www.eskom.co.za INTEGRATED REPORT 31 March 2020 RESTORING TRUST CONTENTS ESKOM AT A GLANCE Navigation icons MANDATE THE YEAR IN REVIEW IFC The following navigation icons are used to link our To supply stable electricity in an efficient and sustainable manner, to ABOUT THIS REPORT 1 strategy and resources to material matters, strategic risks, key performance indicators and performance: contribute to lowering the cost of doing business in South Africa CREATING VALUE THROUGH OUR 3 BUSINESS and enable economic growth Our business model 4 FC Our finances (financial capital) Group overview 10 GOVERNANCE, LEADERSHIP AND ETHICS 11 Our infrastructure VISION MC (manufactured capital) Chairman’s statement 12 Driving economic growth by being a financially sustainable provider Composition of our top leadership 14 Our interaction with the environment of energy solutions across Africa NC (natural capital) Our governance framework 18 King IV TM application 19 Our people HC Feedback on Board activities 22 (human capital) KEY PRIORITIES Exco and divisional boards 34 SRC Our role in communities Ethics and progress on governance clean-up 35 (social and relationship capital) Operational Financial High-performance Restructuring stability sustainability culture OUR STRATEGIC CONTEXT 40 Our know-how IC Chief Executive’s review 41 (intellectual capital) Our operating context 45 Our strategy and turnaround plan 50 Stakeholder engagement 53 Further content Material matters 55 Information block Additional information Risks and opportunities 56 or case study in the integrated report Eskom Holdings SOC Ltd FINANCIAL REVIEW 59 Supplementary Information information provided available online Chief Financial Officer’s report 60 in a fact sheet LINE DIVISIONS Condensed annual financial statements 64 Information related to Our finances 67 COVID-19 OPERATING PERFORMANCE 84 A list of abbreviations and glossary of terms Chief Operating Officer’s commentary 85 is available on pages 132 to 134 Generation Transmission Distribution Our infrastructure 87 Our interaction with the environment 102 Performance indicators Our people 116 Throughout this integrated report, performance SUPPORT FUNCTIONS Our role in communities 124 against target is indicated as follows: Our know-how 128 Primary Energy I Group Capital I Subsidiaries Actual performance met or exceeded target SUPPLEMENTARY INFORMATION 131 Finance I Group IT I Human Resources I Procurement  Actual performance almost met target Abbreviations and glossary of terms 132 (within a 5% threshold) Eskom Rotek Industries I Risk and Sustainability I Legal and Compliance Leadership qualifications and directorships 135  Actual performance did not meet target Board and Exco meeting attendance 138 SC Indicates that a key performance indicator Environmental implications of using electricity 139 is included in the shareholder compact VALUES Statistical tables: technical and non-technical 140 Plant and customer information 148 Request for feedback Independent sustainability assurance report 153 We aim to provide relevant information to Zero Harm Integrity Innovation Sinobuntu Customer Satisfaction Excellence Contact details IBC stakeholders through our integrated report. We appreciate feedback on ways in which we could improve our report in future. Please send your suggestions to IRfeedback@eskom.co.za THE YEAR IN REVIEW MAIN HEADING AT 31 MARCH 2020 ABOUT THIS REPORT Board responsibility and approval The Board, assisted by the Audit and Risk Committee and the Social, Ethics and Sustainability Committee, is accountable Restructuring for the integrity and completeness of the integrated report and any supplementary information. Chief Executive IRP and DPE process commenced The Board has considered the preparation and presentation of the integrated report and concluded that it is presented appointed to Roadmap on in accordance with the International Framework. Reflecting on the completeness of material items dealt with and divisional boards and the reliability of information presented, given the combined assurance process followed, the Board approved drive turnaround Eskom released the 2020 integrated report, annual financial statements and supplementary information on 28 October 2020. appointed Prof. Malegapuru Makgoba Dr Pulane Molokwane Dr Banothile Makhubela Interim Chairman Chairman: Audit and Chairman: Social, Ethics and Coal Risk Committee Sustainability Committee Medupi Plant performance stock days commissioned Basis of preparation Reporting boundary and frameworks fell below 67% improved This integrated report, which follows our 2019 report, The information in this report covers the group 2 units (1 588MW) to 50 reviews our financial, operational, environmental, social and governance performance for the year from performance of Eskom Holdings SOC Ltd (Eskom) and its major operating subsidiaries in South Africa, unless 1 April 2019 to 31 March 2020. Material events up to the otherwise stated. For a full overview of our financial date of approval have been included. It considers our use performance, the integrated report should be read in of and impact on the six capitals, and our performance conjunction with our group annual financial statements. against our strategy. We have also commented on the System minutes Environmental impact of the COVID-19 pandemic on our business to Eskom’s group annual financial statements are available at Loadshedding date, wherever possible. www.eskom.co.za/IR2020 performance performance implemented on This is our primary report to stakeholders, which seeks Unless otherwise indicated, the information presented deteriorated to remains to provide information to a wide range of stakeholders. is comparable to that of prior years, with no significant 46 days We endeavour to focus on material matters, both 4.36 disappointing positive and negative, by considering qualitative and restatements. quantitative matters material to our operations and Assurance approach strategic objectives, which may influence stakeholders’ Our combined assurance model relies on review by decision-making. As part of this process, we consider management, as well as internal and external assurance. our strategic risks and opportunities. The Audit and Risk Committee and the Board depend on Equity injection of combined assurance in assessing the adequacy of internal The determination of material matters is set out on page 55, while our controls and risk management processes. Net loss Municipal arrear R49 billion aimed organisational risks are discussed from page 56 Our Assurance and Forensic Department provided after tax of debt escalated to at servicing debt Based on feedback received on our 2019 report, our reasonable assurance on quantitative information, and to main objective was to improve conciseness, while still R20.5 billion R28 billion burden of delivering a reliable and complete report that delivers a lesser degree, some qualitative aspects of the report. The sustainability key performance indicators (KPIs) R484 billion sufficient information on material matters and issues of concern to stakeholders. That said, due to the COVID-19 contained in the shareholder compact were subject to external assurance; all but three of the KPIs scoped in for pandemic, the world is a very different place to that of reasonable assurance received an unqualified opinion. a year ago, which has necessitated an assessment of the 2021 and beyond impact of the current reality on Eskom, and our response to the challenges it brings. The independent sustainability assurance report is included from page 153 Continue with restructuring The principles contained in the International The consolidated annual financial statements have been audited by the group’s independent auditors, SNG Grant Framework, published by the International Integrated Respond and adapt and Eskom’s turnaround plan Reporting Council (IIRC), underpin our integrated Thornton Inc, who issued a qualified opinion relating to the completeness of irregular expenditure disclosed report. We aim to provide a transparent and balanced to COVID-19 account of how we create, preserve or erode value in terms of the Public Finance Management Act, 1999 (PFMA). Except for this qualification, the consolidated challenges Review NERSA decisions to through our use of the various capitals, as well as considering the impact of our business on the capitals. annual financial statements are fairly presented in terms of IFRS. Furthermore, the independent auditors reported recover efficient revenue The content is further guided by legal and regulatory a material uncertainty relating to Eskom’s ability to requirements, such as the Companies Act, 2008 and the continue as a going concern, as well as a key audit matter King IV Report on Corporate Governance for South regarding the accounting treatment of the Eskom Pension Africa, 2016, as well as global best practice. and Provident Fund. However, these matters do not affect their opinion. ESKOM HOLDINGS SOC LTD | 1 ABOUT THIS REPORT continued CREATING VALUE Our suite of reports Our 2020 suite of reports are available online at www.eskom.co.za/IR2020, and consist of the following: THROUGH OUR INTEGRATED REPORT 31 March 2020 RESTORING TRUST Integrated report and supplementary information The integrated report provides an SUSTAINABILITY REPORT 31 March 2020 RESTORING TRUST Sustainability report This is Eskom’s first standalone sustainability report in more than BUSINESS overview of how Eskom creates value by 20 years. It describes Eskom’s journey considering our business model, strategy to sustainable development based on and risks, performance and outlook, current performance against material as well as governance of these areas. issues related to the environment, It is prepared in accordance with the society and the economy. The report IIRC’s International Framework. also deals with future aspirations in The report has undergone combined these areas within the context of Eskom generates about 90% of the electricity in South Africa, and is Africa’s largest assurance – our Assurance and Forensic national and international agendas electricity utility Department has verified certain aspects on sustainable development. It is of the report, and our external auditors guided by the reporting principles of provided reasonable assurance on the Global Reporting Initiative (GRI). specific KPIs. Supplementary information It also considers Eskom’s contribution is available as fact sheets at the back of to the United Nations’ Sustainable the report; we trust that this may be of Development Goals. interest to a variety of stakeholders. Annual financial statements Our independent auditors, SNG ANNUAL FINANCIAL STATEMENTS 31 MARCH 2020 RESTORING TRUST Grant Thornton Inc, have audited the consolidated annual financial statements of Eskom Holdings SOC Ltd, which have been prepared in accordance with IFRS as well as the requirements of the Companies Act, 2008 and the PFMA, 1999. Forward-looking statements Certain statements in this report regarding Eskom’s business operations may constitute forward-looking statements. These include all statements other than statements of historical fact, including those regarding the financial position, business strategy, management plans and objectives for future operations. Forward-looking statements constitute our current expectations based on reasonable assumptions, data or methods that may be incorrect or imprecise and that may be incapable of being realised and as such, are not intended to be a guarantee of future results. Actual results could differ materially from those projected in any forward-looking statements due to various events, risks, uncertainties and other factors. Eskom neither intends to nor assumes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our strategy, as set out in this integrated report, incorporating future targets and plans, was developed prior to the outbreak of the COVID-19 pandemic. The Board-approved Corporate Plan has since been revised to cater for the impact of COVID-19 and other significant changes in the operating environment, which have a significant effect on targets for the 2021 financial year and beyond. Neither future performance plans and/or strategies referred to in the integrated report, nor the potential impact of COVID-19, has been reviewed or reported on by the independent auditors. Our business model 4 Eskom is a proud supporter member of the following integrated reporting bodies Group overview 10 2 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 3 OUR BUSINESS MODEL Creating value through our business Nature of our business African Power Pool (SAPP) – comprising South Africa, Our new build programme, which commenced in 2005, Supply and demand of electricity Botswana, eSwatini, Lesotho, Mozambique, Namibia, aims to cater for South Africa’s future energy demand The following diagram illustrates the supply and demand We generate electricity by transforming inputs Zambia and Zimbabwe – through an integrated grid, and strengthen our transmission grid. of electricity, with electricity flowing from Eskom’s from the natural environment – coal, water, which serves to support grid stability. This partnership power stations, IPPs and cross-border suppliers, to wind, nuclear and liquid fuels. Together with relies on SADC members to ensure sufficient and reliable Two units at Medupi Power Station were Eskom’s supply points to local and export customers. It power generated by independent power transmission grids in their countries. commissioned during the year as part of the also accounts for technical energy losses incurred during producers (IPPs) and imports from neighbouring programme. We expect a further two units the transmission and distribution process, as well as countries, the electricity is supplied to a wide The generation, transmission, distribution and sale to achieve commercial operation during the losses due to electricity theft and errors. range of customers, thereby supporting economic of electricity form the core of our integrated value coming year. growth and improving the quality of life in chain, supplemented by the construction of new South Africa and the region. power stations and network infrastructure. Our core divisions rely on support in the form of finance, human To balance electricity supply and demand in real time, resources, procurement, information technology, Supply of electricity Electricity demand our System Operator maintains the frequency of the telecommunications, risk and sustainability, legal and power system at 50Hz. compliance, stakeholder management and corporate 190 446GWh local sales to communications. Eskom is supported by its subsidiary, 214 968GWh generated by Eskom 6 716 190 customers, comprising We operate one of the few remaining vertically integrated Eskom Rotek Industries, which offers support services power stations distributors – large metros and other utilities across a value chain supplying electricity to South on turbine and transformer repairs as well as specialised municipalities; industrial, commercial, Africa and the Southern African Development Community construction and transport. residential and other customers (SADC) region. We are connected to the Southern 11 958GWh supplied by independent Our operations power producers 15 189GWh sales to 11 customers in Botswana, eSwatini, Lesotho, Mozambique, Namibia, Zambia and Zimbabwe BASE-LOAD STATIONS 8 568GWh imports from Lesotho, We operate 30 Coal-fired stations Nuclear power Mozambique, Zambia and Zimbabwe 23 457GWh technical losses, electricity 37 424MW capacity 1 860MW capacity theft and errors 194 357GWh generation 13 252GWh generation Available for distribution 231 356GWh Energy demand 231 356GWh MID-MERIT/PEAKING STATIONS power stations Not all elements of supply and demand are shown. Pumped storage Hydro stations OCGTs Total nominal 2 724MW 600MW 2 409MW The total number of customers, electricity sales volumes and revenue by customer segment are set out in the fact sheet on pages 151 to 152 5 060GWh 688GWh 1 328GWh capacity of 45 117MW SELF- Sere Wind Farm The share of local electricity demand per province is depicted below. Using the capitals to create value DISPATCHING 100MW 283GWh We use all the capitals set out in the International Framework as inputs in our business. Total Gauteng Through our processes, we either create, generation of OUR NETWORK 27% Limpopo preserve or erode value as it relates to the 391 784km of high-, medium- Transformer capacity 9% 214 968GWh and low-voltage lines and of 306 949MVA capitals. Creating value in one area frequently in 2020 underground cables leads to the erosion of value in another and as North West Mpumalanga such, trade-offs are inevitable. 10% 12% Key to our sustainability as a business is financial NEW BUILD PROGRAMME Delivered Target Progress capital, comprising retained earnings, equity from our Free State Generating capacity 12 338MW 17 384MW 5% KwaZulu-Natal shareholder and debt funding provided by lenders, a large 18% Northern Cape portion of which is guaranteed by Government. Lenders High-voltage lines 7 976km 9 756km 2% and bondholders earn a return in the form of interest. Transformer capacity 37 690MVA 42 470MVA We do not pay dividends to our shareholder at this time. Eastern Cape 5% At 31 March 2020, our equity stood at R185.9 billion, Western Cape with R132 billion in share capital and the balance Detailed information on our power stations, power lines and substation capacities is available in the fact sheet on pages 148 to 150. It includes a map 12% in retained earnings and reserves. Our equity was which indicates the geographic location of our power stations and major transmission lines boosted by the R49 billion Government equity support, as announced in the 2019 National Budget Speech. However, our financial capital was eroded by the We estimate that loadshedding over the past year after-tax loss of R20.5 billion for the year. Lenders and reduced our supply by approximately 1 290GWh, which bondholders provided debt securities and borrowings equates to approximately 0.5% of total energy demand of R483.7 billion. for the year. 4 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 5 OUR BUSINESS MODEL Sun 50Hz Exports Wind Wind turbines IPPs Solar Distribution line Agriculture Hydro Rail RENEWABLE PRIMARY ENERGY POWER GENERATION TRANSMISSION DISTRIBUTION CUSTOMERS NON-RENEWABLE Mining Substation Nuclear plant Commercial Industrial High-voltage transmission line Coal mine Residential Coal-fired plant Substation Municipalities Customers INPUTS PERFORMANCE OUTPUTS 108.61Mt Coal burnt (113.76Mt) 50 days Normalised coal stock (36 days) 4.36 System minutes lost <1 (3.16) 214 968GWh Electricity sent out (218 939GWh) 205 635GWh Total sales (208 319GWh) 45 117MW Nominal power station capacity 1.42ℓ/kWhSO Specific water consumption 36.9 hours Interruption duration R199.5 billion Revenue (R179.9 billion) (44 172MW) (1.41ℓ/kWhSO) (SAIDI) (38 hours) 41.7% Municipalities 5.5% Residential 32.04Mt Ash produced (33.23Mt) 391 784km Power lines and cables 66.64% Energy availability (EAF) (69.95%) 8.79% Distribution energy losses (8.47%) 22.2% Industrial 5.1% Commercial (387 633km) 94.9kt Particulate emissions (99.9kt) 8.92% Planned maintenance 11 958GWh IPP purchases (11 344GWh) 14.0% Mining 2.8% Agriculture 44 772 Group employees (46 665) (PCLF) (10.18%) 213.2Mt CO2 emitted (220.9Mt) 7.4% International 1.3% Rail R23.4 billion Capital expenditure R50.9 billion Funding raised (R63.3 billion) 22.86% Unplanned maintenance (R33.9 billion) (UCLF) (18.31%) OUTCOMES FOR ESKOM OUTCOMES FOR OTHERS R37 billion EBITDA (R31.4 billion) 2.45 Debt/equity ratio (3.18) 0.30 Group LTIR (0.31) 46 days Loadshedding (30 days) 18.55% EBITDA margin (17.46%) 14.39 Gross debt/EBITDA (15.73) 9 Fatalities (7) 163 613 Electrification connections (191 585) 101.86c/kWh Average electricity price (90.01c/kWh) R14 billion Maintenance expense (R14.1 billion) R33 billion Employee benefit expense (R33.2 billion) R123.8 million CSI committed spend (R132.4 million) 65.97% Preferential procurement (58.66%) R28 billion Municipal arrear debt (R19.9 billion) 2 New build units commissioned (none) R33.9 billion Finance cost (R30.5 billion) 71% Racial equity in senior management (69.80%) R23 billion Cash balance (R2 billion) 127.9km Transmission lines installed (378.7km) 0.52 Debt service cover (0.47) Comparatives for 2019 are shown in brackets. Traffic lights indicate whether the 2020 target was achieved or not, where applicable (refer to “Performance indicators” on the outside flap). These are in line with the indicators used in the tables in the “Financial review” and “Operating performance” sections. 6 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 7 OUR BUSINESS MODEL continued Creating value through our business Our credit rating was downgraded over the Our employees and contractors, and their competencies, past year, influenced by the downgrade of the capabilities and experience, form our human capital. Sovereign as well as the tariff determination We continue to improve racial, gender and disability being insufficient to improve our financial transformation of our employee base. Given the outlook – this will affect our capacity to borrow, significance to our cost base, we are actively working to as well as the cost of future borrowings. reduce our headcount, while maintaining the productivity of our workforce. We develop learners in our skills Our manufactured capital comprises power stations, pipeline and train employees to enhance our human together with our transmission and distribution capital, although these efforts are hampered by our Shareholder Policy Oversight networks. We improve our manufactured capital base by financial situation. ministry ministry ministry commissioning new units, as well as through maintenance Department Department National and capital refurbishment of existing plant. Nevertheless, As we saw during the industrial action in the of Public of Mineral Treasury the base is eroded in the process of generating, 2019 financial year, if human capital is not Enterprises Resources and managed properly, it can have a devastating Regulators Auditor- Financial transmitting and distributing electricity. Executive Energy oversight of effect on our operations and financial position, NERSA and General The primary energy sources we use to generate authority Responsible for Eskom and as well as the economy at large. NNR Submitting electricity consist of coal, water, wind, nuclear and responsible for policy direction and its funding Independent an audit report liquid fuels, the use of which erodes natural capital. Our social and relationship capital is based on oversight and regulation, such programmes, regulatory to the National The generation process produces waste in the form interactions with customers, suppliers, communities and shareholder as the Integrated as well as authorities of the Assembly under of ash, gaseous and particulate emissions, and nuclear the public in general. We contribute in this area in many management Resource Plan equity support electricity and the Public Audit waste, further eroding natural capital. In line with the ways – enabling economic growth through the supply of Act, 2004 nuclear industries, Paris Agreement, South Africa aims to reduce our impact electricity; constantly electrifying new households in our issuing licences and on the environment by transitioning to a cleaner energy licensed areas of supply; contributing to job creation, setting tariffs mix, mainly through the increased use of renewable skills development, supplier transformation and broad- energy. In some areas, our transmission and distribution based black economic empowerment (B-BBEE); as well as networks have a negative impact on bird life, although we improving the lives of many South Africans through our strive to mitigate the impact on the natural environment. corporate social investment (CSI) and socio-economic development activities. Nevertheless, to some extent our power stations and lines also negatively impact the We continue to play a significant developmental role South Africa’s electricity supply industry communities in which we operate. in support of the National Development Plan 2030 The electricity supply industry consists of the generation, (NDP), by supporting job creation, economic and skills transmission, distribution and sale of electricity, as well Strong stakeholder relationships are critical to development, B-BBEE, transformation and other national as the import and export thereof. Eskom owns and our ability to create value; one of our main areas initiatives. This is in addition to our mandate of providing operates most of the base-load and peaking capacity, of focus is restoring trust in our organisation. a stable electricity supply in a sustainable and efficient although the share of electricity supplied by IPPs, largely manner, to assist in lowering the cost of doing business in through peaking capacity, continues to grow. Our intellectual capital includes technology, a key enabler South Africa and enabling economic growth. of our business, which comprises telecommunications, Capacity added and energy supplied by IPPs are discussed from page 94 information and operational technology; organisational In executing our mandate, we have to ensure knowledge, systems, policies and procedures; as well that our business remains sustainable across all The electricity industry is regulated by the National as research and innovation to industrialise future the capitals. Energy Regulator of South Africa (NERSA) under the technologies and improve current operations. Electricity Regulation Act, 2006 and the National Energy Our latest annual Corporate Plan covers the three-year Regulatory Act, 2004. NERSA does so by providing How we are regulated period to 2023; it is based on our mandate and sets licences, regulatory rules, guidelines and codes, and Eskom Holdings SOC Ltd is wholly owned by the South out our medium- to long-term strategic objectives. We determining our revenue requirement in accordance with African Government and is a state-owned company also agree on an annual shareholder compact with DPE, the requirements of the Electricity Pricing Policy (EPP). (SOC) as defined in the Companies Act, 2008. which outlines the KPIs which support our mandate and strategic objectives. Refer “Our finances – Price applications to support revenue For a non-exhaustive list of the legislation and regulations we have to requirements” from page 77 for information on the review applications comply with, refer to our governance framework on page 18 Performance against the 2020 shareholder compact is set out in detail we have submitted of NERSA’s decisions in the directors’ report in the consolidated annual financial statements. Throughout tables in the report, shareholder compact KPIs are denoted In addition to our shareholder ministry, the Department of using SC . Where relevant, these KPIs are also included in the statistical Our nuclear power station, Koeberg, is regulated Public Enterprises, which sets our mandate, we are subject tables, available as a fact sheet at the back of this report, from page 140 by the National Nuclear Regulator (NNR) to ensure to oversight or regulation by a number of other entities. that it complies with nuclear safety standards, to protect individuals, society and the environment against radiological hazards linked to the use of nuclear technology. 8 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 9 GROUP OVERVIEW GOVERNANCE, Eskom Holdings SOC Ltd is the main operating company, which houses the electricity business and holds investments in subsidiaries. The Eskom group comprises Pebble Bed Modular Reactor SOC Ltd (PBMR), wholly owned by EE, remains in a state of care and maintenance to preserve the intellectual property created during its LEADERSHIP AND ETHICS the operating company and its subsidiaries and joint operation. The Board has requested guidance from the ventures. shareholder on the future of PBMR. Our head office is based in Johannesburg, and we have EE holds an effective 69% interest in South Dunes Coal operations across South Africa, with administrative offices Terminal Company SOC Ltd (SDCT), both directly in most major centres. Our local subsidiaries provide and indirectly through Golang Coal SOC Ltd. SDCT strategic services to Eskom and our employees; we also is entitled to the right to export coal through its We remain committed to demonstrating effective corporate governance through ethical have a subsidiary based in Uganda. There have been no participation in the Phase V expansion of the Richards leadership, and continue to re-establish a culture of ethical behaviour consistent with Eskom’s changes to the group structure during the past year. Bay Coal Terminal (RBCT). values through our governance framework. This is key to living our values, creating value and Other dormant subsidiaries of EE are in the process of restoring trust being wound up or liquidated. Eskom Holdings SOC Ltd Escap SOC Ltd is Eskom’s wholly owned insurance captive company, and manages and insures the business Eskom Enterprises SOC Ltd risk of Eskom and its subsidiaries. Under its long-term strategy to diversify its client base, Escap has started insuring other public entities to generate additional Escap SOC Ltd income and reduce policyholder concentration risk. We remain committed to the disposal of Eskom Eskom Finance Company SOC Ltd Finance Company SOC Ltd (EFC), as mandated by our shareholder, to free up cash tied up in EFC. Eskom Development Foundation NPC The process to dispose of EFC remains under way. The Eskom Development Foundation NPC (the Foundation) is a non-profit company under section 21 Only direct subsidiaries are shown. of the Companies Act, 2008. Its mandate is to Eskom Enterprises SOC Ltd (EE) is an investment holding implement CSI programmes on behalf of Eskom, company. Its main subsidiary, Eskom Rotek Industries thereby contributing to improving the quality of life SOC Ltd (ERI), provides lifecycle, plant maintenance and of communities where Eskom operates. technical support to Eskom’s line divisions. Full details of Eskom’s equity-accounted investees and subsidiaries at Eskom Uganda Limited, a subsidiary of EE, operates and 31 March 2020 are set out in notes 12 and 13 of the consolidated annual maintains two small hydroelectric power stations in financial statements Uganda under a 20-year concession arrangement that ends in 2023. The stations have a combined capacity of Contribution to financial performance close to 380MW. Eskom Uganda supplied 1.24GWh, or The contribution by the main companies to the group’s about 30% of Uganda’s energy, in its financial year which financial performance and position is shown below. The ended in December 2019. Eskom business remains by far the most significant. Eskom EE Eliminations Eskom R million company group Escap EFC Foundation and other group Revenue 199 468 8 790 3 322 851 – (12 963) 199 468 EBITDA1 35 381 592 101 180 (6) 750 36 998 Net (loss)/profit after tax (22 340) 271 491 136 – 940 (20 502) Total assets 809 543 8 032 15 608 8 694 93 (19 031) 822 939 Total liabilities 640 122 2 255 7 881 7 427 96 (20 705) 637 076 Capital expenditure2 24 952 271 – – – (559) 24 664 Chairman’s statement 12 1. EBITDA excludes fair value adjustments on financial instruments and embedded derivatives. Composition of our top leadership 14 2. The company and group figures include DMRE funded capital expenditure of R2.4 billion. Our governance framework 18 Detailed segment disclosure is provided in note 8 of the consolidated annual financial statements King IV TM application 19 Feedback on Board activities 22 Exco and divisional boards 34 Ethics and progress on governance clean-up 35 10 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 11 CHAIRMAN’S STATEMENT restructuring of Eskom into three divisions, and building a high-performance organisation through addressing using criminal and civil processes, even where implicated individuals have subsequently left Eskom’s employment. our corporate culture by energising our Eskom colleagues. The establishment of sustainable Generation, Despite the continued focus on the governance clean- Transmission and Distribution entities are key features of up and the successes in this area, there remains a long the plan, signifying Eskom’s commitment to the execution way to go. A key concern is to ensure that changes of DPE’s Roadmap. being implemented are sustainable, and truly lead to a reduction in transgressions. MALEGAPURU MAKGOBA Refer to the Chief Executive’s review from page 41 for more detail on Financial sustainability and going concern Governance, leadership and ethics the strategy, and progress on strategy implementation during the year Interim Chairman In the Board’s opinion, Eskom remains a going concern, Oversight and progress on governance but only with Government support, given the insufficient clean-up tariff increases over a number of years. As has been said before, Eskom simply cannot save itself out of the The Board is the focal point for corporate governance • DPE’s Roadmap for Eskom in a Reformed Electricity In accordance with King IV TM, the Board is responsible shortfall on the tariff decision. and is responsible to the shareholder and other Supply Industry, 2019 which positions Eskom within the for the governance of ethics within the organisation and stakeholders for Eskom’s performance and for meeting broader energy context and identifies bold actions for sets the direction for an ethical culture through Eskom’s We are grateful to the shareholder and the Standing financial, operational and other business expectations. Eskom’s transformation, including a range of longer Code of Ethics. One of the Board and GCE’s focus Committee on Appropriations (SCOA) for answering The Board is also responsible to the company for its term solutions to support Eskom’s separation into areas is a return to Eskom’s values, to enable a high- the call for urgent intervention to strengthen Eskom’s survival and prosperity. Generation, Transmission and Distribution entities performance culture. balance sheet to ensure its long-term financial sustainability. Eskom has received R49 billion in equity Unquestionably, the past year has been turbulent in terms We welcome the release of the long-awaited IRP, as The Standing Committee on Public Accounts (SCOPA) of leadership – Mr Phakamani Hadebe resigned as Group support from the Government in the 2020 financial year, well as DPE’s Roadmap, both of which provide some conducted an oversight visit at Kusile and Medupi in with another R56 billion due in 2021. Nevertheless, the Chief Executive (GCE) in July 2019, after which Mr Jabu August 2019. Following that, SCOPA presented a report clarity on the future direction of the electricity supply equity support is contingent upon strict conditions, Mabuza stepped down as acting GCE and interim executive to Parliament covering 23 recommendations to address industry. However, a number of issues may have a which are enacted in the Special Appropriation Act, 2019, Chairman in January 2020. Towards the end of the financial its findings and concerns, ranging from progress on the year, the COVID-19 pandemic broke out, which is proving material impact on the delivery of the IRP within its chief of which is that the support may only be used to anticipated timeframe. Furthermore, in Eskom’s view, overdue new build programme to addressing Eskom’s settle debt and interest payments. Eskom has complied to have a devastating impact on the economy and is the timelines in DPE’s Roadmap are optimistic, given the governance challenges. These recommendations are with all stipulated conditions for the 2020 financial year. significantly affecting Eskom’s performance. regulatory and legislative changes required to enable the consistent with the Board’s plan to root out corruption On a positive note, after a rigorous recruitment proposed changes. and inculcate a renewed culture of honesty, transparency, The Chief Financial Officer’s report from page 60 provides more detail process and nomination of a candidate by the Board, good governance and ethical leadership. Eskom is addressing on financial performance the shareholder appointed Mr André de Ruyter as GCE Strategy review these recommendations, and progress is reported to from 6 January 2020. André is an accomplished CEO As indicated in the past, this Board intended focusing SCOPA and the shareholder on a quarterly basis. Conclusion with extensive experience in creating and managing high- on the following areas during its three-year term. Various measures were implemented to address issues We are grateful to the shareholder representative, the performing businesses. We thank him for agreeing to a These focus areas remain relevant. related to past corporate governance breaches, including: Honourable Minister Pravin Gordhan, for his continued lower compensation package than the position previously paid, given Eskom’s current financial situation. • Instilling transparent and effective governance to • Implementing independent lifestyle audits and reviews support during this difficult time. The shareholder’s support a culture of ethical behaviour of conflicts of interest on senior management and leadership and guidance has been invaluable. He has hit the ground running, by making a point • Improving liquidity and solidifying Eskom’s status as a other levels, based on risk analysis of understanding the business and getting involved I wish to thank Mr Jabu Mabuza, Ms Sindi Mabaso-Koyana right from the beginning. His presence is already going concern, by focusing on managing costs, given the • Enhancing the commercial governance process and Mr Sifiso Dabengwa for their contribution during making a difference, and we are confident that he will insufficient tariff increases awarded by NERSA, while those to ensure robust scrutiny, and strengthening the their tenure on the Board. Despite these resignations, successfully lead Eskom’s turnaround, which includes the decisions are being challenged in court. Nonetheless, delegation of authority framework the Board is satisfied that it comprises the appropriate restructuring process. the Board acknowledges that cost curtailment alone will • Strengthening ethics and fraud frameworks and balance of knowledge, skills, experience, diversity and not solve Eskom’s financial challenges Since his appointment, the boundaries between the focusing on consequence management independence to carry out its duties. Nevertheless, the Board and Exco have been re-established, with Exco • Prioritising financial sustainability and strengthening Board has requested the shareholder to fill the Board the balance sheet • Instituting disciplinary charges against employees and taking accountability for operations guided by a clear vacancies to ensure that all committees are adequately suppliers, including taking legal action vision, and the Board being responsible for oversight. • Influencing energy policy and the regulatory capacitated to fulfil their mandates. Nevertheless, the Board and Exco continue to environment to support Eskom’s turnaround • Investigating and terminating supplier contracts collaborate to drive change and Eskom’s turnaround. implicated in irregularities, fraud and corruption The Board is supportive of Exco’s priorities, as overseen During the past year, the turnaround plan approved by Board, and is confident that Exco will lead a committed The Board is mindful of the prevailing low staff morale, after in November 2018 was enhanced based on a revised Further detail on the progress on each of these areas is set out in “Ethics and capable management team to take Eskom forward many years of the organisation facing significant challenges. set of assumptions, considering the current operating and progress on governance clean-up” from page 35 on its journey to business separation and ultimately, a The Board supports any initiatives to improve staff morale. environment and addressing difficulties in executing new and sustainable Eskom. On behalf of the Board, the previous Corporate Plan. It also factors in The supply chain recovery programme, which was I would like to thank Exco and the leadership team The evolving electricity supply industry implemented to address historical issues leading to for their unfailing efforts to serve South Africa in recommendations of the Presidential Task Team and Eskom has to play by a broad set of rules that govern its the Ministerial Review Task Team, specifically towards previous audit modifications, together with improving accordance with Eskom’s mandate. To achieve that, we operations. These include: achieving operational stability. compliance through proactive monitoring, was concluded require a partnership approach between all stakeholders • The National Development Plan 2030, which envisions in July 2019. to contribute towards a successful and sustainable a reliable, efficient and competitive energy sector that The Chief Operating Officer’s commentary from page 85 provides more turnaround of Eskom. The finalisation of investigations into former executives will expand electricity access for consumers and be detail on progress towards operational stability over the year suspected of misconduct remains a priority. Eskom environmentally sustainable Our turnaround strategy focuses on five key areas, continues to provide all necessary support to law • The Integrated Energy Plan and Integrated Resource Plan enforcement authorities to investigate concerns and namely operational recovery, improving our income Prof. Malegapuru Makgoba (IRP) 2019, which provide a broad framework for the any violations of the law, and to recover stolen funds statement, addressing our balance sheet, accelerating the Interim Chairman growth and future direction of the energy sector to 2030 12 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 13 BOARD OF DIRECTORS AT 31 MARCH 2020 Membership of Board committees Skills Racial diversity Gender diversity Age diversity Governance, leadership and ethics 10% 20% 30% 30-39 Audit and Risk Committee Science, engineering and technology White 60-69 5 Investment and Finance Committee Commerce and industry 40% People and Governance Committee 5 Female Legal, governance and risk management Social, Ethics and Sustainability Committee 3 40% Board Strategy Committee Finance, accounting and economics 60% 40-49 Male C Denotes chairmanship of a committee 5 80% ACI Social and human sciences 20% 2 50-59 1. PROF. MALEGAPURU MAKGOBA (67) 6. MS NELISIWE MAGUBANE (54) Interim Chairman Independent non-executive director Appointed to the Board in December 2017 1 6 Appointed to the Board in January 2018 MB ChB (University of Natal) B Sc Electrical Engineering – Heavy Current (University of Natal) D Phil (University of Oxford) Postgraduate Diploma in Business Administration (University of West London) MBA (Milpark Business School) 2. MR ANDRÉ DE RUYTER (52) Group Chief Executive Appointed to the Board in January 2020 7. DR BANOTHILE MAKHUBELA (35) Independent non-executive director LLB (Unisa) MBA (Nyenrode University) 2 7 Appointed to the Board in June 2017 M Sc Chemistry (University of Cape Town) 3. MR CALIB CASSIM (48) Ph D Chemistry (University of Cape Town) Chief Financial Officer C Appointed to the Board in July 2017 Chartered Accountant (SA) Master of Business Leadership (Unisa) 8. MS BUSISIWE MAVUSO (41) Independent non-executive director Appointed to the Board in January 2018 4. DR ROD CROMPTON (67) Independent non-executive director B Compt (Unisa) Appointed to the Board in January 2018 Master of Business Leadership (Unisa) BA (Hons) (University of Natal) Ph D Humanities (University of Natal) C 3 8 9. DR PULANE MOLOKWANE (43) Independent non-executive director Appointed to the Board in June 2017 5. MR SIFISO DABENGWA (61) Independent non-executive director M Sc Applied Radiation Science and Technology Appointed to the Board in January 2018 (University of North West) Ph D Chemical Technology – Environmental Engineering B Sc (Hons) Engineering (University of Zimbabwe) (University of Pretoria) MBA (University of Witwatersrand) Executive Program (University of Michigan) C C 10. PROF. TSHEPO MONGALO (46) Independent non-executive director 4 9 Appointed to the Board in December 2017 Ages are shown at 31 March 2020. LLM Commercial Law (University of Cambridge) Mr Sifiso Dabengwa tendered his resignation with immediate effect on 21 July 2020. Ph D Commercial Law (University of Cape Town) C Qualifications listed above are not exhaustive. Refer to pages 135 and 136 for full details of directors’ qualifications and active directorships 5 10 14 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 15 EXECUTIVE MANAGEMENT COMMITTEE AT 31 MARCH 2020 Skills Years in service Racial diversity Gender diversity Age diversity Governance, leadership and ethics 14% 14% Science, engineering and technology 31-40 Female 2 29% 29% 60-69 40-49 Commerce and industry 43% White 4 43% <10 Legal, governance and risk management 3 29% Finance, accounting and economics 21-30 57% 1 3 ACI 86% Social and human sciences Male 42% 50-59 2 14% 11-20 1. MR ANDRÉ DE RUYTER (52) 4. MR BARTLETT HEWU (44) Group Chief Executive Acting Group Executive: Legal and Compliance Appointed to Exco in January 2020 4 Appointed to Exco in April 2018 <1 year in Eskom 2 years in Eskom LLB (Unisa) LLB (University of Pretoria) MBA (Nyenrode University) Higher Diplomas in Tax and International Tax (University of Johannesburg) 1 2. MR CALIB CASSIM (48) 5. MS ELSIE PULE (52) Chief Financial Officer Group Executive: Human Resources Appointed to Exco in July 2017 Appointed to Exco in November 2014 18 years in Eskom 22 years in Eskom Chartered Accountant (SA) BA (Hons) Psychology (University of Pretoria) Master of Business Leadership (Unisa) M Sc Business Engineering (Warwick University) 5 3. MR JAN OBERHOLZER (61) 6. MR SOLOMON TSHITANGANO (58) Chief Operating Officer Chief Procurement Officer Appointed to Exco in July 2018 Appointed to Exco in January 2019 27 years Eskom experience (including from 1983 to 2008) 1 year in Eskom B Sc Electrical Engineering (University of Pretoria) B Com (Hons) (University of Venda) Master of Business Leadership (Unisa) Higher Diploma in Accounting (University of Western Cape) Executive Program (University of Michigan) 7. MR NICO HARRIS (60) 2 Acting General Manager: Information Technology Appointed to Exco in May 2019 38 years in Eskom B Com Education (Rand Afrikaans University) MBA (Henley Management College UK) 6 Ages are shown at 31 March 2020. Ms Faith Burn was appointed as General Manager: Information Technology with effect from 15 May 2020. Qualifications listed above are not exhaustive. Refer to page 137 for full details of Exco members’ qualifications and active directorships 3 7 16 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 17 OUR GOVERNANCE FRAMEWORK KING IV TM APPLICATION We conduct an annual assessment of the overall of good governance principles and practices contained in Our governance framework provides the roadmap for achieving our strategic priorities within legislative, regulatory effectiveness of the implementation of the principles King IV TM as it relates to their governance functional area. and policy requirements. Certain matters require approval in terms of the PFMA; this is set out in the materiality and practices contained in King IV TM through a well- framework which, together with our delegation of authority framework, guides the referral of matters to executive- established process of governance monitoring and Based on the most recent assessment, our level committees and to the Board, and from there to DPE and National Treasury, if required reporting. Senior management across functional areas are overall level of effectiveness of implementation required to record, on a continuous basis, the application of the King IV TM principles is considered partially effective. Our mandate is based on our shareholder’s Strategic Intent We are guided by Statement, with our annual performance measured against our Code of Ethics Governance, leadership and ethics a shareholder compact and King IV TM to ensure ethical behaviour and Leadership, Strategy, Governance Governance good governance organisational DEPARTMENT OF PUBLIC ENTERPRISES practices. Clear ethics and performance structures and of functional Relationships with and reporting delegation areas stakeholders accountability for corporate The Board guides (Principles 4 to 5) of authority (Principles 11 to 15) (Principle 16) decision-making is citizenship Eskom’s strategic (Principles 6 to 10) assigned through (Principles 1 to 3) direction through ESKOM HOLDINGS SOC LTD our delegation of the Corporate authority (DoA) Plan and materiality Application considered effective Application considered partially effective frameworks BOARD OF DIRECTORS Refer to “Our strategic context” from page 40 Key governance developments during the year as well as We monitor the changing landscape around corporate Our Memorandum future focus areas are highlighted below. citizenship through our enviro-scanning process, and of Incorporation External audit consider emerging risks and opportunities. Audit Investment People & Social, Ethics sets out the Leadership, organisational ethics and Internal audit Strategy powers of the & Risk & Finance Governance & Sustainability shareholder and corporate citizenship Refer to “Our strategic context – Our operating context” from page 45 Refer to “Assurance the Board, which Our leadership continues to place significant focus and controls” from comprised 10 Strategy, performance and reporting on restoring an ethical culture and promoting good page 27 for information directors at year on the governance Group Company Secretary governance practices. The Social, Ethics and Sustainability The Board assumes responsibility for Eskom’s purpose, end. With the and functioning of our exception of the Committee (SES) assists the Board in overseeing the vision, strategy, business model, risks and opportunities systems, policies and management of organisational ethics, which includes proceedures, as well GCE and CFO, the through an integrated strategic process, culminating as controls, and our EXECUTIVE COMMITTEE Board is composed the development, revision and implementation of ethics in our annual Corporate Plan. We have established a combined assurance of independent policies and procedures, such as the Code of Ethics, Turnaround Management Office, working in collaboration model non-executive conflict of interest policy and declaration of interest directors with the Results Management Office to oversee procedure. Ethics policies and procedures are also implementation of our strategy and turnaround plan. Exco is Information Nuclear applicable to the Board and are guided by Eskom’s values. established by Capital Operating Refer to “Board Technology Management composition and During the year, the deployment of online ethics training Refer to “Our strategic context – Our strategy and turnaround plan” the GCE to appointments” from page 50 execute the has improved accessibility, awareness and education on page 22 strategy set out of employees on ethics requirements. Measures to Performance is measured against the shareholder by the Board and monitor and improve organisational ethics include compact and our strategic objectives, in accordance manage day-to- Regulation, Divisional boards instituting disciplinary action against employees who have Risk & were introduced with the shareholder’s expectations. When monitoring day operations Policy & Tender Turnaround transgressed ethical requirements, as well as upgrading Sustainability in March 2020 our performance, the Board considers all aspects, such Economics systems used to oversee employee and supplier to enhance as financial and technical performance; our societal, Refer to “Exco governance declarations of interest, to enable proactive monitoring composition” environmental and stakeholder impacts; along with the on page 34 and drive of unethical conduct and provide enhanced reporting. wellbeing of our people. As set out in this report, our accountability Measures to deal with supplier transgressions have also in line with our performance measurement is aligned to the six capitals. DIVISIONAL BOARDS been put in place. Due to the financial and operational challenges experienced, Board and Exco turnaround plan subcommittees overall performance for the year did not meet expectations. provide in-depth Refer to “Ethics and progress on governance clean-up” from page 35 oversight on The restructuring is Non-performance or any change in operating context discussed under “Our specific areas, Our strategic processes ensure that matters relating is highlighted and acted upon through integrated assisting in Generation Transmission Distribution strategic context” from page 40. For further to responsible corporate citizenship are considered processes and various governance and oversight discharging bodies at Board and operational level, supported by information on divisional in strategies developed throughout Eskom, including various responsibilities boards, refer to page 34 our plans covering corporate social investment and a combined assurance process. Monthly reports on socio-economic development; growth; financial, business performance are considered by the Executive operational and environmental sustainability; health and Management Committee (Exco). Furthermore, Eskom Legislation and regulations safety; risk and resilience; quality; human resources; submits a quarterly report to the shareholder; this Eskom is subject to numerous laws and regulations which govern our operations, including conditions relating to tariffs, expansion activities, stakeholder engagement; and procurement, including is reviewed by Exco, the Audit and Risk Committee environmental compliance, procurement, and human resources. Our licensing conditions place strict limits on plant emissions to limit our supplier development and localisation. Our performance (ARC) and the Board. Our performance against environmental impact. Relevant laws and regulations include the Electricity Regulation Act, 2006; Companies Act, 2008; PFMA, 1999; National compact with the shareholder and our Corporate Plan the shareholder compact as well as other elements Treasury regulations; National Environmental Management Act, 1998; National Energy Regulator Act, 2004; National Nuclear Regulator Act, 1999; of performance are regularly discussed with the Occupational Health and Safety Act, 1993; Basic Conditions of Employment Act, 1997; Labour Relations Act, 1995; Broad-Based Black Economic encompass these strategic elements. Empowerment Act, 2003; Promotion of Access to Information Act, 2000; among others. shareholder and National Treasury. 18 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 19 KING IV TM APPLICATION continued Our reporting aims to enable stakeholders to make an oversight of remuneration is delegated to the People Remuneration The Board acknowledges that not all of the King IV TM informed assessment of our performance to support and Governance Committee (PGC), in accordance with The PGC is mandated by the Board to oversee all aspects principles have been implemented effectively, although decision-making. The basis for preparation of the annual their respective terms of reference. The responsibility of remuneration in a fair, responsible and transparent many of the required practices are in place and have been and interim financial statements and the integrated for implementation and execution of policies and plans manner, and to ensure that the Board is aware of for many years. Our focus is on addressing the following report are in accordance with international standards across functional areas is delegated to Exco. developments regarding the remuneration of executives principles: and South African legislation. ARC and SES review these and employees. externally published reports within their mandate and Risk Principles 1 and 2 recommend approval thereof to the Board. Identification and treatment of Eskom’s strategic and DPE has issued guidelines on remuneration and incentives While the deployment of online ethics training has business risks and opportunities are supported by our to specifically address the remuneration of executive improved awareness of ethical requirements, a need for Governance, leadership and ethics Governance structures and delegation of risk and resilience policy, risk appetite and tolerance directors, prescribed officers and non-executive directors classroom training still exists, specifically for contractors authority framework, and risk and resilience management plan. of state-owned companies. Our executive remuneration and other high-risk business areas. Progress in this area The Board approves the organisation’s risk appetite policy was submitted to DPE officials for comment, to has been hindered by a lack of resources in the Ethics The Board functions within a well-established governance and tolerance levels annually. Exco provides quarterly ensure adherence to these guidelines. The draft policy will Office. Our focus remains on adequately resourcing the framework and provides guidance and oversight by updates and progress on the risk management plan to be finalised based on DPE’s feedback. Ethics Office to monitor compliance, roll out awareness setting the strategic direction of the organisation, which ARC through a risk report, which includes strategic, training, and support reporting of transgressions through includes the approval of policy and strategy and ensuring business and emerging risks and opportunities, as well Information on executive remuneration is set out under “Executive our whistle-blowing hotline. accountability for performance of the organisation. remuneration and benefits” on page 31, while remuneration of other as feedback on resilience initiatives. Furthermore, risk The Board's roles and responsibilities, membership employees is covered under “Our people – Remuneration and benefits” Principles 7 and 10 management is included in the performance contracts of on page 119 requirements and procedural conduct are set out in the No succession plans are in place for directors or all group executives. Board Charter. executives. While the development of a succession During the year, Exco implemented a quarterly risk Relationships with stakeholders plan for non-executive directors is in the hands of Refer to “Feedback on Board activities” from page 22 for further workshop to improve accountability for risk throughout We are committed to a stakeholder-inclusive approach the shareholder, the PGC identifies and recommends information on the Board Charter, the composition of the Board, the organisation. Risk-based decision-making was also additional skills and diversity needs to the shareholder, evaluation of Board performance as well as reports by the Board and acknowledge our obligation for managing stakeholder and its various committees strengthened across our governance structures by relationships effectively. The Board sets the direction who has the sole discretion under the MOI to appoint requiring that decisions be supported by a risk assessment, for the organisation’s stakeholder relationships through directors. We have requested the shareholder to fill the The DoA and materiality frameworks prescribe the with treatment of the risk linked to the decision. the stakeholder relations policy, leadership engagement vacancies on the Board and await feedback. Given the scope, conditions and parameters within which authority protocol, stakeholder landscape and the stakeholder restructuring of Eskom, succession planning at executive can be exercised by directors, employees and/or Key areas of focus as well as key risks and opportunities facing the strategy. To build and maintain sustainable relationships level is an area of focus. organisation are reported in “Our strategic context – Risks and with stakeholders, standardised and streamlined committees, and also sets out the powers that remain opportunities” from page 56 Principle 9 and 10 vested in the Board. governance processes have been developed and The Board's access to professional independent Technology and information implemented across the organisation. Although the Board has delegated authority to guidance on corporate governance was supplemented employees and its committees, it has reserved specific The information technology and operational technology by temporary and contracted services, while the Our interaction with stakeholders is discussed under “Our strategic matters for its own deliberation and conclusion as functions are managed separately; the integration of context – Stakeholder engagement” from page 53 appointment of a permanent Group Company Secretary recorded in the Memorandum of Incorporation (MOI). these functions continues to remain a challenge. During was under way. The appointment of Mr Mlawuli Starting in 2018, the Board assumed the approval the year, the Exco Information Technology Committee During the year, the Board approved the integrated Manjingolo with effect from 1 July 2020, is intended to mandate for all Board committees, except where was established to ensure alignment of information turnaround communication and stakeholder advocacy provide much-needed stability within the environment. legislative provisions require otherwise. The DoA was technology and operational technology within the plan to engage key stakeholders on Eskom’s turnaround context of Eskom’s strategy. Principle 11 revised during the year and approved by the Board in plan. Additionally, Eskom’s public and stakeholder Risk management is embedded throughout the July 2020. The Operational Technology Review Forum (OTRF) was perception across key dimensions was measured using organisation; however, greater management also established as a single point of accountability for the South African RepTrak® Pulse reputation study. accountability is required to effectively treat Priority 1 The main revision includes the reinstatement of the approval authority of Board committees, including the operational technology. Matters are referred from the Quarterly feedback on stakeholder engagement risks to achieve organisational objectives. Additionally, mandate for the Investment and Finance Committee OTRF to the Exco Information Technology Committee. is submitted to Exco and the Board for oversight, annual strategic risk workshops are an area of focus. (IFC) to provide oversight of investment decisions, Divisions are establishing divisional committees that will highlighting challenges that could affect Eskom’s report into the OTRF. Principle 14 procurement strategies and transactions within its operations. Due to different remuneration practices across our delegation. Furthermore, the authority levels of Compliance bargaining unit, managerial and executive employee power station managers were revised to increase The Board is accountable for compliance and governs this Our interaction with our customers and our reputation are set out in categories, Eskom has not developed an organisation- their responsibility over the appointment of critical “Our role in communities” from page 126 through the Compliance Charter and compliance policy. wide remuneration policy. staff and approval of transactions, in a bid to improve Through ARC, the Board oversees compliance throughout operational oversight at power stations and thereby the organisation. Future focus areas Principle 16 improve plant performance. The Board, through its committees, remains The appointment of company secretaries in Eskom’s Assurance subsidiaries has improved the monitoring and reporting The DoA framework will be reviewed again to facilitate committed to driving an improvement in ARC provides independent oversight of the effectiveness on the application of King IV TM across the group, although the divisionalisation of Generation, Transmission and governance and ethics, and will continue to drive of the organisation’s assurance functions, with particular further improvement is required. Distribution and ensure an appropriate balance between focus on combined assurance arrangements, including effective application of the King IV TM principles. Eskom-wide and divisional DoA policies. external assurance service providers, internal audit, Moreover, adapting our governance framework to forensic and technical investigations, controls, risk facilitate the restructuring of Eskom will require Governance functional areas focus in the short to medium term. management, compliance and the finance function. The Board sets the policy and direction for governance functional areas to support the organisation in achieving Refer to “Assurance and controls” from page 27 for further information its strategic objectives. The Board has delegated on our approach to governance of technology and information, responsibility for the oversight of risk, technology and compliance and assurance information, compliance and assurance to ARC, while 20 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 21 FEEDBACK ON BOARD ACTIVITIES Governance of the group and the responsibility for Changes in Board composition Board evaluation An external service provider was appointed to driving good corporate citizenship is vested in the The Board comprised 10 directors at year end – King IV TM recommends that board evaluations be undertake a full independent evaluation of the Board, supported by several committees and the Group eight independent non-executive directors and two conducted every second year. However, at the request Board for the 2019 financial year from July to Company Secretary. executive directors. The following changes affected the of the shareholder, Eskom endeavours to conduct August 2019; the results have been shared with the composition of the Board during the year. board evaluations on an annual basis where practical. shareholder. An internal board evaluation for the The boundaries between the Board and Exco have been re-established, with Exco taking accountability Mr Phakamani Hadebe stepped down as GCE and The evaluation report informs the shareholder’s 2020 financial year is under way. for operations, and the Board being responsible for executive director on 31 July 2019. The then Chairman, decision on the retention of directors. oversight. Nevertheless, Board and Exco continue to Mr Jabu Mabuza, assumed the role of interim executive Governance, leadership and ethics collaborate to drive change in Eskom. Chairman and acting Group Chief Executive from The Board acknowledges the independent evaluation report. In response, a Board improvement plan has been 1 August 2019, until the process to recruit a suitable developed to address key recommendations across a number of areas. Key recommendations and progress thereon are The Board is mindful of restoring trust in Eskom and candidate as GCE could be concluded. To ensure the noted below. returning the organisation to its values. To that end, the continued independence of the Board in line with Board remains committed to driving the implementation King IV TM, Prof. Malegapuru Makgoba was appointed of King IV TM in conjunction with an overall improvement Stakeholder Board as lead independent director from 1 August 2019. management composition in governance and ethics, while setting up the organisation for success as we navigate our changing Following a rigorous recruitment process and landscape. This is evidenced by the activities of the Board nomination of a candidate by the Board, the and its committees during the year, as well as their focus shareholder appointed Mr André de Ruyter as 8 1 areas for the coming year. GCE and executive director with effect from Relationship with Board management responsibilities Board Charter 6 January 2020. 7 2 The Board Charter is reviewed periodically to ensure Mr Jabu Mabuza resigned as Chairman with immediate effect on 10 January 2020, after which the shareholder BOARD that the Board exercises its authority and carries appointed Prof. Malegapuru Makgoba, the lead IMPROVEMENT out its roles and responsibilities, as required by the PLAN Companies Act, 2008, the PFMA, 1999, Eskom’s MOI, independent director, as interim Chairman from 6 3 the DoA framework, the shareholder compact and 13 January 2020. Sustainability Ethical any other applicable legislation, policies or procedures leadership Ms Sindi Mabaso-Koyana resigned as a non-executive as determined by the shareholder. Collectively, these 5 4 director and chairman of ARC with effect from prescripts comprise our governance framework. 31 January 2020. Dr Pulane Molokwane was subsequently appointed as chairman of the committee. The roles and responsibilities, key activities and future focus areas of the Board and its committees are outlined in the separate Board reports Subsequent to year end, Mr Sifiso Dabengwa tendered Board Board from page 25 his resignation on 21 July 2020 as non-executive director committees meetings and chairman of IFC with immediate effect. Ms Nelisiwe Board composition and appointments Magubane was subsequently appointed as chairman of In terms of our MOI, the Board must consist of a the committee. 1 Recommendation: The shareholder should address the In order to improve our approach to ethics, our maximum of 15 directors, with at least two executive size and diversity of the Board by filling vacancies and consequence management processes and ethics, fraud directors and the majority being non-executive directors. Meeting attendance appointing a more balanced Board. prevention and whistle-blowing policies have been Although meetings of the Board and its committees are Non-executive directors are appointed by reviewed and revised. The Board continues to affirm a scheduled annually in advance, special meetings may be Progress: A request to strengthen and fill existing zero tolerance towards unethical behaviour, to instil a the shareholder for a period of three years, convened as and when required to address pressing issues. vacancies has been submitted for the shareholder’s renewed commitment to Eskom’s values. Furthermore, a reviewable annually; they may not serve more consideration. Board workshop focusing on ethical leadership is planned. than three consecutive terms. Directors’ attendance of Board and committee meetings (including by former members of a committee) is noted in the fact sheet on page 138 2 Recommendation: The Board should improve mechanisms Given that the shareholder approves the appointment to monitor management’s performance and conduct Actions taken to address unethical behaviour are discussed in “Ethics and progress on governance clean-up” from page 35 of all directors, targets for race, gender, age and Group Company Secretary evaluations of the GCE. disability as well as succession planning are managed by The Group Company Secretary plays an important role Progress: The Board has approved the shareholder Recommendation: The Board should ensure the 4 the shareholder. The PGC assists the shareholder by in the governance and administration of the organisation, compact for 2021, setting the foundation for performance recruitment of a permanent Group Company Secretary identifying and recommending the needs of the Board in and is vital to the efficient and effective functioning of the management for the coming financial year. At the time of and address general administrative concerns around terms of skills, qualifications, experience and diversity to Board by providing advice and support to directors. the evaluation, the shareholder compact had not been Board meetings. achieve our objectives. established. The GCE’s performance compact is in place Following the departure of Mr Wynand van Wyngaardt as Progress: Improvement in the efficient operation of The Board is satisfied that its composition is and is aligned to shareholder objectives and Board- Group Company Secretary on 30 April 2019, Mr Mtutuzeli the secretariat function is ongoing, bolstered by the appropriately balanced in accordance with priority initiatives. Tyalimpi was appointed as acting Group Company recent appointment of Mr Mlawuli Manjingolo as Group King IVTM principles. Nevertheless, the Board has Secretary on a fixed-term contract from 2 July 2019 until Company Secretary. 