Shift performance, grow sustainably Divisional Report for the year ended 31 March 2012 Contents About this report 01 Strategic functions: 59 Corporate structure 02 Enterprise Development 59 Purpose, values and strategic objectives 03 Strategy and Risk Management 59 Regulation and Legal 60 Material issues and risks 04 Corporate Affairs 61 Becoming a high-performance organisation 04 Eskom Development Foundation NPC 63 Leading and partnering to keep the lights on 05 Group Information Technology 65 Reducing our carbon footprint and pursuing low- 06 Sustainability 66 carbon growth opportunities Environmental Performance 66 Securing future resource requirements, mandate 07 Climate Change and Renewable Energy 68 and the enabling environment Safety 70 Pursuing private-sector participation 07 Quality Management 73 Ensuring financial sustainability 07 Research and Testing 74 Key indicators 09 Office of the Chief Executive 76 Corporate governance 13 Subsidiary companies 77 Board of directors 13 Eskom Enterprises SOC Limited Group 77 Executive management committee 15 Escap SOC Limited 78 Line divisions 16 Eskom Finance Company SOC Limited Group 79 Generation 16 Future priorities 80 Transmission 22 Appendices 82 Independent Power Producers 24 Awards 82 Southern African Energy 25 Glossary 83 Distribution 26 Abbreviations and acronyms 85 Group Customer Services 30 Sustainability responsibilities, approval and 86 Integrated Demand Management 33 assurance Service functions: 37 Statistical overview 88 Human Resources 37 Power station commercial capacities 90 Finance 41 Environmental implications of using or saving 91 Group Capital 47 electricity Group Technology and Commercial 53 Transmission and Distribution equipment in service 92 Primary Energy 53 Sale of electricity and revenue per category 93 Technology 56 of customer Commercial (procurement other than 57 Eskom high-performance utility model (EHPUM) 95 primary energy) Contact details 96 Navigation icon Reasonable assurance provided by the independent assurance provider (Refer page 86) Eskom Holdings SOC Limited Divisional Report 2012 About this report The scope and structure of Eskom’s annual reports is changing in line with global best practice. This Divisional Report is one of several covering the period 1 April 2011 to 31 March 2012: The Divisional Report sets out in substantial detail the achievements of 2011/12; the contributions of Eskom’s operating divisions, affiliated entities and key functions to performance; and the challenges that lie ahead. It is available online. The Integrated Report, available at www.eskom.co.za/IR2012/027.html, has also been published in book format. It reviews overall performance for the reporting period, discusses material issues relevant to current and future performance, and summarises the financial results. This concise document allows the reader to obtain a bird’s-eye view of Eskom’s performance and projections. The 2011/12 statutory audited annual financial statements are available online at: www.eskom.co.za/IR2012/028.html. Eskom has applied Global Reporting Initiative (GRI) principles in compiling this report. These principles ensure that the company incorporates the views of its stakeholders, as well as internal planning reporting and risk-management processes. Eskom has declared a B+ application level in terms of the GRI. Refer to the Assurance Provider’s report on page 86 that confirms this declaration. The list of relevant GRI indicators is available online at www.eskom.co.za/IR2012/029.html. KPMG has provided assurance on selected sustainability information in this report (see page 86). Eskom follows a combined assurance approach (refer to www.eskom.co.za/IR2012/030.html). Eskom’s reports are also prepared with due consideration of the King Report on Corporate Governance (King Ill). Refer to www.eskom.co.za/IR2012/031.html for more information on King Ill. Eskom Holdings SOC Limited Divisional Report 2012 01 Corporate structure Eskom executive committee Eskom has now clarified the main mandate and role of each entity within Eskom, and the elements have been brought together into the new structure, where there are Line functions that operate the business, Service functions that service the operations and Strategic functions to develop the enterprise. Line functions will focus on operations and on creating value while Service functions will safeguard Eskom’s assets, provide expertise on day-to-day standardised services and leverage synergies in the organisation. Strategic functions aim to bring about step changes in performance and provide broader strategic support to the group. The office of the chief executive, which incorporates the Delivery unit as well as the Assurance and Forensic department, has been expanded to provide support to the chief executive. The new organisation structure is indicated below: Chief executive Office of the chief executive Group Technology Finance Human Enterprise Generation Transmission Distribution Customer and and Group Sustainability Resources Development Services Commercial Capital Line functions Service functions Strategic functions Eskom has its head office in Johannesburg, with satellite operations located across South Africa. It maintains a small office in London, primarily for quality control of the equipment being manufactured in Europe for the capacity expansion programme. Eskom has a number of subsidiaries: The Eskom Enterprises SOC Limited group provides lifecycle support and plant maintenance, network protection as well as support for the capacity expansion programme for all Eskom Holdings SOC Limited divisions. Eskom Enterprises operates primarily in South Africa; it has two subsidiaries that have an interest in electricity operations and maintenance concessions in Mali, Senegal and Mauritania as well as in Uganda. Eskom Finance Company SOC Limited grants home loans to Eskom employees. Escap SOC Limited, Eskom’s wholly owned captive insurance company, manages and insures Eskom’s business risk. The Eskom Development Foundation NPC is a wholly owned non-profit company that manages Eskom’s corporate social investment. Legal and operational structure of the Group: 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 Escap SOCLimited Limited Human Resources Eskom Finance Company SOC Limited Technology and Commercial Eskom Development Foundation NPC Finance and Group Capital Enterprise Development Sustainability 02 Eskom Holdings SOC Limited Divisional Report 2012 Corporate structure continued 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 1st building block: 2nd building block: 3rd building block: right, build Setting ourselves up Ensuring our financial Becoming a high- capacity 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 socio-economic roles Purpose Securing Eskom’s future resource requirements, mandate and The purpose of Eskom is to provide sustainable electricity solutions the required enabling environment to grow the economy and improve the quality of life of people in Implementing coal haulage and the road-to-rail migration plan South Africa and in the region. Pursuing private sector participation Ensuring Eskom’s financial sustainability Strategic objectives Setting Eskom up for success. In September 2011, the Eskom board approved Eskom’s six-year corporate plan that was informed by an extensive strategic review The Eskom values are: process. The board approved the purpose statement, values and Zero harm strategic objectives. Eight strategic objectives were approved and Integrity these are underpinned by the approved strategic priorities. Innovation Sinobuntu (caring) The strategic objectives are summarised as: Customer satisfaction Becoming a high-performance organisation Excellence. Leading and partnering to keep the lights on Reducing Eskom’s carbon footprint and pursuing low-carbon The key performance measures and material stakeholder issues growth opportunities aligned with the strategic objectives are shown on page 9. Eskom Holdings SOC Limited Divisional Report 2012 03 Material issues and risks Eskom has implemented a risk-monitoring system to respond determination (MYPD). The process requires that the proposed appropriately to all significant risks. Emergencies are managed application for a revenue determination be submitted first to the through Eskom’s integrated emergency response structures. Risk South African Local Government Association (SALGA) and National monitoring is done at departmental, regional, operating unit and Treasury for comment. Eskom then takes into account this input subsidiary level and is reported upwards to corporate. After these when it makes its application to NERSA. NERSA subjects the integrated risk reports are consolidated, the executive management application to a rigorous analysis process including extensive committee and the board’s audit and risk committee review and stakeholder consultations and public hearings. evaluate the risk profile to determine the major corporate and business risks. What follows is a high-level examination of the key Stakeholder management material issues and risks facing Eskom. Challenges and action taken Reputational damage Becoming a high-performance organisation Should any of the corporate or business risks Eskom faces Focus on safety and actions taken materialise and result in significant financial loss, price increases or During 2011/12 Eskom experienced 13 employee fatalities and load shedding, in isolation or in aggregate, it will have a significant 12 contractor fatalities. Eskom considers any loss of life unacceptable negative impact on Eskom’s shareholder and stakeholder and has adopted a broad range of measures to ensure a safe relationships, and Eskom’s brand and reputation – all of which may workplace. Refer to the safety section on page 70 for the detailed constrain Eskom’s ability to raise capital. A strategy has been put in actions taken. place to manage these risks and to communicate to stakeholders in a proactive manner. Regulation Eskom is subject to governmental regulation of many aspects of its Build strong skills operations. These include licensing, tariff structure, trade Challenges and action taken commitments and environmental emissions. Such regulation has Competition for skills the potential to affect Eskom and its stakeholders by changing its South Africa has limited availability of contractors with the required structures and operations (for instance, through the new ISMO skills and capacity to support the expansion programme. To Bill), by affecting its revenue stream (through regulating tariffs and deepen the skills pool for the benefit of both the capacity imposing penalties for environmental emissions). expansion programme and for future grid maintenance, Eskom has partnered with six leading South African universities to train Multi-year price determination (MYPD) engineers in areas relevant to Eskom. Eskom’s revenues are determined by the National Energy Regulator of South Africa (NERSA) through the process of a multi-year price The Back2Basics programme The Back2Basics programme was established in 2010 to improve overall performance across Eskom by simplifying and optimising processes and systems. The programme aims to ensure that all management information is complete, accurate, reliable, accessible and timely. Eskom is analysing and standardising all business processes across the business. The result of this process has been thoroughly documented and staff members are receiving training. The programme includes services tools, project tools, engineering tools, and operations, maintenance and outage management initiatives. The services tools programme (release 1) has implemented a consolidated, standardised and improved SAP application on schedule and within budget. The enhanced SAP system was made available on 13 October 2011. The stabilisation period ended in December 2011 and the solution has been handed over to Group IT. The benefits of this project will be tracked by the Delivery unit. The services tools programme has achieved the following during 2011/12: Handed over 50 process control manuals, fully aligned to best practice, to the business Created master data governance to maintain the integrity of master and transactional data while the programme cleansed records prior to conversion Extensive SAP training to enable the workforce to effectively use the standardised, simplified and optimised systems and processes. The Back2Basics programme will continue to develop standardised and optimised processes, focusing on the project and engineering tools and the maintenance and outage maintenance areas. The services tools programme will focus on SAP implementation for Rotek (Roshcon and Rotran implemented during March 2012). Reasonable assurance provided by the independent assurance provider. (Refer page 86) 04 Eskom Holdings SOC Limited Divisional Report 2012 Material issues and risks continued Industrial action addressed Infrastructure deterioration Industrial action has the potential to cause employee safety Eskom’s ageing electricity supply network and power stations incidents through vandalism or intimidation. Industrial action at require essential maintenance and upgrades. Given the constraints Eskom’s capacity expansion projects during the year was addressed on the power system there has been a reduction in the through project labour agreements (at Medupi and Kusile) and maintenance window, which has resulted in a backlog which strong industrial relations policies (Ingula). increases the probability of network or plant failure and in some cases contraventions of environmental regulations. A project to The wage negotiations during the year deadlocked, resulting in coordinate a comprehensive, synchronised maintenance and threats of (illegal) strike action by certain of the trade unions refurbishment plan is under way. This project uses demand-side representing employees in the Eskom bargaining unit. However, the initiatives to create windows of opportunity to do the required dispute was resolved by arbitration and a two-year salary and work, and so improve plant and grid efficiency while reducing the conditions-of-service agreement was concluded with trade unions. possibility of plant failure and load shedding. Critical information systems failure Deliver capacity expansion programme Effective and secure information systems are essential for efficient Eskom’s capacity expansion programme – initiated in 2005, will management, accurate billing of customers, payment of suppliers have added 17GW of much-needed electricity generating capacity and employees and effective power generation and transmission of to the national grid by 2018/19. The central challenge facing this electricity over the national grid. The confidentiality, integrity and programme is to remain on schedule. Eskom is using an integrated availability of information systems could be affected by ineffective approach to manage schedules, budgets and risks associated with design or controls, frequent failure of critical applications, inadequate the expansion programme. This has involved using lessons learnt to disaster-recovery plans, lack of stability in the integration date and putting in procedures, tools and systems to make the environment, poor data security and deliberate cyber-attacks. programme highly effective and efficient. These include the project lifecycle methodology, the project development and readiness These risks could result in loss of day-to-day production and critical assessment and the Eskom high performance utility model. information, as well as the inability to recover the network as a result of inadequate disaster-recovery plans. Challenges and action taken Capital expenditure prioritisation The controls in place to prevent system failure include information Eskom plans to spend approximately R320 billion over the next standards and control frameworks, third-party security assessments, five years, of which approximately R130 billion relates to capital vulnerability assessments, reviews of infrastructure and applications, expenditure not associated with the capacity expansion programme. automated application testing, change-control management and development and monitoring of disaster-recovery plans. In the light of this large, strategically critical investment programme, Eskom established the Group Capital division in September 2010, Over the last six months, business-continuity planning has been with the aim to improve capital portfolio management and the significantly enhanced, including for the on-line vending system. development and execution of projects. For further detail, refer to the Group IT section on page 65. Eskom’s capital allocation process is built upon successful divisional methodologies and Eskom’s Integrated Risk Management approach, Leading and partnering to keep the lights on but is now further standardised across the group and strongly Challenges and action taken informed by local and international peer company practices Keep the lights on (e.g. E.ON, EnBW, RWE, National Grid, Sasol). This is one of Eskom’s key performance targets: ensuring that the lights stay on by managing supply and demand in such a way that Eskom’s capital prioritisation and allocation processes are made up essential maintenance can be done while an adequate reserve is of a series of stages that: maintained to protect the system. ‘scrub’ and validate individual projects before inclusion in the portfolio Reductions in energy demand rank projects based on ‘risk scores’ and project categories before Eskom runs several programmes to encourage customers to accounting for constraints to project delivery reduce their energy and demand consumption. This makes more translate an execution-constrained project list into divisional capacity available for maintenance work and reduces the likelihood budgets of load shedding in the future. These programmes include power monitor performance and adjust the portfolio budgets based on buyback agreements with industrial customers, an Energy new projects originated, changes in strategic direction and Conservation Scheme, residential power-reduction initiatives, delivery performance. power alert system and the 49M campaign. Eskom Holdings SOC Limited Divisional Report 2012 05 Material issues and risks continued Investment delays Environmental concerns Investment decisions were previously not made in good time for Increasing generation capacity, while at the same time trying to limit generation capacity to be realised when required. The consequence both Eskom’s emissions and its carbon footprint, remains a of the late start of the capacity expansion programme is that the challenge. The Medupi power station in Limpopo province and supply-demand balance is expected to remain tight throughout Kusile power station in Mpumalanga have been the target of some 2012 and 2013, until the Medupi power station starts coming protests because they are coal-burning facilities.While the protests online. Future investment decisions are being addressed through have not seriously disrupted the construction activities, they have continual engagements between government and Eskom. had a negative reputational effect. Delays on Medupi power station’s first unit Eskom is striving to reduce its environmental impact by ensuring Delay in the boiler for the new dry-cooled coal-fired station at that its new coal-fired stations are much more efficient than older Medupi, the new power station being built in the Limpopo stations, in terms of both the carbon emissions produced and the province, has resulted in the completion date for the first unit (Unit water used for each unit of electricity generated. It is also 6) being postponed to 2013. This unit was initially due to come commissioning Kusile with flue gas desulphurisation plant to reduce online in late 2012, adding 794MW to the power grid. The its SO2 emissions and adding more renewable-energy projects to contractor’s unsatisfactory delivery performance is being addressed its power mix. The greenfields wind farm at Sere, in the Western with the contractor at the highest levels. Significant improvement Cape, will add another 100MW to the power supply system when in performance has been seen since January 2012. completed in the 2013/14 financial year. A 100MW concentrating solar thermal power pilot plant, near Upington in the Northern Delays in acquiring servitudes for transmission lines Cape, is in development and is expected to start construction by Delays in acquiring servitudes are leading to delays on projects and the end of 2015. cost escalations. Eskom continues to engage with land owners and is working with the government to resolve these matters. Eskom is installing photovoltaic solar panels at 13 coal-fired power stations, four peaking stations and Megawatt Park, in order to Ensuring better engineering scope definition supplement their auxiliary electricity consumption. The solar panels Inadequate engineering scope definition during project planning have already been installed at Kendal and Lethabo power stations. and development has led to delays in project timelines. Eskom is The intention is for all 17 sites to be operational in 2013. putting in place stronger controls through project readiness assessment to prevent this from happening in future. Industrial action Industrial action as a result of employee dissatisfaction – particularly contractors’ relationship with their employees – has led to project delays and property damage.This is being addressed through various mechanisms, including project labour agreements (for Medupi and Kusile) and strong industrial relations policies (Ingula). Changing technology Eskom continues to develop a resource plan to cater for anticipated technologies based on the possible energy mix allocations in the IRP 2010. Photovoltaic installation erected at Lethabo Power Station Reducing our carbon footprint and pursuing low- carbon growth opportunities Environmental contraventions Eskom’s operations and South Africa’s wellbeing depend on the Due to the constrained system, there is less opportunity to quality of the environment. maintain pollution control technology at power stations. This gives rise to an increased risk of environmental contraventions. Eskom Challenges and action taken plants could at some stage incur heavy penalties or even lose their The nature of power generation operating licences and may have to be decommissioned if there is The way in which Eskom generates, transmits and distributes not an appropriate intervention. This would have a negative effect electricity inevitably has an impact on the environment. Eskom is on Eskom’s ability to keep the lights on and on Eskom’s reputation, aware of this and strives to embed a culture of environmentally which in turn would influence its ability to raise funding and secure responsible behaviour and decision making across the business. land, servitude and permits for future power stations – all of which Eskom works hard to ensure that it operates as a responsible would impact its long-term ability to keep the lights on. corporate citizen and takes its commitment to environmental responsibility seriously. 06 Eskom Holdings SOC Limited Divisional Report 2012 Material issues and risks continued Accordingly, Eskom is committed to addressing its environmental the South African electricity market. Eskom has signed up 1 008MW impacts. The company is executing a technical plan to eliminate of capacity from IPPs on short- or medium-term contracts. It is liquid effluent discharges by recycling polluted water for reuse. supporting the government’s renewable energy programme, which Groundwater is also monitored for pollution and recommended aims to bring more than 3 700MW of renewable energy from IPPs mitigations are implemented. In addition, in terms of the impact on on to the national grid. Eskom’s board has also approved participation air quality, Eskom formed a task team during the reporting period in the Department of Energy’s open-cycle gas turbine IPP project. to improve particulate emissions’ performance and is implementing Finalisation of this power purchase agreement is dependent on improvement plans. Lessons learned from environmental legal government approval, refer to page 24. The government’s Integrated contraventions were shared with employees and contractors. Resource Plan 2010 provides for further participation by IPPs but There was a significant decrease in the number of environmental direction is awaited on the respective roles of Eskom and IPPs in the contraventions from 63 1 in 2010/11 to 50 in 2011/12. implementation of the plan. Water scarcity Preparations for the independent system and market operator Eskom’s power stations depend on a steady, adequate supply of (ISMO) water of a certain quality. Competing resource needs, drought in During 2011 the government tabled the ISMO Bill, which provides catchment areas, pollution and poor water supply infrastructure all for a separate state-owned entity into which certain functions would have the potential to hinder Eskom’s access to affordable water. be spun off from Eskom over time. A phased approach towards the ISMO was envisaged, starting with the ringfencing of the relevant The recycling of polluted water will help to manage a reliable, organisational units initially in an Eskom division, after which the affordable and sustainable water supply for the life of existing and division can be transformed into an Eskom subsidiary – and then into new power plants (see Primary Energy on page 53 for more a separate state-owned company. A comprehensive business plan information). Accordingly, this will reduce the reliance on fresh has been developed for the ISMO end state as contemplated in the water consumption by the power stations. ISMO Bill and Eskom is following the necessary governance processes to establish the subsidiary. Securing future resource requirements, mandate and the enabling environment Challenges and action taken Challenges and action taken Clarity regarding ISMO Competition for coal Eskom is engaging government and relevant regulatory bodies for Operations at Eskom’s coal-fired power stations depend on a clarity on the implementation to factor possible changes into its continuous supply of coal. However, long-term coal supply is planning. threatened by international competition for South Africa’s coal and the influence this has on the price and availability of suitable coal. Integrated Resource Plan 2010 allocation Eskom is currently engaging with the Department of Energy (DOE) New specifications for the acceptable quality of coal are also having and DPE about the allocation through Eskom’s newly formed an influence on supply. Eskom is engaging with decision makers in generation steering committee. This will impact Eskom’s ability to the mining industry and government agencies to address problems achieve an appropriate energy mix to reduce CO2 emissions. in coal procurement to secure a long-term stable supply (see Primary Energy on page 53 for more information). Ensuring financial sustainability Eskom must raise capital to pursue its capacity expansion programme. Coal-stock levels were at 39 days at 31 March 2012, having Eskom is investing strategically and leveraging its assets to secure recovered from a low of 36 days at the end of July 2011 following financing. An appropriate tariff structure that allows for cost labour action at a number of collieries, but down from the 41 recovery, including real return on replacement value of assets, is days at 31 March 2011. necessary to encourage investment over the long term. Tariffs need to be set at levels that do not constrain economic growth, with Conductor, equipment and electricity theft provision made to ensure that low-income households are able to Electricity theft (illegal connections) and the theft of distribution obtain electricity in a sustainable manner. However, they must allow cables and other equipment continue to affect operations. for cost reflective tariffs. Eskom has raised a significant amount of Operation Khanyisa, a campaign launched in 2010 to promote the debt (some government guaranteed) to fund the capacity expansion legal use of power, is helping to address this issue as part of the programme. energy-loss and theft-management programme. Other risk factors (if unmitigated) affecting Eskom’s ability to raise Pursuing private-sector participation capital, as well as impacting the cost of borrowings, include: Securing private-sector participation  Reliance on the government’s credit rating. Any negative change Eskom is committed to facilitating the entry of independent power in the government’s credit rating directly affects Eskom producers (IPPs) and acknowledges the role that IPPs must play in  Rand depreciation increasing the cost of imported equipment purchases, impacting the Rand value and hence the cost of foreign loans Reasonable assurance provided by the independent assurance provider. (Refer page 86) 1. One environmental contravention was registered in March 2011 and, following an investigation, was reclassified as an event. This resulted in reducing the number for the comparative year. Eskom Holdings SOC Limited Divisional Report 2012 07 Material issues and risks continued  Uncertainty regarding the tariff price path Market making risk  Significant increases in environmental taxation (including carbon Eskom partakes in local market making activities for its bonds in a taxes) not recoverable from Eskom’s customers bid to reduce the funding cost of the company. Most investors  Non-payment for electricity as a result of increased electricity place a premium on liquidity of bonds and are therefore prepared tariffs to accept a lower yield (relative to alternative bonds) to invest in  Inappropriate cash liquidity levels in the future bonds where the issue sizes are large and deemed to be liquid.  Regulatory uncertainty regarding the final structure of the ISMO  Power system crises that might result in a loss of investor The risks of market making include the anticipated loss on confidence. turnovers, typically the bid/offer spread thereon which is partially mitigated through carry trading opportunities. In addition there is Continued repercussions from the global financial crisis could also the potential negative impact on liquidity which Eskom believes is negatively affect Eskom’s ability to raise capital. limited due to the strategy of holding sufficient liquidity buffers as well as a portfolio of liquid government bonds. All of these risks are constantly monitored and action plans continually revised to address the potential risks. Challenges and action taken Adequate liquidity levels required Mali subsidiary Significant progress has been made in funding the capital expansion During the year significant unrest occurred in Mali due to a coup. programme and Eskom is in a healthy funding and liquidity postion. Eskom has since March 2010 been negotiating its exit from Mali The latest projections indicate that Eskom has sufficient cash from and the exit date for Mali has been extended to 31 July 2012. The cash on hand, investments, net operational cash flows and current Mali business continues to be disclosed as a discontinued operation. secured facilities available to fund the business for the next There is sufficient provision for exit and all the major financial risks 18 months. have been addressed in the exit agreement and the addendum to the exit agreement. Financing talks under way Eskom continues to work with government, regulators and financing institutions to secure adequate and affordable funding. More than 77% of the R300 billion funding plan required up until the completion of Kusile in 2017/18 is secured. For further details, refer to page 46. Savings mechanisms put in place Cost-saving drives are under way and Eskom is monitoring budgetary performance. Eskom has achieived significant operational savings over the last two financial years. 08 Eskom Holdings SOC Limited Divisional Report 2012 Key indicators The performance for the past five years and the target set for Eskom’s detailed key indicators per strategic objective as per the Eskom five year corporate plan are indicated below (Eskom group numbers are indicated unless otherwise stated): Target Actual Year on Actual Actual Actual Actual Key indicator area Key indicator and statistics 2017 2012 year* 2011 2010 2009 2008 Becoming a high performance organisation LTIR1, 2 (index) 0.20 0.41 0.47 0.54 0.50 0.46 Focus on safety Fatalities (employees and 0 25 25 8 17 27 29 contractors)1 (number) UCLF1, 2 (%) 3.50 7.97 6.14 5.10 4.38 5.13 EAF1, 2 (%) 85.50 81.99 84.59 85.21 85.32 84.85 SAIDI1, 2 (hours per year) 39.00 45.75 52.61 54.41 51.51 55.51 Improve operations SAIFI1 (events per year) 17.00 23.73 25.31 24.65 24.16 25.36 Total system minutes lost for 3.40 4.73 2.63 4.09 4.21 3.56 events <1 minute1, 2 (minutes) Major incidents1 (number) 1 1 0 1 3 5 Put customer Customer service index 1, 2 89.30 85.55 84.37 85.05 84.74 82.11 at centre Employment equity – 3.00 2.49 2.53 2.54 3.38 3.30 disability1(%) Racial equity in senior 71.00 53.90 52.52 47.31 46.91 n/a management1 (% of black employees) Internal Racial equity in professionals and 77.00 65.69 64.05 62.93 62.14 n/a organisational middle management1 transformation (% of black employees) (company) Gender equity in senior 36.00 24.31 23.51 21.55 20.72 n/a management1 (% of female employees) Gender equity – professionals 40.00 32.43 31.56 30.25 29.75 n/a and middle management1 (% of female employees) Total engineering learners in the 2 073 2 273 1 335 955 968 n/a systemSC, 1, 2, 3 (number) Total technician learners in the 805 844 692 681 588 n/a systemSC, 1, 2, 3 (number) Build strong skills Total artisan learners in the 2 705 2 598 2 213 2 144 1 979 n/a systemSC, 1, 2, 3 (number) Total youth programme learners 5 000 5 159 n/a n/a n/a n/a in the system1, 2, 13 (number) Eskom Holdings SOC Limited Divisional Report 2012 09 Key indicators Target Actual Year on Actual Actual Actual Actual Key indicator area Key indicator and statistics 2017 2012 year* 2011 2010 2009 2008 Leading and partnering to keep the lights on Management of the national No No No No Yes Yes supply/demand constraints (Load shedding) (yes or no)SC, 1, 3 DSM demand efficiency4(MW) 2 43811 365 354 372 916 650 DSM energy efficiency SC, 1, 15 11 61411 1 422 1 339 n/a n/a n/a Keep the lights on (GWh) Internal energy efficiencySC, 1, 3, 16 59.0011 44.96 26.20 n/a n/a n/a (annualised GWh) Maintenance backlog4, 17 n/a 2619 36 n/a n/a n/a (number) Generation capacity installedSC, 1, 8 06211 535 315 452 1 770 1 043 (MW) 2, 3 Transmission lines installedSC, 1, 6 59611 631 443 600 418 480 2, 3 (km) Deliver capacity expansion Transmission capacity installedSC, 25 27511 2 525 5 940 1 630 1 37514 1 355 1, 2, 3 (MVA) Total capital expenditure 65.0012 58.82 47.93 48.70 43.66 24.26 (excluding borrowing costs)1, 2 (R billion) Reducing our environmental footprint and pursuing low-carbon growth opportunities Relative particulate emissions1, 2 0.21 0.31 0.33 0.39 0.27 0.21 (kg/MWh) sent out Specific water usageSC, 1, 2 1.20 1.34 1.35 1.34 1.35 1.32 (L/kWh) sent out Carbon dioxide emissions n/a 0.99 0.99 0.98 0.98 0.95 (relative)4, 5, 23 (kg/kWh) Reduce environmental Carbon dioxide emissions4, 5, 23 n/a 231.9 230.3 224.7 221.7 223.6 footprint in existing (Mt) fleet Nitrogen oxide emissions4, 5, 21 n/a 977 977 959 957 984 (kt) Sulphur dioxide emissions4, 5 (kt) n/a 1 849 1 810 1 856 1 874 1 950 Nitrous oxide emissions4, 5 (t) n/a 2 967 2 906 2 825 2 801 2 872 Environmental legal 5 50 63 7 55 114 46 contraventions1, 2, 6 (number) A bald Ibis nesting site on the new Ingula pumped storage scheme site near Ladysmith 10 Eskom Holdings SOC Limited Divisional Report 2012 Key indicators continued Target Actual Year on Actual Actual Actual Actual Key indicator area Key indicator and statistics 2017 2012 year* 2011 2010 2009 2008 Secure our future resource requirements, mandate and the enabling environment % of local content in all new 52.00 77.2 79.7 73.9 n/a n/a build contractsSC, 1, 2, 3 (%) Government electrification 567 54311 125 628 129 945 106 603 68 208 125 263 connections1, 2 (number) Total number of electrification 724 63611 155 213 149 914 149 901 112 965 168 538 Maximise socio- connections4 (number) economic B-BBEE attributable spend 90.00 73.2 52.3 28.622 63.2 n/a contribution (company)1, 2 (% of total spend) Black women owned spend 30.00 3.3 4.3 12.118 10.018 n/a (company)1 (% of total measured procurement spend) Corporate social investment4 n/a 87.9 62.3 58.7 79.5 69.8 (Rm) Implementing coal haulage and the road-to-rail migration plan Implementing coal Coal haulage (road-to-rail)1 (Mt) 100.811 8.5 7.1 5.1 4.3 4.2 road-to-rail migration plan Pursuing private sector participation Pursuing private IPP installed capacity1 (MW) 3 60011 1 008 888 n/a n/a n/a sector participation IPP GWh purchased (GWh) 4 n/a 4 107 1 833 n/a n/a n/a Ensuring our financial sustainability Sales volumes1 (GWh) 238 715 224 785 224 446 218 591 214 850 224 366 Net production and import 271 351 250 454 248 914 242 871 237 317 246 483 volumes1 (GWh) Company: Cost of electricity (excluding 583.2 374.19 296.36 255.09 237.29 197.80 Statistics and ratios depreciation, including immediate priorities)SC, 1, 3 (R/MWh) Interest coverSC, 1, 3 (ratio) 2.19 3.27 1.40 0.77 20 (4.72) 0.96 Debt/equity ratioSC, 1, 3 (ratio) 1.67 1.69 1.66 1.68 20 1.32 0.40 Coal is successfully being transported by rail to Camden power station near Ermelo Eskom Holdings SOC Limited Divisional Report 2012 11 Key indicators continued Target Actual Year on Actual Actual Actual Actual Key indicator area Key indicator and statistics 2017 2012 year* 2011 2010 2009 2008 Free funds from operations 77 3259 30 483 16 953 2 356 13 865 8 793 (FFO)1 (Rm) Electricity revenue per kWh 97.519 50.27 40.27 31.95 24.67 19.40 (including environmental levy) 1 Group: (c/kWh) Income statement Electricity operating cost per 71.399 41.28 32.78 28.23 25.94 18.56 kWh (including depreciation) 1, 2 (c/kWh) Arrear debts as % of revenue1 0.609 0.53 0.75 0.83 1.54 1.09 (%) Return on average assets1 (%) 1.709 3.73 2.93 1.63 (5.29) (0.11) Return on average equity (%)1 16.459 13.92 10.68 5.58 (16.02) (0.28) Customer service (large power n/a 21.75 18.89 18.88 16.38 14.26 users)1 (average debtors days) Group: Customer service (small power n/a 42.88 45.06 40.53 47.54 48.89 Balance sheet users – excluding Soweto debt)1 (average debtors days) Top industrial and international n/a 14.40 15.46 15.37 16.53 12.76 customers1, 10 (average debtors days) Average coal stock days1 (days) 46 39 41 37 41 13 FFO as % of gross debt1 (%) 22.169 15.15 9.51 1.92 15.89 13.98 Group: Gross debt/EBITDA1 (ratio) 3.739 6.46 7.55 8.4020 (13.00) 10.81 Funding Working capital ratio (ratio) 1 1.019 0.76 0.85 0.8920 0.78 0.85 Debt service cover ratio (ratio) 1 2.999 3.50 1.90 1.4320 0.75 0.68 Key: * Year on year change in performance 2012 performance improved compared to 2011 2012 performance remained the same as in 2011 2012 performance deteriorated compared to 2011 2012 performance within 2012 target but deteriorated compared to 2011 Notes: Limited assurance provided by the independent assurance provider in previous years. Reasonable assurance provided by the independent assurance provider (Refer page 86). SC Key indicator forms part of 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/IR2012/032.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/IR201/033.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. 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 2010 onwards. For 2008 and 2009 a consolidated top customers’ debtors days figure is provided. 11. Cumulative target for the five year period: 2013 – 2017. 12. The R65.0 billion is the average annual capital expenditure (excluding borrowing costs) 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 2011 year; prior to that verified savings of 372MW (2010) and 916MW (2009) were achieved. 16. Reporting basis changed during the 2011 year, hence no comparatives are available. 17. New measure, comparatives prior to 31 March 2011 not available. 18. For 2009 and 2010, 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 in 2010 based on top 295 suppliers. 23. Refer to www.eskom.co.za/IR2012/034.html for the climate change fact sheet, giving details of the relative CO2 emission factor. 12 Eskom Holdings SOC Limited Divisional Report 2012 Corporate governance The corporate governance for the Eskom Holdings SOC Limited Group is set out within the Integrated Report at www.eskom.co.za/IR2012/035.html. Additional corporate governance information not included in the Integrated Report is provided here: Full details of the board of directors Attendance at board and board committees Full details of Exco members Attendance at Exco meetings A summary of Eskom’s remuneration philosophy and a summary of executive remuneration is provided within the integrated report at www.eskom.co.za/IR2012/036.html. Detailed disclosures regarding executive remuneration appear in the notes to the statutory annual financial statements at www.eskom.co.za/IR2012/037.html. For adherance to King III refer to the fact sheet at www.eskom.co.za/IR2012/038.html. Board of directors1 ZA (Zola) Tsotsi (65) B (Bajabulile) Luthuli (39) ME (Mafika) Mkwanazi (58) Independent non-executive director Independent non-executive director Independent non-executive director Chairman of the board Appointed August 2011 Appointed June 2011 Appointed June 2011 BCom Acc – University of KwaZulu-Natal BSc Mathematics and Applied Mathematics BSc Mathematics and Chemistry – HDip Acc – University of KwaZulu-Natal – University of Zululand UBLS (Lesotho) Director: Blackfish Business & Media BSc Electrical Engineering – BSc (Hons) Chemical Engineering – Consulting (Pty) Limited, Numsa University of Natal University of Surrey (UK) Investment Company (Pty) Limited Director: Transnet SOC Limited, Director: Torre Technologies (Pty) Limited, Hulamin Limited, Stefanutti & Stocks Mandla Technologies (Pty) Limited C (Chwayita) Mabude (42) Holdings Limited Independent non-executive director BA (Brian) Dames (46) Appointed June 2011 PS (Paul) O’Flaherty (49) Executive director and chief executive BCompt – University of South Africa Finance director Appointed June 2010 Appointed January 2010 BSc (Hons) – University of the Western Cape Y (Yasmin) Masithela (38) BAcc – University of the Witwatersrand MBA – Samford University, USA Independent non-executive director BCom – University of the Witwatersrand Senior Management Programme; University Appointed June 2011 CA(SA) of Stellenbosch LLM (Tax Law) – University of the Director: Escap SOC Limited, Eskom Graduate Diploma in Utility Management – Witwatersrand Finance Company SOC Limited, Roshcon Samford University School of Business, USA LLB – University of Cape Town SOC Limited, Rotek SOC Limited, Director: Industrial Development BA – University of Cape Town Eskom Enterprises SOC Limited Corporation, The Electric Power Research Higher Diploma in Company Law Chairman: Accounting Practices Committee Institute (EPRI) (H Dip Co Law) – University of the of the South African Institute of Witwatersrand Chartered Accountants Dr BL (Bernie) Fanaroff (64) Director: Afrocentric Holding Limited Independent non-executive director SPQ (Phenyane) Sedibe (42) Appointed in May 2010 MC (Collins) Matjila (50) Independent non-executive director PhD (Radio Astronomy and Astrophysics) – Independent non-executive director Appointed June 2011 University of Cambridge Appointed June 2011 MA Social Policy – University of Durban- LLB – University of the Witwatersrand Westville Q (Queendy) Gungubele (53) BA (Law) – National University of Lesotho BA (Hons) Political Science/Sociology – Independent non-executive director Senior Executive Programme – Harvard University of Durban-Westville Appointed in August 2011 Business School Director: TACE Development LLM (Labour Law) – University of Director: Kopano Cable Trading (Pty) Johannesburg Limited L (Lily) Zondo (43) BJuris – University of Limpopo Independent non-executive director Advanced Diploma Labour Law – Dr B (Boni) Mehlomakulu (39) Appointed October 2011 University of Johannesburg Independent non-executive director BSc (Hons) – University of South Africa Certificate in management in minerals and Appointed April 2010 BAcc – University of the Witwatersrand mining policy – University of the PhD Chemical Eng. – University of Cape Town CA(SA) Witwatersrand MSc Organic Chemistry – University of Natal Director: Humulani Investments (Pty) BSc Chemistry and Applied Chemistry – Limited N (Neo) Lesela (42) University of Natal Independent non-executive director Director: South African Bureau of Appointed June 2011 Standards BEng (Hons) Industrial Engineering – University of Salford, UK Director: Kahina Consulting CC, LE-SEL Research (Pty) Limited 1. Only major directorships are reflected. Eskom Holdings SOC Limited Divisional Report 2012 13 Corporate governance continued Changes in board composition in 2011/12 Zola Tsotsi was appointed chairperson after Mpho Makwana retired as chairperson, having served as a director for three terms and acting as interim chief executive The following members were appointed during the year: Queendy Gungubele, Neo Lesela, Bajabulile Luthuli, Chwayita Mabude, Yasmin Masithela, Collins Matjila, Mafika Mkwanazi, Phenyane Sedibe and Lily Zondo The following board members retired during the year: Zee Cele, Daniel Dube, Lars Josefsson, Hee-Beom Lee, Wendy Lucas-Bull, John Mirenge, Jacob Modise, and Uhuru Zikalala. Board and board committee meeting attendance Social Audit Investment ethics and People and Board and risk and finance Tender sustainability1 governance Chairperson: Chairperson: Chairperson: Chairperson: Chairperson: Chairperson: Members ZA Tsotsi C Mabude ME Mkwanazi MC Matjila B Mehlomakulu SPQ Sedibe Total number of meetings 10 6 4 9 5 4 LCZ Cele4 2 2 2 BA Dames 9 37 3 4 4 SD Dube4 2 2 1 1 BL Fanaroff 10 3 4 Q Gungubele2 4 3 2 LG Josefsson4 2 2 1 HB Lee4 1 1 N Lesela3 8 3 7 WE Lucas-Bull4 1 1 1 B Luthuli2 5 37 4 C Mabude3 8 4 3 PM Makwana4 2 1 1 Y Masithela3 8 4 4 MC Matjila2 7 7 2 B Mehlomakulu 8 8 4 J Mirenge4 1 2 1 ME Mkwanazi3 6 3 7 JRD Modise4 2 2 1 PS O’Flaherty 10 67 4 7 SPQ Sedibe3 8 4 3 ZA Tsotsi3 8 2 U Zikalala4 2 2 L Zondo6 4 27 1 External members: MJ Husain 3 MM Matutu5 – 1. The sustainability committee reconstituted into social ethics and sustainability committee. 