BACK TO MENU INTEGRATED REPORT 2021 www.eskom.co.za INTEGRATED REPORT 31 March 2021 TOWARDS A NEW ENERGY FUTURE BACK TO MENU THE YEAR IN REVIEW CONTENTS THE YEAR IN REVIEW Navigation icons The following navigation icons are used to depict the ABOUT THIS REPORT IFC six capitals (refer to pages 7 to 8 for definitions): COVID-19 lockdown badly IMPACT OF COVID-19 2 COVID-19 affected sales performance, with a 4 493 COVID-19 infections by WHO WE ARE AND HOW WE CREATE 3 reduction of 13.8TWh, or 6.7% VALUE Our finances 31 March 2021, with 4 219 recoveries (financial capital) Operations less affected, as and 110 deaths Value creation model 4 Eskom is an essential service Our infrastructure Understanding our business 6 (manufactured capital) Composition of our top leadership 10 SEPARATION Our interaction with the environment BUSINESS GOVERNANCE, LEADERSHIP AND ETHICS 14 Business separation gaining New functions set up to support (natural capital) momentum, with functional business separation and transitioned Chairman's statement 15 separation completed in June 2021 energy future Progress on governance clean-up 17 Our people Our governance framework 22 (human capital) Generating plant availability deteriorated King IV TM application 23 Our role in communities to 64.19% (2020: 66.64%), due to Feedback on Board activities 25 (social and relationship capital) higher planned maintenance under Two new build units OPERATIONS the Generation recovery plan commissioned at Kusile Exco and divisional boards 36 Our know-how Transmission and distribution OUR STRATEGIC CONTEXT 37 (intellectual capital) Planned maintenance increased to 12.26% (2020: 8.92%), while networks delivered improved and Chief Executive's review 38 unplanned maintenance decreased to sustained performance Our strategy and turnaround plan 43 20.04% (2020: 22.86%) Improvement in particulate emissions Stakeholder engagement 49 Further content Loadshedding implemented on performance, but emissions Material matters 51 Information related to Information block 47 days during the year challenges at Kendal not yet resolved COVID-19 or case study Risks and opportunities 52 Lost-time injury rate improved FINANCIAL REVIEW 58 Additional information Supplementary contained in the information provided significantly to 0.22 74 voluntary separation packages Chief Financial Officer's report 59 integrated report as a fact sheet PEOPLE Support staff relinked to line divisions granted in round 2 Condensed annual financial statements 62 Information as part of functional separation Non-critical staff continue to work Our finances 65 available online Headcount reduced by 2 023 during from home successfully OPERATING PERFORMANCE 78 A list of abbreviations and glossary of terms the year, to 42 749 at 31 March 2021 Chief Operating Officer's commentary 79 is available on pages 120 to 122 Our infrastructure 81 Government support of Our interaction with the environment 95 FINANCE Net loss after tax of R18.9 billion R56 billion received Performance indicators Our people 106 Municipal debt escalated by Throughout this integrated report, performance Gross debt burden reduced by Our role in communities 114 R7.3 billion to R35.3 billion against target is indicated as follows: R81.9 billion to R401.8 billion SUPPLEMENTARY INFORMATION 119 Actual performance met or exceeded target Abbreviations and glossary of terms 120  Actual performance almost met target LOOKING AHEAD Transmission entity to be separated Government support of Leadership information 123 (within a 5% threshold) by 31 December 2021 R31.7 billion received in 2022 Environmental implications of using electricity 127  Actual performance did not meet target Tariff increase of 15.06% granted Ongoing impact of COVID-19 Statistical tables: technical and non-technical 128 SC Indicates that a key performance indicator for 2022 financial year regulations on sales and staff Plant and customer information 136 is included in the shareholder compact Final Medupi unit Budgeted net loss after tax of commissioned on 31 July 2021 R15.2 billion Independent sustainability assurance report 139 Contact details 143 To complete a short survey on our We are a proud supporter member of the following bodies integrated report, please click here iv | INTEGRATED REPORT | 31 MARCH 2021 BACK TO MENU ABOUT THIS REPORT Who we are and how we create value Governance, leadership and ethics The report is produced by a dedicated team from a material uncertainty relating to Eskom's ability to Board responsibility and approval the Group Finance Division, who work closely with continue as a going concern. However, this does not The Board, assisted by the Audit and Risk Committee and the Social, Ethics and Sustainability Committee, is representatives of all areas of the business to obtain affect their opinion. accountable for the integrity and completeness of the integrated report and any supplementary information. The the information presented in the report. The content of Board has considered the preparation and presentation of the integrated report and concluded that it is presented the report relies heavily on the information reported to Our suite of reports in accordance with the International Framework. Reflecting on the reliability of information presented and the Department of Public Enterprises in Eskom's quarterly Our 2021 suite of reports are available online at the completeness of material items discussed, and considering the combined assurance process followed, the Board report to the shareholder, as well as our strategic www.eskom.co.za/IR2021, and consist of the following: approved the 2021 integrated report and supplementary information on 23 August 2021. Corporate Plan, both of which are approved by the Board. INTEGRATED REPORT ANNUAL FINANCIAL SUSTAINABILITY REPORT 31 March 2021 STATEMENTS 31 March 2021 Financial information is presented in South African Rand, 31 March 2021 our functional and presentation currency. Figures are Prof. Malegapuru Makgoba Dr Pulane Molokwane Dr Banothile Makhubela taken from Eskom's group annual financial statements, Interim Chairman Chairman: Audit and Chairman: Social, Ethics and which are prepared in accordance with International Risk Committee Sustainability Committee Financial Reporting Standards (IFRS). Non-financial data is reported regularly to Exco and Board, and included in TOWARDS A NEW ENERGY FUTURE TOWARDS A NEW ENERGY FUTURE TOWARDS A NEW ENERGY FUTURE Our mandate as South Africa's national electricity utility to a wide range of stakeholders. We endeavour to the quarterly shareholder report. is to supply stable electricity in an efficient manner, to provide a balanced account of our performance, by Integrated report and supplementary information The report content is guided by the material matters The integrated report provides an overview of how contribute to lowering the cost of doing business and focusing on material matters, both positive and negative, determined as part of our preparation process. All content Eskom creates value by considering our value creation enable economic growth. We recognise that we have a and considering qualitative and quantitative matters is reviewed by subject matter experts from the business, model, strategy, risks and opportunities, performance significant impact on the economy and the lives of South material to our operations and strategic objectives, as well as Exco, the Audit and Risk Committee and the and outlook, as well as governance of these areas. It is Africans. We serve a diverse range of stakeholders, such which may affect our ability to create value. As part Social, Ethics and Sustainability Committee, as well as prepared in accordance with the IIRC's International as our shareholder, customers, investors, employees, of this process, we consider our strategic risks and the Board, which assumes ultimate accountability for the Framework. Supplementary information of interest suppliers, civil society, regulators and Government. opportunities, as well as our operating context. content, completeness and reliability of the report. to a variety of stakeholders is available as fact sheets at Our strategic context We aim to provide a transparent and balanced account Our short-term turnaround objectives are used to the back of the report. As noted earlier, A&F has verified of how we create, preserve or erode value. Our value connect our use of and impact on the six capitals to Assurance approach to improve credibility certain aspects of the report, and the external auditors creation model depicts how the generation, transmission, our strategy, material matters, strategic risks, key The Audit and Risk Committee and the Board depend on provided reasonable assurance on specific KPIs. distribution and sale of electricity create, preserve or performance indicators and performance. In our context, combined assurance to assess the adequacy of internal erode value by transforming inputs from each of the short term means within one year after year end, controls and risk management processes. Annual financial statements capitals into electricity supplied to customers, as well as medium term within one to five years, and long term Our independent auditors, SNG Grant Thornton Inc, Our Assurance and Forensic Department (A&F) provided have audited the consolidated annual financial statements considering the impact of our business on the six capitals. more than five years. reasonable assurance on certain quantitative information, of Eskom Holdings SOC Ltd, which have been prepared Although we continue to strive for a more concise and to a lesser degree, some qualitative aspects of in accordance with IFRS as well as the requirements of Our value creation model is set out on pages 4 and 5 report, our main aim is delivering a balanced, transparent the report. The group's external auditors provided the Companies Act, 2008 and the PFMA, 1999. and complete account that delivers adequate information external assurance on the sustainability key performance Approach to presentation indicators (KPIs) contained in the shareholder compact; Sustainability report on matters material to our ability to create value, and Our integrated report is based on the guiding principles Financial review issues of concern to stakeholders. all but three of the KPIs scoped in for reasonable This is our first standalone sustainability report. and content elements contained in the International assurance received an unqualified opinion. Previously, we published a standalone environmental Framework, published by the International We strive to embed integrated thinking in our way of report that evolved into an integrated report with the Integrated Reporting Council (IIRC). Furthermore, we doing business. It is applied by management, executives The independent sustainability assurance report is included from page 139 adoption of integrated thinking. We consider it best have started addressing the recommendations of the and the Board, in that the various capitals and trade-offs practice to publish a standalone sustainability report revised International Framework issued by the between them are constantly considered. An example The consolidated annual financial statements have been due to our significant positive and negative sustainable IIRC in January 2021, even though these disclosures are of such a trade-off is the impact of running costly diesel audited by the group's independent auditors, SNG Grant development impacts. The sustainability report only required for reporting periods commencing from turbines to ensure stability of the grid and provide Thornton Inc, who issued a qualified opinion relating supplements and provides more detailed information on January 2022. security of supply to customers, at the expense of to the completeness of irregular expenditure disclosed our sustainable development impact than that provided financial capital. in terms of the Public Finance Management Act, 1999 in the integrated report. The report is guided by the The content is further guided by legal and regulatory Operating performance (PFMA). Except for this qualification, the consolidated reporting principles of the Global Reporting Initiative requirements, such as the Companies Act, 2008 and the The information in this report covers the group annual financial statements are fairly presented in terms (GRI). It also considers our contribution to the United King IV Report on Corporate Governance for South performance of Eskom Holdings SOC Ltd (Eskom) and of IFRS. Furthermore, the independent auditors reported Nations' Sustainable Development Goals (SDGs). Africa, 2016, as well as global best practice, including its major operating subsidiaries, unless otherwise stated. recommendations by the Task Force on Climate-related For a full overview of our financial performance, the Financial Disclosures (TCFD). integrated report should be read in conjunction with the group annual financial statements. Forward-looking statements This integrated report reviews our financial, operational, Certain statements in this report regarding Eskom's business operations may constitute forward-looking statements. environmental, social and governance performance for Eskom's group annual financial statements are available at These include all statements other than statements of historical fact, including those regarding the financial position, the financial year from 1 April 2020 to 31 March 2021, www.eskom.co.za/IR2021 business strategy, management plans and objectives for future operations. Forward-looking statements constitute as well as the outlook for the future. Unless otherwise our current expectations based on reasonable assumptions, data or methods that may be imprecise and/or incorrect Supplementary information stated, all performance data in this report, both Unless noted otherwise, information presented is and that may be incapable of being realised and as such, are not intended to be a guarantee of future results. Actual financial and non-financial, relates to the 2021 financial comparable to that of prior years, with no significant results could differ materially from those projected in any forward-looking statements due to various events, risks, year. Significant events up to the date of approval have restatements. uncertainties and other factors. Eskom neither intends nor assumes any obligation to update or revise any forward- been included. looking statements, whether as a result of new information, future events or otherwise. Preparation process This is our primary report to stakeholders, and is Mr Calib Cassim CA(SA), Chief Financial Officer, is Future performance plans and/or strategies referred to in the integrated report have not been reviewed or reported aimed predominantly at providers of financial capital. in charge of the preparation and presentation of the on by the independent auditors. Nevertheless, the report seeks to provide information integrated report and supplementary information. ESKOM HOLDINGS SOC LTD | 1 BACK TO MENU IMPACT OF C VID-19 WHO WE ARE AND HOW WE CREATE VALUE Who we are and how we create value Governance, leadership and ethics As noted in our performance commentary for the six Eskom compiled a national lockdown register of critical months ended 30 September 2020, one of our identified staff who were required to commute or live on site. This disaster risks materialised in March 2020 when the register was submitted to the National Joint Operational World Health Organization declared the COVID-19 Centre overseeing the country's disaster management outbreak a pandemic. Exco met daily to assess the response. Staff identified as essential on this register were situation. In the event of an emergency, our Emergency provided with permits to commute during the lockdown. Response Command Centre was able to mobilise with immediate effect. At the start of the national lockdown, the register identified 10 554 essential staff who were required on As an essential service, we were allowed to continue site on a daily basis; 15 213 critical staff were required operating at full capacity even during level 5 of South to remain at home on standby; and 19 162 employees Africa's national lockdown, with coal mines being were not required to work on site, the majority of whom permitted to operate to supply power stations. Our priority was the supply of electricity as an essential could work from home. service, and maintaining the safety of our people. To combat the effects of COVID-19, we continue to Employees were enabled to work at home since the start institute appropriate measures to protect critical staff of the national lockdown, with some staff returning to and minimise the number of employees on site wherever work as restrictions were lifted. possible. Plans are in place to protect key operations Despite being allowed to operate, delays in executing such as Koeberg Nuclear Power Station, National capital and generation maintenance projects were Control, Telecoms Control, Apollo Converter Station, experienced in the earlier stages of lockdown due to Generation and Distribution control rooms, Resource restrictions on the movement of people and a drive to Management Centres and some Generation sites. contain the number of workers on site. Nevertheless, Our strategic context we were able to execute some opportunity maintenance Operational impact to address critical issues across the generation fleet. During the level 5 lockdown to the end of April 2020, The most noteworthy impact on our business came the daily peak demand on the power system reduced from the reduction in demand during the earlier levels by between 7 500MW and 11 000MW, as lockdown of the lockdown. restrictions and depressed economic conditions led Our focus during the ongoing COVID-19 pandemic is to a reduction in the average demand for electricity. the health and well-being of our people, maintaining the The reduction in average daily demand during level 5 supply of electricity to support economic recovery and was 5 680MW. During the level 4 lockdown period supporting Government in containing the spread of the during May 2020, the reduction in average daily demand virus. Despite our concerted efforts, we are devastated was 3 300MW. The System Operator had to curtail by the loss of so many of our colleagues. generation capacity imports and wind generation at Financial review night on several occasions, given the need to keep the At 17 August 2021, Eskom had recorded 6 980 system stable. Given that there is limited scope to reduce positive COVID-19 cases (including 43 generation by renewable independent power producers, reinfections), comprising 5 775 employees and we had to drastically reduce generation output to adjust 1 205 contractors, with 6 140 recoveries. Sadly, to the lower demand. 