom does specifications for the acceptable quality of not utilise groundwater, its activities have coal are also having an influence on supply. the potential to result in groundwater pollution. Monitoring programmes are in Coal-stock levels were at 39 days at the place to detect potential pollution and close of the period under review, having mitigation measures implemented if recovered from a low of 36 days at the pollution is detected. end of July 2011 following labour action at a number of collieries, but down from the A programme to achieve ISO 14001 41 days at 31 March 2011. certification progressed well this year with several power stations and construction sites achieving certification for the first time. 1. One environmental legal contravention was registered in March 2011 and, following an investigation, was reclassified as an event. This has resulted in the reported number of environmental legal contraventions for 2010/11 changing from 64 to 63. Eskom Holdings SOC Limited Integrated Report 2012 53 Operating context: material issues continued Conductor, equipment and electricity market. Eskom has already electricity theft signed agreements with non-Eskom Electricity theft (illegal connections) and generators and IPPs under the Medium- the theft of distribution cables and other Term Power Purchase Programme equipment continue to hamper operations. (373MW), securing 515MW from Operation Khanyisa, a campaign launched municipal generators and 120MW of in 2010 to promote the legal use of power, capacity under the short-term power is helping to address this issue as part of purchase programme. To date, Eskom has the energy-loss and theft-management signed power-purchase agreements with a programme. total contracted capacity of 1 008MW. Maximising socio-economic contribution On 21 May 2012, the Department of Eskom contributes to government’s New Energy announced a further 19 preferred Growth Path by providing reliable, sustainable bidders following the second round of and cost-effective energy to fuel South bidding, totalling 1 275MW. Africa’s power-intensive core industries (mining, beneficiation and manufac­turing). Eskom’s board has also approved It also contributes to job creation through participation in the Department of Energy’s its capacity expansion programme and Open-Cycle Gas Turbine IPP project, which training through the Academy of Learning will see Eskom purchase peak-hour and the learner programme (refer www. electricity from IPPs. A Public Finance eskom.co.za/IR2012/012.html). Management Act (PFMA) (1999) application to take part in this transaction Pursuing private sector has been submitted to the Department of participation Public Enterprises. Finalisation of the Eskom is committed to facilitating the agreement is dependent on governmental entry of IPPs and acknowledges the role approval. that they must play in the South African Cumulative IPP installed capacity and power purchased Key performance Actual Actual Actual indicator Description 2012 2011 2010 Medium-term power purchase programme 373 373 – IPP installed capacity (in Municipal base load MW) purchases 515 515 – Short-term power purchases 120 – – Total 1 008 888 – IPP power purchased (in GWh per annum) 4 107 1 833 – 54 Eskom Holdings SOC Limited Integrated Report 2012 Preparations for ISMO ability to meet the targeted energy mix to During 2011 the government tabled the reduce carbon dioxide emissions. ISMO Bill, which provides for a separate state-owned entity into which certain Ensuring financial functions would be spun off from Eskom sustainability over time. A phased approach toward Eskom must raise capital to pursue its the ISMO was envisaged, starting with the capital expansion programme and improve ring-fencing of the relevant organisational its operations. New capital projects will units initially into an Eskom division, after require pre-identified funding sources which the division can be transformed into before they are authorised to proceed. an Eskom subsidiary – and then into a Eskom is investing strategically and separate state-owned company. leveraging its assets to secure financing. An appropriate tariff structure that allows for The System and Market Operator division, cost recovery, including a real return on operating under the governance of the the replacement value of assets, is board, was instituted on 1 October 2011. necessary to encourage investment over Its functions include energy planning, the long term. Tariffs need to be set at feasibility studies, IPP procurements and levels that do not constrain economic market administration. growth, with provision made to ensure that low-income households can obtain A comprehensive business plan has been electricity in a sustainable manner. developed following the phased approach in meeting the objectives of the ISMO Bill Eskom has raised a significant amount of and Eskom is following the necessary debt (some government guaranteed) to governance and permissions processes to fund the capital expansion programme, establish a subsidiary. Eskom expects to and the company’s credit metrics are phase in the subsidiary structure during closely monitored. 2012/13. Other risk factors (if unmitigated) affecting Clarity regarding ISMO Eskom’s ability to raise capital, as well as Eskom is engaging the government and impacting the cost of borrowings, include: relevant regulatory bodies for clarity on  Reliance on the government’s credit the implementation to factor possible rating. Any negative change in the changes into its planning. government’s credit rating directly affects Eskom. Integrated Resource Plan 2010 allocation  Rand depreciation increasing the cost of Eskom’s new generation steering impor ted equipment purchases, committee is currently engaging the impacting the Rand value and hence Depar tment of Energy and the the cost of foreign loans. Department of Public Enterprises about  Uncertainty regarding the tariff price the allocation. This will impact Eskom’s path. Eskom Holdings SOC Limited Integrated Report 2012 55 Operating context: material issues continued  Significant increases in environmental March 2010 been negotiating to exit from taxation (including carbon taxes) not Mali and the exit date for Mali has been recoverable from Eskom’s customers. extended to 31 July 2012.The Mali business  Non-payment for electricity as a result continues to be disclosed as a discontinued of increased electricity tariffs. operation. There is sufficient provision for  Inappropriate cash liquidity levels in the exit and all the major financial risks have future. been addressed in the exit agreement.  Regulatory uncertainty regarding the establishment of the Independent Market-making risk System Market Operator. Eskom partakes in local market-making  Power system crises that might result in activities in a bid to reduce the funding a loss of investor confidence. cost of the company. Most investors place a premium on liquidity of bonds and are Continued repercussions from the global therefore prepared to accept a lower yield financial crisis could also negatively affect (relative to alternative bonds) to invest in Eskom’s ability to raise capital. bonds where the issue sizes are large and deemed to be liquid. All of these risks are constantly monitored and action plans continually revised to The risks of market making include the address the potential risks. anticipated loss on turnovers, typically the bid/offer spread thereon, which is partially Financing negotiations mitigated through carr y trading Eskom is working with the government, opportunities. In addition there is the regulators and financing institutions to potential negative impact on liquidity obtain adequate and affordable funding, which Eskom believes is limited due to the and has already secured more than 77% of strategy of holding sufficient liquidity its required funding up until the completion buffers as well as a portfolio of liquid of the Kusile power plant in 2018/19 – the Government bonds. final project on the current capital expansion programme. Adequate liquidity levels Significant progress has been made in Savings mechanisms put in place funding the capital expansion programme Cost-saving drives are under way and Eskom and Eskom is in a healthy funding and is monitoring budgetary perform­ ance. liquidity position. The latest projections Significant savings in operating costs were indicate that Eskom has sufficient cash made in both 2010/11 and 2011/12. from cash on hand, investments, net operational cash flows and current secured Mali subsidiary facilities available to fund the business for During the year significant unrest occurred the next 18 months. in Mali due to a coup. Eskom has since 56 Eskom Holdings SOC Limited Integrated Report 2012 Value chain performance A vulture flies past a high-voltage line at the new Ingula pumped storage scheme Eskom Holdings SOC Limited Integrated Report 2012 57 Value chain performance continued Eskom’s business covers the entire electricity value chain – Eskom’s material issues discussed from the construction of power infrastructure to the operation and maintenance of these facilities and the sale of the electricity they provide. This section of the report has been third and fourth largest coal-fired power structured according to this value chain to plants in the world. In addition to the communicate important issues that arise capacity expenditure, Eskom has significant in day-to-day operations. Eskom’s capital expenditure to refurbish, maintain performance in each of these fields is an and strengthen its current operating plant indication of the health of its operations amounting to approximately R19 billion for and how closely they are aligned with its the current year. strategic objectives. Operational highlights The material issues and risks summarised  Commissioned three Komati units (units at a higher level are spelt out along the 4, 5 and 6), Grootvlei unit 5, plus value chain, which includes the following increased capacity at both Camden unit elements: 6 and Arnot unit 5. Altogether Eskom  Construction (managed by the service added 535MW of power to the grid. functions)   The 304km, 765kV transmission line  Primary energy (managed by the service from Perseus in the Free State to functions) Gamma in the Western Cape went live.  Generating electricity  Significant progress was made in placing  Transmitting and distributing electricity contracts for Kusile power station.  Customer service  Medupi, Ingula, Kusile and power  Service and strategic function key issues deliver y projects obtained (safety, health, environmental and quality ISO 14001:2004 certification, indicating issues are addressed under this section that they abide by the international but are the accountability of the entire environmental management system value chain) standard.  Financial performance. Operational challenges Construction  Increasing generation capacity while Since 2005, Eskom has been involved in a limiting Eskom’s carbon footprint major capital expansion programme to  Containing costs increase South Africa’s generation and   The capital expansion programme is transmission capacity to meet the growing contributing to skills development and demand for energy. The total cost of this local manufacturing capabilities, but phase of the programme to 2018/19 is Eskom is competing for skills locally and estimated to be R340 billion (excluding internationally capitalised borrowing costs). When  Construction-schedule delays. Eskom completed, two of the deliverables, Kusile has increased its monitoring of and Medupi power stations, will be the contractor performance to develop remedial strategies as required. 58 Eskom Holdings SOC Limited Integrated Report 2012 Future focus areas Capital expenditure  Hydrostatic pressure test for Medupi Capital expenditure cuts across the value Unit 6 planned for June 2012 chain, as shown in the table below.  Complete Medupi’s unit 6 boiler  Finalise procurement strategy for the Sere wind-farm collaboration (Western Cape)  Obtain ser vitudes for various transmission projects  Finalise methodology for executing renewable-energy projects and continue with existing renewable-energy projects (for instance, research into biomass). The new Medupi power station in Lephalale, Limpopo province Summary of capital expenditure by division, excluding capitalised borrowing costs Actual Actual Division/expense (Rm) 2012 2011 Group capital 39 730 30 436 Generation 6 590 6 341 Transmission 1 554 1 503 Distribution 7 941 8 190 Subtotal 55 815 46 470 Cost plus mines (future fuel) 1 992 1 063 Service and strategic functions 535 190 Eskom Enterprises 473 209 Total capital expenditure 58 815 47 932 Eskom Holdings SOC Limited Integrated Report 2012 59 Value chain performance continued Progress on capital expansion projects Peaking and Return-to- Base-load renewable Mpumalanga Transmission service stations stations stations refurbishment network Grootvlei Hendrina Klipheuwel Arnot Transmission substation In development None Nuclear-site Sere wind farm, Refurbishment 60 grid- assessment and Western Cape and air-quality strengthening front-end (100MW) control projects planning Concentrating projects Biomass solar power Primary energy project projects (road (100MW) and rail) Solar panels (for Eskom’s use) Under construction Komati Medupi Ingula Matla 765kV projects (1 000MW) (4 764MW) (1 332MW) refurbishment Central Kusile Solar-panel Kriel projects (4 800MW) installations at refurbishment Northern Megawatt Park Duvha projects (0.4MW) refurbishment Cape projects 1 000MW 9 564MW 1 332.4MW Improved 801km efficiency Completed projects Camden Ankerlig Arnot capacity (1 520MW) (1 338MW) increase Grootvlei Gourikwa (300 MW) (1 180MW) (746MW) 2 700MW 2 084MW 300MW 3 899km Note: All coal-fired stations under construction are in Mpumalanga, apart from Medupi, which is in Limpopo. 60 Eskom Holdings SOC Limited Integrated Report 2012 Power station projected completion schedule Actual Target Target Target Target Target Target Target Projects 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Total Grootvlei (return to service) 160 30 190 Komati (return to service) 325 200 525 Camden (return to service) 20 30 50 Arnot capacity upgrade (coal fired) 30 30 Medupi (coal fired) 794 794 1 588 794 794 4 764 Kusile (coal fired) 800 800 800 800 1 600 4 800 Ingula (pumped storage) 1 332 1 332 Sere wind farm (renewable) 100 100 Total (MWs) 535 260 894 2 926 2 388 1 594 1 594 1 600 11 791 Eskom is busy with upgrade and refurbishment projects at Kriel, Matla and Duvha power stations at an expected cost of R7.3 billion. Eskom’s 765kV transmission projects, as at December 2011. Eskom Holdings SOC Limited Integrated Report 2012 61 Value chain performance continued present-value cost in USD/MWh of energy Capital expenditure for capacity expansion projects (excluding production. LCOE includes the capital cost, capitalised borrowing costs) as well as fuel and all fixed and variable as at 31 March 2012 operating and maintenance costs. Interest R118.5 rates, inflation and taxation are also taken 120 79.2 into account. 100 R91.2 80 36.0 Direct comparisons of plant cost are more difficult using the LCOE method due to R billion 60 55.2 the great number of cost components that 40 39.3 R25.0 R33.5(1) need to be evaluated. However, LCOE is a R23.8 20 2.0 16.6 better way to evaluate the overall cost of 12.7 23.0 11.1 16.9 a plant because it takes into consideration 0 operational and maintenance expenses. Medupi Kusile Ingula Return to service Transmission Several factors make it a challenge to ● Completed obtain consistent and accurate benchmarks ● Remaining for the cost of Eskom’s new power plants: (1) Includes transmission cost for Medupi, Kusile and Ingula.  The numbers are commercially sensitive  The assumptions behind comparison Benchmarking new power station costs numbers (for instance, the technology The most common way to compare used, the plant design, the base year and capital costs of power stations is the the exchange rate) vary greatly “overnight cost” method. This is expressed  Costs are constantly changing and have in US dollars per kilowatt (USD/kW) for increased substantially in recent years installed capacity and generally includes due to rising demand for equipment engineering, procurement and construction and commodity price movements (the basic plant cost), as well as a  Consideration of contextual issues such combination of owners’ development, as localisation, supply chain, economic contingency and transmission costs. cycles/parameters and economies of scale. Overnight cost calculations take into consideration factors such as site location, Benchmarking information presented on year of comparison, technology used and page 63 comes from studies by the station size, but exclude escalation in Electronic Power Research Institute, Lazard, equipment, labour, commodity, capitalised an investment bank and the International borrowing costs and operating and Energy Agency. The limits of such high- maintenance costs. level comparisons should be understood and considered with due care. Another way to compare power station costs is the “levelised cost of electricity” (LCOE) method. This calculates the 62 Eskom Holdings SOC Limited Integrated Report 2012 Summary of benchmark information Rand/ USD Overnight LCOE exchange costs Cost (USD/ Cost Study rate Technology (USD/kW) components MWh) components EPR1 (2010) 7.4 Pulverised coal 2 403 – 2 656  Basic cost 80 – 85  Capital cost with FGD1  Contingency  Operational cost Data for Pulverised coal 2 091 – 2 281 71 – 75  Fuel cost Integrated without FGD1 Resource Plan 2010 Lazard (2009) 8.32 Super-critical 2 800 – 5 925  Basic cost 78 – 144  Capital cost with and  Contingency  Operational without carbon  Owners’ cost capture development  Fuel cost costs  Transmission  Borrowing costs  Transmission International 8.2 Super-critical 672 – 2 539  Basic cost 29 – 100  Capital cost Energy Agency from various  Contingency  Operational (2010) countries  Owners’ cost development  Fuel cost Pumped storage 2 703 costs 73 – 149 1. Flue-gas desulphurisation. 2. The Lazard study has not indicated the R/USD exchange and whether transmission costs were included. Assumed R/USD exchange of 8.3 (Eskom value corresponding with 2009 base year) and inclusion of Transmission costs. Eskom Holdings SOC Limited Integrated Report 2012 63 Value chain performance continued Eskom’s costs have been adjusted to the same base year and exchange rate as the benchmark studies to match the cost components of these benchmarks. The outcome is presented in the table below. Eskom costs, adjusted to similar components from benchmarking information Overnight cost LCOE (USD/kW) (USD/MWh) Study Medupi Kusile Ingula Medupi Kusile Ingula EPRI 2 210 2 399 1 641 56 79 110 Lazard 2 786 3 269 2 045 53 72 103 International Energy 2 048 2 325 1 540 51 71 99 Agency The above comparison with international but including owners, development costs, benchmarks shows that Eskom’s plants are transmission and contingency) and LCOE well within or below the international calculations for capital expansion projects benchmark. While Medupi and Kusile are are as follows: both coal-fired power stations, a cost difference arises because Medupi’s costs Current power plant overnight costs do not include flue-gas desulphurisation and LCOE (FGD). The capital expenditure phasing is Over- also different, resulting in Kusile attracting night higher escalation and financing charges. cost LCOE (USD/ (USD/ The figures above were adjusted to the Power station kW) MWh) base year and exchange rate of the benchmarking figures on page 63. Based Medupi 2 300 54 on the current economic and financial Kusile 2 500 73 parameters applied by Eskom, the overnight cost (excluding borrowing costs Ingula 1 700 110 64 Eskom Holdings SOC Limited Integrated Report 2012 Primary energy  Meeting coal-quality requirements at Eskom’s material issues discussed Eskom needs to source and procure some power stations sufficient primary energy resources (coal,  Quantifying total environmental liability water, uranium, sorbent and biomass) of at cost-plus mines the necessary quality, on time and at  Road fatalities involving the public and minimum cost for its power stations to coal transporters continue despite operate. safety initiatives  Road-repair progress in Mpumalanga Operational highlights was affected by unreliable bitumen  Coal by rail to Majuba and Camden supply and delays in water-use licences. increased by 1.4 million tons to 8.5 million tons for the year Future focus areas  Establishment of the rail line and inland  Eskom endorses the CEO water coal terminals in Mpumalanga resulted mandate2 and pledges its commitment in greater flexibility. Tutuka Coal terminal to the principles is on track to receive its first coal in July  Finalise commitments for second phase 2012 of Mokolo and Crocodile water projects  Construction of Komati Water Scheme  Investigate and implement water on track for completion at the end of conser vation, water demand 2012 and Department of Water Affairs management and mine water treatment began construction of Mokolo and and reuse at power stations Crocodile water augmentation project   Address national water challenges  Primary Energy Division has achieved through stewardship and collective ISO 9001 certification as at the end of action March 2012. They will work towards  Ensure coal suppliers comply with ISO 14001 in the coming financial year. Eskom’s contracting principles, that include compliance with all relevant Operational challenges environmental legislation  Maintaining coal stock levels at  Implement the containerised rail acceptable levels solution for power stations, including  Eskom had to purchase more expensive Tutuka coal due to poor performance of cost- plus mines1 1. Cost-plus mines have contractual arrangements through which Eskom pays all capital and operating costs to mine the coal, plus an annuity return to the mining house. 