3 Recommendation: The Board should formulate plans to highlighted the vacancies to the shareholder, also 31 December 2019. Upon expiry of the contract, Ms Allison address a perceived lack of consequence management and noting the lack of succession planning and lack of Seckle was appointed as acting Group Company Secretary An annual agenda plan and meeting calendar is in place; non-adherence to ethics policies and procedures by leading representation of persons with disabilities. until the recruitment of a permanent appointment could be however, due to the nature of Eskom’s challenges at the a zero-tolerance campaign against unethical behaviour. concluded. Mr Mlawuli Manjingolo was appointed as Group time that the 2019 board evaluation was conducted, A culture of ethical leadership should be supported. Refer to pages 14 to 15 for the Board composition, as well as information Company Secretary with effect from 1 July 2020. the Board had to deal with several pressing issues, on skills and racial, gender and age diversity. Directors’ profiles, including Progress: Breaches of ethical conduct and necessitating a number of meetings at short notice. qualifications and active directorships, are set out in the fact sheet from recommendations to address non-compliance are page 135 reported to the Board on a quarterly basis. Associated risks are also monitored through ARC. 22 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 23 FEEDBACK ON BOARD ACTIVITIES continued REPORT BY THE BOARD FOR THE YEAR ENDED 31 MARCH 2020 5 Recommendation: The Board should apply careful Refer to “Our strategic context – Stakeholder engagement” from • Evaluated potential candidates for the appointment of the judgement when constituting committees and review the page 53 for further information GCE and submitted recommendations to the shareholder terms of reference of each committee on an annual basis, • Tasked the PGC with ensuring that risk management is to ensure that the Board can focus on strategic matters. Board committees included in the GCE’s performance compact and also Discussions of future focus areas must also be prioritised. cascaded to lower levels of management, as a Board The effectiveness of the Board is aided by committees Progress: Directors’ skills and experience are considered to which it delegates authority without diluting its own priority when constituting Board committees; however, the accountability. The Board appoints members to the various • Considered and approved the updated enterprise risk and Board vacancies have been brought to the attention of committees, by duly considering the necessary skills, resilience policy, risk and resilience management plan as Governance, leadership and ethics the shareholder to enable the strengthening of the Board experience and diversity required. The exception is ARC, well as Eskom’s risk appetite and tolerance framework and its committees. The review of committees’ terms of where appointments are made by the shareholder in • Approved the Eskom delegation of authority framework, reference was subject to finalisation of the Eskom DoA, terms of our MOI and the Companies Act, 2008. subject to certain revisions which covers the decision-making authority of the Board committees. All terms of reference, including the Board All committees exercise their authority in accordance • Revised the delegation of authority of power station Charter, have since been reviewed. with Board-approved terms of reference, which define managers in consultation with the COO, to drive their composition, mandate, roles and responsibilities. improved operational accountability These terms of reference are aligned with the DoA • Lifted the moratorium on external recruitment to fill Future focus areas are covered in the reports by the various Board committees from page 26 framework, legislative requirements and best practice, critical vacancies and are reviewed each year. Both ARC and SES are statutory committees as prescribed by the Companies • Approved the revised executive organisational structure 6 Recommendation: The Board should focus on a broad range of sustainability issues, as there is a perceived Act, 2008. • Considered progress on the four focus areas of the 2019 emphasis on financial sustainability to the exclusion of turnaround plan, as well as the Generation recovery plan The individual and collective responsibilities of other pressing issues. Number of meetings • Granted approval for senior management to engage directors in terms of their fiduciary duty are not Sixteen meetings were held during the year. with the Ministers and Directors General of DPE and Progress: The Board believes that sustainability issues are negated by the deliberations of the committees. the Department of Environment, Forestry and Fisheries adequately dealt with through SES, based on its terms Directors are required to exercise due care and Membership (DEFF) as well as licensing authorities on the impact that of reference and an agenda that focuses on all aspects of judgement in accordance with their statutory the Minimum Emission Standards (MES) might have on sustainability, in line with statutory requirements. obligations. Refer to the Board composition on pages 14 and 15 the adequacy of the power system 7 Recommendation: The Board should renew its relationship All Board committees, which comprise only independent Purpose • Approved the procurement strategy for long-term coal with management through continuous engagement, non-executive directors, are chaired by an independent The Board fulfils the primary roles and responsibilities of supply to several power stations based on the remaining while holding management accountable for decisions and non-executive director. During the year, there were a governing body outlined in King IV™ by: life of plant plans challenging management through agreed expectations. several changes to the chairmanship and membership • Steering the organisation and setting the strategic • Supported Eskom’s municipal debt management strategy Progress: The GCE and the Chief Financial Officer (CFO) of Board committees as a result of resignations, and direction, aligned with DPE’s Strategic Intent and declaratory orders to recover payments, subject to are executive directors and serve as the interface a new Board Strategy Committee being established. Statement, while treating strategy, risk, performance engagement with National Treasury between the Board and executive management. The These changes ensured that the committees were able and sustainability as inseparable • Accepted the cost-benefit calculations for Medupi GCE and CFO are responsible for providing reports to to discharge their duties effectively despite the current • Providing oversight through effective governance and and Kusile Power Stations, based on the commercial the Board covering the performance of the organisation Board vacancies. materiality frameworks, and approving policies and decision to complete the new build projects on key performance areas agreed with the shareholder. No external advisors were invited to committee plans which give effect to the strategy • Approved the High Court review applications of NERSA’s Performance of executive management is linked to the meetings during the year. The GCE, CFO, Chief • Monitoring strategy implementation and execution by MYPD 4 and regulatory clearing account decisions achievement of individual and organisational performance Operating Officer (COO) and senior management from management, ensuring accountability and promoting • Approved the disposal strategy of Eskom Finance objectives and targets. various functional areas are invited to attend committee integrity in reporting and disclosure Company SOC Ltd meetings as officials, when required. 8 Recommendation: The Board should lead a stakeholder- • Ensuring that compliance requirements and risks are • Requested the shareholder to assume ownership or inclusive approach and consider roadshows to restore Reports by the various Board committees on the identified and managed through effective internal alternatively fund the continued warehousing of PBMR trust with Eskom’s stakeholders, such as organised following pages include the committees’ membership at controls, supported by a risk-based internal audit labour. Where appropriate, the Board should be more function • Approved submission of the Corporate Plan for the 31 March 2020, the number of meetings held during the firm in dealing with decisions by the shareholder. 2021 to 2023 financial years to DPE year, the purpose and key activities of the committees, • Promoting a culture aligned to Eskom’s values, Progress: The Board-approved stakeholder engagement as well as the focus areas for the coming year. ensuring that Eskom remains a responsible corporate Conclusion policy sets out the roles and responsibilities of the Board citizen – ethically, socially and environmentally The Board has adopted an appropriate Board Charter, and executives in managing stakeholder relationships. has regulated its affairs in compliance with this charter Key activities and decisions Through our stakeholder engagement strategy, numerous and is satisfied that it has discharged its responsibilities engagements and roadshows are conducted by executive • The Board previously assumed the approval mandate contained therein. Furthermore, the Board is satisfied that management. for all Board committees except where legislative it comprises the appropriate balance of knowledge, skills, provisions apply, in the case of ARC and SES. During experience, diversity and independence, and is satisfied Collaboration with key decision-makers and Government the year, the approval authority of the Board with the reasons for the resignation of previous directors. is critical to the success of our turnaround plan. The committees was reinstated and IFC was granted the Board engages with the shareholder on key issues mandate to approve transactions within its delegation The Board has requested the shareholder to fill the through the shareholder engagement forum. The Board • Established the Board Strategy Committee to consider Board vacancies to ensure that all committees are is further held to account by several parliamentary matters relating to Eskom’s restructuring adequately capacitated to fulfil their mandates. bodies, such as the Standing Committee on Public Accounts (SCOPA) and the Standing Committee on • Approved the separation of ARC into two committees; Appropriations (SCOA). namely an audit committee and a risk committee; however, the separation cannot be implemented until Prof. Malegapuru Makgoba the existing Board vacancies are filled Interim Chairman 24 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 25 REPORT BY THE AUDIT AND RISK COMMITTEE ASSURANCE AND CONTROLS FOR THE YEAR ENDED 31 MARCH 2020 • Quarterly reports, such as shareholder reports to ARC is responsible for setting the direction review of our systems and processes to improve DPE and enterprise risk and resilience reports for risk management and internal controls, performance and deliver on our strategic objectives. • Progress against cost curtailment initiatives under the governance of technology and information, This is in line with our focus on entrenching quality 2019 turnaround plan compliance and combined assurance. management principles throughout the organisation, to ensure a continuous approach to quality, good In addition, the committee: The Assurance and Forensic (A&F) Department, our governance and sustainable performance. • Monitored and considered financial performance and independent internal audit function, reports directly to liquidity; IT governance, risk and security; enterprise ARC. A&F’s annual charter is approved by ARC; this Refer to pages 152 to 154 of our 2019 integrated report for additional risk and resilience, including risk appetite and includes a risk-based audit plan and resource plan to ensure information Governance, leadership and ethics tolerance; insurance; ethics; forensics and technical adequate resources to address the complexity of risks investigations; litigation and new legislation; nuclear facing the organisation, and to provide reasonable assurance Risk management and internal controls assurance; the compliance charter and compliance on the effectiveness of the governance and control The Board, through ARC, ensures that an effective risk management environment, including forensic and technical investigations. management process is in place and that internal controls are both adequate and effective. To address the prior year’s focus areas: Systems, policies and procedures • ARC’s terms of reference have been reviewed, as well All aspects of our operations are supported, controlled A&F assists the organisation in achieving its objectives as the proposed terms of reference for the separate and guided by systems, processes, policies and by performing assessments and providing assurance audit and risk committees procedures. We are committed to compliance with on governance, risk management and the design, • The Board reiterated its request to the shareholder international standards, which is realised through implementation and effectiveness of financial and to fill vacancies on the Board to strengthen simplification, standardisation, optimisation and regular operational controls. membership of ARC Number of meetings Future focus areas Risk Financial and Governance Ten meetings were held during the year. management operational controls Focus areas for the coming year include: Membership (at year end) • Establishing separate audit and risk committees with clear responsibilities; implementation of this change is Based on a formal review during the 2020 The Technical Governance Committee functions as a Three independent non-executive directors: subject to Board vacancies being filled financial year, A&F has concluded that our governance structure for operational technology to oversee Dr Pulane Molokwane (chairman), Dr Rod Crompton and technical processes, standardisation, strategic direction, • Considering sustainability risks relating to financial system of internal financial controls is considered Prof. Tshepo Mongalo and ensure effective management of operational technology reporting and Eskom’s status as a going concern adequate, including the design, implementation Collectively, members have qualifications or experience and effectiveness thereof, and that it forms a throughout the organisation. This structure now reports to • Reviewing the effectiveness of risk and compliance the Exco Information Technology Committee. in commerce and industry, economics, public sector, reasonable basis for the preparation of Eskom’s management as well as internal financial and other law, governance, risk management, nuclear science and financial statements. controls, together with the adequacy of consequence Technical governance structures were discussed in more detail on environmental engineering. management, to ensure that contraventions are The design of the system of internal operational pages 152 to 153 of our 2019 integrated report Purpose addressed in a sustainable manner controls and risk management is considered adequate, The committee’s roles and responsibilities include: • Governing information and technology risk, specifically although application thereof is considered partially ARC considers quarterly reports, which provide pertaining to the restructuring of Eskom effective. In particular, the system of controls relating to assurance that Eskom’s operational technology and • The statutory functions of an audit committee set compliance requires improvement. information management systems are secure and out in the Companies Act, 2008 and the PFMA, • Monitoring the cooperation and coordination between available, as well as A&F’s assessments on the adequacy 1999, including oversight of financial reporting and the internal and external audit functions Furthermore, governance requires improvement and effectiveness of technology and information disclosure, risk and compliance management and • Continuing to fulfil all statutory duties in accordance in respect of compliance with applicable laws and governance, risk management, compliance and controls. internal control systems, as well as the internal and with the terms of reference regulations. Roles, responsibilities and authority of external audit functions Compliance • Overseeing the operations of Eskom’s subsidiaries and external governance role players are to be clarified in • Oversight of strategic and business risks and Eskom’s legislative and policy frameworks. Our compliance philosophy respects the rule of law the activities of their audit committees opportunities and seeks to comply, in all material aspects, with our Conclusion These conclusions consider information and explanations • Governance of information and technology compliance obligations. The Board is accountable provided by management, as well as discussions with the • Serving as the audit committee for Eskom’s wholly The committee fulfilled all its statutory duties in for compliance and sets the direction through the external auditors on the results of the external audit. owned subsidiaries, with the exception of Escap, terms of the Public Finance Management Act, 1999, Compliance Charter and, with the assistance of ARC, which has its own audit committee in terms of the and section 94(7)(f) of the Companies Act, 2008. The Governance of technology and information oversees compliance throughout the organisation. Insurance Act, 2017 committee has adopted an appropriate formal terms of The responsibility for the implementation and execution In accordance with King IV TM, governance oversight of reference, has regulated its affairs in compliance with its of compliance management has been delegated to Exco. Key activities during the year technology and information is the responsibility of the terms of reference and is satisfied that it has discharged Board. Effective management of technology and information Compliance maturity is based on an assessment of The committee considered and/or recommended the its responsibilities contained therein. is seen as critical for the enhancement of intellectual capital. the extent of identification and understanding of the following for approval or noting by the Board: The responsibility for managing these has been delegated applicable compliance universe, linking and updating • Year-end and interim group financial statements, the to Exco. Although information technology and operational related controls, and routine monitoring of adherence integrated report and related documents, as well as technology functions are operated separately, the recently to those controls. Based on a review of Eskom’s overall going concern statements and reportable irregularities Dr Pulane Molokwane established Exco Information Technology Committee will compliance status at 31 March 2020, the overall risk of raised by the independent auditors Chairman ensure alignment. non-compliance in the organisation remains high, given Audit and Risk Committee • Appointment of the external auditor and associated fees the complex legal and regulatory obligations affecting our Through ARC, the Board has adopted an IT Charter and • The three-year rolling strategic internal audit plan, operations. policies to provide direction on how information technology including progress on and amendments to the is addressed in the organisation to ensure the confidentiality, 2020 audit plan security, integrity and availability of information. 26 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 27 ASSURANCE AND CONTROLS continued REPORT BY THE INVESTMENT AND FINANCE COMMITTEE A remedial plan is being developed to address structural Combined assurance FOR THE YEAR ENDED 31 MARCH 2020 inadequacies identified and the lack of automated Combined assurance offers benefits extending beyond mere compliance monitoring systems, among other findings. compliance. It includes maximising risk and governance • Options for the disposal of Eskom Finance Company oversight; optimising overall assurance activities; improved SOC Ltd and recommendations on the preferred Non-compliance places Eskom at risk and may result in strategy reportable matters through the PFMA, 1999. Transgressions reporting to the Board and its committees; coordinated and are dealt with in terms of disciplinary processes, which relevant assurance, with an emphasis on key risks; as well • Eskom’s borrowing programme and capital investment extend to civil and criminal action where appropriate. as enhanced control efficiencies and a possible reduction in plan, aligned to the Corporate Plan assurance costs. • The medium-term system adequacy outlook and Governance, leadership and ethics Quantifiable penalties, fines or sanctions levied against the organisation The combined assurance model includes a combination of Transmission Development Plan, in compliance with due to non-compliance, including environmental sanctions, are disclosed the South African Grid Code in note 53 of the consolidated annual financial statements line function oversight, risk and resilience management and compliance activities, as well as other specialist assurance To address the prior year’s focus areas: Our focus remains on improving our compliance maturity services. Collectively, these enable an effective control • The committee considered and approved matters and developing a remedial plan to address the risk environment and support the integrity of information within its approval mandate, and considered and of non-compliance. Progress against this plan will be for decision-making by oversight committees, as well as recommended matters above its approval limits for monitored on a regular basis. external reporting to stakeholders. Board approval. Matters included various procurement strategies; contract amendments and modifications; capital investment concept, design and execution Board and ARC approvals or revisions; as well as other commercial Considers the myriad of control deficiencies, risk and realities affecting the organisation, and then provides guidance decisions on how to address these in order to ensure performance, business health and sustainability Future focus areas External audit Internal audit Focus areas for the coming year include: Independent reasonable assurance that the annual financial Assurance over the adequacy and effectiveness of the • Overseeing considerations for Eskom’s capital statements and integrated report are free from material network of risk management, internal control and governance Number of meetings misstatement and are prepared, in all material respects, in processes, including key financial controls as represented Eight meetings were held during the year. structure and debt management, both during and after accordance with IFRS and King IV TM. Provides business by management restructuring insights on internal financial controls and financial reporting Membership (at year end) • Supervising financial plans and business cases, as well Specialised control functions Risk, resilience and compliance management Three independent non-executive directors: as criteria and guidelines for capital investments and Development and maintenance of internal control Assurance over the implementation of risk and resilience as Mr Sifiso Dabengwa (chairman), Ms Nelisiwe Magubane projects for Eskom, its divisions and subsidiaries frameworks and policies, as well as reviewing their well as compliance management practices and processes and Ms Busisiwe Mavuso • Considering financial proposals in respect of the suitability and monitoring their application Collectively, members have qualifications or experience repurposing of power stations and the Just Energy Operations management and specialised review functions Transition Transaction in corporate finance, commerce and industry, accounting, Assurance over the adequacy of operational risk management, effective adherence to internal control processes and delivery energy, public sector and engineering. against operational and sustainability objectives Conclusion After Mr Dabengwa’s resignation, Ms Magubane was The committee has adopted an appropriate formal terms Operations execution and supervisory oversight appointed as chairman of the committee. of reference, has regulated its affairs in compliance Supervisors and managers ensure the implementation of internal controls and risk management processes to ensure a with its terms of reference and is satisfied that it has high-performing and sustainable operating environment Purpose discharged its responsibilities contained therein. The committee’s responsibilities include: • Oversight of investment strategies, capital and The combined assurance model assists the Board and borrowing programmes, and financial budgets ARC in forming their view of the adequacy of risk Based on the information and explanations provided by management and A&F, as well as discussions with the • Approval of business cases for new ventures, capital management and internal controls in the organisation. Ms Nelisiwe Magubane external auditors, ARC has concluded that the systems investments and projects ARC is ultimately accountable for providing oversight Chairman and processes of risk management and compliance are • Monitoring the concept, design and execution of major of assurance activities through the combined assurance Investment and Finance Committee adequate, even though the effectiveness and application capital projects framework, to provide reasonable assurance that thereof need to be improved. Furthermore, internal Eskom’s financial and non-financial control objectives financial controls are considered adequate to ensure • Oversight of Eskom’s treasury function are achieved, and that the externally published reports that the financial records may be relied upon and for are prepared in accordance with the frameworks and Key activities during the year the preparation of reliable financial statements. ARC standards set out within those reports. also concluded that A&F is operated effectively and has The committee considered and/or recommended the adequate expertise, resources and experience to fulfil following for approval or noting by the Board: The responsibility for combined assurance has been its duties. Furthermore, ARC is satisfied that Eskom has • Funding for Koeberg Nuclear Power Station to delegated to A&F, which facilitates and coordinates access to adequate resources, facilities and support from execute its long-term balance of plant projects the execution of combined assurance activities and Government to be able to continue its operations for the reports back to relevant committees. ARC receives • Submission to NERSA of the regulatory clearing foreseeable future as a going concern. reports on the status of governance, risk management account (RCA) balance application for the 2019 and compliance, and the adequacy of preventative and SNG Grant Thornton Inc has been the appointed external financial year corrective controls from the various levels of assurance. auditors since 2015. The lead engagement partner, however, was rotated after a five-year engagement period. Having considered the matters set out in section 94(8) of Refer to the report of the Audit and Risk Committee in the consolidated annual financial statements for the full assessment of Eskom’s internal the Companies Act, 2008, ARC is satisfied with the quality control environment and the disclosures required by practice 59 of of the external audit as well as the independence and principle 8 of King IV TM objectivity of the external auditors. 28 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 29 REPORT BY THE PEOPLE AND GOVERNANCE EXECUTIVE REMUNERATION AND BENEFITS COMMITTEE FOR THE YEAR ENDED 31 MARCH 2020 Our approach to remuneration Remuneration philosophy and structure Principle 14 of King IV TM emphasises that Non-executive directors • Progress on relinking centralised support staff to line Non-executive directors receive a fixed monthly fee and are remuneration practices should be fair, divisions as part of Eskom’s restructuring reimbursed for expenses incurred in fulfilling their duties. responsible and transparent; promote achieving • Overview of critical vacancies and recruitment plans, the organisation’s strategic objectives; and industrial relations, engagements with organised Remuneration is benchmarked against the norm for large support positive outcomes in the short, medium JSE-listed companies as well as companies similar in size to labour and the employee engagement strategy, as well and long term. Eskom, and is determined in line with DPE remuneration as the annual review of remuneration and employment conditions The PGC assists the Board in approving, guiding and guidelines. The PGC submits proposals on non-executive Governance, leadership and ethics influencing key human resources policies and initiatives remuneration to the Board, which considers and makes To address the prior year’s focus areas: recommendations to the shareholder for approval. aligned to shareholder requirements, social expectations • Following a review of critical skills, the moratorium on and legislation, such as the Employment Equity Act, 1998, Executives recruitment was lifted to address critical vacancies and strives to ensure that remuneration structures support Our remuneration philosophy aims to attract and • A revised human resources strategy – the People Plan our strategic objectives, encourage value creation and retain talent in the competitive labour market on a – was developed to accommodate divisionalisation and advance Eskom’s long-term sustainability by: fair and equitable basis, and reward performance that restructuring • Adopting the principles of King IV TM for the exceeds expectations and supports the achievement of remuneration of directors and executives organisational objectives. Future focus areas Focus areas for the coming year include: • Implementing DPE’s guidelines for the remuneration The PGC is solely responsible for determining executive and incentives of employees of SOCs remuneration, rewards and other benefits; executives are • Considering human resources strategies and policies, specifically related to headcount reduction, employee • Ensuring that the remuneration and incentive not involved in the approval process. The PGC ensures benefit cost savings and restoring a culture of high philosophy is aligned to the shareholder compact, that remuneration policies are designed in a way that performance and accountability and drives organisational and individual performance demonstrates a clear relationship between performance Number of meetings • Monitoring human resources and industrial relations and remuneration. The PGC also maintains the right to Total remuneration earned by directors and group Six meetings were held during the year. aspects of divisionalisation, restructuring and Eskom’s adjust, withhold or veto any remuneration. executives response to COVID-19 The PGC’s annual review of executive packages is guided Membership (at year end) Category, R 000 2020 2019 • Finalising the draft executive remuneration policy by external benchmarking and ensures an appropriate Three independent non-executive directors: Non-executive directors 9 565 6 967 which was submitted to DPE for comment; the policy balance between fixed and variable remuneration. Prof. Tshepo Mongalo (chairman), Prof. Malegapuru will be finalised based on DPE’s feedback Executive directors 9 893 11 861 Makgoba and Ms Busisiwe Mavuso Other group executives1 29 516 43 996 Our executive remuneration policy was submitted to • Improving the process around future independent DPE officials for comment, to ensure adherence to DPE’s Collectively, members have qualifications or experience Total remuneration 48 974 62 824 Board evaluations and self-assessments guidelines. The draft policy will be finalised based on in commerce and industry, accounting, law and 1. As reported last year, a more streamlined executive structure DPE’s feedback. governance, public sector and medicine. Conclusion was implemented after a section 189 process. This resulted in a The committee has adopted an appropriate formal terms reduction in the number of group executives. Consequently, overall Purpose Remuneration of managerial and bargaining unit employees is discussed of reference, has regulated its affairs in compliance executive remuneration has declined. under “Our people – Remuneration and benefits” from page 119 The committee’s responsibilities include: with its terms of reference and is satisfied that it has • Succession planning and nomination at executive level discharged its responsibilities contained therein. The Refer to note 51 in the consolidated annual financial statements for detailed remuneration information as required by King IV TM • Ensuring that remuneration is fair, transparent, committee has complied with all relevant legal and responsible and equitable regulatory requirements pertaining to remuneration of employees across the organisation, and further notes • Overseeing human resources strategies and policies, that no deviations from Eskom’s remuneration philosophy including relationships with organised labour and Guaranteed remuneration Short-term Long-term were observed during the year. employees and benefits incentives incentives • Monitoring corporate governance Ensures that talented individuals Manages and facilitates Ensures the long-term Key activities during the year are attracted, retained and performance through a results- sustainability of the The committee considered and/or recommended the Prof. Tshepo Mongalo receive support to perform driven approach that is collaborative, organisation following for approval or noting by the Board: Chairman their roles efficiently transparent and fair • The evaluation and nomination of potential candidates People and Governance Committee for the position of the GCE, as well as proposed changes to the executive leadership structure Guaranteed remuneration objectives and targets, subject to defined gatekeepers. The guaranteed amount is fixed and includes compulsory Short-term incentives relate to a single financial year, • Progress on headcount reduction and human benefits such as medical aid, pension, group life and death whereas long-term incentives cover a three-year period. resources cost curtailment initiatives under the 2019 benefits, as well as allowances for motor vehicle expenses turnaround plan and personal security. Any increase is recommended by Refer to pages 74 to 75 of our 2019 integrated report for an explanation • Eskom’s conflict of interest policy and the PGC and is subject to approval by the shareholder. of how short- and long-term incentives are structured recommendations to address non-compliance with the private work policy As a result of Eskom’s financial challenges, no In accordance with the conditions of the Special increase was granted to executives during the year. Appropriation Act, 2019, executives may not Variable remuneration be paid any incentives in years where Eskom Variable executive remuneration is linked to the receives equity support. Furthermore, no achievement of individual and organisational performance incentives were paid in 2018 or 2019. 30 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 31 REPORT BY THE SOCIAL, ETHICS AND REPORT BY THE BOARD STRATEGY SUSTAINABILITY COMMITTEE COMMITTEE FOR THE YEAR ENDED 31 MARCH 2020 FOR THE YEAR ENDED 31 MARCH 2020 • Nuclear oversight and management of associated risks Key activities during the year • Eskom’s ethics report, including management of ethics The committee considered and/or recommended the following for approval or noting by the Board: To address the prior year’s focus areas: • Progress on restructuring under the turnaround plan • The committee considered numerous reports, • Eskom’s comments on DPE’s special paper, Roadmap covering progress, challenges and mitigating measures for Eskom in a Reformed Electricity Supply Industry, to be on occupational health and safety; assurance and Governance, leadership and ethics submitted to the shareholder, proposing amendments forensics; corporate social investment; stakeholder to the process and timelines engagement; sustainability of human capital; operational sustainability; environmental performance; In addition, the committee: electrification; and the integrated report • Mandated the GCE to engage DPE on Eskom’s • The terms of reference of the committee was recommendations for a phased approach to separation recommended to and approved by the Board to over two years, firstly through divisionalisation, ensure alignment to the MOI and Regulation 43 of the followed by legal unbundling Companies Act, 2008 • Requested that the Corporate Plan and shareholder Future focus areas compact incorporate the phased approach Focus areas for the coming year include: Future focus areas • Monitoring Eskom’s sustainability through the Focus areas for the coming year include: turnaround plan, Generation recovery plan and • Ensuring the establishment of a management structure the recently approved Transmission sustainability to implement Eskom’s restructuring Number of meetings improvement plan Number of meetings • Overseeing interactions with Government on Eskom’s Four meetings were held during the year. • Supervising the response to environmental Three meetings were held during the year. restructuring, as well as the implementation of contraventions and non-compliance notices associated directives, roadmaps and policies Membership (at year end) Membership (at year end) • Overseeing the management of nuclear risks, focusing • Considering revised strategies for operations, human Three independent non-executive directors: Three independent non-executive directors: on the status of findings by the World Association of resources, procurement and debt management, with Dr Banothile Makhubela (chairman), Prof. Malegapuru Nuclear Operators (WANO) Dr Rod Crompton (chairman), Mr Sifiso Dabengwa and Makgoba and Dr Pulane Molokwane Ms Nelisiwe Magubane proposed timelines • Monitoring both employee and public health and safety • Assisting Government in drafting proposed Collectively, members have qualifications or experience aspects of Eskom’s response to COVID-19 Collectively, members have qualifications or experience amendments to any legislation, regulations, licences, in industry, public sector, nuclear science, environmental • Ensuring continued compliance with Regulation 43 of in corporate finance, commerce and industry, economics, methodologies and Grid Codes, as well as any new engineering, chemistry and medicine. the Companies Act, 2008 energy, public sector and engineering. documents, including market rules, required to enable Purpose Purpose the new market structure Conclusion The committee’s responsibilities include: The committee’s responsibilities include: • Providing direction and making recommendations on The committee has adopted an appropriate formal terms • The statutory functions of a social and ethics • Oversight of Eskom’s response to and implementation Eskom’s restructuring in line with the new electricity of reference, has regulated its affairs in compliance with committee as set out in the Companies Act, 2008 of Government directives, roadmaps and policy supply industry structure its terms of reference and is satisfied that it has discharged • Oversight of social and economic development; good its responsibilities contained therein. Furthermore, the documents relating to Eskom’s restructuring Conclusion corporate citizenship; environmental, climate change, committee fulfilled all its statutory duties as set out in • Making recommendations to the Board on the The committee has adopted an appropriate formal terms health and safety programmes; and the sustainability audit Regulation 43 of the Companies Act, 2008. restructuring, by considering the transfer of assets, of reference, has regulated its affairs in compliance • Supervision of nuclear policies, strategies and liabilities and resources, as well as the separation of with its terms of reference and is satisfied that it has guidelines, as well as nuclear safety in terms of centralised functions discharged its responsibilities contained therein. regulatory requirements and international best practice • Interacting with Government and associated offices • Serving as the social and ethics committee for Eskom’s Dr Banothile Makhubela on the restructuring of both Eskom and the electricity wholly owned subsidiaries Chairman supply industry Social, Ethics and Sustainability Committee Dr Rod Crompton Key activities during the year The committee considered and/or recommended the Chairman following for approval or noting by the Board: Board Strategy Committee • Launch of the Eskom Factor report in July 2019, which measured Eskom’s economic, social and environmental footprint • Plans for addressing the impact of the MES on the adequacy of the power system, as well as risks associated with MES projects and air quality compliance issues, together with associated engagement plans 32 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 33 EXCO AND DIVISIONAL BOARDS ETHICS AND PROGRESS ON GOVERNANCE CLEAN-UP Executive Management Committee From 1 September 2020, Mr Bheki Nxumalo was Ethics based on our values Our conflict of interest policy complements our Code Exco composition appointed as Group Executive: Group Capital. In accordance with King IV , the Board is responsible TM of Ethics by setting out the obligations of directors In the interim, Mr Rhulani Mathebula will act as for the governance of ethics within the organisation and, and employees when encountering conflicts of interest Exco is established by the GCE, and is Group Executive: Generation. through SES, sets the direction for ethics by establishing and engaging in private work, managing relationships accountable for executing the strategy set by the an ethical culture through our Code of Ethics, known as with suppliers, as well as receiving or offering business Board, as well as exercising executive control Ms Nthato Minyuku was appointed as Group Executive: courtesies. over day-to-day operations. Government and Regulatory Affairs, with effect from “The Way”. 15 October 2020. “The Way” reflects our commitment to the highest Directors and employees across all occupational levels The shareholder is responsible for appointing the GCE, are required to complete an annual declaration of although the Board identifies, nominates and evaluates Exco subcommittees standards of governance, ethics and integrity, and gives Governance, leadership and ethics effect to ethical practices, policies, procedures and interest, irrespective of whether a conflict exists, or as potential candidates. Exco is supported by various subcommittees to assist in soon as circumstances that may affect their declaration the execution of its duties. behaviour across all areas of the organisation. It guides The CFO is appointed by the Board, subject to the way in which the Board and employees interact with change. Where a conflict exists, it must be declared shareholder approval, whereas group executives are each other as well as with the shareholder, customers, and managed in line with Eskom’s ethics policies and Refer to “Our governance framework” on page 18 for the structure of procedures. Any interests declared by directors and Exco recommended by the GCE and appointed by the PGC. Exco and its subcommittees. The purpose and key activities of these suppliers, the environment, the public and other The GCE and CFO are appointed on five-year contracts, subcommittees are detailed on page 71 of our 2019 integrated report stakeholders. members in meetings are minuted for the record. with an option to renew. Furthermore, the acting Group All members of the Board and Exco have completed Executive: Legal and Compliance and Group Executive: Divisional boards Adherence to the “The Way” is not optional; their declarations of interest as required; any conflicts Transformation Management Office are fixed-term it is the way we do business in Eskom. Under the restructuring focus area of the identified are managed appropriately. Declarations contractors. All other executives are full-time employees. made by staff are verified against various databases and, turnaround plan, divisional boards for Our Code of Ethics is underpinned by our values. As we Generation, Transmission and Distribution focus our efforts on returning Eskom to a values-driven where any discrepancies or omissions are identified, the Refer to pages 16 to 17 for the profiles and areas of responsibility of Exco necessary disciplinary processes are instituted. members, including their experience, qualifications and directorships were established in March 2020 to enhance our organisation, six core values form the foundation through internal governance structures and facilitate a which we can rebuild stakeholders’ trust in Eskom. No Eskom official or employee is allowed to do Exco held 36 meetings during the year, seven of which more streamlined decision-making process. business with Eskom while being employed by were held by the current GCE. Eskom or its subsidiaries. Any employee who Presently, the divisional boards do not constitute a Ensure that zero harm befalls our board of directors in accordance with the Companies employees, contractors, the public is found to have contravened the stipulated Attendance of Exco meetings is shown in the fact sheet on page 138 Act, 2008, but will function as operational boards, until and the natural environment policies, procedures or DoA will be subject to the legal restructuring of Eskom has been concluded Zero Harm disciplinary processes. Changes in executive leadership and separate Generation, Transmission and Distribution The following changes took place during the year: companies are incorporated. Our DoA and materiality frameworks serve as important Honesty of purpose, conduct and • Mr Monde Bala was appointed as Group Executive: discipline in actions, as well as elements of our governance framework, by governing Distribution, effective 1 April 2019 Refer to “Our strategic context – Our strategy and turnaround plan” respect for people transactions in Eskom and setting limits and approval from page 50 for our approach to restructuring through divisionalisation Integrity authorities based on the nature of a transaction. • Ms Nondumiso Zibi, acting General Manager: as a first step Information Technology, resigned effective Value-adding creativity and results As a signatory to the United Nations Global Compact, 17 May 2019. Mr Nico Harris was appointed to act All of the divisional boards are chaired by the GCE; the oriented. Leading through which includes an anti-corruption clause, as well as in the position CFO, COO, Group Executive: Human Resources and excellence in innovation the World Economic Forum’s “Partnership Against • Mr Bheki Nxumalo was appointed as Group Executive: General Manager: Information Technology are members Innovation Corruption” initiative, Eskom is committed to the fight Generation, effective 1 July 2019 of all the divisional boards. against fraud, corruption, irregularities and other forms • Mr Phakamani Hadebe resigned as GCE, effective The group executives for Generation, Transmission of economic crime. We adopt a zero tolerance approach Caring about our employees and 31 July 2019. Mr André de Ruyter was appointed as and Distribution serve as divisional managing directors to these activities, irrespective of whether they are communities GCE, effective 6 January 2020 for their respective divisions. Membership includes committed inside or outside the organisation. A dedicated Sinobuntu senior management representation from finance, human toll-free whistle-blowing hotline enables all stakeholders • Mr Phillip Dukashe was appointed as acting Chief resources and operations of the respective divisions. to report unlawful or irregular conduct in good faith. Executive Officer of Eskom Rotek Industries SOC Ltd The divisional boards are comprised entirely of Eskom A commitment to meet and and Eskom Enterprises SOC Ltd, effective 1 August 2019 employees, which does not affect current job titles and strive to exceed the needs of Refer to the last page of this report for the contact details to report • Mr André Pillay, General Manager: Treasury, resigned gradings, nor remuneration and benefits. fraud, corruption and irregularities involving Eskom directors, employees Customer our customers or suppliers using an independent, confidential whistle-blowing hotline effective 31 August 2019. Mr Mandla Maleka was Satisfaction appointed to act in the position The divisional boards are ultimately responsible for implementing the strategy of the Eskom Board as it Progress on governance clean-up • Mr Jerome Mthembu, acting co-Group Executive: Legal relates to the division, and assisting group executives Acknowledged for exceptional and Compliance, resigned effective 31 December 2019 with the day-to-day operations of the division. In last year’s report, we provided background to the standards, performance and corporate governance challenges surrounding SOCs in • Mr Ishan Bhowani, acting General Manager: Assurance professionalism and Forensic, resigned effective 31 January 2020. The specific focus on operations is intended to Excellence South Africa, particularly Eskom. Mr Bob Sookrajh is acting in the position improve business performance and drive the In August 2019, the Standing Committee on Public achievement of the strategic objectives of each The responsibility for the implementation and Accounts (SCOPA) conducted an oversight visit to Medupi After year end, the recruitment process for a number division, and is the first major step towards management of ethics has been delegated to Exco, and Kusile Power Stations, followed by discussions with of senior executive positions was concluded. Ms Faith Eskom’s restructuring. assisted by a dedicated Ethics Office in setting the Eskom’s Board and executive management. Thereafter, Burn was appointed as General Manager: Information The divisional boards report to Exco on a regular basis framework, rules and standards for ethical behaviour, SCOPA presented 23 recommendations to Parliament to Technology and Mr Richard Vaughan as General to ensure that common issues that have an impact and monitoring the implementation of ethics policies. address its findings and concerns. These recommendations Manager: Treasury, both with effect from 15 May 2020. beyond the division are addressed by Exco, and that The Ethics Office facilitates ethics training and assists in ranged from dealing with concerns around the overdue Mr Vuyolwethu Tuku was appointed as Group Executive: decision-making and implementation are aligned to the identifying and resolving ethical issues in the workplace. new build programme to addressing governance challenges Transformation Management Office from 1 July 2020. overall Eskom strategy. The divisional boards can make Any potential breach of ethics which require further in Eskom. recommendations to Exco and the Eskom Board on investigation are referred to A&F. matters requiring their approval. 34 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 35 ETHICS AND PROGRESS ON GOVERNANCE CLEAN-UP continued Recommendations to improve governance include Of the 34 high-risk cases handed over to the Special We developed and implemented a Fraud Risk SANCTIONS instituting criminal charges against former employees Investigating Unit (SIU) for further investigation, Management Plan for 2020, with the objective of implicated in malfeasance of any sort; ensuring appropriate seven resulted in no adverse findings, 13 resulted in maximising fraud prevention and enhancing good consequence management; recovering financial losses recommendations for disciplinary action and six employees corporate governance practices. In accordance with this 141 disciplinary cases emanating from forensic and suffered by Eskom where those responsible for resigned during the process. The remaining cases are still plan, our fraud prevention, whistle-blowing and conflict wrongdoing have been identified; among others. under investigation by the SIU. of interest policies and procedures were revised to industrial relations investigations These recommendations are consistent with the The second phase aims to target employees at lower support our zero tolerance approach to fraud; ensure 133 8 compliance with changes to relevant legislation such as Board’s plan to root out corruption and inculcate occupational levels through lifestyle reviews, to ensure cases completed cases still in progress the PFMA, 1999; strengthen whistle-blowing processes; Governance, leadership and ethics a renewed culture of honesty, transparency, good that employees maintain the highest ethical standards and and extend the obligation of completing annual governance and ethical leadership. do not engage in illicit activities in the performance of declarations of interest to all employees. 60 their duties. employees resigned during disciplinary processes We are addressing these recommendations. Progress In order to enhance prevention of fraud and corruption Where the results of the preliminary lifestyle review is reported to SCOPA and the shareholder on a indicate potential red flags, a detailed independent across the organisation, we launched a fraud awareness 18 quarterly basis. e-learning programme. Exco is driving this programme dismissed due to fraud and corruption lifestyle audit will be conducted. as mandatory training through employees’ individual Our efforts to address governance challenges The results of these audits will determine the extent development plans. The aim is to improve understanding Investigations concluded during the year have indicated In order to restore Eskom’s reputation as a trusted to which further investigations or disciplinary action is of the importance of adhering to processes and controls, trends in failure to declare and manage conflicts of corporate citizen and improve our financial and required. Where sufficient evidence implicating current and to empower employees to identify possible unethical interest; failure to obtain permission to perform private operational sustainability, we have implemented various employees has been identified, we will continue to take behaviour or practices that increase the risk of fraud work; and payment for goods not delivered. General measures to address issues related to past corporate appropriate action. We also work with law enforcement and corruption. An anti-fraud and corruption awareness procurement irregularities include irregular issuing of governance breaches. We are progressing well with authorities to investigate concerns and any violations programme was delivered at supplier forums during the purchase orders, incorrect billing for resources and the implementation of actions to address governance of the law, even where implicated individuals have year, as suppliers are considered key stakeholders in the not following correct procurement processes. In many challenges by: subsequently left Eskom’s employment. fight against fraud and corruption. instances, the problem was not a failure in the design • Implementing independent lifestyle audits and reviews of conflicts of interest on senior management and The revised Fraud Risk Management Plan for 2021 of internal controls, but management or operational Commercial governance process and the DoA other levels, based on risk analysis framework has been approved; it places greater emphasis on the override of controls. • Enhancing our commercial governance process to ensure responsibility and accountability of line management Reporting and investigation of these and other matters For information on the enhancement of our commercial governance robust scrutiny, and strengthening the DoA framework process in response to prior years’ audit findings, refer to “Improvement to monitor and deal with unethical conduct. AFCIC will continue, with the appropriate disciplinary processes process to address irregular expenditure” on page 38 will monitor implementation of this plan, with progress being instituted. A&F recommends control enhancements • Strengthening our ethics and fraud frameworks and reported to Exco on a regular basis. enhancing our focus on consequence management in affected and related areas to prevent recurrence. As discussed earlier, we reviewed our DoA framework Investigations and disciplinary action involving Investigations into suppliers • Instituting disciplinary charges against employees and during the year to enhance accountability and ensure employees suppliers, and taking legal action, where appropriate that risks associated with governance and oversight of During the year, we re-established the Supplier • Investigating and terminating supplier contracts transactions are managed more effectively. Changes FORENSIC INVESTIGATIONS Review Committee, which is responsible for instituting implicated in irregularities, fraud and corruption were approved by the Board in July 2020. The DoA is disciplinary action against suppliers, including the being reviewed again to facilitate the divisionalisation of 118 suspension and termination of contracts where non- Developments across key elements of this plan are Generation, Transmission and Distribution. new cases reported through whistle-blowing compliance with Eskom’s procurement and supply chain discussed below. However, due to the sensitive nature channels management procedures has been identified. This is a key of these matters, not all information can be disclosed in Ethics, fraud and consequence management measure in dealing with supplier transgressions. this report. Our Fraud Risk Management Strategy was revised, establishing an Anti-fraud and Corruption Integration 202 At 30 September 2020, 57 recommendations of supplier Lifestyle audits and conflicts of interest Committee (AFCIC) to monitor progress on governance forensic investigations concluded sanctions were under consideration by the Supplier We have completed the first phase of mandatory lifestyle clean-up and related matters. The committee serves (in respect of current and prior years) Review Committee based on findings from forensic audits on executives and senior managers and their to integrate our approach to addressing these matters investigations. Sanctions have been instituted against nine partners, where applicable. through collaboration between our forensic, legal, ethics, 54 49 99 suppliers, while a further 19 suppliers have responded to industrial relations and supplier review functions. fraud corruption irregularities proposed sanctions and await legal review. The remaining PHASE ONE suppliers have either been notified of proposed sanctions AFCIC reviewed consequence management processes to 41% but have failed to make written representations in 383 lifestyle audits concluded address factors influencing the time taken to conclude of findings recommended sanctions, such as defence against the allegations, or are still under on executives and senior management disciplinary processes as well as the appropriateness and disciplinary action consideration. execution of sanctions. The committee found that, while 34 high-risk cases handed over adequate consequence management structures are in 256 External investigations are also continuing into major to the SIU for further investigation place, disciplinary sanctions continue to be resolved at cases of suspected fraud and corruption involving cases still under investigation at year end a slow pace. In response, ARC has proposed a number suppliers, as discussed below. PHASE TWO of recommendations to improve disciplinary processes going forward. Remaining employees were screened Notably, A&F no longer terminates investigations for potential risk factors where implicated employees have resigned, but through vendor systems, declarations of follows through on investigating such cases interest and private work applications where financially justified and recoveries or criminal prosecution seem likely. About 3 800 employees to be prioritised for in-depth lifestyle audits 36 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 37 ETHICS AND PROGRESS ON GOVERNANCE CLEAN-UP continued Major investigations PricewaterhouseCoopers (PwC) National Treasury recently issued Instructions No. 02 In conjunction with these initiatives, training on the The finalisation of investigations into former Board In April 2020, Eskom issued a letter of demand to PwC and 03 of 2019/2020, which require the establishment revised PFMA reporting procedures and guidelines was members and executives suspected of misconduct for the repayment of R95 million that was unlawfully paid of a loss control function, responsible for conducting rolled out, with the aim of eliminating any ambiguities combined with legal action to recover financial losses to PwC through a risk-based contract intended to realise assessments and investigations into all occurrences that may arise from different interpretations of our remain a key priority. We continue to provide all necessary savings on capital projects. Eskom is preparing court of irregular expenditure and fruitless and wasteful governance framework. information and support to the South African Revenue papers in this matter. expenditure. The establishment of Eskom’s centralised Service (SARS), the SIU, the South African Police Service Loss Control Department was approved in March 2020; Each functional area is ensuring that progress is made (SAPS), the Directorate for Priority Crime Investigation Impulse International (Pty) Ltd the process to fill key positions is under way. In addition on closing out internal condonations through divisional (Hawks), the National Directorate of Public Prosecutions, Impulse International instituted legal proceedings against to its investigative authority, this department will also tender committees and the Exco Tender Committee. Governance, leadership and ethics the Zondo Commission and National Treasury. Eskom for payment of damages due to termination of perform oversight of consequence management, including Additionally, we continue to engage with National its contracts. Eskom is of the view that these contracts disciplinary actions, condonations and recovery of losses. Treasury to prioritise the close-out of items requiring Nevertheless, criminal convictions and recovery of are in breach of the Constitution and the PFMA, 1999 their approval. Unfortunately, expenditure on affected financial losses are dependent on successful prosecution and, as such, are unlawful and invalid and should be set During the year, the Chief Procurement Officer contracts will only cease to be irregular once condoned by law enforcement agencies and the justice system. aside by the court. In response, Eskom has issued a implemented numerous initiatives under the supply chain or upon expiry of the contract. Regrettably, this remains a lengthy process resulting in counter claim to recover all payments previously made recovery programme to mitigate the occurrence of slow progress on various matters. irregular expenditure, including: National Treasury is yet to approve the majority to Impulse International under these contracts. Eskom • Enhancement of internal processes and controls to of the condonation requests submitted. Investigations into former Board members and is collaborating with the SIU, SARS and the Hawks, who executives are conducting investigations into Impulse International eliminate procurement processes being circumvented. Reportable irregularities raised by the external Two former senior employees, Mr Frans Hlakudi and and other companies linked to it, together with former In line with legislative and compliance requirements, auditors Mr Abram Masango, were arrested on corruption-related Eskom employees involved. checklists have been embedded into systems to In previous financial years, the external auditors raised charges in December 2019, with prosecution under way. ensure that the applicable controls and workflows are a number of reportable irregularities (RIs) in terms of Contractor overpayments complied with before conclusion of a transaction section 45 of the Auditing Profession Act, 2005. The In August 2020, Eskom and the SIU issued summons to Eskom and the SIU are investigating potential • Analysis of purchase orders as well as monitoring external auditors are required to first report any RI to recover approximately R3.8 billion from former Board overpayments to a number of contractors involved in the of procurement plans to determine trends the Independent Regulatory Board for Auditors (IRBA), members Mr Baldwin Ngubane, Ms Chwayita Mabude construction of Kusile Power Station; the amount is being indicating possible abuse of low-value procurement and only then report the matter to Eskom, affording and Mr Mark Pamensky, as well as former executives quantified. Upon conclusion of the investigation, we will mechanisms. Where anomalies are identified, management an opportunity to respond to and/or rectify Mr Brian Molefe, Mr Anoj Singh, Mr Matshela Koko and institute recovery processes where necessary. business areas are required to take the necessary the matter. Ms Suzanne Daniels, relating to a prepayment to Tegeta action to prevent recurrence Exploration and Resources (Pty) Ltd. Other defendants Response to issues raised by the independent These RIs were identified during the audits for the years include the former Minister of Mineral Resources, auditors • Implementation of a price check tool and e-auction ended 31 March 2017, 2018 and 2019, as well as during Improvement process to address irregular system to ensure that transactions are based on the independent reviews for the six months ended Mosebenzi Zwane, brothers Ajay, Atul and Rajesh (Tony) expenditure market-related prices and that potential service 30 September 2017 and 2018. Despite good progress on Gupta, as well as businessman Salim Essa. As reported previously, Eskom received a qualified audit providers are able to compete fairly closing out those matters within Eskom’s control, certain Other matters opinion for the previous three financial years, as the RIs cannot be closed out until external investigations and • Proactive reviews of newly established contracts, Optimum Coal Mine (Pty) Ltd external auditors could not rely on the completeness court cases are finalised. modifications and deviations. In instances where Eskom has submitted a claim of R5 billion against of information reported in terms of the PFMA, 1999. potential irregular expenditure is identified, an Optimum’s business rescue practitioners for pre- and The auditors have again qualified their opinion on Three new RIs were reported during the current year. investigation is conducted and the necessary post-business rescue penalties. This has subsequently the completeness of information relating to irregular Two of these relate to mainly administrative issues, condonation process implemented if required. been reduced to R1.28 billion after an arbitration ruling. expenditure in the 2020 annual financial statements. while the third relates to the tracking and disclosure of Sanctions are instituted against employees and suppliers irregular expenditure. Trillian Management Consulting (Pty) Ltd where wrongdoing is identified, and civil action and Disclosure of irregular expenditure in terms of the PFMA and the basis on which the audit opinion was qualified is set out in note 53 and the recovery measures are pursued where applicable During the 2019 financial year, Eskom instituted legal Details of RIs reported, as well as the action taken and status of the independent audit report in the consolidated annual financial statements respective matters, are discussed in note 54 in the consolidated annual proceedings against Trillian to recover R600 million financial statements paid to Trillian on the pretext of it being a supplier The focus for this year has been on implementing development and localisation partner to McKinsey. corrective actions under the supply chain recovery The North Gauteng High Court delivered judgment programme to address the earlier audit modifications in Eskom’s favour. Trillian applied for leave to appeal, by ensuring that adequate systems and processes are in which was refused, and was ordered to pay Eskom in place to monitor and report information required under October 2019; no payment has been received to date. the PFMA, 1999 and to proactively monitor compliance In January 2020, Eskom initiated liquidation proceedings with relevant legislation. Our PFMA reporting against Trillian; liquidators are working with SARS to procedures and guidelines were revised to enhance the conclude the matter. identification, management and reporting of information, Deloitte Consulting (Pty) Ltd taking into account new requirements from National In October 2019, Eskom instituted legal proceedings Treasury. The supply chain recovery programme was against Deloitte to recover R207 million arising from concluded in July 2019, and the emphasis has shifted to task orders that were awarded irregularly, in the absence maintenance and monitoring. of an open and competitive tender process. Eskom and Deloitte reached a settlement agreement in March 2020; Eskom received R150 million plus VAT in full and final settlement in May 2020. 38 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 39 OUR STRATEGIC CHIEF CONTEXT EXECUTIVE’S REVIEW We are entering a decisive stage in our growth and role as South Africa’s premier producer of electricity to industry, business and household consumers. Almost a century after being ANDRÉ DE RUYTER established, we are embarking on a process that will define Eskom’s strategic trajectory and Group Chief Executive position the company for a new role within the broader South African energy landscape Eskom is the lifeblood of the South African economy. Rebuilding and strengthening the public’s confidence and Our mandate is to provide a stable electricity supply in trust in Eskom is of paramount importance to our future a sustainable and efficient manner, to assist in lowering success. Our ability to sustain the organisation and create the cost of doing business in South Africa and to enable value for the country depends on strong and productive economic growth. relationships with stakeholders – from Government to the financial sector, business, labour and consumers. Our strategic context In recent years, Eskom has experienced major operational challenges which have affected vital national Our strategy and turnaround plan priorities such as economic growth, job creation and Over the past few years, Eskom has been focused on efforts to combat poverty. The current capital structure cleaning up governance issues, stopping the bleeding and and poor performance of the generation business re-energising the business in order to set a firm foundation present systemic risks to the South African economy. for growth. At the same time, the focus has been on In response, we have introduced far-reaching measures strengthening the financial position through demand to mitigate loadshedding, implemented a proactive stimulation, cost curtailment and efficiencies, as well as maintenance programme at existing power stations striving to achieve a cost-reflective price of electricity. This and appointed new executives in strategic positions. was supported by the equity support from Government, The Government equity support is crucial in assisting which commenced in the 2020 financial year. us to improve our debt position. Restoring trust Our turnaround strategy is discussed in more detail in “Strategy overview” from page 50 Eskom faces a crisis of trust: South Africans feel they can no longer rely on Eskom to provide electricity reliably; Our turnaround strategy continues the focus on five our shareholder, despite making additional funds available key areas, namely operational recovery, improving to allow us to service our debt, is not convinced that our income statement, addressing our balance sheet, we will spend the money wisely; and our lenders are accelerating the restructuring of Eskom into three reluctant to advance more money without charging ever divisions, and building a high-performance organisation higher interest rates. Added to this, a small number of through addressing our corporate culture by energising bad actors in Eskom have damaged the trust between our Eskom colleagues. employees, thereby undermining the hard work and good intentions of the vast majority of Eskom employees. These are largely aligned to the objectives we pursued during the prior year, namely optimising our balance Overcoming this crisis of trust will require the effort of sheet through Government equity support in the absence every Eskom employee to restore this most fundamental of adequate tariffs; improving our revenue outlook aspect of the social contract between Eskom and South through migrating towards cost-reflective tariff increases Africa. We will have to redouble our efforts to restore and growing sales volumes; curtailing costs; executing Eskom’s integrity, both internally and externally. We need the Generation recovery plan; and working towards the Chief Executive’s review 41 clarity on what we as an organisation stand for. To that restructuring of Eskom, through divisionalisation as a end, it is important to resuscitate Eskom’s values, which first step. Our operating context 45 have been around for several years, even though they Our strategy and turnaround plan 50 appear to have faded from the corporate consciousness Progress on Government equity support, improving our revenue in recent years. Our values form the foundation on which outlook and curtailing costs is discussed in “Our finances – Managing Stakeholder engagement 53 liquidity” from page 76, while progress on the Generation recovery plan we can rebuild trust, both amongst ourselves and with is discussed under “Our infrastructure – Generation recovery plan” Material matters 55 our stakeholders. from page 89 Risks and opportunities 56 40 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 41 CHIEF EXECUTIVE’S REVIEW continued Our environmental performance continues to be deeply We deeply regret the loss of every life in Eskom’s service. disappointing, with both emissions and water usage Our heartfelt condolences go to the affected family, performance far exceeding targets. We are redoubling friends and colleagues. our efforts to improve our compliance with legislated standards, and are cooperating with DEFF to achieve this. We are deeply concerned about an increase in incidents Operations Improve income Improve Business People and where our employees or contractors are intimidated, recovery statement balance sheet separation culture injured or even held hostage while attending to network The performance of our generating plant and network, progress on the new build programme, environmental performance and our faults or removing illegal connections. We condemn, in Improve Achieve revenue Strengthen the Divisionalise and Ensure that societal impact are covered in detail in the Chief Operating Officer’s the strongest possible terms, violent behaviour against reliability, reduce certainty, cost balance sheet ultimately form the business is commentary from page 85 our people while they provide an essential service to loadshedding, optimisation and through liquidity three legal wholly sufficiently enabled customers and the larger public. refurbish networks efficiency initiatives owned subsidiaries and supported to People and safety and address of Eskom transform The group headcount continued its decline to 44 772 at Eskom has not been immune to the effects of the design defects year end (2019: 46 665), mainly through natural attrition. COVID-19 pandemic, despite instituting appropriate As part of the turnaround plan, Exco approved the measures to protect critical staff, as well as minimising implementation of voluntary cash separation packages to the number of employees on site wherever possible. a maximum value of R400 million. Out of 367 applications At 28 October 2020, we had recorded 2 096 positive We have appointed a Group Executive: Transformation High-level performance review received, 235 were approved, with 185 applicants COVID-19 cases, comprising 1 761 employees and 335 Management Office to ensure that the restructuring Financial overview accepting their offers at a total cost of R286 million; the contractors, with 2 057 recoveries. Sadly, 27 employees process receives the necessary attention. Furthermore, Despite Eskom applying for prudent and efficient majority of applicants left Eskom’s service at the end of and three contractors have succumbed to the disease. divisional boards have been appointed to hold each revenues, the price increases and RCA decisions by March 2020, while 21 left in April and one in June. All affected employees and their families receive our entity accountable on strategy implementation, business NERSA have not enabled the migration towards cost- best medical care and psychosocial support. performance and functional compliance. We have ring- Although we did not meet the racial or gender equity Our strategic context reflective tariffs as envisaged in the Electricity Pricing fenced all three divisions’ financials and are reporting Policy. We simply cannot save enough from our operating targets at middle management/professionally qualified Looking ahead divisional financial statements. This includes a provisional level nor the racial equity target at senior management Our top priority is to address Eskom’s financial and costs to close the gap. Therefore, even with Government allocation of the debt and associated interest cost level, all these indicators improved against the prior operational challenges and return to a growth trajectory. support, Eskom’s liquidity remains constrained due to attributable to each division, although further work year. Gratifyingly, we exceeded the gender equity target Failure to turn the organisation around is not an option. poor long-term financial sustainability. Obtaining clarity is required to finalise the balance sheets of the three at senior management level. Nevertheless, gender and Nonetheless, this will require extraordinary efforts from regarding the tariff dispensation applicable to Eskom divisions. As we apportion debt to the divisions, we disability equity at executive level are lagging far behind every Eskom employee, and continued support from has involved approaching the courts, which we would will engage with lenders to ensure that any concerns other occupational levels. Moreover, although we did not Government and all South Africans. have liked to avoid. Unfortunately, in the absence of an regarding their rights in terms of loan and bond meet the target for overall representation of people with appropriate dispute resolution mechanism, this has been covenants are adequately addressed. disabilities for the year, some progress has been made in We intend to remain a critical player in the electricity our only option. identifying employees who can be added to and prepared sector and make a vital contribution to economic growth, Our master plan for separation indicates that the for our leadership pipeline. job creation, socio-economic development and the implementation timelines envisaged in DPE’s Roadmap Our financial performance, funding and liquidity are covered in detail in the Chief Financial Officer’s report from page 60 creation of a stable, equitable and cohesive South Africa. can be met for Transmission, although the legal separation Sadly, we suffered nine contractor fatalities during the of Generation and Distribution will take somewhat year (2019: three employees and four contractors). Although our ageing generation fleet is susceptible to Operational performance longer. This delay is due to legal and regulatory changes Nevertheless, it is heartening that we recorded no unpredictable breakdowns due to legacy issues of neglect For many years, we have been deferring maintenance which are beyond Eskom’s control. We have also decided employee fatalities for the first time in at least 15 years. and omitted maintenance, apathetic behaviour by some and mid-life plant refurbishment of our power stations to accelerate the legal separation of Transmission, to The group lost-time injury rate (including occupational management staff has exacerbated the situation. For this due to the constrained system. This has been a create the required certainty for prospective investors in diseases) has improved slightly to 0.30 (2019: 0.31). We reason, I have recently suspended some power station major contributor to decisions on loadshedding; fleet generation capacity that their bids will be fairly adjudicated remain committed to limiting the number of serious managers, pending disciplinary inquiries. The COO and I performance will continue to deteriorate unless this relative to Eskom generation. incidents resulting in injuries and/or fatalities, including have had engagements with other power station managers is addressed. As a result, prescribed maintenance public incidents due to illegal connections and tampering. to ensure that the previous culture of weak consequence The end state of the process is to ensure that all three will no longer be deferred since we can no longer management will no longer be tolerated at Eskom. divisions will be able to operate as standalone, financially guarantee that available capacity will adequately viable businesses, and to further mitigate the risks to meet demand. To this end, the Board has approved debt and lender security and the asset base. In view of a focused and well-resourced reliability maintenance this, we are comfortable with our progress towards programme for Generation. It is anticipated that this achieving the milestones envisaged in DPE’s Roadmap. programme will start delivering benefits from April 2021, with a meaningful reduction in loadshedding from Eskom’s performance and operational excellence September 2021 onwards. However, loadshedding may depend on a well-trained, motivated and competent not be eliminated entirely at that point. % % Events/hours Minutes kg/MWh sent out ℓ/kWh sent out workforce. A People Plan was developed to respond to 100 25 40 4 0.5 1.50 developments at Eskom and to support the turnaround The performance of our generation fleet continues to be strategy. The primary focus areas are to drive a culture of disappointing, with plant availability decreasing further, and 80 20 30 3 0.4 1.45 performance and accountability; build critical capabilities unplanned maintenance in the form of breakdowns and 1.40 60 15 0.3 across the organisation; increase employee morale and partial load losses skyrocketing to levels not seen before. 