128 employees and 17 contractors have succumbed to the disease. The slowdown of the economy amid the COVID-19 pandemic led to an unprecedented decline in sales We have commented on the impact of the COVID-19 during the year. Sales of 191 852GWh were 6.7% lower pandemic on our business to date throughout the report, than the previous year (2020: 205 635GWh). Of the Operating performance wherever appropriate. reduction of 13 783GWh, 10 728GWh is attributable to the first half of the year. Due to the return to operation Impact on staff of many sectors of the economy, the impact on sales A change management and engagement plan was in the second half of the year was less severe. Sales Value creation model 4 developed to ensure employees, contractors, deteriorated year-on-year across every sector of the communities, organised labour and other key economy, with the industrial, rail and international Understanding our business 6 stakeholders are timeously informed and engaged, while sectors being most severely affected. Composition of our top leadership 10 building resilience and driving behaviour modification to address the COVID-19 pandemic. Employees are Despite green shoots emerging with the phased easing of equipped with accurate and reliable information to drive lockdown restrictions, the continued uncertainty around Supplementary information appropriate behavioural change. Moreover, a number of COVID-19 is expected to continue threatening future guidelines were developed by the Office of Eskom's Chief sales volumes, the cost of production and customers' Medical Officer and shared with employees. ability to pay. Demand is not expected to recover to In a short space of time, Group IT enabled a large amount pre-COVID-19 levels in the short to medium term, due of our workforce to work remotely during the national to the long-lasting impact of the economic recession lockdown. Managers maintain contact with team members experienced in 2020. Our Corporate Plan reflects largely working at home. Where they are able to, a large part of stagnant sales volumes of approximately 190TWh per our support staff are still working from home. year for at least the next five years. 2 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM ESKOM HOLDINGS HOLDINGS SOC LTD || 33 SOC LTD BACK TO MENU VALUE CREATION MODEL MANDATE Refer to page 42 for our top 10 key To supply stable electricity in an efficient and sustainable manner, performance indicators to contribute to lowering the cost of doing business in South Africa and enable economic growth Six Capitals INPUTS Renewable generation System Operator Transmission OUTCOMES Finance Finance ery Six Capitals R18.9 billion Funding raised Financial capital Maintain the frequency Provide a reliable and R102.7 billion Debt and interest repaid R56 billion Government support Renewable energy is efficient transmission R204.3 billion Revenue of the power system supplied by independent network and energy R32.8 billion EBITDA ery Financial capital Nuclear at 50Hz, to balance power producers, market services in South R35.3 billion Municipal arrear debt electricity supply and ement Manufactured capital Six Capitals generation Infrastructure primarily in the demand in real time Africa and neighbouring 46 466MW Nominal power station form of solar PV and Infrastructure ement ery Six Capitals Manufactured capital Financial capital We operate Koeberg markets heet capacity Natural capital wind generation,  1 598MW New capacity from Kusile units ery 399 546km Power lines and cables Financial capital Nuclear Power Station, and by Eskom, using 65.6km Transmission lines installed heet ement Six Capitals Natural capital Manufactured capital Africa's first and only hydroelectric and wind Distribution  750MVA Transmission transformer on Human capital nuclear power station generation capacity installed ery Financial capital Provide reliable energy ement Six Capitals Environment Manufactured capital and related services to R24 billion Capital expenditure on heet 104.87Mt Coal burnt Human capital Natural capital our customers, enhance Generate electricity from Environment 270 736Mℓ Net raw water used re Social and relationship capital ement ery heet Manufactured capital Financial capital Natural capital coal, optimally manage Primary Energy the customer experience 80 Environmental legal contraventions re on Social and relationship Human capital capital asset performance and collect revenue 0.38kg/MWhSO relative particulate emissions heet People Intellectual capital Natural capital and leverage core Identify, source, procure and 1.42ℓ/kWhSO Specific water consumption ement Manufactured capital on 44 772 Employees (at 31 March 2020) Human capital competencies to expand deliver primary energy (coal, Products the revenue base. Utilise water and limestone) of the People re R820 million Training spend SocialIntellectual capitalcapital and relationship Waste and gas-fired stations owned right quality, at the right time 191 852GWh 42 749 Employees at year end on heet Human capital Natural capital Electricity sales to by-products 0.22 Lost-time injury rate re Social and relationship capital by Eskom and IPPs as and at optimal cost to our peaking capacity power stations distributors and 30.84Mt Ash produced 10 Employee and contractor fatalities Society and relationships Intellectual capital industrial, commercial, 71.35kt Particulate R32.9 billion Employee benefit expense re on R67.4 million CSI committed spend Social and relationship Human capital capital Fossil international, emissions R1.8 billion DMRE electrification Intellectual capital fuel-based Society and relationships residential and other funding generation 206.8Mt CO2 emitted 802 635 CSI beneficiaries customers 106 669 Electrification connections re SocialIntellectual capitalcapital and relationship 47 days Loadshedding Know-how Institutional knowledge Intellectual capital 12 research Grand Challenges Values Z I I S C E Know-how Tacit knowledge lost due to VSPs Appointment of key executive positions Zero Harm Integrity Innovation Sinobuntu Customer Excellence Note that a selection of significant inputs and satisfaction outcomes are shown in the business model Positive outcome Negative outcome MAIN HEADING MAIN AT 31 MARCHEADING MAIN AT 31 MARCHEADING MAIN 2020 AT 31 MARCHEADING 2020 Turnaround objectives MAIN AT 31 MARCHEADING 2020 2020 Turnaround objectives Six Capitals AT 31 MARCHobjectives Turnaround 2020 Six Capitals Turnaround objectives Six Capitals Turnaround objectives Six Capitals Operations recovery Turnaround objectives Six Capitals Operations recovery Financial capital Operations recovery Financial capital Operations recovery Financial capital Supply of electricity Electricity demand Operations recovery Financial capital Operations recovery Financial capital Improve income statement 201 400GWh Generated by Eskom power stations 178 355GWh Sales to 6 857 018 local customers Improve income statement Manufactured capital Improve income statement Manufactured capital Improve income statement Manufactured capital Improve income statement Manufactured capital Improve income statement Manufactured capital = Improve balance sheet Natural capital 13 526GWh Supplied by IPPs 13 497GWh Sales to 11 international customers Strengthen balance sheet Improve balance sheet Natural capital Improve balance sheet Natural capital 8 812GWh Imports from neighbouring countries 25 078GWh Technical losses, electricity theft and errors Improve balance sheet Natural capital Improve balance sheet Natural capital Energy available for distribution 219 423GWh Energy demand 219 423GWh Business separation Human capital Business separation Human capital Business separation Business separation Human capital Business separation Human capital Business separation Human capital People and culture Social and relationship capital Not all elements of supply and demand are shown. People and culture Social and relationship capital People and culture Social and relationship capital People and culture People and culture Social and relationship capital People and culture Social and relationship capital Intellectual capital Intellectual capital Intellectual capital Intellectual capital Intellectual capital 4 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 5 BACK TO MENU UNDERSTANDING OUR BUSINESS Who we are and how we create value Governance, leadership and ethics We transform inputs from the natural environment – corrected under the Generation recovery plan. The coal, nuclear fuel and diesel, as well as water and wind final unit of Medupi Power Station achieved commercial – and use those to generate more than 90% of the energy operation on 31 July 2021. supplied to a wide range of customers in South Africa and Polokwane the Southern African Development Community (SADC) Detailed information on our power stations, power lines and substation region. To balance electricity supply and demand in real capacities is available in the fact sheet on pages 136 and 137 time, our System Operator has to maintain the frequency of the power system at 50Hz. Electricity supply industry Pretoria South Africa's electricity supply industry comprises Eskom is one of the few remaining vertically integrated the generation, transmission, distribution and sale of Johannesburg utilities. We are connected to the Southern African electricity, as well as the import and export thereof. Power Pool (SAPP) through an interconnected grid, Eskom owns and operates most of the base-load and which serves to support grid stability. We rely on SADC peaking capacity, although the share of electricity Upington members to maintain sufficient and reliable transmission supplied by independent power producers (IPPs) Richards Bay grids in their countries. continues to grow, largely in the form of wind and solar Kimberley photovoltaic (PV) power. Bloemfontein The foundation of our business is the generation, Durban transmission, distribution and sale of electricity, Capacity added and energy supplied by IPPs are discussed from page 87 supplemented by the construction of new power stations and network infrastructure. Our core Under the Electricity Regulation Act, 2006 and the divisions rely on support in the form of finance, human National Energy Regulatory Act, 2004, the National resources, procurement, information technology, Energy Regulator of South Africa (NERSA) regulates the telecommunications, strategy, risk and sustainability, legal industry by providing licences, regulatory rules, guidelines East London and compliance, and stakeholder relations. In support and codes. NERSA also determines our revenue in Our strategic context of the electricity business, our subsidiary Eskom Rotek Cape Town Gqeberha accordance with the Electricity Pricing Policy (EPP). Industries performs turbine and transformer repairs and Mossel Bay provides specialised construction and transport services. The National Nuclear Regulator (NNR) ensures that Koeberg, our nuclear power station, complies with Our operations nuclear safety standards, to protect individuals, society Existing Thermal power station Wind Not yet complete Nuclear power station Gas power station and the environment against radiological hazards linked GENERATION CAPACITY Possible future grid system Hydroelectric or pumped storage station Interconnection substation to the use of nuclear technology. Town Future substation 30 power stations Supply and demand of electricity Total nominal capacity of 46 466MW Electricity is supplied by Eskom's power stations, IPPs and We estimate that loadshedding and load curtailment of networks. Our manufactured capital base is enhanced Base-load stations cross-border suppliers, to local and export customers. large customers over the past year reduced our supply by the commissioning of new units, as well as through by approximately 1 034GWh, which equates to just maintenance and capital refurbishment of existing Eskom generated 201 400GWh for the year, from the Financial review Coal-fired stations 38 773MW over 0.5% of total energy demand for the year (2020: plant. That base is eroded in the process of generating, following primary energy sources: 1 290GWh). Estimates from a study by Nova Economics transmitting and distributing electricity. Nuclear power 1 860MW on behalf of Eskom indicate that 1% loadshedding (as Source, GWh 2021 2020 Mid-merit and peaking stations percentage of electricity sales) is associated with a 0.4% Natural capital is eroded by our utilisation of non- Coal-fired stations 183 553 194 357 decrease in GDP growth. renewable or scarce primary energy sources used to Pumped storage 2 724MW Nuclear power 9 903 13 252 generate electricity. These consist of coal, water, nuclear Pumped storage stations 4 795 5 060 How we define the six capitals fuel and diesel. The generation process produces waste Hydro stations 600MW Hydro stations 1 387 688 in the form of ash, gaseous and particulate emissions, and Open-cycle gas turbines (OCGTs) 1 457 1 328 We use resources comprising all six capitals set out OCGTs 2 409MW in the International Framework as inputs in our nuclear waste, further eroding natural capital. We aim Wind 305 283 business. As trade-offs are inevitable, creating value to transition to a cleaner energy mix, mainly through the Self-dispatching energy Operating performance Total 201 400 214 968 in one area frequently leads to the erosion of value in increased use of renewable energy, to reduce our impact on the environment. Our transmission and distribution Sere Wind Farm 100MW another. We have to ensure that our business remains Furthermore, IPPs supplied 13 526GWh, with another sustainable across all the capitals. networks also have a negative impact on bird life in some 8 812GWh being imported to supply customers. cases, although we strive to mitigate our impact on the NETWORK CAPACITY The constitution of each of the capitals is described natural environment. A total of 178 355GWh was supplied to 6 587 018 below, with more detail provided in the sections dealing local customers (2020: 190 446GWh), and 13 497GWh with each of the capitals. Our human capital is made up of our employees and 399 546km of high-, medium- and low- to 11 international customers (2020: 15 189GWh) in contractors, and their competencies, capabilities and voltage lines and underground cables Botswana, eSwatini, Lesotho, Mozambique, Namibia, Financial capital is fundamental to our sustainability as a experience. Our focus on improving the racial, gender Zambia and Zimbabwe. Technical energy losses incurred business. It comprises retained earnings, equity from our and disability equity of our employee base continues. We 310 123MVA of transformer capacity shareholder and debt funding provided by lenders, a large during the transmission and distribution process, and are actively working to reduce our headcount, given the Supplementary information losses due to electricity theft and errors consumed portion of which is guaranteed by Government. Lenders significance of employee benefit costs to our cost base, Our new build programme commenced in 2005, and 25 078GWh (2020: 23 457GWh). There was a noticeable and bondholders earn a return in the form of interest. We while still maintaining the productivity of the workforce. aims to cater for South Africa's future energy demand increase in electricity theft during the national lockdown. are currently not paying dividends to our shareholder. Human capital is enhanced through training and skills by building new power stations and strengthening our development, although these efforts continue to be Manufactured capital comprises our power stations, transmission grid. Two units at Kusile Power Station The number of customers, electricity sales volumes and revenue by hampered by our financial situation, as well as by many together with our transmission and distribution were commissioned during the year as part of the customer segment are set out in the fact sheet on page 138 employees working from home. programme, while defects on other units are being 6 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 7 BACK TO MENU UNDERSTANDING OUR BUSINESS continued Who we are and how we create value Governance, leadership and ethics Social and relationship capital is based on interactions Our structure and regulation Group overview implementing CSI programmes on behalf of Eskom, with customers, suppliers, communities and the public How we are regulated Eskom Holdings SOC Ltd houses our electricity business thereby improving