2. United National Global Compact’s CEO Water Mandate is a unique public-private initiative designed to assist companies in the development, implementation and disclosure of water sustainability policies and practices. Eskom Holdings SOC Limited Integrated Report 2012 65 Value chain performance continued  Execute rail solution to Majuba power Financial results for primary energy as at station and for the year ended 31 March 2012  Conclude long-term coal supply Rm 2012 2011 negotiations and finalise optimisation initiatives for cost-plus mines’ production Coal cost 26 586 23 089  Implement a coal quality improvement Water cost 1 165 990 strategy through beneficiation of coal  Develop an integrated logistics strategy Coal inventory to cater for transportation of coal, balance 3 798 3 709 biomass and sorbent Future fuel  Monitor and report on progress of the balance1 5 452 4 089 second phase of the road repair programme against Eskom coal delivery operational needs. The second phase is Coal funded by the environmental levy and Eskom’s coal stocks have risen from a low executed directly by the relevant road of 36 days at the end of July 2011 authority. (following labour action) to 39 days at the end of the reporting period. Eskom is reducing coal trucks on the roads through rail solutions Eskom’s coal usage Unit of Target Actual Actual Actual measure 2012 2012 2011 2010 Coal burnt Mt 125.47 125.21 124.68 122.70 Coal purchased Mt 127.18 124.27 126.23 121.82 Coal transported by rail Mt 8.2 8.5 7.1 5.1 Coal stock days Days 42 39 41 37 1. See note 11 in the annual financial statements www.eskom.co.za/IR2012/013.html. This represents non-refundable advance payments to suppliers and fuel assemblies in process of fabrication. 66 Eskom Holdings SOC Limited Integrated Report 2012 Coal quality The quality of coal that Eskom uses is vital for efficient power plant operations. Eskom has largely concluded all its current contracts at a specification of coal that is based on power plant design and operations. However, in the course of mining coal and as a result of various issues with geological reserves, mining operations, equipment effectiveness and availability, there are times when the coal delivered from the mining suppliers is of a poorer quality than that which is contracted. This may be due to lower calorific value, higher ash content, higher moisture content and more rock impurities. This damages coal-handling and grinding equipment, reduces the efficiency of power plants, causes load losses, and increases emissions and the ash-removal burden. Mining conditions and coal quality in Mpumalanga have deteriorated in recent years because the better-quality coal has already been extracted, leaving behind only poorer-quality deposits, and coal is now being mined in difficult geological areas. Coal beneficiation (purification), blending and online quality-monitoring capabilities were not built into most long-term coal supply agreements, making it a challenge to maintain consistency of coal quality supplied to power stations. Eskom is undertaking various projects to improve the quality and consistency of its coal, including online coal-quality monitoring, cross belt sampling and beneficiation at cost-plus mines. Eskom is also engaging with mining houses to ensure the timely supply of life-of- mine plans to enable better control of coal qualities being mined and delivered to power stations. Road-to-rail migration plan Coal road-to-rail migration About 35.5Mt of coal was transported by road in the 2011/12 period, up from 30.5Mt in 2010/11. Eskom’s long-term coal-supply strategy includes investing in 9 low-cost coal-transport infrastructure 8 through the road-to-rail migration plan. 7 This strategy, which is being implemented 6 with Transnet Freight Rail, includes 5 Mt designing and implementing rail-offloading 4 capabilities at power stations that are 3 linked or could be linked to the main rail 2 network with rail sidings. 1 0 2009 2010 2011 2012 2012 Target The strategy aims to:  Secure coal supply by putting logistics solutions in place at Camden, Tutuka,   Improve cost efficiency, including Majuba, Grootvlei, Kendal and Hendrina lowering the cost of road repairs to cater for a throughput potential of   Improve road safety and minimise 32Mt per year by rail reputational damage to Eskom. Eskom Holdings SOC Limited Integrated Report 2012 67 Value chain performance continued Strategy for the Waterberg coalfields  Meet the water-quality objectives of the Eskom’s material issues discussed The Waterberg coalfields in Limpopo various catchment areas province currently supply coal to Matimba  Efficiently manage water costs power station and will supply coal to  Influence policy, strategy, planning, Medupi power station, both of which are legislative and regulatory issues related in Limpopo. There is a 600km railway line to water from the coalfields to Mpumalanga, where   Work with stakeholders on water Eskom’s main coal-fired power stations are challenges and solutions located, but it is not capable of meeting  Offer water management assurance, Eskom’s growing needs or those of the advisory service and support. export coal industry. The line is to be upgraded to carry at least 20Mt of coal in Nuclear fuel strategy the near future, and a new rail line has to Nuclear fuel is procured and delivered to be built to increase this quantity in the long Koeberg nuclear power station in term. accordance with government-authorised contracts for supplying uranium and It is planned that the Waterberg coalfields enriched uranium, and for fabricating strategy be implemented by Eskom in nuclear fuel. The current uranium and conjunction with Transnet Freight Rail and enriched uranium contracts are sufficient the Department of Water Affairs. It will be to satisfy Koeberg’s demand until 2017 and monitored by the Presidential Infrastructure the fuel-fabrication contracts will last until Coordinating Commission. Eskom is also in 2015/16. discussion with mines for long-term coal- supply contracts in the Waterberg and is Generating electricity planning the second phase of its water- Eskom has the ambition to ensure that augmentation project to ensure the timely no supply interruptions occur due to availability of water. If the project proceeds plant unavailability. To realise this ambition, as envisioned, rail imports to Mpumalanga Eskom aspires to become a world-class could begin by 2019. generating utility by demonstrating high reliability and availability of its generating Water assets, with an aspirational Energy South Africa as a whole faces severe water Availability Factor (EAF) of 90%. challenges in the coming decades and Eskom is no exception. Sustainable supply Operational highlights of electricity is highly dependent on   Coal-related energy losses decreased securing adequate water supplies to run compared to the previous year generating plants.   Received praise from the World Association of Nuclear Operators for Eskom’s water strategy addresses the risks Eskom’s proactive approach in assessing of water scarcity, security and pollution, Koeberg’s state of readiness in response and the impact of climate change. to the Fukushima review guidelines   Reduction in number of unplanned The strategy’s goals are to: automatic grid separations/7 000  Ensure long-term water planning operating hours (UAGS/7 000)  Develop and implement conservation compared to 2010/11 strategies   Installed gaseous-emission monitoring  Meet the water requirements of new systems on one unit of each coal-fired and existing power stations 68 Eskom Holdings SOC Limited Integrated Report 2012 power station to improve Generation’s  Coal-related energy losses at Matla, monitoring capability Tutuka, Duvha and Arnot power stations  Water-usage performance improved to remain a concern and may increase if 1.34 litres per kWh sent out (L/kWh SO) mines continue to deviate from coal- from 1. 35 L/kWh SO in 2010/11. quality specifications  Relative par ticulate emissions The tight system, poor coal and under- performance improved to 0.31 performing plant resulted in a high number kilograms per MWh (kg/MWh SO) of exemptions against emissions standards from 0.33 kg/MWh SO in the prior year set out in power station air emission  Environmental management standard licences being requested from authorities (ISO 14001) certification was achieved (33% of the time operating under at nine of the 13 power stations, Koeberg exemption) nuclear power station, the peaking  Environmental compliance audits at operating unit and generation head several power stations during 2011/12 office. found that Eskom was not in full compliance with site permit and licence Operational challenges conditions.  Balancing the conflicting needs of shutting down power plants or units to Future focus areas perform maintenance with generating Focus on safety to achieve zero harm electricity to meet demand Return Duvha power station’s 600MW  The unplanned outage on Koeberg unit generator to service in the second Unit 2 (shut down from 28 October to half of 2012 4 December 2011), the long-term Reduce Eskom’s unplanned capability shutdown of Duvha unit 4 and loss factor (UCLF) – a measurement of unplanned outages at coal-fired power the power lost due to the unplanned stations severely affected the generation shutdown of power stations – by 2% key performance indicators over the next three years Reduce carbon footprint by improving efficiency of power production and Power station net maximum changing the energy mix towards lower- generating capacity mix (%) carbon-emitting technologies Reduce par ticulate emissions to 0.21 kg/MWh sent out by 2016/17 to minimise the impact on human health 4.4 and comply with regulated emission 3.4 standards, by inter alia, retrofitting fabric 1.4 filter plants at power stations with high 5.8 particulate emissions Obtain ISO 14001 certification for 85.0 remaining power stations by March 2013 Complete waste-management plans for all coal-fired stations to enhance waste- ● Coal-fired power stations management practices. ● Gas/liquid fuel turbine stations ● Hydroelectric stations ● Pumped storage schemes ● Nuclear power stations Eskom Holdings SOC Limited Integrated Report 2012 69 Value chain performance continued Financial results for Generation as at Technical performance and for the year ended 31 March 2012 Overall, Generation’s energy availability Rm 2012 2011 factor (EAF) performance deteriorated to 81.99% in 2012 compared with 84.59% Operating the previous year, failing to achieve the maintenance target of 84.1%. EAF is a measure of a costs 4 936 4 254 plant’s availability to provide electricity Total assets 90 095 78 685 minus external energy losses not under control of plant management and internal Capital expenditure non-engineering constraints. (excluding capitalised interest) 6 590 6 341 Technical performance Target Actual Actual Actual Measure (%) 2012 2012 2011 2010 Energy availability factor (EAF) 84.1 81.99 84.59 85.21 Unplanned capability loss factor (UCLF) 6.50 7.97 6.14 5.10 Planned capability loss factor (PCLF) 8.4 9.07 7.98 9.04 Finding time to do essential maintenance During the year Generation made use of in a capacity-constrained environment every possible opportunity to undertake continues to be a challenge and there is a maintenance activities. This is reflected in considerable maintenance backlog. The the planned capability loss factor being system was further affected by damage to significantly higher than the previous year unit 4 at Duvha power station in February and higher than target. 2011, which contributed more than 1% to the UCLF in the current year, and the use of Eskom has made steady progress in poor-quality coal in the past, which reducing its maintenance backlog, from negatively affected the performance of 36 required maintenance outages at some of the coal-fired units. Koeberg’s 31 March 2011 to 26 by 31 March 2012. performance was negatively affected by a 36-day forced outage on unit 2 to repair a hydrogen leak related to the generator stator coolant system. 70 Eskom Holdings SOC Limited Integrated Report 2012 Benchmarking International Atomic Energy Agency. These Coal-fired stations affiliations enable Eskom to benchmark Generation has benchmarked its coal plant performance, conduct periodic safety performance over many years against some reviews, help define standards, disseminate of its major European counterparts. Eskom’s best practice and train personnel. Through plant profile and performance aligns closely INPO, Eskom has obtained international with that of VGB (Association of Large accreditation for its “systematic approach Boiler Operators). The energy availability of to training” of licensed and non-licensed Eskom’s coal-fired units is benchmarked nuclear operators at Koeberg. Eskom is against that of VGB’s members. VGB is a the only non-US utility to receive such European-based technical association for accreditation. An International Atomic the electricity and heat generation Energy Agency Operational Safety Review industries, with 495 member organisations Team visited Koeberg in August 2011 from 35 countries, representing a collective while a WANO Peer Review of Koeberg capacity of 520GW. was undertaken in November 2011. Energy availability Although Koeberg’s safety performance When considering the best quartile and remains amongst the best in the world, its the median, Eskom’s performance has availability and hence electricity production historically been better than that of the performance in 2011 was adversely VGB fleet. Over the past few years, this affected by the forced shutdown of unit 2 gap has, however, been closed, and for in 2011. 2010 the performance for the two organisations was the same. The worst quartile has, however, seen a deteriorating VGB trend which has maintained the performance gap to Eskom. Eskom’s declining performance trend is due to increased operating pressure on the electricity production infrastructure and other operating factors outlined in the performance overview section. Maintenance work at the Koeberg nuclear power station Eskom’s units continue to operate at higher load factors than VGB’s coal-fired Koeberg also compares its performance, units. with respect to public exposure to radiation arising from Koeberg effluent Nuclear station releases, to the limits set by the National Eskom is affiliated to the World Association Nuclear Regulator (NNR). Exposure to of Nuclear Operators (WANO) and the radiation is measured in units of milliSievert Institute of Nuclear Power Operations (mSv). The limit recommended by the (INPO). South Africa is a member of the International Atomic Energy Agency for Eskom Holdings SOC Limited Integrated Report 2012 71 Value chain performance continued public exposure to radiation is 1.0mSv per stations, amounted to between 31MW year. However, the National Nuclear and 35MW. Regulator has set a stricter limit of 0.25mSv per year for South Africa. Monthly heat-rate trends – that is, coal energy in megajoules (MJ) consumed per The average public exposure to radiation unit of electric energy produced (in kWh) arising from Koeberg’s operations has – at the pilot at Majuba power station been less than 0.005 mSv in recent years showed that the station was able to (or less than 2% of the limit imposed by perform better than the agreed 11.3MJ/ the National Nuclear Regulator). kWh target for eight months of the year. The thermal energy-efficiency programme was extended to another five coal-fired Public individual radiation exposure due to effluent from Koeberg stations, yielding positive results. The full energy-efficiency programme will be rolled out to the remaining coal-fired stations during 2012/13. 0.015 Progress on restoring Duvha power station’s unit 4 0.010 On 9 February 2011, the 600MW unit 4 MilliSieverts at Duvha power station was taken off-load for a statutory turbine test. The protection 0.005 on the unit failed, causing severe mechanical damage to the turbo generator and the 0.000 surrounding area and starting a fire. The 20031 20041 2005 2006 2007 2008 2009 2010 2011 2012 fire was rapidly brought under control by 1. Calendar year the power station’s fire team. This was the first time one of the Duvha units failed during such a test. The other five Duvha Refer to www.eskom.co.za/IR2012/014.html units were not affected and continued to for more details of benchmarking by supply electricity. Generation. The root cause of the incident was a Thermal energy-efficiency programme modification applied by Eskom in 2004 Eskom’s planned thermal energy-efficiency that, inadvertently, when installing a new programme aims to increase generation programmable logic controller, removed a efficiency by at least 150MW by the end of maximum speed limit during over-speed 2015. This will equate to about 400kt less test conditions. The modification error has coal being used across all coal-fired power been corrected on the remaining units, stations per year, which translates into a while corrective actions have been applied reduction of 1.5Mt of carbon dioxide to eliminate contributory causes. emissions a year. The Duvha recovery project is progressing Energy savings for the year under review, in phases, with the unit due to come online based on steps taken at 10 coal-fired in the second half of 2012. 72 Eskom Holdings SOC Limited Integrated Report 2012 Progress of Duvha restoration Eskom’s material issues discussed Completed Still progressing Not started Phase Status 1. 1.1 Strip down and damage assessment 1.1 Q4 2011 1.1 1.2 1.2 Procurement and refurbishment of 1.2 Q1 2012 spares 2. Repair turbine and generator foundations Q1 2012 3. Assembly of centreline Q2 2012 4. Commission the centreline and associated Q3 2012 systems Transmission Transmission is part of the process of Operational challenges getting the electricity that is generated by  System minutes2 events (<1 system Eskom’s power stations to its distribution minute) totalled 4.73 – negatively networks and end customers. It includes outside the target of 3.4 the tasks of balancing supply and demand  High levels of conductor and equipment in real time, trading energy internationally, theft are affecting plant performance and planning and operating the transmission and increasing cost grid consisting of 28 995km transmission  Deaths of protected birds due to lines and 153 substations. collisions with power lines. Operational highlights Future focus areas  Substantially improved the availability of  Strengthen the network to improve transmission assets redundancy and thus reliability  Reduced number of line faults per  Connect Independent Power Producers 100km performance (IPPs) to the grid  Only one major incident1 was recorded,  Improve network reliability and technical less than the target of two as specified performance in the key performance indicators  Continue efforts to reduce conductor  Identified future trading opportunities in and equipment theft the southern African region to assist in  Obtain ISO 14001 certification by alleviating potential shortfalls in the March 2014. medium-term electricity supply. 1. A major incident is defined as an interruption with a severity ≥ one system minute. 2. System minutes are a global benchmark for measuring the severity of interruptions to customers. One system minute is equivalent to the loss of the entire system for one minute at annual peak. Eskom Holdings SOC Limited Integrated Report 2012 73 Value chain performance continued Financial results for Transmission, as at and for the year ended 31 March 2012 Rm 2012 2011 External revenue 4 873 4 125 Maintenance and refurbishment costs 290 98 Total assets 24 042 19 445 Capital expenditure (excluding capitalised interest) 1 554 1 503 Technical performance Transmission system technical performance Target Actual Actual Actual 2012 2012 2011 2010 Total system minutes lost for events <1 minute (in minutes) 3.40 4.73 2.63 4.09 Major incidents (system minutes lost ≥1 minute, number) 2 1 – 1 The system minutes lost <1 performance Transmission grid maintenance deteriorated during the year, primarily due About 60% of Eskom’s transformers to risks associated with the execution of and 55% of its power lines are more increased expansion and refurbishment than 25 years old and require ongoing projects at operational sites. maintenance and refurbishment. Trans­ mission equipment is maintained in Benchmarking accordance with manufacturer’s specifi­ Benchmarking Transmission performance cations, as well as standards and procedures against similar utilities is challenging because developed by Eskom for the lifecycle of differences in network firmness, reliability management of the assets. criteria, definitions and data capture. Southern African Energy The Transmission division participated in The SADC region has an abundance of the International Transmission Operations renewable and other primary energy and Maintenance Study during 2011/12 to sources and could in time play a significant identify best global practices. Twenty-seven role in meeting South Africa’s electricity companies participated in this study, which requirements and assist with enhancing the focused on maintenance and plant energy mix to improve South Africa’s performance. Eskom’s transmission-plant environmental performance. performance is in the first quartile for extra-high voltage switchgear and The Southern African Energy unit was instrument transformers. Its performance established under transmission to pursue is below average in the overhead line and business opportunities in the SADC region compensation asset categories. with a view to increase imports, strengthen transmission systems, access strategic 74 Eskom Holdings SOC Limited Integrated Report 2012 resources, and grow Eskom’s market share Eskom has the opportunity to trade Eskom’s material issues discussed in the region. electricity on a market platform called the Day-ahead Market, although minimal A number of projects are already being volumes are traded on this platform due advanced in several countries, with the to the prevailing energy constraint across primary focus on hydro and natural gas the region, Eskom, along with other resources and transmission strengthening. Southern African Power Pool members1, A number of SADC countries are has the right and obligation to trade and implementing new generation projects. wheel electricity. In particular, Namibia increased its Distribution generation capacity by 90MW, while Distribution’s mandate is to operate and Botswana, having increased its capacity by maintain the distribution network. Eskom 150MW during the year, is set to add a owns 47   509km of distribution lines, further 450MW before the end of 2012. 