20 2 1.35 productivity; and manage employee benefit costs. We sincerely regret the damage the resultant loadshedding 40 10 0.2 causes to our customers and the greater economy. 10 1 1.30 20 5 0.1 1.25 Although our distribution network continues to perform 0 0 0 0 satisfactorily, the performance of our transmission 2016 2017 2018 2019 2020 2020 2016 2017 2018 2019 2020 2020 0.0 2016 2017 2018 2019 2020 2020 1.20 Target Target Target network has been variable over the past few years. EAF PCLF UCLF SAIFI SAIDI System minutes lost for events <1 minute Relative particulate emissions Water consumption 42 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 43 CHIEF EXECUTIVE’S REVIEW continued OUR OPERATING CONTEXT The majority of cost-plus mines require significant We remain committed to the construction of the Medupi Our operating context includes many factors that could • The Roadmap for Eskom in a Reformed Electricity Supply investment or recapitalisation to increase production flue gas desulphurisation (FGD) retrofit project, in affect our ability to achieve our strategic goals. Among Industry, released by DPE in October 2019 (DPE’s and/or maintain existing production. Nevertheless, line with the World Bank’s loan agreement. DEFF also others, we are affected by some critical documents Roadmap). This defining document positions the we will only consider recapitalisation for those mines emphasised that Eskom’s power plants must comply and strategies which set out the shareholder’s broad company within the broader energy context and where long-term benefits can be demonstrated though with regulations and applicable law, which remains a approach, policies and expectations, including: identifies bold actions for the transformation of Eskom increased volumes of acceptable quality coal, thereby key priority. • The National Development Plan 2030, which limiting the amount of coal required on expensive short- In addition to these regulatory and policy matters, envisions an energy sector that is reliable, efficient and medium-term contracts. Given our aim of resurrecting a high-performance culture various other themes affect our operating context. These and competitive, expands access for consumers of at Eskom, it is critical that we address the low employee are depicted below, some of which will be discussed in electricity and will be environmentally sustainable As older power stations such as Hendrina, Grootvlei morale due to Eskom’s poor reputation, lack of incentive more detail. These aspects have been grouped into those and Komati approach their economic end of life, we are bonuses combined with no or restricted salary increases • The legislative framework provided by the National affecting the economic environment and utility-specific investigating the impact on surrounding communities when at managerial level over recent years, and continued Energy Act, 2008 and supporting legislation factors; those factors presenting opportunities have been the time comes for retiring or repurposing existing coal- uncertainty around the impact of divisionalisation and • The Integrated Energy Plan and Integrated Resource highlighted. Nevertheless, the COVID-19 pandemic is fired units or stations; this will inform plans for shutting restructuring. We want to drive pride, passion, a sense Plan 2019 (IRP 2019), which provide a broad considered the most dominant factor affecting the global down these power stations. The use of operational units at of belonging and connectedness to the business, while framework for the growth and future direction of the and local economy, as well as our business, now and into these stations is being reviewed for extended use beyond developing agility and resilience to cope with ongoing energy sector the foreseeable future. 2025 or until sufficient new capacity comes online. ambiguity, instability and change. Furthermore, we need to maintain a productive relationship with organised labour. We are considering a repurposing programme to investigate projects that may provide alternative The points above cover some of the factors, which will influence our COVID-19 PANDEMIC employment, and potentially create opportunities and strategic trajectory, set out in “Our operating context” from page 45 jobs to support economic activity using the available Our strategic context power station land and infrastructure. Conceptual Conclusion ECONOMIC ENVIRONMENT UTILITY-SPECIFIC mitigation plans are being investigated, such as Economic recession and impact on debt Move to renewable energy ✱ I look forward to working with our executive team, repowering with renewables or gas, repurposing or Commodity prices Regulatory shifts and municipal generation ✱ including the senior executives recently appointed in extension of existing services. To this end, we are Economic structural reform Delay in new build by utilities our ongoing journey to stabilise and strengthen our implementing our Just Energy Transition Strategy, Regional integration and access to local markets Shift from coal to gas leadership team. I have every confidence that working specifically regarding the repurposing of power stations, Role and sustainability of SOCs ✱ Increased competition with a strong, focused leadership team we will be able to Localisation efforts ✱ Cyber-based trading ✱ and pursuing the Just Energy Transition Transaction. transform and drive Eskom’s turnaround. We are pleased to note that NERSA has concurred with As more South Africans get back to work after ✱ Opportunities the ministerial determination under the IRP 2019 for the initial stages of lockdown, the role of Eskom the procurement of 11 813MW of electricity generation in supporting the economy to grow and thrive is infrastructure. Given existing supply constraints, the undeniable. We have an opportunity to serve our These, and other factors, have since been additional generation capacity is urgently required, and will It must be noted that our strategy, as set out in this country and resuscitate our damaged economy by considered and taken into account to determine be an important contribution towards ending loadshedding integrated report, was developed prior to the outbreak ensuring the security of electricity supply. the impacts of the above and other variables. and ensuring energy security for the country. However, of the COVID-19 pandemic. As such, it did not include given the retirement profile of our end-of-life power the impact of the following, among other changes: Accordingly, we have updated elements of our Despite many of us being discouraged and saddened by stations over the next decade, further capacity should be Corporate Plan and outlook for the 2021 financial what has transpired at Eskom in the recent past, we have • The impact of COVID-19 on demand for electricity procured without delay. an opportunity to seize the challenge and restore the trust year to take account of the impact of the • The potential for a global and local recession, and COVID-19 pandemic and the national lockdown, that we need to rebuild this great organisation. Each one associated impacts on demand, cost of funding and Under existing bid windows, 8 500MW of renewable and embedded changes for the planning horizon of us must be ready and energised for the journey ahead. lender sentiment energy is expected to come online before 2025, of which to the 2023 financial year, where necessary. 4 201MW is in operation. In response to the energy Eskom has been a proud pillar of South Africa’s economy • The impact of the reduction in the value of the supply challenges, DMRE launched the Risk Mitigation throughout its history. We are the guardians of this Rand against foreign currencies towards the end Macroeconomic climate Independent Power Producer Procurement Programme legacy, and it is up to us to ensure that we do not of March 2020, and the expected impact that this In January 2020, emerging markets were already (RMIPPPP) for the emergency procurement of an fail ourselves or the country. After all, as Ben Okri will have on inflation, interest rates and other showing weaker economic growth than the International additional 2 000MW from IPPs by 2022. While this is a says, “Our future is greater than our past”. We have macroeconomic variables Monetary Fund (IMF) had anticipated in its World step in the right direction, we would like to stress the to turn these words into reality. The price of failure • The impact of the sudden and dramatic drop in the Economic Outlook issued late in 2019. South Africa in immediate need to urgently accelerate the procurement will be unbearably high not only for Eskom, but more price of oil during March 2020, and the potential particular was affected by structural constraints and of at least 3 000MW of further generation capacity importantly, for our country. I rely on your continued associated impacts on other commodities, including deteriorating public finances, which were negatively to help ease the country’s supply constraints, which hard work and support to make sure that we succeed, those produced by some of our major Eskom affecting business confidence and private investment. is critical to powering the rebuilding of an economy and that we can all take pride in being members of the customers, as well as the price of internationally The IMF forecast gross domestic product (GDP) growth devastated by the COVID-19 pandemic. Eskom team. traded steam coal of 0.8% for 2020 and 1% for 2021. Implementing the emissions reduction plan and installing The National Budget Speech in February 2020 set out more efficient emission control technology will reduce our a weak economic outlook. National Treasury expected environmental impact. Shutting down older stations and real GDP growth of 0.9% in 2020, 1.3% in 2021 and 1.6% increasing the use of the newer, lower emitting stations – in 2022. However, higher economic growth was expected Medupi and Kusile – and renewable IPPs will also result in a to require far-reaching structural reforms. substantial decrease in Eskom’s and South Africa’s emissions over time. It is projected that our relative particulate André de Ruyter matter emissions will reduce by 51% by 2030, SO2 by 22% Group Chief Executive and NOx by 27%, compared to a 2020 baseline. 44 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 45 OUR OPERATING CONTEXT continued COVID-19 has occurred in the midst of a global business rescue or closing down, resulting in greater job • The participation of IPPs will result in an external The 513MW to be generated from energy storage economic slowdown and recessionary environment, losses. South Africa’s already unacceptable unemployment competitive environment. In the longer term, the sources, which were assumed to be in relation to pushing the economy into unprecedented territory rate is expected to grow, with some analysts predicting a dynamic operation of customer choice will allow for Eskom’s battery storage project, has been allocated to that will require extraordinary resilience and action to loss of around one million formal jobs. improved competition with improved efficiencies in IPPs. While the plan has identified a shortfall of between emerge bruised but not ruined. The IMF revised global the market 2 000MW and 3 000MW in short-term capacity, our own growth downwards by 6.3% from its January 2020 Although the Rand has recovered some of the ground assessment is that the gap could be as high as 4 000MW. lost in March 2020, the IMF still expects South Africa to • The Distribution entity must be restructured to estimates, with the implication that lockdowns separate the “wires business” from the “retail The DMRE has launched the Risk Mitigation Independent implemented in most countries to deal with the record negative GDP growth of 8% for 2020, as noted in Power Producer Procurement Programme (RMIPPPP) for its June 2020 World Economic Outlook. This considers function”. A future distribution network may need pandemic would lead to the worst recession since the to incorporate struggling municipal infrastructure to the emergency procurement of an additional 2 000MW Great Depression during the 1930s, even surpassing the additional government spending and forgone revenue of from IPPs by 2022. However, the capacity to close the about 5% of GDP. Nevertheless, the forecast for 2021 ensure sustainable supply to direct customers 2008 global financial crisis. gap may take another few years to accomplish, leading has improved to 3.5%, coming off the lower base. Integrated Resource Plan to a shortfall in the initial and most critical phase of the Moody’s downgrade of the Sovereign rating to sub- The IRP 2019 was issued by DMRE in October 2019, planning period. investment grade at the end of March 2020 is likely to The implementation of national lockdowns around the world – to flatten the curve of COVID-19 infections thereby providing more certainty around our future role have a material impact on Eskom’s financial sustainability, in the electricity supply industry up to 2030. Furthermore, we remain concerned about the specifically when international investors such as pension and lessen the mortality rate – has stalled the global apparent delays in the implementation of the funds – whose mandates limit them to investment-grade economy. The pandemic has highlighted international The IRP 2019 sets out nine supply and demand side policy risks around healthcare systems, the movement of plan. To ensure the timeous implementation of bonds – will have to start divesting out of South African decisions intended to ensure the security of South Africa’s the IRP 2019 and clarify the extent of Eskom’s issued bonds. This will trigger an anticipated outflow of people and goods and the overdependence on single electricity supply and support a diverse energy mix: source supply chains, all of which have both social and participation in the development of new capacity, up to USD8 billion, placing pressure both on the local 1. Execute the power purchase programme to acquire ministerial determinations must be gazetted currency and our ability to raise capital. This downgrade financial impacts. Also emerging are protectionist policies and, in some instances, xenophobia and human rights capacity to supplement Eskom’s declining plant urgently in concurrence with NERSA. means that the country now has a sub-investment performance and reduce diesel usage Our strategic context grade rating from all three major credit rating agencies, violations. This pandemic is forging the world into a “new NERSA has concurred with the ministerial determination normal” which is laden with both risks and opportunities. 2. Undertake technical and regulatory work for the further hampering the response to the pandemic and the for the procurement of 11 813MW of electricity 20-year extension of the life of Koeberg Nuclear prevailing socio-economic conditions. The long-term effects of the COVID-19 pandemic generation infrastructure issued by the Minister of Power Station beyond 2024 and the ratings downgrade is likely to have dire Mineral Resources and Energy in February 2020. More recently, StatsSA indicated that “the second 3. Support Eskom’s compliance with the MES over time consequences for the South African economy, This forms part of the power infrastructure to be quarter of 2020 will become known as the pandemic 4. Consolidate the various Just Energy Transition procured under the IRP 2019 during the period to 2030. quarter”. Under the national lockdown restrictions with some economists predicting a decline in economic growth of up to 6% in the current initiatives to ensure coherent policy development for a imposed in response to the COVID-19 pandemic, GDP Proposed regulatory changes Just Energy Transition plan contracted by 16% during April, May and June 2020 fiscal year. Any decrease in economic activity The Electricity Regulation Amendment Bill provides for compared to the first quarter of the prior year. This will have a significant negative impact on 5. Retain the current annual build limits on renewables the licensing of electricity resellers and addresses different translates to an annualised negative GDP growth of 51%. Eskom’s financial and operational sustainability. until the Just Energy Transition plan is finalised categories of electricity trading. A section will be inserted In comparison, the country recorded annualised negative 6. South Africa should not sterilise the development into the Electricity Regulation Act, 2006 outlining the growth of just over 6% in the first quarter of 2009, at the South Africa’s electricity supply industry of of its coal resources for power generation. Instead, procurement framework for IPPs. In developing the Bill, height of the global financial crisis. Based on historical the future all new coal power projects must be based on high DMRE is in constant consultation with DPE to ensure data from the South African Reserve Bank, the second Roadmap for Eskom efficiency, low emission technologies and other alignment with the restructuring of Eskom. quarter of 2020 experienced the biggest decline in GDP DPE’s Roadmap provides a range of longer term cleaner coal technologies since 1960. The National Energy Regulator Amendment Bill seeks to solutions which will inform the separation of Eskom into 7. Support the development of gas infrastructure and, in amend the National Energy Regulator Act, 2004 to clarify Nearly all sectors experienced a massive reduction in Generation, Transmission and Distribution entities. addition to new gas capacity, convert existing diesel- NERSA’s new governance structure, while maintaining its output in the second quarter of 2020, with the fired power stations to gas integrity and independence. The solutions envisaged include: construction sector being the biggest loser. 8. Commence preparation for a nuclear build programme • A revision of the current situation in which Eskom Licensing electricity resellers and associated categories Manufacturing output dwindled by almost 75%. up to 2 500MW as a no-regret option in the long acts as a single buyer. Recent announcements by the of electricity trading affects the future of Transmission Particularly, factories specialising in metals and machinery term, at a pace and scale that South Africa can afford shareholder point to a new approach in the electricity and Distribution, both from a competitive perspective were severely affected due to the lower demand for market which will allow customers to build their 9. South Africa will participate in strategic power and also a market rules view. We have made submissions steel. The ban on alcohol sales had a significant impact own generation plants and municipalities to purchase projects that enable the development of cross-border to DPE regarding our preferred position on the on the food and beverage side of manufacturing. electricity directly from IPPs. This will effectively open infrastructure needed for regional energy trading transmission and distribution sectors although detailed Wholesalers and motor vehicle traders also experienced the market for future competition. However, this will discussions around rules, tariffs and ensuring affordable significant declines. Even relatively resilient sectors, such While the release of the IRP 2019 is certainly require tariffs to be split between capacity (network) supply are required. as finance and personal services, were severely affected, a positive step, a number of issues have been and energy components to ensure that appropriate declining by close to 29%. Agriculture is the only industry identified that may have a material impact on Moving towards cost-reflective electricity tariffs prices are charged for the wheeling of energy across that appears to have been relatively unaffected. the delivery of the plan. The average electricity price that we charge our Eskom networks The World Bank expects South Africa’s economy to customers is lower than the efficient cost to produce • The wholesaler will continue to perform the function Notably, there has been a significant delay since the contract by up to 8%. With the national lockdown in that electricity. While recent tariff increases awarded by of a central purchasing agency that takes ownership of promulgation of the previous IRP 2010, in March 2011, effect, South Africa stands to lose a large share of its NERSA have narrowed the gap slightly, prices are still far electricity purchased from Eskom power stations and potentially resulting in outdated assumptions. annual GDP, with losses estimated at R300 billion or more from adequate, resulting in a significant revenue shortfall. independent producers, and sells a bundled product to Additionally, the impact of the MES on Eskom’s coal fleet during the extended lockdown. Government spending Eskom Distribution and other wholesale customers was not considered in the modelling – a concern, given to limit the negative impact of COVID-19 and to provide Refer to “Our finances – Eskom’s tariff path compared to the IRP price • The introduction of Eskom Dynamic Energy Markets the impact that the implementation of the MES may paths” on page 79 for more information much-needed relief and stimulus funds will put the have on the cost and availability of generating capacity. was approved and will include a day-ahead market and already constrained fiscus under severe pressure. This is Based on prior experience, the timelines outlined in the a balancing mechanism exacerbated by businesses curtailing operations, entering plan are also considered optimistic. 46 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 47 OUR OPERATING CONTEXT continued Independent analysis, which compared the average The challenges caused by implicit energy price subsidies A study on electricity demand in South Africa from 1986 of customers due to grid defection or other factors. It is electricity tariffs of 100 countries using data from are well documented in international literature, finding to 2005 found that income was the dominant driver of not possible to infer from a simple analysis of high-level Bloomberg’s Climatescope 2019 report, found that that they: demand over the period, and that electricity income trends to what extent the decline in demand is due to South Africa’s electricity price ranks affordably across • Crowd out pro-poor spending, such as education and elasticity was close to 1 (that is entirely income-elastic) any or all of these factors. One plausible explanation for residential, commercial, and industrial segments. South healthcare for most of the period beyond 1990. From the mid-1980s the reason why electricity demand in South Africa has Africa’s average residential price of 133.67c/kWh at the to 2007, there was a steady decline in real electricity been only mildly responsive to price is that the initial • Discourage private investment in the energy sector time ranked 47th cheapest out of 100 countries, while prices and, over this period, price had increasingly less tariff was artificially low. the average commercial price of 122.96c/kWh and • Encourage wasteful energy consumption influence on consumption. A more recent study suggests average industrial price of 76.32c/kWh ranked 29 th and that electricity demand in South Africa is still relatively In an attempt to address the revenue shortfall resulting • Result in a variety of harmful economic and market 20 th respectively. It should be noted that the analysis price-inelastic; for the five-year period after 2007, where from the implicit price subsidy, we have historically distortions considered the average price to the end consumer in South Africa experienced the most significant real resorted to external debt funding as well as equity • Tend to disproportionately benefit energy- and support from the shareholder, ultimately funded by South Africa, which is higher than Eskom’s tariffs due to electricity price increases, estimates of electricity price capital-intensive firms and higher-income households the taxpayer. We have also made an effort to pursue the markup added by municipalities and metros. elasticity ranged from roughly negative 0.2 to negative due to the higher volumes consumed operational efficiencies to narrow the revenue shortfall. 0.5 (or price-inelastic). However, given the sheer size of the gap, efficiencies There are several more appropriate and economically Throughout the 1980s and 1990s, Eskom was implicitly From 2007 to 2019, real electricity prices have increased alone will never be sufficient – the electricity price has to efficient ways to shield the poor and other vulnerable subsidised by Government as it was exempt from paying by a cumulative 143%, with most of the increase rise to a level where efficient costs can be recovered and groups from the impact of rising electricity prices than an dividends and tax on profit; additionally, Eskom did occurring between 2009 and 2012, through annual a reasonable margin of return can be earned. implicit subsidy, including: not have to bear the full economic opportunity cost increases of between 14.8% and 20.7%. There has been • Improving the implementation and extent of targeted no increase in the real electricity price since 2016, until One way to address the shortfall in a given year is through of debt financing, including risk and uncertainty, for electricity price subsidies the most recent increase awarded for 2020. the RCA mechanism, a retrospective application which its investments. Due to surplus generation capacity, • Facilitating a gradual transition to cost-reflective considers the efficient cost of producing electricity after Government allowed real electricity prices to decline Our strategic context prices and making implicit subsidies more explicit In contrast, our total local sales volumes have decreased the actual costs have been incurred. It considers changes throughout the 1990s. By the end of the decade, prices by only 4.2% between 2007 and 2019. The impact of the in the operating environment during the year, such as the were well below full-economic and cost-reflective levels. • Introducing policy and regulation to promote the sharp increase in real prices on electricity demand would exchange rate, the energy availability factor, sales volumes Low electricity prices attracted further investment uptake of energy-efficient technologies have been partly offset by the increase in economic or other factors not being realised as originally determined by energy-intensive industries, which were often able • Promoting competition and reform in the electricity activity, but growth in GDP was subdued over this period, by NERSA. However, this respite is temporary, as RCA to secure pricing contracts at well below the already supply industry over the medium to long term rising by a cumulative 24% or average annual rate of 2.1%. liquidation values are once-off adjustments, which fall underpriced average tariff. away after the year in which they are recouped, thereby The existing free basic electricity grant is a targeted This analysis proves that, despite the sharp By 2006, Eskom’s heavily subsidised industrial and reverting to the “suppressed” tariff. subsidy that meets most of the requirements of a “good increases in real prices over the last decade, household electricity tariffs were among the lowest subsidy”, although it could be improved and/or extended electricity demand in South Africa has remained Regrettably, NERSA’s recent revenue and RCA in the world. In 2006, tariffs for industrial consumers to offer increased protection to poor and vulnerable relatively unresponsive to price, which lends determinations have not been consistent with in South Africa were about one-fifth of the equivalent households. Well-designed, targeted and time-limited the MYPD methodology. We are pursuing Organisation for Economic Co-operation and support to the findings that electricity demand subsidies could also be used to protect vulnerable, trade- review applications through the High Court to Development (OECD) Europe average, and the lowest in South Africa is price-inelastic. exposed and electricity-intensive industries. of all countries included in an International Energy challenge these decisions, on the path to cost- Despite the decrease in sales by an average of 1% per reflective tariffs. Agency (IEA) comparison. Similarly, tariffs for household Converting an implicit subsidy into an explicit subsidy year since 2014, the decline in demand could be due consumers in South Africa were about one-third of the would increase transparency and help to facilitate a more to a number of factors. These include efficiency gains, OECD Europe average, and were the second lowest of all gradual transition to cost-reflective tariffs. NERSA, in A summary of the various review applications are discussed in “Our finances a reduction in economic activity, reduced electricity – Price applications to support revenue requirements” from page 77 countries included in the IEA analysis. collaboration with other stakeholders such as DMRE, intensity due to structural changes, or a permanent loss could further introduce initiatives to promote the uptake A more recent comparison of energy prices by the of energy-efficient technologies. IEA showed that in 2017, South Africa’s residential electricity tariffs of around USD10c/kWh were still Refer to “Our finances – Tariff structures of the future” on page 69 for relatively low by global standards, although no longer more information the lowest in the sample. Our view is that arbitrarily limiting increases Another comparison of average electricity prices across in Eskom’s average tariff through an implicit 44 emerging and developing countries, published by the subsidy is not an effective way to protect International Energy Consultants in 2016, found that South consumers or the economy from the negative Africa’s average electricity price was the lowest in the impact of rising electricity prices. Furthermore, sample. The study further estimated that South Africa’s analysis has shown that an increase in electricity tariffs were subsidised, or underpriced, by nearly 50%. prices in South Africa does not correlate to a corresponding decrease in demand for electricity. Migrating away from implicit tariff subsidies Economic analysis indicates that, while it is both The impact of the electricity price on demand necessary and socially desirable to mitigate the impact Several factors influence electricity demand including of energy prices on vulnerable groups, there are more price, economic output (measured by GDP), population efficient and effective ways to achieve this than through growth, weather patterns and technological change. implicit subsidies in the average tariff. International literature hypothesises that growth in economic activity (income) is usually the dominant driver of electricity demand – that is, demand is generally more responsive to income than to price. 48 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 49 OUR STRATEGY AND TURNAROUND PLAN Strategic context • Ensure greater transparency in the governance of Eskom is the lifeblood of the South African economy. Eskom and its subsidiaries As pointed out earlier, our mandate is to provide a stable • Transition from our dependence on fossil fuels STRATEGY TO A NEW ESKOM electricity supply in a sustainable and efficient manner, towards a mix of generation sources to assist in lowering the cost of doing business in South • Embrace new trends in the global energy sector and Africa and to enable economic growth. introduce technologies that will contribute towards higher levels of efficiency, reduced costs to consumers VISION However, in recent years we have experienced major Drive economic growth by being a financially stable provider financial, operational and structural challenges which and a cleaner environment of energy solutions across Africa have had an impact on vital national priorities such as • Accelerate a “just transition” towards a low-carbon economic growth, job creation and efforts to combat emission economy which strikes a balance between poverty. Our current capital structure and the poor South Africa’s rich endowment of natural resources, performance of the generation business present systemic the protection of jobs and the adoption of cleaner processes risks to the South African economy. In response, we have introduced far-reaching measures to mitigate 1 2 3 • Protect jobs, retrain and reskill workers and loadshedding, implemented a proactive maintenance create new opportunities in the energy sector and programme at existing power stations and appointed new downstream value chains Stabilise Optimise Grow executives in strategic positions. • Extend and strengthen relationships with customers, Our top priority is to address these operational suppliers, financial institutions and communities who issues and return to a growth trajectory. Failure live close to our power stations TURNAROUND PLAN to turn the organisation around is not an option. • Communicate more effectively with all stakeholders Our strategic context Nonetheless, this will require extraordinary and foster productive partnerships with all spheres of efforts from every Eskom employee, continued Government, partners, the business sectors, labour, backing from Government and the support of all communities and consumers South Africans. Strategy overview Operations Improve Improve Business People and Our strategy remains aligned to the key areas set out in Over the past few years, we have focused on cleaning recovery income statement balance sheet separation culture DPE’s Strategic Intent Statement (SIS), namely: up governance issues, stopping the bleeding and • Provide reliable, predictable and affordable electricity re-energising the business in order to set a firm • Ensure and maintain a financially viable and sustainable foundation for growth. At the same time, we have been concentrating on strengthening our financial position Values-driven approach company through demand stimulation, cost curtailment and • Reduce our impact on the environment through the efficiencies, as well as striving to achieve a cost-reflective Advocacy and stakeholder engagement application of low-carbon technologies price of electricity. This was supported by the equity • Align our socio-economic contribution to national support from Government, which commenced in the transformation imperatives 2020 financial year. Co-creating an industry and market structure • Continue to strengthen and enhance our governance The overall organisational strategy is enhanced by a and reporting processes revised set of assumptions, factoring in the current • Ensure that our company is responsive to the demands operating environment as well as addressing difficulties in of a dynamic energy landscape and pricing structure executing the previous Corporate Plan. Our strategy also factors in recommendations of the Presidential Task The strategic objectives in the SIS are broadly aligned to Team and the Ministerial Review Task Team, specifically integrated reporting’s six capitals. towards achieving operational stability. All three pillars will be actioned in tandem to ensure The successful execution of our turnaround As part of our strategic trajectory, we need to: short-term opportunities are leveraged and risks are strategy, and the divisionalisation project in The turnaround strategy outlines a phased approach, • Reshape Eskom’s business and operating models and which will lead to the emergence of a new, viable Eskom. managed effectively. particular, will result in an Eskom that is agile establish an agile organisation that is able to respond It is underpinned by three pillars which aim to “stabilise, and positioned to deliver value within the to rapid changes without disrupting daily services Our turnaround strategy continues the focus on five optimise and grow” the business. key areas, namely operational recovery, improving broader national efforts to drive reform in the • Commit to greater efficiencies across the organisation our income statement, addressing our balance sheet, electricity supply industry, through the execution • Cut wasteful expenditure, optimise revenue, improve accelerating the restructuring of Eskom into three of DPE’s Roadmap. corporate governance and act against corruption and divisions, and building a high-performance organisation Stabilise mismanagement through addressing our corporate culture by energising The “stabilise” pillar focuses on actions designed to our Eskom colleagues. rehabilitate the income statement and strengthen The strategy is enabled by: the balance sheet. It aims to deliver improvements in • The organisation being values-driven to embrace a governance, a reliable electricity supply and a cost- high-performance culture reflective tariff path. • Successfully pursuing key advocacy initiatives • Co-creating a new electricity industry with stakeholders 50 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 51 OUR STRATEGY AND TURNAROUND PLAN continued STAKEHOLDER ENGAGEMENT Operational challenges within the organisation have an changes which are beyond Eskom’s control, as well as the The Board provides oversight of the effectiveness Even operational matters require community and impact on our ability to stabilise the business. More than time required to engage on and align multiple systems, of stakeholder engagement through SES, with the stakeholder support, from issues like access to land half of the generation fleet is almost 40 years old and data, workflows and relinking of people. management of stakeholder relationships being delegated to build power lines, to dealing with equipment and has been run at very high utilisation factors, above the to Exco. electricity theft, to the safety of our staff during the international norm, for many years. There has been a Legal unbundling will commence after the performance of their duties. Moreover, we rely on chronic underinvestment in regular planned maintenance completion of divisionalisation, once the We are determined to deliver long-term sustainable continued support and cooperation from all spheres and capital refurbishments. Furthermore, municipal arrear required legal framework is in place. This business performance and growing stakeholder of Government and other stakeholders to manage the debt continues to escalate and stood at R28 billion at will culminate in the establishment of three confidence. Restoring stakeholder trust in Eskom is of growing municipal arrear debt problem. 31 March 2020. Sales volumes are trending below budget; subsidiaries, wholly owned by Eskom Holdings paramount importance to our future success. this places pressure on our financial sustainability. SOC Ltd. We are not yet in a position to commit Looking ahead, we are engaging with national and Given the changing nature of the electricity industry international financing and investment stakeholders to to the time required for legal unbundling, as it and our role therein, we have to be inclusive when The distribution business is implementing actions to curb provide assurance of our commitment to climate change will be dependent on the regulatory and policy making decisions that affect sustainability and our energy losses, which are aggravated by illegal connections and a Just Energy Transition. While we are committed to the network, the theft of and tampering with meters, environment at that point. broader operating environment. Understanding and to transition from coal to lower carbon technologies ghost vending and a culture of non-payment. adequately responding to stakeholder needs, interests such as renewables, we are compelled to ensure that We have also decided to accelerate the legal separation and expectations are crucial to achieving our objectives. of Transmission, to create the required certainty this transition occurs in a “just” manner, so that socio- We revised our approach to the maintenance and Responsible advocacy and clear communication are economic development is not hindered or eroded. continued improvement of the Quality Management for prospective investors in generation capacity that important parts of our stakeholder engagement. their bids will be fairly adjudicated relative to Eskom On that point, we have to engage with communities and System under ISO 9001:2015. The decision was other affected stakeholders on the repurposing of power influenced by our financial situation, the operating model generation. We have committed to establishing a Our interaction with stakeholders Transmission subsidiary by December 2021. In view of stations once these reach the end of their useful life. and structural changes, efficiencies and optimisation. We recognise that our ability to sustain the organisation Some divisions and business units will retain formal this, we are comfortable with progress towards achieving We are creating a department concerned with and create value for the country depends on strong the milestones envisaged in DPE’s Roadmap. Our strategic context certification, while other areas will conform to the and productive relationships with stakeholders – Government and Regulatory Affairs, which is aimed standard requirements. Nevertheless, the focus remains Managing Eskom’s turnaround Government, the financial sector, business, labour and at improving our ability to interface with Government, on entrenching quality principles in the business. The Turnaround Management Office, which reports consumers. Advocacy and stakeholder engagement various regulators, as well as domestic and international directly to the GCE, will drive the implementation of our remain key enablers of our strategy and turnaround plan stakeholders. The department will play an overarching Optimise role in integrating and coordinating regulatory interfaces turnaround initiatives. Among the immediate next steps and, as such, our engagements with stakeholders are The “optimise” pillar ensures the alignment of the and approaches, with responsibility for the following areas: to be introduced are: carefully planned in terms of the approach, scope and business and operations with the broad expectations • Eskom and Government to align on the equity intended outcome. • Government relations defined in DPE’s Roadmap, while ensuring that optimisation is achieved through the implementation of injections and debt transfers (where practical), and the • Parliamentary affairs Public trust in Eskom remains at an all-time low. appropriate revised business models. timing thereof The ongoing financial and operational challenges • Regulatory relations • Continuous engagement on the implementation of that we face continue to have a negative impact The first phase will be to finalise the divisionalisation of • Stakeholder relations a phased plan to separate and create three separate on our reputation. In response, we strive to the business, entrench transparency and accountability, entities, with the first phase being divisionalisation • International relations and optimise our organisational capabilities. This improve transparency of reporting to our approach gives Government sufficient time to develop • The co-creation of a future industry structure with shareholder and the broader public to restore Regulatory aspects pertaining to NERSA will continue to an enabling legislative environment and would serve to clearly defined roles for Eskom and its subsidiaries trust in the company. be handled by the Finance team. Similarly, engagements alleviate financial concerns related to loan conditions, with DEFF will remain the responsibility of the Risk and Grow Our stakeholder engagement strategy should a staggered implementation of separation occur. Sustainability team. The “grow” pillar recognises that we face a rapidly The right level of advocacy and clear communication with Each of the three separate entities will continue to fall changing energy market and positions the company to our stakeholders are necessary to educate them on the Ultimately, if we fail to garner the support of under Eskom Holdings SOC Ltd, but will eventually identify opportunities to prepare for growth. The new challenges and conflicting priorities we are facing, and all our stakeholders, we will not succeed in have separated assets, debt, employees and financial operating model will become a platform for growth the trade-offs required to respond effectively to these turning around the organisation and ensuring a statements. The corporate centre will be the functional readiness and enable Eskom to achieve efficiencies as well challenges. It also provides the opportunity for dialogue, sustainable electricity supply industry to power leader where strategic direction is provided, policies as quick and profitable returns. However, this is heavily to give us insight into what matters to our stakeholders. South Africa into the future. are set, and service functions are located to ensure dependent on a correction in the tariff levels to cover prudent operating costs and allow a fair return. In addition, we need to communicate more effectively Stakeholder groups economies of skill and scale. with all stakeholders, and strengthen relationships Various functions within Eskom are responsible for Eskom will be comprised of divisions and Conclusion with all spheres of Government, financial institutions, engagements with different stakeholders groups, under functions that work together towards common Constraints in electricity generation have created supply the business sector, customers, suppliers, labour and the oversight of Exco. Our stakeholder landscape goals and objectives. shortages that compelled us to introduce loadshedding communities who live close to our power stations, to remains complex, involving a multitude of stakeholders and restrictions on the use of electricity by consumers. foster productive partnerships. with divergent needs, interests and expectations. Divisional boards have been appointed to hold each This has had a negative impact on broad economic entity accountable on strategy implementation, business As discussed earlier, our turnaround plan has The diagram that follows provides an overview of our activity within the country, and has also negatively performance and functional compliance. Each division five focus areas for implementation, two of key stakeholder groups, which have been classified affected our reputation. will have its own balance sheet, income statement and which are largely dependent on key external as authorisers, influencers, partners or enforcers. cash flow statement. Divisional managing directors Our restructuring takes place against the stakeholder support – we require support from Stakeholder groups have been categorised based on their and executive committees will be accountable to their backdrop of a rapidly changing local and Government and NERSA to assist in addressing perceived influence on Eskom, and our impact on them. respective boards and the Eskom GCE. international energy environment. Emerging the areas of debt relief and revenue management technologies, changing consumption patterns, through tariff adequacy. It should be noted that our master plan for separation indicates that the implementation timelines envisaged in global economic trends and the impact of climate DPE’s Roadmap can be met for Transmission, although the change are reshaping the energy landscape. legal separation of Generation and Distribution will take Eskom, as the leading power utility on the somewhat longer. This delay is due to legal and regulatory African continent, must be at the leading edge of these developments. 52 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 53 STAKEHOLDER ENGAGEMENT continued MATERIAL MATTERS Material matters are those that affect our ability to Parliament or by Parliamentary oversight committees create, preserve or erode value in the short, medium and and the media, and more generally via the Stakeholder High Investors long term, or that influence or are likely to influence the Relations Department. Regulators decisions, actions and behaviour of either stakeholders Influence on Eskom Employees Government or Eskom. We evaluate the impact of these matters on the ability to execute our strategy and thereby create value by considering the effect of the matter, considering both the Medium Materiality determination process Parliament Business and Civil society Customers likelihood of the matter occurring and the magnitude of The first step in our annual materiality determination suppliers its impact. Matters are prioritised based on their relative process is to identify relevant matters based on their importance. Those deemed to be material matters are ability to affect our value creation process. We start by covered in detail in this integrated report, while other considering those matters reported in the prior year. Those Low International Media matters are dealt with at a high level in the report or groups are updated based on a review of changes in the strategic through other channels or platforms. and operating environment since the previous review. Low Medium High As part of the review, we consider topics discussed Current year material matters Impact on stakeholders at Board level, the outcome of the risk management The material matters reported in our previous process, as well as issues raised through various integrated report remain applicable, although the level of Partners Enforcers Authorisers Influencers stakeholder platforms – lenders and investors, key importance may have changed. The following have been customers, customer surveys, matters raised in identified as material matters in this report. Quality of relationships Investors’ primary concern is our ongoing financial Our reputation has shown a steady decline over and operational sustainability. Both rating agencies and recent years. During the past year, our poor financial investors have raised concerns about our very high levels Our strategic context performance and perceived leadership challenges were of indebtedness, limited revenue growth combined with the biggest contributors to the continued decline. Our the impact of the insufficient tariff and tariff uncertainty 1 Financial sustainability 6 Safety need for significant Government support, effectively over the longer term, poor plant performance, escalating funded by the taxpayer, and above-inflation tariff municipal arrear debt, as well as the capital investments 2 Operational stability 7 Divisionalisation increases contribute to our poor reputation. This is required to address new build defects and our ageing fleet. coupled with continued operational challenges, which periodically result in loadshedding and disrupt the Many employees are concerned first and foremost with job security, with the restructuring process giving rise to Environmental performance Governance clean-up, economy. 3 8 uncertainty and negatively affecting morale. Other issues and compliance ethics and values Refer to “Our role in communities – Our reputation” on page 125 for of concern are employee benefits and employee wellness, more information as well as leadership stability and governance challenges. Climate change and future Customers require quality and reliability of supply of 4 9 Reputation and trust energy mix Now more than ever, we recognise the affordably priced electricity, as well as certainty on the importance of rebuilding and strengthening longer term electricity price path to enable forward Adequate skills and a confidence and trust in the organisation planning. The impact of loadshedding on customers’ 5 10 COVID-19 pandemic business and the economy as a whole is a source of high-performance culture by implementing our turnaround plan and great concern to customers and the business sector. improving our performance, to ensure that we are able to deliver on our mandate and DPE’s Matters of importance to our stakeholders Roadmap. As part of that process, we need Financial sustainability comprises our financial results; the way we operate, and the impact on sales through very often have a direct impact on our ability the continued support and commitment of our the revenue outlook based on the tariff trajectory and economic activity. We discuss how we have responded to create value and to execute our strategic employees as we transition towards a more stagnant or declining sales volumes; cost curtailment to the situation, and our efforts to support South Africa’s objectives. As such, these matters are considered initiatives; funding, liquidity and municipal arrear debt; fight against the pandemic. desirable future for Eskom. in our strategic planning, and influence the Government support and Eskom’s status as a going Issues raised by stakeholders determination of material matters. concern. Operational stability covers both Generation and Our major risks, categorised in terms of Board-approved risk appetite As a state-owned entity, the requirements of the South network performance, including loadshedding, coal and categories which are largely aligned to the material matters, are discussed from page 56 African Government are paramount to what we do. The water security, and progress on the new build programme. Government acts as our shareholder through DPE, setting As far as the COVID-19 pandemic is concerned, we By and large, the material matters are all relevant over out the mandate on which we must deliver, with other evaluate the impact of both the pandemic and the the short, medium and long term, and will have a negative departments setting policy or providing oversight of our resulting national lockdown on the country and on our impact on our ability to create value if not managed operations. Alignment with DPE and other government business, particularly how it has affected our staff and properly. departments is key to facilitate the best possible future for Eskom, and ultimately the country, through the implementation of the objectives set out in DPE’s Roadmap. 54 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 55 RISKS AND OPPORTUNITIES Enterprise risk management process Emerging risks When multiple disaster risks materialise at the Windows and Linux servers, causing various systems to Our Strategy and Planning Department, among others, same time… fail. The incident involved 72 business applications on 638 Our Integrated Risk Management Standard describes undertakes an enviroscan on a regular basis to monitor We have identified 11 national disaster priorities. Of servers, with 236TB of storage affected. a structured approach to risk management to ensure changes in our broader operating environment. The those, three disaster contingency plans were activated that we are able to formulate and execute our strategy One of the most significant lessons learnt was that identification of emerging risks are becoming more simultaneously in March 2020, namely our Severe Supply effectively and operate efficiently as a business with previous disaster recovery testing had been performed important as it will sensitise management to possible Constraint Plan to deal with stage 4 loadshedding, the minimum disruption and enhanced value creation. on individual systems or a small number of systems – no future risks and uncertainties which could face the Catastrophic IT Systems Failure Response Plan in response All business areas and divisions are responsible for simulation of an event of a similar size or integrated organisation. These emerging risks are tracked and to a major failure of our national data centre at Megawatt identifying and reporting risks and response plans every system testing had ever taken place. A project, led by the reported on quarterly. Park, and our Pandemic Disaster Response Plan. quarter. Risks and treatment plans are continually General Manager: Information Technology and the CFO, monitored and reviewed. Risks are regularly shared with The intelligence gathered is used to highlight emerging Severe supply constraint is under way to address the data centre vulnerabilities. the relevant governance structures to approve their risks due to global and local developments; these are A severe supply constraint arose, with loadshedding up applicability and robustness. In doing so, we follow both a Furthermore, we have experienced numerous covered in strategic discussions at Exco and Board. to stage 4 being implemented from 9 March 2020 for top-down and bottom-up approach to risk management. incidents of distributed denial-of-service attacks since seven days. The COVID-19 national lockdown has since Disaster risks October 2019; these are attacks meant to shut down resulted in a significant reduction in demand, reducing The Board is ultimately responsible for the Disaster risks are those that are inherent to our operations a machine or network, making it inaccessible to its the need for loadshedding during the earlier stages of governance of risks and opportunities in Eskom and would have a significant consequence should they intended users by flooding the target with traffic. These the lockdown, and allowing short-duration opportunity and sets the direction for how they should be materialise. Due to their relatively low likelihood of have intensified during the lockdown period and have maintenance to be conducted during this period. managed through our policies and frameworks. materialising as well as the adequacy of controls, they are caused intermittent interruption of the IT network. The Board approves the organisation’s risk generally managed through our resilience programmes Catastrophic IT system failure Group IT is working with service providers to implement appetite and tolerance levels, which set out the for emergency preparedness and disaster management. Multiple critical IT applications were affected when a effective solutions to combat these attacks. amount and type of risk that Eskom is prepared National disaster priorities have been identified and backup generator in Eskom’s national data centre at Worldwide pandemic Our strategic context to accept in order to achieve its objectives. These accountability for risk and response planning for each has Megawatt Park failed on 11 March 2020. This resulted in been assigned to individual Exco members. The COVID-19 outbreak was declared a pandemic by levels are reviewed annually. the failure of the air-conditioning system and an extended the World Health Organisation on 11 March 2020. common-mode failure of multiple virtual servers. The The responsibility to implement and execute effective risk We have identified the following national disaster risks. The President subsequently declared a National State of incident involved 261 business applications on 2 298 and resilience management has been delegated to Exco in This excludes those at provincial or site level: Disaster on 15 March 2020, and a national lockdown was servers, with over 600TB of storage affected. In power order to support the organisation in achieving its strategic • Nuclear incident implemented in South Africa from 27 March 2020. utility terms, this can be equated to a full grid failure, not objectives. Exco and its Risk and Sustainability Committee • National blackout just a multi-unit plant breakdown. We invoked our Pandemic Disaster Response Plan in as well as ARC review the key priorities and deliverables in February 2020. Divisional and site-level risk assessments • Severe supply constraint Several critical applications were affected, including our our Risk and Resilience Management Plan annually. were concluded by mid-March 2020, which informed our • Economic or financial collapse ERP system (SAP), customer billing and customer self- Although Eskom’s risk management process is response. Our Emergency Response Command Centre • National industrial action service channels, such as the Eskom website, CS Online considered sound and compares favourably against (ERCC) was activated in early March 2020 to coordinate and the MyEskom Customer App. However, neither independent benchmarks, we have identified room for • Cyber-attack or catastrophic IT system failure our response to the pandemic. power station control systems nor National Control improvement. In June 2019, this concern was presented • Solar or geomagnetic storm were affected. Recovery operations were extensive – the In line with Government’s priorities, our incident to the Board and support was received on proposed • National drought or floods replacement of damaged storage and the restoration response objectives were to support Government in solutions to change the behaviour of risk owners in the followed a systematic process to mitigate further damage containing the spread of the virus, maintain the supply implementation of effective risk management. These • Worldwide pandemic of infectious disease and reduce the risk of data loss. of electricity, maintain the safety of our people and proposals included more accountability, the introduction • Terrorism or political instability contractors, and safeguard our reputation. of key risk indicators (KRIs), and more effective risk Another unrelated incident occurred on 30 March 2020, • Environment and climate issues governance across all levels, among others. when a storage failure affected a large number of Organisational risks Assessment of risk Risks affect the achievement of objectives and may The effective management of risk and resilience influence the execution of divisional business plans. At 31 March 2020, we had 44 Priority I risks (2019: 47), with about 80% of these risks relating to Generation, Risks are classified from Priority I risks at the highest Transmission, Group Capital, Finance, Group IT and Risk and Sustainability. is essential for Eskom, particularly given the role we play in the South African economy, our level to Priority IV risks at the lowest. Risk levels Priority 1 level risks at March 2020 Priority 1 level risks at March 2019 impact on society and the environment, and the are based on the quantification of risk in terms of consequence and likelihood. Consequences consider 6 3 8 4 8 6 1 9 3 6 transition that the energy sector is undergoing. the potential impact of a risk, ranging from financial and 5 5 3 5 7 7 The objective of managing risk and resilience is to operational sustainability, sustainable asset creation, Consequences Consequences ensure that we are able to formulate and execute our environment and climate change, legal and compliance, 4 9 3 4 11 2 strategy effectively, to operate our business efficiently reputation, health and safety, and information 3 1 3 1 with minimum disruption, to proactively leverage management. opportunities as these arise, and to be able to respond 2 2 Management is responsible for the identification and rapidly and recover effectively from disruptions should treatment of all risks, although Priority 1 risks are 1 1 these materialise. It is therefore important that risks that reported to Exco and ARC for oversight. The reported affect our objectives are identified, effectively managed A B C D E A B C D E risks affect Eskom on many levels, including operational and continuously monitored. performance as well as our turnaround plan, Corporate Likelihood Likelihood Plan targets and shareholder compact KPIs. 56 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 57 RISKS AND OPPORTUNITIES continued FINANCIAL REVIEW The Priority I risks have been classified into seven key pricing for Eskom fibre – responses showed that there risk categories, which are broadly aligned to integrated was interest in leasing Eskom fibre. However, the routes reporting’s six capitals: required and proposed rates for leasing were not in line • Financial sustainability with what we had originally envisaged. The project will likely be put on hold until the finalisation of the Eskom • Operational sustainability divisionalisation process. Our financial modelling shows that with a significantly reduced debt balance of R200 billion, • Environment and climate change Various other opportunities, including nuclear consulting a cash balance of R30 billion and an EBITDA margin of at least 35%, Eskom would be in a • People and off-grid solutions, are being analysed and translated position to achieve independent financial sustainability • Governance and compliance into business cases, with both internal and external • Information technology stakeholder engagements in progress. The findings from external market engagements have shown that there is • Stakeholder management significant market interest in off-grid solutions, however, the market has raised concerns about the pricing and The risk categories above are aligned to our material matters, set out on page 55 tariffs to be charged for the solution. We will investigate the feasibility of refining the pricing of the proposed Many of the risks reported have been carried over for a solution in line with market expectations. year or more. This may indicate that treatments (including The commercialisation of fly and coarse ash remains controls) developed by management have not achieved the an opportunity to lower both capital and operating desired result and must be reconsidered. Nevertheless, expenditure associated with ash dams, as well as generate some treatments are long-term focused, such as additional income. Ash sold amounts to less than 10% environmental and climate changed-related risks, some of Our strategic context of total ash produced. Beneficiation of ash could include which are out of Eskom’s control. the use of ash in manufacturing bricks and cement, soil Risk appetite and tolerance amelioration, road construction and mine backfilling. Risk appetite is the amount and type of risk an organisation is prepared to pursue or accept in achieving Refer to “Our interaction with the environment – Ashing facilities and ash utilisation” from page 109 for more information its objectives, while risk tolerance is the organisation’s readiness to bear the risk after risk treatment. Enterprise resilience As required by King IV TM, the Board sets Eskom’s risk The Enterprise Resilience Programme addresses our appetite by approving risk appetite statements for the ability to respond to major threats and disruptions, key categories set out above, to navigate Eskom through as well as compliance with the Disaster Management its current challenges. Act, 2002. The programme focuses on the ongoing This risk appetite and tolerance process serves as an development of resilience capabilities at site, divisional, early warning mechanism to alert the organisation when provincial and national levels. In addition to undertaking adverse risk trends reach unacceptable limits. This is done regular tests and simulation exercises, we continue to by developing management-approved KRIs for all major review our technical and non-technical vulnerabilities to risks as an early warning signal (leading indicator), in an prevent and recover from disaster incidents. effort to manage risks proactively and prevent them from Our established integrated emergency response materialising. It is imperative that management tracks risks structures are activated through our incident command and KRIs to understand the direction risks are taking. system based on the level of response required. When Our challenges have not improved over the past five a functional response is required in a given division, our years, but instead have become even more severe, Tactical Command Centre structures are activated. with some risks materialising, at times simultaneously. When a coordinated response is required across several Furthermore, we have already exceeded our risk appetite divisions in a particular province, our Provincial Joint in many areas. This requires tougher decisions to manage Command Centres are activated. Our strategic ERCC is Chief Financial Officer’s report 60 the impact of materialised risks, as well as to prevent activated in the event of a threat or incident affecting the other risks from materialising. entire organisation at a national level. Condensed annual financial statements 64 The programme also facilitates business continuity Our finances 67 Identifying and prioritising opportunities management, which encompasses planning and for growth preparation to ensure that the organisation can continue As part of its mandate to be a structure of sustainable, to operate in case of serious incidents or disasters, non-regulated businesses, providing mission-critical and is able to recover to an operational state within a services to Eskom and the electricity industry as a whole, reasonably short period. our subsidiary Eskom Enterprises established a Growth Office in 2018 to identify growth opportunities related to The programme is designed to incorporate organisational both our regulated and non-regulated business. learning, both as incidents occur and as the context in which Eskom operates changes. This learning is given The Growth Office has developed operating models for effect in real-time, through strategic changes such as fibre commercialisation in consultation with Broadband organisational design, and through post-incident and Infraco. A request for information was issued to the post-exercise reviews (“war games”). external market in January 2020 to obtain market-related 58 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 59 CHIEF FINANCIAL due to lower decommissioning provision costs. However, this was negated by the write-off of R4 billion of a Regrettably, the Sovereign credit rating downgrade by Moody’s at the end of March 2020 has placed the country OFFICER'S portion of work under construction relating to potential overpayments to a number of contractors involved in the at sub-investment grade level by all three internationally recognised credit rating agencies. Subsequent to year construction of Kusile Power Station. Decommissioning, end, Fitch downgraded Eskom’s local currency credit REPORT mine closure and rehabilitation provision costs declined due to an increase in the long-term discount rate to rating with a negative outlook; Standard & Poor’s affirmed their previous rating action but revised the 4.82% at 31 March 2020 (2019: 3.36%), with the rate outlook to negative. This is expected to increase our change linked to the significant weakening of the Rand in future marginal rate of borrowing. However, the impact March 2020. Additionally, our cost curtailment efforts on our existing debt is anticipated to be limited, as all have borne some results, primarily through reductions transactions are hedged. CALIB CASSIM in sundry expenses. Net finance costs increased to Chief Financial Officer R31.3 billion (2019: R27.7 billion, restated), due to higher We welcome the appointment of Mr Richard Vaughan as levels of borrowings at a higher weighted average cost. General Manager: Treasury, with effect from 15 May 2020. Funding Managing liquidity The debt service cover ratio improved slightly to 0.52 Net cash flows from operating activities for the year Eskom is facing several operational challenges that are Overview of performance (2019: 0.47), although the cash interest cover ratio amounted to R36.2 billion (2019: R32.7 billion). Net cash exacerbated by liquidity and financial sustainability Financial results remained stable at 0.94 (2019: 0.94). These ratios indicate flows used in investing activities amounted to R27 billion challenges. Added to the shortfall caused by the We recorded a net loss after tax of R20.5 billion for the that cash generated from operating activities during the for the year (2019: R36.2 billion), reflecting stringent inadequate tariff increases awarded by NERSA, our year (2019: R20.9 billion, restated), which is in line with year is insufficient to fund even the interest component containment of capital expenditure because of our ongoing operating cash flows have been further negatively what we had budgeted. Revenue grew to R199.5 billion of our debt service requirements. The gross debt/ liquidity challenges. There is a risk that continued deferral affected by deteriorating Generation plant performance, due to the 13.87% tariff increase (2019: R179.9 billion). EBITDA ratio improved to 14.39 (2019: 15.73, restated), of capital maintenance, refurbishment and replacement of necessitating the increased use of expensive Eskom This resulted in the EBITDA margin increasing to 18.55% while the debt/equity ratio improved to 2.45 (2019: 3.18, infrastructure may lead to future operational challenges. and IPP OCGTs to avoid or minimise the impact of (2019: 17.46%, restated), with an EBITDA of R37 billion restated), mainly due to the Government equity support. Net cash flows generated from financing activities for the loadshedding; as well as by higher unplanned maintenance (2019: R31.4 billion, restated). The increase of R5.6 billion However, Government support improves the ratios year were R11.7 billion, including Government support and the process of rebuilding coal stock levels at power in EBITDA was eroded by an increase of R3.5 billion only in the short term, and ratios remain well below (2019: R10.9 billion outflow). stations under the Generation recovery plan. in net finance cost, resulting in an improvement of acceptable investment-grade levels. Cash and cash equivalents had improved markedly to Even though Eskom’s level of debt is perceived as a only R2.8 billion in net loss before tax of R26.6 billion R23 billion by year end (2019: R2 billion), due to the (2019: R29.4 billion, restated). The unsustainable debt We intended to raise R46 billion in funding in 2020. systemic risk to both the fiscus and the country as a New funding of R35.9 billion was secured through cash Government support of R49 billion received during the whole, it has to be emphasised that the debt was raised level of more than R480 billion has led to our gross year. However, payments of R5.3 billion were delayed to interest cost becoming the second largest cost item drawdowns. The R15 billion credit facility agreement with the sole purpose of supporting our new build concluded in 2019 with a consortium of banks was 1 April 2020 due to technical issues, thereby inflating the programme to increase generation and transmission after coal costs, higher than both employee benefit year-end balance. Despite the improvement, cash flows costs and capital expenditure. extended, resulting in total debt raised of R50.9 billion capacity. Our borrowing at the time assumed cost- remain severely constrained. Financial review for the year. reflective tariffs including a reasonable and market- However, sales volumes declined by 1.29% year-on- related rate of return; limited delays in the new build However, our access to funding in both the domestic Liquidity remains one of our biggest short-term year, with local sales volumes declining by 5.4TWh challenges, hampering our ability to achieve financial programme; prudent financial oversight; and sufficient due to depressed economic conditions and supply and foreign markets has been restricted due to economic growth to stimulate the desired demand decreased investor confidence because of poor financial and operational stability, and posing a risk to our going constraints, with the industrial sector being the most concern. As noted above, access to cost-effective funding for electricity. Those assumptions have either not severely affected; that was offset by international sales performance, saturated borrowing capacity and credit materialised or have significantly underperformed, leading rating downgrades. Lenders require guarantees through remains restricted, while inadequate price increases increasing by 2.7TWh. Furthermore, primary energy granted by NERSA as well as escalating municipal arrear to a growing gap between revenue and expenditure, costs increased significantly, driven by an unsustainable the R350 billion Government Guarantee Framework requiring higher levels of debt than previously envisaged. Agreement (GFA) to offset the financial risks posed by debt further contribute to our liquidity constraints. To increase in the average purchase cost per ton of improve liquidity, we have restricted organisational cash This culminated in the need for Government equity coal of 16.3% (2019: 14.1%). In addition, the cost of Eskom, with tariff unpredictability being a key concern support of R49 billion for the year, as we had reached a that necessitates the requirement for guarantees. With requirements through targeted savings on operating and 11 958GWh energy purchased from IPPs increased to capital expenditure, to maintain the delicate balance limit on our borrowing capacity. R29.7 billion (including a capacity charge) during the the GFA almost fully utilised, our capacity for further borrowing is limited. between maintaining sufficient liquidity and supporting As stated before, we require a rate of return on assets year (2019: 11 344GWh at R26.7 billion), at a weighted spend required to ensure future operational stability. at least equal to the weighted average cost of capital average cost of 248c/kWh (2019: 235c/kWh). We in order to ensure financial sustainability and remain are locked into long-term contracts from earlier bid a going concern. An adequate return will enable windows at much higher rates than that applicable to our surplus operational cash flows to meet liquidity new IPP generation. 