the quality of life of communities in general. We contribute by enabling economic growth Eskom Holdings SOC Ltd is a state-owned company and also holds investments in subsidiaries. The Eskom where we operate. through the supply of electricity; constantly electrifying (SOC) as defined in the Companies Act, 2008 and is group comprises the operating company with its new households in our licensed areas of supply; supporting wholly owned by the South African Government. subsidiaries and joint ventures. Full details of Eskom's equity-accounted investees and subsidiaries at job creation, skills development, supplier transformation 31 March 2021 are set out in notes 11 and 12 of the consolidated annual and broad-based black economic empowerment (B-BBEE); Our mandate is to provide a stable electricity supply We have operations across South Africa, with our head financial statements as well as improving the lives of many South Africans in a sustainable and efficient manner, to assist in office based in Johannesburg and administrative offices in most major centres. Our local subsidiaries provide Subsidiaries of Eskom Enterprises through our corporate social investment (CSI) and socio- lowering the cost of doing business in South Africa and enabling economic growth. We perform a significant strategic services to Eskom and our employees; we also Eskom Rotek Industries SOC Ltd (ERI) provides lifecycle, economic development activities. That said, our power developmental role in support of the National have a subsidiary based in Uganda. There have been no plant maintenance and technical support to Eskom's stations also have a negative impact on the health of the Development Plan 2030 (NDP), by supporting job changes to the group structure during the past year. electricity business. communities in which we operate, and a pilot project is under way to consider how to mitigate the impact on air creation, economic and skills development, B-BBEE, A new subsidiary to house the Transmission business will Eskom Uganda Limited, a subsidiary of EE, operates quality. Strong stakeholder relationships remain critical to transformation and other national initiatives. We also be established during the 2022 financial year. and maintains Nalubaale and Kiira hydroelectric our ability to create value. support a number of the United Nations' Sustainable power stations in Uganda under a 20-year concession Development Goals. arrangement that ends in 2023. The stations have a Intellectual capital includes technology, comprising For more on the business separation project, refer to “Our strategic The Department of Public Enterprises (DPE) is our context – Our strategy and turnaround plan” from page 43 combined capacity of close to 380MW. Eskom Uganda telecommunications, information and operational shareholder ministry and sets our mandate. We are also supplied 1.5GWh, or about 30% of Uganda's energy, in its technology; organisational knowledge, systems, policies Subsidiaries of Eskom subject to oversight or regulation by a number of other financial year which ended in December 2020. and procedures; as well as research and innovation to Eskom Enterprises SOC Ltd (EE) is an investment holding industrialise future technologies and improve current Government departments, Parliamentary committees Pebble Bed Modular Reactor SOC Ltd (PBMR) is company. operations. and regulators. wholly owned by EE. It remains in a state of care and Escap SOC Ltd is a wholly owned insurance captive maintenance to preserve the intellectual property company, which manages and insures the business risk created during operation. The Board awaits guidance Our strategic context of Eskom and its subsidiaries. Escap has started insuring from the shareholder on the future of PBMR. Oversight and regulation other public entities to generate additional income and EE holds an effective interest of 69% in South Dunes Shareholder ministry Eskom Holdings SOC Ltd reduce policyholder concentration risk, as part of its long-term strategy to diversify its client base. Coal Terminal Company SOC Ltd (SDCT), both directly Department of Public Enterprises and indirectly through Golang Coal SOC Ltd. SDCT Main subsidiaries Policy ministry Support functions The shareholder has mandated the disposal of Eskom owns rights to export coal through its participation Department of Mineral Resources Eskom Enterprises SOC Ltd Finance Company SOC Ltd (EFC) to realise cash from in the Phase V expansion of the Richards Bay Coal and Energy non-core assets. An offer has been received for the Terminal (RBCT). Escap SOC Ltd sale of the company. Regrettably, the sale of EFC to the Oversight ministries Generation Other dormant subsidiaries of EE are in the process Eskom Finance Company preferred bidder was not approved by DPE. National Treasury of being wound up or liquidated. SOC Ltd The Eskom Development Foundation NPC (the Department of Forestry, Fisheries Distribution Contribution to financial performance Financial review Eskom Development Foundation) is a non-profit company under section 21 and the Environment The contribution by the main group companies to Foundation NPC of the Companies Act, 2008. It is responsible for Regulators Transmission performance and financial position is shown below. NERSA and NNR The Eskom business remains by far the most significant. Assurance 2022: Auditor-General Transmission company Eskom EE Eliminations Eskom R million company group Escap EFC Foundation and other group Revenue 204 326 9 248 4 410 585 – (14 243) 204 326 EBITDA1 31 836 332 2 513 152 (2) (2 018) 32 813 Under the PFMA, 1999 we are required to submit a Eskom is subject to numerous laws and regulations which Net (loss)/profit after tax (20 602) 67 2 854 113 – (1 366) (18 934) Operating performance strategic Corporate Plan on an annual basis, setting out govern our operations, including conditions relating to Total assets 766 690 7 544 18 673 8 426 62 (19 747) 781 648 our strategic objectives, with plans and targets to achieve tariffs, activities, environmental compliance, expansion, Total liabilities 568 974 2 689 8 092 7 046 65 (21 054) 565 812 those. We also agree on an annual shareholder compact procurement and human resources. Our licensing with DPE, which tracks the KPIs that support our conditions place strict limits on plant emissions to limit Capital expenditure 2 23 015 172 – – – (348) 22 839 mandate and the strategic objectives under the Strategic our environmental impact. Relevant laws and regulations 1. EBITDA excludes fair value adjustments on financial instruments and embedded derivatives. Intent Statement set out by DPE. Our latest annual include the Electricity Regulation Act, 2006; Companies 2. The company and group figures include DMRE-funded capital expenditure of R1.8 billion. Corporate Plan covers the three-year period to 2024. Act, 2008; PFMA, 1999; National Treasury regulations; National Environmental Management Act, 1998; National Comprehensive segment disclosure for Generation, Transmission, Distribution and other segments is provided in note 7 of the consolidated annual Performance against the 2021 shareholder compact is dealt with Energy Regulator Act, 2004; National Nuclear Regulator financial statements comprehensively in the directors' report in the consolidated annual Act, 1999; Occupational Health and Safety Act, 1993; Supplementary information financial statements. Throughout tables in the report, shareholder compact KPIs are denoted using SC . Where relevant, these KPIs are Basic Conditions of Employment Act, 1997; Labour included in the statistical tables, available as a fact sheet at the back of Relations Act, 1995; Broad-Based Black Economic this report, from page 128 Empowerment Act, 2003; and the Promotion of Access to Information Act, 2000, among others. 8 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 9 BACK TO MENU BOARD OF DIRECTORS AT 31 MARCH 2021 1. PROF. MALEGAPURU MAKGOBA (68) 6. DR BANOTHILE MAKHUBELA (36) Interim Chairman Independent non-executive director Appointed to the Board in December 2017 Appointed to the Board in June 2017 MB ChB (University of Natal) M Sc Chemistry (University of Cape Town) D Phil (University of Oxford) Ph D Chemistry (University of Cape Town) C 2. MR ANDRÉ DE RUYTER (53) 7. MS BUSISIWE MAVUSO (42) Group Chief Executive Independent non-executive director Appointed to the Board in January 2020 Appointed to the Board in January 2018 1 2 3 B Compt (Unisa) LLB (Unisa) MBA (Nyenrode University) Master of Business Leadership (Unisa) 3. MR CALIB CASSIM (49) Chief Financial Officer 8. DR PULANE MOLOKWANE (44) Appointed to the Board in July 2017 Independent non-executive director Chartered Accountant (SA) Appointed to the Board in June 2017 Master of Business Leadership (Unisa) M Sc Applied Radiation Science and Technology (University of North West) 4. DR ROD CROMPTON (68) Ph D Chemical Technology – Environmental Engineering Independent non-executive director (University of Pretoria) 4 5 6 Appointed to the Board in January 2018 C BA (Hons) (University of Natal) Ph D Humanities (University of Natal) 9. PROF. TSHEPO MONGALO (47) C Independent non-executive director Appointed to the Board in December 2017 5. MS NELISIWE MAGUBANE (55) LLM Commercial Law (University of Cambridge) Independent non-executive director Ph D Commercial Law (University of Cape Town) Appointed to the Board in January 2018 C B Sc Electrical Engineering – Heavy Current (University of Natal) Postgraduate Diploma in Business Administration (University of West London) 7 8 9 MBA (Milpark Business School) C Ages are shown at 31 March 2021. Qualifications listed are not exhaustive. Refer to pages 123 and 124 for full details of directors' qualifications and active directorships Membership of Board committees Skills Racial diversity Gender diversity Age diversity 11% 30 – 39 7 Science, engineering and technology 4 Audit and Risk Committee 22% 4 60 – 69 Investment and Finance Committee Commerce and industry People and Governance Committee 4 Legal, governance and risk management ACI (78%) Female (44%) Social, Ethics and Sustainability Committee 3 2 5 Board Strategy Committee Finance, accounting and economics 45% 22% 4 40 – 49 C Denotes chairmanship of a committee 50 – 59 Social and human sciences 2 White (22%) Male (56%) 10 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 11 BACK TO MENU EXECUTIVE MANAGEMENT COMMITTEE AT 31 MARCH 2021 1. MR ANDRÉ DE RUYTER (53) 6. MS NERINA OTTO (49) Group Chief Executive Acting Group Executive: Legal and Compliance Appointed to Exco in January 2020 Appointed to Exco in December 2020 1 year in Eskom 23 years in Eskom LLB (Unisa) LLB (University of Natal) MBA (Nyenrode University) Master of Law (University of Johannesburg) 2. MR CALIB CASSIM (49) 7. MS ELSIE PULE (53) Chief Financial Officer Group Executive: Human Resources Appointed to Exco in July 2017 Appointed to Exco in November 2014 19 years in Eskom 23 years in Eskom 1 2 3 Chartered Accountant (SA) BA (Hons) Psychology (University of Pretoria) Master of Business Leadership (Unisa) M Sc Business Engineering (Warwick University) 3. MR JAN OBERHOLZER (62) 8. MS JAINTHREE SANKAR (49) Chief Operating Officer Acting Chief Procurement Officer Appointed to Exco in July 2018 Appointed to Exco in March 2021 28 years in Eskom (including from 1983 to 2008) 27 years in Eskom B Sc Electrical Engineering (University of Pretoria) B Com (Hons) Business (Unisa) Master of Business Leadership (Unisa) MBA Sustainable Business (University of Southern Queensland) Executive Program (University of Michigan) Master of Project Management (University of Southern Queensland) 4 5 6 4. MS FAITH BURN (52) 9. MR VUYOLWETHU TUKU (45) Chief Information Officer Group Executive: Transformation Management Office Appointed to Exco in May 2020 Appointed to Exco in July 2020 <1 year in Eskom <1 year in Eskom M Sc Mathematics (University of Johannesburg) B Sc Electrical Engineering (University of Cape Town) Master of Business Leadership (Unisa) MBA (University of Witwatersrand) 5. MS NTHATO MINYUKU (42) Group Executive: Government and Regulatory Affairs Appointed to Exco in October 2020 <1 year in Eskom 7 8 9 B Architectural Studies (University of Witwatersrand) Master of City Planning and Urban Design (University of Ages are shown at 31 March 2021. Cape Town) Qualifications listed above are not exhaustive. Refer to pages 124 and 125 for full details of Exco members' qualifications and active directorships Skills Years in service Racial diversity Gender diversity Age diversity 11% Science, engineering and technology 7 60 – 69 5 5 Commerce and industry 6 4 Legal, governance and risk management 21 – 30 years 4 <10 years ACI (78%) Female (56%) 4 56% 33% 40 – 49 2 4 Finance, accounting and economics 50 – 59 3 Social and human sciences 3 1 White (22%) Male (44%) 11 – 20 years 12 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 13 BACK TO MENU MAIN HEADING GOVERNANCE, CHAIRMAN'S STATEMENT LEADERSHIP AND ETHICS Who we are and how we create value Governance, leadership and ethics Over the past few years, Eskom has focused on cleaning up governance issues, containing costs and re-energising the business, which has set a firm foundation for growth. At the same time, management has focused on strengthening the financial position through demand stimulation, cost curtailment and efficiencies and limiting capital expenditure. The Board has supported actions to pursue a cost-reflective price of electricity. The equity injection from Government, which commenced in the 2020 financial year, assisted in addressing liquidity challenges. Although the COVID-19 pandemic added to the challenges of implementing Eskom’s turnaround plan, the country’s collective response to the pandemic underlined the ability of South Africans to rally towards a common sense of purpose in responding to a crisis. This expression of the culture of Ubuntu is what is required to transcend the electricity crisis that is hampering the country’s efforts to stimulate economic growth. The prevailing global trends towards digitisation, democratisation, decentralisation and decarbonisation of electricity supply need to be borne in mind on the path ahead. There is a growing movement towards Our strategic context agile and scalable electricity solutions with a negligible impact on the economy, which respond effectively to Furthermore, Eskom will continue its restructuring the climate crisis and simultaneously foster socio- to enable the legal separation of its line divisions. economic development. Eskom intends to participate December 2021 has been set as the target date for in these solutions. the establishment of a separate legal entity for the Transmission business, with the objective of establishing Strategic context an independent Transmission System and Market Unless we act now to take decisive steps, a continued Operator. electricity supply shortfall of up to 6 000MW may be expected over the next five years, as old coal-fired Government is intensifying its efforts to implement power stations reach their end of life. To close this gap, a market code and new tariff structure to ensure Government has announced a 2 000MW emergency reliability and fairness. This will also address the need Financial review procurement programme and fast-tracked the process of generators and customers to trade with each other to purchase an additional 11 800MW of capacity, in line over the network. Eskom will work closely with DMRE, with the Integrated Resource Plan 2019 – the guiding NERSA and industry to shorten the lead-time for new document for the growth of a low-carbon future for the connections, although funding constraints may cause South African electricity sector. delays. While it is Government’s intention to close the capacity DMRE is addressing regulatory, technical and commercial gap as soon as possible, it is becoming evident that requirements to allow privately-owned producers adding the planned capacity over the medium term alone of electricity to feed any excess into the grid, with a will not be enough. New approaches, fresh policies and maximum of 100MW consideration. Similar liberalisation Operating performance innovative strategies are required to close this gap in the rapidly unlocked additional capacity in other countries, shortest possible time. An integrated and coordinated up to 7.2GW in the case of Vietnam. approach by all stakeholders is required. Eskom and the shareholder are keenly aware of the Chairman's statement 15 To supplement capacity, Eskom will continue its intensive global move towards cleaner and sustainable ways of maintenance of power stations, improve on emissions producing electricity, to avert the dire consequences Progress on governance clean-up 17 compliance and complete the construction of the Medupi of climate change caused by human activities. By 2020, Our governance framework 22 and Kusile Power Stations. 1 200 institutions had already divested trillions of dollars from the fossil fuel industry, and both international and King IV TM application 23 DMRE will, in collaboration with other relevant entities, local banks have announced their intentions to withdraw rapidly develop and deploy new, clean sources of funding from fossil fuel plants. Many of Eskom’s largest Feedback on Board activities 25 Supplementary information electricity by procuring more generation capacity, and by technical partners are following suit and have indicated Exco and divisional boards 36 opening up the power system even further to renewable their intentions to move away from coal-based projects energy sources such as wind and solar. towards renewable energy. The appetite to finance future Government will continue to support Eskom’s financial coal-fired power stations is waning. sustainability by leveraging the country’s existing infrastructure and capabilities to reposition Eskom as a pivotal platform in the future electricity supply industry. 