311 831km of reticulation power lines and 11 415km of underground cables in South Eskom has engaged in cross-border trading Africa, representing the largest power-line for many years. While Eskom is a net system in Africa. exporter of electricity, the net volume expor ted (expor ts less impor ts) Since 1991 Eskom has connected more represents only 1.36% of the total energy than 4.2 million electrification households available in South Africa. The majority of to the distribution network. The the imports are from Cahora Bassa (HCB) electrification strategy was to connect as in central Mozambique with small volumes many customers as possible with the from Lesotho. available funding (least-cost approach). Network planning focused primarily on Eskom’s exports firm power to the compliance with minimum regulatory national utilities of Botswana (BPC), requirements and not on continuity of Namibia (NamPower), Swaziland (SEC) supply requirements. and Lesotho (LEC). This approach resulted in lengthy radial Eskom has trading relationships with subtransmission and distribution lines Zimbabwe (ZESA) and Zambia (ZESCO), supplying large numbers of customers with but these agreements are for non-firm few alternative supply options in the event power when surplus capacity exists and of supply interruptions. Distribution’s during emergency situations. In addition networks are therefore characterised by: Eskom expor ts to three end-use   Average feeder length of more than 100km (some as long as 300km) customers, one in Mozambique and two in   High number of customers (in some Namibia. Eskom wheels (transports) cases more than 10 000) per feeder. power on behalf of Electricidade de   Low network visibility, limiting the Mozambique (EDM), the national utility of remote control of switching devices. Mozambique, from Cahora Bassa to the load centre in the south of Mozambique. 1. SAPP members:  Interconnected countries – South Africa, Namibia, Lesotho, Swaziland, Botswana, Zimbabwe, Mozambique, Zambia, Democratic Republic of Congo. Non-interconnected countries – Malawi, Angola and Tanzania. Eskom Holdings SOC Limited Integrated Report 2012 75 Value chain performance continued Operational highlights Financial results for Distribution, as at   The system average interruption and for the year ended 31 March 2012 duration index (SAIDI) performance Rm 2012 2011 improved significantly and the system average interruption frequency index Grants received for (SAIFI) performance improved electrification 1 784 1 720 marginally during the year Maintenance and  Operation Khanyisa, a public-awareness campaign about legal power usage, is refurbishment costs 3 851 2 947 helping to reduce energy loss and Total assets 49 934 44 428 decrease theft  Electrification connections of 155 213 Capital expenditure for the year exceeded the targeted (excluding 125 377 capitalised interest) 7 941 8 190  Reduction of more than 50% in environmental legal contraventions. Benchmarking Distribution participated in a 2010 Operational challenges benchmarking study, conducted by an  Safety performance is a serious concern, independent international consulting group, especially employee and contractor with utilities in North and South America. fatalities The reporting methodology, network  High levels of theft of equipment and characteristics, environment and operational electricity affect plant performance and processes and practices of the distributors increase cost in the benchmark panels are not the same,  Employee security remains a concern which results in a wide range of performance  Collisions and electrocutions of birds on levels. This makes any direct performance distribution power lines comparison a challenge.  Acquisition of land and rights for electricity infrastructure. Eskom’s network interruption performance is dominated by the performance of rural Future focus areas lines, which have been built on a least-cost  Reducing public safety incidents through basis. In this way, Eskom’s distribution awareness networks differ significantly from those of  Conducting appropriate network distribution companies that have supply maintenance and making the necessary areas that include large cities and towns. capital investments Rural lines in South Africa include long  Supporting government initiatives such radial lines with very limited redundancy as the universal access to electricity plan and back-feed capability1. This significantly  Continuing to improve network distorts direct comparison with North reliability and technical performance American distributors. In the benchmark  Providing viable electricity options to panel the South American peer group is informal settlements more appropriate from a network  Continuing rollout of Operation investment and customer point of view, Khanyisa to reduce energy losses mainly than the North American peer group (as due to theft. well as European peer groups). The Eskom 1. When a power line has a fault, if there is not a second line to continue supplying power, or if there is not a line from another supply point to continue supplying power into the area from another source. 76 Eskom Holdings SOC Limited Integrated Report 2012 system average interruption duration year and for Eskom it is currently index (SAIDI) and system average 45.75 hours. interruption frequency index (SAIFI) are currently in the fourth quartile. System average interruption frequency index performance reported in South System average interruption duration America (2010) was between 2.5 and index performance in South America 106.2 sustained supply interruption events (2010) is between 2.8 and 362.3 hours per per year and for Eskom it is currently 23.73 events. Technical performance SAIDI and SAIFI performance Description of measure Target Actual Actual Actual Measure (and unit) 2012 2012 2011 2010 SAIDI System average interruption duration index (hours per year) ≤49 45.75 52.61 54.41 SAIFI System average interruption frequency index (number per year) ≤22 23.73 25.31 24.65 The improved SAIDI performance is attributed to implementing network reliability improvement plans in operating units. System average interruption System average interruption duration index (SAIDI) frequency index (SAIFI) 60 30 55 25 20 Hours/annum Events/annum 50 15 45 10 40 5 35 0 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 ● Actual ● Actual – Target – Target 1. When a power line has a fault, if there is not a second line to continue supplying power, or if there is not a line from another supply point to continue supplying power into the area from another source. Eskom Holdings SOC Limited Integrated Report 2012 77 Value chain performance continued Distribution’s long-term objective is to  Refurbishing and strengthening reduce SAIDI to 39 hours and SAIFI to networks, which includes: 17 interruptions by 2016/17. Four strategic – Revising the planning criteria used to initiatives are planned to help achieve reduce the number of customers these targets: affected by a fault and setting the  Establishing additional technical service criteria for the creation of redundancy centres to ensure that field staff on networks members are located close to – Identifying poor-performing networks customers and networks. that require special attention  Increasing live-line work so that power – Increasing visibility of network does not have to be disconnected when “switches” to allow remote operation, maintenance is performed or new reducing travelling time and facilitating customers are being connected to the fault-finding. network. Live-line work currently  Providing staff members who carry out accounts for 50% of planned work, unplanned outage work orders in the which has had a substantial positive field with a rugged mobile computing impact on both SAIDI and SAIFI. A device that uses a navigation system to business case to increase live work to direct them to the location of faults. 70% of planned work is being prepared. Working towards universal access to electricity in South Africa Eskom implements the integrated national electrification programme on behalf of the Department of Energy in the company’s licensed supply areas. Electrification in a municipality’s licensed areas of supply is carried out by the municipality. Progress of electrification programme Target Actual Actual Actual 2012 2012 2011 2010 Department of Energy funded Number 99 377 125 628 129 945 106 603 Eskom funded Number 26 000 29 585 16 217 39 554 Municipality/other funded Number – – 3 752 3 744 Total electrification connections Number 125 377 155 213 149 914 149 901 Meeting the government’s target of universal access to electricity is primarily dependent on the availability of funding from the Department of Energy. Eskom works with the department and other interested parties continuously on planning, funding and other requirements for universal access. The targeted number of electrifications for the next five years amounts to 724 636 connections. 78 Eskom Holdings SOC Limited Integrated Report 2012 Group customer services  Successfully encouraged customers to Eskom’s material issues discussed To improve customer service and its public reduce electricity load at short notice image Eskom has created a Group when required Customer Services division. It aims to put  Positive engagements between the customer at the centre of Eskom’s stakeholders and customers on the business and to ensure a single point capacity situation, including system of accountability and relationship status reports submitted daily to management for all customers. To this end, Eskom’s customers it has established a customer service  Media advert “Power Alert” continued centre of excellence, with structured to drive savings in critical times. During operating units to improve operations and the year average demand savings of to manage reputational risk. 261MW was attained during “red” periods. The overall savings of Power The division also includes all the integrated Alert translate to 50.6GWh of energy demand management initiatives savings undertaken by the company.   Accelerated the solar water-heating rebate programme. In the current year 158 175 units have been verified Direct electricity sales (GWh) for  Rolled out 49M, a marketing campaign 2011/12 (2010/11) by customer type (%) aimed at promoting long-term behavioural change in favour of energy savings 1.4% 6.4%  Introduced alternative incentive (1.3%) (6.2%) programmes for managing demand. 14.5% (14.5%) Operational challenges 41.0% (40.8%)   The high electricity price increases 4.7% negatively affect the profitability and (4.7%) financial sustainability of Eskom’s 5.9% (5.9%) customers and their ability to pay their electricity bills 26.1%  Increasing number of defaulting (26.6%) municipalities which may have cash flow ● Rail ● Commercial and agricultural implications for Eskom ● Mining ● Residential ● Foreign ● Industry   The management of outstanding debt ● Municipalities in Soweto  Environmental levies and cross- subsidisation between customer Operational highlights categories are becoming an issue with  Improvement of the large power-user large customers having to cross- top customers debtor days subsidise residential customers  Secured a number of power buy-back  Ensuring that tariffs are cost reflective deals taking into account size, locality and time of use by customers. Eskom Holdings SOC Limited Integrated Report 2012 79 Value chain performance continued   Ensuring customers are updated on   Continue investigating new imple­ their quality of supply, as well as planned mentation and technology opportunities outages. Quality of supply is showing a   Achieve successful outcome with negative trend and customer perception remaining special pricing agreements is that the quality of supply does not   Rolling out the upgraded on-line meet the required standard vending system   Rollout of the Energy Conservation   Rolling out the customer service Scheme – ensuring that all affected excellence programme customers understand process and are   Revising the customer satisfaction comfor table with the reference questionnaires to ensure that all service consumption. aspects that are important to customers are taken into account. Future focus areas  Manage power demand by ensuring Financial results for Group Customer that all possible options are explored Services as at and for the year ended with customers regarding grid access, 31 March 2012 power buy-back, demand management 2012 2011 participation (DMP) project, to help close the energy gap External (local)  Implement 500MW demand-response revenue Rm 108 260 86 454 pilot programme, which will see small Impairments Rm 587 669 industrial and commercial undertakings reduce usage through power buy-back IDM1 costs Rm 1 942 779 agreements and demand-side Debtors less management initiatives provisions Rm 8 835 6 955  Continue the energy-efficiency drive in Large power users the residential market through the debtors days – top recently approved residential mass customers rollout initiative which involves going excluding disputes 14.4 15.5 door to door to residential homes and installing energy efficient technologies Large power users including CFL bulbs, LED lamps, low debtors days – flow shower heads, flow restrictors, municipalities timers and geyser blankets and other 21.8 18.9  Drive the recently implemented in­ Small power users centive programmes further into the debtors days market excluding Soweto 42.9 45.1 1. Integrated Demand Management cost. 80 Eskom Holdings SOC Limited Integrated Report 2012 Performance Customer Service has been established Transformation journey to customer service to provide the necessary training excellence required to all Customer Service front- Eskom has set itself an aspiration of line staff and other customer-facing becoming a world-class customer service employees of Eskom. organisation by creating fully satisfied and  The structured delivery units will focus serviced customers who consistently rate on all customer service channels and Eskom in the top quartile. touch points such as walk-in centres, contact centres and vending outlets. In order to overcome the current Eskom will also explore how it can challenges to reach the aspiration, Eskom leverage technology, such as the use of will progress in three phases with social media platforms for customer completion expected in 2014. communication.  In support of Eskom’s purpose “to Over the past 12 months, significant improve the quality of life of all South progress was made in setting up a new Africans”, Eskom continues to strive to division with centres of excellence and ensure that customers have reliable and structured operating units to ensure a sustainable electricity solutions (quality single point of accountability and product and services) through improved relationship management for all customers access to Free Basic Electricity (FBE), of Eskom. For the second phase going uninter­ r upted access to electricity forward, a 12-month transformation token vending, accurate bills, simplified journey has been developed to eliminate tariffs and transparent communication. the negative sentiments of the public about Eskom’s customer service. The final phase in 2013/2014 will focus on developing segment-specific strategies to The phases for 2012/2013 will be focused ensure utilisation of the most appropriate, on: optimal channels and service offerings to  Getting the basics right by simplifying, each customer base. A nerve centre standardising and optimising our to ensure regular monitoring and processes, systems and data, as part of response to matters impacting the Eskom’s Back2Basics programme. customer experience will be established.  Building skills to enhance people and Performance and measurement tools will organisation competence to ensure the be enhanced to enable Eskom to respond best people are the face of Eskom to to customer needs and introduce ongoing customers. Through the Eskom improvements where appropriate. Academy of Learning, the School of Eskom Holdings SOC Limited Integrated Report 2012 81 Value chain performance continued On-line vending system constraints. Large customers have The on-line vending system in Eskom had responded favourably and already operational performance issues that affected contribute to the stability of the national customers in the country on a large scale at power system by reducing load through the end of 2011 and start of 2012. The power buy-back agreements and demand- problems were mainly due to infrastructure side management initiatives. issues during the change-over to new hardware. In addition to this a vendor Eskom’s demand market participation software system malfunctioned after they programme is to be extended to small made changes to their system.The system is industrial and commercial undertakings operating normally and is being closely through a programme called “demand monitored. No major incidents have been response aggregation”. This programme experienced since the middle of February will be piloted for customers consuming 2012. more than 500MW. The infrastructure is in the process of The proposed Energy Conservation being replaced, and further application Scheme, if passed into law, will see energy- changes by the vendor are anticipated in reduction targets being set for the the near future. No further unplanned country’s 500 largest electricity users and interruptions are expected as all known charges imposed for non-compliance. issues have been resolved. Eskom has already implemented a voluntary energy conservation scheme Eskom understands the impact to the and is engaging with the South African customer when system issues are Local Government Association and experienced and apologises for the municipalities to help their customers inconvenience caused. implement energy-conservation measures. Benchmarking Power buy-back initiative Customer service index As part of the efforts to create the Eskom uses a combination of monthly necessary space to perform essential and perception and interaction-based customer critical generation plant maintenance, surveys to measure the service delivered to, Eskom has entered into power buy-back and the satisfaction of, its residential, small agreements with certain of its large and medium customers. The index industrial customers. The power buy-back combines the results of two external period is typically for 30 days or surveys and four internal measures. Eskom longer with all current agreements achieved a score of 85.55% (2011: 84.37%) terminating by 31 May 2012. The against the target of 85.82%. Eskom uses requirement is that customers reduce these results to identify which aspects of their base load demand and this reduction service require improvement. is purchased by Eskom at a rate negotiated with customers. The rate takes into Demand-side management account the customers’ fixed costs, Commercial and industrial initiatives contractual obligations and various other Eskom will continue to engage with requirements, including the requirement of customers about balancing supply and no permanent job losses. demand during periods of generation 82 Eskom Holdings SOC Limited Integrated Report 2012 This initiative has proved to be beneficial in Residential initiatives creating the additional space on the power A residential mass rollout programme has system through base load demand recently been approved to make reduction. During this power buy-back households more efficient by installing period, lower-than-usual commodity prices low-flow shower heads, LED lamps, pool and surplus stock levels would have had a timers and geyser blankets. significant negative impact on the economy, jobs and our customers’ business There has been a significant increase in operations. Eskom believes that through solar water-heating system installations, the power buy-back scheme, customers with 158 175 claims (27 149 for high- are in a slightly more favourable position pressure systems and 131 026 for low- than they would have otherwise been in pressure systems) verified during the creating a win-win situation for both financial year. parties. Eskom’s Power Alert and geyser evening campaigns between 17:00 and 21:00 aim Verified accumulated demand savings to reduce power demand during the evening peak. Eskom internal initiatives 3 500 Eskom aims to improve the energy 3 000 efficiency of its plants and offices by Peak demand savings (MW) 2 500 conducting energy audits and undertaking 2 000 efficiency programmes that focus on 1 500 lighting, heating, ventilation and air- 1 000 * conditioning. The demand savings of 1.4MW achieved in 2011/12 translates to 500 energy savings of 45.0GWh (2011: 0 2005 2006 2007 2008 2009 2010 2011 2012 26.2GWh) for the year, against a target of 25.5GWh. ● Verified demand savings (MW) ● Eskom target * Excludes 67MW claimed in 2008 for DMP Total evening peak demand and energy savings achieved were: Target Actual Actual 2011/12 2011/12 2010/11 Evening peak demand savings MW 313.0 365.4 354.1 Energy savings GWh 1 051 1 422 1 339 Eskom Holdings SOC Limited Integrated Report 2012 83 Service and strategic functions A youth group sews hot boxes for cooking at one of Eskom’s Energy and Sustainability programme projects 84 Eskom Holdings SOC Limited Integrated Report 2012 In 2010/11, Eskom introduced the integrated high-performance Eskom’s material issues discussed utility model for the identification of core capabilities, processes and the required reporting that spans across the entire value chain, including the service and strategic functions. Refer to Divisional Report www.eskom.co.za/ IR2012/015.html These service and strategic functions Safety include the management and monitoring of: A price cannot be put on the value of  Financial performance (presented on human life or that of human abilities. While page 100) many campaigns, policies, procedures and  Safety programmes have been instituted in  Quality management Eskom over the past few years to prevent  Skills  Transformation and employment equity occupational health and safety (OHS)  Regulation and legal related incidents and fatalities, the results  Supplier development and localisation of these interventions have been  Group information technology (IT) unsatisfactory as highlighted by the Eskom  Delivery unit safety record.  Research and technology  Environmental management To deliver on the OHS objectives, the  Climate change OHS capability within Eskom from a policy,  Corporate social investment. compliance and implementation co- ordination perspective has been centralised into a single department within Eskom. Employee and contractor causes of fatalities during 2011/12 This department will drive the OHS strategy which focuses on addressing seven key areas to achieve the desired objectives and bring about the step 5 change sought: 1.  Connecting OHS to everything that is done in Eskom and personalising OHS 11 2. Attaining commitment to ZERO harm and OHS across Eskom 3. Making compliance with OHS requirements a non-negotiable 9 4.  Ensuring that Eskom has an optimal ● Electrical contact fatalities OHS organisation structure resourced ● Vehicle accident fatalities with the required competencies and ● Fatalities from other causes number of competent staff to deliver on the OHS mandate Eskom Holdings SOC Limited Integrated Report 2012 85 Service and strategic functions continued Communicating OHS and ZERO 5.  safety. Its safety expectations entail a simple harm in a manner that entrenches and set of non-negotiable policies, principles re-inforces the ZERO Harm value and and standards set to achieve “zero harm to related success, incidents, etc. all” as a way of life. Consistency of actions, decision 6.  