2. Member appointed to committee in September 2011. 3. Member appointed to committee in July 2011. 4. Member retired July 2011. 5. Member retired when contract expired. 6. Member appointed to committee in October 2011. 7. Member attended meeting in the capacity of “official”. 14 Eskom Holdings SOC Limited Divisional Report 2012 Corporate governance continued Executive management committee1 BA (Brian) Dames (46) TBL (Tsholofelo) Molefe (43) Chief executive Group executive: Group Customer Services Appointed as chief executive June 2010 Appointed April 2011 Appointed to Exco February 2008 BCompt (Hons) (Certificate in Theory of Accounting) – University of Refer page 13 for qualifications and directorships South Africa BA Hons (Accounting and Finance) – University of East London, UK PS (Paul) O’Flaherty (49) CA(SA) Finance director and group executive: Group Capital Director: Eskom Development Foundation NPC, Trans Africa Appointed to Exco January 2010 Projects (Pty) Limited Appointed group executive: Group Capital September 2010 Chairman of Audit and Risk Committee at Government Refer page 13 for qualifications and directorships Communication and Information Systems (GCIS) BE (Bhabhalazi) Bulunga (56) A (Ayanda) Noah (45) Group executive: Human Resources Group executive: Distribution Appointed February 2010 Appointed April 2011 BA (Social Sciences) – University of Swaziland BSc (Electrical Engineering) – University of Cape Town Director: Eskom Finance Corporation SOC Limited MBA (International Management Centre) Executive Development Programme – University of the T (Thava) Govender (44) Witwatersrand Group executive: Generation Director: Eskom Enterprises SOC Limited Appointed September 2010 BSc Hons (Energy Studies – Nuclear and Fossil) – University of MM (Mongezi) Ntsokolo (51) Johannesburg Group executive: Transmission BSc (Chemistry and Biochemistry) – University of Durban-Westville Appointed April 2011 Management development programme – University of South Africa BSc (Electrical Engineering) – University of the Witwatersrand MBA – University of Stellenbosch EL (Erica) Johnson (43) Group executive: Enterprise Development Exco meeting attendance Appointed February 2008 MSc (Electrical Engineering) – University of Cape Town Total number of meetings 12 BSc (Electrical Engineering) – University of Cape Town BE Bulunga 12 MBA – University of Witwatersrand BA Dames 11 PS O’Flaherty 12 Dr SJ (Steve) Lennon (53) Group executive: Sustainability T Govender 11 Appointed September 2000 EL Johnson 10 PhD (Physical Metallurgy) – University of the Witwatersrand SJ Lennon 11 MSc (Engineering) Physical Metallurgy – University of the DL Marokane 11 Witwatersrand BSc (Chemistry, Applied Chemistry) – University of Natal TBL Molefe 12 Director: National Advisory Council on Innovation, A Noah 8 Electric Power Research Institute MM Ntsokolo 10 DL (Dan) Marokane (40) Group executive: Technology and Commercial Changes in executive management committee composition in Appointed September 2010 2011/12 Thava Govender became Acting Chief Officer: Generation Business BSc (Chemical Engineering) – University of Cape Town in September 2010, he attended Exco meetings, but was not a MSc (Engineering) (Petroleum) – Imperial College, UK member. In April 2011 he became a member of Exco. MBA – University of Cape Town Director: Acting chief executive of Eskom Enterprises (SOC) Tsholofelo Molefe, Ayanda Noah and Mongezi Ntsokolo became Limited, Roshcon (SOC) Limited, members of Exco in April 2011. Rotek (SOC) Ltd, Evergrin Investment (Pty) Limited 1. Only major directorships are reflected. Eskom Holdings SOC Limited Divisional Report 2012 15 Line divisions Eskom’s line divisions are responsible for operating the business on a day-to-day basis and creating value. This section contains the 2011/12 operational reports for each of Eskom’s four line divisions: Generation division Transmission division Distribution division Group Customer Services division. Generation Mandate Eskom has the ambition to ensure that no supply interruptions occur due to plant unavailability. To realise this ambition, Eskom aspires to become a world-class generating utility by demonstrating high reliability and availability of its generating assets, with an aspirational Energy Availability Factor (EAF) of 90%. Operational highlights Future focus areas Avoided load shedding in 2011/12 Focus on safety and environment to achieve zero harm to Received praise from the World Association of Nuclear people and the environment Operators for Eskom’s proactive approach in assessing Koeberg’s Return Duvha power station’s Unit 4 (600MW) turbine and state of readiness in response to the Fukushima review guidelines generator to service in the second half of 2012 Received international interest in Eskom’s innovative approach, in Reduce Eskom’s unplanned capability loss factor (UCLF) – a a series of Nuclear Safety Awareness seminars, in assessing its measurement of the power lost due to the unplanned shutdown nuclear safety culture of power stations – by 2% over the next three years Reduction in number of unplanned automatic grid separations/ Reduce particulate emissions to 0.21kg/MWhSO by 2016/17 to 7 000 operating hours (UAGS/7 000) compared to 2010/11 minimise the impact on human health and comply with regulated Decreased coal-related energy losses emission standards by inter alia, retrofitting fabric filter plants at Installed gaseous-emission monitoring systems on one unit of power stations with high particulate emissions each coal-fired power station to improve Generation’s Ensure that there is a suitable level of plant spares available and monitoring capability serviceable Improved particulate emissions from 0.33 kilograms per Complete industry waste-management plans for all coal-fired megawatt hours sent out (kg/MWhSO) in 2010/11 to 0.31 kg/ stations, as required by the National Environmental Management: MWhSO in 2011/12. Although the target of 0.30kg/MWhSO Waste Act was not achieved due to constraints in the system this year, there Obtain ISO 14001 certification for remainder of power stations has been an improvement over the last two years. by March 2013 Implement the lessons learnt from Japan’s Fukushima event to Operational challenges Koeberg power station Balancing the conflicting needs of shutting down to perform Reduce carbon footprint by improving efficiency of power power-plant maintenance with keeping plants on load and production and changing the energy mix towards lower carbon generating electricity to meet the energy demand emitting technologies. The unplanned outage on Koeberg Unit 2 (shut down from 28 October to 4 December 2011), the long-term shutdown of Current performance Duvha Unit 4, as well as unplanned outages on the coal-fired Key financial statistics: Generation, as at and for the year ended power stations severely affected the generation key performance 31 March 2012 indicators Rm 2012 2011 Poor-quality coal at some stations hampered relative particulate- Operating maintenance costs 4 936 4 254 emissions performance and contributed to not achieving the target of 0.30kg/MWhSO Total assets 90 095 78 685 The tight system, poor coal and underperforming plant resulted Capital expenditure in a high number of exemptions against power station air (excluding capitalised interest) 6 590 6 341 emission licences being requested from authorities (33% of the time operating under exemption) Environmental compliance audits at several power stations during 2011/12 found that Eskom was not in full compliance with site permit and licence conditions. Reasonable assurance provided by the independent assurance provider (refer page 86) 16 Eskom Holdings SOC Limited Divisional Report 2012 Line division: Generation continued Current performance continued Technical performance Target Actual Actual Actual Measure 2012 2012 2011 2010 Power generated by Eskom power stations GWh 240 642 237 291 237 430 232 812 Unit capability factor (UCF)1 % 85.10 82.96 85.87 85.86 Energy availability factor (EAF)2 % 84.10 81.99 84.59 85.21 Unplanned automatic grid separations/7 000 hours (UAGS/7 000)3 Number 2.80 3.19 3.62 2.80 Unplanned capability loss factor (UCLF)4 % 6.50 7.97 6.14 5.10 Planned capability loss factor (PCLF)5 % 8.40 9.07 7.98 9.04 Generation load factor (GLF)6 % 66.90 65.13 66.39 66.20 There has been an improvement in the reliability of the Generation plant, evident in the significant reduction in the number of unit trips. Koeberg’s performance was negatively affected by a 36 day forced outage repair a hydrogen leak related to the generator stator coolant system. Power station maintenance outlook The existing power station maintenance plan and resultant system outlook continue to indicate a very constrained system with increasing risk profiles of the performance of plant and safety of people. The continual use of maintenance deferments as a lever in managing supply and demand side constraints is no longer a viable option and Eskom has no choice but to execute its maintenance programme. Kendal power station in Mpumalanga A typical coal-fired generating unit requires certain necessary Overall, Generation’s performance deteriorated in 2011/12 routine and periodic maintenance, as indicated below, to ensure compared to the previous year. The need for more maintenance in that it meets its technical performance requirements, is safe to a capacity-constrained environment continues to be a challenge, operate and does not violate any environmental laws. with plant failing as a result. The system was also greatly affected by the major energy loss that occurred with the Duvha power station Cycle Unit 4 incident, which has contributed more than 1% to the system time Duration energy losses. As in previous years, boiler tube failures remain the Activity (years) (days) single biggest contributor to the total unplanned energy losses in the Generation division. General overhaul 6–12 40–60 Interim repairs 2–3 14–35 During the year Generation made use of every possible Mini–general overhaul 6 28 opportunity to undertake maintenance activities. This is reflected Boiler inspection 1–1.5 7–14 in the planned capability loss factor (PCLF) being significantly higher than the previous year and higher than target. Statutory inspection and test 6 35 Main steam pipe work 120 The quality of coal used in the generating plant has generally improved in the last year, which has resulted in a reduction in the Summer is the high maintenance period, but this year Eskom has load losses that are related to external factors. It is important to the additional burden of having to reduce a maintenance backlog. note though that the effects of the previous batches of poor quality coal continue to affect the performance of some of the units as the damage that was caused will take some time to fix. For further detail, refer to Primary Energy on page 53. Reasonable assurance provided by the independent assurance provider (refer page 86). 1. UCF measures the plant availability and provides an indication of how well the plant is operated and maintained. 2. EAF measures plant availability (UCF above), plus energy losses not under the control of plant management (external) and internal. 3. UAGS/7 000 indicates the number of unplanned unit trips per 7 000 operating hours. 4. UCLF measures the lost energy due to unplanned production interruptions resulting from equipment failures and other plant conditions. 5. PCLF-planned energy loss is energy that was not produced during the period because of planned shutdowns or load reductions due to causes under plant management control. 6. GLF indicates the extent to which the generation fleet was loaded on average over the year to produce the energy demanded. Eskom Holdings SOC Limited Divisional Report 2012 17 Line division: Generation continued Progress on reducing the maintenance backlog Benchmarking Eskom has made steady progress in reducing the backlog of its Coal-fired stations outstanding outages; however scheduling all outstanding outages is Generation has benchmarked its coal plant performance over done with extreme care considering all the options and reasons many years against some of its major European counterparts. including risk profiles. Eskom’s plant profile and performance aligns with that of VGB (Association of Large Boiler Operators), a European-based To achieve the resolve of keeping the lights on while executing the generation maintenance, a number of initiatives have been technical association for the electricity and heat generation submitted for PFMA approval. industries, with 495 member organisations from 35 countries, representing a collective capacity of 520GW. As at the end of March 2011 Eskom had a total of 36 outages on backlog. Over the past 12 months Eskom managed to complete The graphs below illustrate the energy availability performance and 12 outages and one is currently in progress, with five scheduled, load factors of Eskom’s coal-fired generating units in comparison to which reduces the original backlog to 18. VGB member performance (excluding Eskom). In addition to the 36 original outages, 23 more were added. Of Energy availability these 23 outages; eight are still outstanding, 13 were completed When considering the best quartile and the median, Eskom’s and two were scheduled. As at 31 March 2012, the total backlog including additional outages is thus at 26 outages. Note that of the performance has historically been better than that of the VGB fleet. 26 backlog outages, 16 are considered as philosophy (design) Over the past few years, this gap has, however, been closed, and for maintenance type outages. 2010 the performance for the two organisations was the same.The worst quartile has, however, seen a deteriorating VGB trend which Outage backlog as at 31 March 2012 has maintained the performance gap to Eskom. Maintenance outage backlog as at 31 March 2012 Eskom’s overall declining performance is due to increased operating pressure on the electricity production infrastructure and other operating factors outlined in the performance overview section. 45 Number of outages on Energy availability – Eskom vs VGB units (2002-2011) 30 the backlog (benchmark data only available until 2010) 15 100 0 Original backlog as at 31 March 2011 Completed Under execution Scheduled To be scheduled New backlog since 1 April 2011 Completed Scheduled Total outstanding backlog as at 31 March 20121 90 EAF (%) 80 ● Additional outage backlog number ● Original outage backlog number 1. To be scheduled 70 In order to further reduce this backlog, demand and supply side 60 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 levers will have to be used in order to create enough energy space Calendar years for the required additional outages. ● VGB worst quartile ● VGB median ● Eskom worst quartile ● VGB best quartile ● Eskom median ● Eskom best quartile ,Generation Excellence Programme As part of Eskom’s strategic objectives the improvement of Load Factor operations and plant performance was identified. This Eskom’s units continue to operate at significantly higher load turnaround programme (the Power Station Enhancement factors than VGB’s coal-fired units. Project) focuses on the key levers impacting EAF. A project team was established earlier this year and work commenced at Kendal and Matla power stations as the first wave to pilot Load factor – Eskom vs. VGB units (2002-2011) the improvement project. (benchmark data only available until 2010) The identified actions at the first wave of power stations are 100 on target. Outages have been planned to continue the 90 execution of enhancements to plant. The allocation of these 80 outages given the shortage of maintenance space on the grid Load factor (%) 70 remains a challenge. 60 50 The second wave of stations was identified and the launch of 40 the project was done at all sites and the identification and 30 analysis of focus areas are in progress.The second wave stations, 20 Kriel, Arnot, Lethabo and Majuba are currently in the process of 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 finalising root cause analysis. Calendar years ● VGB worst quartile ● VGB median ● Eskom worst quartile The third wave is currently rolling out and relevant power ● VGB worst quartile ● Eskom median ● Eskom best quartile stations are currently appointing team members. 18 Eskom Holdings SOC Limited Divisional Report 2012 Line division: Generation continued Nuclear power station Thermal energy efficiency programme Eskom is affiliated to the World Association of Nuclear Operators Eskom’s planned thermal energy efficiency programme is targeting (WANO) and the Institute of Nuclear Power Operations (INPO). to yield a minimum of 150MW of increased efficiency by the end South Africa is a member of the International Atomic Energy of 2015. These efficiency benefits equate to approximately Agency. These affiliations enable Eskom to benchmark performance, 400 kilotons per annum in reduced coal consumption across all conduct periodic safety reviews, help define standards, disseminate coal-fired power stations. This translates to a reduction of best practice and train personnel. Through INPO, Eskom has 1.5 million tons of CO2 emissions per annum. obtained international accreditation for its “systematic approach to training” of licensed and non-licensed nuclear operators at Energy savings for the year, based on several improvements Koeberg. Eskom is the only non-US utility to receive such implemented in the short term to alleviate anticipated supply accreditation. An International Atomic Energy Agency Operational constraints at ten coal-fired stations, amounted to between Safety Review Team visited Koeberg in August 2011 while a WANO 31MW and 35MW. peer review of Koeberg was undertaken in November 2011. Monthly heat rate trends at the pilot at Majuba power station Although Koeberg’s safety performance remains amongst the best (i.e. coal energy consumed per electric energy produced) showed in the world, its availability and hence electricity production that the station was able to perform better than the agreed performance in 2011 was adversely affected by the two forced 11.3MJ/kWh target for eight months of the year. The thermal outages on unit 1 experienced in the second half of 2010 and the energy efficiency programme was extended to another five coal- forced shutdown of unit 2 in 2011. fired stations, yielding positive results. The full energy efficiency programme will be rolled out to the remaining coal-fired stations during 2012/13. Progress on repairing Duvha power station unit four On 9 February 2011, the 600MW unit four at Duvha power station was taken off-load for a statutory turbine test. The protection on the unit failed, starting a fire and causing severe mechanical damage to the turbo generator and the surrounding area. The fire was rapidly brought under control by the power station’s fire team. The root cause of the incident was a modification applied by Eskom in 2004 that, inadvertently, when installing a new programmable logic controller, removed a maximum speed limit during over-speed test conditions. The modification error has been corrected on the remaining units, while corrective actions Koeberg power station near Cape Town have been applied to eliminate contributory causes. Koeberg also compares its performance, with respect to public exposure to radiation arising from Koeberg effluent releases, to the Public individual radiation exposure due to effluent limits set by the National Nuclear Regulator (NNR). Exposure to from Koeberg radiation is measured in units of milliSieverts (mSv). The limit recommended by the International Atomic Energy Agency for 0.015 public exposure to radiation is 1.0 mSv per year. However, the National Nuclear Regulator has set a stricter limit of 0.25 mSv per year for South Africa. 0.010 milliSieverts As can be seen from the graph, the average public exposure to radiation arising from Koeberg’s operations has been less than 0.005 0.005 mSv in recent years (or less than 2% of the limit imposed by the National Nuclear Regulator). 0.000 20031 20041 2005 2006 2007 2008 2009 2010 2011 2012 1. Calendar Year Eskom Holdings SOC Limited Divisional Report 2012 19 Line division: Generation continued The Duvha recovery project is progressing in phases, with the unit due to come online in the second half of 2012: 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 spares 1.2 Q1 2012 2. Repair turbine and generator foundations Q1 2012 3. Assembly of centreline Q2 2012 4. Commission the centreline and associated systems Q3 2012 Most of the required components are previously used, and have been sourced from the United Kingdom. They have been delivered and are in the process of being refurbished locally. Two components are being refurbished in the United Kingdom. Salvageable components are also being refurbished. The rest of the spares are on order with the focus being on local supply. Generation safety performance Environmental performance Causes of employee lost time injuries (including fatalities) Relative particulate emissions Two employee fatalities resulted from asbestosis, which was due to Relative particulate emissions improved from 0.33 kg/MWhSO in exposure of asbestos at the old Vaal and Hex River power stations. 2010/11 to 0.31 kg/MWhSO in 2011/12, but the target of 0.30 kg/MWhSO was still not achieved. For detailed information about the overall safety strategy and initiative at an Eskom level please refer to the safety section on A particulate emissions recovery team, chaired by the Group page 70. executive of Generation, was formed to facilitate implementing solutions for improving emissions performance. Unfortunately, the implementation of the recommendations of the recovery team has Generation safety performance been hampered by system constraints. Outages needed for repairs Causes of employee lost time injuries (including fatalities) and maintenance are frequently postponed, sometimes by many months. In addition, reducing production of electricity in order to reduce particulate emissions is not always possible, given the high 2012 2 demand for electricity. At some stations, particularly Tutuka and 1 6 3 Matla, particulate emissions have been made worse by episodes of 1 poor or variable quality coal. 2 ● Motor vehicle accident ● Electrical contact Nevertheless, several stations – including Matimba, Majuba, Arnot, ● Bee sting/insect bite Hendrina and Camden – have achieved consistent particulate 6 ● Foreign body emissions performance in 2011/12. ● Fall from height 16 ● Fall on same level 4 ● Caught/cut/struck by Water usage ● Ergonomics/material/ equipment handling The total Eskom water usage (all power stations, including return to 2011 ● Hijacking service stations (RTS)) was 319 772ML (2011: 327 252ML). ● Assault 3 Improved water-management systems contributed to reducing 4 ● Burn 1 ● Asbestos water usage from 1.35 litres per kilowatt hour (L/kWh sent out) in 2 3 ● Explosion 2010/11 to 1.34 L/kWh sent out (2011/12). The best performing 2 ● Inhalation of fumes power stations are obviously the dry-cooled stations, Matimba, 2 Kendal and Majuba, (3 of the 6 units) and Koeberg (sea water 1 1 7 cooled). 14 Reasonable assurance provided by the independent assurance provider (refer page 86). 20 Eskom Holdings SOC Limited Divisional Report 2012 Line division: Generation continued ISO 14001 certification Generation continued with their ISO 14001 certification drive during 2011/12. To date Generation head office at Megawatt Park, nine operational coal-fired power stations, Koeberg nuclear power station and the peaking operating unit have achieved ISO 14001 certification. Legal contraventions There was a decline in legal contraventions from 41 to 34 in 2011/12, with the majority of contraventions still relating to on-site emissions and water-management challenges. Solar heater test facility at Rosherville Key Generation environmental performance indicators Target Actual Actual Actual Indicator Unit 2012 2012 2011 2010 Number of environmental legal contraventions number 0 34 41 33 Number of environmental legal contraventions reported in terms of Eskom’s operational health dashboard1 number 0 1 1 0 Relative particulate emissions kg/MWhSO ≤0.30 0.31 0.33 0.39 Net raw water consumption ML n/a 319 772 327 252 316 202 Specific water use L/kWhSO ≤1.35 1.34 1.35 1.34 Material containing polychlorinated biphenyls (PCBs) thermally destructed tons n/a 0 3.1 0.9 Materials containing asbestos disposed of 2 tons n/a 308.3 232.4 209.8 Carbon dioxide emissions (absolute)5 Mt n/a 231.9 230.3 224.7 Carbon dioxide emissions (relative)3, 5 kg/kWhSO n/a 0.99 0.99 0.98 Nitrogen oxide emissions4 kt n/a 977 977 959 Sulphur dioxide emissions kt n/a 1 849 1 810 1 856 Low-level radioactive waste generated (net) m3 n/a 184.7 165.3 137.8 Intermediate-level radioactive waste generated (net) m3 n/a 25.4 39.4 47.1 Low-level radioactive waste transported to Vaalputs m3 n/a 54 81.0 216.0 Intermediate-level radioactive waste transported to Vaalputs m3 n/a 130 0 266.0 Public individual radiation exposure due to effluents mSv ≤0.25 0.0024 0.0043 0.0040 Ash produced Mt n/a 36.21 36.22 36.01 Ash sold Mt n/a 2.3 2.0 2.0 Ash recycled % n/a 6.4 5.5 5.6 Ash disposed of on Eskom ash dumps and dams Mt n/a 33.83 34.16 33.89 Reasonable assurance provided by the independent assurance provider (refer page 86). 1. Under certain conditions, contraventions of environmental legislation are classified in terms of the Eskom operational health dashboard (OHD) index. These include instances where censure was received from authorities, non-reporting to authorities as may be legally required, non-reporting in Eskom, a repeat legal contravention, or when the contravention was not addressed adequately. Group or divisional executives can escalate any significant environmental legal contravention to the OHD. 2. Quantities of waste disposed of at registered waste sites. 3. Factor figures are calculated based on total energy generated by Eskom (but excluding electricity used by pumped storage scheme). 4. 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. 5. See www.eskom.co.za/IR2012/039.html for climate change fact sheet, giving details of the relative CO2 emission factor. Eskom Holdings SOC Limited Divisional Report 2012 21 Line division: Transmission Mandate To optimally plan, operate and maintain Transmission’s assets throughout their economic life; and to provide an integrative function for the reliable development, operation and risk management of the interconnected power system. Eskom’s transmission network consists of 153 substations and 28 995km of transmission lines of voltages ranging between 132 kilovolts (kV) and 765kV. Operational highlights Key financial statistics: Transmission, as at and for the year ended The number of line faults per 100km performance has shown 31 March 2012 improvement and has achieved the business target Actual Actual Substantially improved the availability of transmission assets Rm 2012 2011 Future trading opportunities in the southern African region have External revenue 4 873 4 125 been identified to assist with alleviating the current generation capacity constraints. Maintenance and refurbishment costs 290 98 Total assets 24 042 19 445 Operational challenges Capital expenditure (excluding capitalised To attain performance targets with regard to two KPIs: interest) 1 554 1 503 –– system minutes < 1 (achieved 4.73 against a target of 3.40) –– number of interruptions (achieved 48 against a target of 35) Benchmarking High levels of conductor, equipment and electricity theft are Benchmarking Eskom’s transmission system performance against affecting plant performance and increasing cost other similar utilities remains challenging due to differences in To reduce the number of protected bird species mortalities due network firmness, reliability criteria, definitions and data-capturing to collisions with powerlines. practices between utilities. Future focus areas Transmission participated in the International Transmission Focus on safety and environment to achieve zero harm to Operations and Maintenance Study during the current financial people and the environment year to identify best international practices for the transmission Strengthen the network to improve redundancy and thus reliability industry. Twenty-seven international transmission companies Connect Independent Power Producers (IPPs) to the grid participated in this study, which focused on maintenance and plant Improve network reliability and technical performance which, performance. Eskom’s transmission-plant performance is in the first with improved redundancy, will reduce the number and severity quartile for extra-high voltage switchgear and instrument of interruptions as well as minimise line faults transformers. Its performance is below average in the overhead line Continue efforts to reduce conductor and pylon theft and compensation asset categories. Improve the implementation of conditions of environmental authorisations, including environmental management plans Obtain ISO 14001 certification by March 2014. Technical performance Transmission technical performance Target Actual Actual Actual Measure Description of measure 2012 2012 2011 2010 Number of system Total number of system minutes lost (for incidents minutes lost of less than one system minute) ≤3.40 4.73 2.63 4.09 Number of major Records number of incidents with a severity greater incidents than one system minute ≤2 1 0 1 Number of interruptions Interruptions affecting the continuity of supply ≤35 48 30 31 Number of line faults Number of transmission line faults per 100km ≤2.45 2.41 2.72 2.54 Reasonable assurance provided by the independent assurance provider (refer page 86). 22 Eskom Holdings SOC Limited Divisional Report 2012 Line division: Transmission continued Technical performance continued Transmission safety performance Transmission interruption performance deteriorated during 2012. Causes of employee lost time injuries (including fatalities) This was primarily due to risks associated with the execution of increased expansion and refurbishment projects at operational sites resulting in additional system minute <1 losses. 2012 1 When a plant item is placed on a planned outage for maintenance 1 activities or for the commissioning of new plant the remaining plant is placed under an increased risk that an interruption could occur 1 if a second contingency arises on the network. A major incident occurred at Acacia substation near Cape Town in the Western 1 Cape on 28 September 2011, due to a line hardware failure on the 8 one feeder line while the second feeder was undergoing maintenance. This caused an interruption of supply with a total of ● Motor vehicle accident ● Electrical contact 1.536 system minutes lost. An operational risk-management ● Fall on same level procedure has since been adopted to enhance response capability 2011 ● Caught/cut/struck by ● Ergonomics/material/ and condition assessment on unstable feeder lines before starting 2 equipment handling planned maintenance. The number of line faults was reduced in 2012 mainly due to: Additional fire-management teams and improvements in 3 7 maintenance on servitudes Maintenance on high-voltage direct current (HVDC) line insulators 1 Reduced lightning faults as a result of a milder storm season 1 resulting in fewer grass fires. Fires under powerlines can cause a line fault, typically at the mid-span (at the lowest ground clearance) due to the smoke causing a breakdown of the airgap, which can result in flashovers. Environmental performance Transmission aims to constantly improve its environmental Refer to page 35 for the management of energy losses. performance which is measured in terms of key environmental indicators, as indicated in the table below. Transmission safety performance Causes of employee lost time injuries (including fatalities) Three fatalities occurred (two employees and one contractor). Key Transmission division environmental performance Eight (one fatality and seven LTI) motor vehicle accidents, which indicators remains the highest cause of the lost-time incidents. Target Actual Actual Actual 2012 2012 2011 2010 For detailed information about the overall safety strategy and Number of environmental initiative at an Eskom level please refer to the safety section on legal contraventions 0 2 0 1 page 70. Number of environmental legal contraventions reported in terms of Eskom’s operational health dashboard1 0 0 0 0 Materials containing asbestos disposed of at registered waste sites (tons) n/a 35.4 10.5 21.5 Material containing polychlorinated biphenyls thermally destructed (tons) n/a 2.6 400.7 3.7 Pylon theft is becoming a major problem for Eskom 1. Under certain conditions, contraventions of environmental legislation are classified in terms of Eskom’s operational health dashboard index. These include instances where censure was received from authorities, where incidents were not reported to authorities as legally required, where incidents were not reported within Eskom, where there was a repeat legal contravention or where the contravention was not addressed adequately. Divisional executives can escalate any significant environmental legal contravention to the operational health dashboard. Eskom Holdings SOC Limited Divisional Report 2012 23 Line division: Transmission continued Operational risks including hazardous waste disposal, phase-out of Independent System Market Operator PCB and asbestos are tracked and regular updates of inventories Preparations for ISMO ensure that set targets are met. For example, the replacement of During 2011 the government tabled the ISMO Bill, which provides 24 valve tanks at Apollo (each of which contained about for a separate state-owned entity into which certain functions 43 000 litres of oil) with eight air insulated valve tanks, has reduced would be spun off from Eskom over time. A phased approach the Transmission environmental footprint. towards the ISMO was envisaged, starting with the ring-fencing of the relevant organisational units initially in an Eskom division, after In cooperation with the Endangered Wildlife Trust, continued which the division can be transformed into an Eskom subsidiary – installation of devices on Transmission power lines is helping and then into a separate state-owned company. minimise impacts on birds. The eradication of alien vegetation and other invader plants during servitude maintenance helps to combat The System and Market Operator division (ISMO), operating the spread of these species. under the governance of the Eskom board, was instituted on 1 October 2011. Its functions include energy planning, feasibility Operationally, Transmission monitors and reports on the usage of studies, IPP procurements and market administration. SF6, a greenhouse gas, mainly used in the switchgear plant, with a view to avoiding the release of this gas into the atmosphere. A comprehensive business plan has been developed for the ISMO end state as contemplated in the ISMO Bill and Eskom is following Transmission ensures that service providers/suppliers are assessed the necessary governance processes to establish the subsidiary, for competence and the necessary understanding of legal including obtaining the required PFMA approval from the requirements, to prevent possible violations of legislation. The Department of Public Enterprises. Eskom anticipates the phasing of compliance to legal and other requirements, driven through the the subsidiary structure during 2012/13. implementation of ISO 14001, as well as compliance to the EIA requirements and conditions, continues to ensure that proactive Independent power producers measures are in place to minimise negative environmental impacts. Eskom is committed to facilitating the entry of independent power producers (IPPs) to the South African electricity market as evident Criminal incidents through its pursuing of private sector participation as a strategic A comparison of theft statistics reported by Transmission for the imperative. Eskom has already signed agreements with non-Eskom period April 2010 to March 2011 and April 2011 to March 2012 generators and IPPs under the medium-term power purchase indicates the following: programme and for short-term energy. To date it has signed power A decrease in crime from 191 incidents the previous financial purchase agreements with a total contracted capacity of 1 008MW. year to 180 A 24% increase in the number of conductor thefts reported Eskom has actively supported the Department of Energy in (from 55 to 68 incidents) finalising its request for proposal documents and power purchase A 31% decrease in the value of material stolen (from agreements for the renewable energy IPP programme. The R2.908 million to R1.992 million) Department of Energy formally launched this procurement A 24% decrease in the theft of support lattices (from 63 programme on 3 August 2011. The request for proposal document incidents to 48 incidents). calls for 3 725MW of renewable energy technologies to be in commercial operation between mid-2014 and the end of 2016. A total of 648 arrests were effected and a further 176 criminal Twenty-eight preferred bidders were announced in December cases are pending in the criminal justice system. 2011, following the first bid submission date of the programme. The total megawatt contribution from these 28 bidders combined A Transmission security refurbishment project has been initiated to is 1 416MW. On 21 May 2012, the Department of Energy upgrade the physical security measures at critical substations announced that 79 bids had been received by the second bid thereby enhancing security of assets and people, and ensuring submission date. Of these, only 19 bidders were selected as security of supply. Eskom has also contracted the services of two preferred bidders. The total megawatt contribution from these security contractors to help combat the theft of Transmission and 79 bids amounted to 3 255MW, while the limit for the second Distribution equipment. round of bids was 1 275MW. The amount paid for the IPP and municipal purchases, amounted to R3.3 billion (2010/11: R1.3 billion). IPP and municipal purchases Planned purchases Actual purchases Actual purchases for 2012 MW MW GWh Medium and short-term contracts 493 2 149 Municipal generation 515 1 958 Total 1 500 1 008 4 107 Average cost in R/kWh 0.77 24 Eskom Holdings SOC Limited Divisional Report 2012 Line division: Transmission continued Southern African Energy Eskom has engaged in cross-border trading for many years. As The membership of the SAPP1 provides Eskom the opportunity to interconnection between South Africa and its neighbouring trade electricity on a market platform called the Day-ahead Market countries increased, the need to formalise regional electricity and it provides members the right and obligation to wheel trading was recognised. This resulted in the establishment of the electricity. However, minimal volumes are traded on this platform Southern African Power Pool (SAPP), which SADC formed under due to the prevailing energy constraints across the region. the leadership of the various energy ministers in 1995. Eskom and the other national utilities of the SADC were the initial members, During the mid to late 2000s the pending electricity constraints but membership has recently been opened for independent power were anticipated and some of the regional utilities initiated new producers and independent transmission companies. generation projects. During 2011/12 Namibia commissioned a new 90MW hydro unit and Botswana the first of four 150MW coal- In the early years of the SAPP Eskom had significant surplus energy fired units. Before the end of 2012 the other three units will be available and a number of countries came to depend on Eskom commissioned, significantly reducing the exports to Botswana. rather than building their own generation capacity. This resulted in Eskom’s cross-border sales exceeding cross-border purchases: The SADC region has an abundance of renewable and other primary energy sources and could in time play a significant role in Cross border purchases and sales of electricity meeting South Africa’s electricity requirements and assist with enhancing the energy mix to improve South Africa’s environmental Actual Actual Actual 2012 2011 2010 performance. Sales GWh 13 195 13 296 13 227 To ensure South Africa benefits from these potential power Purchases GWh 9 939 10 190 10 579 projects a dedicated unit has been established called Southern Net sales GWh 3 256 3 106 2 648 African Energy. The mandate of this unit is “To pursue the development and execution of business opportunities in the SADC Region with a view to increase imports, strengthen transmission It is important to differentiate between physical flows across the systems, access strategic resources, and grow Eskom’s market share in border (imports and exports) and the contractual volumes the region”. To achieve this mandate a number of projects are purchased and sold. These volumes differ due to other utilities already being advanced in a number of countries. The primary wheeling power across the Eskom grid and some energy purchased focus is on hydro and natural gas resources and transmission being used en-route to meet a portion of a sales obligation. strengthening. While Eskom is a net exporter of electricity, the net volume exported (exports less imports) represents only 1.36% of the total energy available in South Africa. The majority of the purchases are from Cahora Bassa (HCB) in central Mozambique with small volumes from Lesotho. Eskom sells firm power to the national utilities of Botswana (BPC) Namibia (NamPower) Swaziland (SEC) Lesotho (LEC). Eskom also has trading relationships with Zimbabwe (ZESA) and Zambia (ZESCO), but these agreements are for non-firm power when surplus capacity exists and during emergency situations. In addition Eskom sells to three end-user customers, one in Mozambique and two in Namibia. Finally Eskom wheels (transports) A high-voltage yard in the Free State power on behalf of Electricidade de Mozambique (EDM), the national utility of 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 Divisional Report 2012 25 Line division: Distribution Mandate Distribution’s mandate is to operate its network assets and provide reliable electricity by building, operating and maintaining distribution assets, while also acting in the national interest by actively partnering with the wider industry in resolving distribution industry issues and enhancing stakeholder relations. Eskom’s distribution asset base is comprised of 47 509km of distribution lines, 311 831km of reticulation power lines and 11 415km of underground cables in South Africa, representing the largest power line system on the continent of Africa. Operational highlights Future focus areas Rolled out the Zero harm campaign for the improvement of Revitalise our focus on safety, adopting a Zero harm approach by: safety performance –– Promoting a safety culture with a focus on morale and Significant improvement of the system average interruption mindsets duration index (SAIDI) performance and marginal improvement –– Creating safety awareness of the system average interruption frequency index (SAIFI) –– Revisiting governance, rules and regulations performance during 2011/12 –– Creating capability, training and development of skills Operation Khanyisa, a public-awareness campaign about legal Contribute to socio-economic development by: power usage, is helping to improve energy loss and decrease –– Reducing public safety incidents through awareness theft –– Providing viable electricity options to informal settlements Exceeded the targeted number of electrification connections in –– Support government initiatives such as the universal access plan 2011/12, reaching 4 206 181 (2010/11: 4 050 968) homes since Through operational excellence, continue improving network the inception of the electrification programme in 1991. reliability and technical performance Continue with appropriate network maintenance and capital Operational challenges investments, based on sound asset management principles Safety performance is a serious concern, especially employee Continue rollout of Operation Khanyisa to reduce energy theft and contractor fatalities Improve business operations through standardisation, Employee security remains a concern optimisation and integration of business processes (Back2Basics) High levels of theft of equipment and electricity, including illegal Continue to grow human capital through retention of core, connections, which impact network performance and service critical and scarce resources and acquisition of the right skills. levels, and increase costs Collisions and electrocutions of birds on distribution power lines. Acquisition of land and servitudes for electricity infrastructure. Key financial statistics: Distribution, as at and for the year ended 31 March 2012 Actual Actual Rm 2012 2011 Grants received for electrification 1 784 1 720 Maintenance and refurbishment costs 3 851 2 947 Total assets 49 934 44 428 Capital expenditure (excluding capitalised interest) 7 941 8 190 Distribution technical performance Description of measure Target Actual Actual Actual Measure (and unit) 2012 2012 2011 2010 System average interruption duration Availability of supply index (hours index (SAIDI) per annum) ≤49.0 45.75 52.61 54.41 System average interruption Reliability of supply index frequency index (SAIFI) (number per annum) ≤22.0 23.73 25.31 24.65 Distribution network unavailability Distribution supply loss index (DSLI) index (minutes per month) n/a1 11.68 12.81 12.30 Reticulation network unavailability Reticulation supply loss index (RSLI) index (hours per annum) n/a1 2.14 2.28 2.43 Unplanned reticulation network unavailability index (hours per Reticulation supply loss index (RSLI) annum) n/a1 1.72 1.85 1.84 Reasonable assurance provided by the independent assurance provider. (Refer page 86) 26 Eskom Holdings SOC Limited Divisional Report 2012 Line division: Distribution continued SAIDI performance improved from 52.61 hours in 2011 to invariably supply large numbers of customers with little or no 45.75 hours against a target of 49 hours during 2012. On the alternative for backfeeding, in the event of supply interruptions. other hand, SAIFI performance improved from 25.31 interruptions in 2011 to 23.73 interruptions, although not achieving the target Distribution’s networks are therefore characterised by: of 22 interruptions. Average feeder length of more than 100km (some lines much longer than 300km) The improved SAIDI performance is attributed to the benefits of High number of customers per feeder (in some cases more than the reliability improvement investments which were made over the 10 000 customers per feeder) last few years, including focused attention to and improved More than 90% of networks are overhead management of all outages. Majority of customers in rural and deep rural areas supplied by radial lines The accuracy of reporting on the Distribution Supply Loss Index Distribution predominantly at 11kV and 22kV (DSLI) and the Reticulation Supply Loss Index (RSLI) is a focus in Limited network redundancy Distribution. Current reporting is a best estimate, and this needs to Limited ring-feeds and back-feeding capability be considered for year-on-year evaluation and comparative analysis. Low network visibility limiting remote control of switching devices (like reclosers and sectionalisers). Refer to page 35 for the management of energy losses. Distribution’s long-term objective is to move to first quartile Benchmarking performance for Distributors with similar network characteristics Distribution participated in a 2010 benchmarking study, conducted but it is recognised that it will require considerable resources to by an independent international consulting group, with utilities in achieve. Distribution has the following medium-term objectives for North and South America. The reporting methodology, network its network performance: characteristics, environment and operational processes and Reduce SAIDI to 39 hours per annum by 2016/17 practices of the distributors in the benchmarking panels are not the Reduce SAIFI to 17 interruptions per annum by 2016/17. same, which results in a wide range of performance levels. This makes any direct performance comparison a challenge. The following four key strategic initiatives are planned to improve the SAIDI and SAIFI performance: Eskom’s network interruption performance is dominated by the Establishment of additional customer network centres performance of rural lines, which have been built on a least-cost –– Reduce travelling time basis. In this way, Eskom’s distribution networks differ significantly –– Ensure that field staff are located close to the customers and from those of other distribution companies that have supply areas networks which include large cities and towns. Rural lines in South Africa Increase live work from 50% to 70% to reduce the outages include long radial lines with very limited redundancy and back- experienced by customers feed capability. This significantly distorts direct comparison with Effective planning, refurbishment and strengthening of networks: North American distributors in the benchmarking panel. –– Revision of the planning criteria to reduce the number of customers affected by a fault and set the criteria for the The South American peer group is more appropriate from a creation of redundancy on networks network investment and customer point of view than the North –– Focus on poor performing networks American peer group (as well as European peer groups). The Eskom –– Increased visibility of network system average interruption duration index (SAIDI) and system –– Improvement of SAIDI for customers in the top customer average interruption frequency index (SAIFI) are currently in the segment fourth quartile. Use of mobile computing devices to improve work management and resource utilisation. System average interruption duration index performance in South America (2010) is between 2.8 and 362.3 hours per year and for The key strategies include the following: Eskom it is currently 45.75 hours. Establish a culture where network reliability management becomes a way of life System average interruption frequency index performance in South Implement an integrated asset management approach based on America (2010) is between 2.5 and 106.2 sustained supply international best practice (PAS 55) interruption events per year, and for Eskom it is currently 23.73 Continue to increase preventative maintenance and to reduce events. refurbishment backlogs of an ageing network Improve plant performance Network Performance Strategic Direction Increase utilisation of live work resources on activities that save Since 1991 Eskom has connected more than 4.2 million most customer interruption hours electrification customers to the Distribution network. Historically, Improve outage management through better outage co- the planning philosophy has always focused on compliance to ordination and utilisation of technology minimum regulatory requirements (specifically voltage regulation) Improve operational efficiency to reduce total outage restoration and did not consider long-term network reliability. This resulted in time the design of lengthy radial subtransmission and distribution lines, Increase network visibility to facilitate remote control of existing with no redundancy built into the network. These long lines and additional switching devices. Reasonable assurance provided by the independent assurance provider (refer page 86). 