14 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 15 BACK TO MENU CHAIRMAN'S STATEMENT continued PROGRESS ON GOVERNANCE CLEAN-UP Who we are and how we create value Governance, leadership and ethics Opportunities for Eskom Solving Eskom’s financial challenges The Board has expressed its commitment to rooting 1 April 2021, and ensures that conflicts of interest are Nevertheless, these challenges also create exciting The unsustainable debt burden threatens the survival out fraud and corruption and addressing issues related identified immediately and escalated to the Ethics Office opportunities for Eskom. As coal-fired generation of the business, and also weighs heavily on the national to past corporate governance breaches, in order to and management for remedial action. capacity is retired, Eskom can pivot to the large-scale fiscus, under severe pressure from the COVID-19 restore Eskom's reputation as a trusted corporate citizen and further, to improve the organisation's financial and Where sufficient evidence implicates employees, we rollout of cleaner and greener electricity. The availability pandemic. The Eskom Compact signed by labour, will continue to take appropriate action to ensure that of green financing highlights the global support for business and Government at Nedlac is an important operational sustainability. employees maintain the highest ethical standards in the decarbonisation, and supports the addition of significant step to addressing the debt burden, and provides the Our response to this challenge centres on the following performance of their duties. capacity to address the generation shortfall. foundation for future initiatives. Both Eskom and the key areas: Government acknowledge concerns raised regarding the Data analytics has also been conducted on 73 corporate South Africa has an opportunity to re-energise the • Implementing proactive lifestyle audits and reviews of utilisation of workers’ pensions to address Eskom’s debt. specialists and corporate professional employees at manufacturing sector by implementing smart industrial conflicts of interest based on risk analysis executive level who were not included in the first policies to take advantage of the large-scale construction It is clear that the electricity tariff dispensation must • Strengthening ethics and anti-fraud frameworks and phase of the lifestyle audits. Seven high-risk cases were required. This will create new job opportunities to reflect efficient costs that Eskom incurs in the production enhancing the focus on consequence management identified. Detailed lifestyle audits will be conducted once manufacture components needed for renewable power of electricity and further, allow for a fair return. Without • Instituting disciplinary charges against employees and an independent service provider has been appointed, generation equipment. Government is laying the such measures, the equity support that Eskom requires suppliers, and pursuing criminal and civil legal action to determine the extent to which disciplinary action or groundwork for such policies, which could form the from taxpayer funds over the next five years would not where appropriate legal proceedings is required. Lifestyle audits will also bedrock of a new stimulus package for the hard-pressed be reduced. There is consensus that electricity tariff • Enhancing PFMA and commercial governance be extended to include all newly appointed executives. industrial sector. increases above inflation is painful, especially at this processes to ensure robust scrutiny and address The implementation of the Protection of Personal point in the country’s economic trajectory. However, irregular expenditure Information Act, 2013, effective from 1 July 2021, has a South Africa is a proud signatory to the Paris users have to pay for the services that they consume Agreement on Climate Change and is fully committed material impact on the scope of work; a legal opinion is without burdening the broader taxpaying community. By Lifestyle audits and conflicts of interest being sought before it commences. to meeting its local and global obligations in terms of implementing targeted policies and possibly, sector- the treaty, a commitment which Eskom fully supports. Phase one specific subsidies, the impact of tariff increases on critical Last year, we reported that we had completed 383 Ethics, fraud and consequence management In November 2021, the nations of the world will meet Our strategic context sectors can be alleviated, and the effect of a move to lifestyle audits on executives and senior managers. Of We are making good progress with the implementation at the COP 26 summit in the United Kingdom to assess cost-reflective tariffs mitigated. Without doubt, cross- the progress on the fight against climate change and to these, 34 high-risk cases were handed over to the Special of the Fraud Risk Management Plan, to maximise fraud subsidisation of the tariff should be phased out. Investigating Unit (SIU) for further investigation, with the prevention and enhance good corporate governance develop strategies for the future. This is an opportunity for South Africa to highlight its contributions, including There are continuous engagements among Government following progress achieved by year end: practices. The Anti-Fraud and Corruption Integration the initiatives aimed at a Just Energy Transition. and various stakeholders to find a sustainable solution to Committee monitors the implementation of this plan the perennial problem of municipal debt owed to Eskom. HIGH-RISK LIFESTYLE AUDITS and ensures integration between forensic, legal, ethics, As Eskom moves away from its reliance on coal, it will Instead of primarily turning to the courts, collaborative industrial relations and supplier review functions, with shift its focus to the implementation of the Just Energy 8 cases referred back to Eskom for disciplinary progress reported to Exco and the Audit and Risk discussions have taken place between various Transition. This also considers the impact of decisions on action (including one resignation after referral) Committee (ARC) on a regular basis. stakeholders in recent months. An active partnering workers in the coal industry and communities invested in model is being implemented in struggling municipalities 7 employees resigned 6 in the process of During the year, our fraud prevention and whistle- the coal value chain and associated economies. Eskom, by to assist local authorities, with Eskom stepping in to during the investigation referral back to Eskom blowing policies were revised to enforce our zero virtue of the size of its operations, plays a central role in maintain and operate municipal distribution systems. for disciplinary action Financial review facilitating such a transition, while also ensuring equitable tolerance approach to fraud, strengthen our whistle- access to affordable electricity for all South Africans. 1 employee dismissed 7 no adverse findings blowing processes and ensure compliance with changes Conclusion to relevant legislation. Furthermore, a whistle-blowing Eskom has already established a presence in the By taking bold steps now, we will create a future in which 5 still under investigation by the SIU procedure has been developed to provide step-by-step renewable energy space. It intends to play a leading South Africa has the electricity required for economic guidance to report incidents of unethical behaviour role by facilitating the connection of renewable energy growth, and where we can leverage our vast endowment through an independent, confidential hotline. As an of renewable energy sources to ensure a cleaner The SIU will continue its investigation into cases involving through an expanded and strengthened grid, and by criminal conduct and, where appropriate, institute civil additional measure, we also encourage reporting through participating in the building of renewable energy, as the environment and create employment in a thriving and DPE's whistle-blowing channels. competitive electricity industry. proceedings to recover losses incurred by Eskom, even country transitions towards a low-carbon future. where implicated individuals have resigned from Eskom. Ethics and fraud awareness programmes have been To fulfil this mandate, Eskom will pursue strategies I would like to extend my sincere condolences to enhanced and remain mandatory for all employees. Operating performance the family and friends of the late Mr Jabu Mabuza and Phase two and mechanisms such as partnerships with the private In November 2020, data analytics was conducted on all To complement these, anti-fraud training has been sector to build at least half of the renewable capacity Dr Baldwin Ngubane, who served Eskom and our developed for managers and supervisors to ensure that country very well. The loss of men such as these is employees below executive and senior management level, envisaged in the Integrated Resource Plan between now revealing that approximately 3 800 employees, or 8.6% they understand their roles and responsibilities in the and 2030. Eskom will work with key stakeholders to devastating. management of risks associated with fraud, corruption of the target group, had not declared business-related ensure this commitment can be delivered effectively As always, we remain grateful for the support of our interests or applied for permission to perform private and irregularities. Fraud awareness for suppliers was also and efficiently. Furthermore, Eskom will collaborate stakeholder representative, the Honourable Minister work, despite being active shareholders and directors implemented during the year. with private sector partners to engage with DMRE Pravin Gordhan, as well as Government’s continued according to records from the Companies and Intellectual to provide the required determinations to Eskom Our Assurance and Forensic Department (A&F) and support of Eskom. Property Commission (CIPC) and other databases. Human Resources Division are collaborating to improve consortiums, as well as with NERSA to accelerate the Disciplinary processes have been conducted, with processing of licence applications. consequence management and disciplinary processes. approximately 88% of matters concluded by year end. Supplementary information Feedback on disciplinary cases is reported regularly to In response to these findings, we have upgraded our executive management. Disciplinary action is monitored, Prof. Malegapuru Makgoba conflict of interest declaration system to link directly particularly where line managers and supervisors have Interim Chairman to various databases, such as the CIPC and Eskom's decided not to take action against an employee despite vendor management system, to proactively identify findings from an investigation. unethical conduct. The upgrade was implemented from 16 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 17 BACK TO MENU PROGRESS ON GOVERNANCE CLEAN-UP continued Who we are and how we create value Governance, leadership and ethics Investigations and disciplinary action non-compliance with procurement and supply chain We are also pursuing civil recovery of approximately R3.8 billion relating to a prepayment to Tegeta Exploration and management procedures has been identified. However, Resources (Pty) Ltd. The defendants include seven former executives and directors, as well as the former Minister of FORENSIC INVESTIGATIONS progress remains slow due to a backlog of cases. Mineral Resources, Mr Mosebenzi Zwane, brothers Ajay, Atul and Rajesh (Tony) Gupta, and Mr Salim Essa. 798 incidents reported through whistle-blowing channels In December 2020, the Group Chief Executive (GCE) In light of several notices and interlocutory applications filed by the defendants, Eskom's attorneys have requested that issued an anti-fraud communication to all employees, the matter be placed under case management. A judge has been appointed. 105 which affirmed the responsibility of each employee new cases registered for investigation to prevent fraud, corruption and irregularities in the Financial recoveries from suppliers 46 workplace. Background Progress forensic investigations concluded Optimum Coal Mine (Pty) Ltd A business rescue plan has been adopted. Due to financial constraints, 10 17 19 Eskom submitted a total claim of R5.6 billion, including penalties, due to the full amount is not recoverable. Eskom is expected to receive fraud corruption irregularities breach of the coal supply agreement. This was subsequently reduced to approximately R255 million over a five-year period. R1.3 billion after an arbitration ruling. 80 Tegeta Exploration and Resources (Pty) Ltd In February 2020, the SIU secured a High Court order to set aside the employees recommended for disciplinary action Eskom submitted a claim of R359 million for post-business rescue underlying coal supply agreement on the basis that it is unlawful and “As we continue to fight the scourge of fraud, corruption and penalties for failure to supply coal from the Brakfontein Colliery. invalid. The SIU instituted legal proceedings against Tegeta to repay 238 irregularities, we need to do more to drive accountability across Eskom approximately R734 million incurred under the agreement. cases under investigation at year end, relating to the business. This is such a serious matter and so critical to our current and prior years sustainability as an organisation that we have decided not only to Trillian Management Consulting (Pty) Ltd It is uncertain whether the full amount is recoverable. SARS is also a take action against those who have transgressed our policies, but As reported previously, Eskom initiated liquidation proceedings against party to the liquidation proceedings and has a preferential claim of also against those who failed to supervise and monitor compliance Trillian to recover approximately R595 million in unlawful payments on approximately R600 million in unpaid taxes. with our policies and procedures. the pretext of it being a supplier development and localisation partner SANCTIONS to McKinsey. The High Court ordered Trillian to repay Eskom in Guardians, I urge you to familiarise yourselves with our Code 176 of Ethics as well as Eskom's prescribed policies, procedures and October 2019, however, no amount has been received to date. disciplinary cases directives, particularly those that enable you to execute your Deloitte Consulting (Pty) Ltd A settlement agreement was reached. We received R150 million plus Our strategic context 155 21 responsibilities. Our Ethics Office and A&F have established ethics As reported previously, Eskom instituted legal proceedings against VAT in full and final settlement in May 2020. and fraud awareness programmes, which are compulsory for Deloitte to recover R207 million arising from a contract awarded cases completed cases still in progress employees. These programmes equip you with important guidance irregularly, in the absence of an open and competitive tender process. 74 on how to prevent and manage risks associated with fraud, corruption and irregularities in the workplace. It is important PwC South Africa In March 2021, we applied for a High Court order to declare the employees resigned during disciplinary processes to know that we all have a role to play in eradicating fraud and Eskom is pursuing recovery of approximately R108 million in unlawful contract unlawful, unconstitutional and invalid. PwC is opposing the corruption in our organisation. I encourage you to step up and payments through a risk-based contract intended to realise savings on application. 