making, etc. Sadly, there were 13 employee fatalities Ensuring that Eskom has a cycle of 7.  and 12 contractor fatalities during 2011/12. continuous improvement, tracking Any loss of life is unacceptable and a and monitoring in OHS through massive concern. Eskom has implemented the development of appropriate a number of safety improvement initiatives KPAs, KPIs and proactive assurance to reduce the number of safety-related processes. incidents to zero. The above key areas will apply to all of Despite the unacceptable safety Eskom’s strategic objectives and activities. performance, there were positive achievements during the last year. Some Safety performance units have achieved up to 35 years without Eskom’s commitment to “zero harm” lost-time injuries. builds a strong foundation for health and Safety performance 2010 – 2012 Unit of Actual Actual Actual measure 2011/12 2010/11 2009/10 Employee safety Total fatalities number 13 71 2 Electrical contact fatalities number 4 31 0 Vehicle accident fatalities number 4 0 2 Other fatalities number 5 4 0 Lost-time incident rate, including occupational diseases2 index 0.41 0.47 0.54 Contractor safety Total contractor fatalities number 12 18 15 Electrical contact fatalities number 1 1 1 Vehicle accident fatalities number 5 10 6 Other fatalities number 6 7 8 1. Incident occurred on 1 January 2011 and employee died on 10 July 2011. 2. The progressive lost-time incident rate (LTIR) is a proportional representation of the occurrence of lost‑time injuries over 12 months per 200 000 working hours. 86 Eskom Holdings SOC Limited Integrated Report 2012 Causes of employee fatalities Causes of contractor fatalities 1 2 1 4 5 1 1 1 2 1 4 1 1 ● Motor vehicle accident ● Electrical contact ● Motor vehicle accident ● Electrical contact ● Fall while erecting a tower ● Burn ● Fall from height while ● Tree felling operations ● Struck by a reversing truck ● Occupational disease painting a roof ● Power line stringing operation ● Stung by wasps ● Jumped from a moving vehicle before it was stationary Safety is crucial in Eskom given the nature of our business Eskom Holdings SOC Limited Integrated Report 2012 87 Service and strategic functions continued Lost-time incident rate (LTIR) Skills The progressive LTIR is a proportional Eskom aims to grow human capital by representation of the occurrence of lost- retaining core, critical and scarce resources, time injuries over 12 months. The actual and by effectively developing skills and lost-time injury rate (LTIR) performance talent. was 0.41 per 200 000 man-hours worked against a target of 0.40 for 2012. The LTIR Eskom has sustained its skills base and a target was not met, which is a great significant number of learners received disappointment, but the safety of our training over the past five years. In 2011/12, people remains fundamental to our 5 715 (2010/11: 4 240) learners business. (engineers, technicians and artisans), with three- to four-year learning/bursary In risk-specific terms, the leading causes of contracts, were in the pipeline.This number injuries were motor vehicle accidents, will increase to 5 907 in 2012/13, with caught between, and struck by objects and incremental increases in the years that falls. follow. By 2015/16, there will be a pipeline of 6 100 learners. Quality management Eskom has made an undertaking to All targets have been exceeded including develop and implement management the learner pipeline, engineering, systems that are ISO 9001, ISO 14001 and technician, artisan and a youth programme OHSAS 18001 compliant to achieve of 5 159 for period 2011/12 against a sustainable performance improvement, target of 2 100. with zero harm to people and the environment. The first milestone of this Eskom is to implement an integrated performance improvement journey is the workplace skills plan to address the key establishment of ISO 9001 Quality training priorities in closing the core and Management Systems as the foundation critical competency gaps. for good business management. This will pave the way towards positioning Eskom Transformation and employment for sustained success to ultimately become equity a high-performance organisation and top Eskom has implemented an ambitious global utility. Upon achieving ISO 9001 employment equity plan, supported by a compliance, the management systems will long-term, target-setting strategy (Equity be enhanced by addressing Environmental, 2020) to drive the transformational Health and Safety requirements. The agenda. The plan seeks to create a execution of the ISO 9001 implementation workplace and staff profile that is diverse plans is under way, with good progress and inclusive, and to ensure that diversity made on certification. becomes the “Eskom way”. 88 Eskom Holdings SOC Limited Integrated Report 2012 In November 2010 Eskom participated in Injury, hurt, damage, detriment, Harm: 1 Zero Harm misfortune, loss. Hazard: the Department of Labour’s director- A source of potential harm. Risk: A calculated choice or gamble. We make it happen! Absolute freedom from harm. Zero Harm: general review process. In February 2012 Think safe... Absolute removal of sources of harm. al Absolute removal of hazards. on rs pe ty a fe the department confirmed that Eskom has 3 Make s 4 Unsafe conditions 10% What are major and potential causes in our business... What is an 90% environmental What is an Unsafe acts What is an e ud Yo ...to people? ...to the environment? tit unsafe act? unsafe condition? be ur at regulation? r the necessary transformation interventions ha ou v iou y r is a of result E.g. High voltage equipment E.g. Oil spills E.g. Permit to cut trees E.g. Risk-taking E.g. Slippery floor in place and the key indicators show that there has been a generally positive trend in Who is responsible for safety at Failure to indentify and report unsafe conditions is also an unsafe act. racial and gender equity representation at our site? 2 6 Safety procedures are written in blood! every level. Injuries and accidents can be Public Safety Blue Flag Recognition What does this mean... let’s discuss. 5 prevented! But will your actions Let’s educate our customers Eskom is introducing a change without changing your to use electricity safely, to Group-wide recognition recognise electrical hazards programme to award attitude towards Zero Harm? and illegal connections, teams, sites, departments Blu not to tamper with and divisions who e Fl Zero fety Have you had safety discussions or electrical installations achieve world-class ag Sa and to report SHE standards with Pr blic shared safety stories this past week? og Harm damaged lines and Blue Flag status. Pu ra equipment. m m e to people and the environment The table overleaf details the employee Organisational Safety, Health and Environment Organisational SHE Let’s work together to identify and assess safety profile for Eskom’s four top occupational hazards and put measures in place to prevent safety, health and environmental risks for all our employees and contractors. levels in terms of gender and race for 7 To our team? What are the consequences or results of not following safety policies and procedures? To you personally? To Eskom? group and company. What will happen to your family if you are injured Zero Harm How would you feel if your co-worker died because you did not take action? or killed due to a safety incident? means looking out for myself and for my 8 What does the word Guardian mean? co-workers How – can we manage and l Sinobuntu! control exposure na 10 so to harm? 9 Make p safety er What should we do to achieve zero incidents at our site? etypersonal! Make saf Zero fatalities • Zero injuries • Zero environmental incidents • Zero tolerance Zero Harm We make it happen! Zero fatalities • Zero injuries • Zero environmental incidents • Zero tolerance Issued by Corporate Affairs Division - April 2012 Given the long distances covered by Eskom staff, driver training is a key component of the safety programme Eskom Holdings SOC Limited Integrated Report 2012 89 Service and strategic functions continued Eskom Group employee profile for the top four occupational levels (task grades nine and above). There are no specific targets set for the group. Occupational level Date March 2010 actual % Top management March 2011 actual % March 2012 actual % March 2010 actual % Senior management March 2011 actual % March 2012 actual % March 2010 actual % Professional, specialists and mid-management March 2011 actual % March 2012 actual % March 2010 actual % Skilled technical, academic qualified workers, junior March 2011 actual % management, supervisors March 2012 actual % Eskom Company employee profile for the top four occupational levels (task grades nine and above) Occupational level Date EAP % March 2010 actual % March 2011 actual % Top management March 2012 target % March 2012 actual % March 2010 actual % March 2011 actual % Senior management March 2012 target % March 2012 actual % March 2010 actual % March 2011 actual % Professional, specialists and mid-management March 2012 target % March 2012 actual % March 2010 actual % Skilled technical, academic qualified workers, March 2011 actual % junior management, supervisors March 2012 target % March 2012 actual % 90 Eskom Holdings SOC Limited Integrated Report 2012 Foreign Male Female nationals A C I W A C I W Male Female 20.83 4.17 16.67 37.50 8.33 4.17 4.17 4.17 0.00 0.00 28.57 4.76 14.29 33.33 4.76 4.76 4.76 4.76 0.00 0.00 34.48 3.45 13.79 24.14 13.79 3.45 3.45 3.45 0.00 0.00 18.10 2.94 9.95 42.53 9.50 2.71 4.30 5.20 4.07 0.68 20.83 3.70 10.42 38.89 10.42 2.78 4.40 6.02 2.08 0.46 21.43 3.57 10.94 36.61 10.71 2.68 4.24 6.47 2.46 0.89 26.67 5.17 7.41 27.38 18.25 1.95 2.85 6.73 2.82 0.77 26.72 5.05 7.28 26.85 19.28 1.99 2.88 6.80 2.54 0.61 27.29 5.11 7.17 25.76 20.36 2.10 2.90 6.45 2.34 0.53 34.14 5.00 2.46 21.86 24.05 2.68 1.66 6.88 0.93 0.35 34.28 5.03 2.52 20.72 25.08 2.86 1.66 6.74 0.82 0.28 36.39 5.11 2.50 19.62 24.86 2.74 1.65 6.15 0.76 0.24 Foreign Male Female nationals A C I W A C I W Male Female 39.20 6.10 1.90 6.70 34.20 5.20 1.10 5.50 0 0 23.81 4.76 19.05 28.57 9.52 4.76 4.76 4.76 0.00 0.00 28.57 4.76 14.29 33.33 4.76 4.76 4.76 4.76 0.00 0.00 28.57 4.76 14.29 33.33 4.76 4.76 4.76 4.76 0.00 0.00 34.48 3.45 13.79 24.14 13.79 3.45 3.45 3.45 0.00 0.00 17.80 3.04 10.07 42.62 9.37 2.81 4.22 5.15 4.22 0.70 20.62 3.84 10.55 38.85 10.31 2.88 4.32 6.00 2.16 0.48 21.49 3.51 8.55 35.75 13.82 3.29 3.73 5.26 3.95 0.66 21.33 3.67 11.01 36.24 10.78 2.75 4.36 6.42 2.52 0.92 26.70 5.22 7.49 26.85 18.61 2.04 2.87 6.73 2.69 0.80 26.80 5.14 7.38 26.11 19.73 2.09 2.91 6.83 2.40 0.62 28.86 5.36 6.45 23.08 21.36 2.59 2.54 6.48 2.52 0.75 27.28 5.19 7.28 25.11 20.82 2.18 2.94 6.49 2.16 0.54 33.85 5.12 2.41 20.81 25.16 2.80 1.71 7.01 0.78 0.36 34.62 5.16 2.46 19.46 26.05 2.96 1.67 6.72 0.64 0.26 34.79 5.29 2.32 18.22 26.76 3.23 1.60 6.72 0.73 0.34 36.03 5.26 2.47 18.44 26.15 2.88 1.69 6.25 0.61 0.22 Eskom Holdings SOC Limited Integrated Report 2012 91 Service and strategic functions continued People with disabilities As per the Employment Equity Act, Eskom continues to strive for a fair representation of people with disabilities.The Eskom group currently has 1 032 (2010/11: 1 012) employees with recognised disabilities. The table below details Eskom’s disability profile at all occupational levels compared to the internal target. Percentage of all Eskom employees with disabilities Target Actual Actual Actual 2012 2012 2011 2010 Group n/a 2.36 2.36 2.29 Company 3.00 2.49 2.53 2.54 Although the actual group disability figure The following were specific focus areas of 2.36% is below the target of 3% of during 2011/12: the workforce, this is well above the  Implementing mechanisms to enhance national norm of 0.7% (Employment stable, predictable pricing, including Equity Commission’s report, 2009) and commencing the MYPD 3 application, the government’s 2% target for the meeting NERSA’s repor ting require- public service. ments, and implementing the Companies Act (2008), the Companies Regulation and Legal Amendment Act (2011) and the The Regulation and Legal division ensures Consumer Protection Act (2008) that Eskom conducts its business within its  Implementing the improved internal licence to operate by ensuring good compliance framework governance; providing assurance and legal  Identifying and implementing govern­ advice regarding compliance with current ance best practices, including revised policies, regulations and legal frameworks; delegation of authority in accordance and influencing such policies to promote with changes in corporate structure Eskom’s strategic objectives.  Supporting industry restructuring and the development of the ISMO  Developing a subsidiary governance framework in accordance with King III. 92 Eskom Holdings SOC Limited Integrated Report 2012 Supplier development and contractor employees have been targeted localisation for skills development. By the end of March Local supplier development and localisation 2012, 28 616 jobs had been directly is a key performance area. The annual created by the build projects (40% skilled target for local content in capacity jobs, 25% semi-skilled jobs and 35% non- expansion contracts awarded is 52%. In the skilled jobs). A total of 13 954 people (49% period under review, R7.6 billion in of the total jobs created in capital contracts were committed to local expansion projects) were employed from suppliers, amounting to 77.16% of the total the districts where the projects are taking value of contracts awarded. place. Local supplier development includes skills Over and above the jobs created in capital development and job creation. Since expansion projects, a total of 5 225 jobs capital expansion contracts started being have been committed through Eskom’s awarded, a total of 7 226 (2010/11: 6 970) supplier network. Eskom B-BBEE attributable expenditure performance1 Target Actual Actual Actual 2011/12 2011/12 2010/11 2009/10 Measured procurement spend (R billion) n/a 98.5 79.9 72.6 Attributable spend2 (R billion) n/a 72.1 41.9 20.83 Attributable spend (%) 60.0 73.2 52.3 28.63 Attributable spend on black-women- owned businesses (R billion) n/a 3.3 3.4 2.5 Black-women-owned businesses as % of measured procurement spend 8.0 3.3 4.3 12.14 1. Figures relate to Eskom only. 2. Attributable spend is the actual spend for each compliant supplier multiplied by that supplier’s B-BBEE recognition level. 3. Attributable spend for 2009/10 comprised the top 295 suppliers out of the 11 790 active vendors. In the current year the reported number encompasses the entire supplier population. 4. Black-women-owned business for 2009/10 calculated as a percentage of attributable spend. Eskom Holdings SOC Limited Integrated Report 2012 93 Service and strategic functions continued The attributable spend target is in line with   Upgrading the bandwidth on Eskom’s the Codes of Good Practice that prescribe data network. a minimum of 50% for the first five years that the codes are in effect. The 73.2% During this period, Group IT developed a achieved indicates that Eskom has crisis management plan and an IT recovery exceeded its B-BBEE target for the year. plan. Strategies will be put in place to improve the performance of black-women-owned Delivery unit businesses in particular. The Delivery unit coordinates Eskom’s performance-improvement programmes Group information technology (IT) by tracking, monitoring and reporting Effective and secure information systems on the implementation of strategic are essential for efficient management, transformation initiatives. accurate and timeous customer billing, creditor and employee payments and Four key delivery unit business areas were effective power generation and created: transmission over the national grid. Current  Transformation project implementation IT operating expenditure represents 2.6%  The Eskom Leadership Institute of group revenue.  The internal consulting business area  Mega systems and projects. Over 2011/12, Group IT focused on:  Launching the first phase of the SAP The Delivery unit implemented Primavera enterprise application to streamline P6, an integrated solution for managing operations these strategic initiatives. Eskom has also  Planning for business continuity in the effected funding processes for these case of data loss due to IT systems fault initiatives.  Upgrading the backup and disaster- recovery infrastructure Eskom has implemented the delivery of  Migrating 25 000 computer users to strategic initiatives through the project Microsoft Outlook lifecycle model. Eskom’s 54 strategic  Planning a learnership programme, initiatives have been developed using the which began on 1 March 2012 model. Currently, 80% of these initiatives 94 Eskom Holdings SOC Limited Integrated Report 2012 are in the planning phase, 19% are in the Environmental management execution phase, with 1% in finalisation. Eskom aims to excel in its environmental management practices. To this end, the Research and technology company has set out the following Eskom’s technology unit aims to ensure environmental objectives: that the company makes the best use of  Avoid harming the natural environment current and emerging technologies to and so minimise financial and legal improve performance at existing facilities liabilities and infuse the capital expansion projects  Reduce the carbon footprint through with excellence in engineering design. efficient energy production and by diversifying the energy mix The research investment for the year to  Reduce par ticulate and gaseous 31 March 2012 was R187.7 million (2011: emissions to minimise the impact on R199.5 million). human health and comply with regulated emission standards Expenditure per research  Reduce freshwater usage by using investment area (R million) mining water and eliminate liquid effluent discharge to avoid damaging R14.2 water resources R36.2  Reduce, reuse and recycle resources R16.2  Comply with environmental legislation R7.0 as a minimum requirement in all R13.6 activities R22.9  Minimise the impact of Eskom’s activities R6.5 on ecosystems and enhance the value R13.7 added by natural ecosystems to business R42.7 by responsible land-management R14.7 practices. ● Renewables and the environment ● Research membership ● Power System technologies ● Improving generation performance See www.eskom.co.za/IR2012/016.html ● Innovation and future technologies for more information on Eskom’s ● Health, safety and human factors ● Asset management environmental management and related ● Primary energy ● Energy policy, economics and statistics performance. ● Energy efficiency Eskom Holdings SOC Limited Integrated Report 2012 95 Service and strategic functions continued Eskom’s environmental indicators Target Actual Actual Actual 2012 2012 2011 2010 Relative particulate emissions (in kg/MWh) ≤0.3 0.31 0.33 0.39 Specific water usage (in L/kWh) ≤1.35 1.34 1.35 1.34 Carbon dioxide emissions (in Mt)1, 5 n/a 231.9 230.3 224.7 Carbon dioxide emissions (relative) (kg/kWh)1, 5 n/a 0.99 0.99 0.98 Nitrogen oxide emissions (in kt)1,4 n/a 977 977 959 Sulphur dioxide emissions (in kt)1 n/a 1 849 1 810 1 856 Nitrous oxide emissions (in t)1 n/a 2 967 2 906 2 825 Environmental legal contraventions (number)2 48 50 633 55 See www.eskom.co.za/IR2012/017.html for the climate change fact sheet giving details of the calculation of the relative CO2 emission factor. Relative particulate emission performance Climate change COP 17 South Africa is not legally bound to reduce emissions, but will be expected to discuss 0.5 enforced reductions from 2020. The government has put in place a process to 0.4 determine carbon budgets to curb the Actual kg/MWh sent out 0.3 country’s emissions. Eskom is engaging the government on the carbon budget based on 0.2 the Integrated Resource Plan 2010, including 0.1 discussions about what is possible and where additional resources are required. 0.0 2008 2009 2010 2011 2012 ● Actual kg/MWh sent out – Target 1. Calculated figures based on coal characteristics and the power station design parameters. Sulphur- dioxide and carbon dioxide emissions are based on coal analysis and using coal burnt tonnages. Figures include coal-fired and gas-turbine power stations, as well as oil consumed during power station start-ups and, for carbon dioxide emissions, the underground coal gasification pilot. 2. Eskom’s continued aspiration is for zero environmental violations. Targets have been set in the business plan to achieve this. 3. One environmental legal contravention was registered in March 2011 and, following an investigation, was reclassified as an event. This has resulted in the reported number of environmental legal contraventions for 2010/11 changing from 64 to 63. 4. NOx reported as NO2 is calculated using station specific emission factors, which have been measured intermittently between 1982 and 2006, and tonnages of coal burnt. 5. Refer to www.eskom.co.za/IR2012/018.html for the climate change fact sheet, giving details of the relative CO2 emission factor. 96 Eskom Holdings SOC Limited Integrated Report 2012 The outcome of COP 17 presents many and a revised policy/proposal is expected opportunities. Eskom can: to be published in the near future. Eskom  Submit robust investment plans to the and the National Treasury have discussed government to access funding from the ways to enhance the effectiveness and limit Green Climate Fund when it becomes the unintended negative consequences available that such a tax could have on electricity  Provide input to the technology tariff increases and the economy. mechanism, which is intended to support mitigation and adaptation to Eskom manages the national CFL clean climate change, based on Eskom’s development mechanism project within experience in innovation, research and the terms of the emissions reduction development, through the Department purchase agreement signed with BNP of Science and Technology Paribas in September 2010.  