50 20 3.5 requirements and service debt commitments. In the Nevertheless, we managed to reduce employee benefit absence of an adequate return provided by NERSA’s tariff costs through sub-inflation salary increases at managerial 40 3.0 15 determinations, Government’s equity support is assisting level coupled with headcount reduction. Other operating 2.5 us in servicing our debt commitments. Nonetheless, expenditure, including maintenance, was relatively 30 2.0 equity support only improves liquidity but will not contained at R18.7 billion (2019: R18.2 billion). A decline 10 20 1.5 resolve Eskom’s financial viability. of approximately 19% was achieved for the year, largely 5 1.0 10 0.5 0 0 0.0 2016 2017 2018 2019 2020 2020 2016 2017 2018 2019 2020 2020 2016 2017 2018 2019 2020 2020 Target Target Target Free funds from operations, R billion FFO as % of gross debt Debt/equity ratio Cash interest cover EBITDA, R billion Gross debt/EBITDA Debt service cover 60 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 61 CHIEF FINANCIAL OFFICER’S REPORT continued Our 2019 turnaround plan targeted four focus areas, Total municipal arrear debt continued to escalate to the period from 2020 to 2023; executing the recently Furthermore, Government’s capacity to appropriate three of which were finance-related, namely optimising unacceptably high levels, amounting to R28 billion at approved municipal debt management strategy and financial support beyond 2022 may be affected by the our balance sheet through Government equity support, year end (2019: R19.9 billion), representing 75.7% of working with the Eskom Political Task Team to improve shift in national priorities required to support the improving our revenue outlook through migrating total invoiced municipal debt (2019: 71.7%). The top 20 collection of municipal accounts and slow the growth economy in response to the COVID-19 pandemic. towards cost-reflective tariff increases and growing sales defaulting municipalities constitute 81% of total invoiced in arrear debt; as well as exploring negotiated pricing We will continue to monitor and assess the impact volumes, as well as curtailing costs. municipal arrear debt (2019: 81%), with almost 41% agreements and other avenues to stimulate sales of COVID-19 on the economy as well as our financial of that owed by Free State municipalities (2019: 44%). volumes. performance and liquidity, to respond appropriately in The full R49 billion for 2020 was received from National At year end, 45 municipalities had total arrear debt order to mitigate associated risks. Treasury. As the Chairman indicated, the funds may only of more than R100 million each (2019: 34), a number An improved financial position will lead to more be used to settle debt and interest payments under the which has grown considerably during recent years and favourable credit ratings and ultimately better rates and Conclusion equity conditions attached to the support. A further demonstrates the pervasive nature of the problem. tenures from lenders, in addition to reduced reliance We have to reduce our reliance on debt funding as a R56 billion has been allocated for 2021 in accordance on Government guarantees. We remain mindful of source of liquidity – equity injections by the shareholder with the Government’s Medium-Term Budget Policy The Board approved a new municipal debt management maintaining lower debt levels and are carefully monitoring will assist in reducing this reliance in the short term and Statement released in 2019. strategy, which comprises three key objectives, future debt requirements. We depend on strong help to improve liquidity. Although Government’s equity namely to reduce and/or eliminate overdue debt; stop relationships with investors and credit rating agencies to Another of the focus areas of the 2019 turnaround plan support addresses our liquidity requirements, it does not defaulting where it occurs; and prevent future defaulting secure funding under the borrowing programme. centred on improving our revenue outlook through adequately enhance our long-term financial sustainability. by paying customers. To this end, we are enhancing migrating to cost-reflective tariffs and growing sales. As Our borrowing programme caters for expansive and The only way to achieve financial sustainability is to and enforcing existing revenue and debt management discussed earlier, sales volumes declined further during the intensive capital expenditure requirements, as well improve operating cash flows that results in positive free processes, enforcing Eskom’s rights through legal action year. Despite applying for revenue based on prudent and as debt service costs. For the next three years, our cash flows, with a strong focus on moving to a prudent, and attaching assets where possible, and expediting efficient costs as well as a reasonable return in accordance target is to raise R122 billion from development finance cost-reflective tariff. Government interventions, the progress from which with the MYPD methodology, the average standard tariff has been slower than anticipated. institutions, export credit agencies, the issuance of We acknowledge the importance of cost savings to price increases and regulatory clearing account (RCA) bonds and notes, as well as structured projects. We plan improve liquidity, with a focused cost curtailment determinations made by NERSA over recent years have Looking ahead to borrow R30.8 billion in 2021, given the expected programme over the next three years. Nonetheless, not enabled the migration towards cost-reflectivity as Government support of R56 billion. Of the funding The “stabilise” pillar of our turnaround strategy focuses as we’ve stated before, cost savings alone will not be envisaged in the Electricity Pricing Policy. targeted, R19.6 billion (or 64%) was already committed on actions designed to strengthen the balance sheet and sufficient to improve our financial health. For Eskom and by 30 September 2020. In response, we have submitted a review application for rehabilitate the income statement, mainly through debt the electricity supply industry to continue to operate every revenue and RCA determination made by NERSA relief, revenue management and cost initiatives, as set out The debt repayment profile, based on existing debt only, and maintain its assets in a reliable state, the price from December 2017 to March 2019, on the basis that by the GCE. is still relatively pressured over both the short and long of electricity must migrate towards cost-reflectivity NERSA’s MYPD methodology has not been implemented term, with debt repayments of R197 billion and interest to ensure Eskom’s long-term financial sustainability. To that end, we will focus on: Without a cost-reflective tariff path, we will remain rationally in their recent decisions. payments of approximately R145 billion over the five • Debt relief and long-term debt restructuring, with years to 31 March 2025, with maturities extending to reliant on Government support, which implies that the The court judgment on the 2019 revenue decision Government support 2052. These redemptions and interest payments can only taxpayer will continue to foot the bill for the revenue determined that it was procedurally unfair, irrational, • Pursuing tariff increases migrating to cost-reflectivity be met with Government support combined with a tariff shortfall, which is contrary to the “user pays” principle. Financial review unreasonable and unlawful. It allowed Eskom to submit and improving revenue collection correction that allows Eskom prudent and efficient costs a supplementary tariff application to NERSA to recover Our overarching objective remains to return Eskom to • Reducing costs by R21 billion per year by 2023 and a fair return on assets. costs had a lawful decision been made. As required by financial and operational sustainability, while improving the judgment, we submitted the supplementary tariff Our financial results for the first half of 2021 have been transparency of reporting to the shareholder and the The successful execution of the strategy should enable application for approximately R5 billion to NERSA within severely affected by the COVID-19 pandemic and South broader public in order to regain trust. Eskom to return to profitability by 2023, although it is the allotted 60 days from the RCA decision. NERSA dependent on fair regulatory tariffs, improved investor Africa’s national lockdown. This has had an adverse will undertake a public consultation process; a final confidence, the ability to improve the balance sheet by impact not only on our operations and finances, but also determination is expected by 26 February 2021. effectively reducing current debt levels, coupled with on the economy as a whole. The economic recession successful restructuring. NERSA’s regulatory processes, and continued uncertainty around the ultimate impact of Calib Cassim The court set aside NERSA’s MYPD 4 decision which COVID-19 is expected to threaten future sales volumes, Chief Financial Officer deducted R23 billion annually for the equity support from the ability to recover costs and earn appropriate returns remain a significant concern to investors and credit rating the cost of production and customers’ ability to pay. We 2020 to 2022. The judgment requires Eskom to recover expect to record a loss of approximately R25 billion for the R69 billion in a phased manner over a three-year agencies, and are crucial to their assessment of the future trajectory of our financial and operational sustainability, the 2021 financial year, with the impact of COVID-19 being period, starting from the 2022 financial year. NERSA a significant contributor to the unsatisfactory outlook. has been granted leave to appeal the judgment in the which influences investment decisions. Supreme Court of Appeal. We have applied for execution The lack of diversification of funding sources and of the order while awaiting the appeal process. increased financing costs due to the current financial Reducing our annual cost base by R32.7 billion in 2023 environment are constraints that pose a risk to the constituted another of the focus areas of the 2019 effective execution of the borrowing programme. turnaround plan. The target for 2023 has now been Importantly, the execution of the plan will depend largely revised to R21.4 billion, due to the removal of aggressive on Government support to reduce our reliance on headcount reduction initiatives, because of a lack of debt and contain debt service costs. Discussions with support from the shareholder for such measures. Government to assist in the strategic reorganisation and Savings of R16.3 billion were achieved against a target strengthening of our balance sheet are ongoing. of R6.2 billion for the year. The main source was primary Nevertheless, we are not oblivious to the part we have energy savings through optimising coal inventory by to play. It includes pursuing the recovery of prudent and reducing coal deliveries to minimum contract levels, efficient costs to ensure a cost-reflective tariff path; supported by an increase in international revenue and implementing targeted cost curtailment initiatives, to other income. reach the target of cumulative savings of R62 billion for 62 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 63 CONDENSED ANNUAL FINANCIAL STATEMENTS The group and company financial results set out in the condensed financial statements which follow have been extracted Condensed statements of financial position from the consolidated annual financial statements of Eskom Holdings SOC Ltd for the year ended 31 March 2020, which at 31 March 2020 have been prepared in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies Act, 2008 and the PFMA, 1999. Group Company The consolidated annual financial statements have been prepared under the supervision of the Chief Financial Officer, Restated Restated 2020 2019 2020 2019 Mr Calib Cassim CA(SA), and were duly approved by the Board of Directors on 28 October 2020. Rm Rm Rm Rm The consolidated annual financial statements have been audited by the group’s independent auditors, Assets SizweNtsalubaGobodo Grant Thornton Inc, in accordance with the Public Audit Act of South Africa, 2008, the General Non-current assets 697 893 683 956 698 596 684 381 Notice issued in terms thereof and International Standards on Auditing. The independent auditors issued a qualified Property, plant and equipment and intangible assets 657 189 654 365 657 953 654 742 opinion relating to the completeness of irregular expenditure disclosed in note 53 in terms of the PFMA. Except for Future fuel supplies 4 295 6 471 4 295 6 471 this qualification, the consolidated annual financial statements are fairly presented in terms of IFRS. Furthermore, the Investment in equity-accounted investees and subsidiaries 397 373 479 479 independent auditors reported a material uncertainty relating to Eskom’s ability to continue as a going concern, as well Derivatives held for risk management 33 918 20 582 33 918 20 582 as a key audit matter regarding the accounting treatment of the Eskom Pension and Provident Fund. However, these Other non-current assets 2 094 2 165 1 951 2 107 matters do not affect their opinion. Current assets 116 404 62 877 110 947 59 592 The consolidated annual financial statements, which detail the financial performance of the group and company, are available online Inventories 33 573 26 482 33 330 26 251 Loans receivable 27 26 5 937 6 071 The financial statements may also be inspected at Eskom’s registered office; limited hard copies are available on request. Derivatives held for risk management 23 718 2 080 23 718 2 080 Trade and other receivables 22 391 20 859 24 067 22 020 Neither the future performance plans and/or strategies referred to in the integrated report, nor the potential impact of Insurance investments 11 981 9 563 – – COVID-19, have been reviewed or reported on by the group’s independent auditors. Financial trading assets 152 162 152 162 Other current assets 1 572 1 674 1 429 1 491 Condensed income statements Cash and cash equivalents 22 990 2 031 22 314 1 517 for the year ended 31 March 2020 Non-current assets held-for-sale 8 642 8 871 – – Group Company Total assets 822 939 755 704 809 543 743 973 Restated Restated Equity 2020 2019 2020 2019 Capital and reserves attributable to the owner of the company 185 863 149 978 169 421 135 399 Rm Rm Rm Rm Liabilities Continuing operations Non-current liabilities 502 684 495 996 501 364 495 046 Revenue 199 468 179 892 199 468 179 892 Other income 1 238 2 150 1 819 3 073 Debt securities and borrowings 408 151 387 208 408 107 387 161 Primary energy (112 119) (99 488) (112 119) (99 488) Embedded derivatives 5 1 365 5 1 365 Financial review Employee benefit expense (32 976) (33 183) (27 590) (27 532) Derivatives held for risk management 1 802 5 643 1 802 5 643 Net impairment reversal 61 260 54 242 Deferred tax 3 678 7 138 2 724 6 601 Other expenses (18 674) (18 214) (26 251) (27 019) Employee benefit obligations 13 530 15 560 13 232 15 224 Provisions 41 300 45 588 41 278 45 558 Profit before depreciation and amortisation expense and net fair value loss (EBITDA) 36 998 31 417 35 381 29 168 Lease liabilities 8 875 9 130 8 873 9 130 Depreciation and amortisation expense (27 779) (29 738) (27 693) (29 644) Contract liabilities and deferred income 22 577 21 295 22 577 21 295 Net fair value loss on financial instruments, excluding embedded derivatives (6 890) (5 266) (6 525) (5 225) Other non-current liabilities 2 766 3 069 2 766 3 069 Net fair value gain on embedded derivatives 2 298 1 857 2 298 1 857 Current liabilities 132 919 108 051 138 758 113 528 Profit/(loss) before net finance cost 4 627 (1 730) 3 461 (3 844) Net finance cost (31 252) (27 732) (32 541) (28 888) Debt securities and borrowings 75 531 53 402 80 107 57 886 Embedded derivatives 1 131 2 069 1 131 2 069 Finance income 2 610 2 722 1 468 1 679 Derivatives held for risk management 1 139 1 397 1 143 1 397 Finance cost (33 862) (30 454) (34 009) (30 567) Employee benefit obligations 3 293 3 244 3 018 2 976 Share of profit of equity-accounted investees after tax 63 35 – – Provisions 5 991 5 662 5 933 5 556 Trade and other payables 40 175 36 849 41 761 38 208 Loss before tax (26 562) (29 427) (29 080) (32 732) Payments received in advance 3 430 3 359 3 437 3 367 Income tax 6 060 8 497 6 740 9 341 Other current liabilities 2 229 2 069 2 228 2 069 Loss for the year (20 502) (20 930) (22 340) (23 391) Non-current liabilities held-for-sale 1 473 1 679 – – Total liabilities 637 076 605 726 640 122 608 574 The statements of comprehensive income and statements of changes in equity are available in the consolidated annual financial statements Total equity and liabilities 822 939 755 704 809 543 743 973 64 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 65 CONDENSED ANNUAL FINANCIAL STATEMENTS continued OUR FINANCES Condensed statements of cash flows for the year ended 31 March 2020 Group Company Restated Restated 2020 2019 2020 2019 Rm Rm Rm Rm Cash flows from operating activities Loss before tax (26 562) (29 427) (29 080) (32 732) Adjustment for non-cash items 65 364 58 991 66 090 60 255 Changes in working capital (2 464) 3 693 (2 536) 4 800 Cash generated from operations 36 338 33 257 34 474 32 323 Net cash flows used in derivatives held for risk management (81) (172) (78) (174) Finance income received 377 245 377 245 Finance cost paid (60) (277) (59) (276) Income taxes paid (367) (313) – – Net cash from operating activities 36 207 32 740 34 714 32 118 Cash flows used in investing activities Proceeds from disposal of property, plant and equipment 508 566 498 566 Acquisitions of property, plant and equipment and intangibles (24 269) (34 530) (24 632) (34 817) Acquisitions of future fuel supplies (1 261) (548) (1 261) (548) Payments made in advance (2) (9) (2) (9) Cash used in provisions (846) (1 707) (846) (1 707) Net cash used in derivatives held for risk management (120) (166) (120) (166) Net acquisition of insurance investments (2 742) (1 356) – – Net cash from loans receivable and finance lease receivables 66 54 204 125 Dividends received 105 83 46 35 Finance income received 1 550 1 411 511 506 Net cash used in investing activities (27 011) (36 202) (25 602) (36 015) Cash flows from/(used in) financing activities Debt securities and borrowings raised 32 036 58 914 32 124 59 364 Payments made in advance to secure debt raised (642) (1 179) (642) (1 179) Highlights Improvements Debt securities and borrowings repaid (31 511) (34 455) (31 599) (34 332) Financial review Share capital issued 49 000 – 49 000 – • Cash and cash equivalents improved to R23 billion at • EBITDA margin increased to 18.55% due to revenue Net cash from derivatives held for risk management 1 843 1 219 1 843 1 219 year end (2019: R2 billion) growth from the 13.87% tariff increase in 2020 Net cash from financial trading assets 9 10 9 10 • Government support of R49 billion received; further • Limited growth in employee costs through negotiated Net cash used in finance lease payables and financial trading liabilities (456) (386) (455) (386) support confirmed going forward salary increases and headcount reduction Finance income received 597 858 558 820 • Favourable judgments from the High Court allowing • Cost curtailment efforts exceeded target, despite Finance cost paid (39 111) (35 845) (39 205) (36 035) Eskom to recover revenue and RCA amounts unlawfully continued operational challenges and high Taxes paid (84) (69) (84) (69) disallowed by NERSA organisational cash requirements Net cash from/(used in) financing activities 11 681 (10 933) 11 549 (10 588) • Financial performance ratios improved compared to Net increase/(decrease) in cash and cash equivalents 20 877 (14 395) 20 661 (14 485) 2019, although remaining well below acceptable levels Cash and cash equivalents at the beginning of the year 2 031 15 823 1 517 15 379 Foreign currency translation (22) 50 – – Effect of movements in exchange rates on cash held 136 620 136 620 Challenges Lowlights Assets and liabilities held-for-sale (32) (67) – 3 • Credit ratings downgrades affected by the negative • Net loss after tax of R20.5 billion for the year Cash and cash equivalents at the end of the year 22 990 2 031 22 314 1 517 Sovereign outlook, coupled with concerns around • Significant escalation in municipal arrear debt to Eskom’s operational and financial sustainability R28 billion (2019: R19.9 billion), coupled with • Lack of a cost-reflective tariff path hinders long-term delays in implementing recommendations of the financial sustainability, with operating cash flows Inter-Ministerial Task Team insufficient to fund debt service requirements • Inadequate revenue recovery through the RCA • Sales volumes declined due to depressed economic mechanism due to continued incorrect application conditions and supply constraints, with the industrial of the MYPD methodology sector most severely affected • Unsustainable increase in the average coal purchase • The economic recession and uncertainty around the cost per ton impact of COVID-19 is expected to further threaten future sales volumes and the cost of production, the ability of customers to pay, as well as Government’s capacity to appropriate the remaining financial support for 2021 and beyond 66 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 67 OUR FINANCES continued In order to fund our operations we require financial were offset by a substantial increase in primary energy Electricity sales of 205 635GWh were 1.29% lower “The Offer” was launched as a pilot programme capital through either debt funding or equity. Equity expenditure. than the previous year (2019: 208 319GWh). Industrial in June 2018 to provide financial incentives for can take the form of profit generated through sufficient customers, particularly in the ferrochrome sector, incremental sales above a customer-specific historical revenue to cover our costs, or shareholder support As a result of the net loss, no short-term were negatively affected by the economic downturn and consumption baseline. It ended its second pilot year on through an equity injection. performance bonus provision was raised for depressed commodity prices, leading to many industrial 31 May 2020, with four customers having consumed an the year. customers curtailing operations, entering into business additional 709GWh. Regrettably, “The Offer” has been Financial results of operations rescue or shutting down. This resulted in a decline discontinued as it is not deemed beneficial due to the The group recorded a net loss after tax of R20.5 billion Refer to the consolidated annual financial statements available online, of 3 107GWh (or 6.38%) in sales volumes to these gap between Eskom’s short-run marginal cost in the which detail the financial performance of the group and company for the year (2019: R20.9 billion, restated), and EBITDA customers. original business case and current high marginal costs of R37 billion (2019: R31.4 billion, restated). The EBITDA experienced due to poor plant performance. Our return on assets, using both historical valuation of International sales grew by 2 727GWh (or 21.88%) due margin increased to 18.55% (2019: 17.46%, restated), assets and the replacement value, remains far below both to neighbouring countries increasing demand as a result In order to address deteriorating sales volumes, we mainly due to revenue growth arising from the tariff the real and nominal weighted average cost of capital, of the drought in the region; we also re-established non- are working with Government on identifying possible increase of 13.87% for 2020, combined with the results continuing the trend discussed in prior years. firm supply agreements with trading partners after they solutions to make the country and the electricity supply of our cost curtailment efforts. These improvements settled their arrear debt. industry more reliable, sustainable and competitive; this Profitability and working capital includes incentive pricing to optimise electricity sales to Refer to the fact sheet on pages 151 to 152 for the number of customers energy-intensive customers and stimulate local sales. Target Target Target Actual Actual Actual Target by customer segment, as well as electricity sales by customer category, Measure and unit 2023 2021 2020 2020 2019 2018 met? both volumes and revenue The DMRE is in the process of formulating an amended short-term negotiated pricing agreement (NPA) Company Despite the increase in overall customer numbers, framework and an interim long-term NPA framework to Electricity revenue per kWh (including environmental 143.60 110.63 102.44 101.86 90.01 85.06 largely linked to our electrification programme and facilitate the approval of customised incentive pricing by levy), c/kWh growth in residential customers, the number of NERSA. We have received numerous applications from Electricity operating costs, R/MWh 1 042.22 951.96 845.62 802.12 729.26 634.69 energy-intensive customers in the industrial, mining and customers expressing interest in NPAs but these require Group agricultural sectors is slowly reducing. This contributed the necessary frameworks being in place. to the declining trend in sales volumes, which remains EBITDA, R million SC 73 380 23 522 34 386 36 998 31 417 45 359 a significant concern for both Eskom and the economy, EBITDA margin, % 27.31 11.67 16.58 18.55 17.46 25.57 being indicative of a lack of economic growth. Current ratio 1.44 1.53 1.50 1.09 1.00 1.03 Free funds from operations (FFO), R million 81 659 29 704 36 332 38 671 29 047 40 022 Tariff structures of the future reduction in the variable charge for all tariffs FFO after net interest paid, R million 51 336 (6 677) (2 506) 157 (5 940) 9 147 Eskom’s tariff structures were last revised based on a that include network charges cost-to-serve study conducted in 2012. Since then, there • Revise energy rates to reflect the latest wholesale have been significant developments; most notably, the energy costs, with changes to the time-of-use ratios While the majority of financial performance ratios excluded from net revenue for the year amounted to Financial review planned restructuring of the electricity supply industry, and periods performed better than target and improved in R5.7 billion (2019: R3.4 billion). The substantial increase technology advancements and evolving customer needs. comparison to the previous year, Eskom is still is attributable to higher production volumes from these • Rationalise municipal tariffs into three categories: Existing tariff structures no longer accurately reflect experiencing a number of challenges that prevent units while undergoing testing prior to commissioning, for large power users (LPUs), small power users the component costs for energy, network and retail the organisation from achieving long-term financial which has been delayed due to correction of the new build (SPUs) and a tariff for non-metered public lighting requirements, and need to be modernised to reflect sustainability. Key financial metrics remain well below defects discussed elsewhere. Pre-commissioning production present circumstances. In addition, Eskom’s declining • Increase low-voltage charges for urban LPUs to reduce levels acceptable to investors and credit rating agencies. contributes to alleviating generation supply constraints. sales volumes have revealed the inappropriateness of the low-voltage subsidy Sales and revenue recovering fixed costs through volume-based charges, • Revise service charges based on the number of points Revenue for the group amounted to R199.5 billion Eskom has seen a trajectory of declining sales volumes with a larger proportion of revenue being lost when of delivery rather than per account (2019: R179.9 billion). Electricity revenue of R197.3 billion in the recent past, with an approximate 1% reduction in existing tariffs do not adequately charge for capacity and network availability. • Discontinue the inclining block rate structure for (2019: R177.3 billion), excluding pre-commissioning sales volumes per annum. While our efforts to address the Homepower and Homelight tariffs revenue capitalised, increased by 11.28% year-on-year. the deterioration in sales volumes continue, the decline in Eskom’s unbundling will therefore require tariffs to • Convert implicit subsidies to explicit targeted subsidies This growth is lower than the allowed tariff increase electricity demand experienced due to the slowdown of separate the costs of generation, transmission and to increase transparency and prevent unintentional of 13.87% granted by NERSA for 2020 (including the the economy amidst the COVID-19 pandemic is a major distribution of electricity appropriately, to avoid volume cross-subsidisation MYPD 3 RCA recovery) due to the continued trend concern. Average demand reduced by 5 680MW during and trading risk and to account for cost drivers more of declining sales volumes, coupled with an amount the level 5 lockdown, by 3 300MW during level 4 and by • Introduce a new residential time-of-use tariff that accurately, with the ultimate objective of protecting of R6.1 billion not being recognised due to revenue 1 560MW since the beginning of level 3 to the middle of includes a net-billing offset rate for customers with and increasing competitiveness in the electricity collectability criteria not being met. The average July 2020. small-scale embedded generation supply industry. electricity price of 101.86c/kWh reflects a year-on-year increase of 13.17%, slightly lower than the increase Overall, sales volumes for 2021 are expected to be 7.3% The next phase in tariff design may require annual We will be proposing the following amendments to retail granted by NERSA due to differences in time-of- lower than this year. The reduction factored into the revisions to rates and wholesale time-of-use ratios and tariffs in the coming years: use tariffs, with consumption patterns varying from year-end projection is less severe than the 16.5% decline periods to account for increases across each of Eskom’s experienced in the first quarter of the 2021 financial year, • Update all charges to cater for the separate costs of expectations. unbundled line divisions, rather than applying a single due to the phased easing of the national lockdown and Eskom’s line divisions, based on approved MYPD values standard average increase to all rates. Customers For accounting purposes, revenue and the associated the return to operations of many sectors. However, it • Revise network charges to reflect the latest connected to the grid must pay for the services that are primary energy expense of production from Medupi and is deemed unlikely that electricity demand will recover transmission and distribution network costs provided. Consequently, further work will be required Kusile units, which have been synchronised to the grid to pre-COVID-19 levels by the end of 2021 due to the • Increase the fixed-charge component of the to restructure energy and network charges to more and produce electricity but are not yet in commercial long-lasting effect of the economic recession. Longer term distribution network, with a corresponding appropriately balance fixed and variable components, operation, are capitalised to the respective asset under projections do not foresee any significant recovery to sales and to refine use-of-system charges for generators. construction. Pre-commissioning revenue capitalised and levels over the next three to five years. 68 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 69 OUR FINANCES continued Operating costs The total expenditure on IPP OCGTs (net of the The following graphs set out the breakdown of primary interest and prescribed Soweto debt, combined with Operating expenses, R billion lease accounting adjustment) amounted to R3.2 billion energy costs, net of pre-commissioning expenditure improved payment levels on international trade debt. 225 to produce 711GWh (2019: R2.7 billion to produce capitalised and lease accounting adjustments, with the 522GWh), while R24.9 billion was spent on renewable contribution of the particular source to total GWh The reversal on trade and other receivables was offset 200 6.4% IPPs to produce 11 247GWh (2019: R22.3 billion to energy produced provided in brackets. by impairments raised on property, plant and equipment. 175 The most significant impairment relates to 366 residential produce 10 792GWh). Primary energy breakdown, R million flats, intended to provide accommodation for artisans in 150 7 614 (n/a) Ogies, Mpumalanga for the duration of the Kusile project. 125 Refer to “Our infrastructure – Energy supplied by IPPs” from page 94 for further information The development remains incomplete, resulting in an 100 impairment of R918 million, and has been put up for sale in its 75 A comparison of the primary energy unit cost of the current state. The responsible manager was dismissed; civil 50 various generation categories is shown below: recovery measures and possible criminal sanctions are being 28 060 (5%) sought. The matter was recorded as an incident of fruitless 25 Unit cost, R/MWh 2020 2019 % change and wasteful expenditure in terms of the PFMA. 2020 0 66 583 (85%) 2016 2017 2018 2019 2020 2020 Coal1 397 339 17.1 Other operating expenditure, including maintenance, was Target Nuclear 100 103 (2.9) relatively contained at R18.7 billion (2019: R18.2 billion). Eskom OCGTs2 3 231 3 128 3.3 4 716 (4%) Primary energy costs Employee benefit expense A decline of approximately 19% was achieved for the year, IPPs3 2 347 2 200 6.7 Depreciation and amortisation Other operating expenses 4 303 (1%) largely due to lower decommissioning provision costs, IPP OCGTs4 4 049 4 344 (6.8) 844 (5%) CAGR Renewable IPPs 2 206 2 058 7.2 however, this was negated by the write-off of a portion International purchases3 550 509 8.1 of work under construction. Decommissioning, mine 7 805 (n/a) Coal Electricity imports closure and rehabilitation provision costs declined due Primary energy Nuclear fuel IPPs 1. Excludes pre-commissioning production of 8 751GWh from certain to an increase in the long-term discount rate to 4.82% at Primary energy costs (including coal, water and liquid Medupi and Kusile units (2019: 6 374GWh). OCGT fuel Environmental levy 31 March 2020 (2019: 3.36%), with the rate change linked fuels) increased significantly to R112.1 billion (2019: 2. The average cost is calculated on fuel and start-up costs only, to the significant weakening of the Rand in March 2020. R99.5 billion). Our own generation costs (excluding the excluding storage and demurrage. 24 952 (5%) Additionally, our cost curtailment efforts have borne some environmental levy) increased by 13.87% to R71.7 billion 3. Note that the unit cost of IPPs and international purchases is based results, primarily through reductions in sundry expenses. (2019: R63 billion), with coal usage costs being the on the full cost of operation, whereas the unit cost of Eskom-owned 2019 generation is based only on the primary energy cost. Given that IPP 58 456 (86%) major contributing factor. OCGT costs, IPP costs and and international purchases are treated as a variable cost in Eskom’s Refer to “Our finances – Controlling expenditure to improve liquidity” international purchases also experienced growth due accounts, this treatment is considered appropriate. on page 80 for further detail to increased production volumes from each of these 4. The average cost is calculated on the net amount spent on energy, 3 740 (3%) sources, as well as associated price escalations. Total coal excluding maintenance, and after the lease accounting adjustment. 3 768 (1%) In collaboration with the SIU, we have been investigating burn costs (excluding the environmental levy) increased 768 (5%) potential overpayments to a number of contractors The majority of the increases in the R/MWh cost by 13.9% to R66.6 billion (2019: R58.5 billion), despite involved in the construction of Kusile Power Station. As a of production were due to inflationary and periodic a 4.24% decline in production volumes from coal-fired Coal Electricity imports result of our investigations, property, plant and equipment contractual increases. The significant increase in the unit Financial review stations, due to an increase of 16.3% in the average coal Nuclear fuel IPPs was written off by a net amount of R4 billion. cost of coal is largely due to the 16.3% escalation in the OCGT fuel Environmental levy purchase cost per ton from coal contract escalations average coal purchase cost per ton. Levels of coal cost Maintenance expenditure remains a significant contributor combined with the use of more expensive coal from increases are deemed unsustainable given our prevailing Other operating costs to operating expenditure. However, the group’s net repairs short- and medium-term sources. This was offset by a financial challenges. The number of employees in the group (including fixed- and maintenance for the year – including overhead costs, favourable change in the production mix, with increased burn at less expensive power stations. The slight decline in the nuclear unit cost is due to an term contractors) declined by 4.06% to 44 772 (2019: after capitalisation to qualifying assets but before eliminating increase in production during the year, influenced by 46 665) due to natural attrition as well as compliance intergroup transactions for work performed by ERI – Expenditure on OCGTs increased to R4.3 billion, with with the moratorium on external recruitment, with the remained relatively stable at R14 billion (2019: R14.1 billion). the timing of outages on the units. The IPP OCGT unit 1 328GWh generated during the year as a result of exception of the Board-approved appointment of core, There was a slight reduction in planned and unplanned cost reduced as a result of once-off levies included in the declining plant performance and supply constraints critical and scarce positions. The impact of voluntary maintenance across Generation and Transmission due to prior year cost. (2019: R3.8 billion spent producing 1 202GWh). The separation packages on headcount will only be reflected in the deferral of activities and outage constraints, which was OCGT load factor increased to 6.28% (2019: 5.69%). 2021. Net employee benefit costs for the year amounted offset by a slight increase in reliability maintenance and Primary energy costs are directly related to the volume to R33 billion, after capitalisation of costs to qualifying repairs performed in Distribution. Expenditure on international purchases increased by 26.1% assets (2019: R33.2 billion, restated). Despite the of electricity generated from Eskom power stations as to R4.7 billion (2019: R3.7 billion) due to higher imports of reduction in headcount, employee costs have remained Depreciation and amortisation declined by 6.59% to well as purchases from IPPs and international trading R27.8 billion (2019: R29.7 billion, restated) due to units 8 568GWh (2019: 7 355GWh). This was largely because of relatively stable as a result of a 7% salary increase for partners. In order to balance supply and demand, at Hendrina and Komati placed in cold reserve in the improved supply from Hidroelèctrica de Cahora Bassa. bargaining unit employees, in line with the three-year wage production volumes across these sources are managed previous year. IPP expenditure of R28.1 billion added 11 958GWh to meet the anticipated demand for electricity in the agreement concluded in the prior year, as well as a 2.8% region. Because of the significant decline in electricity salary increase for middle management/professionally Net fair value loss on financial instruments and to the energy production mix (2019: R25 billion and demand during the national lockdown, we anticipate total qualified and senior management employees. Overtime embedded derivatives 11 344GWh). This is due to increased usage of renewable GWh energy produced at the end of 2021 to be 5.48% costs were contained at R2.3 billion (2019: R2.2 billion). The net fair value loss for the group on financial IPPs during the year, as well as more extensive use of IPP OCGTs, particularly in the last few months of the year, to lower than this year. In response, the cost of production A net impairment reversal of R61 million was effected instruments, excluding embedded derivatives, amounted assist in ensuring system stability during periods of supply is anticipated to increase as a result of market pressures, during the year (2019: R0.3 billion, restated). Despite to R6.9 billion (2019: R5.3 billion), and arose mainly due constraints. It was anticipated that with the introduction with supply chains severely affected by global lockdown the escalation in the municipal arrear debt balance, a net to credit risk adjustments on Treasury instruments of IFRS 16: Leases, accounting adjustments on the Avon restrictions. Therefore, despite the lower volumes, reversal of impairment arose on trade and other receivables and the significant weakening of the Rand in March 2020. and Dedisa gas peakers would no longer be applied in primary energy costs are expected to increase by about relating to prior year impairments. The cumulative A net fair value gain on embedded derivatives of 2020. However, in terms of accounting principles, these 7% year-on-year, including normal inflationary increases. impairment provision raised at year end for arrear customer R2.3 billion was recorded (2019: R1.9 billion), with are still treated as arrangements containing a lease, debt (excluding interest) was R7.2 billion for all electricity the increase primarily influenced by time and volume thereby reducing expenditure on IPPs by R1.6 billion debtors (2019: R9.3 billion, restated), with the reduction movements as well as the strengthening of the US Dollar for the year (2019: R1.7 billion). predominantly related to the write-back of “in duplum” on a USD-denominated contract. 70 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 71 OUR FINANCES continued The results of Eskom’s cost curtailment efforts Operating costs include primary energy costs, Inventory balances increased by 26.78% year-on-year due to Trade receivables (before collectability adjustments) Eskom’s financial health has deteriorated over recent employee benefit costs, net impairment charges and a substantial increase in coal stock levels together with the increased by R8.9 billion year-on-year due to the years because of declining sales volumes and an electricity other operating expenditure. Normalised operating increase in the average coal purchase price per ton, leading substantial growth in municipal arrear debt. After price that is not cost-reflective, threatening our long-term costs are adjusted for once-off events and those cost to a higher weighted average cost of coal on hand. This was accounting for impairments based on non-collectability financial sustainability. To sustain our operations, it has elements considered outside of management control. coupled with the acquisition of maintenance spares and criteria, the year-on-year increase was only R2 billion. been imperative that we operate in a prudent and efficient These include costs associated with performance consumables to address plant performance challenges. manner while ensuring security of supply. The growth in cash and cash equivalents will be discussed bonus provisions (which have not been raised since later under liquidity. 2018 due to Eskom’s weakening financial position), the Refer to “Our interaction with the environment – Securing our coal Since 2014, we have implemented various cost curtailment use of OCGTs to minimise loadshedding, movements requirements” from page 103 for more information on coal stock days programmes to reduce Eskom’s cost base and improve in decommissioning, mine closure and rehabilitation productivity to close the revenue shortfall. The result of provisions, as well as adjustments in respect of the these stringent programmes is a sub-inflationary compound Credit ratings and funding Duvha Unit 3 insurance incident and the write-off of annual growth in operating costs of approximately 5.2%, Solvency ratios a portion of Kusile work under construction. Also or an overall increase of 23% over the last five years. This excluded is IPP expenditure for contracts concluded Target Target Target Actual Actual Actual Target is comparable to the average annual consumer price index under DMRE’s RE-IPP Programme – a policy requirement Measure and unit 2023 2021 2020 2020 2019 2018 met? over the same period of close to 5%. where Eskom had no control over the awarding or Group Operating expenditure, R billion pricing of contracts. FFO as % of gross debt, % 15.54 5.83 7.23 7.26 5.88 9.06 180 Normalised operating costs have recorded compound FFO (after net interest) as % of gross debt, % 9.77 (1.31) (0.29) 0.03 (1.20) 2.07 5.2% annual growth of approximately 4.3% over the last five years, Cash interest cover, ratioSC 2.54 0.31 0.65 0.94 0.94 1.22 160 4.3% emphasising the success of our cost curtailment efforts. Debt service cover, ratioSC 1.11 0.11 0.29 0.52 0.47 0.87 140 The higher than average growth in costs in the last two Gross debt/EBITDA, ratio 7.16 21.65 14.61 14.39 15.73 9.74 120 years was predominately due to more expensive coal Debt/equity (including long-term provisions), ratio 2.05 2.20 2.68 2.45 3.18 2.58 100 being procured from short- and medium-term suppliers Gearing, % 67 69 73 71 76 72 80 to build coal stockpiles, as well as the above-inflation wage 60 settlement for bargaining unit employees concluded in the 40 2019 financial year. The majority of our solvency ratios performed better Summary of Eskom’s credit ratings at 31 March 2020 than target during the year and improved when 20 While we acknowledge the importance of driving Standard Fitch: compared to the prior year due to our healthier liquidity Rating & Poor’s Moody’s local currency 0 cost curtailment efforts to reduce Eskom’s cost base, position, although they remain well below acceptable 2016 2017 2018 2019 2020 these initiatives alone will not ensure Eskom’s financial investment-grade levels. Of concern is that our cash Foreign currency CCC+ B3 n/a sustainability. The price of electricity has to migrate Local currency CCC+ B3 BB- Opex Normalised opex interest cover ratio remains below one, which means to cost-reflectivity over time to guarantee long- Standalone ccc- caa3 ccc- CAGR Normalised CAGR that operating cash flows are inadequate to fund even the term financial sustainability. Nevertheless, we take Financial review interest component of our debt servicing requirements. Outlook Stable Negative Negative accountability for all matters under our control. Restoring our profitability and solvency ratios to Last rating action Affirmed Downgrade Downgrade acceptable levels requires successful implementation Last action date 26 Nov 2019 31 Mar 2020 30 Sep 2019 Net finance cost Movement in assets and liabilities of our turnaround plan, by improving our liquidity through cost-reflective tariffs, achieving cost curtailment On 30 September 2019, Fitch affirmed our local currency The group earned gross finance income of R2.6 billion The most significant balance sheet movements during the measures and optimising our balance sheet. credit rating with a negative outlook. The affirmation (2019: R2.7 billion), with the slight reduction resulting year were the growth in debt securities and borrowings, reflected the view that the commitment of Government from high organisational cash requirements limiting cash share capital, net derivatives held for risk management, Credit ratings support will assist in mitigating Eskom’s weak liquidity available for investment, coupled with a decline in the inventories, trade receivables, and cash and cash Eskom remains at sub-investment grade level, affecting position. However, Fitch downgraded our standalone average rate of investment to 6.81% (2019: 7.25%). equivalents. our ability to access unguaranteed funding and increasing credit rating due to an anticipated weakening in revenue Gross finance cost for the group amounted to While debt securities and borrowings has increased our cost of borrowing. While credit rating agencies and margin pressure resulting from the lower MYPD 4 R48.4 billion (2019: R45.8 billion, restated), due to by R43.1 billion, we successfully limited growth in the have recognised Government’s commitment to provide tariff determination and higher primary energy costs than higher levels of borrowings at the commencement of nominal value of our debt, with debt raising activities financial support to Eskom, they remain concerned about previously expected. 2020 at a higher weighted average cost. Borrowing costs mostly offset by repayments during the year. The our very high levels of indebtedness, limited revenue growth, poor plant performance, escalating municipal On 26 November 2019, Standard & Poor’s affirmed our capitalised to property, plant and equipment declined increase in the balance is largely attributable to fair value arrear debt, as well as the capital investments required to local and foreign currency credit ratings with a stable to R14.6 billion (2019: R15.4 billion) because borrowing movements, with foreign denominated borrowings most address new build defects and our ageing fleet. outlook. The stable outlook reflected the view that costs are no longer capitalised as new build units enter severely affected by the recent weakening of the Rand Government’s commitment to provide direct financial into commercial operation. Net finance cost for the against major currencies. A similar overall movement is Recent rating actions have reinforced the intrinsic support has reduced both the potential for funding group amounted to R31.3 billion (2019: R27.7 billion, reflected in net derivatives held for risk management. relationship between Eskom and the South shortfalls in the short term, as well as the uncertainty restated), an increase of 12.69%. Share capital of R49 billion was issued in exchange African economy, with the quality of our credit regarding Government’s commitment and ability to Taxation for the Government support received, leading to a affected by changes in the credit ratings and provide timely support to Eskom. The effective tax rate for the year was 22.81% (2019: corresponding increase in equity. outlook of the Sovereign. This interdependence On 5 November 2019, Moody’s downgraded our 28.87%, restated), due to an increase in non-deductible is going to be ever more apparent as we navigate unguaranteed credit rating with a negative outlook; this expenditure. the economic uncertainty of COVID-19, and rating action followed Moody’s change in outlook on the may lead to an increase in our marginal rate Sovereign from stable to negative. On 31 March 2020, of borrowing. Nevertheless, the impact on our Moody’s affirmed the unguaranteed credit rating, current debt portfolio is expected to be minimal indicating that despite a weakening in the Sovereign due to hedging of liabilities. credit quality, Government’s committed equity injections 72 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 73 OUR FINANCES continued continue to provide support to Eskom’s credit quality. We secured debt funding of R50.9 billion during 2020 To mitigate this risk, we continually assess the We plan to secure borrowings of R30.8 billion during However, Moody’s downgraded our guaranteed credit (2019: R63.3 billion), exceeding our target for the year. potential for a breach of loan covenants and 2021, of which R19.6 billion, or 64%, was already rating on notes which rely on the Government’s A R15 billion structured consortium loan facility entered events of default and take appropriate, proactive committed at 30 September 2020. The majority comes Guarantee Framework Agreement (GFA). This was into in January 2019 was due to mature in January 2020; action to prevent their occurrence. Despite our from DFI funding, which will be drawn down subject to aligned to the downgrade of the Sovereign rating to we were able to negotiate an extended maturity to financial challenges, no events of default have requirements. We are targeting additional funding from sub-investment grade on 27 March 2020 as a result of accommodate liquidity requirements, with R7.5 billion occurred to date. DFIs and ECAs, and domestic bond and note issuances. COVID-19 and South Africa’s negative economic outlook. settled in August 2020 and the remainder maturing in The issuance of a Government-guaranteed Rand- February 2021. Future funding denominated Sukuk bond is being considered to diversify Regrettably, the Sovereign credit rating downgrade by The primary focus of our borrowing programme over funding sources. Suitable assets to match the planned Moody’s has placed the country at sub-investment grade No international bonds were issued during the year. the next five years is to secure cost-effective funding issuance amount of R1 billion have been identified; the level by all three internationally recognised credit rating Although no international issuances are planned for the to ensure adequate liquidity reserves to meet cash timing of the potential issuance has not been determined. agencies. Subsequent to year end, Fitch downgraded our coming year, we have established the groundwork should flow requirements, while reducing Eskom’s crippling local currency credit rating from BB- to B+ with a negative the need arise to access the international bond market. debt burden. Our operational, capital and debt service outlook; Standard & Poor’s affirmed their previous rating requirements will be funded through a combination In order to borrow in international markets, we are action but revised our outlook to negative. The international bond market remains a required to maintain a prescribed foreign borrowing significant pool of liquidity based on access, of debt, earnings from operations and Government equity support. limit set by National Treasury. We had applied for an In prevailing market conditions, Eskom’s potential size and diversity of funding sources. increase to the R308 billion limit for 2019, however, the average cost of unguaranteed debt is However, due to the higher cost of borrowing, The Board has approved the following borrowing request was denied and the limit for 2020 was reduced to approximately 200 to 450 basis points more we plan to access this market only when a suitable programme for the next five years. R266 billion to contain foreign debt exposure. than Government’s cost of borrowing, while opportunity arises and the cost is justified. Annual borrowing programme R billion This limit was valid until the end of the year and, due to listed guaranteed debt is about 120 basis points more. Options are being considered to leverage During the year, we experienced an increase in demand 2021 30.8 the reduction, posed a risk to our ability to draw down on for bonds in the local market, primarily as a result 2022 25.6 foreign facilities. Anticipating this risk, in November 2019, Government’s contingent liability, in the form of Government’s commitment to provide financial 2023 22.6 we submitted an application for an increase in the limit of guarantees for Eskom’s debt, to reduce the support to Eskom. Various investors purchased bonds 2024 22.9 and a period extension. By year end, the nominal value overall cost of borrowing to Eskom. across multiple maturities, with interest from both the 2025 20.0 of our foreign currency debt amounted to R265 billion Funding activities for the year offshore and local market. Unfortunately, demand for (2019: R207 billion against a R308 billion limit), close to Total 121.9 The composition of our borrowing programme for unguaranteed commercial paper remains limited. exceeding the prescribed limit as a result of the weakening 2020 was adjusted to accommodate alternate funding of the Rand against major currencies amidst the Sovereign At 31 March 2020, we have utilised R324 billion, or 93%, of When compared to the plan for the five-year period from sources based on market appetite, although the total credit rating downgrade. In April 2020, National Treasury the Government guarantees available under the R350 billion 2020 to 2024, the borrowing programme has decreased borrowing target of R46.2 billion for the year remained approval was obtained to increase the limit to R310 billion GFA (2019: R336 billion). Therefore, we are nearing the end by R85.5 billion, reflecting our intention to limit growth unchanged. We increased our funding requirements from and extend the period to 31 March 2021, thereby reducing of our capacity to raise guaranteed debt, until previously in debt securities and borrowings through Government structured products and domestic notes and reduced the risk of exceeding the limit through foreign borrowings guaranteed debt is repaid and the guarantees become support. those from international bonds, development finance to be raised in 2021. available once again. The availability period of the GFA Financial review institutions and export credit agencies. By remaining Investors are mainly concerned about our poor cash expires on 31 March 2023, after which we will not be able flexible in our approach to funding we were able to adapt flows, which affects our ability to service debt obligations to apply for new guarantees under the GFA. While DFI funding has historically been the preferred to the changing market appetite and pursue new funding given high levels of debt and weak financial ratios; NERSA’s inconsistent application of the regulatory source of borrowing due to the developmental nature opportunities as they arose, thereby ensuring the success Recent credit rating downgrades have increased methodology; perceived slow action on past corporate of their investment mandates and the low cost of of the borrowing programme. investors’ requirements for Government guarantees, governance failures; and previous audit modifications. borrowing, the requirement for Government guarantees as investor mandates typically restrict access to Progress at 30 September 2020 on the execution of Most recently, the impact of COVID-19 and credit rating is limiting our ability to secure funding from these sub-investment grade arrangements unless they are the 2020 and 2021 borrowing programme sources. Additionally, DFIs and ECAs have adopted guaranteed. With only 7% of the GFA available, there is downgrades on Eskom and the South African economy have exacerbated concerns. strict lending rules, typically requiring project-specific 2020 2021 a risk that the remaining allocation may not be sufficient agreements and limiting the financing of non-renewable to fully execute our funding plan for 2021. We are in Potential Committed Committed technologies. sources, R billion Target to date Target to date discussion with Government to address this risk based on targeted guaranteed funding. Action taken to address governance concerns, strengthen To address this risk, we are diversifying funding sources Development finance 22.2 15.5 12.5 11.7 leadership and improve transparency, combined with institutions (DFIs) to include alternate sources and new markets, such The average cost of debt increased to 9.58% (2019: Government’s commitment to provide direct financial Export credit 1.4 0.3 0.6 0.6 as the Middle East and Asia. We are in the process of 9.33%), based on a blend of fixed and floating rates. Given support, have contributed to alleviating investor concerns agencies (ECAs) establishing an ECA framework for maintenance and that fixed finance costs provide better hedging of interest to some extent. However, the socio-economic uncertainty International bonds 7.4 – – – refurbishment programmes. Furthermore, we are Domestic bonds and 7.9 11.0 5.1 5.1 rate exposures, 72% of our borrowings are based on emanating from the COVID-19 pandemic, including the identifying potential structured products to diversify our notes > one year fixed rates. The remainder is subject to floating rates most recent Sovereign credit rating downgrade and funding sources. Based on current market indications, Domestic bonds and 4.4 7.9 2.9 1.2 linked to movements in short-term rates, such as JIBAR the significant depreciation of the Rand against major there is a strong appetite for structured products and notes ≤ one year and LIBOR. currencies, is likely to have a negative effect on our Structured products 3.0 15.0 8.2 – innovative financing solutions. financial and operational sustainability and our ability to Bank funding – 1.2 1.5 1.0 Due to our financial and operational challenges, the raise cost-effective funding. perceived risk of credit default has increased. Eskom Total 46.2 50.9 30.8 19.6 automatically makes certain representations and 1. Committed sources include funding raised or signed facilities with warranties to lenders with each request to draw down milestone drawdowns. from existing loan facilities and at each interest payment 2. Funding sources targeted for 2021 are subject to change. date. Any misrepresentation in this regard would constitute an event of default. An event of default could trigger a breach of loan covenants, cross-defaults and may result in Government guarantees being called up. 74 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 75 OUR FINANCES continued Anticipated capital and interest cash flows (including swaps) of the existing debt portfolio Government support Price applications to support revenue at 31 March 2020, R billion The viability of our 2019 turnaround plan was based on requirements 100 four focus areas, one of which was Government support to Another of the focus areas of our 2019 turnaround plan enable us to reduce debt. The 2019 National Budget catered centred on improving our revenue outlook through for Government support to Eskom of R230 billion over migrating to cost-reflective tariffs and growing sales. 80 10 years, or R23 billion per year, to support our balance Despite applying for revenue based on prudent and sheet and restructuring. However, to address immediate efficient costs in accordance with the MYPD methodology, 60 liquidity and going concern challenges resulting from the the average standard tariff price increases and RCA shortfall in NERSA’s MYPD 4 revenue determination, determinations made by NERSA over recent years have the Special Appropriation Act, 2019 was promulgated not enabled the migration towards cost-reflectivity as 40 in November 2019 to allocate a greater portion of the envisaged in the Electricity Pricing Policy. R230 billion Government support to earlier years. The 20 Act appropriated an additional R26 billion for 2020 and In terms of the National Energy Regulator Act, 2004, R33 billion for 2021, thereby bringing the Government any decision by NERSA to approve a tariff increase is an support to R49 billion for 2020 and R56 billion for 2021. administrative action and therefore subject to judicial 0 review in the High Court under the Promotion of 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 A total of 49 billion ordinary shares with a par value of Administrative Justice Act, 2000. This is the only avenue Capital Interest R1 were issued in return for the equity received during available to affected stakeholders who believe that the year. due process was not followed or that NERSA made an irrational or unlawful decision. Our debt repayment profile remains pressured over Net cash flows from operating activities for the year both the short and long term, with debt repayments amounted to R36.2 billion (2019: R32.7 billion). Solvency Section 1(2)(b) of the Special Appropriation Act, 2019 We have submitted a review application for every of R197 billion and interest payments of approximately ratios have improved slightly compared to the prior year; imposes certain conditions on the Government support revenue and RCA determination made by NERSA from R145 billion over the next five years to 31 March 2025. however, these ratios remain well below the investment- package. In November 2019, the Minister of Finance December 2017 to March 2019. The basis of each of our Total anticipated debt service costs for 2021 amount grade levels required by credit rating agencies. The approved the conditions applicable to the 2020 financial review applications is that NERSA’s MYPD methodology to R95.3 billion, significantly higher than repayments of current ratio and debt service cover ratio improved year. Eskom and the shareholder are obliged to comply has not been implemented rationally in their recent R70.6 billion during the current year. slightly to 1.09 (2019: 1.00, restated) and 0.52 (2019: with these conditions in order to authorise the transfer of decisions. The specific legislative requirement that 0.47) respectively, although the cash interest cover ratio funds. Non-compliance could lead to funds not being made has been violated is the requirement of the Electricity Managing liquidity remained stable at 0.94 (2019: 0.94). These ratios indicate available on time, or at all. Our Treasury Department has Regulation Act, 2006 that prices, charges, tariffs and Liquidity remains one of our biggest challenges, that operating cash flows remain inadequate to fund weekly meetings with National Treasury and DPE officials to revenues set by the regulator “must enable an efficient hampering our ability to achieve financial and operational debt servicing requirements, highlighting the need for discuss progress towards achieving the various conditions. licensee to recover the full cost of its licensed activities, sustainability. Access to cost-effective funding remains Government support. including a reasonable margin or return”. One condition is that the support may only be used to settle restricted due to decreased investor confidence because debt and interest payments; this is in an effort to strengthen Net cash flows used in investing activities amounted Refer to the table on page 78 for a summary of the review applications of continued poor financial performance, saturated Eskom’s balance sheet on the path to financial sustainability. to R27 billion for the year (2019: R36.2 billion). Financial review under way borrowing capacity and recent credit rating downgrades. In terms of the conditions, we are also required to submit A total of R25.5 billion was used for the acquisition Inadequate price increases granted by NERSA as well as financial, operational, governance and restructuring of property, plant and equipment, intangible assets In August 2019, we submitted an RCA application of escalating municipal arrear debt further contribute to information that address certain matters on a once-off, and future fuel, excluding capitalised borrowing costs R27.3 billion for the 2019 financial year. On 14 May 2020, our liquidity constraints. monthly or quarterly basis. Additionally, no variable (2019: R35.1 billion), mainly through capital expenditure NERSA approved an RCA balance of R13.3 billion, These liquidity and solvency risks pose an inordinate on the new build programme, Generation outage and incentive remuneration may be awarded to executives in resulting in a shortfall of R14 billion. There is evidence threat to Eskom’s ability to continue as a going concern. technical plan requirements as well as our network years where equity support is provided. of continued incorrect application of the MYPD To improve liquidity, we have restricted organisational infrastructure. Capital expenditure for the year was We have complied with all stipulated conditions for the 2020 methodology as well as further deviations. It is clear cash requirements through targeted savings on operating stringently contained because of our ongoing liquidity financial year and received the full R49 billion appropriated that the key guiding principles of the court judgment and capital expenditure. We had to rely on Government challenges; however, there is a risk that continued for the year. on the 2019 revenue decision have not been complied support to maintain a positive cash balance at year end, deferral of capital maintenance, refurbishment and with, despite being available when NERSA made this with equity of R49 billion received during the year. replacement of infrastructure may lead to future RCA decision. The reasons for decision for the RCA operational challenges. The added strain on the national fiscus, in the form determination have recently been published. We have always deemed it prudent to maintain a of relief funds and the economic stimulus packages in liquidity buffer that covers an average of three months response to the COVID-19 pandemic, may threaten the In accordance with the court judgment on the 2019 For detail of capital expenditure incurred, refer to the table on page 98 of organisational cash flow requirements. Due to high appropriation of future financial support. revenue decision, we submitted the supplementary debt servicing obligations, maintaining the liquidity buffer Net cash flows generated from financing activities for the tariff application to NERSA within the allotted 60 days at acceptable levels continues to be a challenge. Our year were R11.7 billion, including Government support Nevertheless, we are monitoring cash flows on a continuous from the RCA decision. The application amounts to monthly cash flow needs are approximately R8 billion, (2019: R10.9 billion outflow). Cash flows raised through basis to provide regular feedback on our liquidity position approximately R5 billion to recover expended costs requiring a buffer of between R20 billion to R25 billion. debt securities and borrowings amounted to R32 billion, and current and forecast cash flows to National Treasury that would be due to Eskom had NERSA made the net of commercial paper (2019: R58.9 billion), while we and DPE. We work closely with these departments to original revenue decision lawfully, and not covered in By year end, cash and cash equivalents had improved determine the timing of the support required. the RCA application. The recovery of the RCA balance markedly, with an available balance of R23 billion repaid debt of R31.5 billion, net of commercial paper (2019: R34.5 billion). Funding raised through the borrowing and supplementary tariff adjustment will be through (2019: R2 billion), largely due to the Government Although the Government support addresses short-term the annual tariff adjustment and will require a separate support received during the year. However, the balance programme was curtailed compared to the prior year, liquidity requirements, it is clear that on its own, it does to reduce our reliance on debt as a source of liquidity and NERSA decision; however, the recovery can only be was bolstered by payments of R5.3 billion, scheduled for not adequately support long-term financial sustainability. initiated from the 2022 financial year at the earliest. 