1. There are no DSLI and RSLI targets for 2011/12. Eskom Holdings SOC Limited Divisional Report 2012 27 Line division: Distribution continued Electrification The Department of Energy (DoE) began funding the Integrated National Electrification Programme (INEP) in April 2001. Eskom implements the programme in its licensed areas of supply on the department’s behalf. Electrification in a municipality’s licensed areas of supply is carried out by that municipality. Eskom carries the operating costs for the electrification programme, as the licensed distributor supplying electricity to its customers. Funding is currently made available for new connections and infrastructure development that are part of the INEP. The average cost of infrastructure development and the cost per connection are likely to increase as more remote rural areas are electrified. In addition, technical specifications for network design have been enhanced to better accommodate future growth in electricity demand and to improve the quality and reliability of the electricity supply in these areas. A typical residential distribution network in the Western Cape 4 206 181 homes have been electrified since the start of the electrification programme in 1991. Electrification programme Unit Target Actual Actual Actual of measure 2012 2012 2011 2010 Total connections number 125 377 155 213 149 914 149 901 Direct connections, excluding farm workers number 124 712 154 249 149 112 149 028 Farm worker connections number 665 964 802 873 Total capital investment Rm 2 037 1 575 1 512 1 086 Reticulation and connections Rm 1 642 1 311 949 914 Sub-transmission infrastructure development Rm 389 260 559 169 Farm worker connection incentives paid Rm 6 4 4 3 Meeting universal access to electricity targets in the future is will only achieve universal access in 2033. Eskom would prefer to primarily dependent on the availability of funding via the integrated accelerate electrification in order to achieve the universal access to national electrification programme. The current levels of funding electricity by 2020. Electrification of grid schools and clinics Unit of Target Actual Actual Actual measure 2012 2012 2011 2010 Capital investment Rm n/a1 2 158 142 Total connections number n/a1 19 854 774 The electrification of schools is funded by the Department of Basic Department of Energy through the National Electrification Fund. Education (DBE) through the Accelerated Schools Infrastructure Both programmes are focused on electrifying specifically identified Delivery Initiative. The electrification of clinics is funded by the schools and clinics. 1. There is no target for 2012. 28 Eskom Holdings SOC Limited Divisional Report 2012 Line division: Distribution continued Distribution safety performance Vehicle safety is the largest contributor to the current safety Causes of employee lost-time injuries (including fatalities) performance in this division. Management has introduced a new initiative in the form of the Drivecam monitoring device, which is Distribution safety performance used to proactively monitor driving behaviour and assist with Causes of employee lost time injuries (including fatalities) coaching and development of Eskom drivers. The zero harm value has also been rolled out to most of the divisional employees to ensure that safety is adopted as a personal accountability. 2012 3 4 5 For detailed information about the overall safety strategy and 37 initiative at an Eskom level please refer to the safety section on 24 page 70. ● Motor vehicle accident ● Electrical contact 17 24 ● Bee sting/insect bite 2 ● Foreign body 12 ● Fall from height ● Fall on same level 2011 ● Caught/cut/struck by ● Ergonomics/material/ 12 5 equipment handling 8 ● Gun shot ● Hijacking 54 ● Assault 24 ● Burn 26 18 4 13 Distribution environmental performance Key Distribution division environmental performance indicators Target Actual Actual Actual 2012 2012 2011 2010 Number of environmental legal contraventions 0 5 112 4 Number of environmental legal contraventions reported in terms of Eskom’s operational health dashboard1 0 2 2 0 Materials containing asbestos disposed of at registered waste sites (in tons) n/a 71.6 285.8 16.2 Material containing polychlorinated biphenyls thermally destructed (tons) n/a 11.3 18.0 13.3 Number of reported bird fatalities due to Distribution infrastructure 0 33 244 233 Bruce Ockhuis in his safety gear performs line maintenance in the Western Cape 1. Under certain conditions, contraventions of environmental legislation are classified in terms of Eskom’s operational health dashboard index. These include instances where censure was received from authorities, where incidents were not reported to authorities as legally required, where incidents were not reported within Eskom, where there was a repeat legal contravention or where the contravention was not addressed adequately. Divisional executives can escalate any significant environmental legal contravention to the operational health dashboard. 2. 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 12 to 11. Eskom Holdings SOC Limited Divisional Report 2012 29 Line division: Group Customer Services Mandate Customer Services is responsible for placing the customer at the centre of Eskom’s business. It guides the business towards the overall objective of achieving fully satisfied and serviced customers who consistently rate Eskom in the top quartile and promote Eskom as a company. Operational highlights Improvement of the large power-user debtor days for top customers Secured a number of electricity buyback deals totalling 817MW Successfully encouraged customers to reduce electricity load on short notice when required Positive engagements between stakeholders and customers on the capacity situation including system status report submitted daily to Eskom’s customers. Operational challenges The total time taken to provide a key industrial customer with a quotation is a concern Price increases have a serious impact on profitability and long- term sustainability of many customers Environmental levies and cross-subsidisation between customer Line maintenance is a key element of ensuring customer satisfaction categories are becoming an issue with large customers having to cross-subsidise residential customers Customer numbers Ensuring customers are updated on their quality of supply as well Actual Actual Actual as planned outage events. Quality of supply is showing a negative Number 2012 2011 2010 trend and customer perception that the quality of supply does Local 4 852 712 4 653 740 4 463 291 not meet the required standard Redistributors 786 784 773 Increase in the number of defaulting municipalities which may Residential1 4 713 178 4 514 998 4 325 550 result in cashflow implications for Eskom. Management of the Commercial 50 270 49 090 47 984 Soweto debt and energy losses Industrial 2 775 2 857 2 925 Ensuring that tariffs are reflective of actual costs taking into Mining 1 100 1 110 1 134 account size, locality and time of use by customers Agricultural 84 095 84 393 84 415 Rollout of the Energy Conservation Scheme – ensuring that all Traction 508 508 510 affected customers understand the process and are comfortable International 10 10 10 with the reference consumption. Utilities 7 7 7 End users across Future focus areas the border 3 3 3 Continued focus on improving safety levels and the wellness of staff members Total 4 852 722 4 653 750 4 463 301 Manage power demand by ensuring that all possible options are explored with customers regarding grid access, power buyback, Key financial statistics: Group Customer Services, as at and for demand management participation (DMP) to help close the the year ended 31 March 2012 energy gap 2012 2011 Standardise and streamline regional customer-service activities Revising the customer satisfaction questionnaires to ensure that External (local) revenue (Rm) 108 260 86 454 all service aspects that are important to customers are taken Impairments (Rm) 587 669 into account Debtors less provisions (Rm) 8 835 6 955 Establish visibility of the current performance of Group Customer IDM costs (Rm) 1 942 779 Services Improve integrity of customer data for segmentation purposes Top industrial and international and better understanding of different customer needs customers debtors days (excluding Increase employees’ skill levels, with skills development ranging disputes) 14.4 15.5 from technical to business-related skills Customer services, large power Improve business operations through standardisation, users debtors days – municipalities optimisation and integration of business processes and systems and other 21.8 18.9 (Back2Basics). Customer services, small power users debtors days excluding Soweto 42.9 45.1 1. Prepayments and public lighting included under residential. 30 Eskom Holdings SOC Limited Divisional Report 2012 Line division: Group Customer Services continued Benchmarking Eskom uses these results to identify which aspects of service Eskom monitors its service performance in comparison with require improvement. Once action plans have been reprioritised guidelines contained in the National Energy Regulator of South and implemented, success is tracked by monitoring the trends for Africa (NERSA) code of practice (NRS047-1:2005). It also those specific aspects of service. participates in benchmarking studies, conducted by an independent international consulting group, to understand how its performance Customer service index compares with similar international utilities. The last study was The Eskom KeyCare survey measures the total service delivered conducted in 2011 for the 2009 financial year. Benchmark to Eskom’s Top Customers (i.e. top industrial customers using a comparisons in this annual report are therefore given with respect minimum of 100GWh of energy per year). An independent to the 2009 study. research supplier conducts interviews with senior managers at three levels, namely general management, engineering and Selection of a suitable peer group is important, given Eskom’s accounting. The Eskom KeyCare index produces a 12-month unique position in supplying a mix of urban and rural areas. Eskom moving average as its key performance indicator through monthly benchmarks its retail business and customer service performance surveys asking questions on technical performance, administration within a panel of North American and South American utilities. and management. The Eskom total quality index (TQI%) score for 2012 is 106% against a target of 100%, which shows an Four internal performance measures have been selected as improvement against the score of 101% for 2011 (2010: 98%). representative of core business processes directly impacting the satisfaction of Eskom’s residential, small and medium customers. Eskom TQI% Eskom KeyCare index at March 20121 These four measures are restoration time General Management 99.20 minor project quotation times (<30 days) Engineering 106.40 minor project connection times (<90 days) Accounting 112.14 contact-centre service level. Average KeyCare 105.91 Customer service measurement Target 100.00 Eskom’s service delivery and efficiency is important to South Africa’s economic prosperity, transformation and sustainable Eskom has regular interactions, in large and small forums, with top development. By monitoring customer satisfaction, Eskom can plan customers and key stakeholders, facilitating discussions in regard to to ensure that it delivers the required quality of service at the Eskom and the key industrial customers’ business decisions. In appropriate time and price. A range of statistical perception and addition, regular high-level strategic meetings are held with interaction based customer surveys, conducted by an independent corporate groups such as the Energy Intensive User Group to research organisation, is used to measure customers’ satisfaction explore opportunities and strengthen relationships. with the service delivered. Eskom uses a composite index to measure the service delivered to These include its residential, small and medium customers.The weighted customer MaxiCare – measurement of Eskom’s residential, small and service index combines the results of two external customer medium customers service perception surveys and four internal customer service KeyCare – measurement of Eskom’s large industrial customers process measures. Eskom achieved a score of 85.55% CustomerCare – measurement of Eskom’s customers who have (2011: 84.37%) against the target of 85.82%. had recent contact with its contact centres. Target Actual Actual Actual Regulatory 2012 2012 2011 2010 standard Customer service index results % % % % % External customer perception surveys: Enhanced MaxiCare ≥93.65 90.65 89.40 92.95 n/a CustomerCare ≥80.00 82.10 82.30 80.70 n/a Internal performance measures: Restoration time <7.5 hours ≥72.00 62.60 66.93 72.15 90.00 Minor projects quotations <30 days ≥90.00 91.00 86.00 90.00 95.00 Minor projects connections <90 days ≥88.00 85.00 82.00 78.00 95.00 Contact-centre service level ≥82.00 85.10 83.80 82.60 80.00 Weighted customer service index ≥85.82 85.55 84.37 85.05 As mentioned above, Eskom has participated in a 2009 international consulting group. As per the benchmarking study, the first quartile benchmarking study, conducted by an independent international performance for contact-centre service level is >70%. 1. 12 month moving average Eskom Holdings SOC Limited Divisional Report 2012 31 Line division: Group Customer Services continued Eskom is currently in the first quartile of contact-centre service Over the past 12 months, significant progress was made in setting performance per the benchmarking study. The minimum standard up the new division with centres of excellence and structured specified in NRS047-1:2005 is 80%. Eskom achieved year-on-year operating units to ensure a single point of accountability and improvement while the call volumes queued into the contact relationship management for all customers of Eskom. centres remained at 5.66 million calls (2011: 5.66 million). For the second phase, a 12-month transformation journey has Refer to fact sheet at www.eskom.co.za/IR2012/040.html for been developed to eliminate the negative sentiments in the public more information about the measuring of customer satisfaction. about Eskom’s customer service. Online Vending System The third phase scheduled for 2012/2013 will be focused on the The Online Vending System in Eskom had operational performance following: issues that affected customers in the country at a large scale at the Getting the basics right by simplifying, standardising and optimising end of 2011 and start of 2012. The problems were mainly due to processes, systems and data, as part of Eskom’s Back2Basics infrastructure issues during the cut-over to new hardware. In programme addition to this a vendor software system malfunctioned after the Building skills to enhance people and organisation competence vendor made changes to its system. The system was restored to to ensure the best people are the face of Eskom to customers. normal operations and is being closely monitored. No major Through the Eskom Academy of Learning, the School of incidents have been experienced since the middle of February Customer Service has been established to provide the necessary 2012. training required to all Customer Service front-line staff and other customer facing employees of Eskom The following has been done to rectify the issues: The structured operating units will focus on all customer service The infrastructure design was improved and simplified channels and touch points such as walk-in-centres, contact Monitoring was expanded, with additional early warning systems centres and vending outlets. Eskom will also explore how it can that were put in place leverage technology such as the use of social media platforms for Improved change control processes were implemented with customer communication vendors, which will prevent a recurrence of the issues in In support of Eskom’s purpose “...to improve the quality of life of February that were caused by vendor software malfunction all South Africans...” Eskom continues to strive to ensure that The off-the-shelf software that Eskom uses was reviewed by the customers have reliable and sustainable electricity solutions application vendor and enhancements were applied (quality product and services) through improved access to free Offline solutions have been developed to ensure that even basic electricity (FBE), uninterrupted access to vending and when the system is offline customers will still be able to buy payments, accurate bills, simplified tariffs and transparent electricity coupons. Prepaid electricity coupons can be purchased communication. at vending outlets found at major retail stores across the country should the offline solution need to be activated. The final phase in 2013/14 will focus on developing segment specific strategies to ensure utilisation of the most appropriate, The infrastructure is in the process of being replaced, and further optimal channels and service offerings to each customer base and application changes by the vendor are anticipated in the near establishing a nerve centre to ensure regular monitoring and future. No further unplanned interruptions are expected as all response to matters impacting the customer experience. known issues have been resolved. Performance and measurement tools will be enhanced to enable Eskom to respond to customer needs and introduce continual Eskom understands the impact to its customers when system improvements where appropriate. issues are experienced and has apologised to customers for the inconvenience caused. Free basic electricity Government aims to bring relief to low-income households Transformation journey to customer service through the national electricity basic services support tariff, thereby excellence ensuring optimal socio-economic benefits from the national Eskom has set itself an aspiration of becoming a world-class electrification programme. Qualifying customers are eligible for Customer Service Organisation by creating fully satisfied and predominantly 50kWh of free electricity per month. serviced customers who consistently rate Eskom in the top quartile. Eskom provides free basic electricity in its supply areas and this is recoverable from municipalities at a standard tariff. In order to overcome the current challenges and reach its aspiration, Eskom will progress in three phases with completion Municipalities continue to revise their qualifying criteria used for expected in 2014. the allocation of free basic electricity as a result of which customers’ meters reconfigured to receive free basic electricity have decreased during the current financial year. Unit of Actual Actual Actual Free basic electricity measure 2012 2011 2010 Municipalities contracted to provide FBE number 243 243 243 Municipal contracts rolled out % 99 99 99 Customers approved by municipalities for FBE number 1 196 117 1 132 421 1 308 357 Customers’ meters reconfigured to receive FBE number 1 139 120 1 141 235 1 294 997 Reconfigured FBE customer meters in the year average % 99 100 99 Amount invoiced to contracted municipalities Rm 294 273 308 1. 12 month moving average. 32 Eskom Holdings SOC Limited Divisional Report 2012 Line division: Group Customer Services continued Integrated demand management Mandate To create a culture of energy efficiency in South Africa and design integrated solutions to solve complex energy-demand issues for a sustainable future for the country. Operational highlights Verified accumulated demand savings (MW) against the Achieved a total peak demand savings of 365MW and accumulated Eskom target per year annualised energy savings of 1 422GWh . This figure includes Verified accumulated demand savings verified peak demand savings of 347MW and annualised energy savings of 1 350GWh for NERSA and Department of Energy funded projects. The additional 18MW of demand savings and 72GWh of annualised energy savings have been installed but will 3 500 only be verified and claimed in the 2013 financial year Peak demand savings (MW) 3 000 Started the ongoing compact fluorescent lamps (CFLs) clean 2 500 development mechanism sustainability project 2 000 Introduced new energy-efficient lighting technologies such as 1 500 light-emitting diodes (LEDs) 1 000 * Accelerated the solar water-heating rebate programme. To date 500 158 175 units have been installed and verified. Promoted skills 0 2005 2006 2007 2008 2009 2010 2011 2012 and job creation, especially through the low-pressure solar water-heating programme ● Verified demand savings (MW) ● Eskom target Power Alert continued to drive savings in critical time. During * Excludes 67MW claimed in 2008 for DMP the year an average demand saving of 261MW was attained during evening peak periods Rolled out 49M, a marketing campaign aimed at promoting long- The annualised energy savings for this financial year are 1 422GWh term behavioural change in favour of energy savings. against the target of 1 051GWh. These results were due to implementing the demand-management programmes listed below. Future focus areas Implement the recently approved 500MW demand-response Verified savings pilot programme Programme category achieved (MW) Continue the energy-efficiency drive in the residential market through Agriculture <0.01 the recently approved residential mass rollout initiative which involves CFL rollout 215 going door to door to residential homes and installing energy efficient technologies including CFL bulbs, LED lamps, low flow shower heads, Compressed air 12 flow restrictors, timers and geyser blankets Demand reduction 58 Drive the recently implemented incentive programmes further Heat pumps 1 into the market Industrial process optimisation 7 Continue investigating new implementation and technology Lighting and HVAC 14 opportunities. Shower heads 14 Performance Solar water heating 26 Customer Services, through the integrated demand management Total 347 business unit, plays a key role in helping Eskom balance power supply and demand during periods of generation constraint. Current and future demand-management programmes Since 2004, when demand-side management projects were Demand response initiated and measured, the demand savings in the evening peak Demand response (DR) is a collective name for initiatives whereby (18:00 to 20:00) have risen in line with the growing requirement the system operator can request consumers of electricity to for demand reduction. reduce their immediate consumption/demand for a limited period of time in an attempt to balance demand and supply, normally for The accumulated verified demand savings for the combined some form of incentive. It primarily aims to bring demand and financial years 2005 to 2012, is 2 997MW. A single power station’s supply into balance and is thus a demand management tool, with generator unit contributes about 600MW to the national grid. limited energy benefits. The demand market participation (DMP) Therefore demand-side management has now “freed up” about programme is well established and focuses mostly on large five generators (a typical power station has six). consumers. However, a significant market exists in the smaller industrial and commercial markets. The demand response The total evening peak demand savings achieved for the 2011/12 aggregation programme was initiated to utilise this potential. Eskom period was 365MW (2011: 354MW ) against the Eskom target will contract for bulk demand reductions potential with intermediary of 313MW. Reasonable assurance provided by the independent assurance provider (refer page 86). Eskom Holdings SOC Limited Divisional Report 2012 33 Line division: Group Customer Services continued Demand response continued Residential energy-savings programmes agent or “aggregators” who in turn contract with a large number Eskom’s solar water-heating programme offers a rebate to of smaller consumers to reduce demand when called upon. customers who use solar power instead of electricity to heat water. Customers can either replace existing electric geysers with solar- The Demand Response Aggregation Pilot Programme (DRAPP) is heated systems or they can install low-pressure solar water-heating being implemented. The programme aims to save 500MW by systems to replace water heating via other electrical appliances. Winter 2012 and it is estimated that a total market potential of 2 500 MW exists. The past financial year has seen a significant increase in the number of both high- and low-pressure solar water-heating system installations. 158 175 claims (27 149 high-pressure systems and Emergency demand response 131 026 low-pressure systems) were submitted to energy audits In addition to the Demand Response Aggregation Programme, for measurement and verification. 7 870 units not verified this processes were initiated to increase the current demand response financial year will be verified in 2012/13. capacity. This includes the extension of the current DMP capacity. Customers with current DMP contracts were approached to The Residential Mass Rollout Programme was implemented in the extend their contracted savings potential at an incentivised rate. 2011/12 financial year to complement the ongoing CFL project, The emergency DMP programme aims to increase the available which has largely exhausted its power-savings potential. The solution demand reduction by an additional 200MW. is based on a free rollout of a “basket” of technologies, focusing on optimising single customer visits.These measures resulted in demand Approval has also been given for the purchase of energy from savings of 36MW for the year under review. The residential market customer-owned standby generators, with the target for this is seen as a key focus area to obtain savings in order to manage the standby power being 100MW. Eskom contracts customers that supply/demand situation in the immediate future. have emergency generators to use in times when the system is constrained. On Eskom’s request they will generate to reduce their Eskom’s Power Alert and Geyser evening campaigns between own consumption and Eskom will compensate them at a 17:00 and 21:00 aim to reduce power demand during the evening contracted rate per kWh. A service provider has been contracted peak. to help to implement the programme, assisting with the dispatching of the requirements, measurements and other contractual Commercial and industrial incentive programmes requirements. The Integrated Demand Management business unit has implemented a number of alternative incentive programmes that Energy Conservation Scheme financially reward companies for achieving energy savings. The Energy Conservation Scheme (ECS) is a key element in the suite of solutions to reduce the supply/demand gap. It can be The Standard Product is based on a catalogue of energy savings implemented in a relatively short space of time to provide the bulk technologies offered to consumers. Each item/technology will be of the required demand reduction and associated energy savings offered at a fixed financial rebate which is based on deemed future (up to 6 000 GWh per annum). In addition, ECS will provide the energy savings. This is an efficient and quick method, targeting pricing signal to ensure the uptake on other solutions such as smaller projects (<250kW) mainly in the commercial market. demand-side management, particularly amongst larger consumers. The Standard Offer will allow mainly commercial and industrial Eskom strongly supports ECS as a key “safety net” or “insurance consumers to implement energy savings technologies based on policy” risk mitigation strategy. A phased implementation approach their specific needs. Eskom will measure actual savings over a three is supported, allowing for an initial, simulation phase where ECS year period, effectively “buying” energy savings at a predetermined charges will be set at zero. Consumers and distributors will be able rate per technology group. Eskom aims to significantly reduce to familiarise themselves with the scheme. current project approval timelines, allowing quick turnaround of savings opportunities. Given the urgency of the supply/demand situation, preparations need to immediately commence. ECS requires a number of These programmes have streamlined the incentive-programme legislative and regulatory amendments to be implemented. Also, a application process, resulting in greater participation by the commercial and light industrial sector, which in the past had limited number of operational implementation issues need to be addressed participation in integrated demand-management programmes. In to ensure success. Eskom is engaging stakeholders to support 2011/12, 18 projects were submitted through the Standard Offer unlocking of these constraints. programme, realising demand savings of 8MW, and 215 projects were submitted through the Standard Product programme realising demand savings of 3MW. Keep your geyser out of hot water this winter Power buybacks As part of the efforts to create the necessary space to perform With more than nine million electricity-consuming households and our energy usage soaring at two Cut out ‘n keep checklist peaks during the day, South Africans need to be as to help you save energy throughout the day essential and critical generation plant maintenance, Eskom has thrifty as possible about using energy. Keep your morning shower hot and short. You’ll lighten the load on the morning peak. Closely managing your geyser is the single best thing you can do to Remember to only boil as much water as you need for that morning cuppa. entered into power buyback agreements with some of its large help reduce the load on the electricity grid, please switch your geyser off between 06:00 and 21:00. Take food out of the freezer for dinner and put it in the fridge to thaw. It’ll save you using the microwave Hot water or just hot air? to defrost it later. Let’s bust some geyser myths once and for all. industrial customers. The power buyback period is typically for Unplug that cellphone charger before you leave the – You won’t damage your geyser’s thermostat by switching it on and house! It draws electricity even if your phone isn’t off. By design, geyser thermostats switch on and off all the time. plugged in. Turn off your office lights if you sit near a window or a – On/off cycling will not cause your geyser to crack - the temperature skylight, use natural light instead. 30 days or longer with all current agreements terminating by 31 May range during normal operation is much greater than the gradual cooling Encourage your company to retrofit your building with of a geyser that is switched off. energy efficient lighting technologies. – Reheating the water in your geyser to the thermostat level, after Turn off all the office equipment, catering equipment it has been switched off, will definitely not use more electricity than and unnecessary lights before you leave in the evenings. 2012. The requirement is that customers reduce their base load if it had just been left on the whole time. Air conditioning can even be turned off an hour or so before you leave. – You can still enjoy a warm bath in the evening even if your geyser has been off during the day. When a geyser is switched Cook smart by using lids and ensure that the pot or pan you’re using completely covers the stove plate. off, it stores its water at the thermostat set point; the water demand and this reduction is purchased by Eskom at a rate temperature only drops by about 10ºC over 24 hours. Cook in the microwave whenever you can, it is the most efficient cooking appliance. – You don’t have to install an automatic timer to turn your geyser Only turn the heat on in the rooms that you’re going on and off. Whether you go for the convenience of an automated to spend time in, and rely on the timer function to turn negotiated with customers.The rate takes into account the customers’ timer or choose to do it manually, the effect is the same. heaters off automatically. Turn down the thermostat and turn up your savings. Ready for Don’t forget to turn your geyser on before you go to the numbers? An average household with a 150L geyser bed and off before you leave for work in the morning. (consuming about 200L of hot water every day) can make fixed costs, contractual obligations and various other requirements a R38,31 monthly saving by turning the thermostat down to 60ºC. – Install an efficient showerhead and use 24% less hot water 150L Geyser Set at 70°C Monthly cost R191,58 and electricity. including the requirement of no permanent job losses. 150L Geyser Set at 60°C Monthly cost R153,27 – If your clothes aren’t particularly dirty, you can save up to 20% of your hot water usage by skipping your washing machine’s Remember that the amount of electricity and money that your pre-wash cycle. household will save is directly related to: your household’s energy – Connect your dishwasher and washing machine to the cold consumption; geyser thermostat temperature setting. water supply. Use your geyser smart – If you can afford it, install a solar water heater. The resultant – Don’t waste hot water or use it for things that can be done with saving on a 200L geyser and 200kWh per month will cover the This initiative has proved to be beneficial in creating the additional cold water, like hand washing and rinsing vegetables. investment in seven years. – Save the one kWh you’ll use to heat an average bath by taking For more information about saving energy around the a shower instead. house visit the Demand Side Management (DSM) website at www.eskom.co.za/dsm space on the power system through base load demand reduction. www.eskom.co.za/dsm During this power buyback period, lower than usual commodity prices and surplus stock levels would have had a significant negative impact on the economy, jobs and customers’ business operations. 34 Eskom Holdings SOC Limited Divisional Report 2012 Line division: Group Customer Services continued Eskom believes that through the power buyback scheme, customers Internal energy efficiency are in a slightly more favourable position than they would have Eskom’s aim is to improve the energy efficiency of its facilities otherwise been in creating a win-win situation for both parties. (power plants and buildings) through the undertaking of energy audits and efficiency programmes focusing on lighting, heating, Energy-efficiency marketing Eskom embarked on a major drive aimed at reducing electricity ventilation and air-conditioning (HVAC). For the year demand consumption among all electricity users. Two major initiatives, savings of 1.37MW and energy savings of 44.96GWh were comprising nine programmes, aim to promote immediate and long- achieved. term behavioural changes. Energy losses management The immediate-response initiative aims to avoid load shedding Energy losses reflect the difference between the quantity of energy through the Power Alert and 17:00 to 21:00 evening programmes. sent out from the power stations and the quantity sold to the various customers at the end of the value chain. Eskom’s 49M campaign is a long-term behavioural-change initiative that seeks to embed energy-efficiency attitudes and practices in all consumers, particularly residential users, with the ultimate goal of There are two broad categories of energy losses: reducing their consumption by 10%. The integrated demand Technical energy losses naturally occur when electrical energy is management business unit provides advice and financial assistance transferred from one point to another. The medium through to residential customers and corporations to “make the switch” which electrical energy is transferred imposes a resistance to the and install energy-efficient technologies for a sustainable lifestyle. flow and some of the energy is dissipated as heat. Non-technical energy losses can be calculated as the difference between total energy losses and technical losses. They are typically caused by theft (illegal connections, meter tampering), ESKD102363/E With the thick of winter just around the corner, we’re all going to want to keep warm and cosy without giving up any of those winter comforts. What you might not know is that there are several easy-to-do ways to save energy, that won’t cost you a cent: errors in data and billing, among others. Keep cosy without wasting energy this winter In 2011/12, total Distribution energy losses were 6.32% , of which – Dress for the weather this winter! Try wearing more layers as the temperature starts to dip. You’ll look great and you’ll be warm too. Cut out ‘n keep checklist to help you save energy throughout the day non-technical losses are estimated to be between 1.6% and 2.5%. Compared to other utilities globally, Eskom continues to perform – Get cosy under a blanket. Get a few throws for your living room, grab a hot water bottle, pull on some thick socks and Keep your morning shower hot and short. You’ll lighten grab a cup of hot chocolate before turning on your heater. the load on the morning peak. – An electric blanket can melt even the iciest night and they are Remember to only boil as much water as you need for surprisingly energy efficient. You can make yours even more well on energy loss management. Distribution has participated in a that morning cuppa. energy efficient by turning it to its highest setting for a few Take food out of the freezer for dinner and put it in minutes, then turning it off for the night, just before getting the fridge to thaw. It’ll save you using the microwave to defrost it later. into bed. Unplug that cell phone charger before you leave the 2007 benchmarking study, conducted by an independent house! It draws electricity even if your phone isn’t plugged in. Turn off your office lights if you sit near a window or a skylight, use natural light instead. Encourage your company to switch your building’s international consulting group, mainly with South American utilities. lighting to energy efficient lighting technologies. Turn off all the office equipment, catering equipment and unnecessary lights before you leave in the evenings. Expect your heater to step up as an energy consumer in your Air conditioning can even be turned off an hour or so before you leave. The 2007 benchmarking parameters for total distribution losses home over the winter months. It might seem obvious, but the best way to use less energy, while keeping warm, is to make sure Cook smart by using lids and ensure that the pot or pan you’re using completely covers the stove plate. that you’re using the right type of space heating for the room that you want to heat! Cook in the microwave whenever you can, it is the most efficient cooking appliance. were 5.60% to 12.07%. Eskom is currently in the first quartile of Only turn the heat on in the rooms that you’re going Be smart about heating your home. We recommend that you to spend time in, and rely on the timer function to turn only buy heaters with a built-in thermostat, and only heat the heaters off automatically. rooms that you and your family are going to spend time in. Don’t forget to turn your geyser on before you go to bed and off before you leave for work in the morning. the top performing distribution utilities. There are different types of heating solutions for the home. Some examples are: underfloor heating, wall mounted heating, gas heaters, infrared heaters, oil heaters and fan heaters. Ensure that you select the correct heater for your specific need. With our current electricity supply shortage in SA; making a difference means that every person needs to take control of their own electricity usage, especially during winter, and make energy awareness a habit. It’s the little changes that we make in our daily lives that will limit the pressure on the electricity network and contribute to lower energy usage over the winter months. Even though Eskom compares favourably with other utilities, energy losses management remains a key focus area for the utility. Eskom will therefore continue to research and implement loss reduction initiatives. Actual Actual Actual Target 2012 2011 2010 Energy losses 2012 GWh GWh GWh Total Eskom energy flow 254 300 253 084 246 705 Total distribution network energy flow1 226 424 224 328 218 663 Actual loss – Distribution 14 312 12 734 12 839 Actual loss – Transmission 7 686 8 157 8 009 Total actual loss 21 998 20 891 20 848 NERSA MYPD allowance 22 533 22 535 21 131 Energy loss (%) (12MMA) % % % % Total Distribution loss ≤6.07 6.32 5.68 5.87 Total Transmission loss ≤3.40 3.08 3.27 3.27 Total Eskom loss ≤8.75 8.65 8.25 8.45 Reasonable assurance provided by the independent assurance provider (refer page 86). 