Provide input to the development of the national adaptation plan through the Corporate social investment Department of Environmental Affairs The Eskom Development Foundation and Department of Energy NPC is responsible for the corporate  Access additional sources of revenue for social investment strategy. Eskom supports new technologies and energy-efficiency governmental priorities in skills programmes through the carbon development, job creation and poverty markets. alleviation – particularly in communities where the company implements its capital Eskom will use the momentum from expansion programme. The foundation COP  17 to further entrench its energy- also donates to philanthropic and welfare efficiency messages and discuss the effort causes through registered non-profit and resources required to diversify the organisations. electricity mix. The Department of Environmental Affairs issued a white paper on the national climate change response in November 2011. This document outlines a process, to be concluded within a two-year period, for developing (in consultation) sectoral and company carbon budgets that align with South Africa’s pledge at Copenhagen. Early childhood development is a major focal area The National Treasury continues to engage in Eskom’s corporate social investment strategy stakeholders on its carbon tax proposal Eskom Holdings SOC Limited Integrated Report 2012 97 Service and strategic functions continued Foundation-approved funding 2012 2011 2010 Funding granted (R million) 87.9 62.3 58.7 Number of projects 256 254 203 Number of beneficiaries 531 762 303 983 590 440 More information on Eskom’s corporate social investment initiatives can be found at www.eskom.co.za/csi.html. Graduates complete medium- and low-voltage line construction training at Eskom’s Contractor Academy 98 Eskom Holdings SOC Limited Integrated Report 2012 Financial performance A large motor at the Palmiet pumped storage scheme in the Western Cape Eskom Holdings SOC Limited Integrated Report 2012 99 Financial performance continued Summarised financial statements are The operating profit for the year before Eskom’s material issues discussed provided, commencing on page 108. fair value gains and losses on embedded Eskom’s statutory annual financial derivatives and net finance costs was statements are available at: R22.0 billion (2010/11: R17.7 billion) for www.eskom.co.za/IR2012/019.html. the group and R21.3 billion (2010/11: R17.1 billion) for the company. Results of operations Eskom has achieved a group net profit for Sales and revenue the year to 31 March 2012 of R13.2 billion Group revenue for the year to (2010/11: R8.4 billion) and a company 31 March 2012 was R114.8 billion net profit of R12.7 billion (2010/11: (2010/11: R91.4 billion), while company R8.0 billion). revenue was R113.5 billion (2010/11: R90.9 billion). Included in electricity Compared to the prior year, the 25.8% revenue is the environmental levy of tariff increase (including the environmental R4.3 billion (2010/11: R4.3 billion) charged levy) granted by NERSA to Eskom resulted to customers. The sale of 224 785GWh of in a 24.8% increase in revenue per kWh. electricity for the year represents an The increase came into effect on 1 April increase of 0.2% compared to the previous 2011 for non-municipal customers and year (2010/11: 224 446GWh). 1 July 2011 for municipal customers. This increase was offset by a 25.9% increase in operating costs per kWh mainly due to increases in primary energy costs. Electricity sales (in GWh) Actual Actual 2012 2011 Southern African Energy International 13 195 13 296 Customer service Top customers 87 984 88 794 Other large, small and residential customers 123 606 122 356 Total Eskom 224 785 224 446 Electricity revenue (in R million) Actual Actual 2012 2011 Southern African Energy International 4 909 4 096 Customer service Top customers 38 898 31 611 Other large, small and residential customers 69 192 54 668 Total Eskom 112 999 90 375 100 Eskom Holdings SOC Limited Integrated Report 2012 Primary energy costs   The environmental levy increase of The primary energy costs for the year 0.5c/kWh, which took effect on 1 April (group and company) amounted to 2011, contributed 0.55c/kWh (12% of R46.3 billion (2010/11: R35.8 billion). The the increase) costs include the environmental levy of  Open-cycle gas turbine (OCGT) costs R6.2 billion paid to the government increased 281% to R1.5 billion and (2010/11: R5.0 billion). The cost of primary contributed 0.49c/kWh (10% of the energy as a percentage of electricity increase) revenue was 41.0% (2010/11: 39.6%).  The increases in coal handling, gas-fired startups, road repairs and water usage costs make up the remaining 7% of the Primary energy cost increase. Operating costs Group and company operating costs 22 20.6c/kWh consist of: 20 18 15.9c/kWh 16 Employee benefits 14 13.3c/kWh Group employee numbers increased by c/kWh 12 10 a net 1 695 in the year to 31 March 2012, 8 to 43 473 employees, from 41 778 6 4 at 31 March 2011. Company employee 2 numbers increased from 39 034 at 0 2010 2011 2012 31 March 2011 to 40 802 at 31 March 2012. ● Coal usage ● Environmental levy ● IPPs ● Imports Group gross employee costs (before ● OCGT ● DMP and co-generation ● Other capitalisation) for the year to 31 March 2012 amounted to R24.4 billion (2010/11: The cost of primary energy increased by R20.4 billion). Company gross employee 29.2%, from 15.9c/kWh in 2010/11 to costs for the same period amounted 20.6c/kWh for the year to 31 March 2012. to R22.0 billion (2010/11: R19.0 billion). The 4.7c/kWh increase is mainly due to Group and company employee costs the following: of R4.2 billion were capitalised to capital  The 20.8% increase in the cost of coal projects during the year (2010/11: burnt contributed 1.54c/kWh (33% of R3.7 billion). the increase)   The cost of using IPPs (R3.3 billion) contributed 0.88c/kWh (19% of the increase)  Demand-market participation, power buyback and co-generation costs increased 923% to R2.2 billion and contributed 0.87c/kWh (19% of the increase). Eskom Holdings SOC Limited Integrated Report 2012 101 Financial performance continued Arrear debt R11.5 billion at 31 March 2011 to Group annual arrear debt was 0.53% of R14.6 billion at 31 March 2012. The the external revenue for the year to allowance for impairment for electricity 31 March 2012 (2010/11: 0.75%). The receivables increased from R2.8 billion to residential debt in Soweto continues to R3.3 billion over the same period. grow. Electricity debtors increased from Debtor days Actual Actual Actual Debtor days Measure 2012 2011 2010 Key industrial and international customers Days 14.4 15.5 15.4 Customer service (large power users) Days 21.8 18.9 18.9 Customer service (small power users) Days 42.9 45.1 40.5 Municipal debt, while not yet at optimal Repairs and maintenance levels, has improved when compared to Other group operating expenses for the the previous year. There has been a year to 31 March 2012, which amounted significant improvement in the level of to R15.2 billion (2010/11: R12.1 billion) for provincial government support (via the the group and company, consist primarily Premier’s offices, the Department of Co- of repairs and maintenance and are operative Governance and Traditional monitored closely. Affairs [COGTA] and provincial treasuries) and a heightened awareness and The company’s gross repairs and understanding of what the challenges maintenance expenditure1 for the year to facing the municipalities are. This has 31 March 2012 was R17.6 billion (2010/11: resulted in the formulation of action plans R14.1 billion). Ensuring that the outage to address the financial performance and plan is executed in good time remains a sustainability of the municipalities. Municipal challenge given the electricity demand- entities are concluding payment and-supply balance. arrangements with Eskom, which reduces the overall pressure caused by non- Company repairs and maintenance costs payment of electricity debt. of R3.2 billion (2010/11: R2.1 billion), that were classified as major overhauls, were Eskom does not currently provide for capitalised during the year. arrear municipality debtors. 1. Including employee benefit cost relating to repairs and maintenance. 102 Eskom Holdings SOC Limited Integrated Report 2012 The group’s maintenance cost is slightly less Net finance cost than the company’s due to the elimination After capitalising borrowing costs and of intercompany transactions, stemming including unwinding of interest on from maintenance work performed by provisions, the net finance charges for the Eskom subsidiaries Roshcon and Rotek. year to 31 March 2012 was R4.0 billion (2010/11: R4.7 billion) for the group and Net fair value loss on financial R3.9 billion (2010/11: R4.8 billion) for the instruments, excluding embedded company. Gross finance income for the derivatives year to 31 March 2012 was R3.5 billion The net fair value loss on financial (2010/11: R2.4 billion) for the group and instruments, excluding embedded R3.6 billion (2010/11: R2.4 billion) for the derivatives, was R2.4 billion for the year to company. 31 March 2012 (2010/11: a loss of R1.8 billion) for the group and a loss of Gross finance cost for the group and R2.4 billion (2010/11: a loss of R1.9 billion) company for the year to 31 March 2012 for the company. These losses consist was R12.2 billion (2010/11: R15.4 billion). primarily of the costs attributable to the Included in gross finance cost was the rolling over of forward exchange contracts, effect of a re-measurement of the all of which are 12 months in duration. government loan at 31 March 2012 The costs vary from period to period resulting in a gain of R5.5 billion (2010/11: due to the timing of the placement of R2.5 billion loss). The combined borrowing related procurement contracts and costs capitalised for the group and exchange rates. company was R5.0 billion for the year (2010/11: R8.6 billion). Unwinding of Gain on embedded derivatives interest for the group and company The net impact on the income statement amounted to R2.0 billion (2010/11: of changes in the fair value of the R1.7 billion). embedded derivatives (relating to the special pricing agreements) for the group Gross finance costs (excluding the and company was a fair value gain for the remeasurements of the government loan) year to 31 March 2012 of R0.3 billion continue to increase as additional (2010/11: loss of R1.3 billion). The borrowings are raised to fund the capital embedded derivative assets were Rnil expansion programme. The weighted (2010/11: Rnil) and liabilities amounted to annualised cost of borrowing as at 31 March R5.5 billion (2010/11: R5.9 billion). 2012 was 9.78%1 (2010/11: 9.54%). Discussions continue with interested parties, including the Department of Public Taxation Enterprises and the National Treasury, to The effective tax rate for the year was find a solution regarding the remaining 28.0% (2010/11: 27.9%) for the group and special-pricing agreements. 28.3% for the company (2010/11: 28.2%), 1. Excluding Government loan remeasurement. Eskom Holdings SOC Limited Integrated Report 2012 103 Financial performance continued both in line with the current statutory tax Cash flows used in investing rate of 28%. On a company level, provision activities is made only for deferred tax as Eskom is Cash flows used for investing for the in an assessed loss position. year under review were R59.9 billion (2010/11: R46.5 billion) for the group and Liquidity and capital resources R59.0 billion (2010/11: R44.9 billion) for the The group’s cash and cash equivalents company. The group capital expenditure increased from R12.1 billion at 31 March cash flows included in this line item, 2011 to R19.4 billion at 31 March 2012. excluding capitalised interest, amounted The company’s cash and cash equivalents to R59.5 billion (2010/11: R45.3 billion) grew from R11.5 billion to R18.4 billion in primarily due to the progress of the capital the same period. expansion programme. Cash and cash equivalents, together with Cash flows from financing liquid investment in securities, amounted activities to R40.5 billion (2010/11: R49.9 billion). The net cash inflows from financing The group currently carries sufficient funds activities for the year were R28.7 billion to cover Eskom comfortably for the next (2010/11: R20.3 billion) for the group and financial year. Based on the latest R27.4 billion (2010/11: R19.4 billion) for projections and including the signed and the company. The raising of borrowings committed facilities per the planned draw- and the issuing of securities per the funding down schedule, Eskom’s requirements are plan have been slowed to match the covered beyond March 2013. reduced capital expenditure. The debt-to- equity ratio for the group (including long- Cash flows from operating term provisions) as at 31 March 2012 was activities 1.64 (2010/11: 1.61) and for the company The group’s net cash inflow from operating 1.69 (2010/11: 1.66). activities for the year was R38.5 billion (2010/11: R22.7 billion), while the company Funding update had a net cash inflow of R38.5 billion Eskom maintains healthy cash reserves.The (2010/11: R22.1 billion). The free funds funding progress remains positive and, in from operations at 31 March 2012 stood line with corporate practice internationally, at 15.15% (2010/11: 9.51%) of gross debt a portion of the next financial year (ending for the group. March 2013) is already prefunded. The improvement in the cash flows from The global sovereign credit crisis and the operating activities and in the free funds anticipated implications of new global from operations as a percentage of gross banking regulations (Basel III) have not yet debt is primarily due to the increased materially affected Eskom’s ability to access operating profitability of the company. funding, but have made such funding increasingly expensive. 104 Eskom Holdings SOC Limited Integrated Report 2012 The Ingula pumped storage scheme near Ladysmith is built mainly underground During 2011/12 South Africa’s sovereign export-credit-backed financing from both rating outlook was changed to negative by the US Export and Import Bank (for Kusile major ratings agencies. Given the close power station) and obtained approval by relationship between the sovereign and SACE in Italy (for the Ingula underground Eskom ratings, the rating agencies revised works contract). Eskom’s outlook to negative. While Eskom has not observed any direct impact as a By the end of 2011/12 Eskom had secured result of the change, it did have an more than 77% of the funding required for immediate effect on the rand, which the capital expansion programme. Of the consequently affected hedging activities. R23.4 billion allocated as “other” in the funding plan, Eskom has identified and From a new funding point of view the partially secured R13.2 billion from various major focus over the past year was on the sources. This includes facilities that have Sere wind farm and the Upington pilot already been signed, primarily related to concentrating solar plant, which will be funding for renewable projects. Eskom financed by the Clean Technology Fund in continues to explore other sources of conjunction with other developmental funding, including Islamic bond finance finance institutions. Eskom has also secured (Sukuk), preference shares and retail bonds. Eskom Holdings SOC Limited Integrated Report 2012 105 Financial performance continued Funds sourced for capacity expansion plan (1 April 2010 to 31 March 2017) Draw- Draw- downs downs Amount 1 April 1 April supported 2010 to 2010 to by Sources Secured 31 March 31 March govern- (R billion) Funding to date 2012 2011 ment Bonds 90.0 32.9 32.9 26.7 20.4 Commercial paper 70.0 70.0 20.0 10.0 – Export credit agencies 32.9 32.9 15.6 7.5 – World Bank 27.8 27.8 5.6 2.6 27.8 African Development Bank 20.9 20.9 5.9 3.9 20.9 Development Bank of Southern Africa 15.0 15.0 3.0 1.0 – Shareholder loan 20.0 20.0 20.0 20.0 20.0 Other sources 23.4 13.2 0.8 0.0 4.9 Totals 300.0 232.7 103.8 71.7 94.0 Percentages 77.61 44.62 33.93 40.42 During the year, the Department of Energy and which may include technology and/or promulgated its Integrated Resource Plan, equity partners for certain aspects of the the country’s 20-year energy strategy. The strategy. The success of the strategy will expected magnitude of the future build require certainty on the tariff trajectory programme will require a funding approach and a flexible approach that allows for that continues to support Eskom’s long- potential industry restructuring. term standalone investment credit rating, 1. As a percentage of the total R300 billion sourced. 2. As a percentage of the secured total of R232.7 billion as at 31 March 2012. 3. As a percentage of the secured total of R211.7 billion as at 31 March 2011. 106 Eskom Holdings SOC Limited Integrated Report 2012 Summarised group annual financial statements Maintenance on the distribution network near Cullinan, Gauteng Eskom Holdings SOC Limited Integrated Report 2012 107 Contents Approval of the summarised group annual financial statements 109 Eskom’s material issues discussed Report of the independent auditors 110 Summarised group statement of financial position 112 Summarised group income statement 114 Summarised group statement of comprehensive income 115 Summarised group statement of changes in equity 116 Summarised group statement of cash flows 120 Selected notes to the summarised group financial statements 122 1 General information 122 2 Basis of preparation 122 3 Significant accounting policies 123 4 Income tax expense 123 5 Changes to subsidiaries/common control transaction 123 6 Unusual changes impacting the statements of financial position, income, comprehensive income and cash flows 123 7 Critical accounting estimates and judgement 124 8 Issuances, repurchases and repayments of debt securities 124 9 Dividend paid 124 10 Segment information 125 11 Material events subsequent to 31 March 2012 130 12 Material changes in property, plant and equipment 130 13 Material changes in contingent liabilities 130 14 Material changes in capital commitments 131 15 Issued share capital 131 16 Related-party transactions 131 17 Revenue 131 18 Employee benefit expense 131 19 Cash generated from operations 132 20 Restatement of comparatives and change in accounting policies 133 The summarised group annual financial statements have been prepared under the supervision of the finance director, PS O’Flaherty CA(SA). The audited annual financial statements of the group and company as at and for the year ended 31 March 2012 are available for inspection at the company’s registered office and on the Eskom website at www.eskom.co.za/IR2012/020.html. 108 Eskom Holdings SOC Limited Integrated Report 2012 Approval of the summarised group annual financial statements The summarised group annual financial statements from page 112 to page 137 for the year ended 31 March 2012 have been extracted from the audited annual financial statements and prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS), the presentation and disclosure requirements of IAS 34 Interim financial reporting, and in the manner required by the Companies Act of South Africa, 71 of 2008. In the opinion of the directors, based on the information available to date, the financial statements fairly present the financial position of the group at 31 March 2012 and the results of its operations and cashflow information for the year then ended. The summarised group annual financial statements have been approved by the board of directors and signed on its behalf by: ZA Tsotsi BA Dames PS O’Flaherty Chairman Chief executive Finance director 31 May 2012 31 May 2012 31 May 2012 Eskom Holdings SOC Limited Integrated Report 2012 109 Report of the independent auditors The accompanying summarised annual financial statements set out on pages 112 to 137, which comprise the summarised statement of financial position as at 31 March 2012, the summarised statement of comprehensive income, summarised statement of changes in equity and summarised cash flow statement for the year then ended, and related notes, are extracted from the audited group annual financial statements of Eskom Holdings SOC Limited for the year ended 31 March 2012. In our report dated 31 May 2012, we expressed an unmodified audit opinion on those annual financial statements from which the summarised group annual financial statements were extracted. Those annual financial statements, and the summarised group annual financial statements, do not reflect the effects of events that occurred subsequent to the date of our report on those annual financial statements. The summarised group annual financial statements do not contain all the disclosures required by International Financial Reporting Standards applied in the preparation of the audited annual financial statements of Eskom Holdings SOC Limited. Reading the summarised group annual financial statements, therefore, is not a substitute for reading the audited annual financial statements of Eskom Holdings SOC Limited. Directors’ responsibility for the summarised financial statements The board of directors is responsible for the preparation of a summary of the audited annual financial statements described in note 2. Auditors’ responsibility Our responsibility is to express an opinion on the summarised group annual financial statements based on our procedures, which were conducted in accordance with International Standard on Auditing (ISA) 810 Engagements to report on summary financial statements. 110 Eskom Holdings SOC Limited Integrated Report 2012 Opinion In our opinion, the summarised group annual financial statements extracted from the audited annual financial statements of Eskom Holdings SOC Limited for the year ended 31 March 2012 are consistent, in all material respects, with the audited financial statements, on the basis described in note 2. KPMG Inc SizweNtsalubaGobodo Inc Per AH Jaffer Per JE Strauss Chartered Accountant (SA) Chartered Accountant (SA) Registered auditor Registered Auditor Director Director 31 May 2012 31 May 2012 85 Empire Road 20A Morris Street East Parktown Woodmead 2193 2191 Eskom Holdings SOC Limited Integrated Report 2012 111 Summarised group statement of financial position at 31 March 2012 Restated1 2012 2011 Rm Rm Assets Non-current assets 318 877 265 183 Property, plant and equipment 290 661 236 724 Intangible assets 1 548 1 377 Investments in equity-accounted investees 261 220 Future fuel supplies 5 452 4 089 Deferred tax assets 43 59 Investment in securities 8 749 13 259 Loans receivable 7 435 5 958 Derivatives held for risk management 1 780 6 Finance lease receivables 555 570 Payments made in advance 2 060 2 396 Trade and other receivables 333 525 Current assets 63 050 62 258 Inventories 9 930 8 904 Taxation 43 59 Investment in securities 12 281 24 546 Loans receivable 79 100 Derivatives held for risk management 362 116 Finance lease receivables 15 15 Payments made in advance 1 531 1 651 Trade and other receivables 14 313 10 953 Financial trading assets 5 046 3 827 Cash and cash equivalents 19 450 12 087 Non-current assets held-for-sale 438 704 Total assets 382 365 328 145 1. Refer to note 20. 