31 March 2020, having been delayed to 1 April 2020 due limit future debt servicing requirements. This was only The only way to achieve that remains through cost- possible through the Government support of R49 billion. The Board will decide on the way forward once both to technical issues. Nevertheless, cash flows continue to reflective tariffs. the reasons for decision and the implementation plans be severely constrained. Interest paid totalled R39.1 billion (2019: R35.8 billion), exceeding our capital repayments for the year. Unless the tariff challenges are resolved, further for the recovery of the approved RCA balance and the Government support will be required to alleviate our supplementary tariff application are published by NERSA. debt burden. 76 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 77 OUR FINANCES continued Background Review application Progress Eskom’s tariff path compared to the IRP price paths RCA decisions for the 2015 to 2018 financial years (MYPD 3) The IRP is a development plan for electricity infrastructure, intended to balance least-cost electricity supply with future In June 2018, NERSA approved an In February 2019, we submitted a High The judgment received in June 2020 sets aside the RCA electricity demand by setting out decisions around future generation capacity and technology mix required for security RCA balance of R32.7 billion against Court application to review the decision decision for 2015 to 2017, finding that NERSA’s failure of supply and to protect the environment. an application of R66.7 billion for years for years two to four. After delaying for to process the decisions within a reasonable time was two to four of MYPD 3. In March 2019, over a year, NERSA decided not to inconsistent with the Constitution. In addition, it found Each IRP provides indicative price paths necessary to deliver on a range of possible scenarios. The graph below reflects NERSA approved an RCA balance of only oppose the application. Due to practical fundamental factual errors and that NERSA’s decisions R3.9 billion for 2018, the fifth and final constraints related to the COVID-19 were not rational. The judgment accepts that Eskom the actual average Eskom tariff compared to the price paths outlined in the IRP 2010, the 2013 revision to the IRP 2010, year of MYPD 3, representing less than pandemic, the parties agreed to forgo a put forward a proper case for relief in those areas and the recently gazetted IRP 2019. It is important to note that for the purposes of this analysis, the scenario selected 20% of the R21.6 billion applied for. hearing and the judge considered the where NERSA did not implement its methodology and for each IRP is that which is closest to what actually occurred. To enable comparison between the IRPs and other case based on affidavits. past precedent. reference price paths, the analysis is converted to constant 2020 prices. In each case, NERSA did not comply with the MYPD methodology, nor was In April 2020, we submitted the founding Based on the judgment, NERSA is required to urgently it consistent with the precedent of the affidavit of our review for the 2018 RCA reconsider its RCA balance decision for 2015 to 2017 Price comparison, c/kWh (constant 2020 prices) RCA decision made for the first year decision. NERSA served its notice to and allow for adjustments in future tariffs to address 150 of MYPD 3. The RCA decision for 2018 oppose, which is unexpected given that it prudent and efficient costs applied for. NERSA will contains even further deviations from withdrew its opposition to the review of undertake a public consultation process; a final the MYPD methodology than previous the previous RCA decision. determination is expected by 26 February 2021. It is 120 decisions. anticipated that this judgment will further support Eskom’s case regarding the 2018 RCA decision. Revenue decision for the 2019 financial year 90 In December 2017, NERSA announced In June 2018, we lodged a review Judgment was delivered in March 2020, and determined its revenue decision for 2019, allowing application to set aside this decision, on that the revenue decision was procedurally unfair, revenue of R190.4 billion, or a standard the basis that NERSA did not undertake irrational, unreasonable and unlawful. It allows Eskom 60 tariff increase of 5.23%, against an its mandate of balancing the impact on to submit a supplementary tariff application to NERSA application of R220 billion (an effective Eskom’s financial sustainability with the to recover costs had a lawful decision been made. The increase of 19.9%). This decision has had impact on consumers. supplementary application is to include costs not 30 severe consequences on Eskom’s financial already applied for through the 2019 RCA application, 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 sustainability, going concern status and and is to be submitted within 60 days of the RCA NERSA price path to cost-reflectivity – upper boundary NERSA price path to cost-reflectivity – lower boundary Actual average prices, including MYPD 4 ability to service debt commitments. decision. The judgment clarified a number of key guiding principles, which are to be applied by NERSA. IRP 2010 IRP 2010 (2013 update) IRP 2019 NERSA will undertake a public consultation process; a final determination is expected by 26 February 2021. Relative to the original IRP 2010, the price path for the 2013 revision reflects an outwards shift of around 18 months. Revenue decision for financial years 2020 to 2022 (MYPD 4) This is likely due to the 12 to 18 month delay in the construction of Kusile Power Station at the time. From 2018, the first In March 2019, NERSA announced its In October 2019, we submitted an urgent The judgment on the urgent application was issued in year of IRP 2019, all three IRP price paths are within 8% of each other, with an average variance of around 5% up to 2023, MYPD 4 revenue decision, allowing court application to reverse NERSA’s February 2020. Although not granted, the judge made it indicating that the IRPs reflect very similar price paths within a very narrow band. revenue of R206 billion for 2020, decision related to the incorrect clear that the allocation of the equity support against Financial review R222 billion for 2021 and R233 billion for deduction of the R69 billion Government revenue violated the basic principles of accounting and The National Development Plan 2030 (NDP) issued in August 2012 proposed that Eskom’s average price should reach 2022, equating to standard tariff increases support over the MYPD 4 period, concluded that the decision by NERSA is open for of 9.41%, 8.10% and 5.22%. Eskom had proposing recovery in a phased manner. review. After some delays, NERSA decided not to 120c/kWh by 2019, or around 127c/kWh in constant 2020 prices – this is within 4.7% of the IRP 2019 price. As indicated applied for a 15% average annual price The application was made on the basis oppose the review of the merits of the second part of in the graph, all three IRP price paths, as well as the NDP’s proposed price, fall within the upper and lower boundaries of increase. The decision resulted in a that the MYPD methodology does not the case. The hearing only addressed the recovery of NERSA’s future price path from 2017 to 2024 (published in its reasons for decision in June 2009). shortfall of R102 billion over MYPD 4. allow Government support to be the misappropriated equity support. Judgment was In determining the allowable revenue, considered in the revenue decision, nor delivered in July 2020, with the court ruling that the In a global context, the lowest IRP price for 2020 translates to less than USD 9c/kWh – one of the lowest electricity NERSA deducted the annual R23 billion is it consistent with the Government MYPD 4 determination made by NERSA is reviewed and tariffs in the world, and below the USD 10c/kWh price for Eskom published in the 2016 World Bank report, at Government support from the return on support received in 2014. The review set aside. It requires Eskom to recover the R69 billion in assets, resulting in a negative return on application requested an urgent judgment a phased manner over a three-year period, starting in benchmark cost and technical performance. assets. Prior to that, the allowed return for interim relief of the misappropriated the 2022 financial year. Therefore, recovery of the was approximately 1.5%, far below our equity. The second part of the application amounts will only commence two years after being The lowest IRP price for 2020 is around 30% higher than Eskom’s actual average price, resulting in after-tax revenue loss pre-tax real weighted average cost of sought a review of the merits of incorrectly disallowed, with Eskom bearing the shortfall of around R40 billion for the year. This trend continues every year. The difference between what tariffs should have been capital of around 9.5%. This is also lower deducting equity injections from during this time. and what they were, has resulted in a cumulative after-tax revenue shortfall of over R300 billion since 2010. than the 4.7% and 4% return on assets allowable revenue, and requested the determined by NERSA for the 2018 and court to make a substitution decision for NERSA has been granted leave to appeal the judgment in Eskom has had to raise debt to cover this shortfall, leading to a significant growth in debt, to more than R480 billion at 2019 financial years. the recovery of the R69 billion over the Supreme Court of Appeal. We have applied for three years, from the 2022 financial year. execution of the order while awaiting the appeal process. 31 March 2020. The revised IRP 2010 acknowledged that, due to the low tariff path awarded for MYPD 3, Eskom will exceed a debt:equity ratio of 80:20 by the end of MYPD 3. In reality, the modelling was not far off, with Eskom’s financial gearing at 72% at that point. We welcome the various judgments of the High Court NERSA has initiated a public consultation process and await the implementation of our successful review regarding the timing of the recovery of the 2019 RCA. For Eskom and the electricity supply industry to continue to operate and maintain its assets in a reliable state, and to outcomes, as well as the NERSA decision on the A final decision is expected by 26 November 2020. be financially sustainable and meet its financial obligations related to existing and new capacity outlined in the IRP 2019, recovery of the 2019 RCA balance and the supplementary It is envisaged that costs relating to 2019 will only be the average tariff has to migrate to cost-reflective levels indicated by the reference price paths discussed above. tariff adjustment. recovered from 1 April 2021 at the earliest. Without a cost-reflective tariff path, Eskom will remain reliant on Government support, which implies that the taxpayer Until that time, it is not possible to determine how The RCA balance for 2020, calculated in accordance will continue to foot the bill for the revenue shortfall, which is contrary to the “user pays” principle. the average tariff increases for 2022 and beyond will with the MYPD methodology and associated rules, is be affected until the judgments are fully implemented estimated at R10 billion. The RCA balance application will by NERSA. be submitted to NERSA after the publication of our 2020 consolidated annual financial statements. Nevertheless, it is imperative that decisions around implementation are made timeously to allow Eskom to recover efficient and prudent costs on the path towards financial sustainability. 78 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 79 OUR FINANCES continued Controlling expenditure to improve liquidity Planned and achieved cost savings, R billion Key debt management indicators at 31 March 2020 Driving sustainable cost curtailment and efficiencies to 60 55.8 Target Target Target Actual Actual Actual Target improve liquidity and ultimately financial sustainability Measure and unit 2023 2021 2020 2020 2019 2018 met? formed another focus area of our 2019 turnaround 50 plan. Given prevailing socio-economic conditions, the Arrear debt as % of revenue, % 3.08 3.73 3.14 3.69 4.30 2.73 shareholder has indicated a lack of support for aggressive 40 34.3 Average debtors days (including Soweto and 88.10 97.82 85.00 90.01 82.50 71.11 headcount reduction. Therefore, cost savings associated international), days with this initiative will no longer be pursued. 30 Debtors days – municipalities, average debtors days 155.28 143.13 113.14 116.05 94.28 76.63 Debtors days – large power top customers excluding 16.29 16.17 14.88 14.60 13.46 13.89 As a result, the savings target for 2023 has been reduced 20 14.2 disputes, average debtors days to approximately R21 billion, or a cumulative R62 billion Other large power user debtors days (<100GWh p.a.), 18.52 18.28 16.90 16.98 17.19 16.64 to 2023. We had originally targeted to reduce Eskom’s 10 average debtors days cost base by approximately R33 billion in 2023, or a Debtors days – small power users excluding Soweto, 47.08 48.40 44.69 44.09 42.61 43.36 cumulative R77 billion to 2023. Nevertheless, we will 0 average debtors days 2020 2020 2021 2022 2023 continue to drive alternative workforce optimisation Actual Target Payment levels excluding Soweto interest, % SC 95.70 95.70 96.70 96.24 95.79 97.38 levers, including limiting external recruitment and introducing voluntary separation packages, among others. Operating expenditure Working capital 1. Debtors days are based on amounts processed on our billing system, and shown before accounting adjustments relating to non-collectability. Capital expenditure Cumulative total Cost savings over the past year In accordance with IFRS 15: Revenue from Contracts For the 2020 financial year, we did well to achieve Municipal arrear debt by province, R million Managing arrear debt with Customers, we do not recognise revenue if it is not savings of R16.3 billion against a target of R6.2 billion. Our customers’ ability to settle their bills is influenced considered collectable at the date of sale, although we 1 466 (5%) Savings were achieved through initiatives across various 1 058 (4%) by local and global economic factors including continue to bill all customers based on consumption. areas of the organisation, with savings measured against 1 683 (6%) commodity prices, exchange rates, business sentiment, Customers that fail the collectability criterion are an agreed baseline based on approved financial rules. unemployment rates, regulation and policy. accounted for on a cash basis, with revenue only being 1 753 (6%) The Turnaround Management Office, supported by the recognised once payment is received. As a result, Results Management Office, is responsible for actively external revenue of R6.1 billion was not recognised 11 417 (41%) tracking and monitoring the implementation of initiatives The COVID-19 pandemic only started affecting South during the year (2019: R6.4 billion). 2 653 (9%) to ensure that they yield the required value. Africa during the last month of the financial year under A significant portion of savings is attributable to coal review. Nevertheless, the resulting national lockdowns For details of debtors by category, including impairment and carrying inventory optimisation, complemented by savings in in South Africa and many of our trading partners are values, refer to notes 6.1.1 and 20 in the consolidated annual financial sundry expenses, as well as efficiencies achieved through expected to have a widespread and lasting negative statements impact on the economic climate. South Africa has 8 012 (29%) revenue recovery initiatives and increased revenue from Municipal arrear debt international customers. Coal-related savings are primarily entered into an economic recession, which is expected to lead to a significant reduction in demand for electricity Total municipal arrear debt continued to escalate to Free State Eastern Cape working capital savings (not necessarily affecting the North West Financial review over the next three to five years. Households and unacceptably high levels, amounting to R28 billion Mpumalanga Northern Cape Remainder income statement) achieved by reducing coal deliveries to (including interest) at year end (2019: R19.9 billion). Gauteng minimum contract levels – the associated benefit may not every sector of the economy have been affected by the slowdown in economic activity, job losses and businesses The arrear portion represents 75.7% of total invoiced be permanent due to escalating coal prices. municipal debt (including interest). The top 20 defaulting closing down or entering into business rescue. Therefore, Future cost savings the ability of customers to pay is expected to be municipalities constitute 81% of total invoiced municipal The top 10 defaulting municipalities owed a combined total Cumulative cash savings targeted over the next three fundamentally threatened. arrear debt (2019: 81%), with almost 41% of that owed of R19.6 billion in invoiced arrear debt (or 70% of total years amount to R55.8 billion, comprising operating by Free State municipalities. At year end, there were invoiced municipal arrear debt) at year end. The substantial expenditure of R32.3 billion, capital expenditure of 45 municipalities with total arrear debt of more than growth over the year in arrear amounts owing is clear. R12.4 billion and working capital of R11.1 billion, as Before COVID-19 became our new reality, systemic R100 million each (2019: 34), a number which has grown depicted in the following graph. Including the 2020 target challenges in South Africa such as crime and social considerably during recent years and demonstrates the Municipality, R million 2020 2019 of R6.2 billion, our overall savings target is R62 billion. inequality, economic pressures on businesses as well as pervasive nature of the problem. 1.  Maluti-a-Phofung Local Municipality, 5 071 3 769 shifts to self-generation technology have led to declining Free State We have identified a number of initiatives to achieve our electricity sales volumes over many years, coupled Invoiced municipal arrear debt (including 2.  Emalahleni Local Municipality, 3 587 2 487 ambitious savings target by 2023. Some initiatives were with persistent revenue recovery challenges. Despite interest) and arrear debt percentage at Mpumalanga already formulated and implemented in 2020 and will our customer base growing over the past year, these 31 March 2020, R billion 3.  Matjhabeng Local Municipality, 3 025 2 199 continue to deliver value going forward; work is under Free State challenges are likely to be exacerbated by the economic way to identify further initiatives, with increased focus 40 4.  Emfuleni Local Municipality, 1 972 1 194 climate surrounding COVID-19, especially given the 76% Gauteng on driving savings in procurement, working capital and capital expenditure efficiency. Procurement tools such continued culture of non-payment in some sectors. 35 5.  Govan Mbeki Local Municipality, 1 768 1 082 Mpumalanga as a price check tool and e-auction capabilities are being Average debtors days have deteriorated during the year 30 34.5% 72% 6. Ngwathe Local Municipality, 1 220 1 085 rolled out to ensure that Eskom derives optimum value and, with the exception of large power users consuming 25 Free State from procurement activities. We have called on all of less than 100GWh per year, have deteriorated year- 68% 7.  Lekwa Local Municipality, 1 085 768 our employees to engage and share ideas that can lead to 20 on-year across all customer categories. This is largely Mpumalanga 62% sustainable cost savings. 15 8.  Thaba Chweu Local Municipality, 708 546 due to a significant escalation in municipal arrear debt 53% Mpumalanga and continued low payment levels in Soweto. Invoiced 10 9.  Ditsobotla Local Municipality, 570 405 municipal arrear debt has experienced exponential North West 5 growth of close to 50% every year since 2016. As a 10.  Modimolle-Mookgophong Local 549 370 result, average municipal debtors days are unacceptably 0 Municipality, Limpopo 2016 2017 2018 2019 2020 high as the trend of non-payment continues to worsen. Current amounts Municipal arrear debt (including interest) CAGR 80 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 81 OUR FINANCES continued Dealing with defaulting municipalities during the year. In December 2019, SCOPA was informed Total invoiced Soweto SPU debt has decreased to Future focus areas In previous years, we implemented numerous measures that the IMTT had been transferred to the Inter- R12.8 billion (including interest) at year end (2019: • Strengthening the balance sheet through Government to manage municipal arrear debt. Despite these efforts, Ministerial Committee on Service Delivery (IMCSD) R13.6 billion), of which only R671 million is deemed support, to reduce our reliance on debt and contain limited success was achieved and arrear debt continues led by the Deputy President and Leader of Government collectable and reflected as trade receivables in the debt service costs to grow to unsustainable levels. We have therefore Business, but that the IMCSD had not been mandated annual financial statements. to deal with Eskom’s arrear debt challenges. SCOPA • Maintaining strong relationships with investors and reviewed our approach to dealing with this challenge determined that it would devise a roadmap to resolve The Board approved the write-back of non-compliant “in credit rating agencies to secure funding under the and have developed a new municipal debt management these intergovernmental challenges, to ensure that duplum” interest and prescribed debt relating to Soweto borrowing programme strategy, approved by the Board in November 2019. Eskom is enabled to turn around the situation. accounts during the year. The total non-compliant debt • Actively monitoring cash flows and partnering with The strategy comprises three key objectives, namely to component reversed amounted to R7.9 billion. National Treasury and DPE to ensure that the reduce and/or eliminate overdue debt; stop defaulting Subsequently, a task team was commissioned by necessary financial support is received when needed, the Presidency to deal with matters pertaining to Payment levels on Soweto residential accounts have where it occurs; and prevent future defaulting by by meeting equity conditions Eskom. The Eskom Political Task Team (PTT) is increased to approximately 20.7% (2019: 12.5%), but paying customers. To achieve this, we are enhancing chaired by the Deputy President and held its inaugural remain unacceptably low. Total Soweto SPU payments • Pursuing the recovery of prudent and efficient costs to and enforcing existing revenue and debt management meeting in February 2020. The PTT has established a received during the year amounted to only R115 million, ensure a cost-reflective tariff path and improve long- processes, enforcing Eskom’s rights through legal action Multidisciplinary Revenue Committee which will focus a shortfall of R442 million against amounts billed. term financial sustainability and expediting Government interventions. on the implementation of the recommendations of the The improvement is largely attributed to the conversion • Implementing targeted cost curtailment efforts, to Interventions to enhance our revenue and debt former IMTT. Specifically, the committee is focusing reach the target of cumulative savings of R62 billion of conventional meters in Soweto to prepaid meters, management efforts include close monitoring of billing on the rollout of the National Payment for Services to 2023 resulting in lower conventional (billed) sales, although the and payments for accuracy and timeliness, assisting Campaign, piloting the installation of prepaid smart monthly average payments received from billed Soweto • Executing the recently approved municipal debt municipalities in their revenue collection efforts meters in municipalities and, with support from National customers has increased only marginally. Community management strategy, and working with the Eskom through active partnering, as well as improved customer Treasury, will consider municipal budget compliance resistance, vandalism of equipment as well as financial Political Task Team to improve collection of municipal relationship management to proactively identify and to ensure that current accounts are paid, including the constraints continue to hinder our progress in rolling out accounts and slow the growth in arrear debt mitigate the likelihood of defaulting. We are exploring restructuring of arrear debt owed by municipalities. We split meters and converting those to prepaid. • Exploring negotiated pricing agreements and other the possibility of collecting municipal customer payments are fully participating in the work of the PTT, although directly and arranging prepayment of accounts, as well as improvements from these initiatives are yet to be seen. International arrear debt avenues to stimulate sales volumes withholding services to defaulting customers. As a result of our recovery efforts, the arrear debt of • Monitoring and assessing the impact of COVID-19 Based on engagement with National Treasury, the ZESCO of Zambia and ZETDC of Zimbabwe has been on the economy and our financial performance and We are investigating ways to better enforce payment allocation of a portion of municipalities’ equitable share settled in full. Only EDM of Mozambique remains in liquidity, and responding appropriately to mitigate agreements with municipalities. A total of 48 active directly to Eskom is not permissible due to legislative arrears, with R550 million outstanding at year end, of associated risks payment agreements with defaulting municipalities were restrictions. National Treasury may withhold the which 91% is overdue. EDM is disputing R350 million in place at year end, including 12 of the top 20 defaulters. equitable share transfers to municipalities that do not of the balance. In April 2020, EDM concluded an However, of those, only 20 were being fully honoured, practise good financial management but, by law, the share acknowledgement of debt and repayment plan including only one of the top 20 defaulting municipalities. being withheld cannot be paid over to another party. agreement. Regrettably, EDM is not complying with Furthermore, only two of the Free State municipalities Financial review the terms of the agreement, which requires mediation were honouring their agreements. Non-adherence to We continue to engage National Treasury to resolve the matter. payment agreements contributes significantly to the on how to leverage their authority to ensure increase in municipal arrear debt. municipalities prioritise Eskom as a creditor. Unfortunately, legal action is often necessary to enforce In line with the recently approved municipal debt our rights to restrict, interrupt and terminate supply management strategy, we continue to pursue all when services are not paid for. During the year, there available avenues to recover amounts due by defaulting were 29 legal cases under way in respect of amounts municipalities. However, the situation cannot be solved owed by defaulting municipalities. Regrettably, we were by Eskom alone – continued support and cooperation interdicted from interrupting supply to 16 of the top 20 from Government and other stakeholders are crucial defaulting municipalities, with applications by third parties to address the root causes of the problem and resolve – such as municipal customers and interest groups – or these challenges. the municipalities themselves. During litigation, arrear Residential arrear debt debt continues to escalate as the municipalities take a payment holiday. We have issued summons for debt Compared to municipal arrear debt, which covers only owed and are pursuing the attachment of moveable and a few hundred municipal customers, defaulting SPU immoveable municipal assets, most recently in the case of customers, particularly in Soweto, comprise tens of Maluti-a-Phofung, Matjhabeng and Emfuleni, some of our thousands of residential customers, representing a much largest defaulting municipalities. greater challenge in terms of managing and collecting individual outstanding debt. However, while municipal As previously reported, an Inter-Ministerial Task Team arrear debt has grown exponentially over the past few (IMTT) was established to address the systematic and years, Soweto arrear debt has increased at a much structural issues behind municipal debt as well as related slower rate. Nevertheless, Eskom is obligated to collect operational challenges. Regrettably, there has been no all amounts due, which requires a concerted effort to significant progress on the IMTT recommendations improve the low payment levels in Soweto. 82 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 83 OPERATING CHIEF OPERATING PERFORMANCE OFFICER’S COMMENTARY The implementation of our future strategy requires a focus on strategic security of supply JAN OBERHOLZER in the short, medium and longer term. Because of the constrained system, we have been Chief Operating Officer deferring maintenance and mid-life refurbishments, contributing to loadshedding. Fleet performance will continue to deteriorate unless this is addressed. We have decided that prescribed maintenance can no longer be deferred to ensure that available capacity will We operate an ageing and hitherto poorly-maintained coal supply to 2022 to meet coal burn estimates and adequately meet demand fleet of coal-fired stations; our two new coal-fired maintain healthy coal stock levels at all stations. stations are not yet fully commissioned. Units at the new stations are in the “burn in” phase of plant life, Due to high levels of unplanned breakdowns, we had where teething problems are to be expected, while the to implement loadshedding on 46 days during the majority of units at the old stations are in the “wear year to maintain the stability of the power system out” phase. Very few units are in the phase where (2019: 30 days). The implementation of stage 6 optimum performance is expected. Our transmission loadshedding on 9 December 2019 was undoubtedly and distribution networks are also ageing, and starting the watershed point of the year. to show the effects of underinvestment in refurbishment Our own OCGTs were used extensively to supplement and strengthening over the years. The prevailing financial capacity during the year, to ensure grid stability and challenges, discussed in the CFO’s report, have a knock- minimise or avoid loadshedding during periods of low on effect on operational performance. generation plant availability. IPP OCGT peakers were also used to ensure system stability. Performance review Plant and network performance As we have reiterated on a number of occasions, it is Generation plant availability continued to deteriorate to likely that loadshedding will be required intermittently 66.64% for the year (2019: 69.95%), well below our target for a period of about 18 to 24 months, while we of 71.50%. Planned maintenance of generation plant undertake much-needed planned long-term reliability reduced slightly to 8.92% (2019: 10.18%), although slips maintenance as well as mid-life refurbishment to improve against planned outages – where an outage is completed the reliability of our generation fleet. However, the later than planned – remain a concern. Unplanned success thereof is dependent on the availability of funds, maintenance deteriorated further to 22.86% for the year especially for mid-life refurbishment. (2019: 18.31%). To avoid or minimise loadshedding, we Our transmission performance saw a marked decline continue to operate our plant at load factors far outside over the year, with system minutes lost <1 of 4.36 acceptable norms, leading to high levels of unplanned minutes for the year, considerably worse than the target breakdowns. Regardless, the peaking and nuclear of 3.53 (2019: 3.16), with three major network incidents generation plant continue to perform well. (2019: three). Line fault performance was relatively Nevertheless, our Generation recovery plan stable, although slightly worse than target. Vandalism of Operating performance implemented in November 2018 to improve plant the transmission network affecting operations remains availability has delivered noteworthy results. A number a challenge. of key areas have been satisfactorily completed, with Both distribution network interruption duration (SAIDI) good progress being made in other areas. However, some at 36.9 hours and network interruption frequency areas have shown little improvement over the past year (SAIFI) at 14.4 events performed better than target – incidents related to unit trips and full load losses, boiler and the prior year (2019: 38 hours and 14.9 events). tube leaks and partial load losses, as well as outage slips. Regrettably, distribution energy losses worsened to These continue to receive attention. 8.79% (2019: 8.47%), largely due to declining sales and All power station general manager and middle manager escalating electricity theft. In an effort to protect our positions have been filled. The majority of 1 872 vacant infrastructure against damage due to overloading, mainly Chief Operating Officer’s commentary 85 due to illegal connections, we have started implementing Generation positions have been filled, mainly through Our infrastructure 87 internal appointments; 205 plant operators have also load reduction during peak times in areas with a high been appointed. prevalence of illegal connections. Our interaction with the environment 102 There has been a marked improvement in coal stock levels, New build progress Our people 116 Medupi Units 3 and 2 achieved commercial operation with average coal stock (excluding Medupi and Kusile) at Our role in communities 124 50 days at year end (2019: 36 days), with no power stations on 5 July and 26 November 2019 respectively, adding below their minimum stock levels (2019: nine). Coal quality installed capacity of 1 588MW to the national grid. Our know-how 128 continues receiving attention. We have contracted adequate Likewise, Kusile Unit 3 and Medupi Unit 1 were 84 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 85 CHIEF OPERATING OFFICER’S COMMENTARY continued OUR synchronised to the grid on 14 April and 27 August 2019 respectively, resulting in all Medupi units being connected to the grid. We expect a further two units to achieve future growth. However, implementation of both plans is affected by capital budget constraints due to inadequate tariff increases and limitations on borrowing. INFRASTRUCTURE commercial operation during the coming year. The defect correction plan implemented to ensure that The construction of high-voltage transmission lines the new plant at Medupi, Kusile and Ingula achieve desired did not achieve target due to various challenges, levels of performance and reliability is showing success. with 127.9km lines constructed against a target of An integrated technical solution for the Medupi boiler, 155km (2019: 378.7km). The target for installing new agreed with the contractor, was implemented on Medupi transformer capacity was met, with the commissioning Unit 3. Once successfully tested, the solution will be rolled of 250MVA (2019: 540MVA). out to other units. The defect at Ingula has been resolved, enabling the station to operate at full capacity in dual-load Environmental performance mode. The programme to replace all the Koeberg steam Particulate emissions performance for the year was generators and extend the nuclear licence is progressing 0.47kg/MWhSO (2019: 0.47kg/MWhSO), significantly worse well; this will extend the life of the station by 20 years. than the target of 0.33kg/MWhSO. The poor performance is mainly due to operating the significantly damaged and Together with the SIU, we are investigating potential non-compliant Kendal units during times of generation overpayments to a number of contractors involved in the capacity constraints. Kendal contributed 31% towards our construction of Kusile; the amount is being quantified. annual particulate emissions. The stringent environmental We will institute recovery processes where necessary requirements remains a risk to our ageing coal-fired fleet once the investigation is completed. due to the significant capital investment required. The Kendal emissions recovery plan has been successful Power station water usage for the year was 1.42ℓ/kWhSO on units that have undergone repairs. Nevertheless, (2019: 1.41ℓ/kWhSO), also worse than the annual target Kendal’s environmental performance remains a significant of 1.35ℓ/kWhSO, largely due to the high number of unit concern, which receives continuous attention. We are trips as well as poor operational practices. Regrettably, working on a number of other emissions control projects environmental legal contravention incidents have increased to reduce particulate matter emissions, as well as sulphur significantly to 59 for the year (2019: 24, restated), with and nitrogen oxides. Nevertheless, there are periods the majority being water-related incidents. where power stations exceed emission limits in unplanned incidents, mainly during times of generation constraints. Societal impact During the year, only procurement spend with black youth- The Generation Environmental Compliance Steering owned suppliers achieved the target. Total preferential Committee was established in June 2020 to address procurement spend, as well as spend with black-owned continuous exceedances of atmospheric emissions and and black women-owned suppliers, qualifying small and poor specific water usage in the coal-fired fleet. exempted micro enterprises, and suppliers owned by black people living with disabilities, performed below target, Conclusion mainly due to expired suppliers’ B-BBEE certificates. Undeniably, our operating performance over the past year was largely disappointing. Nevertheless, we More positively, we completed 163 613 connections keep working on addressing the challenges identified. under DMRE’s electrification programme Highlights Challenges As discussed by the GCE, our immediate focus is on (2019: 191 585), achieving the target set by DMRE. improving operational stability, and ensuring that we are We also committed corporate social investment spend • Coal stock days have recovered to expected levels at all • Severe plant failures negatively affecting system in a position to improve the reliability and predictability of R123.8 million to 208 projects during the year, stations due to the Generation recovery plan reliability and system minutes <1 performance of our system. Ultimately, our aim is to improve Eskom’s assisting 1 479 395 beneficiaries (2019: R132.4 million • Medupi Units 3 and 2 achieved commercial operation, • Ageing network assets remains a risk for future long-term sustainability. to 933 139 beneficiaries). Operating performance adding installed capacity of 1 588MW to the national grid system performance I would like to thank each member of our Operations • All six Medupi units were connected concurrently to the • Although improvements are being implemented, major Looking ahead team for significantly contributing to ensuring that we national grid for the first time on 3 September 2019 design and construction defects at Medupi and Kusile We will continue with the execution of the Generation execute our mandate of providing a stable and sustainable • The dual-load rejection defect at Ingula Pumped Storage Power Stations continue to affect plant performance, recovery plan, paying particular attention to those areas electricity supply to South Africa. I appreciate your Scheme was corrected successfully, with units now capable while the defects corrections are delaying the that are yet to show improvement. We are implementing tireless contribution, courage, resilience and personal of 331MW sent-out capacity in dual-load operation commercial operation of units mid-life refurbishment scope and reliability maintenance commitment to keeping the lights burning. • Construction of new Transmission lines is behind to restore plant availability to acceptable levels. We Improvements schedule have introduced a self-funded production bonus in As Mahatma Gandhi said, “A small body of determined the line divisions to incentivise employees to improve individuals fired by an unquenchable faith in their mission • Implementation of the Generation recovery plan Lowlights performance while ensuring more stringent cost control can alter the course of history”. We need you now more has led to several improvements, with some of the and efficiencies. than ever to be aligned and committed to support Eskom streams being completed • Further deterioration in plant availability due to as we transition towards legal separation. It is up to us to • Although UAGS trips were worse than target, unprecedented levels of unplanned losses To manage the risk of our ageing networks, Board turn Eskom around. Camden, Hendrina, Lethabo and Matimba Power • Loadshedding required on 46 days during the year, approved the Transmission sustainability improvement Stations performed better than the target of no more with stage 6 loadshedding implemented for the first plan in April 2020 – it includes initiatives to replace assets than two trips per unit per year time ever in poor condition, expanding the network for growth and • The regional drought affecting water levels in Lake Kariba • Extensive use of both Eskom- and IPP-owned OCGTs reliability, and actions to address leading risk indicators. represented an opportunity to increase international during the year at a combined cost (excluding capacity Jan Oberholzer Distribution’s network development plan includes sales, although hampered by our supply constraints charges) of R7.5 billion (2019: R6.2 billion) strengthening and refurbishment projects to support Chief Operating Officer • Customers have experienced shorter duration and lower frequency of network interruptions 86 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 87 OUR INFRASTRUCTURE continued Our manufactured capital consists of our infrastructure, The implementation of a nationwide lockdown on Stage 6 loadshedding – a perfect storm At 9:00 on that day, generation unavailability reached comprising our generation fleet and transmission and 27 March 2020 to reduce the spread of COVID-19 resulted On Monday, 9 December 2019, a severe supply approximately 19 000MW after the loss of two large distribution networks, and is supplemented by IPP in a drastic reduction in demand. During the level 5 constraint resulted from the loss of nine generating units. At 9:06, National Control implemented stage 4 capacity. It also includes new power stations and high- lockdown, the daily peak demand on the power system units, exacerbated by the risk of losing additional units at loadshedding from 10:00 to 23:00. During the day, Kriel voltage transmission lines being constructed under reduced by between 7 500MW and 11 000MW. The Medupi, Kriel and Kendal Power Stations due to low coal was forced to shut down two units (475MW each). our new build programme, as well as projects aimed average demand reduction during level 5 was 5 680MW. bunker levels because of persistent heavy rainfall (among Medupi Unit 5 (720MW) was taken off load due to low at delivering customer and IPP connections, ensuring During the level 4 lockdown period, the average demand other contributory causes). Furthermore, the actual coal bunker levels; further units were deemed at risk environmental compliance and refurbishing existing assets. reduction was 3 300MW. Since the beginning of the level 3 national demand exceeded the forecast by approximately due to low coal bunker levels. Kendal indicated that coal lockdown to the middle of July 2020, the average demand 1 000MW due to unpredictable load patterns (such as bunker levels were running low. By effectively operating our infrastructure we ensure reduction has been 1 560MW. large industrial customers prioritising production before security of electricity supply to the country, while year end) and extreme weather conditions. This in turn For the first time ever, generation unavailability breached balancing the supply and demand of electricity to ensure led to higher usage of peaking generation resources. 20 000MW between 15:00 and 16:00. At 16:48, National the stability of the national grid. Loadshedding implemented during the year Control requested all key industrial customers to reduce Loadshedding remains our last resort to maintain the Heavy rain had been prevalent across large portions to essential load with immediate effect. Six small gas Managing supply and demand supply/demand balance, or to ensure sufficient reserve of the country since 4 December, which contributed turbines (totalling 342MW) at Acacia and Port Rex Role of the System Operator capacity to respond to significant unplanned breakdowns to an increase in national demand, which in turn led to Power Stations were dispatched due to the shortage of The System Operator is responsible for balancing or disruptions to supply, thereby protecting the additional use of peaking resources, both water and gas. generation. At 17:26, stage 4 loadshedding was escalated electricity supply from power stations and demand from power system. Loadshedding is required mostly when The significant drop in temperature resulted in additional to stage 6 from 18:00 to 23:00 to maintain the stable customers within a range, as close as possible to 50Hz diesel fuel levels at OCGT stations or water levels at demand placed on the grid. In addition, the impact of operation of the network. in real time, in order to protect the interconnected pumped storage stations are low, coupled with times of the extended torrential rainfall had severely affected particularly high levels of unplanned breakdowns of our generation capacity and generation unavailability across At approximately 18:10, a high-frequency incident (above power system. We frequently test the various generating plant. the fleet. Wet coal, flooded power stations, flooded 50.50Hz) was recorded and peaked at ±50.6Hz at 18:13. defence systems to maintain our capability to respond mines and compromised emissions performance (among A number of Eskom generating units became unstable effectively to prevent a major system event, such as a The Summer Plan, implemented in the second half of the other factors) all contributed to the largest UCLF figures and disconnected from the grid. At 18:16, the 400kV regional or national blackout. financial year, was based on an assumption of unplanned ever observed on the Eskom network. Insukamini – Phokoje line between Eskom and Zimbabwe Two new generating units were commissioned this maintenance (UCLF) – both partial and full load losses became increasingly unstable and tripped. At 18:28, year, being Medupi Units 3 and 2, which added installed – at a maximum level of 9 500MW. Regrettably, UCLF At 6:00 on that day, available generation capacity Kendal Unit 2 (640MW) was taken off load due to low capacity of 1 588MW to the grid. Furthermore, Medupi often exceeded this level, requiring loadshedding and load (including all peaking resources) was approximately coal bunker levels; Medupi Unit 3 (720MW) tripped Unit 1 as well as Kusile Units 2 and 3 are synchronised curtailment to be implemented to stabilise the system. The 27 933MW. An average morning peak of 27 309MW at 20:05. Matla Unit 4 (575MW) and Medupi Unit 2 to the grid. These units contribute energy to the grid 2020 Winter Plan assumes unplanned losses of 10 000MW. was forecast for the day, and an average evening peak of (585MW at the time) also tripped at 20:25 and 20:52 on an intermittent basis while they undergo testing in 29 248MW. The evening instantaneous peak forecast was respectively. At this stage, generation unavailability hit a Loadshedding was required on 46 days during the year 30 753MW at 19:32. At 5:00, generation unavailability preparation for commissioning. record high of 21 407MW, reducing available capacity to (2019: 30 days) – four days during October 2019, two (PCLF + UCLF + OCLF) breached 17 000MW. approximately 26 000MW. We expect a further two units to achieve days during November, nine days during December, seven commercial operation during the coming year. days during January 2020, 17 days during February and seven days during March. The majority of loadshedding Access to System Operator data As older power stations such as Hendrina, Grootvlei Nominal capacity of 1 784MW relating to 14 units at was implemented in stages 1 and 2, with stages 3 and 4 Hendrina, Grootvlei and Komati Power Stations was in We currently publish aggregated generation performance and Komati approach their economic end of life, we are being implemented about 20% of the time. On a number reserve storage at 31 March 2020, with another 760MW data on a weekly basis and air quality monthly reports on investigating the impact on surrounding communities of occasions, particularly in February 2020, loadshedding in extended inoperability, requiring major repairs. the Eskom website. This provides only basic performance when the time comes for retiring or repurposing existing was implemented around the clock. indicators and system information at one-week resolution. coal-fired units and stations; this will inform further We continued to make extensive use of peaking capacity, We were forced to implement stage 6 In an effort to improve transparency and reporting plans for shutting down these power stations. We are in the form of both Eskom- and IPP-owned OCGTs, as loadshedding for the first time ever, on of reliable data, as well as to bring the Eskom System considering a “repurposing programme” to investigate well as pumped storage stations and at times, hydro 9 December 2019. Operator in line with international best practice, we projects that may provide alternative employment, and stations, to meet demand during periods of poor base- will be making available data sets of operational, system potentially create opportunities and jobs to support Operating performance load generation availability, while high levels of planned We had hoped to limit loadshedding to two days during performance and environmental data on our website. economic activity using the available power station land and unplanned maintenance were being carried out. The the past winter, but regrettably, we had to implement and infrastructure. Conceptual mitigation plans are being high cost of diesel make OCGT stations expensive to loadshedding in stages 1 and 2 on seven days during The information can be accessed at www.eskom.co.za/sites/publicdata/ investigated, such as repowering with renewables or gas, run, but given the cost of loadshedding to the country, July 2020 and on five days in stage 2 during August 2020, Pages/default.aspx repurposing or extension of existing services. we make use of these stations where possible, within our due to high levels of unplanned breakdowns. financial constraints. Furthermore, we again had to implement loadshedding Generation performance The repurposing of power stations is discussed in more detail in up to stage 4 on seven days in September, again due to Our aim is to meet the country’s electricity demand by “Our interaction with the environment – Just Energy Transition Office” IPP renewable generation continues to support the high levels of unplanned breakdowns, combined with the providing electricity at a reasonable price. To do this, Eskom from page 113 power system, with wind generation of 335MWh in need to conserve and replenish emergency reserves, operates 30 base-load, mid-merit, peaking and renewable particular supporting the evening peak, with an average power stations, with a total nominal capacity of 45 117MW. Generation recovery plan while maintaining the stability of the power system. load factor close to 44% during evening peak. During the The four small hydroelectric stations are not considered The Generation nine-point recovery programme was summer months, wind generation output aligns well with As we have reiterated on a number of occasions, for capacity management purposes. The median age of our announced in November 2018 to allow for fast-tracked the country’s demand profile, peaking in the evening and it is likely that loadshedding will be required coal-fired stations is approaching 40 years. improvement in Generation performance and ultimately dropping to low levels overnight. intermittently for a period of about 18 to 24 improved plant availability. The plan was revised and months, while we undertake much-needed Detailed information on the installed and nominal capacity of each of updated for changes and progress since then, and the our power stations, as well as IPP capacity, is set out in the fact sheet on updated Generation recovery plan was approved by planned and reliability maintenance to improve pages 148 to 149 Board in January 2020. the reliability of our generation fleet. 88 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 89 OUR INFRASTRUCTURE continued The extended operation beyond the previously Progress against the Generation recovery plan • Lethabo Unit 5 (593MW) returned on execution measures in order to improve outage approved shutdown dates of power stations at the end is discussed below. A number of areas have been 16 February 2020, after a high-pressure readiness and unit performance after an outage. of their economic life was considered in the updated satisfactorily addressed, and progress is being made in steam pipe failure in October 2018 plan. The use of operational units at these stations is other areas. Nevertheless, three areas have shown little Due date performance is calculated for units that • Kendal Unit 5 (640MW) was taken out of were on outage for more than 21 days, and measures being reviewed for extended use beyond 2025 or until improvement over the past year. service on 23 January 2020 due to its high sufficient new capacity comes online. whether the unit is returned to service by the emissions. The planned outage for repairs to planned completion date. For the year, 35.90% of the electrostatic precipitators to comply with outages achieved the due date target, compared to emissions limits commenced on 20 July 2020. The an average of 47.50% in the previous year, but still unit is expected to return to service in April 2021 significantly below the target of 70%. 1 Address major defects at new  6 Fill critical staff vacancies and • Hendrina Unit 6 (190MW), which failed on stations enable training 23 April 2019 due to high turbine vibrations, 6. Fill critical staff vacancies and enable the training of was returned to service on 18 May 2020 key staff 2 Reduce trips and full load losses 7 Maintain sufficient diesel All power station general manager and middle stocks for OCGTs 4. Decrease partial load losses and boiler tube leaks that manager positions have been filled. Furthermore, prevent units from operating at full capacity approval was granted to fill 1 872 vacant positions, 3 Resolve long-term forced outages 8 Ensure a 14-day buffer of Performance on partial load losses has deteriorated including 205 plant operators at various stations. dry coal further from the previous financial year. While Significant progress has been made in the identified partial losses have been reduced, some of recruitment process, with the majority of these Decrease partial load losses these gains were not always sustainable. Steam and positions already having been filled, mainly through 4 9 Rebuild coal stockpiles and boiler tube leaks water chemistry control on stations remains a long- internal appointments. All plant operators have term sustainability issue, which impacts partial load been appointed. losses. Plans have been put in place to address the 5 Reduce outage slips and duration 10 Improve emissions performance  most common contributors to partial load losses. 7. Maintain sufficient diesel stocks to enable the open-cycle gas turbines to perform for extended periods Nevertheless, outage readiness remains a concern, and partial load loss gains from units post outage are A five-year diesel purchasing agreement was being monitored. UCLF related to partial load losses approved by the Board, thereby ensuring security of Item completed  Progress made since 2019 Little progress during the year for the first quarter of the new financial year has diesel supply to OCGT stations. Diesel tank levels shown some improvement. are maintained well above target. 1. Address major design and construction defects at A review was completed on the pressure design During the early stages of the national lockdown, There were 170 boiler tube failures for the year new stations limits of the penstock (each feeding two water the possibility of the shutdown of refineries created under review, contributing 2.06% to UCLF (2019: As reported last year, the new plant at Medupi, tunnels housing the turbines) to further increase a risk to diesel supply. To mitigate the risk, enabling 154 failures contributing 1.77%), indicating that Kusile and Ingula Power Stations have not achieved capacity to 331MW per unit. contracts were put in place to ensure that urgent performance on boiler tube failures has not the desired levels of performance and reliability due improved. In managing boiler tube failures, there is demand could be met. to a combination of plant design deficiencies and More detail of the design and construction defects, as well as the status a clear distinction between preventable failures and of the plant defect correction plan for Medupi, Kusile and Ingula, are set 8. Ensure a 14-day buffer of dry coal at power stations operational and maintenance inefficiencies. total failures. This differentiates between areas of out from page 99 during the rainy season Medupi Unit 3, which achieved commercial failure which would have been prevented had the 2. Reduce the incidence of trips and full load losses to With coal stock restored to acceptable levels, this operation on 5 July 2019, achieved commercial required outage intervention taken place, implying improve reliability of coal-fired power stations point in the plan is considered to be concluded and plant availability (EAF) of 54.51% to 31 March 2020; a persistent backlog in reliability maintenance. will now be driven as part of normal business unit Medupi Unit 2, which achieved commercial operation Unit trips (UAGS) increased year-on-year. Due to The maintenance backlog at 31 March 2020 resulted operation outputs. on 26 November 2019, achieved commercial EAF their contribution to poor system performance and in 62 failures (or 36.47%). The increased interval of 81.92%. the associated cost of restarting the units in order to between planned long-term reliability outages, 9. Rebuild coal stockpiles at power stations supply load to the grid, improving trips performance which can exceed 24 months in certain instances, At the beginning of the financial year, there were Operating performance An integrated technical solution for the Medupi boiler, remains a key focus area. requires additional planning to perform a greater five power stations with coal stock levels below agreed with the contractor, was implemented on scope of work during the limited duration of planned Over the past year, trip reduction strategies the Grid Code requirement, and one power station Medupi Unit 3 during the general inspection outage maintenance. The results of the latest annual focused primarily on Duvha, Kriel, Majuba and with coal stock below 10 days. By 31 March 2020, which started in January 2020. The agreed solutions boiler tube failure compliance reviews indicate a Tutuka. Medupi, Kusile, Arnot and Matla will receive average coal stock levels (excluding Medupi and include modifications to the reheater spray flow, high number of findings and areas of improvement attention in 2021. These stations have already shown Kusile) stood at 50 days (2019: 36 days). Significant pulse jet fabric filter, gas air heater, milling plant, to ensure compliance with the boiler tube failure an improvement in trip performance during the first improvements were achieved with stock days duct and reheater erosion protection, coupled with reduction programme; non-compliance with the quarter of the new financial year. recoveries, with 14 of the 15 coal-fired power boiler optimisation and performance testing. The unit programme negatively affects boiler tube failure stations at their expected level at year end, and no returned to service in April 2020. Evaluation of the performance. Greater emphasis is being placed Full load losses increased mainly due to outage power station below the Grid Code requirement. modifications requires a minimum of three months of on improving compliance to achieve sustainable slips (refer to point 5) and significant incidents Although not at its expected level, Arnot Power plant operation. Once successfully tested, the solution future performance. (refer to point 3). Station exceeded its minimum requirement. will be implemented on other units. 3. Accelerate the return to service of units on long-term 5. Reduce outage due date slips and duration The recovery in stock days was slightly slower than Regarding Kusile, modifications will be executed The effective execution of an outage is measured forced outages projected due to the cost curtailment initiative, during the guarantee inspection on Unit 3, planned based on the reliability of the unit after it has been The following units on long-term forced outages were with certain coal contract deliveries having been for January 2021. returned to service. The focus is on units that successfully returned to service during the year: reduced to contractual minimum volumes, coupled Tests on Ingula dual-load rejection (when two implemented interim repairs, mini general overhauls with a delay in placing new contract. Nevertheless, • Duvha Unit 1 (575MW) returned to service on turbines trip simultaneously) were completed, and general overhauls. Post-outage UCLF has the situation was closely monitored to ensure that 28 February 2020, after tripping on generator resulting in the maximum load per unit being worsened since the prior year. The Outage Centre recovery of stock days was not at risk. protection on 17 July 2019 increased to 300MW in dual-load operation. of Excellence team is reviewing outage planning and 90 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 91 OUR INFRASTRUCTURE continued By 30 September 2020, average coal stock levels Generation performance and the “bathtub” curve (excluding Medupi and Kusile) stood at 58 days, with all Coal supply was not affected by the national lockdown, We operate a generally ageing fleet as well as two new coal-fired stations that are not yet fully commissioned. This power stations at expected levels. as mines and logistic operators were allowed to operate means that the new units are in the “burn in” phase of generating plant life, where one may expect teething problems, and supply stations under the lockdown regulations. while the majority of the units are in the “wear out” phase. Very few units are in the phase where one can expect Refer to “Our interaction with the environment – Securing our coal Nevertheless, the situation was monitored daily. optimum plant performance. requirements” from page 103 for more information on coal stock days Reliability “bathtub curve” compared to the age of Eskom’s coal-fired units 10. Improve emissions performance Coal-related load losses coincided with periods Given the recovery in coal stock levels, it was 5 where our generating plant was also experiencing decided to focus attention on environmental issues, Wear out/ageing significant capacity constraints. Coal quality issues at and particularly power station emission levels. 4 Kriel and Matla Power Stations account for a large The focus of this stream is to expedite projects and component of the coal-related OCLF. A number of oversee operational issues to reduce emissions. Number of units initiatives are being implemented to address these 3 issues at these stations. Refer to “Our interaction with the environment – Particulate and gaseous emissions” from page 106 for more information on emissions Burn in/early failures 2 performance Technical performance 1 Target Target Target Actual Actual Actual Target Measure and unit 2023 2021 2020 2020 2019 2018 met? 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 Energy availability factor (EAF), % SC 72.00 69.00 71.50 66.64 69.95 78.00 Age (years) Planned capability loss factor (PCLF), % SC 12.00 10.00 9.50 8.92 10.18 10.35 The performance of Eskom’s generating fleet is undeniably below aspiration. Although there are many contributing and Unplanned capability loss factor (UCLF), % 14.50 18.70 17.50 22.86 18.31 10.18 aggravating factors, the root cause can be linked to Government’s decision in the 1990s that Eskom would not build any more Other capability loss factor (OCLF), % 1.50 2.30 1.50 1.58 1.56 1.47 power stations. This led to the late start of the build programme and severe capacity constraints. It required that existing plant had to be operated at exceptionally high levels to meet demand, accelerating wear and tear on the ageing units. The following Partial load losses, average MWSC 2 552 3 150 3 500 4 651 3 443 2 158 graph illustrates how Eskom’s coal-fired units were operated at an EUF far higher than the international benchmark, in the Post-philosophy outage UCLF, % SC 14.00 16.00 17.00 29.91 17.05 18.49 so-called “red zone”, for a period of about 15 years. In particular, for four years from 2012, Eskom’s lowest quartile units were Unplanned automatic grid separations (UAGS trips), 322 448 560 594 517 333 operated at higher levels than the top quartile of the benchmark stations. number SC EUF, all coal sizes (VGB units exclude Eskom units), % 100 Our Generation fleet continues to perform significantly below expectation, with plant availability measured The national lockdown from 27 March 2020 resulted in by EAF. Plant availability has declined to below 70%, a significant reduction in demand, which led to excess compared to levels consistently above 90% in the late generation capacity. In order to optimise the excess 1990s. In order to avoid or minimise loadshedding, the capacity, we undertook higher short-term maintenance 80 plant has to be operated far outside acceptable norms – particularly during levels 5 and 4 of the national as evidenced in the high utilisation factor discussed below lockdown, with some units being placed in cold reserve – leading to the high level of unplanned breakdowns. during that time. The energy utilisation factor (EUF) for the entire 60 generation fleet has increased further to 78.98% (2019: Koeberg performance 77.79%), thereby placing stress on units which ultimately Koeberg Unit 1 was shut down for a refuelling and Operating performance affects their reliability, leading to the significant increase maintenance outage on 20 September 2019, and in UCLF compared to the prior year. The high average synchronised to the grid again on 6 January 2020. fleet EUF was largely due to coal-fired stations running On 10 March 2020, the turbine was manually tripped after 40 one of the main pumps in the seawater circulating cooling 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 at an average EUF of 93.33% (2019: 90.23%), with all 15 of the coal-fired stations with an EUF greater than 90%. water system tripped; the secondary system cooling was This is well above the international industry standard of inadequate due to a clogged heat exchanger. An automatic VGB worst quartile VGB median VGB best quartile Eskom worst quartile Eskom median Eskom best quartile around 75% over the long term. reactor scram was sustained while the turbine was being run down. The necessary repairs were effected, and the At the same time, financial and capacity constraints meant that Eskom was not able to execute most of the mid-life Generation will be focusing on maintenance recovery by unit returned to service on 14 March 2020. The unit refurbishment required to maintain and improve the performance of stations as they age. re-baselining to reliability maintenance. A maintenance remains online and is operating safely. base plan was defined in February 2020, covering the Although performance challenges in newly commissioned stations is to be expected, the performance of Medupi and period to March 2021. Every effort will be made not to Unit 2 remained online since returning from a refuelling Kusile as well as the Ingula Pumped Storage Scheme was below aspiration. Once again, a major contributor (if not compromise this plan. and maintenance outage on 26 December 2018. The next the root cause) is capacity constraints due to the late start to the build programme. This led to a condensed design refuelling outage was planned to start at the end of phase to accelerate the programme. Together with the exceptionally long period since the design of the previous build In the short to medium term, we cannot continue to April 2020, but this was delayed due to the national programme in the 1980s, the related loss of skills and institutional knowledge contributed to the design faults that have defer outages due to the constrained system. In particular, lockdown and international travel ban restricting resulted in an unacceptably high level of failures in the new plant. As discussed, these are being addressed through plant outages to address the design defects at Medupi and Kusile required resources. Due to the reduced demand and procedure modifications – an improvement in performance is anticipated. as well as outages to implement mid-life refurbishments at during the national lockdown, the unit was shut down older stations will have to be accommodated, in addition on 4 April 2020. The unit was brought back to service to the required reliability outages at all stations. on 11 July 2020; the two-month refuelling outage commenced on 11 August 2020. 