1. Inclusive of energy flows to key customers. Eskom Holdings SOC Limited Divisional Report 2012 35 Line division: Group Customer Services continued The performance as at end of March 2012 shows an increase in The core partners of Operation Khanyisa are Proudly South the Distribution losses (6.32%) and a decrease in the Transmission African, Business Against Crime, Business Unity South Africa, the losses (3.08%) when compared to the performance at the end of South African Local Government Association and Primedia Crime March 2011. The actual Eskom total losses results achieved (8.65%) Line. The campaign is currently active only in Eskom areas of supply, are within the target energy losses (8.75%) allowed by the but the intention is to expand into areas serviced by municipalities, regulator. Energy Losses Management Programme activities will be hence the partnership with the South African Local Government intensified going forward to drive the losses downwards. Association. For internal evaluation purposes the estimated technical losses Operation Khanyisa is now in full operation and South African range between 60% and 75% of total losses in Distribution, while citizens continue to heed the call to report electricity theft and 100% is estimated for the Transmission networks. The actual illegal electricity sales. percentage in Distribution is influenced by factors such as network design, network topology, load distribution on the network and network operations. Refer to Transmission on page 22 and Distribution on page 26. Operation Khanyisa The energy losses management programme has stabilised distribution energy losses at around 6% through audits and corrective measures, conducting energy-balancing of ring-fenced areas, implementing tested technologies and a public awareness campaign called Operation Khanyisa. Operation Khanyisa, launched in October 2010, promotes legal power usage in South Africa. Although the focus of the campaign is electricity theft, it integrates related issues such as safety, non- payment, energy efficiency and infrastructure theft. The theme of the campaign is sustainability for economic growth. Electricity theft contributes to power outages, rising prices, the slowing down of the economy, job losses and fatalities and injuries due to electrocutions. It also affects government’s universal access programme. Illegal connections in residential area Safety of the public is important to us Reasonable assurance provided by the independent assurance provider (refer page 86). 36 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Human resources Mandate Being the custodian of people management within Eskom, Human Resources (HR) is mandated to partner and empower line to recruit, develop, and retain a skilled, committed, engaged and accountable staff base across Eskom. HR is committed to the building of skills not only internally to Eskom but also for the communities in which Eskom operates. This is done in support of Eskom’s aspiration and duty to grow the economy and improve the quality of life of people in South Africa and in the region, as outlined in the New Growth Path. Operational highlights Future focus areas Establishment of the Welding School of Excellence and the Eskom to embed high performance culture aligned to strategy Eskom Power Plant Engineering Institute (EPPEI) launched in through implementation of team-based performance partnership with South African universities management, ensuring all work output is linked to strategy Project Management Training Centre of Excellence partnered Eskom to focus on transformation beyond numbers and with academic institutions for the development and improved embedding a culture of country accountability and authentic professionalism of project management staff throughout Eskom transformation conversations in line with developmental goals The Eskom Leadership Institute, including the supervisory ETAPro training programme to be launched to train power development programme, was launched with the focus of station engineers to optimise power station performance building leadership capacity to build a comprehensive leadership Establish a School of Customer Services as well as a Project and pipeline Construction Management School to be fully operational in the Eskom awarded the Magnet Student Survey Award for five next financial year consecutive years for engineering students Eskom to implement an integrated workplace skills plan to Announced as a finalist in 2012’s GBCHealth Business Action on address the key training priorities in closing the core and critical Health Awards for the Eskom HIV counselling and testing competency gaps as tabulated below campaign Maintain focus on learner pipeline as tabulated below. Safety awareness and education facilitated through coaching and training to embed safety culture. Eskom learner pipeline All targets have been exceeded including the learner pipeline, Operational challenges engineering, technician, artisan and a youth programme of 5 159 Eskom is still finalising its capacity model, which is required to for period 2011/12 against a target of 2 100, as tabulated below: ascertain the right employee profiles employees and skills mix required to execute its strategy for the next five years Inability to sufficiently meet equity targets. Target 2012 2011 2010 Eskom total learners/bursars 5 735 6 794 5 283 5 255 Engineering learners 1 800 2 273 1 335 955 Technician learners 700 844 692 681 Artisan learners 2 350 2 598 2 213 2 144 Other learners 885 1 079 1 043 1 475 Learners being trained to contribute to the socio-economic development of South Africa (SYDI). 2 100 5 159 n/a n/a Projected growth in Eskom-funded learners 2013 2014 2015 2016 Total learner pipeline 5 907 5 979 5 990 6 100 Engineers 1 949 2 007 2 032 2 035 Technicians 757 780 789 791 Artisans 2 543 2 619 2 651 2 656 Other learners 658 573 518 618 Eskom Holdings SOC Limited Divisional Report 2012 37 Service functions: Human resources continued Projected engineering/technical skills to replace Cumulative projected engineering/technical skills to replace 2012 2013 2014 2015 2016 Total engineering/technical skills 17 307 16 578 15 855 15 144 14 449 Engineers and technologists 2 821 2 683 2 549 2 421 2 299 Artisans and trades workers 10 947 10 495 10 042 9 592 9 148 Technicians 3 539 3 400 3 264 3 131 3 002 Engineering/technical skills to replace – 729 1 452 2 163 2 858 Benchmarking Overall staff turnover The following information is an indication of HR’s metrics against Eskom’s overall staff turnover was 3.7% for the period 2011/12. industry practice: This places Eskom favourably below the 25th percentile of South African companies (9.5%).The average turnover in Eskom has been Human resources sustainability 6.2% per annum over the last two decades. This is beneficial to Human resources is responsible for measuring and monitoring Eskom as the average cost of separation and replacing scarce and critical factors relating to the sustainability of Eskom’s human critical skills ranges from 30% to 100% of an incumbent’s annual resources. A human resources sustainability index is used to salary. measure the following key aspects: employee satisfaction, employee competence, and employee health and wellness.The measurements Turnover due to retirement and criteria are reviewed annually to make sure they stay applicable. Turnover due to retirements is 1.03%. This places Eskom midway between the 50th percentile (0.6%) and 75th percentile (1.2%) of The HR Sustainability index has also reflected positively in terms of South African companies. Twenty-seven percent of Eskom’s staff overall HR performance, achieving a year-to-date HRSI score of are 50 years and above and could be considered a retirement risk 82.4% (2010/11: 88.3%) against a target of 80. An increase in the within the next decade. index weighting of fatalities from 1.5% in 2011 to 4.5% in 2012 and an increase in the turnover of core staff during 2012 resulted in a Performance reduction of the total index score from 2010/11 to 2011/12. People with disabilities Eskom’s disability target is 3% of the workforce and actual is 2.49% Training and development costs as a percentage of the wage bill (company only). This is well above the national norm of 0.7% Eskom’s R1 361 million (2010/11: R998 million) investment in (Employment Equity Commission’s report, 2009) and the training and development is 6.3% of the wage bill. This puts Eskom government’s 2% target for the public service. well within the 75th percentile of United States utility companies (which average 3.3%) and United Kingdom/European Currently 1 032 (2010/11: 1 012 ) (company 1 022 (2010/11: utility companies (which average 3.5%) according to a 2010 1 002 )) group employees are recognised as having disabilities, as PricewaterhouseCoopers report. per the Employment Equity Act. Eskom continues to strive for a fair representation of people with disabilities. The table below details Employer of choice Eskom’s group disability profile at all occupational levels compared Young engineering professionals have rated Eskom the employer of to the internal target. choice out of 60 engineering and technology companies in South Africa for five years running (Ideal Employer Ranking, Magnet Survey, 2011). Percentage of all Eskom employees with disabilities Target Actual Actual Actual 2012 2012 2011 2010 Percent of employees with disabilities – Company 3 2.49 2.53 2.54 Percent of employees with disabilities – Group n/a 2.36 2.36 2.29 Trainee welders do a demonstration at the launch of the Eskom Welding School this year Reasonable assurance provided by the independent assurance provider (refer page 86). 38 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Human resources continued Employment equity In November 2010 Eskom participated in the Department of Eskom implemented an employment-equity plan supported by a Labour’s director-general review process. In February 2012 the long-term target-setting strategy (Equity 2020) to drive its department confirmed that Eskom has the necessary transformation transformational agenda for the three financial years leading up to interventions in place. 2012/13. The employment-equity plan seeks to create a workplace and workforce profile that is diverse and inclusive, and to ensure The table below details the employee profile for Eskom’s four top that diversity becomes the Eskom way. occupational levels in terms of gender and race. There are no specific targets set for this group. Eskom company employee profile for the top four occupational levels (task grades nine and above) Male Female Foreign nationals Occupational level Date A C I W A C I W Male Female EAP % 1 39.20 6.10 1.90 6.70 34.20 5.20 1.10 5.50 0 0 Mar 2010 Actual % 23.81 4.76 19.05 28.57 9.52 4.76 4.76 4.76 0.00 0.00 Top management Mar 2011 Actual % 28.57 4.76 14.29 33.33 4.76 4.76 4.76 4.76 0.00 0.00 (FAA, FBB) Mar 2012 Target % 28.57 4.76 14.29 33.33 4.76 4.76 4.76 4.76 0.00 0.00 Mar 2012 Actual % 34.48 3.45 13.79 24.14 13.79 3.45 3.45 3.45 0.00 0.00 Mar 2010 Actual % 17.80 3.04 10.07 42.62 9.37 2.81 4.22 5.15 4.22 0.70 Senior management Mar 2011 Actual % 20.62 3.84 10.55 38.85 10.31 2.88 4.32 6.00 2.16 0.48 (EEE, SSE) Mar 2012 Target % 21.49 3.51 8.55 35.75 13.82 3.29 3.73 5.26 3.95 0.66 Mar 2012 Actual % 21.33 3.67 11.01 36.24 10.78 2.75 4.36 6.42 2.52 0.92 Professional, Mar 2010 Actual % 26.70 5.22 7.49 26.85 18.61 2.04 2.87 6.73 2.69 0.80 specialists and mid- Mar 2011 Actual % 26.80 5.14 7.38 26.11 19.73 2.09 2.91 6.83 2.40 0.62 management Mar 2012 Target % 28.86 5.36 6.45 23.08 21.36 2.59 2.54 6.48 2.52 0.75 (T14–T18) Mar 2012 Actual % 27.28 5.19 7.28 25.11 20.82 2.18 2.94 6.49 2.16 0.54 Skilled technical, Mar 2010 Actual % 33.85 5.12 2.41 20.81 25.16 2.80 1.71 7.01 0.78 0.36 academic qualified Mar 2011 Actual % 34.62 5.16 2.46 19.46 26.05 2.96 1.67 6.72 0.64 0.26 workers, junior Mar 2012 Target % 34.79 5.29 2.32 18.22 26.76 3.23 1.60 6.72 0.73 0.34 management, supervisors (T09–T13) Mar 2012 Actual % 36.03 5.26 2.47 18.44 26.15 2.88 1.69 6.25 0.61 0.22 Eskom group employee profile for the top four occupational levels (task grades nine and above) Male Female Foreign nationals Occupational level Date A C I W A C I W Male Female Mar 2010 Actual % 20.83 4.17 16.67 37.50 8.33 4.17 4.17 4.17 0.00 0.00 Top management Mar 2011 Actual % 28.57 4.76 14.29 33.33 4.76 4.76 4.76 4.76 0.00 0.00 Mar 2012 Actual % 34.48 3.45 13.79 24.14 13.79 3.45 3.45 3.45 0.00 0.00 Mar 2010 Actual % 18.10 2.94 9.95 42.53 9.50 2.71 4.30 5.20 4.07 0.68 Senior management Mar 2011 Actual % 20.83 3.70 10.42 38.89 10.42 2.78 4.40 6.02 2.08 0.46 Mar 2012 Actual % 21.43 3.57 10.94 36.61 10.71 2.68 4.24 6.47 2.46 0.89 Professional, Mar 2010 Actual % 26.67 5.17 7.41 27.38 18.25 1.95 2.85 6.73 2.82 0.77 specialists and mid- Mar 2011 Actual % 26.72 5.05 7.28 26.85 19.28 1.99 2.88 6.80 2.54 0.61 management Mar 2012 Actual % 27.29 5.11 7.17 25.76 20.36 2.10 2.90 6.45 2.34 0.53 Skilled technical, Mar 2010 Actual % 34.14 5.00 2.46 21.86 24.05 2.68 1.66 6.88 0.93 0.35 academic qualified Mar 2011 Actual % 34.28 5.03 2.52 20.72 25.08 2.86 1.66 6.74 0.82 0.28 workers, junior management, supervisors Mar 2012 Actual % 36.39 5.11 2.50 19.62 24.86 2.74 1.65 6.15 0.76 0.24 Reasonable assurance provided by the independent assurance provider (refer page 86). 1. EAP – Economically active population A: African C: Coloured I: Indian W: White Eskom Holdings SOC Limited Divisional Report 2012 39 Service functions: Human resources continued Health and wellness Highlights Eskom’s integrated health and wellness programme promotes a During 2011/2012 the EAL devoted a large proportion of its safe and healthy working environment to ensure its employees are energy to supporting the Back2Basics (B2B) project (including the healthy, productive, resilient and engaged throughout their time at SAP reimplementation) with the rollout of classroom-based Eskom. training and e-learning courses for the B2B processes and systems. More than 1 200 Eskom employees were trained as B2B facilitators Eskom chief executive Mr Brian Dames launched the “Road to a and a total of 106 556 course attendees underwent the B2B Safe and Healthy Lifestyle” campaign as part of expanding the training courses. scope to other diseases impacting on the business. The campaign is a move from our traditional workplace programmes that focused The EAL did not allow the focus on B2B to subvert it from on raising awareness and prevention of HIV infection and access to addressing the normal training demands of the business and even treatment care and support. The focus is now on addressing other managed to initiate a number of new training programmes. In disease conditions, as well as workplace related factors that put March 2012 the EAL, in partnership with Group Technology employees at risk of ill health. launched the Welding School of Excellence. Forty welding apprentices were developed during 2011/12 as part of the pilot Eskom as a company is committed to forge strategic partnerships programme that preceded the launch. that are aimed at enhancing effectiveness in the handling of community issues. It is in this respect that Eskom pledged to The Engineering Centre of Excellence commissioned a state-of- support government to achieve its HCT campaign objectives to the-art training facility that includes a power plant steam turbine test 15 million South Africans. simulator to train power plant engineers. Eskom’s HIV counselling and testing campaign has been nominated A new Government Certificate of Competency Programme was as a finalist in GBCHealth’s Business Action on Health Awards, to implemented to prepare candidates to become certified engineers. be held in New York in May 2012. In addition, the Project Management Training Centre of Excellence implemented the Distribution Clerk of Works training curriculum On 10 – 12 October 2011, the Department of Health in to improve the quality of workmanship on the construction of partnership (Collective Action) with Eskom launched the HCT at overhead lines. Komati power station, Mpumalanga province, where 1 600 workers were tested. An ETAPro training programme is being launched to train power station engineers to optimise power station performance. During March 2012, Deputy President Kgalema Motlanthe and Health Minister Aaron Motsoaledi encouraged 5 000 workers at In January 2012 the Eskom Power Plant Engineering Institute Eskom’s Kusile power station in Mpumalanga to test for HIV. An (EPPEI) was launched as a partnership with South African esimated 77% of Eskom permanent employees now know their universities to: HIV status. increase the number of power plant MSc and PhD graduates ensure South African universities participate fully in the Employee relations localisation of new technologies currently being offered to Eskom’s employee-engagement model builds employee Eskom by original equipment manufacturers (OEMs) participation and involves employees and executives in ensure South African universities play an active role in transferring conversations around strategy, performance and people. Eskom has and establishing these new technologies in the country also built more productive and sustainable relationships with ensure South African universities are actively involved in solving organised labour through a partnering model to guide these Eskom specific engineering problems interactions. leverage the expertise and experience of international universities and utilities. Eskom maintains direct lines of communication with recognised trade unions. The wage negotiations during the year deadlocked, The Project Management Training Centre of Excellence built up resulting in threats of (illegal) strike action by certain of the trade relationships with academic institutions for the development and unions representing employees in the Eskom bargaining unit. improved professionalism of project management staff throughout However, the dispute was resolved by arbitration and a two-year Eskom. A Project and Construction Management School will be salary and conditions-of-service agreement was concluded with launched in the next year in partnership with Group Capital to trade unions. ensure an adequate pipeline of skills is available for the continued Eskom built environment. Refer to fact sheet at www.eskom.co.za/IR2012/041.html for more information on industrial relations. The EAL, in partnership with Group Customer Services set out to establish a School of Customer Services within the Professional Eskom Academy of Learning (EAL) Services Centre of Excellence. This School will become fully Eskom’s Academy of Learning’s mandate is to close Eskom’s operational in the next financial year. competency gap by addressing, coordinating and integrating all learning needs of employees; as well as enhancing performance throughout Eskom; by focusing on business needs, and catering for all facets of the learning value chain and learning operations. Total training investment per year Training expenditure Year 2012 2011 2010 2009 Rm 1 361 998 758 823 40 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Finance Mandate To provide financial strategy, policies, assurance and strategic financial services (including treasury, shared services, corporate and regulatory reporting, taxation, as well as financial evaluation and advisory services) to the Eskom Group. Operational highlights Electricity sales Actual Actual 77.6% of the R300 billion funding plan has been secured and GWh 2012 2011 R32 billion has been drawn down during 2011/12 Southern African Energy Eskom obtained approval from the government to increase the International 13 195 13 296 government guaranteed domestic bond issuance (DMTN programme) from R65 billion to R100 billion Customer Service Top customers 87 984 88 794 A standardised, one instance of SAP was implemented on  Other large, small and residential 13 October 2011 customers 123 606 122 356 Ranked second in the Ernst & Young: Excellence in Sustainability Reporting Awards for the 2010/11 report Total Eskom 224 785 224 446 Finance continued with their ISO 9001 certification drive during 2011/12. To date Group Taxation, Corporate and Regulatory The year to date sales were 2 288 GWh lower than target. Reporting, Shared Services and Treasury have received ISO 9001 certification. Sales within South Africa are lower than the target mainly due to the ferrochrome, steel and mining sectors all recording reduced Operational challenges sales as well as power buybacks (1 078GWh). The International The rating agencies changed the credit outlook for Eskom from sales were above target due to additional sales to NamPower, stable to negative between November 2011 and March 2012. Namibia, necessitated by low water levels at the Ruacana hydro station as well as refurbishments at ZESCO, limiting self-generation. Future focus areas Submit MYPD 3 to NERSA While Eskom is a net exporter of electricity, the volume exported Maintain funding momentum represents 1.4% of Eskom’s sales for the year. Refer page 25 for Use alternative funding solutions for future Eskom initiatives details of Eskom’s imports and exports of electricity. Continue renegotiation of remaining special price agreement. Electricity revenue Financial results Actual Actual Results of operations Rm 2012 2011 Eskom has achieved a group net profit for the year to 31 March Southern African Energy 2012 of R13.2 billion (2010/11: R8.4 billion) and a company net International 4 909 4 096 profit of R12.7 billion (2010/11: R8.0 billion). Customer Service Top customers 38 898 31 611 Compared to the prior year, the 25.8% tariff increase (including the  Other large, small and residential environmental levy) granted by NERSA to Eskom resulted in a customers 69 192 54 668 24.8% increase in revenue per kWh. The increase came into effect Total Eskom 112 999 90 375 on 1 April 2011 for non-municipal customers and 1 July 2011 for municipal customers. This increase was offset by a 25.9% increase The unfavourable variance between actual and targeted revenue in operating costs, mainly due to increases in primary-energy costs, for the year of R202 million is attributable to the net of an in line with target. unfavourable volume variance of R1 027 million, and a favourable price variance of R825 million. The operating profit for the year before fair value gains and losses on embedded derivatives and net finance costs was R22.0 billion Primary energy costs (2010/11: R17.7 billion) for the group and R21.3 billion (2010/11: Coal purchases and burnt statistics, as well as the coal stock days are R17.1 billion) for the company. presented: Sales and revenue Actual Actual Group revenue for the year to 31 March 2012 was R114.8 billion 2012 2011 (2010/11: R91.4 billion), while company revenue was R113.5 billion Coal purchased (Mt) 124.27 126.23 (2010/11: R90.9 billion). Coal burnt (Mt) 125.21 124.68 Included in electricity revenue is the environmental levy of Coal stock days 39 41 R4.3 billion (2010/11: R4.3 billion) charged to customers. The sale of 224 785GWh of electricity for the year represents an increase of 0.2% compared to the previous year (2010/11: 224 446GWh). Reasonable assurance provided by the independent assurance provider (refer page 86). Eskom Holdings SOC Limited Divisional Report 2012 41 Service functions: Finance continued The primary energy costs for the year (group and company) Operating costs amounted to R46.3 billion (2010/11: R35.8 billion). The costs Group and company operating costs consist of the following: include the environmental levy of R6.2 billion paid to the government (2010/11: R5.0 billion). Employee benefits Group employee numbers increased by a net 1 695 in the year to The cost of primary energy as a percentage of electricity revenue 31 March 2012, to 43 473 employees, from 41 778 at 31 March was 41.0% (2010/11: 39.6%). 2011. Company employee numbers increased from 39 034 at 31 March 2011 to 40 802 at 31 March 2012. Breakdown of primary energy costs Group gross employee costs (before transfer to capital expenditure) Primary energy cost for the year to 31 March 2012 amounted to R24.4 billion (2010/11: R20.4 billion). Company gross employee costs for the same period amounted to R22.0 billion (2010/11: R19.0 billion). Group and company employee costs of R4.2 billion were capitalised to capital 22 20.6c/kWh 20 projects during the year (2010/11: R3.7 billion). 18 15.9c/kWh 16 14 13.3c/kWh Arrear debt Group annual arrear bad debt was 0.53% of the external revenue c/kWh 12 10 8 for the year to 31 March 2012 (2010/11: 0.75%). The residential 6 debt in Soweto continues to grow. Electricity debtors increased 4 2 from R11.5 billion at 31 March 2011 to R14.6 billion at 0 2010 2011 2012 31 March 2012. The allowance for impairment for electricity receivables increased from R2.8 billion to R3.3 billion over the ● Coal usage ● Environmental levy ● IPPs ● Imports ● OCGT ● DMP and co-generation ● Other same period. Municipal debt, while not yet at optimal levels, has improved when compared to the previous year. There has been a significant The cost of primary energy increased by 29.2%, from 15.9c/kWh improvement in the level of provincial government support (via the (2010/11) to 20.6c/kWh for the year to 31 March 2012. Premiers’ offices, the Department of Cooperative Governance and The 4.7c/kWh increase is made up of the following: Traditional Affairs [COGTA] and provincial treasuries) and a The increased cost of coal burnt (20.8% per ton) contributed heightened awareness and understanding of what the challenges 1.54c/kWh (33% of the increase) are facing the municipalities. This has resulted in the formulation of The cost of using IPPs (R3.3 billion) contributed 0.88c/kWh action plans to address the financial performance and sustainability (19% of the increase) of the municipalities. Municipal entities are concluding payment Demand-market participation, power buyback and co-generation arrangements with Eskom, which reduces the overall pressure costs increased 923% to R2.2 billion and contributed 0.87c/kWh caused by non-payment of electricity debt. (19% of the increase) The environmental levy increase of 0.5c/kWh, which took effect Eskom does not currently provide for arrear municipality debtors. on 1 April 2011, contributed 0.55c/kWh (12% of the increase) Open cycle gas turbine (OCGT) costs increased 281% to Soweto debt continues to have a considerable impact on arrear R1.5 billion and contributed 0.49c/kWh (10% of the increase) debt. Soweto has outstanding cumulative debts of R2.9 billion at The increases in coal handling, gas-fired startups, road repairs year end, of which R2.3 billion is provided for. and water usage costs make up the remaining 7% of the increase. Repairs and maintenance Coal stock days The group’s other operating expenses for the year to 31 March Eskom’s coal stock holdings, which reached a low of 36 days at the 2012, which amounted to R15.2 billion (2010/11: R12.1 billion), end of July 2011 following labour action at a number of collieries, consist primarily of repairs and maintenance which are monitored have recovered well. The coal stock days at 31 March 2012 stood closely for both the group and company. at 39 days (target level is 42 days), two days lower than the 31 March 2011 level of 41 days. The company’s gross repairs and maintenance expenditure1 for the year to 31 March 2012 was R17.6 billion (2010/11: R14.1 billion). Ensuring that the outage plan is executed in good time remains a challenge given the electricity demand and supply balance. Company repairs and maintenance costs of R3.2 billion (2010/11: R2.1 billion), that were classified as major overhauls, were capitalised during the year. Reasonable assurance provided by the independent assurance provider (refer page 86). 1. Including employee benefits cost relating to repairs and maintenance. 42 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Finance continued The group’s maintenance cost is less than the company’s due to the Cash and cash equivalents at the group level, together with liquid elimination of intercompany transactions. investment in securities, amounted to R40.5 billion (2010/11: R49.9 billion). The group currently carries sufficient funds to cover Net fair value loss on financial instruments, excluding embedded Eskom comfortably for the next financial year. Further, based on derivatives the latest projections and including the signed and committed The net fair value loss on financial instruments, excluding embedded facilities per the planned draw-down schedule, Eskom’s requirements derivatives, was R2.4 billion for the year to 31 March 2012 are covered beyond March 2013. (2010/11: a loss of R1.8 billion) for the group and a loss of R2.4 billion (2010/11: a loss of R1.9 billion) for the company. These Cash flows from operating activities losses consist primarily of the costs attributable to the rolling over The group’s net cash inflow from operating activities for the year of forward exchange contracts. The costs vary from period to was R38.5 billion (2010/11: R22.7 billion), while the company had period due to the timing of the placement of related procurement a net cash inflow of R38.5 billion (2010/11: R22.1 billion). The free contracts and exchange rates. funds from operations at 31 March 2012 stood at 15.15% (2010/11: 9.51%) of gross debt for the group. The improvement in Gain on embedded derivatives the cash flows for operating activities and in the free funds from The net impact on the income statement of changes in the fair operations as a percentage of gross debt is primarily due to the value of the embedded derivatives (relating to the special pricing increased operating profitability of the company. agreements) for the group and company was a fair value gain for the year to 31 March 2012 of R0.3 billion (2010/11: loss of Cash flows used in investing activities R1.3 billion). The embedded derivative assets were Rnil (2010/11: Cash flows used for investing for the year were R59.9 billion Rnil) and liabilities amounted to R5.5 billion (2010/11: R5.9 billion). (2010/11: R46.5 billion) for the group and R59.0 billion (2010/11: Discussions continue with interested parties, including the R44.9 billion) for the company. The group capital expenditure cash Department of Public Enterprises and the National Treasury, to flows included in this line item, excluding capitalised interest, find a solution regarding the remaining special-pricing agreements. amounted to R59.5 billion (2010/11: R45.3 billion) primarily due to the progress and phasing of the capital expansion programme. Net finance cost After capitalising borrowing costs and including unwinding of Cash flows from financing activities interest on provisions, the net finance charges for the year to The net cash inflows from financing activities for the year were 31 March 2012 was R4.0 billion (2010/11: R4.7 billion) for the R28.7 billion (2010/11: R20.3 billion) for the group and R27.4 billion group and R3.9 billion (2010/11: R4.8 billion) for the company. (2010/11: R19.4 billion) for the company. The raising of borrowings and the issuing of securities per the funding plan have been slowed Gross finance income for the year to 31 March 2012 was to match the reduced capital expenditure. The debt-to-equity ratio R3.5 billion (2010/11: R2.4 billion) for the group and R3.6 billion for the group (including long-term provisions) as at 31 March 2012 (2010/11: R2.4 billion) for the company. was 1.64 (2010/11: 1.61) and for the company 1.69 (2010/11: 1.66). Gross finance cost for the group for the year to 31 March 2012 was R12.2 billion (2010/11: R15.4 billion). Included in gross finance Environmental fiscal reform cost was the effect of a remeasurement of the government loan at Government introduced a 2c/kWh environmental levy, applied to 31 March 2012 resulting in a gain of R5.5 billion (2010/11: R2.5 billion electricity generated from non-renewable energy sources, effective loss). The borrowing costs capitalised for the group was R5.0 billion from 1 July 2009 and raised to 2.5c/kWh on 1 April 2011. This levy for the year (2010/11: R8.6 billion). Unwinding of interest for the will be increased from 2.5c/kWh to 3.0c/kWh from 1 April 2012. group amounted to R2.0 billion (2010/11: R1.7 billion). Standardising and optimising with Back2Basics Gross finance costs, excluding the remeasurement of the The Back2Basics programme was established to increase overall government loan, continue to increase as additional borrowings are performance across the whole organisation by eliminating waste raised to fund the capital expansion programme. The weighted and creating efficiencies through standardisation, simplification and annualised cost of borrowing as at 31 March 2012 was 9.8%1 optimisation of processes and systems. The objective is to ensure (2010/11: 9.5%). that all processes and systems adhere to the CARAT principles, that management information needs to be Complete, Accurate, Taxation Reliable, Accessible, and Timely. The effective tax rate for the year was 28.0% (2010/11: 27.9%) for the group and 28.3 % for the company (2010/11: 28.2%), which is Eskom is currently analysing, documenting and standardising all in line with the current statutory tax rate of 28%. On a company processes, and improving the data quality and integrity that drives level, provision is only made for deferred tax as Eskom is in an processes, identification of all process risks and standardisation of assessed loss position. controls, rationalising of policies and procedures to effectively manage process risks, standardisation of reports, and driving process Liquidity and capital resources – and system training in Eskom to achieve the long-term ambition. The group’s cash and cash equivalents increased from R12.1 billion at 31 March 2011 to R19.4 billion at 31 March 2012.The company’s Documentation of the above produces a comprehensive Process cash and cash equivalents increased from R11.5 billion to Control Manual (PCM), per process which are organised according R18.4 billion in the same period. to the High Performance Utility Model (HPUM) framework. The 1. Excludes the government loan remeasurement Eskom Holdings SOC Limited Divisional Report 2012 43 Service functions: Finance continued HPUM framework provides an integrated view of all of Eskom’s market funding. During 2011/12, Eskom obtained approval from capabilities and processes regardless of the technologies and the government to increase the government guaranteed domestic systems, and allows the company to identify, manage, and maintain bond issuance (DMTN programme) from R65 billion to all of the business processes in a centralised manner. R100 billion. Using the optimised PCMs as a framework, an assessment of Funds for the next 12 to 18 months will be sourced by issuing current systems has been undertaken to ensure that enabling bonds, through export-credit backed financing, from development- systems and technologies are also standardised across Eskom. The finance institutions and the domestic money market. Funding consolidated system requirements were then translated into a progress remains positive and, in line with corporates internationally, system release road map guiding the rollout of the implementations prudence dictates that a portion of the next financial year to achieve standardisation and efficiencies. requirements (ending March 2013) is already prefunded. The Back2Basics programme forms an important part of the The global sovereign credit crisis and the implications of the processes and systems initiative within the high performance staggered implementation of new global banking regulations organisation. Back2Basics was initiated in early 2010 to drive (Basel III) have not yet materially affected Eskom’s ability to access efficiencies by applying standard business processes and using funding, although such funding is becoming increasingly expensive. uniform systems across Eskom. The Back2Basics programme The effect these new requirements will have on corporate clients comprises the Services Tools; Project Tools; Engineering Tools and is difficult to determine on a product-by-product basis, but the Operations, Maintenance and Outage Management Initiatives. overall impact will undoubtedly be a higher cost of funding and difficulty extending tenor. Eskom’s Treasury continues to closely The Services Tools Programme (Release 1) has achieved the major monitor the global crisis and the ways in which it might influence milestone of implementing a consolidated, standardised and the company’s funding abilities in the forthcoming years. improved SAP application on schedule and within budget. The enhanced SAP system was made available to the user base on During the year the South African sovereign rating outlook was 13 October and the decision to go live was motivated by sponsors changed to “negative”. While the Treasury has not noticed any from each section of the business and also supported by external direct impact of the change, it did have an effect on the rand, which audit. The stabilisation period has ended in December 2011 and consequently affected the mark-to-market of Eskom’s hedging the solution has been handed over to operations (Group IT). activities. Services Tools Programme (Release 1) has thus met its objective The Treasury continues to manage funding in terms of the plan and has provided an enabling platform of standardised, simplified developed for the capacity expansion programme (up to the and optimised processes, systems and tools to support a culture of continual improvement. Benefit realisation of the project will be completion of Kusile). It has largely identified sources of funding tracked by the Delivery unit going forward. and has made progress in both securing the funding and drawing down on the facilities. In funding the build programme, the Treasury Specific significant achievements during this period relating to is conscious of balancing its utilisation of the government guarantee Services Tools (Release 1) include: facility against building its own balance sheet such that Eskom can Handover of 50 PCMs, fully aligned to best practice, from the ultimately be rated as a standalone investment grade credit. Services Tools Programme to business ensuring the HPUM model can be sustained in the future within the business The government’s Electricity Pricing Policy, approved in 2008, aims Creation of master data governance within the business to to achieve cost-reflective tariffs that will reflect the full economic maintain the integrity of master and transactional data as the cost of supplying electricity to customers in terms of the current Services Tools Programme cleansed a significant number of multi-year price determination (MYPD 2). South Africa is entering records prior to conversion the final year of the MYPD 2 increase cycle and Eskom is conscious Extensive training of SAP functionality and the improved of the impact of the price increases on both the consumer and its processes took place in the form of classroom and e-training and own ability to recover costs. In March 2012 in response to the will enable the workforce to effectively utilise the standardised, President’s call in his State of the Nation address for tariffs that simplified and optimised systems and processes. support economic growth and job creation, and after robust evaluation Eskom requested that NERSA revise the latest increase The immediate future focus for the Back2Basics programme will be downwards to 16% for the period from 1 April 2012 to 31 March the continuation of the development of the standardised and 2013. Eskom is in the process of reviewing a number of scenarios optimised processes as designed within the Project Tools, to ascertain the potential effects of a longer phase-in to a cost- Engineering Tools and Operations, Maintenance and Outage reflective tariff. Management Programmes. The Services Tools Programme will focus on the SAP implementation for Rotek (Roshcon and Rotran During the year under review the Department of Energy released implemented during March 2012) and is concurrently in preparation its Integrated Resource Plan, the 20-year energy strategy for the for Services Tools (Release 2) planning. country. Eskom will ensure the “bankability” of the projects detailed in the Integrated Resource Plan and allocated to the company by Treasury implementing suitable funding plans. The magnitude of the plan’s Eskom remains well placed from a funding point of view. It has build programme will require a funding approach that continues to healthy liquid reserves and, at the beginning of the financial year, support Eskom’s long-term standalone investment-grade credit had effectively prefunded a portion of the year under review. rating and potentially includes technology or equity partners for certain aspects of the strategy. Central to the success of the Treasury has adapted its funding to market conditions by balancing strategy is certainty around the tariff trajectory and flexibility in local and international funding, and capital-market and money- approach to allow for a potential industry restructure. 44 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Finance continued Funding Euro bond gap Eskom Treasury’s first priority is to secure liquidity, which needs to Euro bond gap be balanced against the management of other financial risks, including interest-rate, currency, credit and refinancing risks. The past financial year was dominated by the sovereign credit crisis, particularly in the Eurozone and the United States, resulting in 4.4 extreme volatility of interest and currency rates and most 4.0 3.6 importantly uncertainty on access and depth of the markets. 3.2 Yield % 2.8 2.4 This market volatility posed a challenge for Eskom’s bond auctions. 2.0 1.6 In response the Treasury changed to smaller-sized auctions, which 1.2 31-Mar-11 30-Apr-11 31-May-11 30-Jun-11 31-Jul-11 31-Aug-11 30-Sep-11 31-Oct-11 30-Nov-11 31-Dec-11 31-Jan-12 29-Feb-12 31-Mar-12 have been fully subscribed. The performance of both domestic and international bonds in issue continues to be under pressure due to the large demand for funds related to the infrastructure ● Eskom Eurobond 2013 ● RSA Eurobond 2013 development in the country and the volatile European sovereign credit climate. The spread between the Eskom Eurobond 2013 and the RSA government Eurobonds widened to 162 basis points (from 27 basis points Comparison of Eskom and government bond spreads a year ago) in volatile, credit driven European markets. Eskom bonds versus government benchmark bonds The major focus during the 2011/12 year from a new funding point of view has been on initiatives relating to renewable energy projects. During the year the Treasury also secured USD800 million 75 export-credit-backed financing from US Exim (United States) for 70 the Kusile power station and obtained approval by SACE (Italy) for 65 €300 million for the Ingula underground works contract. Basis points 60 55 50 45 Funding of Eskom’s renewable-energy projects 40 35 Eskom regards renewable energy as crucial for reducing South Africa’s reliance on coal-fired power stations. Eskom is currently 31-Mar-11 30-Apr-11 31-May-11 30-Jun-11 31-Jul-11 31-Aug-11 30-Sep-11 31-Oct-11 30-Nov-11 31-Dec-11 31-Jan-12 29-Feb-12 31-Mar-12 involved with two significant renewable-energy projects: the Sere ● Eskom August 2015/R157 ● Eskom January 2023/R208 ● Eskom September 2033/R209 wind farm in the Western Cape, and the concentrating solar plant near Upington in the Northern Cape, each of which will produce The gap between the RSA government and Eskom bonds is linked to the 100MW. perceived credit risk of Eskom over the government. The Eskom August 2015 (ES15) spread over the government R157 narrowed to 39 basis The World Bank loan finalised in 2010 included funding for a points (from some 52 basis points a year ago), Eskom January 2023 portion of these projects. The balance was to be sourced from the (ES23) spread over the government R208 narrowed to 59 basis points Clean Technology Fund and associated development-finance (from some 60.5 basis points a year ago), and the Eskom September 2033 (ES33) spread over the government R209 narrowed to 61.5 basis points institutions, and Eskom’s own sources. (from some 62.5 basis points a year ago). This narrowing across the curve shows an increased confidence in Eskom’s credit. The Clean Technology Fund is funded by developed countries as an interim measure to fill the funding gap for renewable-energy US$ bond gap projects in developing countries. Its committee approved the South African Investment Plan submission in October 2009, securing US$ bond gap USD100 million for the Sere wind farm and USD250 million for the Upington concentrating solar plant. 