112 Eskom Holdings SOC Limited Integrated Report 2012 Restated1 2012 2011 Rm Rm Equity Capital and reserves attributable to owner of the company 103 103 87 259 Liabilities Non-current liabilities 222 672 195 841 Debt securities issued 90 732 84 396 Borrowings 76 983 63 380 Embedded derivative liabilities 4 639 5 357 Derivatives held for risk management 1 273 4 576 Deferred tax liabilities 13 807 7 931 Deferred income 9 612 8 395 Employee benefit obligations 8 560 7 748 Provisions 12 740 10 343 Finance lease liabilities 511 521 Trade and other payables 1 971 1 508 Payments received in advance 1 844 1 686 Current liabilities 56 115 44 185 Debt securities issued 7 170 2 880 Borrowings 7 682 9 654 Embedded derivative liabilities 900 516 Derivatives held for risk management 3 590 1 404 Deferred income 657 638 Employee benefit obligations 3 054 2 623 Provisions 4 078 2 553 Finance lease liabilities 10 8 Trade and other payables 23 487 18 384 Payments received in advance 2 653 1 221 Taxation 3 – Financial trading liabilities 2 831 4 304 Non-current liabilities held-for-sale 475 860 Total liabilities 279 262 240 886 Total equity and liabilities 382 365 328 145 1. Refer to note 20. Eskom Holdings SOC Limited Integrated Report 2012 113 Summarised group income statement for the year ended 31 March 2012 Restated1 2012 2011 Note Rm Rm Continuing operations Revenue 17 114 760 91 447 Primary energy2 (46 314) (35 795) Employee benefit expense 18 (20 132) (16 695) Depreciation and amortisation expense (8 801) (7 219) Net impairment loss (620) (788) Other operating expenses (15 209) (12 070) Operating profit before net fair value loss and net finance cost 23 684 18 880 Other income 699 587 Net fair value loss on financial instruments, excluding embedded derivatives (2 388) (1 816) Net fair value gain/(loss) on embedded derivatives 334 (1 261) Operating profit before net finance cost 22 329 16 390 Net finance cost (3 963) (4 741) – Finance income 3 536 2 436 – Finance cost (7 499) (7 177) Share of profit of equity-accounted investees, net of tax 41 24 Profit before tax 18 407 11 673 Income tax (5 156) (3 261) Profit for the year from continuing operations 13 251 8 412 Discontinued operations Loss for the period from discontinued operations (3) (56) Profit for the year 13 248 8 356 Attributable to: Owner of the company 13 248 8 356 1. Restated – Refer to note 20. 2. Primary energy relates primarily to the acquisition of coal, uranium, water, gas and diesel that are used in the generation of electricity together with the environmental levy. 114 Eskom Holdings SOC Limited Integrated Report 2012 Summarised group statement of comprehensive income for the year ended 31 March 2012 2012 2011 Rm Rm Profit for the year 13 248 8 356 Other comprehensive income/(loss) 2 502 (2) Available-for-sale financial assets – net change in fair value 231 (40) Cash flow hedges – Effective portion of changes in fair value 3 552 (1 031) Changes in fair value 3 538 (1 025) Ineffective portion of changes in fair value reclassified to profit or loss 14 (6) – Net amount transferred to initial carrying amount of hedged items (459) 246 Foreign currency translation differences for foreign operations 74 ( 33) Net actuarial gain on post-retirement medical benefits 20 408 Income tax on other comprehensive income/(loss) (916) 448 Total comprehensive income for the year 15 750 8 354 Total comprehensive income for the year attributable to: Owner of the company 15 750 8 354 Eskom Holdings SOC Limited Integrated Report 2012 115 Summarised group statement of changes in equity for the year ended 31 March 2012 Attributable to owner of the company Share Equity Cash flow capital1 reserve2 hedge reserve3 Rm Rm Rm Balance at 31 March 2010 – 21 837 (750) Prior year restatement9 – – 494 Restated balance at 31 March 2010 – 21 837 (256) Profit for the year – – – Other comprehensive (loss)/income, net of tax – – (233) Available-for-sale financial assets – Net change in fair value – – – Cash flow hedges – Effective portion of changes in fair value – – (410) – Net amount transferred to initial carrying amount of hedged items – – 177 Foreign currency translation differences on foreign operations – – – Net actuarial loss on post-retirement medical benefits – – – Subordinated loan from shareholder – 8 683 – Transfer between reserves – – 2 Balance at 31 March 2011 – 30 520 (487) 1. Nominal amount. 2. The equity reserve comprises the day-one gain on initial recognition of the subordinated loan from the shareholder. 3. The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments (comprising forward exchange contracts, interest rate swaps and cross-currency swaps) related to hedged transactions that have not yet occurred. The cross-currency swaps hedge foreign exchange rate risk of the future interest payments and the principal repayment on fixed rate bonds and loans (denominated in US dollar, euro and yen). 4. The available-for-sale reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised. 116 Eskom Holdings SOC Limited Integrated Report 2012 Attributable to owner of the company Available- Unrealised Insurance Foreign Accumula- Total for-sale fair value reserve6 currency ted profit8 equity reserve4 reserve5 translation reserve7 Rm Rm Rm Rm Rm Rm (153) (1 084) 55 25 50 292 70 222 – – – – (494) – (153) (1 084) 55 25 49 798 70 222 – – – – 8 356 8 356 (29) – – (33) 293 (2) (29) – – – – (29) – – – – – (410) – – – – – 177 – – – (33) – (33) – – – – 293 293 – – – – – 8 683 364 (193) 55 – (228) – 182 (1 277) 110 (8) 58 219 87 259 5. The cumulative net change in the fair value of derivatives that have not been designated as cash flow hedging instruments is recognised in profit or loss. The unrealised portion of the net change in fair value is not distributable and has been reallocated from a distributable reserve (accumulated profit) to a non-distributable reserve. 6. The insurance reserve is a contingency reserve created in terms of the Short-term Insurance Act, no 53 of 1998. 7. The foreign currency translation reserve comprises exchange differences resulting from the translation of the results and financial position of foreign operations. 8. Accumulated profit is the amount of cumulative profit retained in the business after tax. 9. Refer to note 20. Eskom Holdings SOC Limited Integrated Report 2012 117 Summarised group statement of changes in equity continued for the year ended 31 March 2012 Attributable to owner of the company Share Equity Cash flow capital1 reserve2 hedge reserve3 Rm Rm Rm Balance at 31 March 2011 – 30 520 (487) Profit for the year – – – Other comprehensive income, net of tax – – 2 248 Available-for-sale financial assets – Net change in fair value – – – Cash flow hedges – Effective portion of changes in fair value – – 2 578 – Net amount transferred to initial carrying amount of hedged items – – (330) Foreign currency translation differences on foreign operations – – – Net actuarial loss on post-retirement medical benefits – – – Transfer between reserves – – (49) Common control transaction9 – – – Balance at 31 March 2012 – 30 520 1 712 1. Nominal amount. 2. The equity reserve comprises the day-one gain on initial recognition of the subordinated loan from the shareholder. 3. The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments (comprising forward exchange contracts, interest rate swaps and cross-currency swaps) related to hedged transactions that have not yet occurred. The cross-currency swaps hedge foreign exchange rate risk of the future interest payments and the principal repayment on fixed rate bonds and loans (denominated in US dollar, euro and yen). 4. The available-for-sale reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised. 118 Eskom Holdings SOC Limited Integrated Report 2012 Attributable to owner of the company Available- Unrealised Insurance Foreign Accumula- Total for-sale fair value reserve6 currency ted profit8 equity reserve4 reserve5 translation reserve7 Rm Rm Rm Rm Rm Rm 182 (1 277) 110 (8) 58 219 87 259 – – – – 13 248 13 248 166 – – 74 14 2 502 166 – – – – 166 – – – – – 2 578 – – – – – (330) – – – 74 – 74 – – – – 14 14 (58) (974) (20) – 1 101 – – – – – 94 94 290 (2 251) 90 66 72 676 103 103 5. The cumulative net change in the fair value of derivatives that have not been designated as cash flow hedging instruments is recognised in profit or loss. The unrealised portion of the net change in fair value is not distributable and has been reallocated from a distributable reserve (accumulated profit) to a non-distributable reserve. 6. The insurance reserve is a contingency reserve created in terms of the Short-term Insurance Act, no 53 of 1998. 7. The foreign currency translation reserve comprises exchange differences resulting from the translation of the results and financial position of foreign operations. 8. Accumulated profit is the amount of cumulative profit retained in the business after tax. 9. Refer to note 5. Eskom Holdings SOC Limited Integrated Report 2012 119 Summarised group statement of cash flows for the year ended 31 March 2012 Restated1 2012 2011 Note Rm Rm Cash flows from operating activities Cash generated from operations 19 38 669 28 645 Net cash flows (used in)/from financial trading assets (1 353) 2 925 Net cash flows from/(used in) financial trading liabilities 1 612 (1 456) Net cash flows used in current derivatives held for risk management (280) (7 212) Net cash flows from/(used in) non-current assets held-for-sale 42 (4) Income taxes paid (161) (151) Net cash from operating activities 38 529 22 747 Cash flows used in investing activities Proceeds from disposal of property, plant and equipment 351 135 Acquisitions of property, plant and equipment (56 920) (43 975) Acquisitions of intangible assets (524) (350) Expenditure on future fuel supplies (2 043) (1 079) Decrease/(increase) in non-current trade and other receivables 188 (509) Increase in non-current loans receivable (1 477) (1 469) Decrease/(increase) in finance lease receivables 39 (20) Net cash flows from non-current assets and liabilities held-for-sale – (10) Dividends received 30 26 Increase in non-current trade and other payables 343 793 Net cash used in investing activities (60 013) (46 458) Cash flows from financing activities Debt raised 22 308 69 191 – Debt securities issued 7 111 26 144 – Subordinated loan from shareholder – 20 000 – Borrowings 15 197 23 047 Debt repaid (5 769) (9 189) – Debt securities issued (2 268) (641) – Borrowings (3 501) (8 548) Net cash flows from non-current assets held-for-sale 20 43 Decrease/(increase) in investment in securities 17 497 (33 693) Decrease in finance lease liabilities (46) (17) Net cash flows used in non-current derivatives held for risk management – (89) Interest received 3 211 2 353 Interest paid (8 501) (8 269) Net cash from financing activities 28 720 20 330 Net increase/(decrease) in cash and cash equivalents 7 236 (3 381) Cash and cash equivalents at beginning of the year 12 087 15 541 Cash and cash equivalents resulting from common control transaction2 127 – Cash and cash equivalents at beginning of the year attributable to non-current assets held-for-sale – (73) Cash and cash equivalents at end of the year 19 450 12 087 1. Refer to note 20. 2. Refer to note 5. 120 Eskom Holdings SOC Limited Integrated Report 2012 Restated1 2012 2011 Rm Rm Reconciliation of net cash flow to movement in net debt Net increase in debt securities issued 4 843 25 503 Net increase in borrowings 11 696 34 499 Decrease/(increase) in investment in securities 17 497 (33 693) Increase in loans receivable (1 468) (826) Decrease in finance lease liabilities (46) (17) Net cash flows used in derivatives held for risk management (280) (7 301) Net debt raised 32 242 18 165 Portion on subordinated loan from shareholder allocated to equity – (8 683) Non-cash flow movements 2 189 7 842 Cash and cash equivalents resulting from common control transaction (127) – Cash and cash equivalents at beginning of the year attributable to non-current assets held-for-sale – 73 Net (increase)/decrease in cash and cash equivalents for the year (7 236) 3 381 Movement in net debt for the year 27 068 20 778 Net debt at beginning of the year 110 747 89 969 Net debt at end of the year 137 815 110 747 Analysis of net debt Debt securities issued 97 902 87 276 Borrowings 84 665 73 034 Finance lease liabilities 521 529 Derivatives held for risk management 2 721 5 858 185 809 166 697 Cash and cash equivalents (19 450) (12 087) Investment in securities (21 030) (37 805) Loans receivable (7 514) (6 058) Net debt at end of the year 137 815 110 747 1. Refer to note 20. Eskom Holdings SOC Limited Integrated Report 2012 121 Selected notes to the summarised group financial statements for the year ended 31 March 2012 1. General information Eskom Holdings Limited changed its name to Eskom Holdings SOC Limited (Eskom) in terms of the Companies Act of South Africa, 71 of 2008, which came into operation on 1 May 2011. Eskom, a public company and holding company of the group, is incorporated and domiciled in the Republic of South Africa. Eskom is an integrated operation that generates, transmits and distributes electricity to industrial, mining, commercial, agricultural, municipalities, and residential customers and to international customers in southern Africa. 2. Basis of preparation The summarised group annual financial statements of Eskom as at and for the year ended 31 March 2012 comprise the company and its subsidiaries (together referred to as the group) and the group’s interest in associates and joint ventures. The summarised group financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the Eskom Holdings SOC Limited 31 March 2012 annual financial statements. The audited annual financial statements of the group and company as at and for the year ended 31 March 2012 are available for inspection at the company’s registered office and on the Eskom website at www.eskom.co.za/IR2012/021.html.The summarised group annual financial statements are prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS), presentation and disclosure requirements of IAS 34 Interim Financial Reporting, and in the manner required by the Companies Act of South Africa, 71 of 2008. The summarised group annual financial statements are prepared on the historical cost basis except for the following financial instruments which are measured at fair value: • embedded derivative assets and liabilities • financial instruments classified under held-for-trading • financial instruments classified under available-for-sale • post-retirement medical benefits 122 Eskom Holdings SOC Limited Integrated Report 2012 3. Significant accounting policies The accounting policies applied by the group in these summarised financial statements comply with IFRS. With the exception of the revised IAS 24 Related party disclosures, there were no new and revised standards and interpretations effective during the year ended 31 March 2012 that were relevant to the group. The revised IAS 24 Related party disclosures provides an exemption for government-related entities. The revised standard still requires disclosures that are important to users of financial statements but eliminates requirements to disclose information that is costly to gather and of less value to users. 4. Income tax expense Income tax expense recognised for the full financial year is in accordance with IAS 12 Income taxes. 5. Changes to subsidiaries/common control transaction The Pebble Bed Modular Reactor SOC Limited (PBMR) was previously not consolidated as it was not considered to be controlled by Eskom Enterprises SOC Limited (Eskom Enterprises) in terms of the shareholder’s cooperation agreement. However, with effect from 1 April 2011, Eskom Enterprises obtained control over PBMR due to the termination of the cooperation agreement and consequently consolidated PBMR as per IAS 27 Consolidated and separate financial statements. The acquisition of PBMR is considered to be a business combination between entities under common control. Therefore all of the assets and liabilities have been recognised at their book values at the date of acquisition and the excess of the purchase consideration over the net assets of PBMR has been recognised directly in equity. 6. Unusual changes impacting the statements of financial position, income, comprehensive income and cash flows There have not been any unusual changes impacting the summarised statement of financial position, income statement, statement of comprehensive income and statement of cash flows during the year ended 31 March 2012. Eskom Holdings SOC Limited Integrated Report 2012 123 Selected notes to the summarised group financial statements continued for the year ended 31 March 2012 7. Critical accounting estimates and judgement Estimates and judgements are evaluated continually and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The significant estimates and judgements made by management in applying the accounting policies and the key sources of estimating uncertainty were substantially the same as those applied to the financial statements for the year ended 31 March 2011 except for the forward pricing curve. The forward electricity price used to value the embedded derivatives at 31 March 2012 is based on the current MYPD 2 approved tariff for 2012/13 of 16%, and a forward tariff path for the next five years (2013/14 to 2017/18) that ultimately achieves cost reflective tariffs. 8. Issuances, repurchases and repayments of debt securities The nature of the group’s issuances, repurchases and repayments of debt securities are consistent with those reported previously. The details of the debt raised and repaid by the group are disclosed in the statement of cash flows. 9. Dividend paid No dividend was paid to the shareholder during the year ending 31 March 2012 (2011: nil). 124 Eskom Holdings SOC Limited Integrated Report 2012 10. Segment information Segment information for the year ended 31 March 2012 Management has determined the reportable segments, as described below, based on the reports regularly provided, reviewed and used by the executive management committee (Exco) to make strategic decisions and assess performance of the segments. The reportable segments have been aligned with Eskom’s new operating structure. The prior year segment report has been restated in line with the new structure. The following summary describes the operations in each of the group’s reportable segments: Generation Consists of the generation and primary energy functions. These functions procure primary energy and generate electricity for sale. Transmission Consists of the transmission grids, systems operations and the South African Energy (international buyer). These functions operate and maintain the transmission network for transmitting electricity and also sell bulk electricity to international customers. Distribution Distribution consists of nine provincial operating units. These units provide, operate and maintain the distribution network for distributing. Group customer Group customer services consists of the customer service services and integrated demand management functions and sells electricity to key large, redistributors, large and small customers. Group capital Group capital is responsible for the planning, development, monitoring of all capital projects and the execution of capacity expansion projects. All other Relates to operating segments which are below the segments quantitative thresholds for determining a reportable segment in terms of IFRS 8 Operating segments. These include the group’s subsidiaries. Corporate and Relates to all service and strategic functions which do not other qualify as a reportable segment in terms of IFRS 8 Operating segments. Eskom Holdings SOC Limited Integrated Report 2012 125 Selected notes to the summarised group financial statements continued for the year ended 31 March 2012 10. Segment information (continued) Segment information for the year ended 31 March 2012 The segment information provided to Exco for the reportable segments for the year ended 31 March 2012 is as follows: Generation Trans- Distri- mission bution Rm Rm Rm 2012 Continuing operations External revenue – 4 873 354 Inter-segment revenue/recoveries 72 705 7 061 21 858 Total revenue 72 705 11 934 22 212 Primary energy (38 708) (5 057) – Employee benefit expense (5 861) (1 245) (5 551) Depreciation and amortisation expense (4 837) (800) (2 215) Net impairment (loss)/reversal (5) 3 (5) Other operating expenses (11 162) (2 059) (8 518) Operating profit/(loss) before net fair value (loss)/gain and net finance cost 12 132 2 776 5 923 Other income 1 456 344 277 Net fair value (loss)/gain on financial instruments, excluding embedded derivatives (1 814) (73) (16) Net fair value gain on embedded derivatives – – – Operating profit/(loss) before net finance cost 11 774 3 047 6 184 Net finance cost (2 783) (363) (196) Finance income 25 14 136 Finance cost (2 808) (377) (332) Share of profit of equity-accounted investees – – – Profit before tax 8 991 2 684 5 988 Income tax – – – Profit/(loss) for the year from continuing operations 8 991 2 684 5 988 Discontinued operations Loss for the year from discontinued operations – – – Profit/(loss) for the year 8 991 2 684 5 988 Other information Segment assets 90 095 24 042 49 934 Investments in equity-accounted investees – – – Non-current assets held-for-sale – – – Total assets 90 095 24 042 49 934 Segment liabilities 48 462 5 849 246 906 Capital expenditure (including borrowing costs capitalised) 13 253 4 969 8 805 126 Eskom Holdings SOC Limited Integrated Report 2012 Group Group All other Corporate Inter Group customer capital segments and other segment services transactions Rm Rm Rm Rm Rm Rm 108 260 – 1 273 – – 114 760 (101 783) – 6 914 123 (6 878) – 6 477 – 8 187 123 (6 878) 114 760 (2 200) (349) – – – (46 314) (1 284) (260) (2 411) (3 520) – (20 132) (17) (115) (224) (698) 105 (8 801) (587) 1 (27) – – (620) (1 285) (209) (4 937) 3 836 9 125 (15 209) 1 104 (932) 588 (259) 2 352 23 684 313 132 272 467 (2 562) 699 21 (980) 4 470 – (2 388) 334 – – – – 334 1 772 (1 780) 864 678 (210) 22 329 133 (28) (51) (675) – (3 963) 213 – 369 3 176 (397) 3 536 (80) (28) (420) (3 851) 397 (7 499) – – 6 35 – 41 1 905 (1 808) 819 38 (210) 18 407 – – (184) (5 031) 59 (5 156) 1 905 (1 808) 635 (4 993) (151) 13 251 – – (3) – – (3) 1 905 (1 808) 632 (4 993) (151) 13 248 183 841 144 877 19 284 238 841 (369 248) 381 666 – – 25 95 141 261 – – 438 – – 438 183 841 144 877 19 747 238 936 (369 107) 382 365 10 697 148 005 13 394 210 218 (404 269) 279 262 76 34 853 450 1 490 ( 542) 63 354 Eskom Holdings SOC Limited Integrated Report 2012 127 Selected notes to the summarised group financial statements continued for the year ended 31 March 2012 10. Segment information (continued) Segment information for the year ended 31 March 2012 Generation Trans- Distri- mission bution Rm Rm Rm 2011 Continuing operations External revenue – 4 125 192 Inter-segment revenue recoveries 60 180 4 318 19 126 Total revenue 60 180 8 443 19 318 Primary energy (32 531) (3 042) – Employee