92 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 93 OUR INFRASTRUCTURE continued Use of open-cycle gas turbines plant availability. OCGTs recorded a load factor of 6.28% Energy capacity and purchases Eskom’s own open-cycle gas turbines (OCGTs) were during the year (2019: 5.69%). OCGT production was IPP capacity available and the actual energy procured under various IPP programmes for the year to 31 March 2020 is set used extensively during the year, largely due to higher lower than target due to the decrease in demand coupled out in the following table. than expected unplanned losses affecting generation with loadshedding implemented during the year. Target Target Target Actual Actual Actual Target Measure and unit 2023 2021 2020 2020 2019 2018 met? Target Target Target Actual Actual Actual Target Measure and unit 2023 2021 2020 2020 2019 2018 met? Total capacity, MW 7 286 6 206 5 428 5 206 4 981 4 779 OCGT production, GWh 1 175 712 2 174 1 328 1 202 118 Total energy purchases, GWh 52 353 14 343 12 395 11 958 11 344 9 584 OCGT diesel usage, R million2 4 862 2 907 6 975 4 303 3 768 320 Total spent on energy, R million 114 117 33 314 32 466 29 694 26 655 21 300 1. The 2023 target is the cumulative target over the next three years. Lease accounting adjustment, R million2 (4 894) (1 631) (1 631) (1 631) (1 703) (1 983) n/a 2. The OCGT cost includes diesel storage and demurrage costs of R59 million (2020), R51 million (2019) and R52 million (2018), incurred as a result of Total expenditure, R million 109 223 31 683 30 835 28 063 24 952 19 317 not utilising the OCGTs. Weighted average cost, c/kWh3 209 221 249 248 235 222 The two IPP-owned OCGTs also had to be used significantly higher than that of VGB benchmark units 1. The 2023 target is the cumulative target over the next three years. extensively, producing 711GWh (2019: 552GWh) at a in recent years 2. For accounting purposes, the capacity charges for the Avon and Dedisa IPP gas peakers are treated as arrangements that contain a lease in terms of cost of R4.8 billion to Eskom (2019: R4.1 billion), including • Since 2012, Eskom’s UCLF performance showed IFRS 16. Refer to note 2.8 in the annual financial statements for the related accounting policy. a fixed capacity charge of R1.6 billion (2019: R1.7 billion). a significant deterioration compared to the VGB 3. The weighted average cost is calculated on the total amount spent on energy, before the IFRS 16 lease adjustment. benchmark in all quartiles Refer to “Energy supplied by IPPs” below for further information on the IPP operational capacities by type at 31 March 2020 use of IPP-owned OCGTs • Using EUF as a measure, all Eskom coal-fired units are performing at levels close to, and in many cases Utilisation of IPP OCGT peakers increased during the above, the VGB best quartile, indicating that Eskom is year, aiding Eskom-owned OCGTs in ensuring system Update on Duvha Unit 3 over-pressurisation incident running its power station units much harder than the stability to minimise or avoid loadshedding during a Duvha Unit 3 (575MW) suffered an over-pressurisation Total Total VGB benchmark units, accelerating the decline in plant shortage of plant capacity. The IPP OCGT peakers incident on 30 March 2014, destroying the boiler. A court contracted operational condition and availability recorded an annual load factor of 8.05% (2019: 6.27%), judgment in June 2017 interdicted Eskom and Dongfang against a target of 4.24%, while renewable IPPs attained from executing the contract. In June 2020, a court order Koeberg Nuclear Power Station Wind 3 357 1 980 an average load factor of 32% (2019: 32.3%). set aside Eskom’s decision in March 2017 to award the tender to rebuild the boiler to Dongfang, as well as Eskom remains affiliated to the World Association The weighted average cost of all IPPs (before the lease the resulting contract between Eskom and Dongfang. of Nuclear Operators (WANO) and the Institute of Solar PV 2 292 1 669 adjustment) amounted to 248c/kWh (2019: 235c/kWh), Consequently, an amount of R1.7 billion that had been Nuclear Power Operations (INPO); South Africa is a while the weighted average cost for renewable IPPs dependent on a contract being concluded by March 2017 member of the International Atomic Energy Agency amounted to 221c/kWh (2019: 207c/kWh). was repaid to the insurers. (IAEA). These affiliations enable us to benchmark performance, conduct periodic safety reviews, define Gas turbines 1 005 1 005 Cross-border sales and purchases of electricity Subsequent to year end, the rebuild of Duvha Unit 3 was standards, share best practice and train personnel at our The Southern African Power Pool (SAPP) exists to no longer deemed economically viable, given that the nuclear power station. The next routine WANO peer provide reliable and economical electricity supply to its station is scheduled to be decommissioned in 2034 and Concentrating review of Koeberg is scheduled for December 2020. solar power 600 500 members, nine of which are interconnected, with the there is no formal plan to extend the station’s life beyond remaining three countries targeting to be connected by that point. Furthermore, since the IRP ends in 2030, For the review period, Koeberg’s mean performance 2022. South Africa is the country with the highest levels there is no clear direction beyond this. IFC approved has improved in approximately half of the range of Hydro, biomass 57 22 of access to electricity in the region, and one of only the cancellation of the project. An amount of R1.3 billion 15 WANO performance indicators. Performance was and landfill three with access levels above 60%. Access levels in other was written off, relating to amounts incurred on the unit affected negatively by an extended refuelling outage due SAPP countries is below 45%. since the over-pressurisation incident. to plant modifications (including replacement of the Total MW 7 311 5 206 refuelling water storage tank) on Unit 1. The same work Operating performance Benchmarking was carried out on Unit 2 during the previous year. Coal-fired power stations We continue to benchmark the performance of our Energy supplied by IPPs International sales and purchases coal-fired power stations against those of the members We procure renewable energy from IPPs under DMRE’s RE-IPP Programme, which is derived from ministerial Target Target Target Actual Actual Actual Target of VGB (Vereinigung der Großkesselbesitzer e.V), a GWh 2023 2021 2020 2020 2019 2018 met? European-based technical association for electricity and determinations. Under existing bid windows, 8 500MW heat generation industries. When interpreting the results of renewable energy is expected to come online before International sales 36 678 12 876 13 028 15 189 12 461 15 268 of the benchmarking study, it must be borne in mind that 2025. The RE-IPP Programme has 4 201MW in operation International purchases 26 185 9 270 8 481 8 568 7 355 7 731 the operating regimes of other utilities contributing to the (2019: 3 976MW). In response to the energy supply challenges in South Africa, DMRE has recently launched Net sales 10 493 3 606 4 547 6 621 5 106 7 537 VGB database may not be the same as those of Eskom. the RMIPPPP for the emergency procurement of an 1. The 2023 target is the cumulative target over the next three years. The results of the benchmarking for the 2000 to 2018 additional 2 000MW from IPPs by 2022. calendar years indicate the following: During the year, 225MW of renewable IPP capacity The regional drought affecting water levels in Lake Kariba Other factors contributing to the increase in • The trend in Eskom’s performance remains worse than in the form of solar photovoltaic (PV) energy was along the Zambezi River represented an opportunity international sales were: the VGB benchmark commissioned, against a target of 447MW. We expect for Eskom to grow international sales, as international • Botswana Power Corporation (BPC) increased their • Eskom units generally compare favourably with 1 000MW of renewable capacity to be commissioned trading partners relied more on Eskom for energy. off-take from Eskom from June 2019 due to the the VGB benchmark units with respect to planned during the coming year, with slightly more expected from Nevertheless, generation constraints hampered the commencement of the refurbishment at Morupule maintenance in the median and low quartiles. The wind than from solar PV energy. realisation of opportunities to retain and grow sales on Power Station. The refurbishment is expected to be PCLF of Eskom’s best performing units remained a contractually committed basis. completed in 2023 94 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 95 OUR INFRASTRUCTURE continued • The resumption of sales to ZETDC of Zimbabwe in non-firm contracts can be concluded. The strategy also Our distribution network is similarly affected by illegal Non-technical revenue losses for the year are August 2019 after they settled their arrear debt, as focuses on strengthening interconnectors in the region, connections that overload the network, equipment theft estimated at R1 977 million (2019: R1 741 million). well as the conclusion of a non-firm power supply given the historical lack of investment in transmission lines and vandalism of network assets due to socio-economic These relate mainly to electricity theft through agreement with ZESCO, Zambia’s power utility, for in the key electricity corridors north of our borders. conditions, thereby affecting network performance and illegal connections, tampering and bypassing three months the time to restore supply to customers. of electricity meters as well as the purchase of Network performance Cross-border purchase volumes for the year were in line electricity tokens from unregistered or illegal Our power network comprises our transmission assets, vendors, but also includes meter reading and with the target. Load reduction explained which evacuate energy from our power stations, and In an effort to protect electrical infrastructure against billing errors. We have observed a marked Export growth strategy our distribution network, which sends electricity from damage due to overloading, we have started implementing increase in electricity theft during the national Our export growth strategy is aimed at maximising the high-voltage transmission network to customers, load reduction in high-density areas associated with illegal lockdown period, despite a decline in demand. cross-border electricity sales through existing including municipalities that manage their own connection practices, meter bypasses and tampering. transmission infrastructure, as well as by constructing distribution networks. The management of non-technical losses focuses on These practices affect electricity infrastructure with additional transmission lines with the support of regional repeated failure and explosions from network overloading ensuring that all energy supplied is accounted for, energy partners. However, our ability to exploit opportunities Detail of our transmission and distribution network power lines and specifically during peak periods, threatening the overall supplied and not invoiced is identified, lost revenue is to increase sales is severely hampered by generation transformers is set out in the fact sheet on page 150 security of supply. calculated and any lost revenue stemming from energy constraints due to the unpredictable and volatile losses is pursued. During the year, 74 241 meter audits performance of the coal-fired fleet. As a result, only The load on networks is actively monitored and, once were conducted on large, small and prepaid users, demand increases beyond a certain threshold, areas are leading to: proactively switched off to avoid transformers overloading • R318 million in historically unbilled revenue Target Target Target Actual Actual Actual Target and exploding – replacing a transformer costs R80 000 being billed to large and small power customers Measure and unit 2023 2021 2020 2020 2019 2018 met? and a mini-sub R350 000. Load reduction is done in the (2019: R399 million), of which R213 million Number of system minutes lost <1, minutesSC, 1 3.53 3.53 3.53 4.36 3.16 2.09 morning and evening peak periods. was recovered Number of major incidents >1 minute, number 2 2 2 3 3 − It is employed mainly in high-density areas with a high • Approximately R33 million in tamper fines being System average interruption duration index 38.0 38.0 38.0 36.9 38.0 34.9 number of illegal connections and non-payment (electricity recovered from prepaid customers who had tampered (SAIDI), hoursSC theft) with the sole purpose of protecting Eskom’s assets with their electricity meters (2019: R19 million) System average interruption frequency index 19.6 19.6 19.6 14.4 14.9 17.5 from failing and exploding, primarily in the Free State, (SAIFI), events • An estimated reduction of 250GWh in energy losses Gauteng, Mpumalanga and KwaZulu-Natal. Customers in following the correction of problems found during Restoration time, %2 90.0 90.0 85.0 93.5 66.8 75.7 areas that are likely to be affected are informed in advance meter audits Distribution energy losses, % SC 9.44 9.71 8.00 8.79 8.47 7.73 to prepare for a possible interruption, where demand forecasts suggest that overloading may occur. Additional interventions to reduce non-technical energy 1. One system minute is equivalent to interrupting the whole of South Africa at maximum demand for one minute. losses include: 2. Restoration time analyses the time it takes to restore supply during an unplanned outage by measuring the percentage of dispatched work orders restored within 7.5 hours. • Reconciling the energy delivered and energy sold (or To manage the risk to our networks, Board approved energy balancing) at various levels of the network The system minutes performance for the transmission Transformer age distribution, number the Transmission sustainability improvement plan in to prioritise high-loss feeders for normalisation. network was significantly worse than both target and the April 2020. It includes initiatives for the replacement of Investigations have found that approximately 92% of 200 prior year, influenced by three major incidents. A major assets in poor condition, system expansion for growth the medium-voltage feeders with multiple customers incident occurred in June 2019 at Apollo Substation in and reliability, security upgrades and improvement are appropriately balanced Johannesburg, affecting supply to Tshwane Metro for 150 actions for leading risk indicators. Implementation of • Identifying high revenue risk using exception reports approximately 95 minutes. Another two major incidents this plan is affected by capital budget constraints, with a to pinpoint metering installations at risk occurred due to high-voltage plant failures, which shortfall relating to network expansion to accommodate IPPs required by the IRP 2019, as well as N-1 network • Auditing and repairing faulty customer meter affected customers in Fordsburg, Johannesburg as well as 100 investments. Distribution’s network development plan is installations the East Rand of Gauteng. • Converting customers from post-paid to prepaid supply Operating performance based on planning needs identified for the period from Performance risks affecting the transmission 50 2019 to 2024. It includes strengthening and refurbishment • Removing illegal connections, repairing faulty or network are increasing, with ageing assets and projects that will support future growth which are being tampered meters and imposing penalties financial constraints limiting our ability to maintain prioritised despite budget constraints. and refurbish assets. Nevertheless, asset condition 0 <10 10-19 20-29 30-39 40-49 50-59 60+ As explained earlier, equipment theft has a severe impact assessments of the transmission transformer fleet Years Energy losses and equipment theft on local network performance. It leads to loss of revenue concluded that assets are generally in a fair to good Overall energy losses on our networks have increased to Eskom, but more significantly, poses an increased condition. However, the transformer age profile Both the duration and frequency of interruptions on the to 9.89% (2019: 9.71%), of which 8.79% relates to the risk of loss of life or injury to the public and employees. highlights that the fleet is ageing, and will require distribution network performed better than target and distribution environment, and 2.20% from transmission Theft and vandalism of network equipment is still driven increased replacement investment going forward. improved compared to the prior year. Particularly, the lines. Transmission lines produce technical losses only, by external socio-economic conditions, with conductor focus on high-impact feeders that influence technical where some of the energy is lost in the form of heat, as theft constituting the highest number of incidents. In addition, ongoing incidents of tower member and energy is transmitted. performance, to improve the elements that contribute substation theft continue to pose risks for asset failures Losses due to conductor theft, cabling and related significantly to unplanned SAIDI, has yielded positive results. Distribution losses are due to both technical and non- and transmission network availability. During August 2019, equipment amounted to R115 million for the year two towers on the Princess Westgate 275kV line collapsed technical losses. As reported in previous years, the fact (2019: R105 million), and involved 4 798 incidents due to tower steel member theft, thereby creating risk for that IPPs connect directly to the distribution network (2019: 5 150 incidents). Actions to combat these losses supply to the West Rand of Gauteng. increase technical distribution losses, while reducing are managed in collaboration with other affected SOCs, transmission losses. Our ageing networks, which are industry role players, the National Prosecuting Authority often constrained and overloaded, further contribute to and the South African Police Service. These resulted in technical losses. 120 arrests (2019: 119) and recovery of R4 million worth of stolen material (2019: R2 million). 96 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 97 OUR INFRASTRUCTURE continued Delivering capacity expansion Since inception of the programme to 31 March 2020, Due to the defects correction process, Kusile Units 2 The estimated total cost to execute the plan is We started a capacity expansion programme in 2005 installed generation capacity has increased by 12 338MW, and 3 did not attain commercial operation (CO) during R7.2 billion (at March 2019) over the next five years. to build new power stations and reinstate mothballed transmission lines by 7 976km and transmission the year as originally expected. Contractors responsible for defects are being held liable stations to increase installed generation capacity by substation capacity by 37 690MVA. Excluding capitalised within the provisions of the contract. borrowing costs, the programme has cost R396.7 billion Kusile Unit 2 experienced an induced draft fan failure in 17 384MW, as well as increase high-voltage transmission June 2019, necessitating major repairs for six months, We have entered into a contractual consultation process power lines by 9 756km and transformer capacity by to date (2019: R383.4 billion), while the total cost to completion of the programme is R558.1 billion negatively influencing the commissioning schedule. with the boiler contractor in order to determine the 42 470MVA; it is expected to be completed by 2024. However, the unit is on load, intermittently supporting liability for the modifications to correct the defects. It is (2019: R558.5 billion). the grid. In June 2020, the 72-hour test run and capability estimated that implementation of the modifications will tests were completed; all efforts are focused on require an outage duration of 75 days per unit. Medupi Target Target Target Actual Actual Actual Target optimisation testing. The automatic voltage regulators Unit 3 was identified as a test case to implement the Measure and unit 2023 2021 2020 2020 2019 2018 met? tests are complete and Grid Code compliance is in defects resolutions and establish root cause analysis, Generation capacity installed and commissioned 4 794 1 594 1 588 1 588 − 2 387 progress. The unit is progressing well towards CO. before implementing all the solutions on the other units. (commercial operation), MWSC It is the first unit on which solutions for most of the Unit 3 is on load, intermittently supporting the grid. major defects have been installed. Transmission lines installed, km SC 412.5 92.5 155.0 127.9 378.7 722.3 Unit optimisation tests are in progress. On Units 4 to 6, Transmission transformer capacity installed and 2 000 500 250 250 540 2 510 commissioned, MVA SC limited construction activities have resumed in level 3 of Unit 3 was returned to service in April 2020, following the national lockdown. a 75-day outage to repair major plant design defects. 1. The 2023 target is the cumulative capacity to be commissioned and/or installed over the next three years. The major focus of the outage was to implement the Correcting major design and construction defects technically agreed solutions for the boiler, these being Medupi Units 3 and 2 achieved commercial The target for the installation of transmission lines was at Medupi, Kusile and Ingula Power Stations the boiler plant modifications of the reheater spray operation on 5 July and 26 November 2019 not achieved due to a variety of factors, such as site Based on international engineering best practice for flow, pulse jet fabric filter plant, gas air heater, milling instability, poor contractor performance, construction plant performance, it typically takes anything between plant, duct erosion and reheater erosion protection. respectively, adding installed capacity of and contractual issues. We continue to engage with three to seven years to achieve the optimum plant design The unit reached generation capacity of 793MW 1 588MW to the national grid (nominal capacity contractors to address performance to maximise the performance and reliability levels in new units of this after successful correction of the major plant defects. of 1 440MW). In addition, Kusile Unit 3 and technical complexity and magnitude. This is the “burn in” Medupi Unit 1 were first synchronised to the grid construction of transmission lines. The modifications relating to the four common defects phase referred to earlier. are being tested, and will be rolled out to the other on 14 April and 27 August 2019 respectively. We Minor defects are typical on any new plant and generally units once proven successful. expect a further two units to achieve commercial operation during the coming year. contribute minimally to MW lost during operation; The engineering recommendation is to replace the resolution requires minimal plant outages. Major distributed control system on Medupi Units 6, 5 and 4 Group funded capital expenditure (excluding capitalised borrowing costs) per division plant defects significantly affect availability factors and and balance of plant to match that of Units 3, 2 and 1. MW losses, and usually require equipment redesign, The monitoring of the Kusile demineralised water Target Actual Actual Actual Division, R million 2020 2020 2019 2018 manufacturing and installations that could require storage tanks has shown no new settlement, which extended plant outages, thereby making resolution more means that the foundations are now stable. A technical Group Capital 23 566 9 902 19 613 29 278 difficult and time consuming. Generation 11 132 8 580 8 704 9 746 specification for the correction of the defect will be Transmission 535 800 782 807 As reported previously, six major defects have been issued to the market in due course. Distribution 4 074 2 675 3 810 5 170 identified at Medupi Power Station, six at Kusile, and one Other projects and future new build Subtotal 39 307 21 957 32 909 45 001 at Ingula. Nevertheless, the availability and reliability of the Majuba Rail synchronised units at Medupi, Kusile and Ingula are steadily The project will ensure security of coal supply to Future fuel (coal and nuclear) 2 936 1 031 550 1 226 improving. This is because of the interventions implemented Eskom Enterprises 510 161 137 476 Majuba Power Station through a 68km dedicated by the project teams to correct the major plant defects and rail logistics solution, resulting in the achievement of Other areas including intergroup eliminations 944 267 314 1 300 improve identified operational inefficiencies. positive economic, environmental and social benefits by Total Eskom group funded capital expenditure 43 697 23 416 33 910 48 003 The major plant defects common to Medupi and Kusile switching the transportation of coal from road trucks Operating performance 1. Capital expenditure includes additions to property, plant and equipment, intangible assets and future fuel, but excludes strategic spares, Power Stations are: to rail transportation. The project is expected to be construction stock and capitalised borrowing costs. commissioned during the coming financial year. • Pulse jet fabric filter plant • Mill defects Koeberg steam generator replacement Capital expenditure for the year was just over R20 billion Medupi and Kusile project performance The current steam generators have been in operation lower than budget, mainly in Group Capital Division due The commissioning of Medupi Unit 1 is progressing well, • Dust handling plant, ash silos and conditioning plant at Koeberg Nuclear Power Station since the first unit to various commercial and project delays. The deferral of with control and instrumentation (C&I) optimisation in • Furnace exit gas temperatures, gas air heater was connected to the national grid in 1984. These steam outages in Generation due to system constraints and delays progress. The contractor responsible for the dust handling performance and boiler erosion generators are due to be replaced during each unit’s in executing future fuel projects, specifically investment in plant is in business rescue, therefore construction is next refuelling and maintenance outage, as part of the cost-plus mines, further contributed to the underspend. delaying the commissioning and optimisation of the unit. A further major plant defect at Medupi is C&I repeated programme to extend Koeberg’s operating life from 40 As an interim solution, the manual removal of ash via distributed control system card failures on Units 6, 5 In addition, pre-commissioning revenue of R5.7 billion for to 60 years. Extending the station’s operating life is our vacuum trucks is in progress. The unit underwent a 90-day and 4 as well as balance of plant. A further major plant the year, related to electricity generated by units after being best investment into sustainable and less carbon-intensive outage from 17 April 2020 for the construction of the dust defect at Kusile is the western fill water treatment plant synchronised to the grid but before being commissioned, electricity generation infrastructure. Once removed, the handling plant, plant optimisation and correction of major laboratory and demineralised water storage tanks. was capitalised to the projects and excluded from net current steam generators will be stored on the Koeberg plant defects. revenue, while the associated primary energy cost of As noted earlier, the dual-load rejection defect at site, where they will be packaged and dismantled for final R3 billion was set off against revenue capitalised. This is In May 2020, a letter of agreement was signed between Ingula has been resolved. disposal at a national nuclear waste repository. due to higher production volumes from these units while Medupi and Eskom Rotek Industries (ERI), the newly Since December 2018, a defect correction plan is Assembly of the new steam generators is progressing well, undergoing testing prior to commissioning, which has been appointed contractor, for the construction of the dust being executed and closely monitored to resolve all in support of key installation milestones in 2021 and 2022. delayed due to correction of the new build defects. handling plant. Engagements are under way to prepare the major plant defects and reduce the inefficiencies The first of the six new replacement steam generators for staff mobilisation, ahead of the construction work. in the operation and maintenance of the new units. arrived at Koeberg at the end of September 2020. 98 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 99 OUR INFRASTRUCTURE continued An overview of new build defects only. In addition, replacing the bags every year instead of Future focus areas As mentioned before, the new build plant at Medupi, every three years requires an additional planned outage • Continuing to drive execution of the Generation • Implementing Transmission sustainability improvement Kusile and Ingula has not performed consistently as of more than 21 days every year. recovery plan to improve plant performance over the objectives focused on asset condition renewal, expected. The contracts for new build plant caters for medium to long term system expansion, security and managing leading risk mechanisms to identify and remedy issues and defects During the initial operation and optimisation phase of Medupi Unit 6, the exit temperature of the furnace • Implementing mid-life refurbishment scope and indicators throughout the project lifecycle of design, construction, commissioning and operation. Although many of the (boiler) was measured and found to exceed the required reliability maintenance to restore EAF performance to • Reviewing the Transmission business model and issues and defects have been resolved already, the temperature by more than 150 0C. This resulted in the acceptable levels. A strong focus on outage readiness advancing the business separation project aligned remaining major issues related to specific areas referred spray water required to keep the reheater within its will ensure that the resources are in place to execute to DPE objectives to above, such as certain operating difficulties, excessive operating temperature to exceed the requirement outages successfully • Prioritising capital investment in distribution assets wear, premature failure of equipment or durability of up to four times. Further optimisation and analysis • Carrying out technical solutions and short-term that support network access and performance, to materials could only have been identified after extended of the furnace proved ineffective in reducing the exit interventions to fix new plant, although dependent on deliver reliable performance at appropriate customer periods of plant operation. temperature. Eskom in-house and third-party analysis the availability of outages and commercial agreements service levels, combined with an effective maintenance and simulations indicated that the furnace evaporative with contractors regime to reduce plant failures and optimise outage These major issues collectively contribute significantly surface is insufficient to absorb the required heat from management to the overall poor performance and unreliability of the the burner fires; this could have been remedied by • Connecting RE-IPP Bid window 4 and 4B projects to Medupi and Kusile units. Finding solutions to these major increasing the height of the furnace. the grid in line with grid connection schedules, and • Completing Medupi Power Station (4 764MW) by 2021 issues and defects are complex and time consuming, processing applications for the DMRE small, base and Kusile (4 800MW) by 2024 based on the latest requiring technical specialists to perform specific plant When the furnace was designed in 2008, Eskom did not coal, cogeneration and RE-IPP Bid window 5 project forecast, while correcting all major defects to improve tests and analyse vast amounts of data to determine the have furnace design expertise or modelling tools, and applications and budget quotes the availability of new plant root causes and to modify designs. The manufacturing utilised a third-party furnace designer to assist in the • Reviewing, negotiating and extending existing • Successfully executing the Koeberg steam generator and construction of the modified design is mostly reviews of the contractor’s designs. The complexity agreements to support cross-border sales retention replacement project to extend the life of the station extensive and can have manufacturing lead times of six of a furnace design in relation to coal specifications and growth while mitigating credit risk and intellectual property of different designers made • Driving completion of the battery storage project to months; implementation usually requires long duration deliver 1 440MWh storage capacity outages of the plant of up to 75 days. it very difficult to detect design problems in another contractor’s design. Therefore, the issue was only Full load on the Medupi and Kusile units can be achieved identified during the operation of the first unit. by changing the maintenance and operating regime, however, this comes at an increased operational cost There is no remedy for the excess furnace exit of more than R200 million per station per year, for temperature. The contractor’s solution to reduce the increased pulse jet fabric filter bags and mill maintenance required reheater spray flow was implemented on two Medupi units and is undergoing performance testing. Battery storage Medupi FGD retrofit The distributed battery storage project is to be situated We remain committed to the construction of the at remote sites with limited access to our distribution Medupi flue gas desulphurisation (FGD) retrofit project, networks, but close to renewable IPP plant. Phase 1 of as confirmed in correspondence to the World Bank in the project consists of 800MWh of distributed battery June 2020. This is in line with the World Bank’s loan storage. DEFF granted environmental authorisation agreement. DEFF also emphasised in June 2020 that approvals for all but one of the phase 1 distribution Eskom’s power plants must comply with regulations and sites located in the Western Cape, Eastern Cape and applicable law. Compliance with environmental regulations KwaZulu-Natal. for emissions control remains a key priority. Bidding documents for package 1 (Skaapvlei site) are It should be noted that the FGD retrofit at Medupi Operating performance being reviewed by the funders; we are addressing their is expected to cost up to R40 billion over the next comments before receiving a “no objection” from the 10 years, depending on the option being implemented. funders, in order to engage the market. No other activities We are investigating various alternatives to meet the can continue before a “no objection” has been received. requirements. The project team is finalising package 2 (Melkhout, Pongola and Elandskop sites) and package 3 (Hex, Paleisheuwel and Any further delays in the Mokolo Crocodile Water Graafwater sites) for market engagement. Augmentation Project (MCWAP) Phase 2 water supply may negatively affect the FGD retrofit timelines. The project procurement strategy document and Furthermore, the FGD will create a single point of failure procurement plan have been approved by the funders. for the Medupi plant, which poses a significant risk to the The memorandum of understanding has been compiled operation of the plant. and is in the process of being signed by the funders, namely the World Bank and African Development Bank, with the Refer to “Our interaction with the environment – Securing our water New Development Bank being included to fund phase 1. requirements” on page 105 for further information Construction completion of the first site is forecast for Gas-fired capacity November 2021, subject to receiving a “no objection” As reported previously, various gas strategy programmes from the funders. are under way. Although there is an allocation in the IRP 2019, no determination has yet been made; therefore, we are limited to upfront development work. 100 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 101 OUR INTERACTION WITH THE ENVIRONMENT The effect of our current activities on the environment is more negative than positive, as we rely heavily on the use of mainly non-renewable or scarce resources The volumes and value of coal purchased over the past year were made up as follows: Coal volumes such as coal, water, nuclear fuel and diesel to power our generation fleet. Furthermore, emissions from our power stations and waste generated in the form of 28% ash and nuclear waste also have a detrimental impact on the environment, if not properly managed, thereby potentially destroying natural capital to create value for stakeholders. 47% Through our value of Zero Harm, we strive to limit damage to the environment through our activities. Environmental compliance plays an important role in retaining our licence to operate and supporting security 25% of electricity supply. Cost-plus Fixed price We continue to strive to reduce our environmental ValueShort/medium-term of coal purchasedcontracts footprint, for example through the reduction of particulate emissions through retrofit projects, using less water with several less efficient units being shut 29% down and Medupi and Kusile being dry-cooled. Similarly, Medupi and Kusile have been commissioned with fabric filter plants to reduce particulates as well as low NO x burners, while Kusile is being commissioned with FGD. 54% We are committed to integrating biodiversity into our business by mitigating the impact of power lines on red data bird species and large mammals. We have 17% one wind facility and implemented several small solar PV projects. Going forward, our focus will be on the Cost-plus Fixed price Just Energy Transition and the introduction of more Short/medium-term contracts renewable capacity. Securing our resource requirements We have formulated a long-term coal procurement strategy for the supply of coal to Arnot, Camden, Grootvlei, To support our power stations, we have to source, Hendrina, Kendal, Kriel, Majuba, Matla and Tutuka for the procure and deliver the necessary amounts of primary life of these power stations. Coal requirements for the energy of the required quality to our power stations, next 18 to 24 months have been largely secured. Highlights Challenges at the right time and at optimal cost. It includes coal, nuclear fuel, liquid fuels, diesel, gas, limestone (used in Our top 10 coal suppliers are set out below. Some • Recovery in coal stock days through the Generation • High coal demand from more expensive power FGDs) and water. changes have occurred since last year. recovery plan, with 14 of 15 power stations at stations due to generation constraints Securing our coal requirements Supplier Contract type expected levels by year end • Reduction in coal production from cost-plus mines Coal supply strategy • Coal optimisation savings exceeded target, resulting in due to delays in capital expansion projects Exxaro Coal Mix of cost-plus and fixed-price Last year, the Board approved a revised coal strategy, Operating performance savings to working capital • Lack of new coal mining investment and execution Seriti Coal Cost-plus which favours dedicated long-term coal contracts with South32 Mix of cost-plus and fixed-price • Ash and gypsum from our facilities no longer classified of current mining rights, with investors preferring coal delivered by conveyor, to ensure security of supply Universal Coal Fixed-price as waste, creating additional utilisation opportunities clean energy, with minimal funding for carbon- to our coal-fired stations while minimising coal transport Iyanga Mining Fixed-price intensive technology Improvements by road. It includes investing in cost-plus mines to Wescoal (new) Fixed-price • MES postponement, suspension and exemption support contractual supply, thereby ensuring optimal Glencore Fixed-price applications submitted in August 2020 may affect • Coal requirements have been largely secured for the cost of coal and security of coal supply from dedicated Mzimkhulu Mining (new) Fixed-price available capacity and financial commitments next 18 to 24 months coal resources. HCI Coal (new) Fixed-price • Despite performance improvements, Kendal Power Mbuyelo (new) Fixed-price • Retrofitting of low NOx burners on seven of eight Station continues to operate one or more units in In terms of both volumes and value, coal from short- and units at Camden Power Station completed non-compliance with emission limits medium-term contracts has increased slightly against Coal quality • Execution of several emission retrofit projects are the prior year, but overall, the split between the various able to proceed Lowlights Our newer coal supply agreements contain rigorous categories is in line with the previous year. • No environmental legal contravention incidents quality clauses to provide us with greater recourse in the incurred by Transmission or Distribution Divisions • Continuing poor environmental performance, with We have secured coal volumes required until 2021, and event of poor quality coal being supplied. We continue specific water use, relative particulate emissions and have contracted adequate coal supply up to 2022 to to evaluate the feasibility of a number of cost-effective environmental legal contraventions well outside meet estimated coal burn requirements and maintain technologies to improve coal quality, such as de-stoning, tolerance levels healthy coal stock levels at all stations. This provides an additional washing and screening of coal. • Constraints at ash disposal facilities at Camden curtailed opportunity to implement our long-term coal strategy to operation of the station source 0.9 billion tons of uncontracted coal to cover the • Poor operational practices at power stations resulted in life of all coal-fired power stations. 39 water-related legal contraventions for the year 102 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 103 OUR INTERACTION WITH THE ENVIRONMENT continued We are engaging the cost-plus mines on ways increase production and/or maintain existing Implementing coal haulage and the road-to-rail rules, power stations water demand management and to improve coal qualities, such as selective production. Until then, lower production is to be migration plan dual water supply sources. Power stations have to update mining of good quality mining blocks, studies expected from these mines. We transport coal on rail to three power stations, resilience plans to manage the infrastructure and water namely Grootvlei, Majuba and Tutuka. We did not footprint impacts arising due to excessive rainfall and flooding. for coal processing plants or sourcing coal Nevertheless, we will only consider recapitalisation achieve the shareholder compact target for the year. from sister mines, where the previous two Water curtailments and restrictions will continue for those mines where long-term benefits can be measures are not feasible. demonstrated though increased volumes of acceptable The majority of coal on rail is delivered to Majuba, which for low priority water users, although Eskom’s quality coal, thereby limiting the amount of coal required experienced a fire on 18 December 2019, destroying the assurance of water supply is not at risk at the Determining coal quality at the point of delivery remains on expensive short- and medium-term contracts. We will rail tippler take-out conveyor and silo. As a result, Majuba moment due to our status as a strategic user. our long-term goal. As part of designing real-time processes consider financing the expansion at cost-plus mines was unable to receive coal on rail for the remainder of Business continuity plans are in place at Eskom and systems to sample and analyse coal consignments upon to access remaining contracted reserves, to support the financial year. This is one of the main reasons for facilities and sites to cater for possible water arrival at power stations, we have begun using equipment to contract extensions through increased production. not meeting the target. Nevertheless, at the time of restrictions by municipalities and water boards. conduct quantitative electron microscope scanner analysis the fire, Majuba was already behind target, mainly due of coal. Power stations are also rolling out commercially Initial investments for the Matla Colliery have been to operational issues and cable theft affecting Transnet For a discussion of our water usage, refer to “Reducing water available online analysers on conveyors feeding coal to units approved; negotiations are commencing for the extension Freight Rail (TFR) performance. Completion of the consumption” on page 110 in this section as a second measuring point. of the Matla coal supply agreement (CSA) that expires recovery of the rail infrastructure at Majuba is expected Work on coal characteristics to determine what drives in 2023. The initial investment for the opening of new between December 2020 and March 2021; achievement DHSWS continues to experience severe budgetary, the ash content of coal has been completed; results will coal blocks at the Kriel Colliery has been approved. The of the KPI for the 2021 financial year will therefore also financial and resource constraints, affecting its ability be published in due course. procurement strategy for coal supply to Kendal, Lethabo be negatively affected. to manage existing operations, maintenance and and Tutuka has been approved by Eskom’s governance implementation of new bulk water infrastructure to Investment in cost-plus mines committees and is being submitted to National Treasury We continue to work closely with TFR to optimise ensure future water security to Eskom. A joint task team The majority of cost-plus mines still require for approval. existing rail operations at Grootvlei and Tutuka, as well between DHSWS, Eskom and Sasol has yielded some as fast-tracking new rail opportunities at Arnot and success on critical plant availability. significant investment or recapitalisation to Camden, in conjunction with moving excess coal from Mokolo Crocodile Water Augmentation Project Technical performance Medupi to Mpumalanga stations. These rail opportunities (MCWAP) Phase 2 will only commence in the new financial year. As previously reported, Medupi Power Station’s FGD Target Target Target Actual Actual Actual Target Measure and unit 2023 2021 2020 2020 2019 2018 met? Contracts with free carrier arrangements (FCAs) ended retrofit requires additional water from the MCWAP Coal burnt, Mt1, 2 n/a n/a 110.49 108.61 113.76 115.49 n/a on 30 September 2019 and were converted to delivery by the revised date of May 2027. We have had to delay the execution of FGD and applied to the Minister of Coal purchased, Mt 2 n/a n/a 131.44 119.25 118.25 115.25 n/a by coal suppliers. Board approved the conclusion of 16.3 Environment, Forestry and Fisheries for postponement Coal purchase R/ton, % increase SC 10.0 11.0 20.0 14.1 3.8 new FCA contracts in November 2019. The new FCA and alternative limits. Although the water delivery from Coal stock days n/a n/a 31 81 67 68 contracts (with 54 different transport companies) MCWAP Phase 2A has moved out to October 2025 Normalised coal stock days, budgeted standard were concluded by 17 December 2019, leading to the (expected by April 2025 a year ago), it is unlikely at this n/a n/a 31 50 36 n/a daily burn2, 3 resumption of FCA operations. stage to affect the FGD project, which is also delayed. Road-to-rail migration (additional tonnage Regrettably, road logistics recorded six public fatalities 33.5 10.5 10.6 7.5 8.2 11.6 Refer to “Our infrastructure – Delivering capacity expansion” from transported on rail), Mt SC, 4 during the year (2019: 21), as well as two contractor page 98 for further information 1. The current year coal burnt figure excludes 4 910kt burnt during the commissioning of Medupi Units 3 and 2 and Kusile Unit 2 (2019: 3 085kt for fatalities (2019: one). Due to the effect of our coal haulage pre-commissioning burn). operations on road safety and road conditions, we continue The implementation agreement and water supply 2. Future targets shown as n/a are dependent on system requirements. to promote road safety and participate in road safety agreements have been signed by DHSWS. The Trans 3. Normalised coal stock days exclude coal at Medupi and Kusile. awareness campaigns with the Mpumalanga government. Caledon Tunnel Authority and Eskom have signed the 4. The 2023 road-to-rail target is the cumulative target over the next three years. implementation agreement. We expect to conclude the Securing our water requirements water supply agreement soon. Although better than target, the average increase in the Coal stock days remains significantly higher than target Water security risks relating to Eskom’s coal purchase price was higher than last year, due to the largely due to more coal than needed being delivered existing needs Securing our nuclear fuel requirements Operating performance continued need to purchase greater volumes of short- to Medupi, Kusile and Lethabo Power Stations. Coal Water levels in the Integrated Vaal River System (IVRS) Existing contracts for the supply of nuclear fuel fabrication and medium-term contract coal to rebuild coal stock requirements at Medupi and Kusile are lower than originally stood at 65% for June 2020 (June 2019: 72%) due to lower services and the delivery of fabricated nuclear fuel to levels at numerous stations, coupled with contractual anticipated due to delays in the commissioning of units, dam levels at Katse, Mohale, Vaal and Sterkfontein and Koeberg Nuclear Power Station are sufficient to cover delayed water transfers from Tugela River to Sterkfontein price increases and lower production at cost-plus although we continue to receive coal in terms of take- Koeberg’s demand until 2025. During the year, we Dam. Dam levels are expected to continue to drop during mines. Coal optimisation savings exceeded the target or-pay coal supply contracts. There is no financial benefit entered into new contracts for the supply of enriched the winter months, due to the lack of rainfall in the region. for the year, contributing to our 2019 turnaround plan to reducing production by the cost-plus mine supplying The IVRS will remain in deficit until Lesotho Highlands uranium product, which is used as feed for the nuclear fuel by reducing our annual cost base. This working capital Lethabo; the low quality of coal supplied to Lethabo also Water Project Phase 2 is commissioned by 2026. fabrication, until 2028. The previous contract, entered saving will need to be supplemented by further coal cost makes it unsuitable for use by any other station. into during 2010, will expire at the end of 2020. optimisation in order to derive permanent savings. Detailed engineering work on the Lesotho Highlands Coal-related load losses during the year coincided Project has commenced, with commissioning scheduled See note 11 on future fuel supplies and note 21 on inventories in the The initiative – part of the Generation recovery plan – to with a period where our generating plant experienced for February 2026 (expected by 2025 a year ago). consolidated annual financial statements for further information on nuclear fuel balances rebuild coal stock levels to acceptable levels at all coal-fired significant capacity constraints. Coal-related losses However, construction has been delayed due to travel stations has been successful. At 31 March 2020, no station contributed 0.73% OCLF for the year, the majority being restrictions under the national lockdown. Water had stock below its individual station minimum stockholding recorded by Kriel and Matla Power Stations. At Kriel, conservation and demand management initiatives have Reducing our environmental footprint levels (based on budgeted standard daily burn), which is some of the issues were due to the shortage of good to be implemented by all sectors and the Department of We track several key performance indicators to measure a remarkable improvement from the nine stations below quality underground coal – we are working with the Human Settlements, Water and Sanitation (DHSWS) to our environmental performance. These include relative minimum levels at March 2019. Only Arnot was below its tied colliery to improve coal quality using a processing mitigate against future water security risks in the IVRS. particulate emissions, specific water consumption and expected level at year end; however, the station has since plant. At Matla, we are working with the tied colliery to the number of reported legal contravention incidents. To mitigate against droughts, long-term water supply to recovered to expected levels. By 30 September 2020, evaluate a beneficiation plant to improve coal qualities power stations are managed through inter-basin water average coal stock levels (excluding Medupi and Kusile) from low-grade sections, as well as a plant to remove transfers according to the DHSWS annual operating analysis Refer to the fact sheet on page 139 for information on the environmental implications of using or saving electricity stood at 58 days, with all stations at expected levels. stone contamination from coal. 104 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 105 OUR INTERACTION WITH THE ENVIRONMENT continued Relative particulate emissions Between 2014 and 2015, we applied for and were Target Target Target Actual Actual Actual Target Measure and unit 2023 2021 2020 2020 2019 2018 met? Relative particulate emission performance has granted postponements. The then Department of not improved since the previous financial year, Environmental Affairs granted previous postponement Relative particulate emissions, kg/MWh sent out SC, 1, 2 0.30 0.32 0.33 0.47 0.47 0.27 and remains the worst performance since 1997. applications, some until 2020 and others until 2025, on Specific water consumption, ℓ/kWh sent out SC, 1 1.32 1.34 1.35 1.42 1.41 1.30 condition that we implement committed improvements Net raw water consumption, Mℓ n/a n/a n/a 286 553 292 344 276 335 n/a The poor performance can be attributed mainly to the at several power stations, and develop and implement decision to operate the significantly damaged and non- an environmental offset programme to improve ambient Environmental legal contraventions in terms of the Operational Health Dashboard, number3 1 1 1 5 2 2 compliant Kendal units given the generation capacity air quality in communities close to our power stations. constraints. Kendal reported emissions of 29.4kt (or 31%) Between 2018 and 2020 we lodged applications to the Carbon dioxide (CO2), Mt n/a n/a n/a 213.2 220.9 205.5 n/a of Eskom’s total annual particulate emissions of 94.9kt, Sulphur dioxide (SO2), kt4 n/a n/a n/a 1 721 1 853 1 802 n/a National Air Quality Officer for further postponement although Kendal only produced 9.26% of energy supplied and/or suspensions, and in some cases alternative Nitrogen oxide (NO x as NO2), kt 5 n/a n/a n/a 851 890 859 n/a by coal-fired power stations during the year. Emission emission limits for some power stations. Particulate emissions, kt n/a n/a n/a 94.9 99.9 57.1 n/a performance improved slightly towards the end of the 1. Relative particulate emissions values and specific water consumption include Medupi Units 4, 5 and 6 as well as Kusile Unit 1, but exclude units year, when a decision was taken to take Kendal Unit 5 Over the past year, emissions were added as one of the synchronised but not yet in commercial operation. Units are only included in calculations one year after achieving commercial operation. off load for repairs to its electrostatic precipitators. areas dealt with in the Generation recovery plan. We 2. Particulate emissions reported at Kendal frequently exceeded the atmospheric emission licence (AEL) limit during the year. The monitors are set up In addition, the repairs earlier in the year to Kendal have carried out work during the year to ensure the to measure emissions within a calibrated range for the unit-specific correlation function. In instances where these ranges are exceeded, particulate timeous delivery of the emission reduction projects Units 1 and 2 in terms of its recovery plan led to an emissions will be reported at the maximum of the monitor range. From February 2019, it is possible that actual emissions exceeded reported emissions based on measurements, which is reflected in the monthly AEL reports. improvement in the performance of these units. Kendal’s – such as electrostatic precipitators (ESP) upgrades, 3. In defined circumstances where the management of an environmental legal contravention indicates specific management issues or failings, it is average monthly emissions improved from 477mg/Nm3 high-frequency transformer and/or low NO x burner recorded on the Eskom Operational Health Dashboard. in December 2019 to 249mg/Nm3 in March 2020. DEFF instillations – committed to in the 2014 and 2019 MES 4. Our sulphur dioxide performance figures are calculated based on coal characteristics and power station design parameters using coal analysis and approved our action plan for the return to compliance applications. It was estimated that we would only be coal burnt tonnages. Figures include coal-fired and gas turbine power stations, as well as oil consumed during power station start-ups. For carbon of Kendal’s units on 8 August 2020. able to meet 72% of the 2014 and 90% of the 2019 MES dioxide emissions, it also includes the underground coal gasification plant. project commitments by March 2020. However, the 5. NO x reported as NO2 is calculated using average station-specific emission factors (which are measured intermittently) and tonnages of coal burnt. Additionally, Duvha, Kriel, Lethabo and Matla also majority of projects have experienced significant delays. experienced periods of poor performance, which Particulate and gaseous emissions Unfortunately, particulate emission performance in contributed to the very high emission levels for the We considered it necessary to apply for further exemption Four major pollutants in the form of emissions are 2019 was the worst in 20 years, primarily because year. Increased focus on emissions management and from the MES as well as revise the emissions reduction produced when we burn coal to produce electricity: of challenges experienced at Kendal Power Station. opportunity maintenance has seen improvements in plan. This was based on our existing financial status; the particulate matter (PM), carbon dioxide (CO2), sulphur Although the situation at Kendal is improving, emissions station performance during 2020. implications of our financial status on the South African dioxide (SO2) and nitrogen oxides (NO x). The National performance for the year remained disappointing. economy and the impact of our operations on the national Environmental Management: Air Quality Act, 2004 Minimum Emission Standards ambient air quality standards (NAAQS); and our approach (NEMAQA), which succeeded the Atmospheric Pollution Subsequent to year end, some opportunity maintenance The MES are published under Government Notice of enabling a Just Energy Transition. Therefore, updated Prevention Act, 1965, requires the installation of was undertaken during level 5 of the national lockdown. 893 in November 2013, and amended in Government postponement, suspension or exemption applications technology to reduce emissions, focusing on particulate Notice 1207 in October 2018. The MES stipulate were submitted for the Highveld and Free State power matter. We have been implementing pollution reduction Further details of particulate and gaseous emissions are available in the emission limits, which require Eskom to reduce gaseous stations – Arnot, Camden, Duvha, Grootvlei, Hendrina, technical statistics table on pages 142 to 143 emissions of sulphur dioxide and nitrogen oxides, in technology since the early 1980s, successfully reducing Kendal, Komati, Kriel, Lethabo, Majuba, Matla and Tutuka particulate matter emissions by more than 80%. addition to particulate matter. At the time of publication – as well as the peaking gas stations, Acacia and Port Rex. of the initial and subsequent amendments to the MES limits, we submitted comprehensive comments to the Implementing the emissions reduction plan and installing Managing emissions at Kendal Power Station National Environmental Management Act, 1998 (NEMA) authorities, indicating that the proposed legislation was more efficient emission control technology will reduce Kendal Power Station’s electrostatic precipitators and and NEMAQA at Kendal Power Station. onerous and would negatively affect the provision of our emissions. Shutting down older stations and flue gas conditioning were designed to emit well below electricity, among other elements. increasing the use of the newer, lower emitting stations the existing plant limit of 100mg/Nm3 for particulate In December 2019, Kendal was issued with a compliance – Medupi and Kusile – and the renewable IPPs, will also notice in terms of section 31L of NEMA for failure to We proposed that existing stations should not be result in a substantial decrease in Eskom’s and South matter. During the strike action experienced in 2018, required to comply with new plant standards but rather Operating performance we continued to run the units at Kendal to avoid failure comply with provisions of the law. The directive required Africa’s emissions over time. the station to cease operation of Units 1 and 5 on allow decommissioning at 50 years in terms of the IRP. of the system during that winter; operating with ash 10 January 2020 until approved by DEFF. We objected This approach would result in a steady reduction in It is projected that our relative particulate matter backlogs led to significant damage to the some of the and applied for a variation of the notice. In response, emissions, leading to an improvement in ambient air emissions will reduce by 51% by 2030, SO2 units and the inability to operate units within legal limits. Minister Barbara Creecy of DEFF suspended the quality in the relevant air sheds. Furthermore, it would by 22% and NOx by 27%, compared to a 2020 Interventions to repair the damage have been compliance notice pending a review thereof. not force the retrofitting of older power stations or the baseline. The estimated reduction is based on implemented, but have not been as successful as early decommissioning of stations. units running at the allowable limit value and anticipated. There has been some success, with Units 1 Minister Creecy responded to our objection in May 2020, In 2014 and again in 2019, we committed to retrofitting changes following an upgrade or retrofit, or unit and 2 operating within the licence conditions since upholding DEFF’s decision to issue the notice but several power stations to reduce emissions. Full shutdown. By 2039, Eskom’s relative particulate February 2020. Unit 5, the worst performing unit, was allowing Eskom to operate either Unit 1 or 5 in non- compliance with the AEL limits, given the generation compliance with the new plant standards requires matter emissions are expected to reduce by 70%, taken out of service in January 2020 and went on outage SO2 by 54% and NOx by 56%. system constraints. all coal-fired power stations to implement emission in July 2020 for repairs to the electrostatic precipitators; reduction technologies, such as fabric filter plant this is expected to be completed in April 2021. Unit 5 will At that time, Unit 1 had already undergone maintenance Our 2019 atmospheric emission reduction plan was (FFP), low NO x burners and/or FGD. The total capital be closely followed by Unit 6. Similar refurbishments are and was complying with its AEL emission limits – the unit’s estimated to cost R46 billion based on overnight cost, expenditure required to retrofit our coal-fired power planned for the remaining units. In addition, high-frequency emissions have improved from an average of 283mg/Nm3 or nominal cost of R67 billion over the next 10 years. stations with emission reduction technologies was power supplies will be installed on all six units over the in December 2019 to 71mg/Nm3 in March 2020, against The 2020 emission reduction plan, if approved by DEFF, estimated at R187 billion in 2019, based on overnight cost next few years to further reduce particulate emissions. a limit of 100mg/Nm3. As indicated above, Unit 5 was will reduce the cost to an overnight cost of R15 billion excluding interest. taken out of service in January 2020. Therefore, we are over the next 10 years. In September 2019, Eskom was served notice of criminal charges in respect of alleged contravention of the in general compliance with the notice, as Unit 1 has been rectified and Unit 5 taken out of service. 106 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 107 OUR INTERACTION WITH THE ENVIRONMENT continued Minister Creecy granted Eskom an extension until section 30 incidents. A total of 33 section 30 incidents Implementation of the project was delayed over the past • Low NO x burners at Medupi, Kusile and seven units at August 2020 to comply with the new stricter MES limits were reported during the year (2019: 88, restated). year, this was further exacerbated by the COVID-19 Camden that came into effect on 1 April 2020. The extension outbreak, but the necessary procurement approvals have • FGD at Kusile allowed Eskom to continue to operate power stations in Between January 2019 and May 2020, since been obtained and contracts have been awarded. compliance with pre-April 2020 licence limits, thereby Kendal Power Station reported exceedances Commencement of the lead implementation programme • Ankerlig and Gourikwa are a low NOx design OCGT allowing the continued legal operation of the affected of particulate emissions above the set AEL is planned for the second half of the 2020 calendar year. plant stations. Final MES postponement applications were emissions limit in monthly emissions reports Good progress was made with the health study carried • Acacia and Port Rex are of an older OCGT design that submitted in September 2020; we await a response from to the licensing authority. However, these were out by the South African Medical Research Council in complies with existing plant NO x limits the authorities and the Minister. A decision on these labelled as exceedances in terms of section 30. support of the offset programme, with the first round of matters may affect our operations in terms of available The exceedances should have been reflected community sampling completed by March 2020. The following emission reduction projects are being capacity and financial commitments. as non-compliance in terms of the AEL. These undertaken: Gaseous emissions reports were subsequently rectified and reissued • Lethabo Power Station is busy with the first phase of Compliance with atmospheric emission licences SO2 emission limits to the licensing authority in May 2020. a particulate emissions reduction solution through the Under NEMAQA, atmospheric emissions include any SO2 exceedances have been recorded by all coal-fired installation of high-frequency power supply (HFPS) on emission that results in air pollution. Therefore, it covers It is estimated that all coal-fired units combined power stations on 449 days in total during the year (2019: all six units. The second phase is being developed; this particulate and gaseous emissions. Eskom is required have exceeded their allowable daily particulate 139). Of those exceedances, 203 occurred at Medupi, will cover the refurbishment of the ESPs and upgrading to obtain an atmospheric emission licence to allow it to matter emission limits on 2 466 days during the year which is now operating under a monthly AEL limit the SO3 flue gas conditioning plant. The HFPS project emit atmospheric pollutants within certain limits. (2019: 1 688 days). While many of these are permissible rather than a daily one. Matimba, which also operates has made progress, and will be installed on the first in terms of AEL provisions, about 900 of these were on a monthly AEL limit, reported 142 exceedances on unit in the second half of the 2020 calendar year At 31 March 2020, 11 coal-fired units were operating in its units. The poor SO2 emissions performance at these non-compliances to the stations’ AELs, with 850 of these non-compliance with average monthly emissions limits: stations is due to the generally higher sulphur content of • Development work continues for low NO x burner being recorded at Kendal Power Station. one unit at Duvha, four units at Kendal, three at Lethabo, Waterberg coal. replacement or retrofits at Majuba, Matla and Tutuka. two at Matla and one at Medupi. This placed 6 858MW Offset programmes The NO x projects have been put on hold, while we at risk of censure or closure by the authorities. Implementation of an air quality offset programme to reduce NOx emission limits engage with authorities on an alternative emission Initiatives to improve the level of compliance have been particulate matter emissions to improve ambient air quality in Exceedances of allowed NO x emissions have been plan, which focuses on particulate emission reduction implemented, reducing the capacity at risk to 3 153MW communities adjacent to our power stations is a requirement recorded by all coal-fired power stations on 409 days • Tenders for the Tutuka FFP and dust handling plant at 30 September 2020, relating to four units at Kendal of the 2015 MES postponement decision. The offset plan in total during the year (2019: 304). Lethabo reported retrofits are being evaluated. An application for and one at Lethabo. has a nominal cost in excess of R2 billion (determined in 51 exceedances during the year (2019: 112), with the postponement of the station’s MES and AEL limits 2019) over the next five to eight years. Proposed offset reduction due to initiatives to address combustion issues applicable from 1 January 2019 was submitted to While power stations generally comply with legal interventions include switching households from using coal to which affect NO x exceedances. The remainder of the the authorities in November 2018; a decision on the requirements in terms of emission limits, there are electricity in combination with liquid petroleum gas, insulating exceedances were generally due to monitoring issues. matter is awaited periods where these limits are exceeded in unplanned incidents, in many instances during times of generation homes with ceilings and addressing the burning of waste as a • The Kriel ESP and SO3 project is progressing according Emission reduction projects constraints. These are legally referred to as NEMA source of local air pollution. to plans and will begin execution in 2021 We remain at risk of not meeting commitments made in previous minimum emission postponement applications • As indicated, the units at Kusile are being constructed due to project delays and constraints on available funding. with the FGD plant included. The Medupi FGD retrofit Air pollution and Eskom’s impact on air quality One of our key environmental KPIs is particulate matter The consequences of non-compliance could be the project has been delayed. We are seeking alternative, No matter the source, there are two ways pollution emissions per MWh of electricity sent out to the national withdrawal of licences to operate, DEFF not granting more cost-effective technology options given financial can enter the air. Point source pollution occurs when grid, and is tracked in our annual shareholder compact further postponements, or not meeting specific loan constraints air pollutants come from a single source of origin, such with DPE. Our power stations monitor compliance agreement conditions, such as the World Bank’s Medupi as smokestacks at a single factory. Non-point source to their emissions limits specified in their AELs on a Ashing facilities and ash utilisation FGD loan conditions. pollution occurs when air pollutants come from many continuous basis. The most significant waste is ash produced from the sources, such as all of the cars on the road and veld fires. Emissions control projects consist of refurbishment combustion of coal by our power stations. Ash sold We employ a number of technological solutions to manage of existing plant and retrofitting new technologies to from five stations in terms of our ash utilisation strategy Just as not all sources of pollution are the same, pollutants air quality, such as fabric filters bags and ESPs which reduce Operating performance reduce particulate matter emissions, as well as sulphur increased slightly to 2 920kt for the year (2019: 2 785kt), also vary in their effects. Primary pollutants are those particulate matter; and FGD (currently only at Kusile and nitrogen oxides. Projects are lagging behind the 2019 or just over 9% of total ash produced. DEFF approved that cause direct harm or that can react to form harmful Power Station) and low NOx burners that treat SO2 and MES exemption. Given the risk to our licence to operate, our application for the exclusion of ash and gypsum from substances in the atmosphere. Secondary pollutants NOx emissions respectively. there is heightened focus on the execution of a number the definition of waste when extracted for beneficial are those harmful substances that are created from the of emission-related projects, the majority of which are use at our sites. This provides additional opportunities reactions between primary pollutants and the components We have an emission reduction plan to reduce Eskom’s in the contracting and pre-contracting phases. A steering to increase ash beneficiation – such as the use of ash in of the atmosphere. emissions over the next 20 years through retiring stations committee has been established to monitor progress and bricks, cement, soil amelioration, road construction and combined with particulate technology retrofits or Generating electricity from fossil fuels releases pollutant review plans to address commercial and resource issues. mine backfilling – without having to apply for a waste enhancements. Part of this plan is to ensure accountability emissions that include SO2, NOx, and particulate matter management licence. Nevertheless, the disposal of ash and that power stations operate and maintain the Emission abatement technology already installed at our (PM10 and PM2.5). Dust from ash facilities and our sites and gypsum must continue to comply with all the legal technologies installed to reduce pollution. We are also power stations includes: also have an impact on local air quality. While we are not requirements associated with a hazardous waste. implementing offset programmes in local communities. • ESPs at Kendal, Komati, Kriel, Lethabo, Matimba, the only source of emissions affecting air quality in the Since late April 2020, all eight Camden units We continue work to reduce particulate emissions and Matla, Tutuka and three of the six units at Duvha. areas in which our power stations operate, we recognise (totalling 1 481MW nominal capacity) were other pollutants on a sustainable and cost-effective basis. In addition, SO3 flue gas conditioning plants have also that our emissions contribute to air quality issues that shut down due to the safety risk resulting from been installed at those stations with ESPs, except at affect the health of individuals and communities. Given that Tutuka, to improve the efficacy of the ESPs ash dam capacity constraints. This accounted we are the single largest emitter in the country, air quality • FFPs at Arnot, Camden, Grootvlei, Hendrina, Kusile, for other load losses of 2.32% during the first is a high priority for Eskom. Majuba, Medupi and three units at Duvha quarter of 2021. • Boilers with low NO x design at Kendal and Matimba 108 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 109 OUR INTERACTION WITH THE ENVIRONMENT continued The current ash dam had reached its maximum height Phasing out polychlorinated biphenyls In recognition of the interdependency between Eskom The South African Government has issued a number of and therefore posed a safety risk to personnel on site DEFF published regulations prescribing requirements to and the environment, we contribute to an improved regulations to address climate change and the associated and neighbouring communities; it could also cause an phase-out the use of polychlorinated biphenyls (PCB) natural environment through our responsibility to risks, including: environmental impact. Mitigation plans to continue ashing materials, previously used as coolant fluids, and PCB- protect, manage and mitigate the impact of our activities • Declaration of GHGs as criteria pollutants, which are in future include moving ash to a lower dam, as well as contaminated materials (>49ppm) by 2023. In 2015, on the biodiversity of all land on which we operate. In carbon monoxide, ground-level ozone, lead, nitrogen utilising alternative capacity, such as backfilling a nearby we submitted a PCB phase-out plan to DEFF, which was 2019, the Eskom Ingula Partnership won the Stewardship dioxide, particulate matter and sulphur dioxide mine. Construction of the new ash dam is in progress, but approved. A total of 158 pieces of PCB equipment have category at the South African Wetland Society Awards. • Mandatory reporting of GHG emissions has been delayed. To extend the ashing capacity, further to be disposed. To date, 82 have been phased out. The The Ingula Partnership between Eskom, BirdLife South extension of the water-use licence will be pursued beyond remaining 76 will be phased out by 2023, although there is Africa and Middelpunt Wetland Trust was rewarded • Requiring pollution prevention plans in five-year April 2021 as further mitigation. some concern about the slow progress over the past year. for the work completed in the declaration of the Ingula cycles, with annual progress reports Nature Reserve and the securing of vital wetland habitats. • Pilot carbon budget process Seven of the units will be returned to service from Information on the disposal of ash, asbestos, PCB-containing material, 27 August over a period of about two months, with the as well as nuclear waste and used nuclear fuel is set out in the technical We comply with all these regulations. We measure and last unit remaining on outage for a general overhaul. statistics table on pages 142 to 143 Investing in renewable energy track carbon dioxide emissions every month; the annual We have already removed 795 000m3 of ash from the data is externally audited. We submit an annual report Provisions for environmental restoration and The Eskom-owned Sere Wind Farm contributed dam, with a further 800 000m3 to be excavated by the to Government on progress against our initiatives to rehabilitation 283GWh to the national grid during the year (2019: end of November 2020. reduce emissions. We are participating in the DEFF We provide for the following obligations: 328GWh), with an average load factor of 30.67% and an average availability factor of 97.40% (2019: 35.69% and voluntary carbon budget process running from 2016 Reducing water consumption • Estimated decommissioning cost of nuclear plant, 98.88% respectively). to 2020; emissions are projected to remain within the We are implementing a comprehensive water strategy including rehabilitation of the associated land budget. We anticipate that mandatory company-level for all coal-fired power stations, based on maintaining • Management of spent nuclear fuel assemblies and The eight rooftop and ground-mounted PV sites in carbon budgets will come into effect once the proposed our strategic user status and complying with applicable radioactive waste operation at Eskom facilities produced total energy sent Climate Change Bill is promulgated; the latest revision of legislation. Furthermore, all power stations have out of 3.8GWh during the year (2019: 4GWh). the Bill is expected to be submitted to NEDLAC during developed water strategy implementation plans to • Decommissioning of other generating plant and September 2020. reduce water use and ensure compliance. Regrettably, rehabilitation of the associated land One of the ways in which we can reduce our carbon the water strategy implementation plans implemented • Estimated cost of closure at the end of the life of footprint is through the purchase of renewable Our carbon footprint to date have not resulted in reduced water usage at cost-plus mines, together with pollution control and energy from IPPs, coupled with our own investment coal-fired power stations. Water performance remains rehabilitation of the land, where a constructive or in renewables. Renewable energy sources include A carbon footprint is a calculation, reported over unsatisfactory, caused by coal-fired station technical contractual obligation exists to pay coal suppliers wind, solar power, biomass, landfill gas and small a period of 12 months, of the total GHG emissions performance, ageing plant and long lead times to address hydro technologies. caused by an organisation, both directly and indirectly, root causes of high water consumption, such as leaks The following provisions have been raised in respect of expressed in tons of carbon dioxide equivalent (tCO2e). from the plant and fixing key areas that contribute to environmental rehabilitation and restoration: For capacity provided by renewable IPPs, refer to page 95 The calculation of a carbon footprint covers a different poor water management on site. scope and may utilise different assumptions to regulated Actual Actual Actual R million 2020 2019 2018 Regrettably, no additional renewable energy reporting. Specific water usage Specific water use for the generation of electricity for the capacity has been allocated to Eskom under the Direct GHG emissions are those from sources that are Power station-related 16 203 17 797 15 928 year is worse than target, but deteriorated only slightly environmental restoration – IRP 2019, effectively preventing our investment in owned or controlled by the reporting entity. Indirect compared to the prior year. nuclear plant renewable technology in the foreseeable future. GHG emissions are a consequence of the activities of Power station-related 11 932 14 460 13 375 environmental restoration – Based on the need to shut down ageing power stations the reporting entity, but occur at sources owned or Due to continuous exceedances of atmospheric controlled by another entity, such as flights used by other power plant and develop new revenue and employment pathways, emissions and poor specific water usage in the employees travelling for business. Mine-related closure, pollution 14 291 13 906 12 737 coupled with a desire to reduce our carbon footprint, coal-fired fleet, the Generation Environmental control and rehabilitation Compliance Steering Committee (GESC) we aspire to expand our renewables portfolio Total environmental provisions 42 426 46 163 42 040 significantly through large-scale grid-connected wind and We conducted a carbon footprint study to was established in June 2020 with a specific PV plants at selected greenfield sites, as well as at power calculate our annual carbon footprint for 2019, to Operating performance focus on water management, including other Refer to note 30 in the consolidated annual financial statements for more stations and offices. Additionally, we will investigate provide insights into the sources and magnitude environmental aspects. information on these provisions rooftop PV on a commercial basis and adopt energy of our GHG emissions and allow us to better The GESC is chaired by the Group Executive: Generation storage solutions to provide balance to the system. Biodiversity manage our GHG emissions. to monitor and closely track the implementation of Red data bird mortalities on Eskom’s infrastructure Dealing with climate change water actions at power stations to reduce specific water The full report is available on our website, at www.eskom.co.za/ usage and address the increase in water spillages that deteriorated to 392 mortalities for the year (2019: 331), Eskom’s climate change policy OurCompany/SustainableDevelopment/Pages/Sustainable_ result in environmental legal contraventions. the majority involving distribution infrastructure. During Our climate change policy supports South Africa’s Development.aspx the year, Eskom’s Envirotech Care Group released best decarbonisation target to have South Africa’s national Reducing environmental legal contraventions practice approaches that will contribute significantly greenhouse gas (GHG) emissions peak by 2025, plateau Our last carbon footprint study was conducted in 2011. There were five Operational Health Dashboard towards achieving a reduction in wildlife interactions on for up to a decade, and then decline in absolute terms The 2019 footprint was calculated in line with the globally contraventions (as defined earlier) reported during the Eskom infrastructure. These include those related to from 2036. Historically, electricity accounts for around recognised GHG Protocol: A Corporate Accounting and year (2019: two), two of which related to particulate bird electrocution, mitigation of giraffe electrocutions 42% of national CO2 emissions. Reporting Standard. Using the newly developed GHG emission exceedances and the others to water issues. and mitigation against wood pole damage by large game calculation tool, we will calculate our carbon footprint Furthermore, 59 environmental legal contravention like buffalo. annually from 2020. incidents were recorded against a tolerance level of 18 (2019: 24, restated). Of these, 39 were water-related incidents, 17 related to air quality, and three to waste. 