28 capital projects. play your role.” employees dismissed due to fraud and corruption André de Ruyter Impulse International (Pty) Ltd We are pursuing a court order to set aside the contracts and recover 86 Group Chief Executive As reported previously, Impulse International has instituted legal all payments previously made to Impulse International. A court date is cases recommended for criminal prosecution proceedings against Eskom for damages of approximately R83 million awaited. We are working with the SIU and the National Prosecuting due to termination of contracts which Eskom deemed unlawful. Authority, who are also conducting investigations into Impulse 72 14 International and the former Eskom employees involved. SAPS cases registered cases being registered Major investigations Econ Oil and Energy (Pty) Ltd We have instituted arbitration proceedings to recover the Financial review External investigations into major cases of suspected fraud In December 2020, an external forensic investigation identified possible overpayments, however, Econ Oil is opposing the application. In addition to the 46 forensic investigations concluded overcharging of approximately R1.2 billion by Econ Oil from 2012 A pre-arbitration meeting is planned, where dates for the hearing during the year, a further 77 cases were closed following and corruption involving former employees, directors and to 2017. will be agreed. a comprehensive review of all active cases. Seventeen suppliers continue. These are discussed in more detail below. We continue to provide the necessary support to In addition, we disputed the validity of the contract for the supply of In January 2021, we applied to the High Court for judicial review of the of these cases were referred to management by A&F as fuel oil from Econ Oil due to corruption and manipulation of tender fuel oil contract. Econ Oil opposed the application. In June 2021, the the issues relate to matters that management has the law enforcement authorities to investigate any concerns and processes. High Court reviewed and set aside the contract and ordered Econ Oil authority to deal with. The remaining cases were closed violations of the law. Wherever possible, we seek recovery to pay the associated costs. Econ Oil applied for leave to appeal the of financial losses using criminal and civil processes. In February 2021, the Supplier Review Committee temporarily judgment, however, the application was dismissed by the High Court following a preliminary investigation, where there was suspended Econ Oil from Eskom's supplier database for six months. in July 2021. insufficient information to support the allegations or We issue media statements to the public and report If Econ Oil cannot provide any evidence to support a case for where allegations were considered unfounded. reconsideration, it will be deregistered for 10 years and National In June 2021, Econ Oil launched a High Court application to review progress on these and other matters to the Standing Operating performance Treasury will be notified to blacklist Econ Oil from contracting with and set aside the decision of the Supplier Review Committee. We are Our forensic investigations have revealed similar themes Committee on Public Accounts (SCOPA) on a regular basis. other organs of state. opposing the application. to previous years, with instances of undeclared conflicts It is important to note that criminal convictions and Contractor overpayments Upon conclusion of the investigations, we will institute recovery of interest, failure to obtain permission to perform recovery of financial losses are dependent on successful Eskom and the SIU are reviewing contractual claims and potential processes and pursue convictions where necessary. private work, leaking of confidential information as well overpayments to a number of contractors involved in the construction prosecution by law enforcement agencies and the justice of Medupi and Kusile Power Stations, particularly where it is suspected as general procurement irregularities. Non-compliance system. Regrettably, this remains a lengthy process, that there may have been collusion between Eskom employees and with Eskom's policies and procedures remains the most resulting in slow progress on various matters. contractors. prevalent root cause. ABB South Africa (Pty) Ltd In December 2020, ABB repaid approximately R1.56 billion. We are Investigations into former Board members ABB made a voluntary disclosure in respect of overpayments relating to working with the SIU to set aside another contract that was irregularly Reporting and investigation of these and other matters and executives the Kusile project. awarded to ABB. continue, with appropriate disciplinary processes being Supplementary information instituted. A&F has recommended control enhancements Two former senior employees, Mr Frans Hlakudi in affected areas to prevent recurrence. Cases are and Mr Abram Masango, were arrested in registered with the South African Police Service (SAPS) December 2019 and appeared in court on corruption- where allegations of fraud and corruption are confirmed. related charges involving Tubular Construction Projects (Pty) Ltd. In May 2021, the High Court issued an order in As reported previously, we have re-established the terms of the Prevention of Organised Crime Act, 1998, Supplier Review Committee to ensure appropriate which allowed the National Prosecuting Authority to disciplinary action is taken against suppliers where freeze R1.4 billion in assets relating to the defendants. 18 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 19 BACK TO MENU PROGRESS ON GOVERNANCE CLEAN-UP continued Who we are and how we create value Governance, leadership and ethics Improvements to address irregular • Continuous review and monitoring of purchase Improvements to commercial governance Contract modifications expenditure orders and procurement plans in accordance with processes Contract deviations and expansions are regarded as revised procurement procedures to limit the abuse an exception to the norm for the procurement of Eskom has received a qualified audit opinion for the The focus for this year has been the development and of low-value procurement mechanisms, such as local goods, works and services. When these mechanisms previous four financial years. The auditors have again implementation of a procurement roadmap to improve purchase orders, and to identify potential contracting are used, robust reviews are conducted to ensure qualified their opinion, as they could not rely on the procurement processes and contract management by: opportunities. Local purchase orders allow for that the procurement principles of fairness, equity, completeness of information relating to irregular • Reducing the number of cancellations of published procurement of good and services for less than competitiveness and transparency are not compromised expenditure in the 2021 annual financial statements. tenders R30 000 without a contract. At year end, the number and that the mechanisms comply with all applicable of local purchase orders have declined to 29 221 • Improving compliance with implementation of regulations. To achieve this, a valid justification is Disclosure of irregular expenditure in terms of the PFMA and the basis procurement plans on which the audit opinion was qualified is set out in note 52 in the (2020: 39 552) required and applications must be approved by the consolidated annual financial statements and the independent audit report • Collaboration with A&F and the Loss Control • Enhancing contract performance and project budget relevant delegated authority. Department to investigate procurement- and PFMA- monitoring Reviews are conducted on a monthly basis. All qualifying In terms of National Treasury Instructions No. 02 and related issues identified through reviews, complaints • Reducing the number of contract modifications modification applications are scrutinised by the CPO 03 of 2019/2020, Eskom's centralised Loss Control and whistle-blowing mechanisms exceeding thresholds prior to submission to National Treasury. Trend analysis Department has been established and the recruitment • Monitoring of internal condonation processes as well of deviations and expansions is conducted and reported processes have been concluded. We have revised The procurement roadmap was submitted to National as condonations submitted to National Treasury Treasury and DPE in September 2020, in accordance with to the functional leadership steering committee and our PFMA reporting procedures to ensure that all Exco's Tender Committee on a monthly basis, and to assessments of and investigations into occurrences In addition, we reviewed all contract modification the conditions of the Special Appropriation Act, 2019. Feedback is reported on a regular basis. Exco and the Board on a quarterly basis. of irregular expenditure and fruitless and wasteful applications that were not approved by National Treasury expenditure will be performed by this department from to identify any potential deviations and irregularities that We ensure frequently engage with National Treasury The cancellation of published tenders now has to be 1 April 2021. In conjunction, training and awareness on might occur, and to introduce interventions to prevent to address any concerns that may arise, and to ensure approved by the delegated authority that approved the the revised PFMA reporting procedures and guidelines recurrence. Consequence management and condonations that all conditionally approved applications have procurement strategy, leading to a reduction in the are being implemented and are mandatory for all relating to procurement transactions form part of our been addressed accordingly. No late or retrospective number of tender cancellations. We monitor contracts applications are entertained – in most cases that is an Our strategic context managerial and executive employees. PFMA reporting. expiring within three to twelve months to ensure that indication of circumventing approved procurement plans. During the year, our Procurement and Supply Chain Regrettably, progress in obtaining condonations from there is adequate preparation for new contracts in Management Department implemented several initiatives National Treasury has been slow for a number of years. divisional procurement plans. Procurement plans for the Due to these interventions, the number of applications to reduce the occurrence of irregular expenditure, We are working with DPE and National Treasury to coming financial year were finalised in March 2021. submitted to National Treasury has decreased. A total of including: ring-fence historical irregular expenditure to minimise 32 deviations and 55 expansions were submitted during Reporting on contract performance covers a range of the year (2020: 64 deviations and 55 expansions). Trends • Establishment of a weekly functional leadership the continued impact on our annual financial statements, contract events including claims, compensation events, which demonstrates National Treasury's commitment indicate a reduction in inefficiencies and an improvement steering committee, chaired by the Chief Procurement deviations, insurance events and delays. We have to prioritise the close-out of outstanding irregular in compliance with procurement plans. Officer (CPO), to monitor progress and challenges on also enhanced the scrutiny of contract modification PFMA-related matters and procurement plans expenditure requiring their approval. At 31 March 2021, applications prior to approval. • Appointment of procurement heads in Generation, the closing balance of irregular expenditure stands Transmission and Distribution to establish contract at over R37 billion. Towards the end of the year, we Reportable irregularities raised by the received notice of condonation of 296 transactions external auditors Financial review management offices and improve the quality, accuracy and completeness of PFMA reporting valued at R9.5 billion, with further condonations In terms of section 45 of the Auditing Profession Act, expected in the coming financial year. 2005, the external auditors are required to report any reportable irregularities (RIs) to the Independent Regulatory Board for Auditors (IRBA), and only then report the matter to Eskom, affording management an opportunity to respond to and/or rectify the matter. Details of RIs reported, as well as the action taken and status of the respective matters, are discussed in note 53 in the consolidated annual Operating performance financial statements Supplementary information 20 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 21 BACK TO MENU OUR GOVERNANCE FRAMEWORK KING IV TM APPLICATION Who we are and how we create value Governance, leadership and ethics We conduct an annual assessment of the overall Succession planning for executive positions is guided Department of Public Enterprises effectiveness of the implementation of the principles by Eskom's talent management policy and procedure. and practices contained in King IV TM. In our 2020 The process is managed through talent board forums Eskom's mandate is based on the shareholder's Strategic Intent Statement. integrated report we included detailed information at various levels of the organisation, with the executive Our annual performance is measured against the shareholder compact on our application of King IV TM. As the principles that talent board managing the talent pipeline for key were considered to be implemented effectively at that executive positions. In May 2021, Exco approved two time continue to remain effective, this report focuses accelerated development programmes to support mainly on the initiatives under way to address the focus succession planning for executive positions. Eskom Holdings SOC Ltd areas identified in last year's assessment, as well as key governance developments during the year. Principle 9 The Board should ensure that the evaluation of its own performance and King IV TM and our Code of Ethics, “The Way”, guide the way we do business Refer to pages 19 to 21 of our 2020 integrated report for more detailed that of its committees, its chair and its information on the application of the King IV TM principles individual members, support continued improvements in its performance and Board of Directors Executive Management Committee King IV TM assessment and focus areas effectiveness Based on our most recent assessment, our overall implementation of the King IV TM principles remains The Board has conducted a self-assessment in respect of partially effective. Although many of the required practices its performance for the 2020 financial year and identified Audit and Risk Capital areas of concern to be addressed through its Board are in place and have been for many years, the Board (oversight of internal and improvement plan. An independent board evaluation will Information and Technology Divisional boards acknowledges that not all of the King IV TM principles have external audit) be conducted for the 2021 financial year. Nuclear Management been implemented effectively. The following principles Investment and Finance Generation have been highlighted as focus areas for improvement: Operating Refer to “Feedback on Board activities – Board evaluation” from page 25 People and Governance Transmission for further information Our strategic context Principle 1 The Board should lead ethically and Regulation, Policy and Economics effectively Social, Ethics and Sustainability Distribution The Board's access to guidance and development will be Risk and Sustainability Principle 2 The Board should govern the ethics delivered through a continuing education programme, Strategy of Eskom in a way that supports the Tender which will include training needs identified by individual establishment of an ethical culture directors, Eskom-specific training, updates on legislation Turnaround and regulations relating to the Board's fiduciary duties as For information on the Board and its Eskom's functional and legal separation Progress on implementing classroom training for committees, refer to “Feedback on Board For information on Exco and its subcommittees, refer is discussed under “Our strategic well as governance best practice. activities” from page 25 to “Executive Management Committee” on page 36 context” from page 37 contractors and high-risk business areas has been hindered by national lockdown restrictions. Recruitment processes Principle 11 The Board should govern risk in a way are being finalised to address the lack of resources in the that supports Eskom in setting and Ethics Office. The Ethics Office is also supplemented by achieving its strategic objectives independent, external services where required. Financial review Our governance framework provides the roadmap Exco is established by the GCE and is accountable for for achieving our strategic priorities within legislative, executing the strategy set out by the Board, as well as While the introduction of key risk indicators has Various interventions are under way to identify and enhanced risk management and reporting, greater regulatory and policy requirements. Clear accountability exercising executive control over day-to-day operations. address weaknesses in the governance of ethics, for decision-making is assigned through our delegation of accountability is required to effectively treat Priority 1 particularly in respect of consequence management and risks. An analysis of Priority 1 risks was conducted authority (DoA) and materiality frameworks, which guide Refer to pages 10 to 13 for the composition of the Board and Exco, as inadequate implementation of ethics policies that place the referral of matters to divisional boards, executive well as information on skills as well as racial, gender and age diversity towards the end of the financial year. Based on the Eskom at risk. findings, initiatives will be implemented to ensure the committees and the Board, and from there to DPE and National Treasury, if required. Divisional boards for Generation, Transmission and development of more robust and effective treatment Refer to “Progress on governance clean-up” from page 17 and “Ethics Distribution were established in March 2020 to enhance based on our values” on page 34 for further information plans to address the root causes of these risks. Governance of the group and the responsibility for internal governance structures and accountability, as the promoting good corporate citizenship is vested in the DPE has recently introduced a Risk and Integrity Operating performance first step to functional separation. The divisional boards Board, and supported by several committees. The Principle 7 The Board should comprise the Management Framework for state-owned companies. We do not constitute a board of directors in accordance with powers of the Board and our shareholder are defined appropriate balance of knowledge, skills, are in the process of developing an implementation plan the Companies Act, 2008, but function as operational experience, diversity and independence in Eskom's Memorandum of Incorporation (MOI). With to address the requirements of the framework to enhance boards, until the planned legal separation of Eskom is for it to discharge its governance role the exception of the GCE and the Chief Financial Officer risk governance, policies, monitoring and reporting. concluded. and responsibilities objectively and (CFO), the Board is composed entirely of independent effectively Exco has implemented a quarterly risk workshop to non-executive directors. review the risk landscape and improve accountability. Principle 10 The Board should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority Supplementary information and responsibilities Regrettably, the lack of succession planning for non- executive directors remains a concern. The development of a succession plan for directors is the responsibility of the shareholder. This has been brought to DPE's attention, along with the request for the shareholder to fill the vacancies on the Board. 