benefit expense (5 401) (1 044) (4 955) Depreciation and amortisation expense (3 751) (733) (2 296) Net impairment (loss)/reversal (74) 11 4 Other operating expenses (8 738) (1 354) (6 526) Operating profit/(loss) before net fair value (loss)/gain and net finance cost 9 685 2 281 5 545 Other income 265 93 218 Net fair value (loss)/gain on financial instruments, excluding embedded derivatives (369) 56 (193) Net fair value loss on embedded derivatives – – – Operating profit/(loss) before net finance cost 9 581 2 430 5 570 Net finance cost (4 070) (353) (330) Finance income 32 28 292 Finance cost (4 102) (381) (622) Share of profit of equity-accounted investees – – – Profit/(loss) before tax 5 511 2 077 5 240 Income tax – – – Profit/(loss) for the year from continuing operations 5 511 2 077 5 240 Discontinued operations Loss for the year from discontinued operations – – – Profit/(loss) for the year 5 511 2 077 5 240 Other information Segment assets 78 685 19 445 44 428 Investments in equity-accounted investees – – – Non-current assets held-for-sale – – – Total assets 78 685 19 445 44 428 Segment liabilities 51 146 4 382 182 168 Capital expenditure (including borrowing costs capitalised) 6 512 1 831 8 026 128 Eskom Holdings SOC Limited Integrated Report 2012 Group Group All other Corporate Inter Group customer capital segments and other segment services transactions Rm Rm Rm Rm Rm Rm 86 454 – 676 – – 91 447 (83 519) – 6 833 – (6 938) – 2 935 – 7 509 – (6 938) 91 447 (222) – – – – (35 795) (1 124) (784) (1 334) (2 053) – (16 695) (15) (136) (206) (130) 48 (7 219) (669) – (58) (2) – (788) (440) 239 (5 484) 2 428 7 805 (12 070) 465 (681) 427 243 915 18 880 52 682 129 135 (987) 587 173 (2 873) 70 1 320 – (1 816) (1 261) – – – – (1 261) (571) (2 872) 626 1 698 (72) 16 390 29 (176) 27 132 – (4 741) 54 1 387 2 019 (377) 2 436 (25) (177) (360) (1 887) 377 (7 177) – – – 24 – 24 (542) (3 048) 653 1 854 (72) 11 673 – – (164) (3 117) 20 (3 261) (542) (3 048) 489 (1 263) (52) 8 412 – – (56) – – (56) (542) (3 048) 433 (1 263) (52) 8 356 162 508 110 151 17 226 212 015 (317 237) 327 221 – – 19 95 106 220 – – 704 – – 704 162 508 110 151 17 949 212 110 (317 131) 328 145 8 420 113 701 12 330 183 735 (314 996) 240 886 4 38 120 275 1 142 (453) 55 457 Eskom Holdings SOC Limited Integrated Report 2012 129 Selected notes to the summarised group financial statements continued for the year ended 31 March 2012 10. Segment information (continued) Segment information for the year ended 31 March 2012 Inter segment purchases and revenue of electricity are allocated between the Generation, Transmission, Distribution and Customer services segments based on cost recovery plus return on assets. Exco assesses the performance of the operating segments based on a measure of profit or loss consistent with that of the financial statements. The amounts provided to Exco with respect to total assets and liabilities are measured in terms of the IFRS. These assets and liabilities are allocated based on the operation of the segment and the physical location of the assets. Geographical information Group Group Revenues Non-current assets 2012 2011 2012 2011 Rm Rm Rm Rm South Africa 109 705 87 199 299 910 244 755 Foreign countries 5 055 4 248 72 51 114 760 91 447 299 982 244 806 The group’s reportable segments operate mainly in South Africa, which is Eskom’s country of domicile. Revenue is allocated based on the country in which the customer is located after eliminating inter segment transactions. There are no significant revenues derived from a single external customer by any of the reportable segments. Non-current assets disclosed for geographical information comprise non-current assets other than deferred tax assets and financial instruments. 11. Material events subsequent to 31 March 2012 The board of directors is currently in the process of developing a project plan and strategy for the disposal of Eskom Finance Company SOC Limited, a wholly owned subsidiary in terms of a directive from the shareholder post 31 March 2012. 12. Material changes in property, plant and equipment Property, plant and equipment increased by R53 937 million for the group during the year ended 31 March 2012 as compared to the amount disclosed in the annual financial statements as at and for the year ended 31 March 2011. This expenditure relates mainly to the cost incurred on the capital expansion programme. 13. Material changes in contingent liabilities There were no significant changes in contingent liabilities during the year ended 31 March 2012 from those reported in the annual financial statements as at and for the year ended 31 March 2011. 130 Eskom Holdings SOC Limited Integrated Report 2012 14. Material changes in capital commitments Capital commitments decreased by R79 465 million for the group during the year ended 31 March 2012 as compared to those disclosed in the annual financial statements as at and for the year ended 31 March 2011. This is primarily due to the progress and phasing of the capital expansion programme. 15. Issued share capital There was no change in the issued share capital during the year ended 31 March 2012. 16. Related-party transactions The revised IAS 24 Related party disclosures became effective during the current financial year. The group applies the IAS 24 paragraph 26 exemption in respect of its relationship with government related entities at national and local levels of government (refer note 20). 2012 2011 Rm Rm 17. Revenue Electricity revenue 112 999 90 375 Other revenue, excluding electricity revenue 1 761 1 072 114 760 91 447 18. Employee benefit expense Gross employee benefit expense 24 362 20 380 Employee benefit expense capitalised to property, plant and equipment (4 230) (3 685) 20 132 16 695 Eskom Holdings SOC Limited Integrated Report 2012 131 Selected notes to the summarised group financial statements continued for the year ended 31 March 2012 2012 2011 Rm Rm 19. Cash generated from operations Profit before tax 18 407 11 673 Adjustments for: 19 911 19 265 Depreciation and amortisation expense 8 801 7 219 Depreciation expense – primary energy 13 14 Amortisation and write-off of future fuel 2 10 Net impairment loss (excluding bad debts recovered) 632 798 Net fair value loss on financial instruments, including embedded derivatives 2 054 3 077 Net loss/(surplus) on disposal of property, plant and equipment 3 (52) Dividend income (30) (26) Increase in provisions 4 791 4 228 Decrease in deferred income (123) (108) Payments made in advance recognised in profit or loss 208 296 Payments received in advance recognised in profit or loss (228) (819) Other non-cash items 12 4 Finance income (3 536) (2 436) Finance cost 7 499 7 177 Share of profit of equity-accounted investees (41) (24) Non-current assets held-for-sale (146) (93) 38 318 30 938 Changes in working capital 351 (2 293) Increase in payments made in advance (2 115) (3 512) Increase in inventories (453) (721) Increase in trade and other receivables (3 937) (2 871) Decrease in loans receivable 9 643 Increase in trade and other payables 5 708 3 322 Expenditure incurred on provisions (2 435) (2 108) Increase in payments received in advance 3 574 2 954 38 669 28 645 132 Eskom Holdings SOC Limited Integrated Report 2012 20. Restatement of comparatives and change in accounting policies Related parties The revised IAS 24 Related party disclosures became effective during the current financial year. The revised IAS 24 provides government-related entities an exemption which eliminates the requirements to disclose information that is costly to gather and of less value to users. The group applies the IAS 24 paragraph 26 exemption in respect of its relationship with public entities at the national and local levels of government. Related party disclosures were previously not separately provided for municipalities, which are at the local sphere of government, as the specific guidance from SAICA was applied, which allowed that where management deemed this to be appropriate, only related party disclosure at the national sphere needed to be provided. The revised IAS 24 requires that where management elects to use the exemption, transactions that are individually significant or individually insignificant but collectively significant should be quantitatively or qualitatively disclosed. As a result, a quantitative indication of transactions with municipalities and entities in the national government sphere is accordingly disclosed. IAS 24 contains only disclosure and not measurement requirements. Therefore, the revision to IAS 24 did not have an impact on amounts previously recognised in the group’s financial statements. Voluntary change in accounting policy with respect to the presentation of foreign exchange gains and losses Previously, the group presented foreign exchange gains and losses that relate to loans and receivables, debt securities issued and borrowings in profit or loss within finance income or finance cost. With effect from 1 April 2011, the group presents foreign gains and losses in profit or loss within net fair value gain/(loss) on financial instruments, excluding embedded derivatives. This change in accounting policy was considered appropriate to give a fairer presentation of the group’s risk management policy of hedging foreign transactions by disclosing the impact on profit or loss of foreign exchange differences in the same line in profit or loss as where gains and losses on derivatives held for risk management are disclosed, which is within net fair value gain/(loss) on financial instruments, excluding embedded derivatives. Restatement of comparative information for the statement of cash flows The comparative cash flow statement has been reclassified to enhance disclosure. Restatement of accumulated profit at 31 March 2010 The amortisation period on the euro bond loan was restated, resulting in an adjustment between cash flow hedge reserve and accumulated profit of R494 million. Eskom Holdings SOC Limited Integrated Report 2012 133 Selected notes to the summarised group financial statements continued for the year ended 31 March 2012 20. Restatement of comparatives and change in accounting policies (continued) Employee benefit obligations Previously, all employee benefit related obligations recognised in terms of IAS 19 Employee benefits were not presented in the same line item on the statement of financial position. A reclassification was made and all employee-related obligations are now presented in the same line item on the statement of financial position within Employee benefit obligations. The impact of the restatement of comparative information is as follows: Previously Adjust- Restated reported ments Rm Rm Rm Statement of financial position as at 31 March 2011 Liabilities Non-current liabilities 18 520 (429) 18 091 Retirement benefit obligations 7 317 (7 317) – Provisions 11 203 (860) 10 343 Employee benefit obligations – 7 748 7 748 Current liabilities 23 131 429 23 560 Retirement benefit obligations 234 (234) – Provisions 4 021 (1 468) 2 553 Employee benefit obligations – 2 623 2 623 Trade and other payables 18 876 (492) 18 384 134 Eskom Holdings SOC Limited Integrated Report 2012 Previously Adjust- Restated reported ments Rm Rm Rm Income statement for the year ended 31 March 2011 Operating profit before net fair value loss and net finance cost 18 880 – 18 880 Other income 587 – 587 Net fair value loss on financial instruments, excluding embedded derivatives (3 691) 1 875 (1 816) Net fair value loss on embedded derivatives (1 261) – (1 261) Operating profit before net finance cost 14 515 1 875 16 390 Net finance cost (2 866) (1 875) (4 741) Finance income 2 436 – 2 436 Finance cost (5 302) (1 875) (7 177) Share of profit of equity-accounted investees, net of tax 24 – 24 Profit before tax 11 673 – 11 673 Income tax (3 261) – (3 261) Profit for the year from continuing operations 8 412 – 8 412 Loss for the year from discontinued operations (56) – (56) Profit for the year 8 356 – 8 356 Eskom Holdings SOC Limited Integrated Report 2012 135 Selected notes to the summarised group financial statements continued for the year ended 31 March 2012 20. Restatement of comparatives and change in accounting policies (continued) Employee benefit obligations (continued) Previously Adjust- Restated reported ments Rm Rm Rm Cash flow statement for the year ended 31 March 2011 Cash flows from operating activities Cash generated from operations 28 275 370 28 645 Other net cash flows from operating activities (5 991) 93 (5 898) Net cash generated from operating activities 22 284 463 22 747 Cash flows from investing activities Increase in deferred income 463 (463) – Other net cash flows invested in investing activities (46 458) – (46 458) Net cash used in investing activities (45 995) (463) (46 458) 136 Eskom Holdings SOC Limited Integrated Report 2012 Previously Adjust- Restated reported ments Rm Rm Rm Cash flows from financing activities Debt raised 78 758 (9 567) 69 191 Borrowings 32 614 (9 567) 23 047 Other debt raised 46 144 – 46 144 Debt repaid (18 756) 9 567 (9 189) Borrowings (18 115) 9 567 (8 548) Other debt raised (641) – (641) Other net cash flows from financing activities (39 672) – (39 672) Net cash from financing activities 20 330 – 20 330 Net decrease in cash and cash equivalents (3 381) – (3 381) Cash and cash equivalents at beginning of the year 15 541 – 15 541 Cash and cash equivalents attributable to non-current assets held-for-sale (73) – (73) Cash and cash equivalents at end of the year 12 087 – 12 087 Eskom Holdings SOC Limited Integrated Report 2012 137 Group value added statement 2012 20111 20101 Rm Rm Rm Value created Revenue 114 760 91 447 71 130 Other income 740 611 566 Less: primary energy and other operating expenses (64 112) (51 724) (42 589) Value added 51 388 40 334 29 107 Finance income 3 536 2 436 1 614 Wealth created 54 924 42 770 30 721 Value distributed 32 875 27 195 21 385 Benefits to employees 24 362 20 380 17 868 Social spending to communities 88 62 59 Finance costs to lenders 12 498 15 766 12 786 Borrowing cost and employee cost capitalised (9 229) (12 274) (11 408) Dividends to shareholder – – – Taxation to government (including deferred tax) 5 156 3 261 2 080 Value reinvested in the group to maintain and develop operations 22 049 15 575 9 336 Depreciation and amortisation 8 801 7 219 5 716 Net profit after dividend 13 248 8 356 3 620 Total value distributed and reinvested 54 924 42 770 30 721 Number of employees 43 473 41 778 39 222 Electricity sales (GWh) 224 785 224 446 218 591 Value created per employee (R) Revenue per employee (Rm) 2.64 2.19 1.81 Value added per employee (Rm) 1.18 0.97 0.74 Value added per GWh (Rm) 0.23 0.18 0.13 Wealth created per employee (Rm) 1.26 1.02 0.78 1.   Restated 138 Eskom Holdings SOC Limited Integrated Report 2012 Value added (R million) 31 March 20121 31 March 20111 15 575 22 049 24 362 20 380 3 261 5 156 88 62 12 498 15 766 ● Benefits to employees ● Social spending ● Finance costs ● Taxation including deferred taxation ● Reinvested in the group 1.  The value added graphs exclude the effect of capitalised finance and employee costs of R9 229 million (2011: R12 274) Eskom Holdings SOC Limited Integrated Report 2012 139 Future priorities Bruce Ockhuis in his safety gear performs line maintenance in the Western Cape 140 Eskom Holdings SOC Limited Integrated Report 2012 Eskom’s board-approved priorities for 2012/13 through to 2016/17 are set out in the Eskom’s material issues discussed diagram below: Five-year planning priorities Towards a vision Top 5 performing utility Accelerate electrification Opportunities to grow Engage in the region the organisation Pursue low-carbon growth (IRP allocation) Five-year priorities Reduce environmental footprint in existing fleet Ensure financial sustainability Maximise socioeconomic contribution Fix performance Deliver capacity expansion Be a catalyst for private sector participation Improve operations Secure resources, implement coal Build strong skills haulage and the road- to-rail migration plan Keep the lights on Ensure internal company transformation Focus on safety ✓ Manage fire-fighting Focus areas for 2012/13 Eskom Holdings SOC Limited Integrated Report 2012 141 Future priorities continued Eskom will focus on five areas in 2012/13 high-quality capacity expansion projects that require step changes to shift on time and within budget, while performance and grow sustainably. These providing all South Africans with access focus areas are: to electricity.  Safety – no operating condition or  Improve operations – the focus will urgency of service justifies exposing be on implementing and embedding the anyone to safety risks. Eskom must Back2Basics programme (processes, exhibit a safety culture driven by systems and tools) and various division- leadership and individual behaviour. specific programmes to achieve  Keep the lights on – Eskom is working operational excellence. to ensure security of supply and demand-side savings by improving coal Eskom’s performance for the past five quality, giving IPPs access to the years and the key performance indicator transmission grid and reducing power targets per strategic objectives are on demand through programmes such as page 144. the Energy Conservation Scheme and the residential mass rollout programme.  Ensure financial sustainability – the MYPD 3 application will be a high priority.  Deliver on the capacity expansion programme – Eskom aims to deliver New high-voltage lines are erected from the Ingula pumped storage scheme near Ladysmith 142 Eskom Holdings SOC Limited Integrated Report 2012 Appendices Solar panels have been installed at Lethabo power station to supplement auxiliary power consumption Eskom Holdings SOC Limited Integrated Report 2012 143 Appendix A: Key indicators The performance for the past five years and the target set for Eskom’s detailed key Eskom’s material issues discussed indicators per strategic objective as per the Eskom five-year corporate plan are indicated below (Eskom group numbers are indicated unless otherwise stated): Key: * Year-on-year change in performance 2011/12 performance improved compared to 2010/11 2011/12 performance remained the same as in 2010/11 2011/12 performance deteriorated compared to 2010/11 2011/12 performance within 2011/12 target but deteriorated compared to 2010/11 Key indicator area Key indicator and statistics Becoming a high performance organisation LTIR1, 2 (index) Focus on safety Fatalities (employees and contractors)1 (number) UCLF1, 2 (%) EAF1, 2 (%) SAIDI1, 2 (hours per year) Improve operations SAIFI1 (events per year) Total system minutes lost for events <1 minute1, 2 (minutes) Major incidents1 (number) Put customer Customer service index1, 2 at centre Employment equity – disability1 (%) Racial equity in senior management1 (% of black employees) Internal organisational Racial equity in professionals and middle management1 (% of black employees) transformation (company) Gender equity in senior management1 (% of female employees) Gender equity – professionals and middle management1 (% of female employees) Total engineering learners in the systemSC, 1, 2, 3 (number) Total technician learners in the systemSC, 1, 2, 3 (number) Build strong skills Total artisan learners in the systemSC, 1, 2, 3 (number) Total youth programme learners in the system1, 2, 13 (number) 144 Eskom Holdings SOC Limited Integrated Report 2012 Target Actual Year on Actual Actual Actual Actual 2016/17 2011/12 year* 2010/11 2009/10 2008/09 2007/08 0.20 0.41 0.47 0.54 0.50 0.46 – 25 258 17 27 29 3.50 7.97 6.14 5.10 4.38 5.13 85.50 81.99 84.59 85.21 85.32 84.85 39.00 45.75 52.61 54.41 51.51 55.51 LA 17.00 23.73 25.31 24.65 24.16 25.36 LA 3.40 4.73 2.63 4.09 4.21 3.56 LA 1 1 – 1 3 5 LA 89.30 85.55 84.37 85.05 84.74 82.11 3.00 2.49 2.53 2.54 3.38 3.30 71.00 53.90 52.52 47.31 46.91 n/a 77.00 65.69 64.05 62.93 62.14 n/a 36.00 24.31 23.51 21.55 20.72 n/a 40.00 32.43 31.56 30.25 29.75 n/a 2 073 2 273 1 335 955 968 n/a 805 844 692 681 588 n/a 2 705 2 598 2 213 2 144 1 979 n/a 5 000 5 159 n/a n/a n/a n/a Eskom Holdings SOC Limited Integrated Report 2012 145 Appendix A: Key indicators continued Key indicator area Key indicator and statistics Leading and partnering to keep the lights on Management of the national supply/demand constraintsSC, 1, 3 (load shedding) (yes or no) DSM demand efficiency4 (MW) Keep the DSM energy efficiencySC, 1, 15 (GWh) lights on Internal energy efficiency – reduce consumption by 15% by 2015SC, 1, 3, 16 (annualised GWh) Maintenance backlog4, 17 (number) Generation capacity installedSC, 1, 2, 3 (MW) Deliver Transmission lines installedSC, 1, 2, 3 (km) capacity expansion Transmission capacity installedSC, 1, 2, 3 (MVA) Total capital expenditure (excluding borrowing costs)1, 2 (R billion) Reducing our environmental footprint and pursuing low carbon growth opportunities Relative particulate emissions1, 2 (kg/MWh SO) Specific water usageSC, 1, 2 (L/kWh SO) Reduce Carbon dioxide emissions (relative)4, 5, 23 (kg/kWh) environmental Carbon dioxide emissions4, 5, 23 (Mt) footprint in existing Nitrogen oxide emissions4, 5, 21 (kt) fleet Sulphur dioxide emissions4, 5 (kt) Nitrous oxide emissions4, 5 (t) Environmental legal contraventions1, 2, 6 (number) 146 Eskom Holdings SOC Limited Integrated Report 2012 Target Actual Year on Actual Actual Actual Actual 2016/17 2011/12 year* 2010/11 2009/10 2008/09 2007/08 No No No No Yes Yes 2 43811 365 354 372 916 650 LA 11 61411 1 422 1 339 n/a n/a n/a 59.0011 44.96 26.20 n/a n/a n/a n/a 2619 36 n/a n/a n/a 8 06211 535 315 452 1 770 1 043 6 59611 631 443 600 418 480 25 27511 2 525 5 940 1 630 1 37514 1 355 65.0012 58.82 47.93 48.70 43.66 24.26 0.21 0.31 0.33 0.39 0.27 0.21 LA 1.20 1.34 1.35 1.34 1.35 1.32 LA n/a 0.99 0.99 0.98 0.98 0.95 n/a 231.9 230.3 224.7 221.7 223.6 LA n/a 977 977 959 957 LA 984 n/a 1 849 1 810 1 856 1 874 1 950 LA n/a 2 967 2 906 2 825 2 801 2 872 5 50 63 7 55 114 46 Eskom Holdings SOC Limited Integrated Report 2012 147 Appendix A: Key indicators continued Key indicator area Key indicator and statistics Secure our future resource requirements, mandate and the enabling environment % of local content in all new build contractsSC, 1, 2, 3 (%) Government electrification connections1, 2 (number) Maximise socio- Total number of electrification connections4 (number) economic B-BBEE attributable spend (company)1, 2 (% of total spend) contribution Black women-owned spend (company)1 (% of total measured procurement spend) Corporate social investment4 (Rm) Implementing coal haulage and the road-to-rail migration plan Implementing coal Coal haulage (road-to-rail)1 (Mt) road-to-rail migration plan Pursuing private sector participation Pursuing private IPP installed capacity1 (MW) sector participation IPP GWh purchased4 (GWh) Ensuring our financial sustainability Sales volumes1 (GWh) Net production and import volumes1 (GWh) Company: Cost of electricity (excluding depreciation, including immediate Statistics and ratios priorities)SC, 1, 3 (R/MWh) Interest coverSC, 1, 3 (ratio) Debt/equity ratioSC, 1, 3 (ratio) Free funds from operations (FFO)1 (Rm) Group: Electricity revenue per kWh (including environmental levy)1 (c/kWh) Income statement Electricity operating cost per kWh (including depreciation)1, 2 (c/kWh) Arrear debts as % of revenue1 (%) 148 Eskom Holdings SOC Limited Integrated Report 2012 Target Actual Year on Actual Actual Actual Actual 2016/17 2011/12 year* 2010/11 2009/10 2008/09 2007/08 52.00 77.2 79.7 73.9 n/a n/a 567 54311 125 628 129 945 106 603 68 208 125 263 724 63611 155 213 149 914 149 901 112 965 168 538 90.00 73.2 52.3 28.622 63.2 n/a 30.00 3.3 4.3 12.118 10.018 n/a n/a 87.9 62.3 58.7 79.5 69.8 100.811 8.5 7.1 5.1 4.3 4.2 3 60011 1 008 888 n/a n/a n/a n/a 4 107 1 833 n/a n/a n/a 238 715 224 785 224 446 218 591 214 850 224 366 271 351 250 454 248 914 242 871 237 317 246 483 583.2 374.19 296.36 255.09 237.29 197.80 2.19 3.27 1.40 0.77 20 (4.72) 0.96 1.67 1.69 1.66 1.68 20 1.32 0.40 77 3259 30 483 16 953 2 356 13 865 8 793 97.519 50.27 40.27 31.95 24.67 19.40 71.399 41.28 32.78 28.23 25.94 18.56 0.609 0.53 0.75 0.83 1.54 1.09 Eskom Holdings SOC Limited Integrated Report 2012 149 Appendix A: Key indicators continued Key indicator area Key indicator and statistics Return on average assets1 (%) Return on average equity1 (%) Customer service (large power users)1 (average debtors days) Group: Customer service (small power users – excluding Soweto debt)1 Balance sheet (average debtors days) Key industrial and international customers1, 10 (average debtors days) Average coal stock days1 (days) FFO as % of gross debt1 (%) Group: Gross debt/EBITDA1 (ratio) Funding Working capital ratio1 (ratio) Debt service cover ratio1 (ratio) Notes: LA Limited assurance provided by the independent assurance provider in previous years. Reasonable assurance provided by the independent assurance provider (refer page 157). SC Key indicator forms part of the Shareholder Compact. 