6.5 The signing of the €100 million AFD (Agence Française de 5.2 Développement) loan in July 2011 resulted in the Sere wind project being fully funded, enabling it to go ahead in terms of Yield (%) 3.9 2.6 Eskom’s policy of only proceeding with projects that are fully 1.3 funded ie from both debt and internally generated funds. 0.0 31-Mar-11 30-Apr-11 31-May-11 30-Jun-11 31-Jul-11 31-Aug-11 30-Sep-11 31-Oct-11 30-Novr-11 31-Dec-11 31-Jan-12 29-Feb-12 31-Mar-12 The outstanding funding for the concentrating solar plant project is expected to be concluded by December 2012. ● Eskom US$ Bond January 2021 ● US Treasury Bond November 2020 ● RSA 5.875% US$ Bond May 2022 Standalone credit rating Eskom’s ability to raise debt funds on a standalone basis is a The spread between the USD 2021 Eskom bond and the equivalent RSA function of its credit rating as assigned by the various rating government bond widened to 87 basis points (from 59 basis points a year agencies. ago) in volatile, credit sensitive market conditions. The initial spread was 64 basis points. The spread to the equivalent benchmark US Treasury bond widened to 312 basis points (from 214 basis points a year ago). The initial issue spread was 250 basis points. Eskom Holdings SOC Limited Divisional Report 2012 45 Service functions: Finance continued Concerns raised by rating agencies about Eskom’s ability to finance the current capacity expansion programme and the requirements of the Integrated Resource Plan without a cost-reflective tariff adjustment have been mitigated by the South African government’s strong support as shareholder. The revised cash-flow projections, the outcome of government’s latest support package and the tariff increase from MYPD 3 will all play a major role in the ongoing decisions of the agencies. In accordance with Moody’s and Standard & Poor’s rating methodology for government-related issuers, Eskom’s Baa2 and BBB+ ratings respectively, both with a negative outlook, reflect a high level of potential government support in case of need. The change in outlook to negative from stable of South Africa’s sovereign rating by all agencies has directly affected Eskom’s rating. Summary of Eskom’s standalone credit rating as at 31 March 2012 Entity Rating Status Moody’s S&P Fitch Foreign currency Baa2 BBB+ – Local currency Baa2 BBB+ Aa Eskom ZAR Long-term – AA AAAb Holdings SOC Ltd ZAR Short-term – A1 F1+ a Negative Outlook Negative Negative b Stable Financial sustainability Significant progress has been made in funding the capital expansion programme and Eskom is in a healthy funding and liquidity position. The latest projections indicate that Eskom has sufficient cash from cash on hand, investments, net operational cash flows and current secured facilities available to fund the business through to at least March 2013. Funds sourced in terms of Eskom’s R300 billion funding plan from 1 April 2010 to 31 March 2017 Drawdowns Drawdowns Amount 1 April 2010 1 April 2010 supported Sources Funding Secured to 31 March to 31 March by Rbillions sourced to date 2012 2011 government 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 44.63 33.92 40.43 By the end of the financial year Eskom had secured 77.6% of the funding required for the capital expansion programme. Of the R23.4 billion “other sources” required by the funding plan the Treasury has secured approximately R13.2 billion from various sources. These funds are to be applied to projects that have already been signed off (particularly the renewable-energy projects). The remaining funding includes facilities that have been identified and are currently being negotiated, and facilities that have been identified but not yet negotiated. The balance of the funding required for “other” continues to be explored, with various sources being considered, amongst others Islamic finance (Sukuk), preference shares and retail bonds. 1. As a percentage of the total R300 billion sourced 2. As a percentage of the secured total of R211.7 billion as at 31 March 2011 3. As a percentage of the secured total of R232.7 billion as at 31 March 2012 46 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Group Capital Mandate To create a centre of excellence in the allocation and monitoring of all capital expenditure from a group level and in the planning, development, monitoring and execution of mega projects. Operational highlights Benchmarking Shareholder compact targets relating to Group Capital all It is challenging to obtain consistent and accurate benchmarks for exceeded in the 2011/12 financial year new power-plant capital costs due to the following factors: Commissioning of Komati units (Unit 4, 5 and 6), Grootvlei’s The numbers are commercially sensitive Unit 5 plus the capacity upgrades at both Camden, Unit 6 and, The assumptions behind the numbers vary greatly (technology, Arnot Unit 5. Grootvlei has now been completely re- plant design, base year, exchange rate) commissioned. Altogether, Eskom added 535MW of power to The costs are constantly changing and have increased substantially the grid over the past few years due to a rising demand for equipment Power Delivery Projects, Medupi, Ingula and Kusile projects are and a movement in commodity prices ISO 14001: 2004 certified The consideration of contextual issues such as localisation, Significant progress has been made in the placing of contracts for supply chain, economic cycles/parameters and economies of the Kusile power station project scale. High local content levels achieved in contracts awarded Positive economic impact on local communities through job The most widely used method to compare capital costs of different creation and other spin-offs. power stations is the “overnight cost” method and is evaluated in terms of the United States dollar cost per kilowatt (USD/kW) for Operational challenges installed capacity. The overnight cost excludes escalation in Continue the focus on employee and contractor safety in the equipment, labour, commodity, capitalised borrowing, and operating capacity expansion programme and maintenance (O&M) prices. The overnight cost methodology Maintaining the construction schedule in the capital expansion commonly includes the engineering, procurement and construction programme (EPC) portion, or plant basic cost, as well as a combination of the The completion of the transmission projects is constantly following cost components: challenged by access problems, servitude acquisition and Owner’s development costs (ODC) unavailability outages due to network constraints Contingency Adding power to the grid while minimising the carbon footprint Transmission costs. Containing costs Fierce competition for technical skills for the capacity expansion Further, overnight cost calculations depend on a number of factors programme, both internationally and locally. such as site location, the year of comparison, the technology used and the station size. Future focus areas Hydrostatic pressure test for Medupi Unit 6 planned for Another method of comparing the total capital and operating costs June 2012 is the “levelised cost of electricity” (LCOE) method. This Complete Medupi’s boiler in Unit 6, the first new power-station methodology calculates the present value cost in United States unit that will be commissioned dollars per megawatt-hour (USD/MWh) of energy production. Repair Duvha power station’s Unit 4 on time Financial factors such as interest rates, inflation, discount rate and Start refurbishing the last unit at Kriel and second unit at Matla taxation are taken into account and include the capital cost, as well Finalise the procurement strategy for Sere wind project as fuel and all fixed and variable operating and maintenance costs. Obtain servitudes for various Transmission projects In the LCOE method, comparisons are significantly more difficult Refine renewable-energy project methodology and continue to compare on a like-to-like basis, as a great number of cost pursuing existing renewable-energy projects. components need to be evaluated to normalise costs being reported from different sources. Key financial statistics: Group Capital, as at and for the year ended 31 March 2012 Although the overnight cost of a plant may be high, its LCOE may Rm 2012 2011 be low and vice versa. One reason is the variation in operational and/or maintenance costs for different technologies; some power Capital expenditure plant technologies’ O&M costs may be more expensive than the (excluding capitalised interest) 39 730 30 436 O&M costs of other power plant technologies. Since the levelised cost of electricity includes the capital cost, as well as the O&M costs one can better evaluate the cost effectiveness of a plant by looking at the levelised cost of electricity. The benchmarking information must be used with care as only high-level broad conclusions can be made, particularly if the underlying assumptions differ from the various information sources. The Eskom overnight and LCOE numbers have been compared with available benchmarks. Eskom Holdings SOC Limited Divisional Report 2012 47 Service functions: Group Capital continued Summary of benchmark information from EPRI, Lazard, and IEA ZAR/USD Overnight LCOE exchange costs Cost (USD/ Cost Study rate Technology (USD/kW) components MWh) components EPRI (May 2010) 7.4 Pulverised 2 403 – 2 656 Basic cost 80 – 85 Capital cost Data for IRP2010 coal with FGD1 Contingency Operational cost Fuel cost Pulverised 2 091 – 2 281 71 – 75 coal without FGD1 Lazard (June 2009) 8.32 Super-critical with 2 800 – 5 925 Basic cost 78 – 144 Capital cost and without Contingency Operational cost carbon capture Owner’s develop- Fuel cost ment costs Transmission Borrowing costs Transmission IEA (2010 Edition) 8.2 Super-critical from 672 – 2 539 Basic cost 29 – 100 Capital cost various countries Contingency Operational cost Owner’s develop- Fuel cost ment costs Pumped storage 2 703 73 – 149 In order to compare cost more accurately, an attempt has been made to adjust the Eskom costs to the same base year and exchange rate and to match the cost components listed above in the EPRI, Lazard and IEA benchmarks. The outcome is presented in the table below. The comparison of overnight and LCOE costs with international benchmarks shows that Eskom’s plants are well within or below the international benchmark. Eskom costs adjusted to similar cost components from EPRI, Lazard, and IEA Overnight cost (USD/kW) LCOE (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 IEA 2 048 2 325 1 540 51 71 99 While Medupi and Kusile are similar super-critical coal-fired power Current performance stations, the difference in their costs is due to Medupi costs not The Group Capital division focuses on Eskom’s capital-intensive including flue-gas desulphurisation. The capital expenditure phasing projects, such as the capacity expansion programme and upgrades. is also different, resulting in Kusile attracting higher escalation and The budget for the new capacity expansion programme from financing charges. inception in 2005 until its completion in 2018/19 is approximately R340 billion. Based on the current economic and financial parameters applied by Eskom, the average overnight cost (excluding borrowing costs but The capacity expansion programme includes the 4 764MW including owners, development costs, transmission and contingency) Medupi and 4 800MW Kusile coal-fired stations; the Ingula and LCOE calculations for capacity expansion projects are: pumped-storage scheme in the Drakensberg, which will deliver Medupi 2 300 USD/kW and 54 USD/MWh 1 332MW of hydro-electricity during peak demand periods; and Kusile 2 500 USD/kW and 73 USD/MWh the expansion and strengthening of the transmission network. Ingula 1 700 USD/kW and 110 USD/MWh. In 2011/12 the capacity expansion programme delivered as follows: From inception Target Year to in 2005 to current 31 March 31 March year 2012 2012 Generation capacity MW 385 535 5 756 Powerlines built km 606 631 3 899 Substation capacity installed MVA 500 2 525 20 195 Reasonable assurance provided by the independent assurance provider (refer page 86). 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 changed its levelised cost model during the past financial year and therefore the levelised cost of electricity (LCOE) indicated in this table and paragraphs below should change. The changed LCOE was however not yet presented to board for approval, hence, the LCOE remains unchanged. 48 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Group Capital continued Capacity-expansion programme by project (excluding capitalised interest) Total expenditure Total Total since expenditure Project approved inception from 2005 (R billion) project cost (2005–2012) to 2011 Camden (return to service) 5.7 5.5 5.5 Grootvlei (return to service) 7.3 6.9 6.9 Komati (return to service) 12.2 10.5 9.0 Kriel 1.8 1.4 1.2 Arnot 1.4 1.4 1.3 Matla refurbishment 2.7 1.4 1.0 Majuba rail 4.8 0.2 0.2 Duvha 2.4 0.1 0.1 Tutuka 0.8 0.2 0.1 Underground coal gasification 1.0 0.8 0.6 Ingula (excluding transmission integration) 20.4 11.1 7.6 Sere 1.2 0.1 0.1 Medupi (excluding transmission integration) 91.2 55.2 40.7 Kusile (excluding transmission integration) 118.7 39.3 24.7 Transmission projects (including transmission integration for Medupi, Kusile and Ingula) 32.0 16.9 12.3 Total 303.6 151.0 111.3 Ensuring electricity supply for the future Notwithstanding these and other challenges, Group Capital The most significant risks to the capacity expansion programme continues to meet the requirements of the capacity expansion relate to engineering, construction, procurement and economic programme. Formal project assurance is used to track project fluctuations. These are some of the challenges the programme faces: schedules, costs and safety risks to meet the expected quality Resource constraints standards and deadlines. Shortage of project staff (including project managers, planners and contract managers), suppliers and contractors The three key projects – Medupi, Kusile and Ingula – are being closely Keeping a sustained focus on safety monitored to ensure they meet the current schedule and capital Upward pressure on capital cost on the back of high global expenditure. By the close of the 2011/12 period, Medupi was 39% demand for equipment complete (target 47%), Kusile 7% complete (target 11%), Ingula 41% Timely completion of environmental impact assessments and complete (target 48%). The delay at Ingula is mainly due to the obtaining environmental authorisations, permits, rights and land geological conditions related to the main turbine hall. servitudes Having the correct contract and procurement strategies The placement of contracts is satisfactory across all generation Managing commodities and high exposure items correctly programmes. At Medupi, 98% of contracts (by value) has been Inadequate and non-standardised processes and tools to placed; 90% at Kusile; 100% at Ingula; 100% at Grootvlei; 100% at manage and monitor progress. Komati; 100% at Kriel, Arnot and Matla; and 44% at Duvha. Local content from contracts awarded in the capacity expansion projects is indicated below. Local suppliers and service providers in Eskom’s capital-expansion programme Contract Actual local-content value Local content committed expenditure Project (in R billion) R billion % R billion % Medupi power station 50.5 32.4 64 12.8 39 Kusile power station 50.9 32.3 63 12.0 37 Ingula pumped-storage scheme 10.4 3.8 36 3.6 94 Power delivery projects 8.3 6.6 80 1.9 28 Total/overall average 120.1 75.1 63 30.3 40 Eskom Holdings SOC Limited Divisional Report 2012 49 Service functions: Group Capital continued Capacity expansion project update Kusile power station Medupi power station Kusile boiler erection, November 2011 HP (high pressure) turbine installation at Medupi power station, November 2011 Technology Coal, dry cooling, flue-gas desulphurisation Output 4 800MW (six 800MW units) Location eMalahleni, Mpumalanga Completion date 2018/19 Progress Construction has started to move from mainly civil structures to include steel erection. The project suffered a 10-week delay in 2011/12 due to labour action. Since then both the contractors and the Kusile execution team have made progress to minimise the impact of the strike on the schedule. 47 of the 53 procurement packages have been placed. An additional 22 small packages have been identified as a result of the incomplete work left behind by a contractor after the labour The first three units at Medupi power station are in different stages of action. These packages are receiving urgent attention since they progress are critical to staying on schedule. The access road connecting the site to the N4 highway to the Technology Coal, dry cooling, flue-gas desulphurisation north is complete. A main water-supply pipeline from Kendal Output 4 764MW (six 794MW units) power station is about 95% complete. About R16 billion of the budget will have been spent in the Location Lephalale, Limpopo Nkangala district on items such as accommodation, training and Completion date First unit in second half of 2013, all units training facilities, catering, laundry, fill material and other smaller complete in 2017/18, commissioning of flue- contracts for goods and services by the end of the project. gas desulphurisation plant in 2018 To date 208 local businesses within the region have attracted R929 million in revenue from the project. Progress At least 5 500 locals will be employed during the construction Site-preparation activities started in May 2007 phases of this project. 3 000 of these people are already The project experienced scheduling challenges in 2011/12. employed. Eskom has since revised the contract strategy to ensure timely Social-development projects worth R75 million have been delivery of Units 1, 2, 3 and 4 funded. These projects include building homes for child-run Progress on Unit 5: the turbine-area air-cooling suspended slab families. was poured, the main second-phase steel work was installed and The project is in the process of identifying suitable applicants the boiler area handed over to Hitachi so that boiler construction from the surrounding area for bursaries and skills training. could start Progress on Unit 6: the HP turbine was lifted into position in November 2011 and the generator rotor lifted into position in December 2011. 50 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Group Capital continued Ingula pumped-storage scheme The Ingula pumped-storage scheme consists of an upper and lower dam, both containing about 22 million cubic metres of water. The dams, 6.6km apart, are connected by underground waterways through an underground powerhouse, which will house four 333MW pump turbines. Technology Pumped storage Output 1 332MW (four 333MW units) Location Ladysmith, KwaZulu-Natal Completion date 2014 Progress The completed Bedford Dam at the Ingula pumped storage scheme Milestones for the year all achieved according to schedule Project management tool, Primavera pilot commenced on Grootvlei power station 24 October 2011 Both dams are complete and Braamhoek dam is full Technology Coal (return-to-service) Construction on the main underground works is progressing Output 1 200MW1 (six 200MW units) well and excavation of all the tunnels has been completed Location Balfour, Mpumalanga All contracts for the project were placed and the mechanical Completion date 2012 contractor is starting with the installation of the mechanical component Progress Completed 41% of the work for the project. All units were in commercial operation by18 July 2011 Project is 98% complete. Komati power station Technology Coal (return-to-service) Output 1 000MW (four 125MW units and five 100MW units) Location Middelburg, Mpumalanga Completion date 2013 Progress Units 4, 5, 6, 7, 8 and 9 were in commercial operation at 31 March 2012 Project is 74% complete. All tunnels for the Ingula pumped storage scheme have been completed Renewable-energy projects Sere wind-farm pilot project A 100MW greenfields pilot wind farm is planned for Sere, on the West Coast in the Western Cape. Commercial operation is planned for December 2013. Concentrating solar power pilot A 100MW concentrating solar power pilot plant project is planned for Upington, in the Northern Cape. Commercial operation is planned for December 2015. Ingula: Low pressure headrace tunnel 3 and 4 full round shutter   1. Due to the de-rating of units the output is now 1 150MW Eskom Holdings SOC Limited Divisional Report 2012 51 Service functions: Group Capital continued Power delivery projects progress Safety performance Power delivery projects contributed 631km of lines and Actual Actual Actual 2 525MVA of substation capacity to the national grid in 2011/12. Fatalities 2012 2011 2010 In total, 3 899km of lines have been built of which 1 238km have Employee fatalities 0 0 0 been put into commercial operation and added to the grid since 2005. Contractor fatalities 1 2 2 Since the inception of Eskom’s capacity expansion programme, Management has interpreted the health and safety requirements in 1 342 jobs have been created within the power delivery projects. a project environment to contextualise and simplify for implementation. Current completion dates 765kV transmission project: May 2015 For detailed information about the overall safety strategy and Northern grid: September 2017 initiative at an Eskom level please refer to the safety section on Central grid: May 2014 page 70. Cape grid: March 2014. Group Capital safety performance Causes of employee lost time injuries* 2012 1 2 ● Motor vehicle accident ● Fall on same level 2011 ● Caught/cut/struck by 1 2 *Group capital had no employee fatalities. Grootvlei power station in the snow Environmental performance Target Actual Actual Actual Environmental performance indicators 2012 2012 2011 2010 Number of environmental legal contraventions (number) 0 8 8 15 Number of environmental legal contraventions reported in terms of Eskom’s operational health dashboard (number)1 0 2 1 0 Materials containing asbestos disposed of (tons)2 n/a 32.7 76.1 73.6 Materials containing polychlorinated biphenyls (PCBs) thermally destructed (tons) n/a 0.4 0 1.2 Reasonable assurance provided by the independent assurance provider (refer page 86). 1. Under certain conditions, contraventions of environmental legislation are classified in terms of the Eskom operational health dashboard (OHD) index. These include instances where censure was received from authorities, non-reporting to authorities as may be legally required, non-reporting in Eskom, a repeat legal contravention, or when the contravention was not addressed adequately. Group or divisional executives can escalate any significant environmental legal contravention to the OHD. 2. Quantities of waste disposed of at registered waste sites. 52 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Group Technology and Commercial Mandate The newly established Group Technology and Commercial division has as its core responsibility the oversight, monitoring and execution of the engineering and procurement (including primary energy) activities across Eskom, as well as oversight of the Eskom Enterprises SOC Limited group of companies. Primary Energy Primary Energy division works to identify, develop, source, procure and deliver the necessary amounts of primary energy (coal, water, sorbent and biomass) of the required quality to Eskom’s power stations, at the right time and at minimum cost. The mandate includes: Supplying some power stations with coal of required quality and Meeting plants’ primary-energy requirements over their full consistency remains a challenge lifecycle at reasonable cost Quantifying total environmental liability at cost-plus mines Securing future primary-energy requirements by working with Delays in spending on the road-repair programme within relevant parties at national level to ensure that adequate MYPD 2 due to delays in the approval of the water-use licence resources (coal, water, biomass and sorbent) are available and on the P97/1 and D2514 Majuba roads and unreliable bitumen accessible for power generation supply due to volatility in crude oil. Ensuring the necessary water infrastructure is put in place, and optimising the use of current infrastructure and resources Future focus areas through collaboration with government and other stakeholders As a signatory to the UN Global Compact, Eskom endorses the Obtaining coal of the quality required to run power stations CEO Water Mandate1 and pledges its commitment to the through effective contract negotiation or coal beneficiation, principles (refer page 67) eliminating coal-related load losses Finalise commitments for second phase of Mokolo and Crocodile Optimising supply chain operations and logistics solutions for the water projects efficient and safe delivery of primary energy as required at Ensure coal suppliers have mining, water and environmental power stations. authorisations Investigate and implement water conservation, water demand Operational highlights management and mine water treatment and reuse at power Coal by rail to Majuba and Camden reached ~8.5 million tons stations for the year Address national water challenges through stewardship and The overall efficiency in using water has improved from collective action 1.35 L/kWh sent out in 2010/11 to 1.34 in 2011/12. Full rollout of the containerised rail solution for Tutuka power Conclusion of a memorandum of understanding with a junior station in the second half of 2012 mining coal supplier (Sekoko Resources (Pty) Limited) in the Execute the heavy haul rail solution to Majuba power station Waterberg Conclude coal and limestone supply agreements for Kusile Increased collaboration with the Mpumalanga authorities to power station promote public safety awareness on the coal-haulage routes Secure long-term coal supply with a focus on empowerment of Construction of Komati Water Scheme on track for completion at emerging black owned mines the end of 2012; the Department of Water Affairs began Implement a coal quality improvement strategy through construction of Mokolo and Crocodile water augmentation project beneficiation of coal Primary Energy has achieved ISO 9001 certification as at the Develop an integrated logistics strategy to cater for transportation end of March 2012 and will work towards ISO 14001 and of coal, biomass and sorbent. OSHAS 18000 in this coming financial year. Key financial statistics: Primary Energy, as at and for the year Ongoing challenges ended 31 March 2012 Road fatalities among coal transporters and the public remain Rm 2012 2011 high despite several interventions Coal cost 26 586 23 089 Maintaining coal stock levels at acceptable levels Achieving contractual performance on all coal supply agreements. Water cost 1 165 990 Purchasing more expensive coal from the short/medium-term Coal inventory balance 3 798 3 709 market due to the poor volume performance of mines Cost plus mines (Future fuel costs) balance 5 452 4 089 Reasonable assurance provided by the independent assurance provider (refer page 86). 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. Eskom Holdings SOC Limited Divisional Report 2012 53 Service functions: Group Technology and Commercial continued Performance Future focus areas include: Coal quality assurance and management Developing the Waterberg coalfields There are several short-, medium- and long-term initiatives Continuing to diversify the sourcing portfolio away from reliance underway to ensure that coal purchased, delivered and fed to on major mining houses, sourcing a sustainable proportion of power plants meets the required qualities to generate electricity coal from emerging black-owned mines with minimum resultant coal-related load losses. Sourcing torrefied wood chips to conduct a biomass test burn Supplies are being reviewed against minimum coal quality Sourcing limestone for use in flue gas desulphurisation plants as requirements for each power station on a total cost of they are implemented on new and existing power stations ownership to Eskom basis. The cost of securing improved Implementing solutions to improve the quality of coal delivered qualities, either through contractual supply or beneficiation will to the power stations. be measured against possible modifications and benefits to the station or system Secure access to strategic resources via national policy changes On-line, real time monitoring, measurement and analysis tools During the reporting period Eskom held discussions on coal for the coal feed to the power stations are being procured at security with several government departments, including the priority stations to enable proactive running of the power Department of Mineral Resources, Department of Public stations with the delivered coal qualities Enterprises, Department of Energy and the National Planning Coal beneficiation plants to upgrade out of specification coal at Commission. This includes discussions regarding a balance between the identified tied collieries is receiving focused attention with local and export coal requirements and the increasing international the respective mining houses. Coal beneficiation will however demand for Eskom grade coal. result in yield losses which will require additional resources to fulfil the power station burn requirements. Secure coal for Kusile Negotiations are at an advanced stage regarding a coal-supply Long-term coal supply strategy agreement and a conveyor agreement at the New Largo Colliery. Eskom works with potential suppliers to secure long-term coal Environmental impact assessment appeals, however, could delay supply. This strategy includes building a portfolio of short- to long- the start of construction of the mine to November 2014. term supply agreements by providing project support through off-take agreements while ensuring that contracts are entered into Improve the efficiency of cost-plus mines with suppliers who comply with applicable legislation and operate The amount of coal procured from Eskom’s tied collieries has been sustainable entities. below committed levels. The mining houses are conducting diagnostics to identify areas for improvement and cost containment. Several factors pose risks to secure supply of coal: Mining conditions and coal quality in Mpumalanga have Safety of coal transport deteriorated in recent years due to the fact that the better About 35.5 million tons of coal was transported by road in quality coal has been extracted and mines have to mine in more 2011/12, primarily in Mpumalanga. In response to the high number difficult geological areas of road accidents and fatalities related to coal transport, Eskom Lengthy legislative approvals for mining operations, which are launched a public safety-awareness initiative aimed at zero harm also subject to public challenge, can affect delivery timelines for all. Attractive steam coal export prices provide coal suppliers with greater incentives than supplying coal for local use Road repairs New suppliers experience challenges with exploration and In its MYPD 2 adjudication, NERSA granted Eskom R950 million for operational resources which impacts sustainability of supply at road repairs in 2010/11. Eskom has spent R500 million on road Eskom volume and quality requirements. repairs and plans to spend the remaining R450 million within the MYPD 2 period. For the remaining two years of MYPD 2, NERSA increased the environmental levy from 2c/kWh to 2.5c/kWh to raise funds to enable the Department of Transport to conduct road repairs, effective 1 April 2011. Coal quality The quality of coal that Eskom uses is vital to efficient operations. Poor-quality coal has greater ash content, reduced calorific (energy) value and has 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. 54 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Group Technology and Commercial continued The development of the Waterberg coalfields is seen as a catalyst to unlocking the Northern Mineral Belt and hence the Integrated Waterberg Strategy is a key project on the Presidential Projects Strategic Integrated Programme. Eskom is working closely with Transnet Freight Rail and the Department of Water Affairs on funding models for the rail and water infrastructure which are required to unlock the Waterberg. Eskom is also in discussion with mining suppliers for long-term coal supply contracts in the Waterberg and is considering the necessary decisions on the second phase of the water augmentation project to ensure timeous availability of water. If the project proceeds as envisioned, rail imports to Mpumalanga could begin in 2019. Water strategy Repairs were made to the R42 as part of the road repairs programme Eskom’s water supply strategy addresses key risks of water scarcity, water security, pollution of water resources, and climate change impacts. Eskom has set out to meet the water-quality objectives in different catchment areas; manage the impact of future water price increases; actively influence policy, planning, legislation and regulation; and work with stakeholders to develop solutions. The water conservation and demand management strategy is intended to meet some of the requirements of new and existing power stations by reducing fresh-water intake and reusing effluent water. During the financial year, Eskom submitted inputs into the Energy Chapter of the National Water Resources Strategy 2 Draft to the Department of Water Affairs in order to secure Eskom’s current and future water supplies for power generation and related needs. Further comments will be provided during the consultation process leading up to the gazetting of the National Water Resources Strategy for public comment. At Eskom’s request, the Road-to-rail migration plan Department of Water Affairs is investigating potential infrastructure Eskom’s road-to-rail migration strategy, which is being implemented bottlenecks in the Vaal River water supply system. Eskom has also with the co-operation of Transnet Freight Rail, has focused on worked closely with the Department of Water Affairs to address designing and implementing rail offloading capabilities at power the backlog of water use licence applications for its power stations, stations that are linked or could be linked to the main rail network capacity expansion projects and coal suppliers. with rail sidings. The goals include: The main water-supply infrastructure projects under way that affect Security of supply through logistics solutions at Camden, Tutuka, Eskom operations are: Majuba, Grootvlei, Kendal and Hendrina to cater for throughput The Mokolo and Crocodile Water Augmentation Project potential of 32 million tons per year by rail (MCWAP) Phase 1, which will provide sufficient capacity for Reducing the road safety risks from extensive coal road haulage Medupi’s water requirements and associated developments, Reducing the costs of coal transport, including the costs of road excluding the planned flue gas desulphurisation process. In the repairs interim, there is adequate water from Matimba power station’s Minimising reputational damage to Eskom. water allocation to support Medupi’s first three units. The first phase of the MCWAP is on track to be completed by September Eskom has completed the construction of the Camden coal 2013. terminal and 65% of the Tutuka coal terminal. The development of The Komati Water Scheme Augmentation Project will provide the Majuba heavy-haul line will proceed once the pending PFMA water for Kusile power station and the return to service of Komati power station. The project is on track to be completed approval has been secured. by December 2012. Eskom currently transports coal by rail only to the Majuba and Camden power stations. The 8.5 million tons transported during 2011/12 represents an increase of 1.4 million tons compared to 2010/11. For 2012/13 it is planned to transport 12.2 million tons by rail once the Tutuka rail facility is operational. Develop an integrated strategy for Waterberg coalfields The Integrated Waterberg Strategy is intended to secure coal and to support the development of a rail line that will transport coal to power stations in Mpumalanga. The Waterberg coalfields lie 600km north-west of Mpumalanga and the existing rail line is not capable of meeting the needs of Eskom and the export coal industry. The Komati Water Scheme Augmentation Project will provide water for Kusile power station Eskom Holdings SOC Limited Divisional Report 2012 55 Service functions: Group Technology and Commercial continued Technology Mandate Group Technology consists of the following areas of responsibility: engineering, outage management, asset management and operating model.The overall objectives of the division are to ensure optimum performance of plant assets, and to infuse the capacity expansion programme with excellence in design and project engineering. The division has been set up to help Eskom restore its engineering capability to a high standard in terms of design, operating and maintenance and project engineering services and solutions. This impact has to be felt in improved statistics in terms of plant and energy availability, as well as in timely delivery for capacity expansion projects. Operational highlights Engineering institute Launched the Eskom Welding School of Excellence, with To meet future power demand, Eskom has embarked on a large 150 learners enrolled. The programme trains participants to capacity expansion programme. The huge capital outlay associated International Institute of Welding standards, which are aligned with this expansion drive represents a unique opportunity for with a level-four qualification in the National Qualifications South Africa to develop a service industry around the power plant Framework. The programme will ensure that the welding reject industry. rate is significantly reduced, bringing about improvement in both capacity expansion projects and old plant1 However, the current engineering offering in South African Developed an outage execution capability programme and universities, although broad and diversified, does not fully meet the opened an outage control centre to ensure that the outage needs of the power industry, which requires specific subject skills. programme is implemented successfully South Africa also faces a shortage of qualified engineers, which Completed new outage management processes (as part of could jeopardise Eskom’s objective to deliver its capacity expansion Back2Basics) in line with global engineering and safety standards. and retrofit programmes within planned schedules and costs. Operational challenges To tackle this challenge, Eskom established a Power Plant Engineering There are resource constraints in the area of engineering Institute in collaboration with six leading universities to produce a IT solutions, and this may have an impact on adhering to stream of highly skilled engineers within identified specialisations. timelines on key deliverables. This will create and develop a local knowledge base around these Outage management challenges: specialisations. The institute will also build capacity in developing –– Poor safety record, averaging one lost-time incident per week universities, creating and sustaining a pipeline of qualified engineers over 2011/12 in areas relevant to the power industry. –– Overall performance of outages on due date, slip and performance Eskom has identified eight broad specialisation areas and awarded –– Congestion, with both Camden and Kriel stations executing eight chairs to six leading South African universities in the following outages back to back fields: –– Delayed resourcing of the Outage Centre of Excellence Emissions control technologies resulted in lack of proper response strategies. Combustion engineering Energy efficiency Plant asset management Renewable energy technology Materials science High-voltage engineering AC High-voltage engineering DC. The Power Plant Engineering Institute was launched on 12 January 2012 with a total of 42 BSc Engineering candidates selected from Group Technology. 1. Further detail available in the HR section (refer page 37). 