22 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 23 BACK TO MENU KING IV TM APPLICATION continued FEEDBACK ON BOARD ACTIVITIES Who we are and how we create value Governance, leadership and ethics We are ensuring compliance with the Protection of Governance of the group and the responsibility for While the Board is satisfied that its composition is Principle 14 The Board should ensure that Eskom remunerates fairly, responsibly and Personal Information Act, 2013 on a risk-based approach, promoting good corporate citizenship is vested in appropriately balanced in accordance with King IV TM transparently so as to promote the implementing adequate systems to process requests for the Board, supported by several committees and the principles, the Board has highlighted the ongoing achievement of strategic objectives and information and training employees on the requirements Group Company Secretary. The Board recognises that vacancies to the shareholder. Furthermore, the Board positive outcomes in the short, medium of the Act. good governance, achieved through an ethical culture, notes the lack of succession planning and lack of and long term effective control and legitimacy, can enhance value representation of persons with disabilities. Operational technology creation and performance. The Technical Governance Committee functions as Due to different remuneration practices across our Refer to pages 10 and 11 for the Board composition and information on a governance structure for operational technology Board composition and appointments skills as well as racial, gender and age diversity bargaining unit, managerial level and executive employee to oversee technical processes, standardisation, categories, Eskom has not developed an organisation- In terms of our MOI, the Board may consist of a strategic direction and to ensure effective management maximum of 15 directors. The majority of the Board Ms Nelisiwe Magubane resigned as an independent wide remuneration policy. Work is under way to ensure of operational technology throughout Eskom. must be independent non-executive directors, and there non-executive director in August 2021. alignment of the executive remuneration policy with This structure reports to Exco's Operating Committee. DPE's guidelines. must be at least two executive directors. Group Company Secretary Compliance On 21 July 2020, Mr Sifiso Dabengwa tendered his resignation Governance functional areas The Group Company Secretary plays an important role The Board is accountable for compliance and governs this as an independent non-executive director with immediate in the governance and administration of the organisation, The Board sets the policy and direction for governance through the Compliance Charter and, with the assistance effect. At year end, the Board therefore comprised only and is vital to the efficient and effective functioning of functional areas to support the organisation in achieving of ARC, oversees compliance throughout Eskom. nine directors, including seven independent non-executive the Board through support and guidance to directors. its strategic objectives. The Board has delegated directors and two executive directors. There were six Compliance maturity is based on an assessment of Mr Mlawuli Manjingolo was appointed as Group responsibility for the oversight of remuneration to the Board vacancies for independent non-executive directors. the extent of identification and understanding of the Company Secretary from 1 July 2020. People and Governance Committee (PGC). applicable compliance universe, linking and updating The shareholder approves the appointment of all related controls, and routine monitoring of adherence Board evaluation Refer to “Remuneration and benefits” on page 32 for further information directors in accordance with the MOI and SOC to those controls. Based on a review of Eskom's overall Although King IV TM recommends that board nomination requirements outlined in the Handbook For compliance status at 31 March 2021, the overall risk of evaluations be conducted every second year, we Our strategic context Board has delegated responsibility for the oversight the Appointment of Persons to Boards of State and State- non-compliance in the organisation remains high, given conduct a board evaluation annually in line with DPE's of risk, technology and information, compliance and Controlled Institutions, which was approved by Cabinet in the complex legal and regulatory obligations affecting our SOC Board Evaluation Framework. assurance to ARC. The governance of technology and 2008. The shareholder is therefore responsible for filling information as well as compliance are discussed below. operations, and exacerbated by challenges in improving vacancies and for managing targets for racial, gender, As reported previously, the independent Board evaluation compliance maturity. age and disability diversity, as well as succession planning for the 2019 financial year led to the development of a Key risks and opportunities facing the organisation are discussed in “Our Non-compliance places Eskom at risk and may result for the Board. PGC, however, assists the shareholder Board improvement plan to address areas of concern. strategic context – Risks and opportunities” from page 52. Our approach to by identifying and recommending potential skills, combined assurance is discussed in “Assurance and controls” on page 29 in reportable matters through the PFMA, 1999. In June 2020, the Board conducted a self-assessment Transgressions are managed through disciplinary qualifications, experience and diversity needs of the Board required to achieve our strategic objectives. for the 2020 financial year through an evaluation tool Governance of technology and information processes, and may extend to civil and criminal legal developed by the Office of the Company Secretary. One Effective management of technology and information action where appropriate. Non-executive directors are appointed by the of the objectives of the assessment was to measure the is seen as critical to enhance intellectual capital. The shareholder for a period of three years, reviewable progress in implementing the Board improvement plan, responsibility for managing this has been delegated Quantifiable penalties, fines or sanctions levied against the organisation Financial review annually. Having served on the Board for close to three as well as to enable the Board to identify any other due to non-compliance, including environmental sanctions, are disclosed to Exco, with Exco's Information and Technology in note 52 of the consolidated annual financial statements years, the terms of the current non-executive directors areas of concern. Based on the findings of the 2020 Committee ensuring alignment between information were extended by the shareholder at the last annual self-assessment, we have compiled a feedback report and technology and operational technology. In order to enhance direction setting, guidance and general meeting, while DPE finalises its review of the submitted this to the shareholder. assurance relating to compliance, an optimised structure Board. Non-executive directors may not serve more ARC considers quarterly reports, which provide The 2020 self-assessment covered the same themes has been approved for our corporate Compliance Office. than three consecutive terms. assurance on the security and availability of Eskom's as the 2019 evaluation. The average scores (out of 4) operational technology and information and technology Internal recruitment for the enhanced structure is achieved across each area are as follows: systems of control, as well as assessments on the planned for the coming financial year. adequacy and effectiveness of governance, risk 2.50 3.20 3.71 1.87 management, compliance and controls relating to Operating performance technology and information. Information technology Board Board Ethical Board Through ARC, the Board has adopted an IT Charter composition responsibilities leadership meetings and policies to provide direction on how information technology is managed in the organisation to ensure the confidentiality, security, integrity and availability of information. Group IT has established strategic forums 2.50 3.71 2.80 3.38 to oversee IT governance, compliance, assurance, risk Board Sustainability Relationship with Stakeholder and resilience, as well as cloud and data management, committees management engagement IT architecture and investments, and cyber-security. Supplementary information Below 1: Requires significant attention or intervention 1 – 2: Poor performance which requires improvement 2 – 3: Average to satisfactory performance 3 – 4: Good performance with minor alignments required Board composition, skills and experience A request to appoint additional non-executive directors The Board is satisfied with its skill and experience, as well to strengthen the Board has been submitted to the as its ability to fulfil its mandate and fiduciary obligations. shareholder for consideration. However, the Board remains dissatisfied with its current size, scoring this aspect the lowest in this area. 24 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 25 BACK TO MENU FEEDBACK ON BOARD ACTIVITIES continued REPORT BY THE BOARD FOR THE YEAR ENDED 31 MARCH 2021 Who we are and how we create value Governance, leadership and ethics Board responsibilities Sustainability • Approved an alternative emission plan to address The directors collectively understand their roles and The Board is satisfied that it sets the tone on matters the Minimum Emission Standards (MES), by reducing responsibilities, as outlined in the Board Charter and related to diversity, inclusion and transformation. particulate matter below required limits, implementing the MOI. The Board is satisfied with its level of oversight The Board is comfortable with its oversight of safety, emission reduction technologies at numerous power and its independence, with directors feeling empowered health, quality, environmental and financial sustainability. stations and introducing renewables to offset emissions to make decisions in the best interest of Eskom. Due However, the Board concluded that reporting on certain • Approved the continuation of the Medupi flue gas to the timing of the Board evaluation, the performance areas can be improved and that reliance is placed on desulphurisation (FGD) project and a request for evaluation of the newly appointed GCE had not yet been executive management to implement relevant policies in information, based on a specific SO2 reduction target, conducted. Board training was the lowest scoring aspect accordance with the DoA. to obtain a more accurate assessment of the cost of in this area, with the lack of implementation of a Board FGD technologies available in the market training plan cited as the main reason. Relationship with management The Board understands its responsibility for oversight • Approved the commencement of procurement PGC and the Board have approved a continuing education and is satisfied that it holds executive management processes for the battery energy storage system programme for the Board. The Office of the Company accountable for performance. The Board is generally • Approved the consents, waivers and releases for the Secretary is in the process of revising the programme dissatisfied with the lack of succession planning for Duvha coal supply agreement to enable the sale of the for implementation in the coming year. executive management, scoring this aspect the lowest in majority shareholding of South32 this area, but acknowledges that leadership changes have • Approved the review of NERSA's decisions on the Ethical leadership made this challenging. supplementary tariff application and regulatory The Board is satisfied that it sets the direction for ethical clearing account (RCA) for the 2019 financial year behaviour within the organisation in accordance with Succession planning for executive management is an • Approved the submission of Eskom's draft MYPD 5 King IV TM. The Board continues to affirm a zero tolerance area of focus, with the process managed through an application to SALGA and National Treasury for towards unethical behaviour, however, the lack of consistent executive talent board. As mentioned previously, Exco comment consequence management and poor implementation of has approved two accelerated development programmes Number of meetings ethics policies were highlighted as weaknesses. to support succession planning for executive positions. • Granted approval for management to commence Fourteen meetings were held during the year. Our strategic context engagement with the City of Johannesburg for the An ethics risk assessment is planned for the coming Stakeholder engagement Membership proposed transfer of Eskom areas of supply to City year, to identify high-risk areas and inform the review The Board is satisfied that it has identified all key Power, as well as submission of the PFMA section 54 of Eskom's ethics strategies and policies. Consequence stakeholders, their significance and role. The Board is Refer to the Board composition on pages 10 and 11 pre-notification to DPE management as well as ethics training and awareness are further satisfied that it sets the direction for reporting, • Tasked management with developing a strategy for the particular areas of focus. to enable stakeholders to make informed decisions. Purpose sale of non-core assets to alleviate Eskom's debt burden Stakeholder expectations are understood and met, The Board fulfils the primary roles and responsibilities of • Approved the final offer for the disposal of Eskom Actions taken to address unethical behaviour were discussed in however, the Board recognises that stakeholders' views a governing body outlined in King IV™ by: Finance Company SOC Ltd, subject to PFMA approval “Progress on governance clean-up” from page 17. The ethics risk and expectations change based on Eskom's performance • Setting the strategic direction and steering the assessment is discussed in more detail in “Ethics based on our values” • Approved the registration of the Transmission company, and reputation. The Board concluded that the GCE organisation, while treating strategy, risk, performance on page 34 in accordance with Eskom's planned legal separation maintains strong stakeholder relationships to fulfil the and sustainability as inseparable strategic objectives of Eskom. • Instituted an independent inquiry into the allegations Board meetings • Providing oversight through effective governance levelled against the GCE by the former CPO, which Financial review The Board is generally dissatisfied with the quality and frameworks, and approving policies and plans that give resulted in no adverse findings against the GCE lateness of submissions, scoring this aspect the lowest in this Refer to “Our strategic context – Stakeholder engagement” from effect to the strategy page 49 for additional information • Approved submission of the 2022 shareholder area. Although meetings of the Board and its committees • Monitoring the implementation of strategy and the compact and Corporate Plan for the 2022 to 2024 are scheduled annually in advance, special meetings may be performance of management, ensuring accountability convened when required to address pressing issues. Board committees financial years to DPE and promoting integrity in reporting and disclosure The Board is supported by various committees, to • Ensuring that compliance requirements and risks are Conclusion The Office of the Company Secretary has standardised which it delegates authority without diluting its own requirements for submissions to the Board and its identified and managed through effective internal controls, The Board has adopted an appropriate Board Charter, has accountability. These committees exercise their committees. No submission is accepted without supported by a risk-based internal audit function regulated its affairs in compliance with this charter and is authority in accordance with terms of reference which approval from the relevant executive sponsor. The Board • Promoting a culture aligned to Eskom's values, satisfied that it has discharged its responsibilities contained are approved by the Board, and which define their Operating performance has tasked executive management with establishing ensuring that Eskom remains a responsible corporate therein. Furthermore, the Board is satisfied with the composition, mandate, roles and responsibilities. The improved mechanisms to verify information and monitor citizen – ethically, socially and environmentally reasons for the resignation of Mr Sifiso Dabengwa and terms of reference of each committee are aligned to implementation of submission standards. is satisfied that it continues to comprise the appropriate Eskom's DoA framework and are reviewed every year. Key activities and decisions balance of knowledge, skills, experience, diversity and Board committees Directors