1. Indicator included in the Corporate Plan. 2. This measure is taken into account for short-term performance measurement (in relation to executive remuneration). For further remuneration details see www.eskom.co.za/IR2012/022.html. 3. This measure is taken into account for long-term performance measurement (in relation to executive remuneration). For further remuneration details see www.eskom.co.za/IR2012/023.html. 4. Additional material indicator. 5. Calculated figures based on coal characteristics and the power station design parameters. SO2 and CO2 emissions are based on coal analysis and using coal burnt tonnages. Includes coal fired power stations and the gas-turbine power stations as well as oil consumed during power station start-ups and for CO2 the underground coal gasification pilot (flaring). 6. Eskom’s continued aspiration is for zero environmental violations. In order to achieve this, targets have been set in the Corporate Plan. 7. Restatement. One environmental legal contravention was registered in March 2011 and following an investigation was reclassified as an event. This has resulted in the reported number of environmental legal contraventions for 2011 changing from 64 to 63. 8. Amended after issuing the 2011 integrated report due to a lost-time injury reported in January 2011 which deteriorated to a fatality in July 2011. 150 Eskom Holdings SOC Limited Integrated Report 2012 Target Actual Year on Actual Actual Actual Actual 2016/17 2011/12 year* 2010/11 2009/10 2008/09 2007/08 1.709 3.73 2.93 1.63 (5.29) (0.11) 16.459 13.92 10.68 5.58 (16.02) (0.28) n/a 21.75 18.89 18.88 16.38 14.26 n/a 42.88 45.06 40.53 47.54 48.89 n/a 14.40 15.46 15.37 16.53 12.76 46 39 41 37 41 LA 13 22.169 15.15 9.51 1.92 15.89 13.98 3.739 6.46 7.55 8.4020 (13.00) 10.81 1.019 0.76 0.85 0.8920 0.78 0.85 2.999 3.50 1.90 1.4320 0.75 0.68 9. Financial group targets for 2017 are not available hence the Eskom company targets for 2017 have been presented. 10. Top customers’ debtors days excluding disputes for 2009/10 onwards. For 2007/08 and 2008/09 a consolidated top customers’ debtors days figure is provided. 11. Represents a cumulative target for the five year period: 2012/13 – 2016/17. 12. The R65.0 billion is the average annual capital expenditure (excluding IDC) target to be achieved every year between now and 2016/17. 13. New measure, comparatives not available. Target for 2011/12 met. 14. This includes construction by the Transmission division. 15. The basis of measurement changed during the 2010/11 year; prior to that verified savings of 372MW (2010) and 916MW (2009) were achieved. 16. Reporting basis changed during the 2010/11 year, hence no comparatives are available. 17. Measurement of this key indicator only started as of 31 March 2011, hence comparatives prior to then are not available. 18. For 2008/09 and 2009/10, the BWO % was calculated on the attributable spend. 19. Includes 18 outages of the original 36 maintenance outages identified as at 31 March 2011 and eight additional maintenance outages which have arisen since 1 April 2011. 20. Restatement 21. NOx reported as NO2 is calculated using average station specific emission factors which have been measured intermittently between 1982 and 2006, and tonnages of coal burnt. 22. Attributable spend based on top 295 suppliers. 23. Refer to www.eskom.co.za/IR2012/024.html for the climate change fact sheet, giving details of the relative CO2 emission factor. Eskom Holdings SOC Limited Integrated Report 2012 151 Appendix B: Stakeholder engagement matrix This report focuses on qualitative and quantitative issues arising in 2011/12 that are Eskom’s material issues discussed material to Eskom’s business operations and strategic objectives. Refer to page 43 for indication where objectives are dealt with in the report. The question of what is “material” has been determined in extensive consultation with the company’s stakeholders, while taking into consideration its core objectives and the way in which its value chain operates. The following table details Eskom’s interaction with its stakeholders. Government, Eskom strategic objectives to address concerns Employees Parliament raised by stakeholders and unions and regulators Becoming a high-performance organisation Safety of staff, contractors, public Quality service to customers, suppliers and other stakeholders Transformation Skills and job opportunities Education and training Regulatory compliance and governance Stakeholder engagement, management and communication Research and innovation Leading and partnering to keep the lights on Quality and reliability of supply Capital expansion, including project execution, quality control, fairness Reducing Eskom’s carbon footprint and pursuing low-carbon growth opportunities Reducing environmental footprint Energy efficiency and advice Renewables 152 Eskom Holdings SOC Limited Integrated Report 2012 Industry Business Lenders, experts, groups, civil Suppliers analysts academics, society and and and investors Customers media NGOs contractors Eskom Holdings SOC Limited Integrated Report 2012 153 Appendix B: Stakeholder engagement matrix continued Government, Eskom strategic imperatives to address concerns Employees Parliament raised by stakeholders and unions and regulators Secure Eskom’s future resource requirements, mandate and the required enabling environment Health and wellness Remuneration and employment conditions Corporate social investment B-BBEE and local procurement Electrification Implement coal haulage and the road-to-rail migration plan Coal road-to-rail migration plan Pursuing private sector participation Access for IPPs Ensuring financial sustainability Financial sustainability Affordable tariffs Transparent reporting Method of interaction Employees and unions Provincial employee engagement, policies, collective bargaining practices, pre and post interim and annual results, regular meetings. Government, One-on-one meetings, website, monthly, quarterly and Parliament and annual reports, annual general meeting, industry regulators associations and task teams, site visits, public hearings. Lenders, analysts, and Road shows, meetings, annual and interim reports, results investors presentations, webcast sessions, annual general meetings, site visits, internet sites, teleconferences. Customers Formal presentation website, road shows, company announcements and reports, site visits, quarterly forums. 154 Eskom Holdings SOC Limited Integrated Report 2012 Industry Business Lenders, experts, groups, civil Suppliers analysts academics, society and and and investors Customers media NGOs contractors Method of interaction Industry experts, Industry associations and task teams, forums and academics, media committees, e-mails and internet, interviews, website, road shows, quarterly briefings, company reports, interviews, articles. Business groups, civil Road shows and presentation at annual general meeting, society and NGOs community forums, stakeholder forums, peer educators, industry partnership, wellness campaigns and HIV/Aids awareness, skills development programmes, advertising in local newspapers. Suppliers and Roadshows, one-on-one meetings, preferential contractors procurement programmes, open days, contracts and service agreements, workshops, presentations, training, project steering. Eskom Holdings SOC Limited Integrated Report 2012 155 Appendix C: Sustainability responsibilities, approval and assurance Sustainability responsibilities and For a more comprehensive understanding approval of Eskom’s sustainability performance Sustainability key indicators, set out in and its assurance, please refer to the Appendix A, on page 144, report Divisional report at www.eskom.co.za/ performance on issues material to Eskom’s IR2012/025.html. stakeholders. These key indicators have been prepared in accordance with the GRI The board acknowledges its responsibility G3 Guidelines, supported by Eskom’s to ensure the integrity of the integrated internal reporting guidelines. Eskom’s report. The directors have collectively declaration on its GRI B+ Application reviewed the content of the integrated Level is located on page 9. The King Code report and believe it addresses the advocates that sustainability reporting and material issues and is a fair presentation of disclosure should be independently the integrated performance of the group. assured. KPMG Services (Pty) Limited provided reasonable assurance on selected sustainability key indicators marked with an in this report and limited assurance on Eskom’s self-declaration of a GRI B+ BA Dames PS O’Flaherty application level. KPMG’s assurance report Chief executive Finance director is presented in Eskom’s Divisional report. 31 May 2012 31 May 2012 156 Eskom Holdings SOC Limited Integrated Report 2012 Assurance provider’s report on extracted sustainability information To the directors of Eskom Holdings SOC Limited We have conducted an engagement to agree the extracted key indicators marked with an (indicators), presented in Appendix A (the Appendix) starting on page 144 with the assured key indicators presented in the Divisional Report of Eskom Holdings SOC Limited for the year ended 31 March 2012 (the Eskom Divisional Report), and report thereon. The extracted key indicators presented in the Appendix are in support of the Material Issues presented in the Integrated Report. The assured key indicators presented in the Eskom Divisional Report were selected by the directors for assurance. In our report dated 31 May 2012 on the sustainability information presented in the Eskom Divisional Report, we expressed unmodified conclusions inter alia on the selected key indicators, prepared in accordance with the GRI G3 Guidelines. The directors are responsible for identifying the material issues and extracting the appropriate key indicators. We report that we have agreed the extracted key indicators presented in the Appendix, marked with an , with the assured key indicators presented in the Eskom Divisional Report, also marked with an . The extracted key indicators presented in the Appendix are not intended as a complete summary of the assured indicators presented in the Eskom Divisional Report. For a better understanding of the sustainability information reported in the Eskom Divisional Report, the scope of our assurance engagement, the respective responsibilities of the directors and assurance provider, a summary of our work performed in the context of the assurance provided and our independent assurance opinions on identified subject matters, users are referred to the Eskom Divisional Report which may be accessed at www.eskom.co.za/IR2012/026.html. KPMG Services (Pty) Limited Per PD Naidoo AH Jaffer Director Director Johannesburg Johannesburg 31 May 2012 31 May 2012 Eskom Holdings SOC Limited Integrated Report 2012 157 Appendix D: Glossary Back2Basics Getting the basics right by simplifying, standardising and programme optimising our processes, systems and data, together with comprehensive process documentation. Billion A thousand million (1 000 000 000). Decommission To remove a facility (e.g. reactor) from service and store it safely. Demand-side Planning, implementing and monitoring activities to encourage management consumers to use electricity more efficiently, including both the timing and level of demand. Electricity revenue Electricity revenue including environmental levy/kWh sales per kWh total. Electricity operating (Electricity-related costs: Primary energy costs, net transfer costs per kWh pricing, employee benefit cost, depreciation and amortisation plus impairment loss and other operating expenses)/external sales in kWh. Embedded derivative Financial instrument that causes cash flows that would otherwise be required by a contract to be modified according to a specified variable such as currency. Energy availability Measure of power station availability, taking account of energy factor (EAF) losses not under the control of plant management and internal non-engineering constraints. Energy efficiency Programmes to reduce energy used by specific end-use devices and systems, typically without affecting services provided. Forced outage Shutdown of a generating unit, transmission line or other facility for emergency reasons or a condition in which generating equipment is unavailable for load due to unanticipated breakdown. Free basic electricity Amount of electricity deemed sufficient to provide basic electricity services to a poor household (predominantly 50kWh/month). Funds from Cash generated from operations adjusted for working capital operations (excluding provisions) and net interest paid/received and non- current assets held for risk management. 158 Eskom Holdings SOC Limited Integrated Report 2012 Funds from Funds from operations/gross debt multiplied by 100. operations as a percentage of gross debt Gross debt Debt securities issued, borrowings, finance lease liabilities and financial trading liabilities plus the after tax effect of retirement benefit obligations and provisions for power station-related environmental restoration and mine-related closures. Independent non-  Not a full-time salaried employee of the company or its executive director subsidiary  Not a shareholder representative  Has not been employed by the company and is not a member of the immediate family of an individual who is, or has been in any of the past three financial years, employed by the company in any executive capacity  Not a professional adviser to the company  Not a significant supplier or customer. International financial Global accounting standards issued by the International reporting standards Accounting Standards Board that require transparent and comparable information. Independent power Any entity, other than Eskom, that owns or operates, in whole producer (IPP) or in part, one or more independent power production facilities. Interest cover Operating profit before net finance cost/(net finance cost but before unwinding of discount on provisions, change in discount rate and borrowing cost capitalised). Kilowatt hour (kWh) Basic unit of electric energy equal to one kilowatt of power supplied to or taken from an electric circuit steadily for one hour; one kilowatt hour is 1 000 watt hours. Load Amount of electric power delivered or required at any specific point on a system. Load management Activities to influence the level and shape of demand for electricity so that demand conforms to the present supply situation, long-term objectives and constraints. Eskom Holdings SOC Limited Integrated Report 2012 159 Appendix D: Glossary continued Load shedding Scheduled and controlled power cuts by rotating available capacity between all customers when demand is greater than supply to avoid blackouts. Lost-time incident Proportional representation of the occurrence of lost-time rate (LTIR) injuries over 12 months. Megawatt One million watts. Megawatt-hour One thousand kilowatt-hours or 1 million watt-hours. (MWh) Outage Period in which a generating unit, transmission line, or other facility is out of service. Off-peak Period of relatively low system demand. Peak demand Maximum power used in a given period, traditionally between 07:00 – 10:00 and 18:00 – 21:00. Peaking capacity Generating equipment normally operated only during hours of highest daily, weekly or seasonal loads. Peak-load plant Gas turbines or a pumped-storage scheme used during peak- load periods. Planned capability Ratio of the energy that was not produced during a given loss factor period of time (because of planned shutdowns or load reductions due to causes under management control) to the maximum amount of energy which could be produced over the same time period, expressed as a percentage. Primary energy Energy in natural resources (e.g. coal, liquid fuels, sunlight, wind, uranium). Pumped-storage A lower and an upper reservoir with a power station/ scheme pumping plant between the two. During off-peak periods the reversible pump/turbines use electricity to pump water from the lower to the upper reservoir. During peak demand, water runs back into the lower reservoir through the turbines, generating electricity. Reserve margin Difference between net system capability and the system’s maximum load requirements (peak load or peak demand). Return on average Profit or loss for the year after tax/average total equity. equity 160 Eskom Holdings SOC Limited Integrated Report 2012 Return on average Profit or loss for the year after tax/average total assets. total assets System minutes Global benchmark for measuring the severity of interruptions to customers. One system minute is equivalent to the loss of the entire system for one minute at annual peak. A major incident is an interruption with a severity ≥one system minute. Technical losses Naturally occurring losses that depend on the power systems used. Torrefied wood Wood chips with all the moisture extracted, used as fuel for chips biomass burning. Unit capability factor Measure of power station availability indicating how well plant (UCF) is operated and maintained. Unplanned capability Ratio of the energy that was not produced during a given loss factor (UCLF) period of time (because of unplanned shutdowns, outage extensions, or unplanned load reductions due to causes under management control) to the maximum amount of energy which could be produced over the same time period, expressed as a percentage. Used nuclear fuel Nuclear fuel irradiated in, and permanently removed from, a nuclear reactor. Used nuclear fuel is stored on site in spent fuel pools or storage casks. Working capital ratio (Total current assets less financial instruments with group companies less investments in securities less embedded derivative assets less derivatives held for risk management less financial trading assets less cash and cash equivalents)/(Total current liabilities less financial instruments with group companies less debt securities issued less borrowings less embedded derivative liabilities less derivatives held for risk management less financial trading liabilities). Eskom Holdings SOC Limited Integrated Report 2012 161 Appendix E: Abbreviations and acronyms B-BBEE Broad-based black economic empowerment CFL Compact fluorescent lamp COP 17 17th Conference of the Parties to the United Nations Convention on Climate Change EAF Energy availability factor EBITDA Earnings before interest, tax, depreciation and amortisation FFO Free funds from operations GRI Global Reporting Initiative GW Gigawatt GWh Gigawatt hour (1 000MWh) IPP Independent power producer ISMO Independent System and Market Operator IT Information technology k kilo King III The third King Commission Code of Corporate Governance km Kilometre kt Kiloton (1 000 tons) kV Kilovolt kWh Kilowatt hour LCOE Levelised cost of electricity LTIR Lost-time incident rate MJ Megajoule ML Megalitre (1 000 000 litres) mSv milliSievert Mt Million tons MVA Megavolt ampere MW Megawatt MWh Megawatt-hour (1 000kWh) MYPD Multi-year price determination NERSA National Energy Regulator of South Africa NGO Non-governmental organisation OHSAS Occupational health and safety standards PCLF Planned capability loss factor PFMA Public Finance Management Act SADC Southern African Development Community SAIDI System average interruption duration index SAIFI System average interruption frequency index t ton UCF Unit capability factor UCLF Unplanned capability loss factor UN United Nations USD United States dollar W Watt Wh Watt-hour 162 Eskom Holdings SOC Limited Integrated Report 2012 Appendix F: Contact details Telephone Websites and email Eskom head office Eskom environmental: +27 11 800 8111 envhelp@eskom.co.za Eskom Corporate Affairs Eskom integrated report: +27 11 800 2323 www.eskom.co.za/IR2012/ Eskom Media Desk Eskom Media Desk +27 11 800 3304 mediadesk@eskom.co.za +27 11 800 3309 +27 82 805 7278 Eskom Development Foundation Eskom Development Foundation: +27 11 800 8111 www.eskom.co.za/csi Investor relations Investor relations +27 11 800 2277 investor.relations@eskom.co.za Ethics office advisory service Ethics office advisory service +27 11 800 2791/3187 ethics@eskom.co.za Confidential fax line Eskom website +27 11 507 6358 www.eskom.co.za contact@eskom.co.za National Sharecall number 08600 ESKOM (08600 37566) Promotion of Access to Information Act PAIA@eskom.co.za Physical address Eskom Holdings Secretariat Eskom Bongiwe Mbomvu (company secretary) Megawatt Park PO Box 1091 2 Maxwell Drive Johannesburg Sunninghill 2000 Sandton 2157 Company registration number 2002/015527/06 Postal address Eskom PO Box 1091 Johannesburg 2000 BASTION GRAPHICS www.eskom.co.za