56 Eskom Holdings SOC Limited Divisional Report 2012 Service functions: Group Technology and Commercial continued Commercial (procurement other than primary energy) Mandate Group Commercial’s mandate is to optimally manage external spending, ensuring effective and efficient procurement, inventory management, warehousing and logistics, supplier management and development, contract negotiations and establishment. The single procurement entity will also avoid production interruptions. Operational highlights Group Commercial is developing a local supplier base to support Finalised the formation of the Eskom-wide consolidated long-term requirements in areas such as nuclear equipment supply procurement and supply chain function and renewable technology. There is a focus on skills alignment and In 2011/12, more than 77% local content expenditure in the competency development to support improved performance. The contracts placed for the capacity expansion programme division is resolving legacy issues from the fragmented procurement (63% since the inception of the capacity expansion programme) and supply chain that was in existence until 2010. Increased expenditure with level 1 – 8 B-BBEE suppliers Successfully consolidated and established national contracts for National spend in capacity expansion programme liquid fuels and optical ground wire for all Eskom divisions Eskom’s capacity expansion programme continues to support Adoption of a company-wide tender evaluation criterion that affirmative procurement and industrialisation. The annual target is places increased emphasis on BEE status and both local jobs and 52% local content in annually placed capacity expansion contracts skills development as set out in the shareholder compact. For 2011/12, committed Consolidated all supplier development and localisation local content spend in capacity expansion projects was equivalent requirements into one approach – Competitive Supplier to 77.2% of the total contracted value. Development Plan 2 – and obtained an international award for Best Supplier Diversity Project Industrialisation Implemented processes and systems (as part of Back2Basics) Eskom’s spending programmes support the government’s that have increased inventory accountability and visibility economic objectives, including local development, the competitive throughout all Eskom’s warehouses. supplier-development programme, job creation and encouraging the growth of small businesses. During the reporting period, Operational challenges total investment spend in plant by suppliers was R646 million One fatality in the supply chain environment (2011: R608 million). Improvements to the supplier development Slow progress in engaging supplier entities owned by people living and localisation functions have better aligned Eskom to deliver on with disabilities, black youth and black women owned entities government policy requirements. Management of project inventory is a key focus area going forward Slow progress in finalising sourcing strategies that aligns Training to the increased focus on supporting socio-economic agenda Since the inception of the respective projects a total of 7 226 for targeted commodities and in supporting socio-economic (2011: 6 970) individuals have been identified for skills development, performance. of these 2 342 (2011: 2 514) are currently undergoing training. To date, 5 915 (2011: 4 961) people have completed their training Future focus areas at various training sites across the country. Over and above the Embedding the operating model with smooth processes, data skills‑development commitment in capacity expansion projects, transparency and standardised tools there are 5 225 skills-development commitments made through Continual improvement through performance dialogues the Eskom supplier network and through the normal procurement Leverage benefits that result from the ‘One Eskom’ approach to transactions. ensure the NGP target is achieved amongst others Unleash junior miners’ development to secure future coal resources Job creation Improved pace in the engagement of black youth, black women Since the inception of capacity expansion contracts to the end of and black owned entities by procurement March 2012, some 28 616 (2011: 21 477) jobs were created as a Step change in engagement of professional service panels to direct result of the build projects. A total of 13 954 (2011: 11 519) ensure equitable work distribution people (49% of the total jobs created in capacity expansion Enhancement of supplier relationship management projects) were employed from the local districts surrounding Finalise key industrialisation initiatives in line with the approved project sites – Waterberg around Lephalale (7 320), Inkangala Competitive Supplier Development Plan 2. around Delmas (3 440), Uthukela around Ladysmith (1 852) and power delivery projects (1 342). Performance During 2011/12, Eskom’s total procurement spend was In addition to the jobs created in capacity expansion projects, R155.5 billion, including primary energy (2011: R115 billion). This during the reporting period, a total of 3 663 jobs were committed has resulted in the need for a project sourcing excellence in to be created and retained by suppliers. Of these 3 578 jobs have support of the capital expansion schedule. The impetus is to drive been committed through the Eskom supplier network and 85 jobs down operating unit costs, allowing cash to be freed up to drive have been committed to be retained. other initiatives. Reasonable assurance provided by the independent assurance provider (refer page 86). Eskom Holdings SOC Limited Divisional Report 2012 57 Service functions: Group Technology and Commercial continued Eskom B-BBEE attributable spend performance1 Commodity sourcing Target Actual Actual Actual The commodity sourcing department sources commodities for all 2012 2012 2011 2010 of Eskom. Measured Its accomplishments during the reporting period included: procurement spend Placing the first consolidated fleet contracts (R billion) n/a 98.5 79.9 72.6 Developing appropriate strategies for the procurement of an Attributable spend array of commodities, including shipping and haulage, holistic (R billion)2 n/a 72.1 41.9 20.8LA3 strategy for all operational and capital expenditure Attributable spend Approving a new cable and conductor strategy valued at about (%) 60.0 73.2 52.3 28.6 R13 billion over the next five years, with an emphasis on local Attributable spend spend (95%) and job creation on black women Issuing an open tender for A, B and C panels of Engineering owned businesses Consulting Services with an estimated value of R7 billion over (R billion) n/a 3.3 3.4 2.5 five years Developing a global IT sourcing strategy worth R8.4 billion over Black women five years owned businesses Finalising the resettlement of farm labourers at Kusile power as % of measured station site procurement Placing five-year diesel supply contracts as well as obtaining the spend 8.0 3.3 4.3 12.14 required approval for five-year contracts for the supply of fuel oil to coal-fired power stations. The percentage attributable spend target is in line with the Codes of Good Practice that prescribe a minimum of 50% for the first five Supplier development and localisation years that the codes are in effect. The 73.2% achieved indicates The supplier development and localisation function supports the that Eskom has exceeded its B-BBEE target for the year. Going government’s socio-economic development objectives, including forward, strategies are to be put in place to improve the B-BBEE, by maximising local supplier development in a manner that performance of black women owned businesses in particular. supports Eskom’s business plan. The main achievement in the period under review is the organisational adoption of a consistent Commercial risk and governance new tender evaluation criteria that places emphasis on both BEE The commercial risk and governance function ensures that Group equity holding and local jobs and skills development and the board Commercial’s activities are undertaken within the ambit of a sound adoption of the Competitive Supplier Development Plan 2 to drive risk management framework that encompasses good governance, Eskom’s contribution towards national industrialisation for the next legislative and regulatory compliance. It includes a centralised five years. project sourcing function that executes all project-related capital procurement to ensure consistent practice, align procurement Business enablement practices and obtain good value for Eskom. The business enablement function creates an enabling environment for sourcing, supply chain and socio-economic activities through During the reporting period Group Commercial published its systems and process-based support. updated Policy (32-1033) and Procedure (32-1034) to: Align it with the objectives of the B2B project Align with requirements of good governance and mandatory legislative frameworks Entrench standardisation of commercial practices across Group Commercial Promote Supplier Development and Localisation through encouraging open competitive tendering. Supply chain operations This department includes all operational supply chain functions, apart from the actual procurement of materials. The function is responsible for national warehousing and distribution activities, supply chain planning, shipping and haulage, and investment recovery. Coal procurement is a massive item in the Eskom procurement environment 1. Figures relate to Eskom only. 2. Attributable spend is the actual spend multiplied by the B-BBEE recognition level for each compliant supplier. 3. Attributable spend for 2010 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. Calculated as a percentage of attributable spend. LA Limited assurance provided by the independent assurance provider in previous year. Reasonable assurance provided by the independent assurance provider (see page 86). 58 Eskom Holdings SOC Limited Divisional Report 2012 Strategic functions: Enterprise development In February 2012, the Enterprise Development Group was established as a strategic function in Eskom. This change presents a great opportunity to unite and shape four key portfolios – Strategy and Risk Management, Regulation and Legal, Corporate Affairs and Group IT – albeit from the perspective of “development of the enterprise.” This is a very exciting step and provides a tremendous challenge to our creativity and a new platform to help deliver on Eskom’s developmental mandate. Strategy and Risk Management Mandate To lead an integrated approach to organisational strategy, risk management and corporate planning to ensure sustainability and resilience. The newly formed organisational strategy and risk management portfolio aims to ensure that Eskom has world-class strategy development and review, risk and resilience and corporate planning processes that meet stakeholders’ requirements and continually improve organisational performance. The division aims to do this by building a high-performance Strategy and Risk Management portfolio that integrates Organisational Strategy development, Corporate Planning and Risk and Resilience Management into a seamless strategic decision support capability. Operational highlights Established a Strategy and Risk Management division and Future focus areas repositioned the legacy capabilities in a new synergistic business Taking Eskom’s strategy and risk management capability to model encompassing shaping, safeguarding and servicing of key world-class standards functions Continued stakeholder engagement to ensure strategy and risk Commenced building a new strategy capability including management alignment with all stakeholders frameworks, tools and methodologies to support the evolution Implementing a strategy development and strategic intelligence of the business into the future process for Eskom that is aligned with the corporate planning Produced a 2012/13 – 2012/17 corporate plan that reflects the process and integrates risk, that is seen to be adding value to all new thinking of integration between risk, resilience, scenario levels of the business based strategy and corporate planning Being recognised as a high performance team in strategy Updated the risk management framework and approach to execution by our key stakeholders by delivering executable manage the key challenges in the business business plans Established a resilience capability by linking the resilience Establishing a risk intelligent and resilience framework that framework to the risk management approach. informs decision making at strategic and business planning level, within Eskom’s operations; under both normal as well as crisis Operational challenges conditions. Defining long-term strategy in a very dynamic local and global policy and economic environment Establishing and entrenching a new core competence in a short space of time within the organisation. A group of Wits students visits the Ingula pumped storage site as part of a stakeholder engagement programme Eskom Holdings SOC Limited Divisional Report 2012 59 Strategic functions: Enterprise development continued Regulation and Legal Mandate The Regulation and Legal division was established in its current structure at the beginning of the financial year as part of the strategic review. It comprises the regulation, legal, compliance, governance and company secretary departments. It included the assurance and forensics department until the last quarter of 2011. The role of deputy information officer in terms of the Promotion of Access to Information Act has been delegated to the Divisional Executive and the resources are managed in the legal and compliance department. The division ensures good governance, assurance and compliance with current policy, regulatory and legal frameworks and enabling legal environment. Operational highlights Successfully implemented the Companies Act (2008), the The following are specific responsibilities that support the division’s Companies Amendment Act (2011) and the Consumer mandate and priorities: Protection Act (2008) Implement mechanisms to enhance stable and predictable A draft significance and materiality compliance framework for pricing transactions has been developed with the Department of Public Oversee implementation of Eskom’s regulatory strategy Enterprises and approved by the board Identify and minimise regulatory risk (increase predictability) Revised delegation of authority principles for Eskom established Influence the external energy policy environment subject to board approval Position Eskom to achieve its future legal and compliance Developed and began implementing a subsidiary governance requirements, and prepare Eskom for new governance codes framework and laws Implemented fraud risk management and developed training for Implement effective governance best practices employees. Several employees are now certified as fraud Prepare for an ISO 9001 audit in 2012/13 examiners Assist in managing legal risks Improved business monitoring and capability tools including the The submission of the MYPD 3 application. use of computer assisted audit techniques (CAATS). What is multi-year price determination? Operational challenges The submission of the MYPD 3 application and a timeous As a regulated state-owned company, Eskom’s revenues and determination remains a challenge due to the tight timeframes. South Africa’s electricity prices are determined by NERSA The process is being managed to ensure that it is effective and through the process of a multi-year price determination. includes appropriate stakeholder engagement. Eskom is currently in its second MYPD cycle, which began in 1 April 2010 and ends 31 March 2013, and it is preparing its Future focus areas submission for the third cycle (MYPD 3). Regulation and Legal aspires to set the standard of trust, credibility and value add. To achieve this it will focus on two key areas in the The price-determination process requires Eskom to submit its next financial year: how the division works and what it does proposed application to the South African Local Government (priorities). Association, which represents the municipalities that constitute the single largest buyer group of electricity, and the National The divisional leadership will focus on addressing inconsistent Treasury for comment, and take into account their input into performance by embedding quality and developing skills. its application to NERSA. Regulation and Legal will encourage a high-performance culture NERSA analyses Eskom’s application to ensure that the utility and environment by: is operating efficiently and that customers are getting value for Managing performance effectively their money. It also consults with various stakeholders and the Understanding what it means to add value public before making its decision. Focusing on input as well as outcomes Being accountable Recognising good performance and appreciating and affirming its employees Creating a good work environment Empowering others. 60 Eskom Holdings SOC Limited Divisional Report 2012 Strategic functions: Enterprise development continued Corporate Affairs Mandate To make Eskom a top global power company that is resilient, reputable, trusted, valued and highly regarded in South Africa and the world through effective communication and stakeholder management. Eskom’s stakeholder engagement is based on the AA1000 Stakeholder Engagement Standard1. Eskom is committed to the AA1000 AccountAbility Principles of inclusivity, materiality and responsiveness.The process is also influenced by Eskom’s commitment to the United Nations Global Compact and King III. Operational highlights Eskom’s RepTrak score has improved consistently since the load Promoted public safety and the dangers of electricity by holding shedding of 2008. 645 engagements in five regions (Visited about 800 000 people during public safety-awareness campaigns in Cape Town, RepTrakTM pulse scores 2006–2011 Limpopo, KwaZulu-Natal and the Free State.) RepTrakTM Pulse Scores During electricity Safety Week there were 217 school visits and 174 community events The quarterly “state of the system” address allowed Eskom to share information and increase its voice in the media 100 Secured 32 supporter partnerships through the 49M campaign 80 Highlighted energy efficiency and promoted science, innovation and technology through Eskom’s Expo for Young Scientists and 60 the eta Awards Score Successfully hosted 49M Charity Golf Day, raising R1 million for 40 eight charities. 20 Operational challenges 0 Continued negative media coverage regarding the country’s 2007 2008 2009 2010 2011 reliance on coal and future tariff increases Years Sustaining a behavioural and attitudinal change towards energy efficiency. Performance Stakeholder trust and confidence Future focus areas Over the past year, Eskom has made significant progress in Focus on safety communication and awareness with employees rebuilding stakeholder trust and confidence. and the public Implement a permanent nerve centre (see “emergency Compared to the previous financial year, there has been a marked communication and nerve centre” below) increase in the number of engagements and presentations to Continue the momentum of the 49M campaign parliamentary committees, organised labour, civil society, chambers Further enhance stakeholder relations governance by developing of commerce and other organised business formations. stakeholder relations policy and standards as well as the supporting tools In becoming a top global utility and a high-performance company, Focus on leading and coordinating integrated, well-researched Eskom has positioned itself as a customer-centred organisation.The and effective solutions. key focus areas for the year included: Communicating and creating understanding and support for Benchmarking Eskom’s strategy, vision and values RepTrak is a proprietary tool that was developed by the Reputation Integrating communication messaging through a content hub Institute to measure corporate reputations. RepTrak assesses the Leveraging social media degree of stakeholders’ admiration, trust, good feeling and overall Adopting a vigorous and tested approach to communications esteem for companies. The model not only measures the health of and skills development a company’s reputation among stakeholders, countries and Further enhancing emergency preparedness. industries, but also examines which of seven key factors most influences the company’s reputation. 1. AA1000 Accountability Stakeholder Engagement standard is an international standard that guides a company’s approach to stakeholder engagement through the application of principles and best practice guidelines. Eskom Holdings SOC Limited Divisional Report 2012 61 Strategic functions: Enterprise development continued Emergency communication and nerve centre Corporate Affairs supported Eskom’s involvement in the COP17 Eskom has enhanced its emergency communication protocols, as conference by running campaigns to promote renewable energy in demonstrated in preparation for COP17. The pilot nerve centre the run-up to the conference (the Green Line television programme, unit, which was established in 2011, was used as the central featuring Eskom’s good-news stories and energy-saving tips – see command centre and information repository during the event. www.thegreenlinetv.com for more information) and providing A weekly crisis meeting enables the team to proactively respond support during the conference itself. to key issues emanating from the media and various triggers that could affect Eskom’s reputation. In addition, Eskom has staffed the Media relations newly established content hub unit with strategic writers and Media has become more receptive to Eskom, with its share of language practitioners.The unit will create a favourable platform for voice in the media increasing and neutral coverage predominating. Eskom’s voice. However, Eskom continues to experience negative media coverage. To address this, a media strategy is being implemented based on Social media four key pillars: Eskom increased its presence in social media, with increased Educating/informing the media followers and traffic on Twitter, YouTube and Facebook. Eskom’s Driving positive stories website also received significantly more hits on various key issues. Active relationship building Leadership profiling. 49M campaign The 49M campaign, supported by government, encourages all The strategy aims to move negative coverage to neutral in the next South Africans to embrace energy saving for a sustainable future. 18 months. This will be achieved by maintaining a healthy share of voice in the media and targeting media audiences based on various The Minister of Public Enterprises has taken an active role in the topics. The quarterly “state of the system” address provides a 49M campaign and has personally hosted various 49M road shows positive opportunity to share information. Eskom will continue to across the country. The campaign will gain momentum in 2012/13 adopt a proactive and transparent approach to communications with a focus on increased radio, print and television coverage as and to strengthen its relationship with the media. well as more community activities. Integrated demand management campaign COP17 communication During the financial year, Corporate Affairs, in conjunction with the Corporate Affairs successfully managed the COP17 communications Integrated Demand Management unit, ran a number of campaigns and stakeholder management programme, which showcased to encourage the public, commerce and industry to reduce Eskom’s commitment to climate change, renewable energy and electricity demand. These campaigns focused on eliciting immediate energy efficiency. action to reduce usage from the general public (the televised “Power Alerts” and the “17:00 to 21:00” campaigns) and on A robust internal communication programme included employees instilling long-term behavioural and attitudinal shifts towards power committing to changing their personal behaviour towards climate usage (the 49M campaign). An interactive exhibit also travelled change and an art competition for employees’ children, which around South Africa, demonstrating new technologies and educated hundreds of children about climate change, energy educating the public about energy conservation. efficiency and renewable energy. Interventions aimed at corporate and industrial customers Eskom participated in various debates, and increased its voice in (specifically mining) include a road show that went to Durban, the media in the run-up to and during COP17. During the event, Cape Town, Johannesburg, Polokwane and Rustenburg. Eskom also reporting on renewable energy created favourable coverage and helped more than 50 companies run internal energy-efficiency input by Eskom amounting to 16% of total commentary. An programmes, reaching more than 10 000 employees in the process. interactive exhibition by Eskom and 49M was well received by the public and delegates at COP17. Refer to fact sheet at www.eskom.co.za/IR2012/042.html for more information on communication initiatives. Minister of Public Enterprises, Mr Malusi Gigaba hands a cheque to The Mayor of Emalahleni pledged her support for the 49M campaign Meals on Wheels from funds raised at Eskom’s inaugural 49M Charity Golf Day 62 Eskom Holdings SOC Limited Divisional Report 2012 Strategic functions: Enterprise development continued Eskom Development Foundation NPC Mandate The Eskom Development Foundation NPC (the Foundation) coordinates and executes Eskom’s corporate social investment strategy. It supports socio-economic development programmes by targeting communities in which Eskom implements its capital expansion programme. Eskom also supports government’s priorities of skills development, job creation and poverty alleviation. The Foundation is involved in the following activities: Business opportunities and franchise expo Capacity building in small and medium enterprises Enterprise development programme Improving scarce technical skills in further education and training Whole-school development programme (early childhood colleges development, primary school development, nutrition) Integrated environmental learning in schools Women’s Day charity fundraising event Systemic education development in schools around capacity Eskom employee i-Volunteer programme. expansion sites Business investment competitions (including Simama Ranta Performance enterprise education schools competition – which promotes During the year, the Foundation funded 256 projects to the value enterprise clubs in secondary schools in South Africa. This of R87.9 million with 531 762 project beneficiaries (2011: programme is coordinated by a non-profit organisation, Education 256 organisations for R62.3 million and 303 983 beneficiaries). with enterprise trust) Eskom Development Foundation investments (as at 31 March 2012) 2012 2011 2010 No of Approved Beneficia- No of Approved Beneficia- No of Approved Beneficia- Programme projects Rm ries projects Rm ries projects Rm ries Contractor academy1 – – – – – – 3 8.9 90 Business incubators 4 3.3 229 – – – – – – Enterprise development 3 1.1 26 4 2 1 241 5 2.9 2 742 Business investment competition 1 6.0 195 1 4.2 190 1 3.0 180 Business opportunities and franchise expo 1 5.6 56 1 4.1 51 1 2.5 45 Energy and sustainability programme 1 4.6 125 894 1 3.7 154 141 1 2.4 143 125 Infrastructure development 8 17.2 12 271 4 6.8 831 7 2.9 4 624 Education2 4 18.5 1 935 13 16.8 4 486 26 19.0 1 820 Further education and training colleges 4 6.2 2 918 5 5.0 4 228 5 4.7 4 059 Food security 4 4.7 480 – – – – – – Philanthropy and welfare 226 20.7 387 758 225 19.7 138 815 154 12.4 433 755 Total 256 87.9 531 762 254 62.3 303 983 203 58.7 590 440 For full detail on the activities of the Eskom Development Foundation, please refer to www.eskom.co.za/csi.html. Reasonable assurance provided by the independent assurance provider (refer page 86) 1. Contractor academies were executed by the Eskom Foundation but were funded by Eskom Distribution group. 2. Education projects managed by Eskom Human Resources division included. Eskom Holdings SOC Limited Divisional Report 2012 63 Strategic functions: Enterprise development continued Sponsorships eta Awards Now in its 22nd year, the eta Awards, sponsored by Eskom, The Best Female Project prize went to grade 11 learner Palesa recognise individuals and companies who are using energy Masuku of JM Ntsime High School in the North West province for efficiently in nine categories. Colgate Palmolive reduced its her project using the marula fruit as an alternative source of energy. consumption by 45%, setting the example in the industrial sector. She won a trip to an international science fair. Dr Anthony Keen from Cape Town has cut his home consumption by 71% – a role model for all domestic consumers. The Best Rural High School was JM Ntsime High School in the North West province and the Best Rural Primary School was Eskom Expo for Young Scientists Phuthaditjhaba Intermediate School in the Free State. Both these Now in its 31st year, the Eskom Expo for Young Scientists, a non- schools received a mobile science kit valued at R25 000. profit organisation and the biggest science-fair competition in South Africa, fosters a love for science, innovation and technology among the youth. This year, the expo showcased science projects selected from more than 50 000 learners across South Africa. A total of 725 finalists with 532 projects from 28 regions were joined by learners from Mexico. Eskom chief executive Mr Brian Dames and Minister of Science & Technology, Ms Naledi Pandor, visit one of the entries in the Eskom Expo for Young Scientists finals 64 Eskom Holdings SOC Limited Divisional Report 2012 Strategic functions: Enterprise development continued Group Information Technology Mandate Group Information Technology (IT) aims to ensure effective and secure information systems for efficient management, accurate and timeous billing of Eskom’s customers, accurate and timeous creditors and employee payments, and effective power generation and transmission over the national grid. Operational highlights Future focus areas Group IT highlights include both organisational and operational Two programmes have been established to improve Group IT’s performance: operations.The one relates to proactive crisis management and the Supported SAP Services Tools (as part of B2B) release and second is an IT recovery plan. The programmes will continue for at upgrade of Letsema (Maximo) project least the next 12 months to ensure that the current IT operational The executive management committee approved the IT strategy challenges have been addressed and can sufficiently accommodate (2012–2016) new business requirements. Migrated 25 000 email users from GroupWise to Outlook, with remaining 12 000 to be migrated by July 2012 Crisis management Upgraded data network, providing increased bandwidth across Dedicated crisis-management teams work as cross-functional the country, and upgraded backup and disaster recovery entities to address current incidents and identify and resolve infrastructure. potential future incidents. The teams focused on four areas in the current year: Operational challenges The online vending system Unplanned outages of online vending system. Group IT has Integration narrowed down the root causes and is implementing treatment IT security perimeter plans. Data loss. Challenges caused by Maximo-SAP integration – not all allowances and recorded overtime were reflected in SAP. IT recovery plan Maximo GTX also experienced challenges that affected work- The IT recovery plan focuses on fast-tracking and establishing a order dispatching, causing delays and potential downstream sustainable and resilient IT environment to ensure a stable safety issues. Integration is a priority and a dedicated task team foundation for future business requirements. is working on finding permanent solutions. A fault in the East London data centre affected numerous IT The IT recovery plan identified seven projects: systems in the region. The fault was caused by damaged Stabilise existing environment equipment, most notably the storage area network, when the System resilience for critical applications fire-suppression system was triggered, releasing argon gas into End-to-end infrastructure review (independent supplier the data centre. An independent investigation has been initiated assessments) to determine the cause of the fault. Integrated infrastructure and application monitoring IT security and disaster recovery Project prioritisation and focus Commercial alignment and challenges. Eskom Holdings SOC Limited Divisional Report 2012 65 Strategic functions: Sustainability Mandate To deliver solutions that enable sustainable business performance and grow stakeholder confidence, contributing to the transformation of Eskom and South Africa. This includes: Ensuring a safe workplace for staff with Zero harm locked in Eskom aims to excel in its environmental management practices; psyche commitment to this was confirmed when several strategic Protecting the environment and reducing the carbon footprint initiatives to reduce the environmental footprint and the following Research and testing to support cost-effective, climate-friendly environmental objectives were incorporated into the Eskom and innovative approaches to providing energy, within a globally Corporate Plan and are material to the Sustainability division. responsive manner Implementing the quality value chain Avoid harming the natural environment and so minimise financial Maintaining Eskom’s international profile, relationships and and legal liabilities; this will be achieved through skills development, interfaces awareness programmes, achieving ISO 14001 certification, Facilitating the deployment and the ramp up of a renewable carrying out effective environmental impact assessments and energy industry in South Africa. various improvement programmes Reduce the carbon footprint through efficient energy production Operational highlights and by diversifying the energy mix The safety health environment and quality (SHEQ) leadership Reduce particulate and gaseous emissions to minimise the forum was hosted during the reporting year and was well impact on human health and comply with regulated emission received by all stakeholders standards The successful implementation of the safety bootcamp for Reduce freshwater usage by using mining water and eliminate Distribution liquid effluent discharge to avoid damaging water resources COP17 was a specific highlight for the division, which was Enhance waste management by reducing, reusing and recycling responsible for coordinating a diverse range of stakeholders for resources the event Comply with environmental legislation as a minimum requirement Successful completion of the Eskom factor report, which is a in all activities comprehensive assessment of Eskom’s contribution (both positive Minimise the impact of Eskom’s activities on ecosystems and and negative) to society, considering the social, economic and enhance ecosystem services such as functioning wetlands, environmental impact of Eskom’s activities. Refer to the Eskom improved biodiversity, avoiding erosion by responsible land- factor report at www.eskom.co.za/IR2012/043.html management practices. Establishment of the renewables business within Eskom and 1.5MW of photovoltaic capacity brought online Environmental expenditure Rollout of the total quality value chain – ISO 9000, 14000, 18000 In 2011/12, R0.6 billion was allocated to environmental capital (systems, environment, safety). projects (2010/11: R0.3 billion) and R0.9 billion to environmental operational projects (2010/11: R1.1 billion). Future focus areas Ensuring that safety and the Zero harm vision for safety is locked The majority of capital expenditure can be attributed to air quality into Eskom’s psyche related projects, as well as other capacity expenditure related to Carbon footprint reduction and adaptation strategy the capacity expansion programme. Similarly, the operational Environmental recovery (compliance, water, and air quality) expenditure can also be attributed to the capital expansion Delivering on bringing renewable energy capacity through the programme, as well as specific expenditure related to air quality, implementation of Sere, CSP (100MW) and Solar PV with a water management, water treatment and rehabilitation associated view to developing even more renewable energy projects with coal mines. Development of clean coal technology including UCG Establishment of a smart grid programme Participation in international platforms/initiatives like the UN Global Compact LEAD initiatives and the Rio + 20 – Sustainable Energy for All Continue the implementation of the total quality value chain – ISO 9000, 14000, 18000 (systems, environment, safety). Environmental performance Zero harm to the environment is entrenched in the Eskom value chain. In 2011/12 there has been improvement in environmental management compared to previous year’s performance with relative particulate emissions, water usage improving and a reduction in the number of legal contraventions. Several businesses achieved ISO 14001 certification. The underground coal gasification project near Volksrust promises to remove some of the coal needs of Majuba power station 66 Eskom Holdings SOC Limited Divisional Report 2012 Strategic functions: Sustainability continued Key environmental statistics Target Actual Actual Actual Indicators 2012 2012 2011 2010 Contraventions of environmental legislation No. 481 50 632 55 PCB thermally destructed t n/a 14.3 422.9 19.1 Asbestos t n/a 448.1 611.5 321.1 Compliance policies and practices. As a signatory to the UN Global Compact, Through focused attention to the Eskom drive to achieve zero Eskom endorses the CEO Water Mandate and pledged its environmental incidents, environmental legal contraventions have commitment to the principles and annually reports on progress in reduced from last year, with the majority of contraventions still supporting and promoting compliance with the principles. Eskom is related to emissions and water-management challenges on site. committed to, and reliant on, water as a primary input and, There were 50 environmental legal violations during the current therefore, has a vested interest in securing control over water year, down from 63 1 in 2010/11. There were two project specific sources and services. Additional detailed information on Eskom’s activities that commenced before receiving the required commitment to the CEO water mandate is available at environmental authorisation, resulting in administrative fines of www.eskom.co.za/IR2012/045.html – the fact sheet on water. R1.1 million (2011: R0.4 million). Air quality3 An analysis of environmental legal contraventions over the past Eskom aims to reduce particulate and gaseous emissions to minimise 11 years shows that legal contraventions related to water (40%), the impact on human health and comply with regulated emission atmospheric emissions (18%) and authorisations/records of standards.The future key performance indicator target for particulate decision (19%) account for about 80% of Eskom’s environmental emissions progressively reduces to 0.21kg/MWhSO by 2017. contraventions. Water-related contraventions, in most cases, are a result of unauthorised releases of water from power stations. The Refer Generation environmental performance on page 20. contamination of water with silt or sewage has been the most common incident at construction sites. Ambient air quality monitoring Extensive regional air quality monitoring has been undertaken since Air-quality legal contraventions relate to exceeding the particulate the late 1970s and has formed part of Eskom’s ambient air quality matter limits as specified in the air emissions licences. management programme. This extensive ambient air quality network provides key information for future strategic planning Benchmarking processes, compliance with standards and as a guide for research A number of Eskom’s environmental performance results were activities. benchmarked against those of a selected number of other electricity utilities as set out in the benchmarking fact sheet Monitoring is currently undertaken at 14 ambient air quality available at www.eskom.co.za/IR2012/044.html. monitoring sites measuring a range of pollutants including sulphur dioxide, nitrogen dioxide, fine particulate matter, and ozone Water amongst others. Meteorological parameters like wind direction, Eskom aims to reduce freshwater usage and eliminate liquid wind speed, and temperature are also monitored. Although these effluent discharge. This is achieved through effective water- sites are influenced by many sources, the majority are located management processes, water conservation and water-demand strategically to monitor the level of pollutants at ground level practices, and the treatment and potential use of mine water. The resulting from power station emissions. The sites are therefore future key performance indicator targets a progressive reduction to located close to power stations, in residential areas and some in 1.20 L/kWhSO by 2017. remote areas (to measure regional air quality) – depending on the specific objectives of each site. Eskom continued to facilitate meetings with environmental NGOs. In particular, a technical workshop was held to share information Ambient air quality is impacted by emissions from a number of on Eskom’s water strategy and to provide an opportunity for sources, including Eskom, and the combined results from all NGOs to present their water-related initiatives and views on water these sources are reflected in the concentrations measured by management. the network. Monitoring equipment is calibrated against National Meteorological Laboratory standards in a laboratory The CEO Water Mandate accredited by the South African National Accreditation System. United National Global Compact’s CEO Water Mandate is a For additional information on the various ambient air quality unique public-private initiative designed to assist companies in the monitoring sites please view the air quality fact sheet at development, implementation and disclosure of water sustainability www.eskom.co.za/IR2012/046.html. Reasonable assurance provided by the independent assurance provider (refer page 86). 1. Eskom’s continued aspiration is for zero environmental violations. In order to achieve this, interim targets have been set in the corporate plan. 2. 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. 3. Refer www.eskom.co.za/IR2012/047.html for the climate change fact sheet, giving details of the relative CO2 emission factor. Eskom Holdings SOC Limited Divisional Report 2012 67 Strategic functions: Sustainability continued Biodiversity subsequently reducing absolute emissions. Eskom continually The 2011–2020 United Nations Decade on Biodiversity (UNDB) models electricity options for achieving the conflicting goals of was launched in December 2011, the ultimate target being to affordability and protection of the environment in the most ensure that by 2020 all the people of the world will be aware of optimum manner. In doing this work Eskom recognises that there biodiversity and its value. Such awareness in Eskom was increased is no single technology option that is the panacea for reducing this year when leadership endorsed the Biodiversity Policy and greenhouse gas emissions. Eskom is therefore committed to the Standard which affirms that ‘Eskom shall ensure that in the planning, principle of an assessment of all options for reducing its emissions. construction, operation and decommissioning of its activities mitigation measures are in place to limit the impact of its infrastructure, land-use Renewable energy plays an important role in meeting Eskom’s and other resource uses on biodiversity and shall comply with all diversification aspirations. Eskom’s Renewables unit has been set up applicable legislation’. to focus on large power-generation technologies, namely wind, photovoltaic and concentrating solar power. This will play an Complementary strategic partnerships are also mechanisms that extremely important role in reducing both the relative (emissions Eskom supports to achieve the sustainability priority of “Zero intensity) and absolute emissions. environmental incidents”. The long-standing Eskom-Endangered Wildlife Trust (EWT) partnership focuses on the management and Eskom has an active research programme investigating South monitoring of wildlife interactions. Detailed information on Africa’s renewable energy sources for power generation. wildlife interactions statistics and management fact sheet can be found at www.eskom.co.za/IR2012/048.html. Until now, Eskom’s history of renewable power generation has focused mainly on hydro power, complemented by an additional The Ingula Partnership with conservation Non-Government push to reduce demand through energy efficiency. Organisations (NGOs), BirdLife South Africa and Middelpunt Wetlands Trust, has proved invaluable towards the conservation of Some large-scale renewable-energy projects are under way. Eskom a very important biome ensuring the protection of the critically is also retrofitting existing facilities with renewable energy sources endangered White-winged Flufftail, Southern Bald Ibis, other to ensure energy efficiency and reduce relative carbon emissions. endangered species and the habitat in which they exist (www.eskom.co.za/IR2012/049.html) (fact sheet). Government policy on renewable energy South Africa’s White paper on renewable energy policy (2004) sets The Ingula Partnership has also resulted in Eskom leadership out government’s principles, goals and objectives for renewable endorsing research funding to the Birdlife International Species energy. It also commits government to a number of enabling Champion Programme, whereby Eskom will fulfil the Species actions to ensure that renewable energy becomes a significant part Champion role for both the White-winged Flufftail and the of its energy portfolio. Southern Bald Ibis. This initiative promotes the overall protection and conservation of these two bird species. South Africa is in a strong position to harness vast renewable energy resources. The country has an average solar radiation of ISO 14001 Environmental Management System Standard about 2 500kWh per square metre per year and large areas along Certification the coast have average wind speeds of more than six metres per Progress has been made towards achieving Eskom’s set objective second. of achieving certification to the ISO 14001 environmental management system standard by March 2014. Government’s target is to contribute 10 000GWh of renewable energy to final energy consumption by 2013, produced mainly During this reporting period certification was awarded to the from biomass, wind, solar and small-scale hydro. major build projects Medupi, Kusile and Ingula as well as the power delivery projects (construction of transmission power lines) and A large portion of the Integrated Resource Plan has been allocated the Group Capital head office. In addition, certification was to renewables and a renewable-energy purchase programme has achieved at nine operational coal-fired power stations, Koeberg been introduced (IPP procurement programme). nuclear power station, the peaking operating unit and generation head office. Climate change and renewable energy Eskom has a comprehensive climate change strategy which is based on six pillars: Diversification of the generation mix to lower carbon emitting technologies Energy efficiency measures to reduce demand and greenhouse gas and other emissions Adaptation to the negative impacts of climate change Innovation through research, demonstration and development Investment through carbon market mechanisms Progress through advocacy, partnerships and collaboration. This year a photovoltaic installation was erected at Lethabo Power Eskom’s aspiration is to pursue a more diverse energy mix with the Station as part of Eskom’s commitment to renewable energy objective of reducing the utility’s relative emissions until 2025 and 68 Eskom Holdings SOC Limited Divisional Report 2012 Strategic functions: Sustainability continued Eskom’s renewable-energy projects Biomass Sere wind farm Biomass is a renewable-energy source derived from biological Construction of 100MW wind farm in Western Cape material from living or recently living organisms. It is plant-based 50 turbines of 2MW each material used directly or converted into other energy products Commissioning in 2013 such as torrefied pellets (moisture removed), biofuel and so on. ~220 000 tons of carbon saved per year (based on 0.9 tons of carbon per MWh). As part of Eskom’s biomass research programme, a System Johannsen Gasifier was constructed and installed at a rural Concentrating solar power pilot plant sawmill in Melalani in the Eastern Cape in conjunction with the Eskom is researching a 4km, 2 100MW concentrating solar University of Fort Hare. It uses wood and other biomass as a thermal power station in the Northern Cape by building a fuel source to produce a virtually tar-free gas, which powers 100MW plant near Upington. The assessment focuses on an electricity generator. environmental eligibility, technical feasibility and commercial competitiveness Eskom is also evaluating other biomass options, such as the 450 000 tons of carbon saved per year use of municipal solid waste as a feedstock for power Vital to Eskom’s carbon footprint reduction/low-carbon generation. Municipal solid waste not only represents a growth strategy. continuous source of energy that can be harnessed for generation, but its use will also significantly decrease the Photovoltaic installations at power stations burden on landfill sites and processing facilities. Installation of two photovoltaic pilot plants at Eskom sites Initial installation of one hectare per site adding 1.2MW of To reduce greenhouse-gas emissions from its coal-fired power capacity stations, Eskom is exploring the co-firing of biomass fuel. It aims Photovoltaic produces zero emissions during operation and to co-fire biomass to replace 10% of coal usage by weight in does not need water coal-fired power stations by 2026.To achieve this goal, a project Photovoltaic is a well-established, safe technology that can within Eskom’s primary energy division is sourcing suitable be installed quickly at plant site. biomass within South Africa and sub-Saharan Africa. The project is divided into phases, namely:   Co-firing technology selection – selecting technology between separate milling and co-milling of biomass with coal, and between co-firing white biomass pellets and torrefied biomass pellets (also known as black pellets). Test burns will be conducted at Arnot and Kriel power stations to determine the most suitable technology and biomass fuel. Primary Energy is sourcing the biomass fuel for the test burns and an order has been placed for 2 000 tons of torrefied biomass pellets.  