110 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 111 OUR INTERACTION WITH THE ENVIRONMENT continued The results of the carbon footprint study are presented and Exco are regularly updated on climate-related risks The ambitious decarbonisation scenario considers initiatives beyond the IRP, including further increasing renewable in the following table. and opportunities. In the 2020 financial year, 16 climate- energy sources and green technologies, which requires strong external and internal leadership, financial support, related issues were submitted to the highest governance capacity building and policy adjustments. Source GHG emissions, tCO2e levels for approval. Both Exco and SES approved the Parameters Soft decarbonisation Ambitious decarbonisation Scope 1 alignment of Eskom’s climate change reporting with Stationary combustion 212 192 077 the TCFD recommendations and disclosure in the Expected temperature changes 3-4°C (6-8°C locally) change by 2030 2-3°C (4-6°C locally) change by 2050 Eskom motor vehicle fleet 81 797 2020 integrated report. Expected carbon neutrality date Achieved around 2070 Achieved around 2050 Fugitive emissions 36 212 Waste disposal 3 468 The Climate Change and Sustainable Development Risk exposure Equal exposure to physical risks and Reduced exposure to physical risks as a result of improved Non-combustion product use 9 Department is responsible for developing and transition risk adaptation to climate change, but maximum exposure to implementing our climate change-related strategies transition risk Scope 2 and policies, based on best practice and national and Policies Implementation of mandatory Full compliance with the Climate Change Bill (i.e. carbon Electricity and heat purchased1 Not applicable international trends. The department is also responsible company-level carbon budgets in line budgets and sectoral emission targets or SETs), and emission Scope 3 for identifying and assessing climate-related risks, with the proposed Climate Change Bill reduction beyond the limits contained in the IRP 2019 Coal delivery to site 269 963 opportunities, controls and treatment plans. Key climate- Carbon pricing High carbon tax liability Reduced carbon tax liability due to reduced emissions Use of employee vehicles 12 627 related issues are reported to the Risk and Sustainability Electricity demand Reduced electricity demand (i.e. decline Increased electricity demand (i.e. increase in electricity sales) Air travel 3 368 Exco subcommittee, responsible for supporting and in electricity sales) Vehicle rental 1 903 monitoring priority climate change risks and reporting to Exco and Board as necessary. Power station shutdown All coal-fired power stations remain until Potential early shutdown of power stations, and repurposing Total2 212 601 425 the end of their planned economic life of of all coal-fired stations Strategy 50 years, with some repurposing of 1. As electricity generation is Eskom’s main activity, Scope 2 indirect coal-fired stations emissions are in principle accounted for as Scope 1 direct emissions Eskom climate-related risks and opportunities under the GHG Protocol. We have identified three climate-related risks and New technologies Limited implementation of new Mobilisation of funds to implement new technologies such as 2. Due to different scopes and input assumptions, the results are not technologies due to financial resource large-scale renewables, the eMobility (electric vehicle) five climate-related opportunities with the greatest directly comparable with our reported CO2 emissions in the table constraints programme, smart solar-powered micro- and mini-grid on page 142. relevance and highest likelihood of affecting our solutions, and battery storage programme; hydrogen economy business, strategy, and financial planning in the short, Energy mix Continued maintenance of the current Mobilisation of funds for Eskom sustainable projects such as Total GHG emissions for 2019 amounted medium and long term. fleet with limited investment in repowering with gas, deployment of small- and large-scale to 212 601 425tCO2e. The majority of these emissions renewable energy due to IRP allocations renewables and repurposing of coal-fired stations were caused by the burning of fossil fuels at our power Desired CO2 emissions Emitting between 190 to 200MtCO2e Emitting 80 to 90MtCO2e (excluding new gas) by 2040, and net stations for the generation of electricity, with coal, diesel RISKS by 2025 zero by 2050 and kerosene consumption contributing 99.81% of our Short term (<1 year) GHG emissions. A second significant source of GHG Potential damage to Eskom assets and operations due emissions was the use of Eskom-owned vehicles and to extreme weather events Additional disclosures required by the TCFD are covered in Eskom’s 2020 sustainability report, available online delivery of coal to power stations by third-party trucks. Medium term (1-3 years) Combined, these two categories led to 351 760tCO2e, Failure to transition and implement low carbon Just Energy Transition Office • The impact of this approach on all environmental goals initiatives or 0.17% of GHG emissions. The remaining categories The changing energy landscape globally and domestically – air quality, carbon emissions and water, with no Long term (3+ years) contributed 57 588tCO2e to the carbon footprint. Potential loss of Eskom’s social licence to operate plays an important role in our plans for medium- to long- compromise on environmental integrity Task Force on Climate-Related Financial term sustainability. Given South Africa’s vulnerability • The impact of this approach on socio-economic Disclosures to climate change and its commitment to the Paris factors, including dealing with shutting down coal-fired We recognise and support the need to disclose clear, OPPORTUNITIES Agreement and the United Nations’ Sustainable stations comparable and consistent climate-related information. Short term (<1 year) Development Goals, our approach is to address climate Opportunity to invest in more modular plant that is • Medium- to long-term technology requirements and In our 2019 integrated report, we expressed our intent change holistically in a just manner. less vulnerable, such as solar PV plants the associated financing and policy enablers to implement the Financial Stability Board’s Task Force Medium term (1-3 years) We are mindful of Eskom's role in supporting • How to attract and sustain financing for initiatives Operating performance on Climate-related Financial Disclosures (TCFD) Repurposing existing coal sites the Just Energy Transition, not only through recommendations as best practice. We then initiated Development of new assets such as bulk energy Based on a life of plant of 50 years, approximately supplying electricity, which is the economic the process of aligning our climate-related reporting storage solutions 12 000MW of coal-fired capacity is expected to be shut backbone of the country, but also through the with the TCFD recommendations to build a better Implementation of micro- and mini-grid solutions down by 2030. However, the pace of this transition understanding of our climate-related risks, opportunities impact of our environmental footprint, as well as Long term (3+ years) must consider the capacity of the electricity supply and financial impacts. We will disclose qualitative data to Reskilling and retraining employees our social responsibility towards those affected system, elements of the value chain, employees, suppliers start and subsequently include more granular quantitative by our operations. Our Just Energy Transition and communities surrounding the power station to data over time. We aim to implement the TCFD Strategy is geared towards having a positive adapt. Our strategy is to redeploy and reskill affected recommendations in full over three years. impact on our finances, the society in which we employees, support local municipalities and actively Climate-related scenarios operate and the environment. pursue economic opportunities for local communities. Governance Publicly referenced IEA scenarios, country-specific Moreover, we are not able to rely solely on the The Board is responsible for the governance of Eskom’s assumptions (such as National Determined Contribution For this reason, we have established a Just Energy redeployment of people from one coal supply/generation climate-related risks and opportunities. The Board sets (NDC), the IRP 2019 and the GHG pathways report) and Transition Office, a first among businesses in South community to another coal supply/generation area in the direction for how risks and opportunities should company-specific assumptions were considered when Africa, with a determined focus on developing Eskom’s order to ease the process of transition – at least not be managed; it is supported by committees that govern developing climate change scenarios for Eskom. Just Energy Transition Strategy detailing: beyond what the operations at Medupi and Kusile can be climate-related issues, namely ARC, SES and IFC. • Our commitment to a lower carbon future Two scenarios have been developed, namely expected to absorb. The GCE and Exco are responsible for approving, “soft decarbonisation” and “ambitious • How repurposing and renewables plans contribute to implementing and executing effective risk and resilience meeting this goal decarbonisation”. The soft decarbonisation management of climate change risks. Board committees scenario is built on the NDC and the IRP 2019. This scenario reflects our present situation. 112 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 113 OUR INTERACTION WITH THE ENVIRONMENT continued For this reason, we are developing comprehensive socio- Risk management Future focus areas economic impact studies for each power station that will Two priority 1 risks relate to climate change, namely the • Implementing the long-term coal strategy to solve two • Developing mobile unit-based online analyser be shut down. We started with the three stations to be failure to transition and implement low-carbon initiatives main objectives, namely the optimal cost of coal and technology, to conduct sampling and analysis of truck shut down first, being Hendrina, Grootvlei and Komati, and potential loss of Eskom’s social licence to operate; security of coal supply deliveries to improve coal quality, combined with work after which we will extend this work to all stations in the and one priority II risk, being potential damage to • Extending cost-plus contracts to match the remaining on other coal parameters Generation fleet. Eskom’s assets and operations due to extreme weather events. These risks are managed by our Climate Change life of linked power stations and utilising dedicated • Improving operational practices at power stations to Furthermore, we are engaged in a concerted and Sustainable Development Department. coal reserves for supply to other power stations. reduce water use and decrease emissions effort to determine how to repurpose these This includes reinvesting in cost-plus mines to enable • Increasing volumes of ash beneficiated at power power plants and/or sites, including through the Metrics and targets contractual supply Refer to the earlier discussion under “Eskom’s climate stations deployment of renewables, repurposing with gas • Extending existing long-term fixed-price contracts for change policy” and “Our carbon footprint”. • Addressing non-compliance and shortcomings to and assessing the use of the sites for other designated power stations with the option to supply ensure full compliance with licences and permits industry. Carbon mitigation mechanisms other power stations The purpose of the Carbon Tax Act, 2019 (CTA) is • Implementing our Just Energy Transition Strategy, Broadly, our repurposing work includes, but is not • Sourcing uncontracted coal for the remaining life of specifically regarding the repurposing of power to levy a carbon tax on GHG emissions, to send a power stations through open tender, while managing limited to: stations, and pursuing the Just Energy Transition price signal to the market to reduce consumption of coal cost within targeted parameters • Conversion to renewables or gas carbon-intensive products. The CTA came into effect Transaction • Moving coal as economically as possible, by • Biomass – converting municipal waste to energy on 1 June 2019, after a protracted period of stakeholder prioritising a tied colliery model that delivers coal by • Battery storage sites engagements since the first discussion paper was conveyor, followed by rail, with road transportation released by National Treasury in 2010. • Facilities to process mine rejects and coal fines as lowest priority • Converting coal stock yards to coal-blending facilities The CTA provides details on the persons subject to carbon tax, the tax base and rate, the tax period, • Facilities to process acid mine water calculation of the amount of tax payable and the • Bulk water supplier for farmers and communities various types of tax-free allowances. It also allows “generators of electricity from fossil fuels” two additional In looking at the various options and the development of deductions to 31 December 2022, being phase one of our overall Just Energy Transition Strategy, we are also the implementation period. The stated intention is for assessing the options for alternative financing, including these deductions to ensure that there is no impact on climate financing. electricity prices during phase one of the implementation of carbon tax. However, after these deductions fall away Just Energy Transition Transaction in phase two, a significant contribution to electricity The Just Energy Transition Transaction (JETT) is an price increases can be expected from 2023, as the carbon opportunity being explored to crowd in funding from tax liability is a pass-through to electricity consumers the domestic and international markets to support under the regulated electricity pricing principles. our transition towards cleaner energy, thereby also Implementation of the CTA has been challenging, with supporting South Africa’s energy transition. This large- various proposed amendments, delayed regulations scale investment will be conditional on a significant on the use of carbon offsets, as well as proposed reduction in carbon dioxide emissions over the amendments to the GHG reporting regulations and next 30 years, in line with national and international supporting guidelines. Development of the South commitments. African Greenhouse Gas Emissions Reporting System The JETT proposal is twofold. Firstly, to obtain funding continues. SARS has announced a three-month delay to assist our transition to renewable energy in order to to October 2020 for the first filing and payment of Operating performance achieve a significant carbon emission reduction. Secondly, carbon tax relating to the 2019 calendar year, in line with to secure transition finance aimed at promoting the Government’s economic stimulus package announced in socio-economic development of affected communities response to the COVID-19 pandemic. and workers as we transition from coal-fired electricity We are committed to addressing the challenge of climate generation to a renewable energy-based energy system. change and support carbon pricing as a tool to assist in The JETT is part of Eskom's overarching Just Energy lowering the cost of reducing emissions. A transition Transition Strategy, which describes a suite of policies, from coal to lower carbon technologies underpins projects and initiatives that contribute to our goals of our comprehensive climate change strategy. We have decarbonisation and socio-economic development. committed to participating in discussions on solutions to support the country’s transition to a lower carbon future that does not hamper socio-economic development. 114 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 115 OUR PEOPLE Our people remain critical to successfully executing our As part of the Eskom turnaround plan, Exco approved strategy and delivering on our mandate. Consequently, the implementation of voluntary cash separation we need to recruit and retain a skilled workforce and packages (VSPs) to a maximum cumulative value of adequately reward our people for their efforts. R400 million. The process was open to managerial employees in non-core and non-critical roles, to Our core values are crucial to driving a culture of minimise the impact of separation on critical operations, performance and accountability. Effective employee maintenance, outages or regulatory requirement skills. engagement, our employee value proposition, Employees aged between 60 and 62 were also eligible, consequence management and accountability, all support regardless of being core or critical. our desired organisational culture. A total of 367 applications were received, of which 235 The Board requested a review of our people management were approved. A total of 185 applicants accepted their strategy as the existing strategy was no longer believed to offers – 163 completed their service in March 2020, 21 in support Eskom’s current challenges or the new strategic April and one in June. The separations are not reflected direction. As such, a People Plan was developed and in the headcount reconciliation below, as employees are approved by Board in June 2019, to respond to the current deemed to have left Eskom’s service on 1 April. The total challenges while supporting Eskom’s turnaround plan. cost of the VSPs was R286 million, with a payback period The People Plan focuses on five key thrusts to enable and of just over one year. support organisational transformation through: • Driving a culture of performance and accountability Our staff turnover rate during the past year was • Building critical capabilities approximately 5.2%, with the movement in our • Increasing employee productivity headcount shown below. • Managing employee benefit costs Number of employees 2020 2019 • Ensuring shareholder targets are achievable given Headcount at 1 April 46 665 48 628 financial constraints and recruitment restrictions Add: Appointments 524 469 Less: Resignations (1 188) (1 135) These thrusts will serve as a catalyst for the development Retirements (960) (874) and sourcing of leadership and critical skills, by developing Deaths in service (161) (215) and training our people, maintaining a diversified learner Dismissals (127) (120) pipeline and enabling advancement opportunities. Absconded (10) (5) We further need to ensure we place and retain skilled Separation packages1 – (8) people in the appropriate positions by continuously Other 29 (75) performing skill audits; adequately rewarding employee Headcount at 31 March 44 772 46 665 efforts through employee value proposition initiatives; and keeping our finger on the pulse of employee 1. Voluntary separation packages became effective on 1 April 2020, therefore related staff movements are not included in the turnover Highlights Improvements sentiment through targeted employee engagement. analysis for 2020. • Eskom recorded no employee fatalities for the first • Employee benefit costs reduced to below budget We remain committed to fostering a culture of Zero Employee benefit costs form the second largest time in at least 15 years as a result of headcount decreasing through natural Harm to promote excellence in safety performance in all component of operating costs before depreciation, attrition and limited replacement of vacancies our operations, by providing a safe working environment interest and fair value adjustments, constituting about 20% • Approval of the People Plan to support Eskom’s to our employees, contractors and members of the of operating costs. Therefore, a reduction in employee turnaround plan public that supports strict occupational hygiene, mitigates benefit costs is required to fulfil our strategic focus on safety risks and is free of incidents. We take protecting Operating performance cost containment to build a more sustainable organisation. the public from exposure to the hazards of our Challenges Lowlights operations and infrastructure seriously, and continue to For a discussion of employee benefit costs, refer to “Our finances – implement training and awareness initiatives to educate Other operating costs” on page 71 • Ensuring an adequately skilled workforce while • Fatalities recorded among contractors and members the public on the safe use of electricity. meeting transformation and learner intake targets, of the public Natural attrition, overtime management and enhanced given the moratorium on external recruitment • Low employee morale as a result of Eskom’s poor Our workforce productivity levels remain key levers to achieving a • Achieving disability equity at all occupational reputation, lack of incentive bonuses and continued The group headcount at year end, including permanent staff reduction in employee benefits costs. Progress has been levels, and reasonable accommodation of people uncertainty around the impact of the restructuring and fixed-term contractors, stood at 44 772 (2019: 46 665), made to reduce our headcount through natural attrition, with disabilities • The second phase of income differential adjustments consisting of 37 765 Eskom employees and 7 007 Eskom while initiatives to manage manpower cost drivers and • Maintaining a productive relationship with has not yet been implemented Rotek Industries (ERI) employees (2019: 39 292 and 7 373 employee productivity levels continue. Although overtime organised labour respectively). Of these, approximately 85% were covered by is considered a discretionary expenditure, the high UCLF • Containing overtime costs given continued poor collective bargaining agreements. levels over the past year necessitated extensive maintenance plant performance work and repairs, thereby limiting the opportunity to • Limiting the number of serious incidents resulting The group headcount is declining, mainly through reduce overtime cost. Unfilled critical vacancies contribute in injuries and/or fatalities, including public incidents natural attrition. Our ability to fill vacancies is limited to the challenge, as employees take on additional shifts. due to illegal connections and tampering by the moratorium on external appointments driven • Minimising the number of lost-time incidents, given by significant financial constraints. However, the The composition of our employee benefit costs is set out in note 36 of our value of Zero Harm moratorium can be relaxed for core, critical and scarce the consolidated annual financial statements skills, subject to approval. We are targeting a group headcount of 42 894 by the 2023 financial year. 116 116 | INTEGRATED | INTEGRATED REPORT REPORT | 31 | 31MARCH MARCH2020 2020 ESKOM HOLDINGS SOC LTD | 117 OUR PEOPLE continued The breakdown of our workforce at 31 March based Building and retaining strong skills Learning and development increases awarded in July each year. These annual on age is shown below. Commitment to skills development is essential to We use both internal and external training to provide increases are also approved by Exco and ratified by guarantee that we have the required skills for the learning and development opportunities for our people. the PGC. 50 organisation’s needs, especially considering the financial Training expenditure of R1.1 billion for the past year constituted 3.67% of gross employee benefit costs Based on the wage negotiations during 2018 at the 40 constraints we continue to face. Accordingly, we Central Bargaining Forum, bargaining unit employees endeavour to build a strong pipeline of leaders that (2019: R1.2 billion). We curtailed training expenditure due to our current financial challenges. are entitled to an inflationary wage increase of 7% for can execute the organisation’s strategy and champion the 2020 and 2021 financial years. Middle and senior 30 our values. We have focused our efforts on ensuring that Eskom supports further study programmes where management received an inflationary salary increase our existing workforce is adequately supported in their employees seek to obtain qualifications related to of 2.8% for 2020. The dispute lodged with the Council 20 developmental needs and managing talent in a sustainable their line of work. This enables building skills for future for Conciliation, Mediation and Arbitration (CCMA) manner, thereby retaining critical skills using a targeted sourcing pools and the expansion of leadership potential regarding the decision to award no increases to senior 10 employee value proposition. within our workforce. management for 2019 remains unresolved. We use internal talent boards to identify high-performing A total of 182 employees are enrolled with various 0 Executive remuneration is discussed under “Governance, leadership and 20-29 30-39 40-49 50-59 60+ individuals as well as developmental needs among staff; academic institutions to obtain qualifications related to ethics – Executive remuneration and benefits” on page 31 perform succession planning for critical workforce Eskom’s line of work (2019: 854). Approximately 50% of 2018 2019 2020 segments; and actively manage talent pools and careers further studies relate to technical studies; around 57% of The second phase of adjustments relating to unjustifiable in line with our workforce plan and transformation those enrolled are women. New applications for masters race- and gender-based income differentials, due to be The divisional breakdown of our workforce at year end objectives. This seeks to reduce the need for and doctoral further studies are not eligible for approval implemented in 2019, is still pending, due to prevailing is shown below. About 70% of employees are directly external recruitment. due to financial constraints. financial constraints. No process of income differential involved in the generation, transmission and distribution We will implement an overall skills strategy that will adjustments has been implemented for senior managers. The Eskom Academy of Learning (EAL) meets Eskom’s of electricity to customers, with the remainder employed serve as the foundation for a skills audit to influence a in-house training needs across 24 venues nationwide. Performance bonuses in the new build programme, support functions and resourcing plan, now and in the future. Continuous assessments are carried out to ensure that Performance management enables Eskom to drive a our subsidiary ERI, which focuses on supporting the In addition to our own business needs, skills development training offerings deliver the required competencies at an culture of performance and accountability, with emphasis electricity business. The decrease in the headcount in also supports the skills development strategy of the NDP, optimal level. Quality digitised learning content is used on productivity and operational excellence. Employees support functions over the year is a result of relinking which aims to eliminate poverty and reduce inequality for remote learning opportunities, and to achieve cost agree on individual performance objectives and targets support staff to the line divisions as part of the by 2030. In support of the NDP, we continue to recruit efficiencies. The EAL has integrated software that will for the coming year through a performance contract divisionalisation process. learners and manage a learner pipeline to address the allow employees with disabilities to enjoy the benefits with their direct manager or supervisor. The assessment 7 007 (16%) requirements of the business and those of Government, of digitised learning. of individual performance happens on a six-monthly 11 276 (25%) as articulated in our shareholder compact. and annual basis, thereby providing regular feedback on Furthermore, the EAL is collaborating with our employee performance, also identifying any developmental Learner pipeline Research, Testing and Development (RT&D) Department needs as they arise. The assessments also inform 4 668 (11%) Our learner pipeline included a total of 1 517 learners to strengthen implementation of learning opportunities succession planning through our internal talent boards. at year end (2019: 2 988), comprising 1 449 in technical from flagship programmes, as well as registering 2 400 (4%) disciplines and 68 non-technical. The majority of programmes with professional bodies for continuous Our short-term incentive scheme aims to align individual 1 469 (3%) learners are being developed within the Distribution professional development accreditation. performance with strategic organisational objectives. and Generation environment, which accounts for 65% of The performance measurement formula is weighted Remuneration and benefits our existing workforce, as indicated earlier. The learner based on an employee’s contribution to individual, team, Our approach to remuneration and benefits is designed 17 952 (40%) pipeline represents 4% of company headcount – below divisional and organisational objectives. The short- to attract and retain skilled, high-performing employees. our desired level of 6% but considered sufficient for term incentive scheme rewards individual performance Generation Group Capital We aim to provide market-related remuneration existing business needs. against predetermined objectives and is linked to the Transmission Support functions structures, benefits and conditions of service, within Distribution ERI shareholder compact, subject to the achievement of the guidelines set by the shareholder in order to defined organisational gatekeepers. Operating performance remain competitive. The current incentive scheme will be reviewed to align For information on the racial and gender breakdown of our workforce, Guaranteed package refer to “Improving internal transformation” from page 121 with the People Plan. Furthermore, line divisions will Managerial employees receive a guaranteed package, which implement a production bonus scheme in the coming includes compulsory benefits such as medical aid, pension, year, which will reward employees for improved dread disease cover, group life and death benefits included Target Target Target Actual Actual Actual Target productivity resulting in a financial benefit to Eskom. Measure and unit 2023 2021 2020 2020 2019 2018 met? in cost-to-company. To keep remuneration in line with market trends based on an appropriate comparison group, Given the operating loss for the 2020 financial year, no Learner intake: Artisans, number SC 300 100 92 91 − n/a the guaranteed amount is reviewed annually, with any short-term incentive bonus is payable to employees. Learner intake: Engineers, number SC 150 50 16 16 10 n/a resulting increases awarded in October each year. Annual Furthermore, no incentives were paid out in 2018 or 2019. Learner intake: Technicians, number SC 150 50 11 11 3 n/a increases are approved by Exco and ratified by the PGC. Training spend as % of gross employee benefit costs SC 3.75 2.56 3.75 3.67 3.85 5.21 Bargaining unit employees receive a basic salary which NUMSA lodged a dispute with the CCMA challenging the includes a thirteenth cheque (known in Eskom as an decision not to pay incentive bonuses to employees based 1. The 2023 target for learner intake is the cumulative figure targeted over the next three years. annual bonus), as well as other benefits, such as pension, on organisational performance in the 2018 financial year. 2. From the 2019 financial year, learner intake numbers reflect only new learner contracts awarded. medical aid, death benefit, a housing allowance, cell They allege that the decision was unfair on the basis that phone allowance and car allowance (subject to qualifying Eskom had unilaterally changed the performance targets In line with the Board approval granted to appoint Although no new artisan learners were permanently criteria). Basic salaries and conditions of service are without proper consultation. In 2019, the CCMA issued an core, critical and scarce skills, only learner plant appointed during the year, our pipeline contains a negotiated through the collective bargaining process, arbitration award dismissing NUMSA’s claim. NUMSA has operators could be appointed as permanent employees. sufficient number of artisans to meet future skills to keep remuneration in line with market trends based filed a review application in the Labour Court. requirements. on appropriate comparative groups, with any resulting 118 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 119 OUR PEOPLE continued Employee engagement Health and wellness and labour market norms. However, the gross sick The Essential Service Committee (ESC) investigated Discussions between leadership, employees and In order to maintain a healthier and more productive absenteeism rate (GSAR) – reflecting the days lost due in 2019 whether the designation of the generation, organised labour are facilitated to ensure sound relations workforce, we place considerable emphasis on the health to illness as a percentage of total potential work days transmission and distribution of power as an essential in the workplace. Our leaders are integral to supporting and wellness of our people. We seek to improve work – of 2.88% (2019: 2.75%) remains well within the target service should be varied or withdrawn. In May 2020, meaningful engagement through the Eskom employee attendance and productivity as well as the health and of 3.50%. All employees with high SAFR and GSAR the ESC issued a ruling to the effect that the gazetted engagement programme. In times of uncertainty, clear wellbeing of every employee, through the prevention rates are referred to Eskom clinics for fitness-for-duty designation should not be withdrawn or varied, and communication and effective engagement is crucial to of occupational diseases and injuries, early detection of assessments and managed accordingly. directed the parties to conclude a Minimum Services ensuring that our people feel a sense of connection and occupational and lifestyle diseases (such as hypertension, Agreement. The effect of the ruling is that Eskom alignment to the business in order to restore and build diabetes and HIV), medical surveillance, fitness for duty Employees who are too ill to continue working are employees are not entitled to embark on industrial trust. Our relationship with organised labour is well assessments and other wellness programmes. advised to apply for ill-health retirement and receive action; this would pose a significant risk to the stability regulated, with agreements and formalised processes in appropriate assistance. Lifestyle diseases remain the of the national grid, as demonstrated during the place. Nevertheless, the quality of the relationship could Our physical wellness programme utilises sports, main cause for approved ill-health retirement. Targeted industrial action experienced during June and July 2018. be improved. recreation and cultural activities to promote employee wellness programmes have been developed to increase wellbeing. Our employee assistance programme (EAP) awareness of lifestyle diseases, including early and Our people are critical to delivering on our mandate Initiatives are in place to rebuild employee morale and offers counselling, financial wellness and various adequate medical management of all chronic conditions. and strategic objectives. The value of the partnership give employees an opportunity to provide feedback to our other psychosocial support programmes. The top five between Eskom, our people and our trade unions can leadership. These include face-to-face meetings, employee problems presented to the EAP during the year were Industrial relations therefore not be overstated. engagement surveys and regular messages from the GCE emotional issues, trauma, legal matters, work-related It is our policy to implement and promote sound and fair to all employees, with communication channels open to all complaints and relationship problems. In response, labour practices and deal with grievances, disciplinary Improving internal transformation employees. The Eskom News, an internal newsletter to all our focus on improving mental health and reducing action, disputes and suspensions appropriately. A grievance Employment equity remains one of the key initiatives employees, was relaunched during the year. stress has continued, through awareness and education dealt with quickly will have less of a negative effect on through which meaningful transformation can be realised. programmes to assist employees with counselling and employee morale and will enhance labour stability. We continue to make progress in ensuring equitable Our employee value proposition is employee-centred skills to manage psychosocial challenges. Employees Targets for grievances resolved and disciplinary action representation of the workforce at all occupational levels and focuses on the value and benefits provided by the with financial challenges are offered financial awareness with sanctions were achieved, with close to 80% which truly reflects the demographics of the country. organisation in return for the skills, capabilities and support and referral to external resources for assistance experiences contributed by employees. The “Attitude of grievances being resolved and more than 90% of with debt management if needed. disciplinary actions resulting in sanctions. This indicates Our group and company employment equity performance at senior of Gratitude” initiative is designed to create awareness management level, as well as at professional and middle management and appreciation among employees of the benefits which Levels of sick leave within the organisation remain a that employees are not being subjected to unwarranted levels, is set out in the statistical tables on pages 144 to 147 they have access to. The Eskom Nkanyezi Programme concern. The sick absenteeism frequency rate (SAFR) disciplinary measures. Approximately 84% of disputes is gaining traction as it offers loyalty benefits and – measuring the number of absences due to illness per referred to external institutions, such as the CCMA and Racial equity at senior management level as well as racial discounted rates on products and services to employees employee over a 12-month rolling period – of 2.33% Labour Court, were ruled in Eskom’s favour, slightly and gender equity at middle management/professionally through external partners. (2019: 2.23%) is much higher than the target of 2.04% below our target of 90%. qualified levels have shown improvement over the past In terms of our disciplinary procedures, when it is year, although targets have not been achieved. suspected that an employee may have committed Despite transformation being a strategic business Supporting our people during the national lockdown Eskom has compiled a national register of critical misconduct and an employee’s continued presence at the staff who may be required to commute or live at site, imperative, our financial challenges continue to hinder As part of Eskom’s comprehensive COVID-19 response workplace might cause interference with an investigation specifically for the COVID-19 response. This national the achievement of our transformation targets, and strategy, a change management and engagement plan was to determine the facts, or interfere with the disciplinary lockdown register has been submitted to the National particularly ensuring fair representation of people living developed to ensure Eskom employees, contractors, process itself, the employee may be suspended. Labour Joint Operational Centre overseeing the country’s with disabilities at all levels. communities, organised labour and other key law principles require that precautionary suspensions stakeholders are timeously informed and engaged, while disaster management response, and distributed to the must be instituted with full pay, pending the outcome Racial equity by level of employment building resilience and driving behaviour modification to provinces. Staff identified as essential on this register of the investigation or disciplinary process. 100 address the COVID-19 pandemic. were issued with permits to commute during the national lockdown. Overall, Eskom’s aim is to have minimal A total of 114 employees were placed on suspension 90 Communication from the GCE is sent to employees employees and contractors on site. with pay during the year, of which 42 were still 80 Operating performance every few days. The main driver of these communiques suspended at year end. Due to prolonged investigations 70 is to ensure that Eskom’s employees are equipped The register identifies approximately 10 554 essential staff and delays in the disciplinary process, 27 employees 60 with accurate and reliable information that will drive who are required at site on a daily basis; approximately have been on suspension with pay for a period longer 50 appropriate behavioural change. 15 213 critical staff required to remain at home on standby; than the prescribed three months. Follow-ups are done 40 and approximately 19 162 employees who are not required to ensure that investigations and disciplinary processes In an effort to keep employees engaged, an Eskom to work on site, the majority of whom can work at home. 30 are expedited. COVID-19 hotline was established. If employees are All required permits have been issued accordingly. Standby 20 aware of a potential COVID-19 exposure at Eskom, staff may be called to site at short notice to respond In the previous year’s report we discussed a number 10 or have any questions, concerns or suggestions about to emergencies and ensure business continuity. The of industrial relations matters involving our recognised 0 COVID-19, the hotline is available for them to share Executives Senior Middle Skilled Semi-skilled majority of essential staff required to be on site are in the trade unions – NUM, NUMSA and Solidarity – that management management their thoughts and experiences. Moreover, a number Generation, Eskom Rotek Industries, Distribution and had progressed to the CCMA and had the potential to and professionals of guidelines were developed by the Office of Eskom’s Group Capital environments. adversely affect our financial and operational sustainability. Chief Medical Officer and shared with the organisation. Updates to the matters are discussed below. Actual Actual almost met target (within 5% threshold) The risk of multiple power stations or other key operations Target Actual met target In a short space of time, Group IT enabled a large amount having to shut down due to infections and fatalities remains Eskom instituted a review application to challenge the of the workforce to work remotely during the national a significant concern. These include Koeberg Nuclear arbitration award issued by the CCMA in April 2018, lockdown. Managers are maintaining contact with their Power Station, National Control, Telecoms Control, Apollo which recommended that the existing bargaining team members at home. Converter Station, Distribution control rooms, Resource unit should be extended to include certain levels of Management Centres and some Generation sites. professionals and middle management employees. The review application remains pending in the Labour Court. 120 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 121 OUR PEOPLE continued Gender equity by level of employment We were unable to meet the target for overall In memoriam The focus on the benefits of behavioural safety representation of people with disabilities for the year. We extend our heartfelt condolences to the families, observations has been renewed. In support of this, 45 Although the proportional representation of employees friends and colleagues of the following people who lost an organisation-wide safety climate survey is planned. 40 their lives in service to Eskom and our customers: with disabilities is still not appropriate, with an over- This will assess the prevailing safety climate, highlight 35 representation at lower levels, some progress has been opportunities for improvement and assist with developing Contractors 30 made in identifying employees who can be added to and appropriate corrective plans. Martin Barnard Bongani Magxala 25 prepared for our leadership pipeline. Steven Mnisi Shadrack Mofokeng A gap assessment was conducted at OHSAS 18001 20 Progress has been made towards providing reasonable Ndumiso Mthatha Christopher Lebete Sekwele certified sites to determine their readiness for the 15 accommodation for people with disabilities to make Gugulethu Portia Selepe Nalamotse Daniel Tshehla migration to ISO 45001. During the year, more than it easier for those employees to meet their job 1 800 Eskom personnel attended ISO 45001 training. 10 Sisabelo Yawathe requirements. Implementation of recommendations to 5 ensure that all Eskom buildings and facilities are accessible Contractor management 0 and accommodate of people with disabilities is ongoing. Contractor safety management remains a priority due Executives Senior Middle Skilled Semi-skilled Similar to the causes of fatalities, the major reasons for to the vital role that contractors play in our operations. management management lost-time incidents are motor vehicle accidents, slips, and professionals Sessions on disability management and disability To this end, contractor management awareness initiatives trips and falls, incidents related to being struck by or awareness continue; furthermore, a disability culture have been launched to reiterate the importance of caught between objects, as well as falls from heights. Actual Actual almost met target (within 5% threshold) survey is being developed. Research to inform the supervision of contractor employees. All contractors Target Actual met target development of a manager’s toolkit for disability A total of 19 occupational diseases incidents have been conducting critical or high-risk activities are required to management has been completed. confirmed for the group for the year under review have written safe work procedures in place. In addition, While no targets are set at executive level, gender and (2019: 38). As in the past, these incidents relate mainly to site visits are conducted across the organisation to Focus on safety noise-induced hearing loss incidents, which account for assist business units in understanding and implementing disability equity at this level are lagging far behind other occupational levels. Eskom is subject to legal, regulatory and licence conditions approximately 80% of cases. legislative and Eskom-specific requirements for surrounding occupational hygiene, safety and environmental contractor safety management to ensure compliance Eskom has 67% male and 33% female employees at all compliance. We continue to assess our safety performance and improve contractor safety performance. occupational levels. Vacancies that arise due to natural based on the lost-time injury rate (LTIR), which is a At 28 October 2020, Eskom had recorded 2 096 positive attrition will be targeted and reserved for women under proportional representation of the occurrence of lost-time COVID-19 cases, comprising 1 761 employees We continue to assess all safety-related incidents in the Eskom Women Advancement Programme wherever injuries per 200 000 working hours over a 12-month period, and 335 contractors, with 2 057 recoveries. Sadly, order to identify root causes and share learnings on possible. Openings in senior management and middle together with the number of fatalities among employees and 27 employees and three contractors have succumbed to safety best practice. Before being registered as vendors, management or professionally qualified occupational contractors. The LTIR target reflected in the table below the disease. All affected employees and their families are new contractors are assessed for compliance with SHEQ levels will continue to be ring-fenced for employment indicates Eskom’s tolerance levels. In accordance with the offered psychosocial support. Initially, more confirmed requirements. Contractors that have experienced safety- equity purposes. value of Zero Harm, the true target is zero. cases were being recorded in the Western Cape, with related incidents are required to develop and implement Koeberg Nuclear Power Station being the epicentre. improvement plans. Compliance is monitored through However, a rise in cases has been seen in Mpumalanga, inspections and audits to improve our contractor safety. Target Target Target Actual Actual Actual Target Measure and unit 2023 2021 2020 2020 2019 2018 met? Gauteng, KwaZulu-Natal and the Eastern Cape. Future focus areas Fatalities (employees and contractors), number − − − 9 7 14 • Successfully implementing the People Plan in the Fatalities (public), number1 − − − 17 22 26 We continue to pursue safety initiatives and manage our following areas: driving a culture of performance and activities to reduce the number of fatalities and injuries, accountability; building critical capabilities; increasing Lost-time injury rate, index (including occupational 0.32 0.32 0.34 0.30 0.31 0.24 while ensuring compliance with statutory requirements. employee productivity; managing employee benefit diseases) – groupSC These include training and awareness interventions, costs; and aligning shareholder targets to financial 1. A Generation contractor employee involved in a motor vehicle accident on 25 December 2018 regrettably passed away on 26 December 2019, proactive safety assessments and active management sustainability leading to an additional contractor fatality being reported for the 2019 financial year. of areas requiring improvement. • Continuing to align divisional resourcing plans to Eskom recorded no employee fatalities (2019: three) for the first time in at least 15 years. Despite our commitment to We are concerned about an increase in incidents where turnaround initiatives to ensure financial sustainability, Operating performance safety and focus on Zero Harm, we recorded nine contractor fatalities during the year (2019: four, restated). The causes our employees or contractors are intimidated or injured, combined with ensuring shareholder targets are of all fatalities are shown below. and in some instances, even held hostage while attending achievable given financial constraints and recruitment to network faults or removing illegal connections. In other restrictions 1 cases, Eskom-branded vehicles have been stoned or set 1 1 • Assessing the safety climate through an organisation- alight. We condemn, in the strongest possible terms, wide safety survey, highlighting improvement 2 violent behaviour against our people while they provide an opportunities and developing appropriate corrective essential service to our customers and the larger public. plans 2 1 • Investigating alternative ways in which we can Public fatalities and public safety programmes are discussed under “Our role in communities – Public safety” on page 127 safeguard the lives of our employees and contractors 2020 2019 as they perform work in our communities 3 Safety programmes • Supporting all business units in complying with the Eskom, in collaboration with the Department of COVID-19 health and safety regulations 1 Employment and Labour (DEL), is continuously looking 2 for opportunities to enhance the knowledge of both our 2 occupational health and safety professionals as well as Vehicle accidents Crime related Vehicle accidents Crime related DEL inspectors through training and workshops. Electrical contact Falls from heights Electrical contact Contact with heat Struck by/caught between objects Struck by/caught between objects 122 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 123 OUR ROLE IN COMMUNITIES Our role in communities considers our relationships We play a critical role in skills development and with direct customers and suppliers; beneficiaries of our economic empowerment to transform society through electrification efforts and corporate social investment our supplier development and localisation drive as well (CSI) activities; the communities in which we operate; as by investing in community education, health and as well as the public in general, which constitutes our developmental projects. The rollout of Government’s indirect customers. Due to the significant impact of electrification programme still forms our most direct stakeholder relationships on our business, we aim to contribution to transforming our society. collaborate with communities for the benefit of all. Our reputation with stakeholders is strongly influenced Customer service performance by the level of trust in our organisation. We aim to put the customer at the centre of our business towards our overall objective of achieving fully Eskom strives to be a customer-centric organisation satisfied and serviced customers. Our primary objectives that delivers world-class customer service across all in this area are sales growth, revenue collection and customer segments. We place great importance on the customer satisfaction. value we add to the lives of ordinary South Africans. Our developmental responsibilities cover building and We measure customer satisfaction by employing a maintaining power stations and networks to supply range of statistical perception and interaction-based households, schools and industries with electricity, customer surveys, conducted by independent research supporting local enterprises and stimulating skills organisations. and job creation. Target Target Target Actual Actual Actual Target Measure and unit 2023 2021 2020 2020 2019 2018 met? Key Customer Delight, % 80.0 80.0 80.0 81.5 81.7 79.5 Customer Delight, % 75.0 75.0 75.0 73.6 72.7 72.0 CustomerCare, index 8.2 8.2 8.2 8.5 8.5 9.9 1. The Key Customer Delight and Customer Delight measures have replaced Eskom KeyCare and Enhanced Maxicare respectively, and are based on a 12-month moving average. Key Customer Delight, which measures the satisfaction Using the international RepTrak ® Pulse reputation study, of large industrial customers, has remained above target our reputation has shown a steady decline over recent but has declined marginally compared to the previous years. The survey is scored along seven dimensions, year. The price of electricity and unreliability of supply namely products and services, innovation, workplace, are the main reasons for dissatisfaction among our key governance, citizenship, leadership and performance. Challenges customers. In particular, the unpredictable nature of load An organisation’s sector affects the score, with the Highlights curtailment and loadshedding is making it difficult for key energy sector having a poor (and declining) reputation • The target for local content of procurement spend • Procurement spend with the majority of supplier customers to plan around supply interruptions. globally. Governance as well as products and services was achieved categories remains below target contribute the most to the overall score, followed by Customer Delight, which measures perception among citizenship, or an organisation’s contribution to society. • The Eskom Expo for Young Scientists won the • Financial challenges limit the effective residential, small- and medium-sized customers, showed National Science and Technology Forum Award for implementation of CSI programmes slight improvement over the period although still The 2019 study again ranked Eskom the lowest out of Non-Governmental Organisations, for an outstanding performing below expectations. This is due to delayed the top 50 South African companies surveyed, with a contribution to science, engineering, technology and Operating performance resolution of supply interruptions and poor performance score of 20.8, down from 26.7 the year before, ranking innovation in South Africa over the last decade on quotes, connections and billing. us in the poor or lowest tier. Eskom also ranked lowest Lowlights out of 78 global energy utilities. Eskom’s poor financial CustomerCare measures customer satisfaction performance and perceived leadership challenges were • Eskom’s reputation is in the poor or lowest on a transactional basis, and has remained stable. the biggest contributors to the decline over the past tier based on the international RepTrak® Pulse Nevertheless, customer dissatisfaction with unplanned reputation survey, scoring the lowest among year. Media coverage also plays a strong role in forming interruptions, loadshedding and inadequate staffing the public’s perception of Eskom. 78 global energy utilities leading to delayed response times to customer queries remain areas of concern. Rebuilding and strengthening the public’s confidence and trust in Eskom remains one of our key priorities. Our reputation Despite the steady decline in our reputation, we target a A company’s reputation signifies the emotional bond it RepTrak ® score of 50 (in the “weak to vulnerable” range) has with society, and is largely influenced by perception. in the medium term. Reputation affects an organisation’s licence to operate, its ability to attract top talent, the extent to which Our contribution to supplier development customers will prefer its products and services, and the We aim to contribute to sustainable local development level to which outsiders are willing to advocate on behalf by leveraging our procurement spend in a manner of or defend the company. that also allows flexibility within the business, while accommodating Government’s local development initiatives and policies. 124 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 125 OUR ROLE IN COMMUNITIES continued During the year under review, Eskom awarded a TMPS includes spend against IPP contracts which were Eskom Expo for Young Scientists Nuclear safety total of 1 737 contracts worth R120 billion. Of these concluded in terms of DMRE’s RE-IPP Programme The Eskom Expo for Young Scientists (EEYS), supported Koeberg Nuclear Power Station’s plant design and contracts, R111.4 billion (or 92.84%) was committed to over which we had no control. If IPP expenditure were by Eskom as title sponsor for almost 20 years, strives the assessment of risk to the public is maintained local content. Of those, 83 contracts worth R2.4 billion excluded from TMPS, overall procurement performance to inspire young scientists and researchers to conduct within licensing limits and recommended international were awarded in the new build programme, of which would improve, particularly preferential procurement research projects in science, technology, engineering, standards. No unacceptable risk to the public exists due R2.1 billion (or 88.53%) was committed to local content. from B-BBEE compliant suppliers. mathematics, and innovation. It also seeks to provide to the design or operational practices at Koeberg, and Since inception of the new build programme, contracts promising young scientists with opportunities to develop both units continue to be operated safely. to the value of R229 billion have been awarded, and Initiatives to improve procurement performance include: their passion for the sciences, while enhancing their total local content committed by suppliers amounted • Insisting on valid B-BBEE certificates when a contract depth of knowledge. A robotics session took finalists Future focus areas to R139.1 billion, representing 60.74% of the total is awarded and throughout the duration of the through the entire process of building and programming • Enhancing the customer experience, given the negative contracted value. contract robots. impact of loadshedding on customers • Encouraging joint ventures where no black-owned • Rebuilding and strengthening the public’s confidence Projects submitted for exhibition are carefully judged The group and company procurement equity performance is set out in entities are able to tender and trust in Eskom the non-technical statistical tables on pages 144 to 147 at the back of in terms of originality, scientific rigour, creativity and the report • Incorporating black-owned qualifying small enterprises presentation. About 500 projects are selected for the • Increasing procurement spend with underrepresented and micro enterprises as incubates in all supplier final event from 35 regional expos; a number of winning supplier categories Total measured procurement spend (TMPS) for the panels where possible projects participate at various international science fairs • Monitoring compliance with improved governance group on all active contracts amounted to R154.2 billion around the world. The supply chain recovery programme, which was principles around procurement transactions for the year, of which 65.97% was spent with B-BBEE implemented to address historical issues leading to Simama Ranta • Maintaining support for Government’s development compliant suppliers. Procurement spend with black previous audit modifications, together with improving The programme was initiated 10 years ago in partnership initiatives through our electrification and CSI activities youth-owned suppliers achieved 2.65% of TMPS, compliance through proactive monitoring, was concluded with the Education With Enterprise Trust. Simama Ranta exceeding the target of 2%. However, procurement spend • Continuing with initiatives to educate the public on in July 2019. means “empowering the South African economy”. It is targets in the following categories were not met: B-BBEE safe electricity usage compliant suppliers; black-owned and black women- aimed at identifying and acknowledging South African owned suppliers; companies owned by black people with Progress on the supply chain recovery programme is discussed under schools that are leading the way in education initiatives “Ethics and progress on governance clean-up – Improvement process to aimed at entrepreneurship. disabilities; and qualifying small and exempted micro address irregular expenditure” on page 35 enterprises. The poor performance is due to an increase Skills development through our new build in previously compliant suppliers not renewing their projects B-BBEE certificates. A total of 13 318 people were employed at the Medupi and Kusile new build sites and on large transmission Maximising our socio-economic contribution projects at 31 March 2020 (2019: 23 982). As various Target Target Target Actual Actual Actual Target packages in the new build projects are concluded, the Measure and unit 2023 2021 2020 2020 2019 2018 met? number of contractor employees on site continues to Total electrification connections, number SC 285 428 85 428 177 000 163 613 191 585 215 519 decline. Nevertheless, we remain committed to driving skills development and transfer with our construction Corporate social investment committed spend, R million 610.2 153.8 132.6 123.8 132.4 192.0 partners. Before demobilisation can take place, affected Corporate social investment, number of beneficiaries 2 000 000 750 000 800 000 1 479 395 933 139 1 116 044 workers have to provide proof of upskilling to skills development committees. 1. The 2023 target is the cumulative target over the next three years. Public safety Electrification The Foundation approved 208 projects, grants and In accordance with our commitment to Zero Harm, we The electrification programme funded by DMRE allows donations to the value of R123.8 million during the year, continue to conduct public safety awareness campaigns at us to connect previously disadvantaged households in assisting 1 479 395 beneficiaries. A selection of flagship schools, communities, agricultural forums and to various our licensed areas of supply. Challenges experienced in projects and initiatives are discussed below. Operating performance other stakeholders in an effort to reduce electricity- certain areas include criminal activity and community related injuries and fatalities. Members of the public are Eskom Business Investment Competition unrest, coupled with delayed contract modifications educated on how to use electricity safely and correctly, The Eskom Business Investment Competition (BIC) and approvals. by raising awareness on the hazards of overloading encourages small and medium black-owned enterprises electricity plugs, illegal connections and purchasing The target for electrification connections set by DMRE to thrive and contribute to the country’s economic prepaid electricity from ghost vendors. We continue was lowered to 157 900 due to a reduction in the funding development and rewards outstanding work in to encourage the public to report low-hanging power provided, and therefore actual connections (which entrepreneurship. It has been operating for more lines, meter tampering and vandalism to electrical include rollover connections of 45 292) exceeded the than two years in several sectors, such as engineering infrastructure in their communities. revised target. However, the shareholder compact target and construction, agriculture and agri-processing, was not adjusted. manufacturing, as well as trade and services. There were 17 public fatalities during the year (2019: 22), which included 12 incidents linked to electrical Corporate social investment With prizes worth approximately R1.3 million, the contact. Despite ongoing initiatives and campaigns, The Eskom Development Foundation NPC (the competition plays a part in strengthening sectors that are public incidents due to illegal connections and tampering Foundation) is responsible for our CSI initiatives to important to South Africa’s ability to meet its economic by members of the public persist. Of further concern improve the quality of life for communities where we growth targets. BIC also supports the development of is an increase in physical threat to our employees operate. It is an Eskom subsidiary and solely funded these businesses through training and business skills and contractors working in public areas as a result of by Eskom. Initiatives focus on education, support for enhancement. community unrest. small and medium enterprises, farming, community development, as well as energy and environmental projects through a number of national programmes. 