are required to exercise due care and • Conducted a self-evaluation for the 2020 financial year independence, although its size remains a concern. The Board appoints members to its committees by judgement in accordance with their statutory obligations. and identified areas of concern to be addressed in the considering the necessary skills, experience and diversity Board improvement plan The Board has once again requested the shareholder to The individual and collective fiduciary responsibilities required. The exception is ARC, as the shareholder is fill the Board vacancies to ensure that all committees of directors are not negated by the deliberations of the • Addressed the expiry of the term of the current responsible for appointing members in terms of our MOI are adequately capacitated to fulfil their mandates and to committees. non-executive directors with the Minister of Public and the Companies Act, 2008. enable the separation of the Audit and Risk Committee. Enterprises All Board committees are comprised of and chaired by • Reviewed and approved Eskom's revised DoA Supplementary information The Board concluded that vacancies need to be independent non-executive directors. When required, addressed in order for its committees to be adequately framework and Risk Appetite and Tolerance the GCE, CFO, Chief Operating Officer (COO) and constituted. Furthermore, the Board acknowledges Framework senior management from various functional areas attend that ARC has to be strengthened with appropriate committee meetings as officials. • Considered performance and progress on the five Prof. Malegapuru Makgoba qualifications and skills in finance and assurance. focus areas of the turnaround plan, as well as the Interim Chairman A request was submitted for the shareholder's Generation recovery plan and reliability maintenance consideration to address this shortcoming. recovery programme 26 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 27 BACK TO MENU REPORT BY THE AUDIT AND RISK COMMITTEE ASSURANCE AND CONTROLS FOR THE YEAR ENDED 31 MARCH 2021 Who we are and how we create value Governance, leadership and ethics • The three-year rolling strategic internal audit plan, The Board, through ARC, is responsible for setting the The responsibility for combined assurance is delegated to including progress on and amendments to the 2021 direction for assurance, risk management, controls, A&F, which facilitates and coordinates the execution of audit plan compliance and the governance of technology and combined assurance activities. ARC receives reports on • Quarterly shareholder reports to DPE covering information. ARC provides independent oversight of the status of governance, risk management, compliance Eskom's financial, operational, environmental, social these functions. and the adequacy and effectiveness of preventative and and governance performance as well as risks and corrective controls. The Assurance and Forensic Department (A&F), our opportunities independent internal audit function, reports directly to Governance, risk management and In addition, the committee monitored and considered ARC. A&F's annual audit plan is approved by ARC, and internal controls feedback from management in the following areas: includes risk-based audit and resource plans to adequately A&F provides risk-based, independent and objective • Financial performance and liquidity; IT governance, address the complexity of risks facing Eskom. assurance and investigative and consulting services that risk and security; enterprise risk and resilience, support the achievement of Eskom's strategic objectives Combined assurance including risk appetite and tolerance; insurance; ethics; and improve operations, by evaluating and enhancing the forensic and technical investigations; litigation and new We apply a combined assurance model, which includes effectiveness of risk and opportunity management, as legislation; nuclear assurance; the compliance charter a combination of supervision, management and well as control and governance processes. and compliance management assurance functions, as well as oversight by ARC and the Board. Collectively, these support an effective control Based on a formal review during the 2021 financial year, To address the prior year's focus areas: environment, provide reasonable assurance and support A&F has concluded the following: • The Board noted that ARC cannot be separated into the integrity of information for decision-making and an audit committee and a risk committee at present reporting to stakeholders. GOVERNANCE RISK MANAGEMENT due to the Board vacancies. The Board reiterated its Governance requires The design of the system of risk request to the shareholder to fill its vacancies and OVERSIGHT improvement in respect of management is adequate, Number of meetings to strengthen membership of ARC, particularly with compliance with applicable laws, although the system of controls Thirteen meetings were held during the year. Board and ARC regulations and King IV TM relating to compliance is appropriate skills in finance and assurance Our strategic context partially effective Consider control deficiencies and risk Membership (at year end) • The committee reviewed Eskom's King IV TM application affecting the organisation, and provide guidance register, outlining Eskom's overall effectiveness in INTERNAL FINANCIAL Three independent non-executive directors: applying the various principles and practices of King IV TM CONTROLS CONTROLS ASSURANCE Dr Pulane Molokwane (chairman), Dr Rod Crompton and The design of internal controls The system of internal financial Future focus areas Prof. Tshepo Mongalo External audit is adequate, although application controls is adequate and forms Focus areas for the coming year include: is partially effective. Control a reasonable basis for the Independent reasonable assurance of the Collectively, members have qualifications or experience • Considering sustainability risks relating to financial deficiencies were identified preparation of Eskom's financial annual financial statements and integrated report in supply chain management, statements in commerce and industry, economics, public sector, reporting and Eskom's status as a going concern, in plant maintenance, project law, governance, risk management, nuclear science and particular efforts to improve the income statement Internal audit management, coal management, environmental engineering. and strengthen the balance sheet Assurance over the adequacy and effectiveness of contracts management and risk management, internal control and governance ethics procedures Purpose • Reviewing the effectiveness of risk and compliance Financial review management as well as internal financial and other The committee's roles and responsibilities include: These conclusions consider information and explanations controls, together with the adequacy of consequence FUNCTIONAL MANAGEMENT • The statutory functions of an audit committee set provided by management, as well as discussions with the management, to ensure that contraventions are out in the Companies Act, 2008 and the PFMA, Specialised control functions external auditors on the results of the external audit. appropriately addressed 1999, including oversight of financial reporting and Development and maintenance of internal • Governing information and technology risk, specifically disclosure, risk and compliance management and control frameworks and policies, reviewing Refer to “King IV TM application” on page 23 for more information related to Eskom's planned legal separation internal control systems, as well as the internal and and monitoring on compliance management and the governance of technology and external audit functions • Monitoring the implementation of combined information assurance, in particular the cooperation and Risk, resilience and compliance • Oversight of strategic and business risks and coordination between the internal audit function and Assurance over the implementation of risk and opportunities, and governance of information and the external auditors resilience as well as compliance management ARC has concluded that the systems and processes Operating performance technology • Collaborating with the Auditor-General on external practices and processes of risk management and compliance are adequate, • Serving as the statutory audit committee for Eskom's although the effectiveness and application thereof auditor succession planning wholly owned subsidiaries, with the exception of need to be improved. Internal financial controls are • Overseeing the operations of Eskom's subsidiaries OPERATIONAL MANAGEMENT Escap, which has its own audit committee in terms of considered adequate for Eskom's financial records the Insurance Act, 2017 Conclusion Management and review functions to be relied upon, and for the preparation of reliable The committee fulfilled all its statutory duties in terms Assurance over the adequacy of operational financial statements. Furthermore, ARC is satisfied that Key activities during the year of the Public Finance Management Act, 1999, and section risk management, effective adherence to internal A&F is operated effectively and that Eskom has access The committee considered the following and, where control processes and delivery against objectives 94(7)(f) of the Companies Act, 2008. The committee to adequate resources, facilities and support from required, recommended matters for approval or noting has adopted an appropriate formal terms of reference, Government to be able to continue its operations as a by the Board: has regulated its affairs in compliance with its terms SUPERVISION going concern for the foreseeable future. • Year-end and interim group financial statements, the Supplementary information of reference and is satisfied that it has discharged its Operations and supervisory oversight integrated report and related documents, as well as ARC is satisfied with the quality of the external audit responsibilities contained therein. Implementation of internal controls and risk going concern statements and reportable irregularities as well as the independence and objectivity of the raised by the external auditors management processes to ensure a high- external auditors. • Appointment of the external auditors and associated performing and sustainable operating environment fees in terms of the Companies Act, 2008, JSE Listing Refer to the report of the Audit and Risk Committee in the consolidated Dr Pulane Molokwane annual financial statements for the full assessment of Eskom's internal Requirements and other applicable legislation Chairman control environment and the disclosures required by practice 59 of • The insurance plan and premium for the coming year Audit and Risk Committee principle 8 of King IV TM 28 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 29 BACK TO MENU REPORT BY THE INVESTMENT AND FINANCE REPORT BY THE PEOPLE AND GOVERNANCE COMMITTEE COMMITTEE Who we are and how we create value Governance, leadership and ethics FOR THE YEAR ENDED 31 MARCH 2021 FOR THE YEAR ENDED 31 MARCH 2021 • The Transmission Development Plan for 2021 to 2030, • The appointment of various executive positions, as and its funding model discussed in “Exco and divisional boards” on page 36 • Cancellation of the Duvha Unit 3 recovery project, as • Recommendation to the shareholder on the it is no longer considered economically viable appointment of an independent non-executive • The status of ash dams and ash dumps at Eskom's director to the Board of Escap SOC Ltd power stations • Eskom's future of work business case, including • The write-off of prescribed debt and write-back of considerations for remote working and the allocation non-compliant “in duplum” interest relating to Soweto of critical resources accounts • The Board's continuing education programme for the • The mandate to negotiate and conclude contracts continuous training and development of directors for the provision of short-term generation capacity To address the prior year's focus areas: through a Short-Term Power Purchase Programme (STPPP) • The committee considered progress on the 2019 People Plan and initiatives to address the people and To address the prior year's focus areas: culture focus area of the turnaround plan, as well • The committee considered and approved matters as Eskom's functional separation and relinking of within its approval mandate, and considered and centralised support staff to line divisions recommended matters above its approval limits • An assessment tool was developed for the Board to for Board approval. Matters included various conduct a self-evaluation for the 2020 financial year. procurement strategies; contract amendments and An independent evaluation will be conducted for the modifications; capital investment concept, design and 2021 financial year Number of meetings execution approvals or revisions; as well as other Number of meetings Our strategic context commercial decisions Future focus areas Twelve meetings were held during the year. Four meetings were held during the year. • The committee considered management's response Focus areas for the coming year include: Membership (at year end) to addressing Eskom's capital structure, debt Membership (at year end) • Considering human resources performance, Three independent non-executive directors: management and financial sustainability through the Three independent non-executive directors: specifically related to headcount reduction, employee turnaround plan benefit cost savings and the people and culture focus Ms Nelisiwe Magubane (chairman), Dr Banothile Prof. Tshepo Mongalo (chairman), Prof. Malegapuru area of the turnaround plan Makhubela and Ms Busisiwe Mavuso Future focus areas Makgoba and Ms Busisiwe Mavuso • Monitoring human resources and industrial relations Collectively, members have qualifications or experience Focus areas for the coming year include: Collectively, members have qualifications or experience aspects of Eskom's legal separation and response to in commerce and industry, accounting, energy, public • Supervising financial plans and business cases, as in commerce and industry, accounting, law and COVID-19 sector, chemistry and engineering. well as setting criteria and guidelines for capital governance, public sector and medicine. • Reviewing disciplinary processes to reduce delays and investments and projects for Eskom and its improve consequence management Purpose subsidiaries Purpose Financial review • Finalising Eskom's remuneration policy in line with The committee's responsibilities include: • Considering standard tariff plans, structures and rates, The committee's responsibilities include: DPE's guidelines, after feedback is received from DPE • Oversight of investment strategies, capital and including the annual tariff adjustment based on MYPD • Succession planning and nomination at executive level • Improving governance and accountability of line borrowing programmes, and financial budgets and related regulatory applications • Ensuring that remuneration is fair, transparent, divisions through separate delegation of authority • Approval of business cases for new ventures, capital • Reviewing conditions and pricing for the sale of responsible and equitable frameworks investments and projects electricity through agreements longer than three years • Overseeing human resources strategies and policies, • Ensuring a fit-for-purpose future skills strategy • Monitoring the concept, design and execution of major • Evaluating conditions and pricing of power purchase including relationships with organised labour and through Eskom's skills audit capital projects agreements longer than three years, where DMRE has employees • Oversight of Eskom's treasury function executed the procurement process • Setting the direction for and monitoring corporate Conclusion governance The committee has adopted an appropriate formal terms Operating performance Key activities during the year Conclusion of reference, has regulated its affairs in compliance The committee considered the following and, where The committee has adopted an appropriate formal terms Key activities during the year with its terms of reference and is satisfied that it has required, recommended matters for approval or noting of reference, has regulated its affairs in compliance The committee considered the following and, where discharged its responsibilities contained therein. The by the Board: with its terms of reference and is satisfied that it has required, recommended matters for approval or noting committee has complied with all relevant legal and • Submission to NERSA of the RCA balance application discharged its responsibilities contained therein. by the Board: regulatory requirements pertaining to remuneration of for the 2020 financial year • Progress on human resources cost curtailment employees across the organisation, and further notes • Selection of the preferred bidder for the disposal of initiatives and headcount reduction, including that no deviations from Eskom's remuneration philosophy Eskom Finance Company SOC Ltd implementation of voluntary separation packages were observed during the year. • Quarterly Treasury reports and the progress on • Human resources plans, including critical vacancies and Ms Nelisiwe Magubane Eskom's borrowing programme, outlined in the recruitment, learner management, employment equity, Chairman Supplementary information Corporate Plan industrial relations and employee engagement Investment and Finance Committee • The status of Eskom's capital investment plan and • Quarterly human resources performance reports and