Biomass fuel sourcing – sourcing biomass fuel for sustainable application. A contract has been placed with the Council for Scientific and Industrial Research to conduct a biomass fuel supply study. The study addresses the availability of biomass fuel in South Africa and neighbouring countries, including transport, beneficiation, quality, environmental, market conditions, fuel cost and legal/regulatory issues. The Global Electricity Utilities Initiative Eskom successfully spearheaded an initiative called The Global One of the air quality measuring sites that Eskom uses to measure Electricity Utilities Initiative.This initiative saw Eskom bring 25 global the air quality around its power stations utilities together to work towards a common purpose to reduce emissions, develop cleaner technologies and promote the Ocean energy introduction of renewables to embed global best practice. Eskom’s In 2002, Eskom completed a study that concluded that South involvement and leadership was positively received. The report Africa has a sufficient ocean resource to explore this shows that significant progress has been made in developed and renewable-energy option. A techno-economic study and developing countries in creating sustainable solutions towards clean technology evaluation are being performed to assess ocean electricity through progressive decarbonisation of the energy mix, energy conversion technologies to determine which should more efficiency throughout the electricity value chain and the be researched further for possible application in South Africa. promotion of the more efficient end use of electricity. GEI utilities have also made substantial progress in increasing stakeholder engagement, investing in climate change-related projects, conducting research and development into new and advanced technologies and investing in adaptation measures. 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. Eskom Holdings SOC Limited Divisional Report 2012 69 Strategic functions: Sustainability continued COP17/CMP 7 Sustainable Energy For All. Eskom will engage and support Eskom was integrally involved in assisting South Africa in hosting an government and liaise with international business through excellent Conference of the Parties in Durban in December 2011. Business Action for Sustainable Development. The country outlined its aspiration to move towards a low carbon future and to prepare South Africa for the impacts of climate For more information on the United Nations Global compact change. Eskom demonstrated its holistic approach to climate refer to fact sheet at www.eskom.co.za/IR2012/050.html. change by discussing both mitigation and adaptation strategies. Safety From a domestic policy and regulation point of view, the A price cannot be put on the value of human life or that of human Department of Environmental Affairs issued a White paper on the abilities. Whilst many campaigns, policies, procedures and National Climate Change Response in November 2011. This programmes have been instituted in Eskom over the past few years document outlines a process, to be concluded within a two year to prevent occupational health and safety (OHS) related incidents period, for developing (in consultation) sectoral (and even and fatalities, the results of such have been unsatisfactory as company) carbon budgets that align with South Africa’s pledge at highlighted by the Eskom safety record. Copenhagen. The above necessitated a complete review of the Eskom OHS National Treasury has also continued to engage stakeholders on strategy and related action plans. their “carbon tax” proposal and a revised policy/proposal is expected to be published later this year. Eskom has engaged with Key to bringing about the required step changes in OHS National Treasury in order to identify ways to enhance the performance is ensuring that the foundation or purpose of the effectiveness and limit the unintended negative consequences that OHS strategy is sound. The foundation of Eskom’s approach to such a tax could have on electricity tariff increases and the South OHS is based on the following purpose statement: African economy. These engagements have included discussions on how the Integrated Resource Plan internalises the cost of carbon “Eskom is committed to our responsibilities in respect of occupational through capping carbon dioxide emissions in a certain timeframe health and safety, which is integral to the way we do business. When and the pursuit of a lower carbon emitting electricity mix. we conduct our business of building a legacy that every employee, his/ her family, and future generations can be fiercely proud of, health and Power generation from renewable-energy sources was a focus safety is a primary consideration. at COP17. The Minister of Energy announced at COP17 that 28 successful IPPs will contribute about 1 400MW of solar and Electricity as a product can be fatal when someone comes into contact wind power, to the national grid. Eskom continues to catalyse with it. private-sector participation in the electricity market beyond the conference. The Minister of Public Enterprises, also officially There are various safety and life hazards across the various processes launched Eskom’s Sere wind project at a COP17 function. The aim involved in electricity provision.” is to commission Sere in 2013 to add 100MW of “green power” to the grid. The above is entrenched in Eskom through the fact that Zero harm to people and the environment has been adopted as a value in The COP created enhanced awareness among South Africans of Eskom. energy and climate change issues. Eskom is determined to use this momentum to continue to communicate on its efforts to meet When Eskom conducts its business of building a legacy and both the mitigation and adaptation challenges and especially to ensuring zero harm that every employee, supplier (including further entrench energy efficiency messages. contractors and consultants) and members of the public, his/her family, and future generations can be fiercely proud of, the following Eskom will continue to pursue renewable energy and energy- health and safety long-term objectives will be the focus: efficiency projects.This includes a proposed photovoltaic expansion Zero harm to all employees, suppliers (including contractors and – 2MW at Megawatt Park by end 2012 and rollout of renewables consultants) and members of the public at power stations. Eskom will build supportive and cooperative Promote health and safety such that it becomes a way of life for relationships with local municipalities to speedily address incidents all Eskom employees, suppliers (including contractors and and emergencies and ensure security of supply. consultants) and members of the public both at work and at home The United Nations Global Compact and Rio+20 Ensure that all employees and suppliers (including contractors Rio+20 will take place in June 2012 to secure renewed political and consultants) return safely to their home and families on a commitment for sustainable development, assess progress to date daily basis and the remaining gaps in the implementation of the outcomes of To foster cooperation and consultation amongst all internal and major summits on sustainable development, and address new and external stakeholders to achieve Zero harm emerging challenges. No operating condition, or urgency of service, justifies exposing anyone to negative risks arising out of Eskom’s business or Eskom’s desired outcomes from Rio+20 include clear action causing them injury or damage to the environment. plans for energy access and electrification, obtaining financing for energy access, energy-efficiency and renewable-energy initiatives. To deliver on the above objectives, the OHS environment, past Eskom will participate in Rio+20 through its continued strategies and interventions as well as OHS performance were engagement in United Nations activities, including the Global analysed to understand the underlying issues which needed to be Compact LEAD, Caring for Climate, CEO Water Mandate1 and addressed in order to bring about the desired step changes. 70 Eskom Holdings SOC Limited Divisional Report 2012 Strategic functions: Sustainability continued To deliver on the above objectives, the OHS capability within These key areas will apply to all of Eskom’s strategic imperatives Eskom from a policy, compliance and implementation coordination and activities. perspective has been centralised into a single department within the sustainability systems portfolio in the Sustainability division in Performance Eskom. This team will be the driver behind this OHS strategy which Eskom’s commitment to Zero harm builds a strong foundation for focuses on addressing seven key areas (including the issues health and safety. Its safety expectations entail a simple set of non- highlighted above) to achieve the desired objectives and bring negotiable policies, principles and standards set to achieve “Zero about the step change sought: harm to all” as a way of life. Connecting OHS to everything that is done in Eskom and personalising OHS Sadly, there were 13 employee fatalities, 12 contractor fatalities Attaining commitment to Zero harm and OHS across Eskom and 33 public fatalities during 2011/12. Any loss of life is Making compliance to OHS requirements as a non-negotiable unacceptable and a massive concern. Eskom has implemented a Ensuring that Eskom has an optimal OHS organisation structure number of safety improvement initiatives to reduce the number of resourced with the required competencies and number of safety-related incidents to zero. competent staff to deliver on the OHS mandate Communicating OHS and Zero harm in a manner that Despite the unacceptable safety performance, there were positive entrenches and reinforces the Zero harm value and related achievements during the last year. Some units achieved up to success, incidents, etc. 35 years without lost-time injuries. Consistency of actions, decision making, etc. Ensuring that Eskom has a cycle of continual improvement, tracking and monitoring in OHS through the development of appropriate KPAs, KPIs and proactive assurance processes. Safety performance 2010–2012 Unit of Actual Actual Actual measure 2012 2011 2010 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 Public safety Total public fatalities number 33 43 41 Electrical contact fatalities number 27 22 27 Fatalities from other causes number 6 21 14 Of the 13 employees who passed away during 2011/12, four Vehicle accidents and electrical contacts remain the major causes were due to electrical contact incidents; four were due to motor of public fatalities. vehicle accidents, one as a result of fall while erecting a tower, one as a result of burns, one was struck by a reversing truck and two Although the public fatalities are showing a positive trend compared died as a result of occupational diseases. to the fatalities of 2010/11, the intense public safety campaign continues to stress the need for continuous vigilance and education. Of the 12 contractor employees who lost their lives during 2011/12, five were due to motor vehicle accidents, one to a fall Lost-time incident rate (LTIR) from height while painting on a roof, one due to electrical contact The progressive LTIR is a proportional representation of the at an electrical installation, two died during tree felling operations, occurrence of lost-time injuries over 12 months. The actual lost- one during a power line stringing operation and one fall-related time injury rate (LTIR) performance was 0.41 per 200 000 man- incident when the contractor employee jumped from a moving hours worked against a target of 0.40 for 2012.The LTIR target was vehicle before it was stationary. One died after being stung by not met, which is a great disappointment, but the safety of Eskom’s wasps. people remains fundamental to its business. Reasonable assurance provided by the independent assurance provider (refer page 86). 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. Eskom Holdings SOC Limited Divisional Report 2012 71 Strategic functions: Sustainability continued In risk-specific terms, the leading causes of injuries were motor Contractor management vehicle accidents, caught between, and struck by objects and falls. Eskom held various supply forum meetings as part of the company’s drive to work in partnership with suppliers and service providers on health and safety on its sites. The wide-ranging In memoriam policies, procedures and standards were shared with contractors. Our thoughts and prayers go to the families, friends and In an effort to manage contractors more effectively, minimum colleagues of the employees and contractors who passed away mandatory generic safety, health, environmental and quality in the line of duty this past year: requirements must be met in the procurement and supply-chain management processes for all contractors. This includes assessing Employees Contractor employees contractors in meeting the Eskom and legal requirements. Nkosinathi Emmanuel Gwetyana Kanyiso Dlanjwa Public safety Willem Jan Hendrick Jacobs Muntungani Isaac Khumalo Eskom has implemented several initiatives to address these areas, such as the Eskom electricity safety week from 15 to 22 August Keyafisha Ernestina Lethuba Wayne Klue 2011. The campaign emphasised the dangers of illegal and unsafe Neekesh Sibran Mahie Mokete William Letsikhoane connections. Mfelani Timothy Malaza Mokalabata Foster Madisa Tshiro Alfred Mavuso Maurice Mgadi Eskom continues to educate people about common errors made when handling electricity, hazards on work sites and how to avoid Phumowakhe Robert Mbatha Sandile Miya becoming a victim of electrocution or electric burns by adopting Setena Phineas Mekoa Leronti Makalo Moeketsi safe practices at work and at home. The dangers of illegal Johannes Mwiya Mokhothu Stephen Pitso connections and cable theft are also highlighted. Aifheli Joseph Nemavhidi Siphamandla Cedrick Sithole Action taken Stanley Mbongiseni Ngema Nthabelang Gavin Sothoane Incorporation of safety into performance management system Philani Phakathi Nxolosi Xhashimba Eskom has included safety in its performance management system Daniel Jacobus Stols across all divisions. Any accidents reported count against the achievement of key performance targets. Operational highlights Safety-management system established The safety improvement programme has enhanced operational A safety-management system has been established. Training of discipline and visible leadership in safety. Working towards the goal safety practitioners emphasises Eskom’s policies and compliance of zero harm, Eskom is implementing a behaviour-observation audits are performed. programme to change the safety culture from being reactive (by measuring and investigating incidents) to proactive (by observing Safety training and monitoring for staff and addressing unsafe acts and conditions through management Eskom ran several safety awareness and training programmes for visibility in the workplace). staff throughout the year. Employees are expected to follow the cardinal rules of safety or be disciplined. This has resulted in a Eskom has identified critical behaviours or actions that have a high considerable increase in safe behaviours (such as use of safety probability of causing incidents. This led to the implementation of belts) since 2008.Targeted initiatives for specific types of health and non-negotiable rules during 2008 – if not complied with, a safety incidents were also conducted. disciplinary process is instituted. As a result, incidents involving these high-risk activities have substantially reduced. The wearing of Contractor safety forums conducted safety belts was monitored and showed significant improvement. Eskom held contractor forums to ensure that the standard of safety management at Eskom sites was in line with best practice. Safety interventions in high-risk areas Contractors are expected to comply with Eskom’s safety, health Vehicle safety, electrical and slip, trip and fall incidents continue to and environmental policy; deviation from this policy is not tolerated. be high-risk areas for employees and contractors. Various initiatives were implemented to address these issues. Safety-improvement initiatives Several initiatives to improve safety were initiated, including: Various staff communications highlighted electrical, vehicle and Launching of the Zero harm campaign driver safety, as well the risk of trips, slips and falls. Work stoppages Peer reviews of risk-control interventions were conducted at were held where management discussed the risks and lessons selected sites learnt from incidents involving these high-risk areas. Work was stopped to discuss and embed safety issues Management took robust action on repeat incidents Driving behaviour is monitored through a vehicle monitoring Boot camp in order to focus on specific safety issues. device in company vehicles as part of Eskom’s vehicle safety programme. Driver evaluation and advanced driver training are offered to employees. 72 Eskom Holdings SOC Limited Divisional Report 2012 Strategic functions: Sustainability continued Bradley curve operations. Contractors working under Eskom supervision or on Natural company premises are expected to comply with Eskom’s safety, instincts health and environment policy. Eskom leadership has engaged with Supervision contractors in forums to ensure that the standard of safety management at Eskom sites is in line with best practice. Injury rates Self Quality management Teams Eskom has made an undertaking to develop and implement management systems that are ISO 9001, ISO14001 and OHSAS Reactive Dependent Independent Interdependent 18001 compliant to achieve sustainable performance improvement, • Safety by natural • Help others to conform instinct • Management commitment • Personal knowledge, commitment and • Others’ keeper with zero harm to people and the environment. The first milestone • Compliance is the • Condition of standards • Care for others goal employment • Internalisation • Organisational pride of this performance improvement journey is the establishment of • Delegated to Safety • Fear/discipline • Personal value • Team owns safety, cost Manager • Lack of management • Rules/procedures • Care for self and production ISO 9001 Quality Management Systems as the foundation for good • Supervisor control, • Practice, habits involvement emphasis and goals • Value all people • Individual recognition business management. This will pave the way towards positioning • Training Eskom for sustained success to ultimately become a high- performance organisation and top global utility. Upon achieving ISO 9001 compliance, the management systems will be enhanced Safety is one of Eskom’s priorities for the next year. Eskom is by addressing Environmental, Health and Safety requirements. The committed to safety, however, fatalities and incidents continue to execution of the ISO 9001 implementations plans are underway, occur. An Eskom principle is that “No operating condition, or urgency with good progress made on certification. of service, justifies exposing anyone to negative risks arising out of Eskom’s business or cause”. When reassessing its past efforts, it has To ensure that Eskom’s rights as a customer are exercised, and that become clear that Eskom must establish a safety culture that is the quality of manufactured equipment meets Eskom’s requirements, driven by leadership and individual behaviour by moving from a verified by independent assessment, Eskom has an office in London supervision-driven culture to a self-driven culture. to manage the quality of products procured for the capital expansion programme. Eskom will continue to focus on safety training and awareness, skills and competency, supervision and operational discipline to improve Operational highlights current performance. To date, the following divisions, business units and departments have received ISO 9001 certification or compliance: Eskom is working with suppliers, customers and contractors to integrate safety, health and environmental issues into their Line functions Service functions Strategic functions Office of the chief executive ISO 9001 certification Arnot power station Finance division Eskom Development Assurance and Forensic Foundation Camden power station Treasury Legal Shared Services Komati power station Eskom Finance Company Research, Testing and Development Hendrina power station Eskom Academy of Learning Matimba power station Industry Association Resource Centre Peaking operating unit Eskom Aviation Rotek and Roshcon Telecommunications ISO 9001 compliance Group Capital Return to Service Projects Power Delivery Projects Ingula Project Group Technology and Commercial Project Sourcing Primary energy division Eskom Holdings SOC Limited Divisional Report 2012 73 Strategic functions: Sustainability continued Operational challenges Research investment areas Organisational restructuring in the past year resulted in some disruptions in the management system certification plans due to Expenditure per research investment area (R million) changes in mandates, functional scopes and organisational structures. R14.2 R36.2 R16.2 Future priorities and commitments The focus in the next financial year will be to obtain ISO 9001 R7 certification in the rest of the organisation and establish a Total R13.6 Quality value chain to enable sustainable performance improvement R22.9 R6.5 across all functions. The medium- to long-term focus will be the introduction of business excellence models to facilitate the R13.7 positioning of Eskom as one of the top performing power utilities. R14.7 R42.7 ● Renewables and the environment ● Research membership Research and testing ● Power system technologies ● Innovation and future technologies ● Improving generation performance ● Health, safety and human factors Vision ● Asset management ● Primary energy ● Energy policy, economics and statistics ● Energy efficiency To have a world-class research and innovation facility staffed with globally respected researchers verified by international benchmarking and peer review and enabled by increasing existing Strategic partnerships funding investment in people, laboratories and equipment. Research, Research continues to rely heavily on local and international testing and product development are distinct mandates but with a partnerships for knowledge-sharing. Ongoing collaboration with common human and financial resource base. The department the Electric Power Research Institute, Doble, the International focuses on immediate challenges and provides solutions to some Energy Agency Clean Coal Centre and Solar PACES provide strategic sustainability challenges. Eskom with valuable access to international research. Eskom has signed an agreement with VGB on a project to evaluate new Mandate materials for future highly efficient power stations. Similarly, an To ensure that Eskom makes the best use of current and emerging agreement was concluded with a European Commission FP7 technologies to improve performance at existing facilities and project, which will provide insight into the possibilities and impact infuse new build projects with excellence in engineering design. of carbon capture and storage in South Africa. Research, testing and product development are distinct mandates Eskom continues to serve on the board of the South African but with a common human and financial resource base. The Centre for Carbon Capture and Storage, which is working on the department focuses on immediate challenges and provides carbon capture and storage roadmap for the country. Eskom solutions to some strategic sustainability challenges. maintains strong strategic partnerships with the Council for Scientific and Industrial Research and universities and is a member Financial performance of the European Utility Telecommunication Committee, the The research and technology function aims to ensure that Eskom Welding Institute, the Fossil Fuel Foundation and the International makes the best use of current and emerging technologies to Hydropower Association. improve performance at existing facilities and infuse the capacity expansion projects with excellence in engineering design. Testing The skills and facilities required for research are also applied to Research investment of R187.7 million was 5.9% lower in actual real-time operational testing and other specialist services when terms than last year. This needs to be understood in the context of required.The Eskom Research and Innovation Centre is the hub for a reduction in manpower charge out rates of approximately 35% many critical analyses that provide insight into the asset health of halfway through the year.Thus in the last financial year R93.6 million Eskom’s power stations and network. Specialist services are (46%) was attributed to labour charges whilst this year, with similar provided in oil analysis, welding, non-destructive testing, coal quality, manpower numbers, the figure was R66.7 million (35.6%). The material fatigue and corrosion. Air-quality monitoring is controlled remainder was spent on general expenses, suppliers and contracted from the centre and reported nationally. All these areas are services. expanding and recruiting skills. Testing power stations for efficiency improvements is a key area of growth. 74 Eskom Holdings SOC Limited Divisional Report 2012 Strategic functions: Sustainability continued Demonstration and pilot projects Friction stir taper stud welding platform As research matures, testing and development ensures robust, A tool for extracting metallurgical samples from materials used in effective and well-managed pilot and demonstration projects. pressurised steam-bearing structures and then plugging the holes. A demonstration project is a production-scale asset constructed to The samples are then analysed. evaluate and validate prior research findings and recommendations. This enables future business decisions (especially the understanding Other projects of risk and certainty of costs) regarding the applicability of the Concentrating solar power technology in Eskom’s context. The concentrating solar power project is still on track for implementation in 2017. Land, water, environmental authorisations High-voltage direct current and funding have all been secured. Eskom is working closely with The purchase of a 1 000 volt high-voltage DC generator has been project funders to appoint an owner’s engineer in 2012. The plant’s approved. This will allow Eskom to test high-voltage DC line required specifications have not changed and Eskom is encouraged designs at altitude and enable future network expansion using this to see similar plants already under construction elsewhere in the technology. world. The plant’s construction will start in 2016. Municipal solid waste to energy Underground coal gasification One of Eskom’s identified strategic initiatives. Work is progressing Eskom conducted a number of studies on underground coal with local municipalities to bring biogas online and convert waste gasification (UCG) from 2002, and a pilot plant was commissioned to energy through thermal conversion in the short term. in the Majuba coalfield in January 2007. In October 2010, gas was delivered from an underground combustion chamber to Majuba IP/MPLS telecommunications power station for the first time. Although small in energy terms This new technology is being researched to evaluate its suitability (3MW of a 650MW unit), this was a significant achievement. for all systems, especially operational security and reliability. Research is working on the gas treatment and clean-up facilities to reduce emissions and the site will reach 15 000m3 gas capacity in Low loss distribution transformers 2012. Research into innovative transformer core material and construction techniques that minimise losses and help Eskom achieve internal Although co-firing UCG gas at Majuba is the primary focus, Eskom energy-efficiency targets. is also designing a 100–140MWe open cycle gas turbine demonstration plant with 250 000 Nm3/h UCG gas flow. Based on Plant monitor the analysis of the gas quality and potential for gas production, An integrated system that allows for comprehensive monitoring, Eskom will decide whether to continue to co-fire or to use open storage and analysis of equipment operational parameters and cycle gas turbine technology in 2012. If this route is chosen, this will condition. lead to the design and commissioning of a proof-of-concept commercial UCG-CCGT plant with an estimated capacity of Solar photovoltaic pilots 2 100MW (with 3 800 000 Nm3/h UCG gas flow). Through collaboration with the newly established renewables business unit, research training and development funded and Refer to fact sheet at www.eskom.co.za/IR2012/051.html for assisted in the development of photovoltaic installations at more information on research and technology. MegaWatt Park head office. The piping of the underground coal gasification project next to the Majuba power station near Volksrust Eskom Holdings SOC Limited Divisional Report 2012 75 Office of the Chief Executive Delivery unit Mandate The Delivery unit coordinates and drives Eskom’s performance-improvement programmes by tracking, monitoring and reporting on the implementation of the entire portfolio of strategic transformation initiatives. The initiatives can broadly be defined with these three objectives: Value-creating (strategic or enterprise projects) The Generation excellence programme has been launched at six Operational (projects that enable Eskom to become more power stations. Kendal and Matla power stations are making efficient and effective) good progress in developing skills and improving performance Compliance (“must-do” projects required to maintain regulatory (UCLF and preventative maintenance). compliance). The Distribution excellence programme has been launched in all regions and steady progress is being made. The programme As a result of this focus, four key business areas were created: focuses on the worst-performing networks, builds frontline Transformation projects implementation drives and supports capacity through technical service centres and increases the use transformational programmes and initiatives. A project of mobile computing. There has been a steady improvement in management office was created within transformation project operational performance but safety remains a concern. implementation to drive the integration of strategic project- management processes with operational processes. Ongoing challenges The Eskom Leadership Institute ensures that leadership Staffing the Delivery unit has taken longer than expected, which development is aligned with the business strategy and the presents a risk in the overall running and implementation of the company’s organisational values. The institute aims to establish divisions’ outputs. and sustain a single, integrated leadership framework. The programme for managers appointed externally will be The internal consulting business area develops in-house implemented in the new financial year. Similarly, the conceptual expertise in the areas of management consulting, business framework for a scorecard to measure leadership effectiveness analysis and business-improvement services. has been developed. Finalisation and rollout has been delayed Mega systems and projects focuses on standardising processes until the new financial year. to eliminate waste and improve efficiencies. The Back2Basics There has been limited progress in establishing an in-house programme aims to standardise, simplify and optimise business management consulting business and a financial and business processes. The services tools programme provides an integrated, analysis group, which has resulted in delayed support for the Eskom-wide resource-planning platform using SAP software. The strategic initiatives and the business as a whole. SAP programme was successfully re-implemented in October 2011. Future focus areas The transition to SAP project and portfolio management is Operational highlights expected to be completed by the end of May 2012. This will The Eskom Delivery unit implemented Primavera P6, a world- automate the tracking and monitoring of portfolio and financial class, robust and easy-to-use integrated solution for globally performance of the strategic initiatives, achieving the data prioritising, planning, scheduling, managing and executing projects, integrity principles of complete, accurate, relevant, accessible and programmes and portfolios associated with the strategic timely information initiatives mentioned above.To date, 54 transformational strategic Roll out SAP release two and the Back2Basics programme in initiatives have been prioritised and approved by the Eskom engineering, outages, maintenance, operations and projects executive committee. This has enabled the unit to create and Roll out Generation excellence programme to all power stations maintain an integrated plan for the individual strategic initiatives Step up Distribution excellence programme and programme plans. Step up customer-centred programmes The Eskom Leadership Institute was launched. Roll out Eskom’s leadership strategy. Internal consulting provided corporate finance advisory and investment governance support to the business. A new management framework for the use of external management and strategic consultants has significantly improved overall consulting expenditure. The Back2Basics programme (originally executed through the Finance division) significantly reduced the number of policies and procedures, increasing the level of standardisation across Eskom. Process control manuals documented detailed tasks and role- based descriptions of the work to be performed and employees were trained on the manuals, supporting the development of a standardised method of working. 76 Eskom Holdings SOC Limited Divisional Report 2012 Subsidiary companies Eskom Holdings SOC Limited has the following material direct subsidiaries Eskom Enterprises SOC Limited Escap SOC Limited Eskom Finance Company SOC Limited Eskom Development Foundation NPC (see page 63). Eskom Enterprises SOC Limited Group Mandate To provide lifecycle support, plant maintenance, network protection and support for the capacity expansion programme for all Eskom Holdings Limited divisions. This is done primarily through two subsidiaries, Rotek Industries SOC Limited and Roshcon SOC Limited. Operational highlights For detailed information about the overall safety strategy and initiative Supported management of coal supply at an Eskom level please refer to the safety section on page 70. Rotek Industries responded flexibly to tighten the power station maintenance programme and the maintenance backlog Future focus areas Supported Eskom’s road-repair initiative. Over the period ahead Eskom Enterprises SOC Limited Group will: Ongoing challenges Improve safety Reduction in sustained demand for civil construction in the Reposition Eskom Enterprises’ divisional assets into Eskom Roshcon environment Holdings Sub-optimal utilisation of assets and resources. Integrate Rotek Industries and Roshcon into a single company producing high-quality products and focused on meeting Eskom’s Safety performance needs cost effectively Causes of employee lost time injuries (including fatalities) Continue to implement the Back2Basics programme Management has interpreted the health and safety requirements in Manage the final exit from Eskom Energie Manatali concession a project environment to contextualise and simplify for in Mali. implementation. Shareholder compact of the Eskom Enterprises company with Eskom Key performance areas Target 2012 Actual 2012 Target achieved Financial measures Operating income R39 million R91 million Yes Gross profit margin 65.01% 67.45% Yes EBITDA R108 million R181 million Yes Net profit before tax R87 million R163 million Yes Net profit margin (after tax) 4.73% 10.93% Yes Debtors’ days (12 month moving average) 40 days 79.14 days No Debtors outstanding >90 days Rnil R50 million No Socio-economic measures Racial equity 68.00% 67.13% No Gender equity 25.00% 24.06% No LTIR – employees 0.20 0.17 Yes LTIR – contractors Nil Nil Yes Fatalities – employees Nil Nil Yes Fatalities – contractors Nil Nil Yes B-BBEE accreditation Maintain Maintain Yes Other reversal Eskom telecommunications backbone network availability 99.74% 99.79% Yes Utilisation of the rotary wing fleet (number of hours used) 3 000 4 709 Yes In addition, Eskom Enterprises has entered into separate shareholder compacts with Rotek Industries and Roshcon, its two major subsidiaries. Eskom Holdings SOC Limited Divisional Report 2012 77 Subsidiary companies continued Escap SOC Limited Mandate Escap is Eskom’s local captive insurance subsidiary company. It provides cost-effective, customised short-term insurance products to Eskom through a combination of reinsurance with the external providers and self-insurance. Operational highlights Future focus areas The solvency margin was 119% (target: 50%), giving rise to The Financial Services Board is developing a new risk-based surplus of R1 005 million in net assets (target: R484 million) solvency regime known as Solvency Assessment and Management Net claim expenses as a percentage of net earned premiums to align the South African insurance industry with international was 89% (target: ≤90%) standards. Since 1 January 2012, Escap has been required to Management expenses, as a percentage of net earned premiums monitor and report on a series of interim measures to determine was 7% (target: ≤16%) whether its net assets exceed risk-based solvency capital Net claims and management expenses, as a percentage of net requirements. Using 31 March 2012 financial information, earned premiums was 96% (target: ≤106%) Escap’s net assets exceed its solvency capital requirements by Money-market investment performance measured by the short- R1 193 million. term fixed-interest composite index (STEFI) was 5.8% (target: >5.7%). Final Solvency Assessment and Management requirements for local insurers are expected to take effect on 1 January 2015. Operational challenges Escap intends to comply with these requirements. At 31 March 2012, listed share investment performance measured on the shareholder weighted index (SWIX) of the Johannesburg Stock Exchange was 2.4% (target: >7.8%). Shareholder compact with Eskom Key performance areas Target 2012 Actual 2012 Target achieved Solvency margin ≥50% 119% Yes Equity portfolio return (1 year), >SWIX 7.8% 2.4% No Money market portfolio return (1 year), >STEFI 5.7% 5.8% Yes Expense ratio ≤16% 7% Yes Incurred loss ratio ≤90% 89% Yes Combined ratio (expense and incurred) ≤106% 96% Yes Back to basics/SAP re-implementation deadlines met ≥90% 100% Yes FSB deadlines and SAM requirements met 100% 100% Yes Training and development targets met ≥90% 272% Yes Customer satisfaction rating ≥3 4 Yes Employee benefits streamlining rating ≥3 3.2 Yes Prompt claims payment rating ≥3 2 No 78 Eskom Holdings SOC Limited Divisional Report 2012 Subsidiary companies continued Eskom Finance Company SOC Limited Group (EFC) Mandate EFC was established by Eskom in 1990 primarily to finance home loans to its employees with the purpose of optimising home ownership costs to Eskom group employees and specifically mandates EFC to: Finance home loans at competitive rates This growth and operational efficiencies enabled EFC to achieve Educate employees with regard to responsible home ownership a 38.1% cost-to-income ratio compared to the target of 46.6% and financing Favourable market conditions and increasing investor confidence Administer interest rate and rental subsidies on behalf of Eskom in EFC’s RMBS programme secured funding at favourable rates Assist Eskom to develop and implement its housing policy resulting in a financing margin of 3.1% compared to a target Provide ancillary products to satisfy customer needs. of 2.7% Customer satisfaction levels exceeded the target of 96.2% by Operational highlights achieving 97.2%. EFC securitisation SPV, Nqaba Finance, was recognised as “EMEA Finance’s best securitisation deal” in Europe, Middle East and Future focus areas Africa Increase the loan book to more than R10 billion in the next ISO 9001 certification received during 2011/12 five years The EFC loan book increased by R1.53 billion (27.2%), passed Financing home loans to 55% of the Eskom workforce the R7.0 billion level in February 2012 and continued to grow to Maximise the Residential Mortgage Backed Securitisation R7.2 billion (2011: R5.6 billion) at year end, exceeding the programme (RMBS) to fund the growth targeted growth of R839 million (15.2%) by R693 million Implementation of a business intelligence system. New home loans granted is the major contributor to this growth. During the year 2 651 were granted to the value of R1.85 billion, enabling 37.9% of Eskom employees to have their home loans financed by EFC compared to the target of 38.9% Shareholder compact with Eskom Target Actual Target Key performance areas 2012 2012 achieved Maximise shareholder value, optimise home ownership cost to Eskom and its employees in the form of economic value added (EVA)1 R129.7 million R166.2 million Yes Achieve company operational efficiency, cost-to-income ratio2 46.6% 38.1% Yes Optimise funding through the securitisation programme, additional assets securitised3 R750 million Rnil No Asset growth, loan book net growth1 15.2% 27.2% Yes Maintain good customer satisfaction (%) 96.2% 97.2% Yes Maintain good macro customer relationship (rating) 3 rating 4.3 Yes Socio-economic contribution, support of Black Economic Empowerment (BEE) work to BEE attorneys 90% 91.73% Yes controllable expenses to BEE companies4 65% 77.97% Yes Employment equity, racial equity, managerial and supervisory staff (%) 40% 47.8% Yes gender equity, woman employed (%) 66.7% 63.87% No Enable Eskom % employees to own a home (Eskom employees' home loans financed) 38.9% 37.94% No 1. Growth due to Eskom improved housing benefits. 2. Operational efficiencies and favourable interest rates. 3 PFMA approval outstanding. 4. New BEE suppliers supported. Eskom Holdings SOC Limited Divisional Report 2012 79 Future priorities of Eskom Five step change focus areas for 2012/13 Eskom will focus on five areas for the financial year 2012/13, where step changes are required to create a solid platform to shift performance and grow sustainably. 