126 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 127 OUR KNOW-HOW Our know-how embodies the knowledge acquired During the year, we spent R422 million, including over our 97-year history and is integral to everything allocated overhead costs, on approved research that we do. It encompasses Eskom’s intellectual capital, projects, specialised testing, development and comprising our intellectual property, such as patents, consulting work (2019: R443 million). copyrights, software, rights and licences; and our Grand Challenges institutional knowledge, whether tacit knowledge – skills, Our RT&D portfolio supports our 13 “Grand experience, insights and ideas of our people – or explicit Challenge” focus areas, directed at ensuring long-term knowledge, such as systems, policies and procedures. operational sustainability as well as early adoption of Investing in appropriate technologies new technologies and innovative solutions to address our challenges. For information on future new build projects, refer to “Our infrastructure – Other projects and future new build” from page 99 For extensive information on the 13 Grand Challenges, please refer to our Research Direction Report 2019-2024 (RaDaR) published by Research, testing and development Eskom RT&D in 2019. The document is available at www.eskom.co.za/ The mandate of our RT&D Department is to: OurCompany/SustainableDevelopment/Pages/ResearchDirection.aspx • Research, select and develop next horizon Flagship and other high-priority projects technologies that support our strategic objectives Work continues on the five flagship projects identified • Create new knowledge and apply this knowledge to address our future customer, coal, distribution and to practical business challenges by demonstrating transmission asset management Grand Challenges. Over selected technologies, and develop new revenue the past year, we have also achieved good progress on streams existing high-priority projects. Together, these projects • Provide specialised technical consulting, testing are critical enablers to our ability to adapt to the and inspection services to support operational changing energy landscape over the long term. decision-making Research project Our progress Flagship projects eMobility (electric vehicles) Eskom’s perspective on eMobility was presented at the African Utility Week in May 2019. The business case is in the execution phase, with advocacy, platform and product initiatives on track. Our simulation model, eMobiSim, has been applied to national electric vehicle forecasts; results indicate that the projected uptake is lower than expected. South Africa’s environmental targets will not be achieved through a reduction in transportation emissions alone Coal logistics and A revised minimum coal quality specification was implemented to ensure that the quality of coal used characterisation mitigates against load losses and adverse emissions. In conjunction, assessments of 56 new coal sources were conducted to improve coal stockpiles. Boiler leakage tests were conducted at the majority of power Highlights Improvements stations to reduce the likelihood of boiler tube leaks due to poor quality coal. Furthermore, a model has been developed to assist power stations in determining the effect of coal quality on plant performance and • Our RT&D Department employed its intellectual • In support of the Generation recovery plan, our quantifying coal-related load losses. Water retention tests have commenced on coal fines (dust) to capital to develop innovative solutions in the fight coal logistics and characterisation project is assisting determine the feasibility of using this by-product in the generation process against COVID-19 power stations in identifying and reducing load losses Distributed energy resources Project execution has been separated into two phases, with the first phase focusing on construction of a due to poor coal quality pilot embedded generation plant, followed by research and testing. This phased approach is expected to shorten the overall project timeline by two years. Market evaluations have commenced; these will be used to determine the component costs of a distributed solar plant and identify key strategic partnerships Operating performance required across the supply chain Rural microgrid smart As highlighted in last year’s report, a rural off-grid smart community pilot in Wilhelmina, Free State was community completed in November 2018. Monitoring of seasonal performance and integrity of the pilot system continues to identify areas for optimisation Business model for technical Our focus is on business development of technical services that cannot be sustained in-house due to development of black-owned resource and financial constraints. We have partnered with the CSIR’s Enterprise Creation for Development suppliers for the development of entities to support Eskom, the South African electricity supply industry and other industries. We are targeting development of at least one sustainable business plan by the end of 2021 Other high-priority projects High-voltage direct current The critical path and projections for delivery have been revised, but will need to be revisited in the coming (HVDC) test facilities year due to contractual challenges and cable theft incidents on site. Due to the cost involved, we are examining alternate funding sources and the possibility of extending the facility to a national level; engagement with the South African Bureau of Standards (SABS) is under way Energy storage (battery We operate the largest testing facility for large-scale energy storage in the southern hemisphere. We are storage) exploring bulk energy storage solutions for grid strengthening as well as small-scale, behind-the-meter storage solutions for customers to store their own generated power. The knowledge gained from research and testing in this area is being applied to our battery storage project that is under way. An Eskom position paper on battery storage technology as well as a web-based tool to ensure standardised selection and sizing of suitable energy storage technologies have also been developed 128 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 129 OUR KNOW-HOW continued SUPPLEMENTARY Research project Line inspection and maintenance using robotics and Our progress Three remotely piloted aircraft systems (RPAS) have been delivered for testing at the high-voltage laboratory of the SABS’ National Electrical Test Facility. A team of Eskom engineers have undertaken RPAS INFORMATION drones pilot licence training. Tenders have been issued for the development of a proof of concept in the use of RPAS for transmission and distribution live-line inspections Commercialisation of As discussed in last year’s report, the project will remain in care and maintenance until May 2021. underground coal gasification Nevertheless, we have started engaging with the Central Energy Fund to collaborate on the project Smart electricity platform The project is aimed at developing a smart information technology and operational technology platform that integrates customer-centric products, including eMobility, distributed energy resources, energy storage, smart metering and other emerging technologies. A research report and business operating plan have been developed, to strategically position Eskom as a digital utility in the evolving energy landscape Using our resources in the fight against COVID-19 In an effort to assist Government with its COVID-19 response plan, Eskom made its Academy of Learning (EAL), based in Midrand, Johannesburg, available to the Gauteng Department of Health to use as a quarantine site. The EAL has 416 beds available for this purpose. Medupi Power Station has also provided accommodation to 148 South African National Defence Force members and military police deployed to Lephalale, Limpopo Province, during the national lockdown. Staff from our RT&D Department developed innovative solutions to address challenges arising from the COVID-19 pandemic, including the following initiatives: • Investigated the cost of hand sanitiser and formulated a less costly, but equally effective, option. RT&D laboratories have produced thousands of bottles of sanitiser for distribution to various Eskom sites, including outlying areas where access to sanitiser is limited Dr Heena Madhav and Dr Kelley Reynolds-Clausen formulated and produced cost-effective hand sanitiser from the Applied Chemistry and • Designed five non-invasive and relatively low-cost Microbiology Laboratory in Eskom’s RT&D Department. ventilators, two of which met Department of Health requirements Knowledge management, systems and • A low-cost, reusable mask with removable N95 filter process was developed for frontline staff and the healthcare sector. The design reduces the commercial cost Refer to pages 151 to 154 of our 2019 integrated report for detail on of N95 masks by approximately 70% over a four- how we manage knowledge and intellectual property, as well as the systems, processes and technical structures that govern our operations month period. Initial tests were favourable and mass production on the first 40 000 masks has been completed Future focus areas Operating performance • Focusing research and development efforts on • Developed a hands-free method to dispense projects to address our Grand Challenges and sanitiser through a foot pedal. The sanitiser has been Abbreviations 132 Plant and customer information develop new revenue streams, to improve operational distributed to rural and peri-urban schools as part of efficiency and explore technologies to future-proof • Power station capacities 148 our CSI initiatives Glossary of terms 133 Eskom amidst the evolving energy landscape and digital • Power lines and substations in service 150 • Initiated a COVID-19 system dynamics model study, revolution Leadership qualifications and directorships 135 which makes provision for the testing of Eskom Customer information, such as number of 151 • Managing and commercialising intellectual property Board and Exco meeting attendance 138 customers, electricity sales and revenue per employees. Accelerated testing commenced in the through Eskom’s Intellectual Property Office customer category Western Cape during June 2020. The model assesses Environmental implications of using or saving 139 the risk to staff in critical plant areas, considering • Continuing to develop innovative solutions to ensure electricity Independent sustainability assurance report 153 variables such as rate of infection, age profile and job security of supply while fighting COVID-19 description Statistical tables: technical and non-technical 140 Contact details IBC • Investigating ways to adapt existing breathalysers, information which are required at access points to Eskom sites, to enable infection screening 130 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 131 ABBREVIATIONS GLOSSARY OF TERMS AEL Atmospheric emissions licence kWhSO Kilowatt-hour sent out Base-load plant Largely coal-fired and nuclear power stations, designed to operate continuously ARC Audit and Risk Committee LPU Large power user Cash interest cover (ratio) Provides a view of the company’s ability to satisfy the interest burden on its borrowings by utilising cash generated from operating activities. It is calculated as net cash from operating activities divided by net B-BBEE Broad-based black economic empowerment LTIR Lost-time injury rate (see glossary) interest paid (interest paid on financing activities less interest received from financing activities) CAGR Compound annual growth rate MES Minimum Emission Standards Current ratio (Inventory plus the current portion of payments made in advance, trade and other receivables and taxation assets) divided by (the current portion of trade and other payables, payments received in CCMA Council for Conciliation, Mediation and Arbitration Mℓ Megalitre = 1 million litres advance, provisions, employee benefit obligations and taxation liabilities) CFO Chief Financial Officer MOI Memorandum of Incorporation Daily peak Maximum amount of energy demanded by consumers in one day COGTA Department of Cooperative Governance and mSv Millisievert Debt/equity including long-term Net financial assets and liabilities plus non-current retirement benefit obligations and non-current Traditional Affairs Mt Million tons provisions provisions divided by total equity COO Chief Operating Officer MVA Megavolt-ampere Debt service cover (ratio) Cash generated from operations divided by (net interest paid from financing activities plus debt CSA Coal supply agreement securities and borrowings repaid) MW Megawatt = 1 million watts CSI Corporate social investment Decommission To remove a facility (e.g. reactor) from service and either store it safely or dismantle it MWh Megawatt-hour = 1 000kWh DEFF Department of Environment, Forestry and Fisheries Demand side management Planning, implementing and monitoring activities to encourage consumers to use electricity more (previously known as Department of Environmental Affairs) MWhSO Megawatt-hour sent out efficiently, including both the timing and level of demand DFI Development finance institution MYPD Multi-year price determination EBITDA margin EBITDA as a percentage of revenue (excluding revenue not recognised due to uncollectability) DHSWS Department of Human Settlements, Water and NDP National Development Plan 2030 Electricity operating costs per MWh Electricity-related costs (primary energy costs, employee benefit costs plus net impairment loss and Sanitation (previously known as Department of Water other operating expenses, less other income) divided by total electricity sales in GWh multiplied NERSA National Energy Regulator of South Africa by 1 000 and Sanitation) NNR National Nuclear Regulator Electricity revenue per kWh Electricity revenue (including electricity revenue not recognised due to uncollectability) divided by total DMRE Department of Mineral Resources and Energy (previously known as Department of Energy) kWh sales multiplied by 100 OCGT Open-cycle gas turbine (see glossary) DoA Delegation of authority Embedded derivative Financial instrument that causes cash flows that would otherwise be required by modifying a contract OCLF Other capability loss factor according to a specified variable such as currency DPE Department of Public Enterprises OHS Occupational health and safety Energy availability factor (EAF) Measure of power station availability, taking account of energy losses not under the control of plant EAF Energy availability factor (see glossary) PAIA Promotion of Access to Information Act, 2000 management and internal non-engineering constraints EBITDA Earnings before interest, taxation, depreciation and PAJA Promotion of Administrative Justice Act, 2000 Energy efficiency Programmes to reduce energy used by specific end-use devices and systems, typically without affecting amortisation and fair value adjustments services provided PCLF Planned capability loss factor ECA Export credit agency Energy utilisation factor (EUF) Ratio of actual electrical energy produced during a period of time divided by the total available energy PFMA Public Finance Management Act, 1999 capacity. It is a measure of the degree to which the available energy capacity of an electricity supply ERI Eskom Rotek Industries SOC Ltd network is utilised. Available energy capacity refers to the capacity after all unavailable energy (planned PGC People and Governance Committee and unplanned energy losses) has been taken into account, and represents the net energy capacity ESP Electrostatic precipitator made available to the System Operator or national grid PPA Power purchase agreement EUF Energy utilisation factor (see glossary) Fatality A fatality is an incident occurring at work, or arising out of or in connection with the activities of PV (Solar) photovoltaic Exco Executive Management Committee persons at work, or in connection with the use of plant or machinery, in which or in consequence of RCA Regulatory clearing account which, any person (an employee, contractor, or member of the public) dies, regardless of the time FFP Fabric filter plant intervening between the injury and/or exposure to the cause and death. The date of the incident will RE-IPP Renewable energy independent power producer reflect the date on which the incident occurred, irrespective of the date of death FGD Flue gas desulphurisation RMIPPP Risk Management Independent Power Producer Forced outage Shutdown of a generating unit, transmission line or other facility for emergency reasons or a condition GCE Group Chief Executive Procurement Programme in which generating equipment is unavailable for load due to unanticipated breakdown GDP Gross domestic product SADC Southern African Development Community Free basic electricity Amount of electricity deemed sufficient to provide basic electricity services to a poor household (50kWh per month) GE Group executive SAIDI System average interruption duration index Free funds from operations Cash generated from operations adjusted for working capital GW Gigawatt = 1 000 megawatts SAIFI System average interruption frequency index Gross debt Debt securities and borrowings plus finance lease liabilities plus the after-tax effect of provisions and GWh Gigawatt-hour = 1 000MWh SALGA South African Local Government Association employee benefit obligations IEA International Energy Agency SAPP Southern African Power Pool Gross debt/EBITDA ratio Gross debt divided by earnings before interest, taxation, depreciation, amortisation and fair value IFC Investment and Finance Committee adjustments SARS South African Revenue Service IFRS International Financial Reporting Standards Independent non-executive director A director who: SCOA Standing Committee on Appropriations • Is not a full-time salaried employee of the company or its subsidiary IPP Independent power producer (see glossary) SCOPA Standing Committee on Public Accounts • Is not a shareholder representative IRP Integrated Resource Plan • Has not been employed by the company and is not a member of the immediate family of an individual SES Social, Ethics and Sustainability Committee Supplementary information who is or has been, in any of the past three financial years, employed by the company in any King IV TM King IV Report on Corporate Governance for SIU Special Investigating Unit executive capacity South Africa, 2016 • Is not a professional advisor to the company SOC State-owned company • Is not a significant supplier or customer of the company kℓ Kilolitre = 1 000 litres SPU Small power user • Is not receiving remuneration contingent on the performance of the company KPI Key performance indicator TMPS Total measured procurement spend Independent power producer (IPP) Any entity, other than Eskom, that owns or operates, in whole or in part, one or more independent kt Kiloton = 1 000 tons power generation facilities UAGS Unplanned automatic grid separations kV Kilovolt Kilowatt-hour (kWh) Basic unit of electric energy equal to one kilowatt of power supplied to or taken from an electric UCLF Unplanned capability loss factor (see glossary) circuit steadily for one hour kWh Kilowatt-hour = 1 000 watt-hours (see glossary) WANO World Association of Nuclear Operators 132 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 133 GLOSSARY OF TERMS continued LEADERSHIP QUALIFICATIONS AND DIRECTORSHIPS Load Amount of electric power delivered or required on a system at any specific point Board of Directors Load curtailment Typically larger industrial customers reduce their demand by a specified percentage for the duration of at 31 March 2020 a power system emergency. Due to the nature of their business, these customers require two hours’ notification before they can reduce demand PROF. MALEGAPURU (MW) MAKGOBA (67) DR ROD (RdeB) CROMPTON (67) Interim Chairman Independent non-executive director Load management Activities to influence the level and shape of demand for electricity so that demand conforms to the Independent non-executive director present supply situation, long-term objectives and constraints Appointed to the Board in January 2018 Appointed to the Board in December 2017 Qualifications Loadshedding Scheduled and controlled power cuts that rotate available capacity between all customers when Qualifications BA (University of Natal) demand is greater than supply in order to avoid blackouts. Distribution or municipal control rooms MB ChB (University of Natal) Diploma in Higher Education (University of Natal) open breakers and interrupt load according to predefined schedules D Phil (University of Oxford) BA Hons (University of Natal) Lost-time injury (LTI) A work injury which arises out of and in the course of employment and which renders the injured Fellowship of the Royal College of Physicians of London Ph D Humanities (University of Natal) employee or contractor unable to perform his/her regular/normal work on one or more full calendar Fellow of the Royal Society of South Africa Skills days or shifts other than the day or shift on which the injury occurred. It includes occupational diseases Member of the Academy of Science of South Africa Commerce and industry Advanced Management Program (INSEAD) Finance, accounting and economics Lost-time injury rate (LTIR) Proportional representation of the occurrence of lost-time injuries over 12 months per 200 000 Skills working hours. It includes occupational diseases Directorships Science, engineering and technology None Legal, governance and risk management Major incident An interruption with a severity ≥1 system minute Social and human sciences Maximum demand Highest demand of load within a specified period Directorships MR SIFISO (RSN) DABENGWA (61) None Independent non-executive director Non-technical losses Energy losses due to electricity theft through illegal connections, tampering and bypassing of electricity meters as well as the purchase of electricity tokens from unregistered or illegal vendors. It includes Appointed to the Board in January 2018 meter reading and billing errors MR ANDRÉ (AM) DE RUYTER (52) Qualifications Group Chief Executive B Sc (Hons) Engineering (University of Zimbabwe) Occupational disease/illness Any confirmed disease/illness arising out of, and in the course of, an employee’s employment, that is Executive director MBA (University of Witwatersrand) listed in Schedule 3 of the Compensation for Occupational Injuries and Diseases (COID) Act, 1993, Executive Program (University of Michigan) or any other condition as determined by an occupational medical practitioner Appointed to the Board in January 2020 Skills Off-peak Period of relatively low system demand Qualifications Science, engineering and technology BA English and Psychology (University of Pretoria) Commerce and industry Open-cycle gas turbine (OCGT) Liquid fuel turbine power station that forms part of peak-load plant and runs on kerosene or diesel. B Civil Law (University of Pretoria) Finance, accounting and economics Designed to operate in periods of peak demand LLB (Unisa) MBA (Nyenrode University) Directorships Outage Period in which a generating unit, transmission line, or other facility is out of service Channel VAS Investments Ltd BVI Skills Deng Capital LLC Peak demand Maximum power used in a given period, traditionally between 7:00 and 10:00 as well as 18:00 to 20:00 Commerce and industry Long Street Property Development (Pty) Ltd in summer; and 6:00 to 9:00 as well as 17:00 to 19:00 in winter Legal, governance and risk management Megapro Holdings (Pty) Ltd Finance, accounting and economics Metallon Corporation (Pty) Ltd Peaking capacity Generating equipment normally operated only during hours of highest daily, weekly or seasonal loads Directorships Ndlovu Investment Holding One Company Peak-load plant Gas turbines, hydroelectric or a pumped storage scheme used during periods of peak demand Schulder Property Investments Sigma Capital (Pty) Ltd Tuisbaai Sigma Private Equity Fund 1 Primary energy Energy in natural resources, e.g. coal, liquid fuels, sunlight, wind, uranium and water Sigma Private Equity Fund Managers (Pty) Ltd Pumped storage scheme A lower and an upper reservoir with a power station/pumping plant between the two. During off-peak MR CALIB (C) CASSIM (48) periods the reversible pumps/turbines use electricity to pump water from the lower to the upper Chief Financial Officer reservoir. During periods of peak demand, water runs back into the lower reservoir through the Executive director turbines, generating electricity Appointed to the Board in July 2017 Reserve margin Difference between net system capability and the system’s maximum load requirements (peak load or Qualifications peak demand) B Com (University of Natal) B Accounting Sciences (Unisa) Return on assets EBIT divided by the regulated asset base, which is the sum of property, plant and equipment, trade and Chartered Accountant (SA) other receivables, inventory and future fuel, less trade and other payables and deferred income Master of Business Leadership (Unisa) System minutes Global benchmark for measuring the severity of interruptions to customers. One system minute is Skills equivalent to the loss of the entire system for one minute at annual peak. A major incident is an Commerce and industry interruption with a severity ≥1 system minute Finance, accounting and economics Technical losses Naturally occurring losses that depend on the power systems used Directorships Escap SOC Ltd Unit capability factor (UCF) Measure of availability of a generating unit, indicating how well it is operated and maintained Eskom Enterprises SOC Ltd Eskom Finance Company SOC Ltd Unplanned capability loss factor (UCLF) Energy losses due to outages are considered unplanned when a power station unit has to be taken out of service and it is not scheduled at least four weeks in advance 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 Supplementary information Watt The watt is the International System of Units’ (SI) standard unit of power. It specifies the rate at which electrical energy is dissipated (energy per unit of time) 134 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 135 LEADERSHIP QUALIFICATIONS AND DIRECTORSHIPS continued MS NELISIWE (NVB) MAGUBANE (54) DR PULANE (PE) MOLOKWANE (43) Executive Management Committee Independent non-executive director Independent non-executive director at 31 March 2020 Appointed to the Board in January 2018 Appointed to the Board in June 2017 Qualifications Qualifications B Sc Electrical Engineering – Heavy Current (University of Natal) B Sc Physics and Chemistry (University of North West) MR ANDRÉ (AM) DE RUYTER (52) MR BARTLETT (NB) HEWU (44) Postgraduate Diploma in Business Administration (University of Postgraduate Diploma in Applied Radiation Science and Technology Group Chief Executive Acting Group Executive: Legal and Compliance West London) (University of North West) Appointed to the Board in January 2020 Appointed to Exco in April 2018 MBA (Milpark Business School) M Sc Applied Radiation Science and Technology (University of <1 year in Eskom 2 years in Eskom Skills North West) Qualifications Qualifications Science, engineering and technology Ph D Chemical Technology – Environmental Engineering (University B Juris (Unisa) BA English and Psychology (University of Pretoria) of Pretoria) LLB (University of Pretoria) Directorships B Civil Law (University of Pretoria) Pr Sci Nat (South African Council of Natural Scientific Professions) Higher Diploma in Tax (Rand Afrikaans University) AngloGold Ashanti (Pty) Ltd LLB (Unisa) Consulting Engineers South Africa (CESA) Skills MBA (Nyenrode University) Higher Diploma in International Tax (University of Johannesburg) Science, engineering and technology Certificate in Advanced Corporate Law and Securities Law (Unisa) DLO NBV Skills Enerugi 243 Holdings Directorships Commerce and industry Finance Programme for Non-Financial Managers (University of Just Energy Projects (Pty) Ltd Endulo Resources Legal, governance and risk management Cape Town) Magubane Consulting Engineers cc Litestone Mzansi (Pty) Ltd Finance, accounting and economics Skills Matleng Energy Solutions (Pty) Ltd Nzuri Resources (Pty) Ltd Legal, governance and risk management Directorships Mofisto Foundation Oloenviron (Pty) Ltd Directorships Schulder Property Investments Musina Flair Generation (Pty) Ltd Tinungu (Pty) Ltd Graziglo Tuisbaai Product Development and Management Association (Sub-Saharan Hewu Energy Africa) Hewu Inc trading as Hewu Attorneys Thebe Energy Resources Advisory Council PROF. TSHEPO (TH) MONGALO (46) MR CALIB (C) CASSIM (48) Hewu Resources Trakprops 40 Independent non-executive director Chief Financial Officer NBH Investment Holdings Trinergi Advisory Appointed to the Board in December 2017 Nicomate Appointed to Exco in July 2017 Qualifications 18 years in Eskom The Twelve Apostles Church DR BANOTHILE (BCE) MAKHUBELA (35) B Proc (University of Natal) Qualifications Independent non-executive director LLB (University of Natal) B Com (University of Natal) MR SOLOMON (MS) TSHITANGANO (58) LLM Commercial Law (University of Cambridge) Appointed to the Board in June 2017 B Accounting Sciences (Unisa) Chief Procurement Officer Ph D Commercial Law (University of Cape Town) Chartered Accountant (SA) Qualifications Skills Appointed to Exco in January 2019 Master of Business Leadership (Unisa) B Sc (University of Zululand) Commerce and industry 1 year in Eskom B Sc Hons (University of Cape Town) Skills Legal, governance and risk management Commerce and industry Qualifications M Sc (University of Cape Town) Social and human sciences B Com (Hons) (University of Venda) Ph D (University of Cape Town) Finance, accounting and economics Directorships University Education Diploma (University of Venda) Skills Directorships Higher Diploma in Accounting (University of Western Cape) Bolemo Kgango Enterprises (Pty) Ltd Science, engineering and technology Escap SOC Ltd Effective Drafting Solutions (Pty) Ltd Eskom Enterprises SOC Ltd Skills Directorships Hope City Investment (Pty) Ltd Commerce and industry Eskom Finance Company SOC Ltd Chemical Industry Education and Training Authority (CHIETA) Legal, governance and risk management Directorships MR JAN (JA) OBERHOLZER (61) Tshitangano Property Development MS BUSISWE (B) MAVUSO (41) Chief Operating Officer Baobab Resources Independent non-executive director Appointed to Exco in July 2018 Riverside Park Extension 8 Appointed to the Board in January 2018 27 years Eskom experience (including from 1983 to 2008) Qualifications Qualifications MR NICO (ND) HARRIS (60) B Compt (Unisa) B Sc Electrical Engineering (University of Pretoria) Acting General Manager: Information Technology Postgraduate Diploma in Management (GIBS) Master of Business Leadership (Unisa) Master of Business Leadership (Unisa) Appointed to Exco in May 2019 Executive Program (University of Michigan) Association of Chartered Certified Accountants (ACCA) 38 years in Eskom Skills Skills Qualifications Science, engineering and technology Finance, accounting and economics B Com (Education) (Rand Afrikaans University) Commerce and industry Directorships Diploma in Datametrics (Unisa) Directorships MBA (Henley Management College UK) Business Leadership of South Africa Jafram Projects Business Unity South Africa (BUSA) Ages are shown at 31 March 2020. Wild Senna Investments Skills Resultant Finance (Pty) Ltd Only active directorships are reflected. Science, engineering and technology Finance, accounting and economics MS ELSIE (EM) PULE (52) Social and human sciences Group Executive: Human Resources Directorships Appointed to Exco in November 2014 New Order Investments 22 years in Eskom Qualifications Supplementary information BA Social Work (University of the North) BA Hons Psychology (University of Pretoria) M Sc Business Engineering (Warwick University) Skills Social and human sciences Directorships Ages are shown at 31 March 2020. Eskom Finance Company SOC Ltd Only active directorships are reflected. 136 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 137 BOARD AND EXCO MEETING ATTENDANCE ENVIRONMENTAL IMPLICATIONS OF USING OR SAVING ELECTRICITY Attendance at Board and committee meetings Factor 1 for the year ended 31 March 2020 Figures are calculated based on total electricity sales by Eskom, which is based on the total available for distribution (including purchases), after excluding losses through Transmission and Distribution (technical losses), losses through Social, Board theft (non-technical losses), our own internal use and wheeling. Thus to calculate CO2 emissions, divide the quantity of Audit Investment People and Ethics and Strategy CO2 emitted by electricity sales: Members Board and Risk and Finance Governance Sustainability Committee Total number of meetings 16 10 8 6 4 3 213.2Mt of CO2 ÷ 205 635GWh sales = 1.04 tons per MW Current directors Factor 2 Figures are calculated based on total electricity generated, which includes coal, nuclear, pumped storage, wind, hydro Non-executive directors and gas turbines, but excludes the total consumed by Eskom. Thus the quantity of CO2 emissions, divided by (electricity Prof. Malegapuru Makgoba (Interim Chairman) 11/16* 3/5+ 4/5 4/4 generated less Eskom's electricity consumption): Dr Rod Crompton 16/16 10/10 3/3* 213.2Mt of CO2 ÷ (214 968GWh generated less 6 629GWh own consumption) = 1.02 tons per MWh Mr Sifiso Dabengwa 15/16 7/8* 3/3 Figures represent the 12-month period from 1 April 2019 to 31 March 2020. Ms Nelisiwe Magubane 10/16 4/4 3/3 Factor 1 Factor 2 If electricity consumption is measured in: Dr Banothile Makhubela 13/16 3/4* (total energy (total energy sold) generated) kWh MWh GWh TWh Ms Busisiwe Mavuso 12/16 3/8 6/6 2/2+ Coal use 0.53 0.52 kilogram ton thousand tons (kt) million tons (Mt) Dr Pulane Molokwane 12/16 4/5* 2/2 1/1+ Water use1 1.39 1.38 litre kilolitre megalitre (Ml) thousand megalitres Prof. Tshepo Mongalo 15/16 4/4+ 6/6* Ash produced 156 154 gram kilogram ton thousand tons (kt) Particulate emissions 0.46 0.46 gram kilogram ton thousand tons (kt) Executive directors CO2 emissions2 1.04 1.02 kilogram ton thousand tons (kt) million tons (Mt) Mr André de Ruyter 6/6 <1/1> <1/2> <0/1> <1/1> <1/1> SO x emissions2 8.37 8.26 gram kilogram ton thousand tons (kt) NO x emissions3 4.14 4.08 gram kilogram ton thousand tons (kt) Mr Calib Cassim 13/16 <10/10> <7/8> <5/6> Previous directors 1. Volume of water used at all Eskom power stations. 2. Calculated figures based on coal characteristics and power station design parameters. Sulphur dioxide and carbon dioxide emissions are based on Mr Jabu Mabuza 10/10 <0/3> <0/3> 5/5 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 plant. Ms Sindi Mabaso-Koyana 12/12 10/10 3. NO x reported as NO2 is calculated using average station-specific emission factors, which have been measured intermittently, and tonnages of Mr Phakamani Hadebe 5/5 <6/6> <2/3> <1/1> <2/2> coal burnt. Multiply electricity consumption or saving by the relevant factor in the table above to determine the environmental Attendance as reflected above refers to directors who were members of that committee during the year to 31 March 2020 and reflects changes in committee composition during the year. implication. * denotes the chairmanship of the Board or committee at 31 March 2020. Example 1: Water consumption Example 2: CO2 emissions + denotes attendance as a member during the year, where no longer a member at 31 March 2020. <> denotes meetings attended as an official. Using Factor 1 Using Factor 1 Used 90MWh of electricity Used 90MWh of electricity Attendance at Exco meetings 90 x 1.39 = 125.1 90 x 1.04 = 93.6 Therefore 125.1 kilolitres of water used Therefore 93.6 tons CO2 emitted for the year ended 31 March 2020 Using Factor 2 Using Factor 2 Number of Used 90MWh of electricity Used 90MWh of electricity meetings 90 x 1.38 = 124.2 90 x 1.02 = 91.8 Members Divisional responsibility attended Therefore 124.2 kilolitres of water used Therefore 91.8 tons CO2 emitted Total number of meetings 36 Current executives For CDM-related Eskom grid emission factor information, please go to the following link: Mr André de Ruyter Group Chief Executive 7/7 www.eskom.co.za/OurCompany/SustainableDevelopment/Pages/CDM_Calculations.aspx or via the Eskom website: Our Company > Sustainable Development > CDM calculations Mr Calib Cassim Chief Financial Officer 28/36 Mr Jan Oberholzer Chief Operating Officer and acting Group Executive: Group Capital 28/36 Mr Bartlett Hewu Acting Group Executive: Legal and Compliance 28/36 Ms Elsie Pule Group Executive: Human Resources 28/36 Mr Nico Harris Acting General Manager: Information Technology 29/32 Supplementary information Mr Solomon Tshitangano Chief Procurement Officer 34/36 Previous executives Mr Phakamani Hadebe Group Chief Executive 14/16 Mr Jabu Mabuza Acting Group Chief Executive 12/13 Mr Jerome Mthembu Acting co-Group Executive: Legal and Compliance 25/29 138 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 139 TECHNICAL STATISTICS Measure and unit 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 Customer statistics Arrear debt as % of revenue, % 3.69 4.30 RA 2.73RA 2.42 1.14 2.17 1.10 0.82 0.53 0.75 Debtors days – municipalities, average debtors days 116.1 94.3RA 76.6RA 53.3RA 42.9 47.6 32.7 22.4 – – Debtors days – large power top customers excluding disputes, average debtors days 14.6 13.5RA 13.9 RA 15.3RA 15.5 16.8 14.5 12.3 14.4 15.5 Debtors days – other large power users (<100 GWh p.a.), average debtors days 17.0 17.2RA 16.6RA 16.8 RA 16.2 17.0 16.9 18.3 – – Debtors days – small power users (excluding Soweto), average debtors days 44.1 42.6RA 43.4 RA 48.8 RA 48.2 49.1 50.2 48.2 42.9 45.1 Key Customer Delight, %1 81.5 81.7 79.5 107.0 104.3RA 108.7 108.7 105.8 105.9 101.2 Customer Delight, %1 73.6 72.7 72.0 95.8 96.5RA 99.8 92.7 93.2 90.7 89.4 CustomerCare, index 8.5 8.5 9.9 9.8 8.4 8.0 8.3 8.4 8.2 8.1 Sales and revenue Total sales, GWh2 205 635 208 319 212 190 214 121 214 487 216 274 217 903 216 561 224 785 224 446 (Reduction)/growth in GWh sales, % (1.3) (1.8) (0.9) (0.2) (0.8) (0.7) 0.6 (3.7) 0.2 2.7 Electricity revenue, R million 197 307 177 312 174 905 175 094 161 688 146 268 136 869 126 663 112 999 90 375 Growth in revenue, % 11.3 1.4 (0.1) 8.3 10.5 6.9 8.1 12.1 25.0 29.4 Electricity output Power sent out by Eskom stations, GWh (net) 214 968 218 939 221 936 220 166 219 979 226 300 231 129 232 749 237 289 237 430 Coal-fired stations, GWh (net) 194 357 200 210 202 106 200 893 199 888 204 838 209 483 214 807 218 210 220 219 Hydroelectric stations, GWh (net) 688 1 029 709 579 688 851 1 036 1 077 1 904 1 960 Pumped storage stations, GWh (net) 5 060 4 590 4 479 3 294 2 919 3 107 2 881 3 006 2 962 2 953 Gas turbine stations, GWh (net) 1 328 1 202 118 29 3 936 3 709 3 621 1 904 709 197 Wind energy, GWh (net) 283 328 331 345 311 1 2 1 2 2 Nuclear power station, GWh (net) 13 252 11 580 14 193 15 026 12 237 13 794 14 106 11 954 13 502 12 099 IPP purchases, GWh 11 958 11 344 9 584 11 529 9 033 6 022 3 671 3 516 4 107 1 833 Wheeling, GWh3 2 491 2 750 2 266 2 910 3 930 3 623 3 353 2 948 3 099 3 423 Energy imports from SADC countries, GWh3 8 568 7 355 7 731 7 418 9 703 10 731 9 425 7 698 9 939 10 190 Total electricity available (generated by Eskom and purchased), GWh2 237 985 240 388 241 517 242 023 242 645 246 676 247 578 246 911 254 434 252 876 Total consumed by Eskom, GWh4 (6 629) (5 981) (6 031) (4 808) (4 046) (4 114) (3 862) (4 037) (3 982) (3 962) Total available for distribution, GWh 231 356 234 407 235 486 237 215 238 599 242 562 243 716 242 874 250 452 248 914 Supply and demand Total Eskom power station capacity – installed, MW 49 517 48 029 48 039 46 407 45 075 44 281 44 189 44 206 44 115 44 145 Total Eskom power station capacity – nominal, MW 45 117 44 172 45 561 44 134 42 810 42 090 41 995 41 919 41 647 41 194 Total IPP power station capacity – nominal, MW 5 206 4 981 4 779 5 027 3 392 2 606 1 677 1 135 1 008 803 Peak demand on integrated Eskom system, MW 32 948 34 256 35 301 34 122 33 345 34 768 34 977 35 525 36 212 36 664 Peak demand on integrated Eskom system, including load reductions and non-Eskom 34 510 35 345 35 613 34 913 34 481 36 170 36 002 36 345 37 065 36 970 generation, MW National rotational loadshedding Yes Yes No No Yes Yes YesRA NoRA NoRA NoRA Demand savings, MW5 – 15.0 40.2 236.9 214.9 171.5RA 409.6RA 595.0 RA 365.0 RA 354.1 Internal energy efficiency, GWh5 – 0 1.4 6.0 1.7RA 10.4 RA 19.4 RA 28.9 RA 45.0 RA 26.2RA Asset creation Generation capacity installed and commissioned, MW 1 588 RA 0 RA 2 387RA 1 332RA 794 RA 100 RA 120 RA 261RA 535RA 315RA Transmission lines installed, km 127.9 RA 378.7RA 722.3RA 585.4 RA 345.8 RA 318.6RA 810.9 RA 787.1RA 631.3RA 443.4 RA Substation capacity installed and commissioned, MVA 250 RA 540 RA 2 510 RA 2 300 RA 2 435RA 2 090 RA 3 790 RA 3 580 RA 2 525RA 5 940 RA Total capital expenditure – group (excluding capitalised borrowing costs), R billion 22.0 33.9 48.0 60.0 57.4 53.1RA 59.8 RA 60.1 58.8 47.9 Safety Employee lost-time injury rate (LTIR) – company, index6, 7 – 0.33 0.25 0.43 0.29 0.36 0.31RA 0.40 RA 0.41RA 0.47RA Employee lost-time injury rate (LTIR) – group, index6, 7 0.30 RA 0.31RA 0.24 0.39 0.30 0.33 0.31 – – – Fatalities (employees and contractors), number 8 9 7 14 10 17 10 23RA 19 RA 24 RA 25RA Employee fatalities, number – 3 3 4 4 3 5RA 3RA 13RA 7RA Contractor fatalities, number 8 9 4 11 6 13 7 18 RA 16RA 11RA 18 RA 1. These measures replace Eskom KeyCare and Enhanced MaxiCare, respectively, and are calculated on a 12-month moving average. The comparatives Supplementary information provided are for Eskom KeyCare and Enhanced MaxiCare. 2. The difference between electricity available for distribution and electricity sold is due to energy losses. 3. Prior to 2010, wheeling was combined with the total imported for the Eskom system. 4. Used by Eskom for pumped storage facilities and synchronous condenser mode of operation. 5. The Integrated Demand Management programme is on hold as of 2020. 6. The employee LTIR includes occupational diseases. 7. Prior to 2014, only company numbers were reported. From 2020, only group numbers are reported. 8. A Generation contractor involved in a motor vehicle accident in the 2019 financial year subsequently passed away in the 2020 financial year. The figures for 2019 have been restated to include this fatality. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 153 to 156 of the integrated report. 140 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 141 TECHNICAL STATISTICS continued Measure and unit 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 Primary energy Coal stock, days 81 67 68 74 58 51 44 RA 46RA 39 RA 41RA Road-to-rail migration (additional tonnage transported on rail), Mt 7.5RA 8.2RA 11.6Q 13.2Q 13.6RA 12.6RA 11.6RA 10.1RA 8.5 7.1 Coal purchased, Mt 119.3 118.3 115.3 120.3 118.7 121.7 122.0 126.4 124.3 126.2 Coal burnt, Mt 108.6 113.8 115.5 113.7 114.8 119.2 122.4 123.0 125.2 124.7 Average calorific value, MJ/kg 19.08 19.24 19.81 20.05 19.57 19.68 19.77 19.76 19.61 19.45 Average ash content, % 29.65 30.98 30.92 28.62 28.19 27.63 28.56 28.69 28.88 29.03 Average sulphur content, % 0.78 0.84 0.87 0.84 1.07 0.80 0.87 0.88 0.79 0.78 Overall thermal efficiency, %1 30.6 31.0 31.2 31.2 31.1 31.4 31.3 32.0 31.4 32.6 Diesel and kerosene usage for OCGTs, Mℓ 426.2 385.0 37.8 10.0 1 247.8 1 178.6 1 148.5RA 609.7RA 225.5RA 63.6RA Plant performance Unplanned capability loss factor (UCLF), %2 22.86 18.31 10.18 9.90 14.91RA 15.22RA 12.61RA 12.12RA 7.97RA 6.14 RA Planned capability loss factor (PCLF), %2 8.92 RA 10.18 RA 10.35RA 12.14 RA 12.99 9.91RA 10.50 RA 9.10 9.07 7.98 Energy availability factor (EAF), %2 66.64 RA 69.95RA 78.00 RA 77.30 RA 71.07RA 73.73RA 75.13RA 77.65RA 81.99 RA 84.59 RA Unit capability factor (UCF), %2 68.22 71.51 79.47 78.00 72.10 74.87 76.90 RA 78.80 RA 83.00 RA 85.90 RA Generation load factor, %2 52.6 54.4 55.9 57.9 58.8 61.5 62.8 63.6 65.1 66.4 OCGT load factor trend, % 6.3 5.7 0.6 0.1 18.6 17.6 19.3RA 10.4 RA 3.9 1.1 Unplanned automatic grid separations (UAGS trips), number 594 RA 517 333 444 469 575 527 409 329 376 Integrated Eskom system load factor (EUF), %2 79.0 77.8 71.6 75.0 82.7 83.4 83.6 81.9 79.4 78.5 Network performance Total system minutes lost for events <1, minutes 4.36RA 3.16RA 2.09 RA 3.80 RA 2.41RA 2.85RA 3.05RA 3.52RA 4.73RA 2.63RA Major incidents, number 3 3 0 0 1 2 0 RA 3RA 1RA 0 RA System average interruption frequency index (SAIFI), events3 14.4 RA 14.9 RA 17.5RA 18.9 RA 20.5RA 19.7RA 20.2RA 22.2RA 23.7RA 25.3RA System average interruption duration index (SAIDI), hours3 36.9 RA 38.0 RA 34.9 RA 38.9 RA 38.6RA 36.2RA 37.0 RA 41.9 RA 45.8 RA 52.6RA Total energy losses, % 9.9 9.7 9.1 8.9 8.6 8.8 8.9 9.1 8.7 8.3 Transmission energy losses, % 2.2 2.2 2.0 2.2 2.6 2.5 2.3RA 2.8 RA 3.1RA 3.3RA Distribution energy losses, % 8.8 RA 8.5RA 7.7RA 7.6RA 6.4 6.8 7.1RA 7.1RA 6.3RA 5.7RA Environmental statistics Emissions Relative particulate emissions, kg/MWh sent out4, 5 0.47RA 0.47RA 0.27RA 0.30 RA 0.36RA 0.37RA 0.35RA 0.35RA 0.31RA 0.33RA Carbon dioxide (CO2), Mt4 213.2 RA 220.9 RA 205.5RA 211.1RA 215.6RA 223.4 233.3RA 227.9 RA 231.9 RA 230.3RA Sulphur dioxide (SO2), kt4 1 721 1 853 1 802 1 766 1 699 1 834 1 975RA 1 843RA 1 849 RA 1 810 RA Nitrous oxide (N2O), t4 2 826 2 844 2 642 2 782 2 757 2 919 2 969 2 980 2 967 2 906 Nitrogen oxide (NO x) as NO2 , kt 6 851 890 859 885 893 937 954 RA 965RA 977RA 977RA Particulate emissions, kt 94.92 99.87 57.13 65.13 78.37 82.34 78.92RA 80.68 RA 72.42RA 75.84 RA Water Specific water consumption, ℓ/kWh sent out 2 1.42 RA 1.41RA 1.30 RA 1.42RA 1.44 RA 1.38 RA 1.35RA 1.42RA 1.34 RA 1.35RA Net raw water consumption, Mℓ2 286 553 292 344 276 335 307 269 314 685 313 078 317 052 334 275 319 772 327 252 Waste Ash produced, Mt 32.04 33.23 31.65 32.61 32.59 34.41 34.97RA 35.30 RA 36.21RA 36.22RA Ash sold, Mt 2.9 2.8 2.7 2.8 2.7 2.5 2.4 2.4 2.3 2.0 Ash (recycled), % 9.1 8.4 8.6 8.5 8.3 7.3 7.0 RA 6.8 RA 6.4 RA 5.5RA Asbestos disposed, tons 59.8 464.1 144.9 383.0 274.5 991.0 458.0 374.6 448.1 611.5 Material containing polychlorinated biphenyls thermally destroyed, tons 238.3 43.1 26.3 61.9 59.8 0.0 10.2 0.9 14.3 422.9 Nuclear Public individual radiation exposure due to effluents, mSv7 0.0004 0.0026 0.0012 0.0005 0.0006 0.0010 0.0012 0.0019 0.0024 0.0043 Low-level radioactive waste generated (steel drum), cubic metres 159.3 188.3 164.2 162.9 176.1 164.1 180.7RA 188.2RA 184.7RA 165.3RA Low-level radioactive waste disposed of, cubic metres 98.3 99.0 118.8 108.0 213.1 377.6 324.0 RA 54.0 RA 53.8 RA 81.0 RA Intermediate-level radioactive waste generated (concrete drum), cubic metres 22.3 20.8 20.8 11.4 33.4 27.6 28.7RA 35.7RA 25.4 RA 39.3RA Intermediate-level radioactive waste disposed of, cubic metres 38 0 0 0 0 138 178 RA 0 RA 128 RA 0 RA Used nuclear fuel, number of elements discharged 8 48 56 116 60 56 112 48 56 60 112 Used nuclear fuel, number of elements discharged, cumulative figure 2 509 2 461 2 405 2 289 2 229 2 173 2 061 2 013 1 957 1 897 Legal contraventions Environmental legal contraventions9 59 24 30 29 20 20 34 RA 48 50 63 Environmental legal contraventions reported in terms of the Operational Health Dashboard, 5 2 2 0 1 1 2RA 2 5 4 number10 Supplementary information 1. Only power stations where all units have achieved commercial operation are included in the calculation. Therefore, Medupi and Kusile Power 5. Particulate emissions reported at Kendal Power Station have frequently exceeded the AEL limit during 2020. The monitors are set up to measure Stations are excluded from this KPI. emissions within a calibrated range for the unit-specific correlation function. In instances where these ranges are exceeded, particulate emissions will 2. Medupi Units 4 and 5 and Kusile Unit 1, having completed their first year after commissioning, have been included in the calculation of KPIs be reported at the maximum of the monitor range. From February 2019, it is possible that actual emissions exceeded reported emissions based on from 2019. measurements. 3. SAIDI and SAIFI are reported after allowing for exclusions defined in the National Regulated Standards adopted from 1 April 2018. 6. NO x reported as NO2 is calculated using average station-specific emission factors (which are measured intermittently) and tonnages of coal burnt. The comparatives for 2018 have been restated. 7. The limit set by the National Nuclear Regulator is ≤0.25mSv. 4. Calculated figures based on coal characteristics and power station design parameters based on coal analysis and using coal burnt tonnages. 8. The gross mass of a nuclear fuel element is approximately 670kg, with Uranium mass typically between 462kg and 464kg. Figures include coal-fired and gas turbine power stations, as well as oil consumed during power station start-ups and, for carbon dioxide emissions, 9. Three incidents which occurred in 2019 were finalised in the current year. The figure for 2019 has been restated. includes the underground coal gasification pilot plant. 10. Reported in terms of the 2002 definition of the Operational Health Dashboard, including repeat legal contraventions. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 153 to 156 of the integrated report. Q Qualified by the independent assurance provider. 142 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 143 NON-TECHNICAL STATISTICS: GROUP Measure and unit 2020 2019 2018 2017 2016 2015 2014 2013 2012 Finance1 Electricity operating costs, R/MWh 790.14 712.87 622.41 651.98 617.02 587.97 528.70 495.31 363.30 EBITDA margin, % 18.55 17.46 25.57 21.19 20.29 16.54 17.23 16.98 29.37 EBITDA, R million 36 998 RA 31 417 45 359 37 532 32 811 24 186 23 586 21 511 33 183 Cash interest cover, ratio 0.94 RA 0.94 1.22 1.73 1.73 1.75 2.15 3.84 7.29 Debt service cover, ratio 0.52 RA 0.47 0.87 1.37 1.14 0.91 1.24 1.93 3.49 Current ratio 1.09 1.00 1.03 0.85 0.83 0.81 0.71 0.68 0.76 Gross debt/EBITDA, ratio 14.39 15.73 9.74 10.84 10.95 13.60 11.77 10.48 6.07 Debt/equity (including long-term provisions), ratio 2.45 3.18 2.58 2.11 1.65 2.50 2.00 1.84 1.57 Gearing, % 71 76 72 68 62 71 67 65 61 Free funds from operations, R million 38 671 29 047 40 022 47 571 39 443 36 179 31 158 25 277 38 180 Free funds from operations after net interest paid, R million 157 (5 940) 9 147 21 148 17 927 20 564 20 139 18 074 32 897 Free funds from operations as % of gross debt, % 7.26 5.88 9.06 11.69 10.98 11.00 11.22 11.22 18.97 Building skills Headcount (including fixed-term contractors) 44 772 46 665 48 628 47 658 47 978 46 491 46 919 47 295 44 432 Transformation Socio-economic contribution Corporate social investment committed spend, R million 123.8 RA 132.4 Q 192.0 RA 225.3 103.6 115.5 132.9 RA 194.3RA 87.9 RA Corporate social investment, number of beneficiaries 1 479 395 933 139 1 116 044 841 845 302 736 323 882 357 443RA 652 347RA 531 762 Procurement equity B-BBEE attributable expenditure, R billion 101.7 84.5 102.3 127.7 125.0 116.0 119.4 RA 96.0 RA – Black-owned expenditure, R billion 46.9 52.1 57.6 53.9 52.9 49.4 45.8 RA – – Black women-owned expenditure, R billion 15.6 18.8 20.9 19.4 30.8 9.3 9.8 RA 6.0 RA – Black youth-owned expenditure, R billion 4.1 3.5 3.9 2.0 1.4 0.9 1.3RA – – Procurement from B-BBEE compliant suppliers, %2 65.97 58.66 80.25 98.25 81.65 89.39 91.80 RA 82.10 RA – Procurement from black-owned (BO) suppliers, % 30.38 36.17 45.20 41.49 33.61 34.41 35.30 RA – – Procurement from black women-owned (BWO) suppliers, % 10.10 13.07 16.41 14.92 19.30 6.49 7.50 RA 5.10 RA – Procurement from black youth-owned (BYO) suppliers, % 2.65 2.41 3.05 1.52 0.94 0.63 1.00 RA – – Procurement spend with suppliers owned by black people living with disability (BPwD), 0.17 0.22 0.20 0.02 0.01 0.00 0.00 – – % of TMPS Procurement spend with qualifying small enterprises (QSE), % of TMPS 4.08 5.17 8.86 8.91 4.62 6.75 15.09 – – Procurement spend with exempted micro enterprises (EME), % of TMPS 9.77 14.01 10.21 11.24 5.89 5.78 – – – Employment equity Disabilities, number of employees 1 348 1 416 1 441 1 396 1 311 1 325 1 305RA 1 137RA 1 032RA Employment equity – disability, % 3.01 3.03 2.96 2.93 2.73 2.89 2.77RA 2.43RA 2.36RA Racial equity in senior management, % black employees 71.00 69.80 68.31 65.80 61.06 61.70 59.30 RA 58.40 – Racial equity in professionals and middle management, % black employees 78.04 76.22 75.27 73.50 71.68 71.77 70.60 RA 69.00 – Gender equity in senior management, % female employees 41.73 39.85 38.20 36.58 28.13 29.82 28.80 RA 28.50 – Gender equity in professionals and middle management, % female employees 38.24 37.89 37.47 35.98 35.11 35.29 34.90 RA 34.00 – 1. Ratios impacted by the restatements in the annual financial statements were restated where possible. 2. This measure was renamed to “Preferential procurement” in the shareholder compact from 2020. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 153 to 156 of the integrated report. Q Qualified by the independent assurance provider. Supplementary information 144 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 145 NON-TECHNICAL STATISTICS: COMPANY Measure and unit 2020 2019 2018 2017 2016 2015 2014 2013 2012 Finance1 Electricity revenue per kWh (including environmental levy), c/kWh 101.86 90.01 85.06 83.60 76.24 67.91 62.82 58.49 50.27 Electricity operating costs, R/MWh 802.12 729.26 634.69 662.98 628.00 600.72 535.08 487.92 367.05 EBITDA margin, % 17.74 16.21RA 24.48 20.32 19.13 16.28 16.15 17.48 28.69 EBITDA, R million 35 381 29 168 43 428 35 989 30 932 23 811 22 101 22 147 32 414 Cash interest cover, ratio 0.90 0.91RA 1.18 RA 1.73 1.64 1.62 2.14 3.97 7.36 Debt service cover, ratio 0.49 0.46 0.84 1.37 1.09 0.82 1.28 1.98 3.52 Current ratio 1.09 0.99 1.04 0.86 0.86 0.82 0.70 0.67 0.76 Gross debt/EBITDA, ratio 15.17 17.09 10.26 11.39 11.71 13.84 12.59 10.09 6.15 Debt/equity (including long-term provisions), ratio 2.69 3.51RA 2.77RA 2.22RA 1.71 2.67 2.12 1.96RA 1.69 RA Gearing, % 73 78 73 69 63 73 68 66 63 Free funds from operations, R million 37 250 27 318 39 064 46 336 37 954 36 032 29 528 26 124 37 578 Free funds from operations after net interest paid, R million (1 397) (7 897) 8 017 19 776 16 260 20 343 18 455 19 090 32 343 Free funds from operations as % of gross debt, % 6.94 5.48 RA 8.77RA 11.30 RA 10.48 RA 10.93 10.61 11.69 18.86 Building skills Headcount (including fixed-term contractors) 37 765 39 292 41 316 41 940 42 767 41 787 42 923 43 402 41 341 Training spend as % of gross employee benefit costs 3.67RA 3.85RA 5.21RA 4.89 RA 4.45RA 6.18 RA 7.87RA – – Total engineering learners in the system, number2 16RA 10 1 241 1 480 895 1 315 1 962RA 2 144 RA 2 273RA Total technician learners in the system, number2 11RA 3 838 1 209 415 826 815RA 835RA 844 RA Total artisan learners in the system, number2 91RA 0 1 815 2 155 1 955 1 752 2 383RA 2 847RA 2 598 RA Learner intake2 118 21 726Q 3 048 Q 1 370 – – – – Transformation Socio-economic contribution Job creation on new build projects, number 13 318 23 982 38 111 39 277 23 169 25 875 25 181RA 35 759 28 616 Total number of electrification connections, number3 163 613RA 191 585RA 215 519 207 436 158 312 160 933 202 780 139 881 154 250 Procurement equity Local content contracted (Eskom-wide), % 92.84Q 91.51RA 87.16RA 73.37Q 75.22Q 25.13 40.80 RA – – Local content contracted (new build), % 88.53 81.14 RA 85.59 RA 85.78 Q 84.04 RA 33.62LA 54.60 RA 80.20 RA 77.20 RA B-BBEE attributable expenditure, R billion 97.1 80.3 97.0 137.3 132.0 120.8 125.4 RA 103.4 RA 72.13RA Black-owned expenditure, R billion 43.7 48.8 53.5 50.4 51.0 47.5 43.6RA 26.47RA 14.38 RA Black women-owned expenditure, R billion 14.6 18.1 19.7 17.3 30.2 8.9 9.6RA 5.7RA 3.3RA Black youth-owned expenditure, R billion 3.7 3.1 3.4 1.7 1.3 0.9 1.3RA 1.20 RA – Procurement from B-BBEE compliant suppliers, % 4 61.57RA 54.41Q 74.24 RA 100.75RA 83.08 RA 88.89 RA 93.90 RA 86.30 RA 73.20 RA Procurement from black-owned (BO) suppliers, % 27.70 33.08 Q 40.93RA 36.98 RA 30.98 RA 34.91 32.70 RA 22.10 14.60 Procurement from black women-owned (BWO) suppliers, % 9.27 12.28 Q 15.08 RA 12.67RA 17.72RA 6.61 7.20 RA 4.70 RA 3.30 RA Procurement from black youth-owned (BYO) suppliers, % 2.32 2.10 Q 2.58 RA 1.25RA 0.82RA 0.64 LA 1.00 RA 1.00 – Procurement spend with suppliers owned by black people living with disability (BPwD), 0.12 0.15Q 0.11RA 0.02RA 0.01RA 0.00 0.00 – – % of TMPS Procurement spend with qualifying small enterprises (QSE), % of TMPS 3.37 4.47Q 7.80 RA 7.67RA 4.03RA 6.74 11.90 – – Procurement spend with exempted micro enterprises (EME), % of TMPS 9.12 13.32Q 9.32RA 10.15RA 4.81RA 5.12 – – – Employment equity Disabilities, number of employees 1 198 1 265 1 292 1 263 1 271 1 294 1 283RA 1 126RA 1 022RA Employment equity – disability, % 3.16RA 3.22RA 3.13RA 3.01RA 2.97RA 3.12RA 2.99 RA 2.59 RA 2.49 RA Racial equity in senior management, % black employees 70.72 RA 69.44 RA 67.97RA 65.77RA 60.90 RA 61.58 RA 59.50 RA 58.30 RA 53.90 RA Racial equity in professionals and middle management, % black employees 78.06RA 76.25RA 75.35RA 73.60 RA 71.98 RA 72.28 RA 71.20 RA 69.60 65.69 Gender equity in senior management, % female employees 41.71RA 39.90 RA 38.25RA 36.69 RA 28.07RA 29.83RA 28.90 RA 28.20 RA 24.31RA Gender equity in professionals and middle management, % female employees 38.99 RA 38.63RA 38.06RA 36.65RA 36.01RA 36.10 RA 35.80 RA 34.60 32.43 1. Ratios impacted by the restatements in the annual financial statements were restated where possible. 2. The definition of learners was changed from 1 April 2018, to account for learners only once when they sign up, and not continuously for the duration of their contract. 3. Electrification connections for 2018 includes farmworker connections. Comparatives for the previous years have been adjusted to include farmworker connections. 4. This measure was renamed to “Preferential procurement” in the shareholder compact from 2020. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 153 to 156 of the integrated report. Q Qualified by the independent assurance provider. Supplementary information LA Limited assurance provided by the independent assurance provider. 146 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 147 POWER STATION CAPACITIES AT 31 MARCH 2020 The difference between installed and nominal capacity reflects auxiliary power consumption and reduced capacity Total caused by the age of the plant. nominal capacity Total Total Name of station MW Number and installed installed nominal Years commissioned, capacity of generator sets capacity capacity Nominal capacity of Eskom-owned power stations 45 117 Name of station Location first to last unit MW MW MW Independent power producers (IPP) capacity 5 206 Base-load stations Concentrating solar power 500 Coal-fired (15) 41 658 37 424 Gas/liquid fuel 1 005 Hydroelectric 14 Arnot Middelburg Sep 1971 to Aug 1975 6x370 2 220 2 100 Landfill 8 Camden1 Ermelo Mar 2005 to Jun 2008 3x200; 1x196; 2x195; 1x190; 1x185 1 561 1 481 Solar PV energy 1 699 Duvha 2 Emalahleni Aug 1980 to Feb 1984 5x600 3 000 2 875 Wind 1 980 Grootvlei1, 2 Balfour Apr 2008 to Mar 2011 4x200; 2x190 1 180 570 Hendrina 2 Middelburg May 1970 to Dec 1976 6x200; 2x195; 1x170 1 760 1 135 Total nominal capacity available to the grid – Eskom and IPPs 50 323 Kendal3 Emalahleni Oct 1988 to Dec 1992 6x686 4 116 3 840 Komati1, 2 Middelburg Mar 2009 to Oct 2013 4x100; 4x125; 1x90 990 205 1. Former moth-balled power stations that have been returned to service. The original commissioning dates were: Kriel Bethal May 1976 to Mar 1979 6x500 3 000 2 850 • Camden was originally commissioned between August 1967 and September 1969 Kusile3 Ogies Aug 2017 1x799 799 720 • Grootvlei was originally commissioned between June 1969 and November 1977 Under construction 5x800 – – • Komati was originally commissioned between November 1961 and March 1966 Lethabo Vereeniging Dec 1985 to Dec 1990 6x618 3 708 3 558 2. Due to technical and/or financial constraints, the following units have been placed in reserve storage or extended inoperability and their capacity Majuba3 Volksrust Apr 1996 to Apr 2001 3x657; 3x713 4 110 3 843 removed from the nominal base: Matimba3 Lephalale Dec 1987 to Oct 1991 6x665 3 990 3 690 • Duvha Unit 3 (575MW nominal) Matla Bethal Sep 1979 to Jul 1983 6x600 3 600 3 450 • Grootvlei Units 4, 5 and 6 (550MW nominal) Medupi3 Lephalale Aug 2015 to Dec 2019 5x794 3 970 3 597 • Hendrina Units 1, 3, 8 and 9 (720MW nominal), of which 190MW was removed in the past year Under construction 1x794 – – • Komati Units 1, 2, 3, 5, 6, 7 and 8 (690MW nominal), of which 205MW was removed in the past year Tutuka Standerton Jun 1985 to Jun 1990 6x609 3 654 3 510 3. Dry-cooled unit specifications based on design back-pressure and ambient air temperature. Nuclear (1) 4. Pumped storage facilities are net users of electricity. Water is pumped during off-peak periods so that hydro electricity can be generated during Koeberg Cape Town Jul 1984 to Nov 1985 2x970 1 940 1 860 peak periods. 5. Use restricted to periods of peak demand, dependent on the availability of water in the Gariep and Vanderkloof Dams. Peaking stations 6. Installed and operational, but not included for capacity management purposes. Gas/liquid fuel turbine stations (4) 2 426 2 409 Acacia Cape Town May 1976 to Jul 1976 3x57 171 171 Ankerlig Atlantis Mar 2007 to Mar 2009 4x149.2; 5x148.3 1 338 1 327 Gourikwa Mossel Bay Jul 2007 to Nov 2008 5x149.2 746 740 Port Rex East London Sep 1976 to Oct 1976 3x57 171 171 Polokwane Pumped storage schemes (3) 4 2 732 2 724 Drakensberg Bergville Jun 1981 to Apr 1982 4x250 1 000 1 000 Ingula Ladysmith Jun 2016 to Feb 2017 4x333 1 332 1 324 Pretoria Palmiet Grabouw Apr 1988 to May 1988 2x200 400 400 Hydroelectric stations (2) 5 600 600 Johannesburg Gariep Norvalspont Sep 1971 to Mar 1976 4x90 360 360 Vanderkloof Petrusville Jan 1977 to Feb 1977 2x120 240 240 Total used for capacity management purposes 49 356 45 017 Upington Renewable energy Kimberley Richards Bay Wind energy (1) 6 Sere Vredendal Mar 2015 46x2.2 100 100 Bloemfontein Durban Total capacity including renewable energy 49 456 45 117 Other hydroelectric stations (4) 6 61 – Colley Wobbles Mbashe River 3x14 42 – First Falls Umtata River 2x3 6 – Ncora Ncora River 2x0.4; 1x1.3 2 – Second Falls Umtata River 2x5.5 11 – Supplementary information East London Total Eskom power station capacities (30) 49 517 45 117 Port Elizabeth Cape Town Available nominal capacity – Eskom-owned 91.11% Mossel Bay Existing Thermal power station Wind Not yet complete Nuclear power station Gas power station Possible future grid system Hydroelectric or pumped storage station Interconnection substation Town Future substation 148 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 149 POWER LINES AND SUBSTATIONS IN SERVICE CUSTOMER INFORMATION AT 31 MARCH 2020 Category 2020 2019 2018 2017 2016 Category 2020 2019 2018 2017 2016 Power lines Number of Eskom customers Transmission power lines, km1 33 027 32 698 31 951 32 220 31 957 Local 6 716 190 6 497 361 6 258 605 5 976 546 5 688 629 765kV 2 784 2 784 2 784 2 782 2 608 Distributors 805 800 800 802 801 533kV DC (monopolar) 1 032 1 035 1 035 1 035 1 035 Residential1 6 577 905 6 358 523 6 120 122 5 838 754 5 550 307 400kV 19 743 19 421 18 804 18 943 18 872 Commercial 52 909 52 556 51 848 50 956 50 816 275kV 7 228 7 218 7 218 7 358 7 343 Industrial 2 684 2 705 2 703 2 706 2 733 220kV 1 351 1 351 1 221 1 220 1 217 Mining 961 981 993 1 012 1 013 132kV 889 889 889 882 882 Agricultural 80 451 81 303 81 638 81 806 82 450 Rail 475 493 501 510 509 Distribution overhead power lines, km 351 023 347 284 341 874 344 993 337 759 International 11 11 11 11 11 132kV and higher 24 777 24 666 24 646 25 011 25 528 44 to 88kV 2 20 767 20 735 23 904 23 794 23 682 Utilities 8 8 8 8 8 33kV 2 3 563 3 420 – – – End users across the border 3 3 3 3 3 1 to 22kV 301 916 298 463 293 324 296 188 288 550 6 716 201 6 497 372 6 258 616 5 976 557 5 688 640 Distribution underground cables, km 7 734 7 651 7 769 7 499 7 571 132kV and higher 86 86 79 75 66 Electricity sales per customer category, GWh 44 to 88kV 2 190 189 415 215 375 Local 190 446 195 858 196 922 199 028 201 022 33kV 2 4 4 – – – 1 to 22kV 7 454 7 372 7 275 7 209 7 130 Distributors 85 984 87 236 87 133 89 718 89 591 Residential1 11 293 11 748 12 302 11 863 11 917 Total all power lines, km 391 784 387 633 381 594 384 712 377 287 Commercial 10 486 10 558 10 539 10 339 10 150 Industrial 45 610 48 717 47 854 48 295 50 150 Mining 28 703 28 972 30 235 30 559 30 629 Total transformer capacity, MVA 306 949 297 512 285 737 276 583 244 637 Agricultural 5 770 5 796 5 711 5 405 5 733 Transmission, MVA 3 153 135 152 415 151 105 147 415 143 440 Rail 2 600 2 831 3 148 2 849 2 852 Distribution and reticulation, MVA 153 814 145 097 134 632 129 168 101 197 International 15 189 12 461 15 268 15 093 13 465 Total transformers, number 391 231 385 085 383 284 372 995 342 387 Utilities 6 549 3 693 6 384 5 750 4 018 Transmission, number 446 444 442 433 427 End users across the border 8 640 8 768 8 884 9 342 9 447 Distribution and reticulation, number 390 785 384 641 382 842 372 562 341 960 205 635 208 319 212 190 214 121 214 487 1. Transmission power line lengths are included as per distances from the Geographic Information System. 2. Under NRS048 part 6, 33kV lines were reclassified in 2019 from high to medium voltage. Prior year figures have not been restated. International sales to countries in southern Africa, GWh 15 189 12 461 15 268 15 093 13 465 3. Base of definition: transformers rated ≥30MVA and primary voltage ≥132kV. Botswana 1 261 247 147 984 1 099 Lesotho 426 292 276 252 205 Mozambique 8 358 8 339 8 326 8 120 8 281 Namibia 2 013 1 518 2 147 2 089 1 746 Swaziland 1 011 766 839 986 1 044 Zambia 238 258 362 352 344 Zimbabwe 1 245 456 2 250 1 743 252 Short-term energy market 2 637 585 921 567 494 1. Prepaid electricity and public lighting are included under the residential category. 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. Supplementary information 150 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 151 CUSTOMER INFORMATION continued INDEPENDENT SUSTAINABILITY ASSURANCE REPORT Category 2020 2019 2018 2017 2016 Independent assurance provider’s reasonable assurance report on selected key performance indicators to the directors of Eskom Electricity revenue per customer category, R million Local 196 868 178 906 170 824 168 325 155 472 Introduction We have been engaged to perform an independent assurance engagement for Eskom Holdings SOC Ltd (Eskom) on Distributors 85 656 77 231 72 935 73 009 66 396 selected key performance indicators (KPIs) reported in Eskom’s integrated report for the year ended 31 March 2020. Residential1 16 069 14 771 14 585 14 070 12 884 Our engagement was conducted by a team with relevant experience in sustainability reporting. Commercial 14 067 12 385 11 726 11 279 10 157 Industrial 37 762 36 047 33 798 33 213 31 925 Subject matter Mining 29 968 26 550 26 277 25 915 23 895 We have been engaged to provide a reasonable assurance opinion in our report on the following selected KPIs, marked Agricultural 9 839 8 682 8 154 7 659 7 349 with RA in the statistical tables of the integrated report. The selected KPIs described below have been prepared in Rail 3 323 3 119 3 151 2 990 2 755 accordance with Eskom’s reporting criteria that are available on Eskom’s website, at IPP network charge 184 121 198 190 111 www.eskom.co.za/OurCompany/SustainableDevelopment/Pages/Sustainable_Development.aspx International 12 229 8 241 9 530 10 682 8 055 Utilities 7 767 4 132 5 696 6 632 4 163 No Indicator Unit of measure Boundary Reporting criteria End users across the border 4 462 4 109 3 834 4 050 3 892 Focus on safety Gross electricity revenue 209 097 187 147 180 354 179 007 163 527 Occupational Health Less: Revenue capitalised2 (5 683) (3 393) (2 172) (717) (367) 1. Lost-time injury rate (LTIR) (including occupational diseases) Index Eskom group and Safety Act Less: Revenue not recognised3 (10 190) (8 914) (3 635) (3 196) (1 472) Add: Recognised on the cash basis4 4 083 2 472 358 – – Improve operations Electricity revenue less capitalised revenue per note 33 in the annual 197 307 177 312 174 905 175 094 161 688 2. Planned capability loss factor (PCLF) % Generation financial statements 3. Energy availability factor (EAF) % Generation 1. Prepaid electricity and public lighting are included under the residential category. 4. Unplanned partial load losses (UCLF PLL) Average MW Generation 2. Revenue from the sale of production, while testing generating plant not yet commissioned, is capitalised to plant. 3. The principle of only recognising revenue if it is deemed collectable at the date of sale, as opposed to recognising the revenue and then impairing the 5. Unplanned automatic grid separation (UAGS) trips1 Number of trips Generation customer debt when conditions change, has been applied since 2015. External revenue to the value of R10 190 million was thus not recognised at 6. Post-philosophy outage unplanned capability loss factor (UCLF)1 % Generation 31 March 2020. 4. Under IFRS 15, certain supplies to distributors were recognised on the cash basis, due to uncertainty around collectability at the time of sale. 7. EAF and UCLF post-CO and official – Medupi Power Station1 % Generation 8. EAF and UCLF post-CO and official – Kusile Power Station 1 % Generation Eskom’s measurement 9. Transmission technical energy losses savings1 MWh Transmission specification document 10. Payment levels excluding Soweto interest 1 % Distribution 11. System average interruption duration index (SAIDI) Hours Distribution 12. System average interruption frequency index (SAIFI) Number Distribution 13. Total electrification connections Number Distribution 14. System minutes lost <1 Minutes Transmission 15. Distribution total energy losses % Distribution 16. Restoration time % Distribution Deliver capital expansion 17. Generation capacity installed and commissioned MW Generation Eskom’s measurement 18. Transmission lines installed Km Transmission specification document 19. Transmission transformer capacity installed and commissioned MVA Transmission Reduce environmental footprint in existing fleet 20. Relative particulate emissions kg/MWh sent out Generation Environmental Act 21. Specific water usage ℓ/kWh sent out Generation Water Act Eskom’s measurement 22. Carbon dioxide emissions kg/kWh sent out Generation specification document Primary energy optimisation Supplementary information Majuba, Grootvlei and 23. Migration of coal delivery volume from road to rail Mt Tutuka Power Stations Generation and Primary Eskom’s measurement 24. Coal purchases Rand/ton % increase % Energy Divisions specification document Generation and Primary 25. Coal stock days recovery Days Energy Divisions 1. KPI not assured in previous audits. 152 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 153 INDEPENDENT SUSTAINABILITY ASSURANCE REPORT continued No Indicator Unit of measure Boundary Reporting criteria Directors’ responsibilities SizweNtsalubaGobodo Grant Thornton Inc applies the The directors are responsible for the selection, International Standard on Quality Control 1 and accordingly Ensure financial sustainability preparation and presentation of the selected KPIs maintains a comprehensive system of quality control, 26. EBITDA R million Eskom group in accordance with Eskom’s reporting criteria. including documented policies and procedures regarding This responsibility includes the identification of compliance with ethical requirements, professional 27. Cash interest cover Ratio Eskom group stakeholders and stakeholder requirements, material standards and applicable legal and regulatory requirements. Eskom’s measurement 28. Debt service cover Ratio Eskom group specification document issues, commitments with respect to sustainability performance and design, implementation and Our responsibility 29. Disposal of Eskom Finance Company1 R million Eskom group Our responsibility is to express a reasonable assurance maintenance of internal controls relevant to the 30. Savings from turnaround initiatives1 R million Eskom group preparation of the integrated report that is free from opinion on the selected KPIs based on the procedures material misstatement, whether due to fraud or error. we have performed and the evidence we have obtained. Socio-economic impact: human capital We conducted our assurance engagement in accordance 31. Training spend as % of gross manpower costs % Eskom company The directors are also responsible for determining the with ISAE 3000 (revised), issued by the International 32. Learner intake (artisans) Number Eskom company appropriateness of the measurement and reporting Auditing and Assurance Standards Board. That standard criteria in view of the intended users of the selected KPIs requires that we plan and perform our engagement 33. Learner intake (engineers) Number Eskom company and for ensuring that those criteria are publicly available to obtain reasonable assurance about whether the 34. Learner intake (technicians) Number Eskom company to the report users. selected KPIs are free from material misstatement. 35. Learner intake (sector-specific) Number Eskom company Eskom’s measurement Inherent limitations A reasonable assurance engagement in accordance with 36. Disability equity in total workforce % Eskom company specification document Non-financial performance information is subject to more ISAE 3000 (revised) involves performing procedures to inherent limitations than financial information, given the obtain evidence about the measurement of the selected 37. Racial equity in senior management % Eskom company characteristics of the subject matter and the methods used KPIs and related disclosures in the report. The nature, 38. Gender equity in senior management % Eskom company for determining, calculating, sampling and estimating such timing and extent of procedures selected depend on information. The absence of a significant body of established the auditor’s professional judgement, including the 39. Racial equity in professionals and middle management % Eskom company practice on which to draw allows for the selection of assessment of the risks of material misstatement of the 40. Gender equity in professionals and middle management % Eskom company certain different but acceptable measurement techniques, selected KPIs, whether due to fraud or error. Industrialisation and localisation which can result in materially different measurements and can impact comparability. Qualitative interpretations of In making those risk assessments we considered internal 41. Local content contracted % Eskom company relevance, materiality and the accuracy of data are subject controls relevant to Eskom’s preparation of the selected to individual assumptions and judgements. The precision KPIs. A reasonable assurance engagement also includes: % of total measured 42. Preferential procurement1 Eskom company • Evaluating the appropriateness of quantification procurement spend thereof may change over time. It is important to read the report in the context of the reporting criteria. methods, reporting policies and internal guidelines used % of total capital Eskom’s measurement 43. Competitive supplier development programme (CSDP)1 procurement spend Eskom company specification document and the reasonableness of estimates made by Eskom Further, because of the test nature and other inherent • Assessing the suitability in the circumstances of 44. Enterprise and supplier development1 R million Eskom company limitations of an audit, together with the inherent Eskom’s use of the applicable reporting criteria as % of NERSA- limitations of internal controls, there is an unavoidable 45. Research and development1 Eskom company a basis for preparing the selected information allocated spend risk that some, even material, misstatements may not be detected, even though the audit is properly planned • Evaluating the overall presentation of the selected B-BBEE amended sustainability performance information 46. B-BBEE score level Number Eskom company Codes of Good Practice and performed in accordance with the International Standard on Assurance Engagements (ISAE) 3000 Socio-economic impact: corporate social investment (CSI) We believe that the evidence we have obtained is sufficient (revised), Assurance Engagements other than Audits and appropriate to provide a basis for our opinion. Eskom’s measurement or Reviews of Historical Financial Information. 47. CSI committed spend R million Eskom company specification document Qualified opinion Where the information relies on factors derived by In our opinion, and subject to the inherent limitations 1. KPI not assured in previous audits. independent third parties, our assurance work has outlined elsewhere in this report, except for the effects not included an examination of the derivation of those of the matters described in the “Basis for qualified factors and other third-party information. opinion” section of our report, the selected KPIs as set Our independence and quality control out in the “Subject matter” paragraph above for the We have complied with the independence and all year ended 31 March 2020 are prepared, in all material other ethical requirements of the International Code respects, in accordance with Eskom’s reporting criteria. of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, Supplementary information confidentiality and professional behaviour. 154 | INTEGRATED REPORT | 31 MARCH 2020 ESKOM HOLDINGS SOC LTD | 155 INDEPENDENT SUSTAINABILITY ASSURANCE REPORT continued CONTACT DETAILS Basis for qualified opinion Other matters Telephone numbers Websites and email addresses Enterprise and supplier development Our report includes the provision of reasonable We were unable to obtain sufficient appropriate audit assurance on selected KPIs, on which we were previously Eskom head office +27 11 800 8111 Eskom website www.eskom.co.za Contact@eskom.co.za evidence for the reported achievement of the target. not required to provide assurance, as indicated in the This was due to limitations placed on the scope of table above. Hence, with regard to these KPIs, the Eskom Media Desk +27 11 800 3343 Eskom Media Desk MediaDesk@eskom.co.za the work. There were no reporting processes and current year information relating to prior reporting +27 11 800 3378 +27 11 800 6103 systems put in place by management to consistently periods has not been subject to assurance procedures. collate, review and monitor the data that supports Investor Relations +27 11 800 2775 Investor Relations InvestorRelations@eskom.co.za the reliable measurement of the KPI. We were unable Website The maintenance and integrity of the Eskom Whistle-blowing hotline 0800 112 722 Forensic investigations Investigate@eskom.co.za to confirm the reported achievement by alternative means. Consequently, we were unable to determine website is the responsibility of Eskom management. Eskom Development Foundation +27 11 800 8111 Eskom Development Foundation www.eskom.co.za/csi whether any adjustments are required to the reported Our procedures did not involve consideration of these CSI@eskom.co.za achievement of R4.59 million. matters and accordingly, we accept no responsibility for National call centre 08600 ESKOM or Promotion of Access to PAIA@eskom.co.za any changes to either the information in the report or 08600 37566 Information Act requests Competitive supplier development programme our independent reasonable assurance report that may Eskom did not have an adequate performance Customer SMS line 35328 Customer Service CSOnline@eskom.co.za have occurred since the initial date of its presentation on management system to maintain records to enable the Eskom website. Facebook EskomSouthAfrica Feedback on our report IRfeedback@eskom.co.za reliable reporting on achievement of targets. Sufficient appropriate audit evidence could not be provided in some Restriction of liability Twitter Eskom_SA MyEskom app instances while, in other cases, the evidence provided Our work has been undertaken to enable us to express did not agree to the recorded achievements. We were a reasonable assurance opinion on the selected KPIs to also unable to confirm the reported achievement by the directors of Eskom in accordance with the terms of our engagement and for no other purpose. We do not Physical address Postal address alternative means. Consequently, we were unable to determine whether any further adjustments were accept or assume liability to any party other than Eskom Eskom Megawatt Park PO Box 1091 required to the reported achievement of 0.03%. for our work, for this report, or for the conclusion we 2 Maxwell Drive Johannesburg have reached. Sunninghill 2000 Local content contracted Sandton 2157 Eskom did not have an adequate performance management system to maintain records to enable Group Company Secretary Company registration number reliable reporting on achievement of targets. Sufficient Office of the Company Secretary Eskom Holdings SOC Ltd appropriate audit evidence could not be provided in some SizweNtsalubaGobodo Grant Thornton Inc PO Box 1091 2002/015527/30 instances while, in other cases, the evidence provided Registered auditors Johannesburg did not agree to the recorded achievements. We were 2000 also unable to confirm the reported achievement by Per BF Zwane alternative means. Consequently, we were unable to Chartered Accountant (SA) determine whether any further adjustments were Director Our suite of reports covering our integrated results for 2020 is available at www.eskom.co.za/IR2020 required to the reported achievement of 92.84%. 29 October 2020 JOINT VENTURE [0005] 156 | INTEGRATED REPORT | 31 MARCH 2020