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 socio-economic contribution Fix performance Deliver capital 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 The priorities for the next year are detailed below: communication to promote efficient energy use. Increasing use Safety of open cycle gas turbines, identifying demand response options Eskom is committed to safety, however, fatalities and incidents in smaller customers and establishing an Energy Conservation continue to occur. An Eskom principle is that “No operating Scheme will create an electricity “safety net”. condition, or urgency of service, justifies exposing anyone to negative risks arising out of Eskom’s business or cause”. When reassessing Deferring maintenance is no longer an option to manage supply our past efforts, it has become clear that Eskom must establish a and demand.The maintenance programme must be implemented, safety culture that is driven by leadership and individual which requires other supply and demand levers. The strategy to behaviour by moving from a supervision-driven culture to a self- achieve this has been submitted to the Department of Public driven culture. Enterprises (DPE) as a Public Finance Management Act (PFMA) application. Keeping the lights on with focus on: Ensuring security of supply Ensuring demand-side savings by both Eskom customers and Eskom Eskom is currently managing a tight power system, which will owned facilities continue for the next five years and especially for the next two While it will take substantial effort from many stakeholders to years, while new capacity is built. The electricity supply/demand overcome the current electricity challenges, security of supply balance will remain tight until both the Medupi and Kusile power can be ensured as long as all the key stakeholders, including the plants begin operating. people of South Africa, partner with Eskom to overcome all the obstacles to implementing the identified initiatives on the supply To minimise the possibility of load shedding, various initiatives and demand side: Accelerated Solar Water Heating, Accelerated including signing up short-term generation options, enhancing Demand Response, The Energy Conservation Scheme (ECS), generation performance, improving coal quality, giving Innovative IDM Solutions, Mass Rollout Programmes, Residential independent power producers (IPPs) access to the transmission Mass Rollout Programme, etc. grid, responding dynamically to changing demand, and intensifying 80 Eskom Holdings SOC Limited Divisional Report 2012 Future priorities of Eskom continued Ensure financial sustainability: projects; on time, within budget and at the right quality.There has The focus on the Multi-Year Price Determination 3 application been a delay with the commissioning of Unit 6 of Medupi, but will be a high priority. the appropriate measures have been implemented to ensure Delivery on the capacity expansion programme that all the other generation units will be commissioned on time. There is a renewed focus on delivering on capacity expansion Commissioning schedule Actual Target Target Target Target Target Target Target Project 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 The capacity expansion programme has turned Eskom into the amount to R16.4 billion, the refurbishment and strengthening of country’s largest EPCM company. Current key projects are existing lines require investments of R14.5 billion and Medupi and Kusile, with 4 764MW and 4 800MW of generation R26.6 billion, respectively over the next five years. Other capacity installed, respectively. distribution projects amount to R10.5 billion over the same period. Eskom is also upgrading the grid to 765kV lines and the new construction will cover over 1 800 km of power supply lines. Improve operations: with focus on the continuation of the Other projects will add a further 2 300km of power supply lines implementation of the Back2Basics programme (Processes, and 20 600MVA of new transformers. Systems and Tools) and implementation of the Generation (Reducing our unplanned capability load factor (UCLF) and Distribution is making an effort to provide all South Africans with ensuring the reliability of our power stations), Distribution and access to electricity. While connections of new customers Customer Centricity Excellence Programmes. Eskom Holdings SOC Limited Divisional Report 2012 81 Appendices: Awards September 2011 January 2012 Eskom wins top sustainability award Public Sector Excellence Award Eskom’s Integrated Report 2011 was recognised and Eskom won the gold medal in the “sector excellence: awarded second place in the Ernst & Young: Sustainability energy and minerals sector” category at the 2011 Public Reporting Awards event for 2011 held at the Johannesburg Sector Excellence Awards, held in Johannesburg on Securities Exchange on 19 October 2011. The winner in 31 January 2012. The annual public sector awards are the first place was the Bidvest Group and AngloGold organised by an independent non-profit citizen-centred Ashanti took the third place. This follows the award for initiative to assess and encourage excellence in the public excellent Corporate Reporting received by Eskom on sector. Other contenders in this category were PetroSA 12 September 2011, also from Ernst & Young of which and NERSA. Eskom was one of only 10 companies regarded as Excellent. This award distinguishes Eskom as an organisation committed to sustainable development by integrating the February 2012 financial aspects of its business with open disclosure of sustainability challenges, progress and prioritising Zero Eskom Finance Company and ABSA Capital – EMEA harm for people and the environment. Finance award Eskom Finance Company established a R5 billion residential mortgage backed securitisation programme, Nqaba Finance 1 (Proprietary) Limited, with the purpose to finance mortgage loans with funding from the South October 2011 African capital market. ABSA Capital is the sole lead JSE Spire Awards 2011 Eskom Holdings awarded arranger of the transaction and was named by EMEA Best Issuer Finance as the best securitisation house of the year. Nqaba This award goes to the issuer that is most committed to won the award for the best securitisation deal in EMEA. transparency, as demonstrated by regular and consistent sharing of information with investors and other market The securitisation deal was spread over two transactions participants. It has clearly shown innovation and that were closed six months apart. In May 2011, responsiveness to market conditions and investor needs. R897 million was issued, refinancing notes into tenors of All market participants must feel they can trade the one to five years. This was followed in November 2011 by borrower’s debt with confidence. the securitisation of R398 million notes into 18-month maturities. The May bond was 3.8 times oversubscribed, while November’s deal received bids worth R731 million. Further highlighting the success of the deals was the proportion of market participants involved – the market has a core of 25 investors, 18 of which bid for these notes. 82 Eskom Holdings SOC Limited Divisional Report 2012 Appendices: Glossary Arrear debts as percentage Total arrear debts/total revenue multiplied by 100 of revenue Base-load plant Largely coal-fired and nuclear power stations, designed to operate continuously Combined cycle Technology for producing electricity from otherwise lost waste heat as it exits from one or more gas (combustion) turbines Daily peak Maximum amount of energy demanded in one day by consumers Debt: equity including long- Net financial assets and liabilities plus non-current retirement benefit obligations and non-current term provisions provisions divided by total equity Debt service cover ratio Cash generated from operations/(net interest paid plus debt repaid excluding repayments on commercial paper) Decommission To remove a facility (eg power station) from service and dispose of it safely and rehabilitate the site Demand-side management Planning, implementing and monitoring activities to encourage consumers to use electricity more efficiently, including both the timing and level of demand Electricity operating costs (Electricity related costs: Primary energy costs, net transfer pricing, employee benefit cost, depreciation per kWh and amortisation plus impairment loss and other operating expenses)/external sales in kWh Electricity revenue per Electricity revenue including environmental levy/kWh sales total 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 factor Measure of power-station availability, taking account of energy losses not under the control of plant (EAF) 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 Flashover Electrical insulation breakdown 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 (50kWh/month) Funds from operations Cash generated from operations adjusted for working capital (excluding provisions) and net interest paid/received and non-current assets held for risk management Funds from operations as a Funds from operations/gross debt multiplied by 100 percentage of gross debt Gigawatt One thousand megawatts 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 Gross debt/EBITDA Gross debt/earnings before interest, tax, depreciation and amortisation Independent non-executive Not a full-time salaried employee of the company or its subsidiary director 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 advisor to the company Not a significant supplier or customer Independent power Any entity, other than Eskom, that owns or operates, in whole or in part, one or more independent producer (IPP) 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) International financial Global accounting standards issued by the International Accounting Standards Board that require reporting standards transparent and comparable information 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 Load profile Customer’s electricity use over time, sometimes shown as a graph Eskom Holdings SOC Limited Divisional Report 2012 83 Appendices: Glossary continued Load shedding Scheduled and controlled power cuts that rotate available capacity between all customers when demand is greater than supply to avoid blackouts Lost-time incident rate Proportional representation of the occurrence of lost-time injuries over 12 months per 200 000 (LTIR) working hours Maximum demand Highest demand of load within a specified period Megawatt One million watts Megawatt-hour (MWh) One thousand kilowatt-hours or 1 million watt-hours 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 loss Ratio of the energy that was not produced during a given period of time (because of planned factor (PCLF) 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 Power pool Two or more interconnected electricity supply systems that agree to coordinate operations and seek improved reliability and efficiencies Primary energy Energy in natural resources (eg coal, liquid fuels, sunlight, wind, uranium) Pumped-storage scheme A lower and an upper reservoir with a power station/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 equity Profit/loss for the year after tax/average total equity Return on average total Profit/loss for the year after tax/average total assets 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 ≥ 1 system minute Technical losses Naturally occurring losses that depend on the power systems used Unit capability factor Measure of power-station availability indicating how well plant is operated and maintained (UCF) Unplanned automatic grid Measure of the reliability of the service provided to the electrical grid that logs the number of supply separations interruptions per operating period Unplanned capability loss Ratio of the energy that was not produced during a given period of time (because of unplanned factor (UCLF) 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 used fuel pools or storage casks Value created per Value created divided by number of employees employee 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) 84 Eskom Holdings SOC Limited Divisional Report 2012 Appendices: Abbreviations and acronyms B-BBEE Broad-based black economic empowerment CFL Compact fluorescent lamps COP17 2011 Conference of the Parties to the United Nations Convention on Climate Change EAF Energy availability factor GWh Gigawatt-hour (1 000MWh) INPO Institute of Nuclear Power Operations IPP Independent power producer ISMO Independent system and market operator IT Information technology kg Kilogram kt Kiloton (1 000 tons) kWh Kilowatt-hour kWhSO Kilowatt-hour sent out L Litre LED Light emitting diode LTIR Lost-time incidence rate MW Megawatt MWh Megawatt-hour (1 000kWh) Mℓ Megalitre (1 000 000 litres) mSv MilliSievert Mt Megaton MVA Mega volt ampere MYPD Multi-year price determination NERSA National Energy Regulator of South Africa NGO Non-governmental organisation OHSAS Occupational Health and Safety Assessment Series PCB Polychlorinated biphenyls PFMA Public Finance Management Act PWR Pressurised water reactor RTS Return to service power stations SADC Southern African Development Community SAIDI System average interruption duration index SAIFI System average interruption frequency index Sm3 Standard cubic metre UCF Unit capability factor UCG Underground coal gasification UCLF Unplanned capability loss factor WANO World Association of Nuclear Operators Eskom Holdings SOC Limited Divisional Report 2012 85 Appendices: Sustainability responsibilities, approval and assurance Sustainability responsibilities and approval The board acknowledges its responsibility to ensure the integrity of Sustainability key indicators, set out on page 9, report performance the divisional report. The directors have collectively reviewed the on issues material to Eskom’s stakeholders. These key indicators content of the divisional report and believe it addresses the have been prepared in accordance with the GRI G3 guidelines, material issues and is a fair presentation of the performance of the supported by Eskom’s internal reporting guidelines. Eskom’s group. declaration on its GRI B+ Application Level is located on page 1. The King Code advocates that sustainability reporting and disclosure should be independently assured. KPMG Services (Pty) Limited provided reasonable assurance on selected sustainability key indicators marked with an “RA” in this report and limited BA Dames PS O’Flaherty assurance on Eskom’s self-declaration of a GRI B+ application level. Chief executive Finance director KPMG’s assurance report is presented below. 31 May 2012 31 May 2012 Independent assurance report on selected Directors’ responsibilities sustainability information The Directors are responsible for the selection, preparation and To the directors of Eskom Holdings SOC Limited presentation of the sustainability information, the identification of We have undertaken an assurance engagement on selected stakeholder requirements and material issues, for commitments sustainability information as described below and presented in the with respect to sustainability performance, and establishing and 2012 Eskom Divisional Report (the Report) of Eskom Holdings maintaining appropriate performance management and internal SOC Limited (Eskom) for the year ended 31 March 2012. control systems from which the reported information is derived, and for such internal control as the Directors determine is We are required to provide assurance as follows: necessary to enable the preparation of the Report that is free from material misstatement, whether due to fraud or error. 1. Reasonable assurance on the following key performance indicators prepared in accordance with the Global Reporting The Directors are also responsible for the selection and application Initiative (GRI) G3 Guidelines, marked with a ‘ ’ on the relevant of the criteria detailed below: pages of the Report: The GRI G3 Guidelines applied to the selected key performance Technical performance parameters – Unplanned capability loss indicators; and factor, unit capability factor, energy availability factor, system The GRI G3 Guidelines on Eskom’s self declaration of the minutes lost, major incidents, system average interruption GRI B+ Application Level. frequency index (SAIFI), system average interruption duration index (SAIDI), management of the national supply/demand Independence and expertise constraints and energy losses (transmission and distribution) We have complied with the International Federation of Accountants Environmental performance parameters – Coal purchased – (IFAC) Code of Ethics for Professional Accountants, which includes stock days, specific water consumption, liquid fuel usage, demand comprehensive independence and other requirements founded on side management (megawatts and gigawatts), relative particulate fundamental principles of integrity, objectivity, professional emissions, carbon dioxide emissions, sulphur dioxide emissions, competence and due care, confidentiality and professional nitrogen oxides emissions, low level radioactive waste generated behaviour. Our engagement was conducted by a multi-disciplinary and disposed, intermediate level radioactive waste generated and team of health, safety, social, environmental and assurance specialists disposed, polychlorinated biphenyls (PCBs) thermally destructed, asbestos disposed, ash (produced, recycled and disposed), with extensive experience in sustainability reporting. environmental legal contraventions and internal energy efficiency (megawatts and gigawatts) Our responsibility Social performance parameters – Total learner pipeline (as at Our responsibility is to express assurance conclusions on the 31 March 2012), number of learners in system (engineers, selected sustainability information based on our work performed. artisans and technicians), disabilities, racial equity in senior We have conducted our engagement in accordance with the management (% representation by race and gender), corporate International Standard on Assurance Engagements (ISAE 3000), social investment spend, employee and contractor work related Assurance Engagements other than the Audits or Reviews of fatalities, employee lost time injury rate (LTIR), Broad Based Black Historical Financial Information, issued by the International Auditing Employment Equity (B-BBEE) Expenditure – Company and Assurance Standards Board. That Standard requires that we (attributable spend, attributable spend percentage, attributable plan and perform our engagement to obtain assurance about black women owned spend and attributable black women owned whether the selected sustainability information is free from percentage) material misstatement. Economic parameters – Generation capacity installed and commissioned, transmission lines installed, transmission Mega Volt Our procedures and the extent of our procedures depend on our Amperes (MVA) installed, percentage of local content in new- judgement including the risks of material misstatement of the build contracts, cost of electricity, debt:equity ratio (company) and selected sustainability information. In a limited assurance engagement, interest cover (company). the evidence gathering procedures are less than where reasonable assurance is expressed. In making our risk assessments, we considered 2. Limited assurance on Eskom’s self declaration of the GRI B+ internal control relevant to Eskom’s preparation of the Report. We Application Level. Refer to page 1. believe the evidence we have obtained is sufficient and appropriate to provide a basis for our conclusions. 86 Eskom Holdings SOC Limited Divisional Report 2012 Appendices: Sustainability responsibilities, approval and assurance continued Summary of work performed for limited assurance on Eskom’s 2. On Eskom’s self declaration on the GRI G3 B+ Application Level on self declaration of a GRI B+ Application Level which we are required to express limited assurance Our work included the following evidence-gathering procedures: Based our work performed, nothing has come to our attention Interviewing management and senior executives to evaluate the that causes us to believe that Eskom’s self declaration of a B+ application of the GRI G3 Guidelines and to obtain an Application Level is not fairly stated, in all material respects, in understanding of the control environment relative to the accordance with the GRI G3 Guidelines. reported sustainability information Inspecting documentation to corroborate the statements of Restriction of liability management and senior executives in our interviews Our work has been undertaken to enable us to express the Testing the processes and systems to generate, collate, aggregate, conclusions on the selected sustainability information to the monitor and report the selected sustainability information Directors of Eskom in accordance with the terms of our Inspecting supporting documentation and performing analytical engagement, and for no other purpose. We do not accept or procedures assume liability to any party other than Eskom, for our work, for Performing site work at the nuclear power station (Koeberg), this report, or for the conclusions we have reached. coal power stations (Arnot, Tutuka, Kendal, Kriel, Matla, Hendrina, Duvha, Camden, Kusile and Grootvlei), Transmission divisions Other matter (Central and Northern), the Distribution divisions (Central and The maintenance and integrity of the Eskom website is the Eastern), Roshcon, Rotek and also performing desktop reviews responsibility of Eskom’s management. Our procedures did not of Mepudi and Matimba involve consideration of these matters and accordingly we accept Conducting an Application Level check on the Report to no responsibility for any changes to either the information in the evaluate whether all disclosure requirements of the GRI B+ Report or our Independent Assurance Report that may have Application Level have been adhered to occurred since the initial date of presentation on the Eskom Evaluating whether the information presented in the Report is website. consistent with our findings, overall knowledge and experience of sustainability management and performance at Eskom. KPMG Services (Pty) Limited Conclusions 1. On the selected key performance indicators on which we are required to express reasonable assurance In our opinion, the selected key performance indicators for the year ended 31 March 2012 are fairly stated, in all material respects, in accordance with the GRI G3 Guidelines. Per PD Naidoo AH Jaffer Director Director Johannesburg Johannesburg 31 May 2012 31 May 2012 Eskom Holdings SOC Limited Divisional Report 2012 87 Appendices Statistical overview 2012 2011 2010 2009 2008 Sales Total sold (GWh)1, 2 224 785 224 446 218 591 214 850 224 366 Growth/(reduction) in GWh sales (%) 0.2 2.7 1.7 (4.2) 2.9 Electricity output Total produced by Eskom stations (GWh (net)) 237 291 237 430 232 812 228 944 239 109 Coal-fired stations (GWh (net)) 218 212 220 219 215 940 211 941 222 908 Hydroelectric stations (GWh (net)) 1 904 1 960 1 274 1 082 751 Pumped storage stations (GWh (net)) 2 962 2 953 2 742 2 772 2 979 Gas turbine stations (GWh (net)) 709 197 49 143 1 153 Wind energy (GWh (net)) 2 2 1 2 1 Nuclear power station (GWh (net)) 13 502 12 099 12 806 13 004 11 317 Purchased from independent power producers (GWh) 4 107 – – – – Total imported for Eskom system (GWh) 13 038 15 446 13 754 12 189 11 510 Total electricity for Eskom system (Eskom stations and purchased) (GWh)4 254 436 252 876 246 566 241 133 250 619 Total consumed by Eskom (GWh)5 3 982 3 962 3 695 3 816 4 136 Total available for distribution (GWh)2 250 454 248 914 242 871 237 317 246 483 Plant performance indicators Total power station nominal capacity (MW) 44 115 44 145 44 175 44 193 43 037 Total power station net maximum capacity (MW) 41 647 41 194 40 870 40 506 38 747 Peak demand on integrated Eskom system (MW) 36 212 36 664 35 850 35 959 36 513 Peak demand on integrated Eskom system, including load reductions (MW) 36 543 36 970 35 912 36 227 37 158 Reserve margin (including imports) (%) 16.9 14.9 16.4 10.6 5.6 Average energy availability – EAF (UCF) (%)6 82.0 (83.0) 84.6 (85.9) 85.2 (85.9) 85.3 (86.1) 84.8 (86.2) Generation load factor (%)8 65.1 66.4 66.2 67.0 72.3 Integrated Eskom system load factor (EUF) (%) 79.4 78.5 77.7 78.6 85.2 Environmental indicators Specific water consumption (L/kWh sent out)9 1.34 1.35 1.34 1.35 1.32 Significant legal contraventions reported (number)10 5 4 0 12 6 Customer satisfaction (Enhanced PreCare/MaxiCare) (ratio)11 97.40 98.20 99.65 99.84 97.21 Net raw water consumption (ML) 319 772 327 252 316 202 323 190 322 666 Liquid fuels (diesel and kerosene) (ML) 225.5 63.6 16.1 28.9 345.9 Coal burnt (Mt) 125.2 124.7 122.7 121.2 125.3 Average calorific value (MJ/kg) 19.61 19.45 19.22 19.10 18.51 Average ash content (%) 28.88 29.03 29.56 29.70 29.09 Average sulphur content (%) 0.79 0.78 0.81 0.83 0.87 Overall thermal efficiency (%) 31.4 32.6 33.1 33.4 33.4 Line losses (%) 8.7 8.3 8.5 7.9 8.0 Nitrous oxide (N2O) (t)12 2 967 2 906 2 825 2 801 2 872 Carbon dioxide (CO2) (Mt)12,18 231.9 230.3 224.7 221.7 223.6 Sulphur dioxide (SO2) (kt)12 1 849 1 810 1 856 1 874 1 950 Nitrogen oxide (NOx) as NO2 (kt)13 977 977 959 957 984 Relative particulate emissions (kg/MWh sent out)14 0.31 0.33 0.39 0.27 0.21 Particulate emissions (kt) 72.42 75.84 88.27 55.64 50.84 Ash produced (Mt) 36.21 36.22 36.01 36.66 36.04 Ash sold (Mt) 2.3 2.0 2.0 2.1 2.4 Asbestos disposed (tons) 448.1 611.5 321.4 3 590.8 321.0 PCB thermally destructed (tons) 14.3 422.9 19.1 505.6 17.0 Public individual radiation exposure (mSv)14 0.0024 0.0043 0.0040 0.0045 0.0047 Low-level radioactive waste generated (m3)15 184.7 165.3 137.8 140.8 180.3 Intermediate-level radioactive waste generated (m3)15 25.4 39.4 47.1 23.9 16.5 Low-level radioactive waste disposed of (m3) 54.0 81.0 216.0 189.0 270.0 Intermediate-level radioactive waste disposed of (m3) 130.0 0.0 266.0 473.6 418.0 Low-level nuclear waste – fuel racks (m3)16 (cumulative figure) 0 (697) 0 (697) 0 (697) 0 (697) 0 (697) Used nuclear fuel, number of elements discharged16 (cumulative figure) 60 (1 957) 112 (1 897) 56 (1 785) 56 (1 729) 112 (1 673) 88 Eskom Holdings SOC Limited Divisional Report 2012 Appendices continued 2005 2007 2006 (15 months) 2004 2003 2002 1. Sales prior to 2005 include internal sales. 2. Difference between electricity available for 218 120 207 921 256 453 206 799 196 980 187 957 distribution and electricity sold is due to 4.9 (18.9)3 30.5 5.0 4.8 3.5 transmission and other losses. 3. Actual sales growth was 0.8% when 232 445 221 988 273 404 220 152 210 218 197 737 compared to the 12 months 1 April 2004 to 31 March 2005. 215 211 206 606 251 914 202 171 194 046 181 651 4. Includes Eskom electricity produced and 2 443 1 141 903 720 777 2 357 delivered to neighbouring countries. 2 947 2 867 3 675 2 981 2 732 1 738 5. Used by Eskom for pumped storage facilities 62 78 – – – – and synchronous condenser mode of operation. 2 3 – – – – 6. Capacity hours available, times 100, divided 11 780 11 293 16 912 14 280 12 663 11 991 by total capacity hours in a year. – – – – – – 7. Represents the 12-month moving average for 1 April 2004 to 31 March 2005. 11 483 10 310 12 197 9 818 8 194 9 496 8. kWh produced, times 100, divided by average net maximum capacity times hours in a year. 243 928 232 298 285 601 229 970 218 412 207 233 9. Volume of water consumed per unit of generated power from coal-fired power 3 937 3 814 5 043 4 040 3 664 2 354 stations sent out, excluding Komati power 239 991 228 484 280 558 225 930 214 748 204 879 station. 10. 2002 reported in terms of the revised definition of the operational health dashboard. 42 618 42 011 42 011 42 011 42 011 42 011 From 2008, repeat legal contraventions are 37 764 36 398 36 208 36 208 36 208 36 208 included in the criteria. 34 807 33 461 34 195 34 195 31 928 31 621 11. Reflects the environmental element of Enhanced MaxiCare. 35 441 33 461 34 195 34 195 31 928 31 621 The Enhanced MaxiCare replaced the PreCare/MaxiCare from January 2005. 7.8 12.7 – – – – 12. Calculated figures based on coal 87.5 (88.6) 87.4 (88.7) 89.5 (89.9)7 89.5 (90.0) 87.5 (88.7) 89.3 (91.7) characteristics and the power station design 72.4 69.7 69.0 69.2 66.3 62.3 parameters. Sulphur-dioxide and carbon- 82.7 79.8 78.0 77.4 76.8 74.0 dioxide emissions are based on coal analysis and using coal burnt tonnages. Figures include coal-fired and gas turbine power stations, as 1.35 1.32 1.277 1.26 1.29 1.27 well as oil consumed during power station 0 1 37 2 2 3 start-ups and, for carbon-dioxide emissions, 100.80 101.06 93.10 8.31 8.47 8.57 the underground coal gasification pilot. 313 064 291 516 347 135 277 557 271 940 251 611 13. NOx reported as NO2 is calculated using 11.3 – – – – – average station specific emission factors, 119.1 112.1 136.4 109.6 104.4 96.5 which have been measured intermittently 19.06 19.58 19.36 19.42 19.41 19.54 between 1982 and 2006, and tonnages of coal burnt. 29.70 29.10 29.60 29.60 28.90 28.40 14. The limit set by the National Nuclear 0.86 0.88 0.87 0.87 0.92 0.92 Regulator is ≤0.25mSv. 33.9 33.8 34.0 34.0 34.2 34.1 15. These are the net volumes produced in a 8.4 8.2 8.27 7.8 8.3 8.2 12 month moving window. 2 730 3 134 3 552 2 924 2 580 2 246 16. Waste as a result of re-racking of spent fuel 208.9 203.7 247.0 197.7 190.1 175.2 pools at Koeberg power station. 1 876 1 763 2 236 1 779 1 728 1 494 17. The gross mass of a nuclear fuel element is 930 877 994 797 760 702 approximately 665kg, with UO2 mass typically between 462 and 464kg 0.20 0.21 0.267 0.27 0.28 0.29 18. See www.eskom.co.za/IR2012/052.html 46.08 45.76 72.83 59.17 58.65 57.53 for the climate change fact sheet, giving 34.16 33.40 40.80 33.10 29.80 26.20 details of the relative CO2 emission factor. 2.2 1.8 2.0 1.6 1.2 1.3 6 060.0 – – – – – Reasonable Assurance provided by the 10.0 – – – – – independent assurance provider (refer 0.0034 0.0049 0.00797 0.0087 0.0123 0.0060 page 86). 94.5 90.2 80.3 81.4 100.5 111.9 Limited Assurance provided by the 49.8 52.7 47.2 36.8 30.1 45.8 independent assurance provider in previous years. 135.0 91.0 – – – – 436.0 52.0 – – – – 0 (697) 0 (697) 0 (697) 697 – – 56 (1 561) 52 (1 505) 104 (1 453) 56 (1 405) 104 (1 349) 48 (1 245) Eskom Holdings SOC Limited Divisional Report 2012 89 Appendices continued Power station commercial capacities at 31 March 2012 Name of station Location Number Total Total net Generators in Other and current nominal maximum reserve storage generation capacity of capacity capacity Nominal total generator sets rating rating MW MW MW1 Number MW MW2 Coal-fired stations (13) 37 715 35 408 3 300 – Arnot3, 13 Middelburg, 1 x 370; 1 x 390; Mpumalanga 2 x 396; 2 x 400; 2 352 2 232 – – – Camden4, 9 Ermelo 2 x 200; 1 x 195; 3 x 190; 1 x 180; 1 x 185 1 530 1 450 – – Duvha3 Witbank 6 x 600 3 600 3 450 – – – Grootvlei4, 9, 10, 11 Balfour 4 x 200; 1 x 190; 1 x 160 1 150 1 090 – – – Hendrina3, 9 Mpumalanga 8 x 200; 1 x 195; 1 x 170 1 965 1 865 – – – Kendal3, 5 Witbank 6 x 686 4 116 3 840 – – – Komati4, 9, 10 Middelburg, Mpumalanga 5 x 100; 2 x 125; 2 x 95 940 580 3 300 – Kriel3 Bethal 6 x 500 3 000 2 850 – – – Lethabo3 Viljoensdrift 6 x 618 3 708 3 558 – – – Majuba3, 5 Volksrust 3 x 657; 3 x 713 4 110 3 843 – – – Matimba3, 5 Lephalale 6 x 665 3 990 3 690 – – – Matla3 Bethal 6 x 600 3 600 3 450 – – – Tutuka3 Standerton 6 x 609 3 654 3 510 – – – Gas/liquid fuel turbine stations6 (4) 2 426 2 409 – – – Acacia Cape Town 3 x 57 171 171 – – – Ankerlig Atlantis 4 x 149.2; 5 x 148.3 1 338 1 327 – – – Gourikwa Mossel Bay 5 x 149.2 746 740 – – – Port Rex East London 3 x 57 171 171 – – – Hydroelectric stations6(6) 661 600 – – 61 Colley Wobbles2 Mbashe River 3 x 14 42 – – – 42 First Falls2 Umtata River 2x3 6 – – – 6 Gariep7 Norvalspont 4 x 90 360 360 – – – Ncora2 Ncora River 2 x 0.4; 1 x 1.3 2 – – – 2 Second Falls2 Umtata River 2 x 5.5 11 – – – 11 Vanderkloof7 Petrusville 2 x 120 240 240 – – – Pumped storage schemes6, 8 (2) 1 400 1 400 – – Drakensberg Bergville 4 x 250 1 000 1 000 – – – Palmiet Grabouw 2 x 200 400 400 – – – Wind energy (1) Klipheuwel2 Klipheuwel 1 x 1.75; 1 x 0.66; 1 x 0.75 3 – – – 3 Nuclear power station (1) Koeberg3,12 Cape Town 1 x 940; 1 x 970 1 910 1 830 – – – Total power station capacities (27) 44 115 41 647 3 300 64 1. Difference between nominal and net maximum capacity reflects auxiliary power consumption. 2. Operational but not included for capacity management purposes. 3. Base-load station. 4. Return to service station. 5. Dry-cooled unit specifications are based on design back-pressure and ambient air temperature. 6. Stations used for peaking or emergency supplies. 7. Use restricted to peaking, emergencies and availability of water in Gariep and Vanderkloof dams. 8. Pumped storage facilities are net users of electricity. Water is pumped during off-peak periods so that electricity can be generated during peak periods. 9. Due to technical constraints, some units at these stations have been derated. 10. Units commissioned for the first time at these RTS stations, were running their twelve month performance confirmation period during the period under review. 11. Grootvlei Unit 4's normal twelve month performance confirmation period was extended to twenty one months due to technical constraints. 12. Due to technical constraints, Koeberg units were derated to a total nominal capacity of 1 880MW (1 800MW net maximum). During the period under review Unit 1's output was increased by 30MW after a turbine retrofit, increasing the total nominal capacity to 1 910MW and the net maximum to 1 830MW. 13. At Arnot there are still partially uprated units due to technical constraints. 90 Eskom Holdings SOC Limited Divisional Report 2012 Appendices continued Environmental implications of using or saving electricity1 If electricity consumption is measured in: Factor 1 Factor 2 (total (total energy energy sold)2 generated)3 kWh MWh GWh TWh Coal use 0.56 0.54 kilogram ton thousand tons (kT) million tons Water use4 1.42 1.37 litre kilolitre megalitre thousand megalitres Ash produced 161 155 gram kilogram ton thousand tons (kT) Particulate emissions 0.32 0.31 gram kilogram ton thousand tons (kT) CO2 emissions5 1.03 0.99 kilogram ton thousand tons (kT) million tons SOx emissions5 8.23 7.93 gram kilogram ton thousand tons (kT) NOx emissions6 4.35 4.19 gram kilogram ton thousand tons (kT) Use of table: Multiply electricity consumption or saving by the relevant factor to determine the environmental implication. Example 1 (using factor 1): Example 3 (using factor 2): Used 90 MWh of electricity Used 90 MWh of electricity Water consumption: 90 x 1.42 = 127.8 Water consumption: 90 x 1.37 = 123.3 Therefore 127.8 kilolitres of water used Therefore 123.3 kilolitres of water used Example 2 (using factor 1): Example 4 (using factor 2): Used 90 MWh of electricity Used 90 MWh of electricity CO2 emissions 90 x 1.03 = 92.7 CO2 emissions 90 x 0.99 = 89.1 Therefore 92.7 tons emitted Therefore 89,1 tons emitted 1. Figures represent the 12-month period from 1 April 2011 to 31 March 2012. 2. Factor 1 figures are calculated based on total electricity sold by Eskom (based on total available to Eskom to distribute – including what Eskom purchases – less technical electricity losses due to transmission and distribution of electricity across the country; less electricity theft; less our own internal use; and less wheeling). That is for CO2: 239.1 Mt/(224 785 GWh) = 1.03 tons per MWh. 3. Factor 2 figures are calculated based on total electricity generated by Eskom (coal, nuclear, pumped storage, wind, hydro and gas turbines), but excluding electricity used for pumping water for the Pumped Storage schemes.. That is for CO2: 239.1 Mt/(237 291 GWh – 3 982 GWh) = 0.99 tons per MWh. 4. Volume of water used at all Eskom power stations 5. 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. 6. 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. 7. See www.eskom.co.za/IR2012/053.html for the climate change fact sheet, giving details of the relative CO2 emission factor. 8. Further information can also be obtained through the Eskom Environmental helpline. Contact details available on page 95. Eskom Holdings SOC Limited Divisional Report 2012 91 Appendices continued Transmission and distribution equipment in service at 31 March 2012 2012 2011 2010 Power lines Transmission power lines (km)1 28 995 28 790 28 482 765kV 1 153 1 153 1 153 533kV DC (monopolar) 1 035 1 035 1 035 400kV2 17 118 16 913 16 582 275kV 7 361 7 476 7 390 220kV 1 217 1 217 1 333 132kV 1 111 996 989 Distribution power lines (km) 47 509 46 712 46 018 165 – 132kV 25 778 25 075 24 514 88 – 33kV 21 731 21 637 21 504 Reticulation power lines (km) 22kV and lower 311 831 308 899 305 151 Underground cables (km) 11 415 11 018 10 687 165 – 132kV 230 230 197 22kV and lower 11 185 10 788 10 490 Total all power lines (km) 399 750 395 419 390 338 Total transformer capacity (MVA) 237 140 232 058 223 398 Transmission (MVA)3 132 955 130 005 123 990 Distribution and reticulation (MVA) 104 185 102 053 99 408 Total transformers, number 356 511 351 297 344 369 Transmission, number 408 405 399 Distribution and reticulation (number) 356 103 350 892 343 970 1. Transmission power line lengths as per Geographic Information System (GIS) distances. 2. The Majuba Umfolozi No 1 (765kV Line), even though constructed at 765kV, is currently still being operated at 400kV and thus, for now, is counted under the 400kV total. 3. Base of definition: transformers rated ≥30 MVA and primary voltage ≥132 kV. 92 Eskom Holdings SOC Limited Divisional Report 2012 Appendices continued Sale of electricity and revenue per category of customer Customers 2012 2011 2010 Category Number Number Number Local 4 852 712 4 653 740 4 463 291 Redistributors 786 784 773 Residential1 4 713 178 4 514 998 4 325 550 Commercial 50 270 49 090 47 984 Industrial 2 775 2 857 2 925 Mining 1 100 1 110 1 134 Agricultural 84 095 84 393 84 415 Traction 508 508 510 International 10 10 10 Utilities 7 7 7 End users across the border 3 3 3 4 852 722 4 653 750 4 463 301 Sold GWh GWh GWh Category 2012 2011 2010 Local 211 590 211 150 205 364 Redistributors 92 140 91 564 90 712 Residential1 10 522 10 539 10 350 Commercial 9 270 9 020 8 889 Industrial 58 632 59 611 55 816 Mining 32 617 32 630 31 733 Agricultural 5 139 4 919 5 010 Traction 3 270 2 867 2 854 International 13 195 13 296 13 227 Utilities 3 607 3 974 4 109 End users across the border 9 588 9 322 9 118 224 785 224 446 218 591 Sales to countries in southern Africa (GWh) 13 195 13 296 13 227 Botswana 2 498 2 377 2 684 Mozambique 8 265 8 523 8 326 Namibia 1 507 1 559 1 459 Zimbabwe 7 0 6 Lesotho 184 247 121 Swaziland 596 564 597 Zambia 134 23 33 Short-term energy market2 4 3 1 1. Pre-payments and public lighting are included under residential. 2. The short-term energy market consists of all the utilities in the southern African countries that form part of the Southern African Power Pool. Energy is traded on a daily, weekly and monthly basis as there is no long-term bilateral contract. Eskom Holdings SOC Limited Divisional Report 2012 93 Appendices continued Sale of electricity and revenue per category of customer (continued) Revenue 2012 2011 2010 Category Rm Rm Rm Local 108 047 86 358 66 970 Redistributors 46 034 36 191 27 973 Residential1 8 367 7 003 6 622 Commercial 6 111 4 747 3 642 Industrial 24 701 20 469 15 089 Mining 16 345 12 979 9 599 Agricultural 4 585 3 577 2 954 Traction 1 904 1 392 1 091 International 4 952 4 127 2 972 Utilities 2 423 2 019 1 561 End users across the border 2 529 2 108 1 411 Gross electricity revenue 112 999 90 485 69 942 Less: revenue capitalised2 (110) (108) Electricity revenue per note 29 of the annual financial statements3 112 999 90 375 69 834 The environmental levy4 included in revenue 4 290 4 335 3 263 1. Pre-payments and public lighting are included under residential. 2. Revenue from the sale of production while testing Generation plant not yet commissioned, capitalised to plant. 3. Refer to the annual financial statements at www.eskom.co.za/IR2012/054.html. 4. The Environmental levy of 2c/kWh tax, was effective from 1 July 2009, to 31 March 2011. On 1 April 2011, the levy was raised to 2.5c/kWh. The levy is payable for electricity produced from non-renewable sources (coal, nuclear and petroleum). The levy is raised on the total electricity production volumes and is recovered through sales. 94 Eskom Holdings SOC Limited Divisional Report 2012 Appendices continued Eskom high-performance utility model (EHPUM) Develop the enterprise Executive governance Treasury management Scenario Stakeholder Governance policies Follow up Board member Corporate social Policies and Cash Financing Diagnosis development management implementation and review training responsibility procedures management activities establishment Strategy and business development Business processes management Enterprise performance management Legal services Corporate vision Organisational Key business Business Business Enable strategic Develop and Monitor enterprise Legal and Intellectual Corporate matters and strategic structure drivers process process delivery alignment maintain measures performance commercial property management objectives definition environment and reports operations management Key success Growth Growth story measure strategy financing Investor relations management Capital management and prioritisation Earnings Report stock Operational strategy People skills and IS and IT Annual IR Shareholder base IR strategy Shareholder release performance Relationship Capital Capex management competency model requirements framework marketing review targeting management monitoring management planning/allocation Interim sustainability and external reporting Regulatory affairs and compliance Enterprise risk management Socioeconomic Socioeconomic Human Other Regulatory Technical Environmental performance Safety Manage performance resources sustainability Regulatory strategy compliance performance performance performance external requests integration Financial risk (Phase 2) (Phase 1) performance KPIs management management Safety, health and environment Non-financial risk management Industrial Management of Product Hazardous Dangerous Waste Manage defunct Manage hygiene and safety health and wellness safety substance goods management mine and environment, Insurance (IH&S) management management water use health and safety management Global label Occupational Words for Windows Standard rules Reach compliance Environmental Basic tools management health Interface compliance Operate the business (generate and supply energy) Operate the business (transmit and distribute electricity) Manage generation Operational Wholesale market Manage wires Plan, manage and Operational Manage the intelligent network infrastructure excellence generation integration infrastructure execute work excellence wires Manage generation Perform online Price and structure Establish Manage network maintenance Manage work Manage distributed asset investments maintenance transactions strategy operating generation Manage asset programmes and Manage plant Manage generation new buildings operating integration Define Manage planned Manage Manage strategic Execute work documents and asset Manage planned financial outages outages generation maintenance plans information trading Manage the meter Third-party energy products and services Manage forced Perform ISO Provide Manage Core operations communications Process data outages generation settlements meter assets Plan and manage Manage forced environment Equipment performance Manage supply chain outages wires physical Manage Manage trading meter assets meter reading Aggregate data Wholesale customers Generation production Construction/ Market operations Perform contract Retail customers replacement Manage generation settlements and Maintain Administer production assurance reinforcement wires meter point Operate the business (retail and customer operations) Retail and customer operations planning and tariff management Execute customer service excellence Manage customer Forecasting and Customer service Retail pricing services core planning planning operations Service the operations Manage HR and performance Organisational HR HR HR management Talent management Employee services administration operations support Manage finance and tax Treasury Provide Financial planning, General ledger and Financial close and Manage tax and Operational Manage revenue Accounts management treasury services budgeting and financial master reporting compliance resources and tariffs Cash management Sundry debtors Travel services payable control data management Manage supply chain Eskom aviation Requisition to Supplier relationship Contract Material and service Supply chain Integrated demand Manage warehouse Manage investment Provide fixed wing Provide rotary management master file forecasting and Sourcing passenger transport wing service for receipting development management management strategy supply planning and haulage recovery service maintenance Perform engineering Fleet management Manage engineering Manage engineering Provide Perform Perform Manage fleet business project Manage technology Manage design base Design system technical assurance specialist engineering Support engineering technical services management Deliver projects Manage insurance Portfolio Programme Planning and Project sourcing and Monitoring and Manage Manage Manage ESCAP management management Project management scheduling contracting Cost management reporting policies claims Manage re-insurance financials Manage real estate and facilities Integration Knowledge Resource Stakeholder and Financial Commissioning Environment management management management communications management Risk management management Develop real estate Perform site analysis Negotiate Plan and strategy and selection project terms approve site project Construction Regulatory and Quality Configuration Engineering and Scope Perform site Establish work place Maintain/repair Divestiture of real management permitting management and document Health and safety Site management design management construction and assets workplace and assets estate and assets management management Manage IT services and business systems Manage business and Manage Manage IT strategy Manage enterprise customer Manage service Manage service Manage IT services information and planning architecture relationships development transition technology risk and Enterprise business content management compliance Content Knowledge Master data management management management Identify master data Define conceptual Define detailed Build MDM Test MDM requirement and Maintain master data Govern master data design/architecture design/architecture environment environment define master data Support the operations Manage logistics and construction RRR core operations RRR accounts receivable Eskom Holdings SOC Limited Divisional Report 2012 95 Contact details Telephone Websites and email Eskom head office Eskom environmental +27 11 800 8111 envhelp@eskom.co.za Eskom Group Communications Eskom integrated annual report: +27 11 800 2323 www.eskom.co.za/IR2012/ Eskom Development Foundation Eskom Development Foundation: +27 11 800 8111 www.eskom.co.za/csi Eskom Media Desk Eskom Media Desk +27 11 800 3304 mediadesk@eskom.co.za +27 11 800 3309 +27 82 805 7278 Investor relations Investor relations +27 11 800 2277 investor.relations@eskom.co.za Ethics office advisory service Eskom website +27 11 800 2791 www.eskom.co.za +27 11 800 3187 or contact@eskom.co.za ethics@eskom.co.za Confidential fax line Promotion of Access to Information Act +27 11 507 6358 PAIA@eskom.co.za National sharecall number 08600ESKOM (0860037566) Physical address Postal address Eskom Eskom Megawatt Park PO Box 1091 2 Maxwell Drive Johannesburg Sunninghill 2000 Sandton 2157 Eskom Holdings Secretariat Bongiwe Mbomvu (Company secretary) PO Box 1091 Johannesburg 2000 Company registration number 2002/015527/06 96 Eskom Holdings SOC Limited Divisional Report 2012 www.eskom.co.za Eskom Holdings SOC Limited Registration number 2002/015527/06