Prof. Tshepo Mongalo associated risks arising from capital constraints in the the annual review of remuneration and employment Chairman 2021 and 2022 financial years conditions People and Governance Committee 30 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 31 BACK TO MENU REMUNERATION AND BENEFITS REPORT BY THE SOCIAL, ETHICS AND SUSTAINABILITY COMMITTEE Who we are and how we create value Governance, leadership and ethics FOR THE YEAR ENDED 31 MARCH 2021 Our approach to remuneration Variable remuneration PGC assists the Board in its oversight of key human Variable remuneration is linked to the achievement of Key activities during the year resources strategies and policies, and is mandated to individual and organisational performance objectives, The committee considered the following and, where oversee remuneration in Eskom in a fair, responsible subject to defined gatekeepers. Short-term incentives required, recommended matters for approval or noting and transparent manner. We strive to ensure that relate to a single financial year, whereas long-term by the Board: remuneration practices support Eskom's strategic incentives cover a three-year period. • Progress, challenges and mitigating measures relating objectives, and encourage value creation and advance to operational performance and sustainability Eskom's long-term sustainability by: Refer to pages 74 to 75 of our 2019 integrated report for an explanation of how short- and long-term incentives are structured • Feedback from management on occupational • Adopting the principles of King IV TM for the health and safety, corporate social investment remuneration of directors and executives PGC is solely responsible for determining executive and electrification, stakeholder engagement and • Implementing DPE's guidelines on remuneration and remuneration, rewards and other benefits and conducts transformation incentives for SOCs an annual review of executive packages, guided by • Nuclear oversight and management of associated risks • Ensuring that the remuneration and incentive external benchmarking. Executives are not involved in • Eskom's ethics report, including management of ethics philosophy is aligned to the shareholder compact, and the approval process. PGC maintains the right to adjust, that it drives individual and organisational performance withhold or veto any remuneration. To address the prior year's focus areas: • The committee assessed performance against the five Our remuneration policy has been submitted to DPE. In line with the conditions of the Special Appropriation focus areas of the turnaround plan, the Generation The aim is to ensure adherence to DPE's guidelines for Act, 2019, no increases and no incentives were recovery plan and the Transmission sustainability the remuneration of executives, prescribed officers and awarded to executives during the 2021 financial year. improvement plan non-executive directors. The policy will be finalised Furthermore, no incentives have been paid to executives • The committee considered environmental based on DPE's feedback. since 2018. performance and related contraventions and Non-executive directors non-compliance notices Remuneration of managerial and bargaining unit employees is discussed Number of meetings Our strategic context under “Our people – Remuneration and benefits” on page 109 Non-executive directors receive a fixed monthly fee Four meetings were held during the year. Future focus areas and are reimbursed for expenses incurred in fulfilling their duties. Remuneration is determined in line with Focus areas for the coming year include: Remuneration philosophy for directors and Membership (at year end) DPE's guidelines, and is benchmarked against large • Supervising the response to environmental executives Three independent non-executive directors: contraventions and non-compliance notices JSE-listed companies as well as companies similar in size Executives to Eskom. PGC submits proposals on non-executive Dr Banothile Makhubela (chairman), Prof. Malegapuru • Overseeing the management of nuclear risks, in We aim to attract and retain executive management in remuneration to the Board, which considers and makes Makgoba and Dr Pulane Molokwane particular Koeberg's performance against metrics a competitive market on a fair and equitable basis, and recommendations to the shareholder for approval. set by the World Association of Nuclear Operators strive to reward performance that exceeds expectations Collectively, members have qualifications or experience (WANO) and supports the achievement of organisational Total remuneration for directors and group in industry, public sector, nuclear science, environmental objectives. Executive remuneration is designed to executives • Monitoring both employee and public health and safety engineering, chemistry and medicine. aspects of Eskom's response to COVID-19 demonstrate a clear relationship between performance Category, R 000 2021 2020 2019 and remuneration, comprises the following: Purpose • Considering improvements to the ethics management Financial review Non-executive directors1 5 945 9 565 6 967 The committee's responsibilities include: strategy, policies and procedures TOTAL REMUNERATION Executive directors1 12 135 9 893 11 861 • Ensuring continued compliance with Regulation 43 of • The statutory functions of a social and ethics Other group executives2 21 989 29 516 43 996 the Companies Act, 2008 = committee as set out in the Companies Act, 2008 Total remuneration 40 069 48 974 62 824 • Oversight of social and economic development; good Guaranteed remuneration and benefits Conclusion Ensures that talented individuals are attracted, 1. The late Mr Jabu Mabuza was the Interim Executive Chairman and the corporate citizenship; environmental, climate change, The committee has adopted an appropriate formal terms retained and receive support to perform their acting Group Chief Executive for a period of five months in the 2020 health and safety programmes; and the sustainability audit of reference, has regulated its affairs in compliance financial year. His total remuneration was classified as non-executive • Supervision of nuclear policies, strategies and roles efficiently with its terms of reference and is satisfied that it director's fees, leading to an increase in non-executive remuneration guidelines, as well as nuclear safety in terms of has discharged its responsibilities contained therein. + and a decrease in executive remuneration in the 2020 financial year. 2. A more streamlined executive structure was implemented during the regulatory requirements and international best Furthermore, the committee fulfilled all its statutory Operating performance Short-term incentives practice 2019 financial year. Consequently, overall executive remuneration has duties as set out in Regulation 43 of the Companies Manages and facilitates performance through declined since 2019. Only Exco members are disclosed for 2021. • Serving as the statutory social and ethics committee Act, 2008. a results-driven approach that is collaborative, for Eskom's wholly owned subsidiaries transparent and fair Refer to note 50 in the consolidated annual financial statements for detailed remuneration information as required by King IV TM + Long-term incentives Home loans to executive directors and other group Dr Banothile Makhubela Ensures the long-term sustainability executives are disclosed in the consolidated annual Chairman of the organisation financial statements. No loans have been provided Social, Ethics and Sustainability Committee to non-executive directors. Supplementary information Guaranteed remuneration Guaranteed remuneration is fixed and includes compulsory benefits such as medical aid, pension, group life and death benefits, as well as allowances for motor vehicle expenses and personal security. Any increase in the guaranteed amount is recommended by PGC, subject to approval by the shareholder. 32 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 33 BACK TO MENU ETHICS BASED ON OUR VALUES REPORT BY THE BOARD STRATEGY COMMITTEE Who we are and how we create value Governance, leadership and ethics FOR THE YEAR ENDED 31 MARCH 2021 An ethical organisation attracts and retains talented Our declaration of interest procedure ensures that employees and gains the trust of investors, suppliers, directors and employees across all occupational levels • Separation of Eskom's core and non-core commercial customers, the community and other stakeholders. An complete an annual declaration of interest, irrespective activities and potential levers to improve liquidity organisation that strives for sustainable development can of whether a conflict exists, or as soon as circumstances • Separation of Eskom’s commercial and achieve this only with a strong ethical foundation. that may affect their declaration change. Where a conflict non-commercial activities exists, it must be declared and managed in line with In accordance with King IV TM, the Board is responsible • The proposal to move towards a cost-reflective tariff ethics policies and procedures. Any interests declared by for the governance of ethics and, through SES, establishes over time, in accordance with Government policy directors and Exco members in meetings are minuted for an ethical culture and provides oversight of ethics the record. • Special pricing agreement beneficiary categories, strategies and policies. resolving that management consider how to treat All members of the Board and Exco have completed negotiated pricing agreements (NPAs) in the move Our Code of Ethics, known as “The Way”, sets the their declarations. Any identified conflicts are managed towards cost-reflectivity standard for ethical behaviour across all areas of the appropriately. • The Just Energy Transition transaction, as well as organisation. It reflects our commitment to the highest proposals for power plant repurposing and repowering standards of governance, ethics and integrity. “The Way” A&F reviews directors' declarations on an annual basis ageing coal-fired power stations guides the way in which the Board and employees and conducts proactive compliance reviews and probity interact with each other as well as with the shareholder, checks for procurement transactions over R500 million • The organisational culture plan and Eskom's future of customers, suppliers, the environment, the public and tabled for approval at relevant Exco, divisional and Board work business case other stakeholders. committees. To address the prior year's focus areas: Adherence to the “The Way” is not optional; it is the way During the year, we upgraded our declaration system • The committee evaluated progress on Eskom's we do business in Eskom. It provides direction and guides to link directly to various databases, such as the CIPC strategy review and the Corporate Plan for the 2022 us on the path we need to take as we walk together into and Eskom's vendor management system, to identify to 2024 financial years the future. This path is defined by six core values, which questionable conduct proactively. Any director, employee • The committee assessed the role of the Turnaround Number of meetings Management Office and feedback on the five focus Our strategic context form the foundation of our values-driven organisation. or supplier who is found to have contravened the stipulated policies, procedures or DoA will be subjected Four meetings were held during the year. areas of the turnaround plan, in particular Eskom's to disciplinary processes. functional and legal separation Zero Harm means protecting the Eskom Way Membership (at year end) • The committee considered proposed amendments to We will be undertaking an independent ethics risk Three independent non-executive directors: legislation, regulations, licences, methodologies and assessment in the coming financial year. The intent is to Integrity means acting the Eskom Way survey internal and external stakeholders to determine Dr Rod Crompton (chairman), Ms Nelisiwe Magubane Grid Codes potential ethics opportunities and unethical behaviours and Prof. Malegapuru Makgoba Future focus areas Innovation means thinking the Eskom Way and practices that place Eskom at risk. The Ethics Collectively, members have qualifications or experience Focus areas for the coming year include: Institute will be conducting the assessment to ensure in commerce and industry, economics, energy, public • Overseeing interactions with Government on the legal Sinobuntu means caring the Eskom Way independence and confidentiality. sector, engineering and medicine. separation of Eskom, as well as the implementation of In accordance with King IV TM, the assessment will inform associated directives, roadmaps and policies Customer satisfaction means serving the Purpose Financial review our thinking around ethics management interventions. • Providing direction and making recommendations Eskom Way The committee's responsibilities include: We will develop an ethics risk register to better manage given the new market structure • Oversight of Eskom's response to and implementation ethics-related risks, and review our ethics management • Considering Eskom's long-term strategy review, Excellence means working the Eskom Way of Government directives, roadmaps and policy strategy, policies and procedures. The assessment incorporating the Just Energy Transition documents relating to the restructuring of Eskom and will also determine high-risk areas and enable us to • Overseeing turnaround plan initiatives, in particular the electricity supply industry SES has delegated the responsibility for the develop suitable responses to ensure a greater focus Eskom's legal separation and efforts to address on consequence management, and further improve • Making recommendations to the Board on the transfer implementation and management of ethics to Exco. financial sustainability the rollout of ethics training and awareness. Ethics and of assets, liabilities and resources, as well as functional Our dedicated Ethics Office is responsible for developing and legal separation • Considering organisational change and culture ethics policies and procedures, such as our Code of PFMA training is now mandatory for all employees on an management annual basis. • Interacting with Government and associated offices on Ethics, conflict of interest policy and declaration of Operating performance these matters • Demarcating and separating Eskom's commercial and interest procedure, and monitoring the effectiveness of We are committed to the fight against fraud, corruption, non-commercial activities their implementation. The Ethics Office facilitates ethics irregularities and other forms of economic crime. Key activities during the year training and provides guidance on ethical issues in the We subscribe to the Organisation for Economic Conclusion The committee considered the following and, where workplace. Any potential breaches of ethics that may Co-operation and Development's (OECD) principles on required, recommended matters for approval or noting The committee has adopted an appropriate formal terms involve fraud and corruption are referred to A&F for anti-corruption. As a signatory to the United Nations by the Board: of reference, has regulated its affairs in compliance further investigation. Global Compact and the World Economic Forum's with its terms of reference and is satisfied that it has • Alignment of Eskom's functional and legal separation Partnership Against Corruption initiative, we adopt discharged its responsibilities contained therein. Our conflict of interest policy complements our Code with DPE's special paper, Roadmap for Eskom in a of Ethics by setting out the obligations of directors a zero tolerance approach to fraud, corruption and Reformed Electricity Supply Industry and employees in dealing with ethical issues such as irregularities, irrespective of whether they are • The roadmap for the establishment of an Independent committed inside or outside the organisation. Supplementary information potential conflicts of interest, private work, relationships System Transmission Operator with suppliers as well as receiving or offering business An independent, confidential whistle-blowing hotline • Eskom's liquidity outlook for the 2021 and 2022 Dr Rod Crompton courtesies. enables all stakeholders to report unlawful or irregular financial years Chairman No official or employee is allowed to do business with conduct in good faith. Board Strategy Committee Eskom while being employed by Eskom or its subsidiaries. To our knowledge, there are no conflicts of interest as a Refer to page 143 for the contact details to report fraud, corruption and irregularities involving Eskom's directors, employees or suppliers using a result of any director doing business with Eskom. toll-free whistle-blowing hotline 34 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 35 BACK TO MENU EXCO AND DIVISIONAL BOARDS OUR STRATEGIC Executive Management Committee Exco is established by the GCE and is accountable for executing the strategy of the Board, as well as exercising • Ms Nthato Minyuku was appointed as Group Executive: Government and Regulatory Affairs from 15 October 2020 CONTEXT executive control over day-to-day operations. Exco is • Ms Nida Gafoor was appointed as General Manager: supported by various subcommittees in the execution of Audit and Forensic from 16 November 2020 its duties. • Mr Bartlett Hewu, acting Group Executive: Legal and Compliance, was placed on suspension on Refer to “Our governance framework” on page 22 for the 11 December 2020. His fixed-term contract was subcommittees terminated on 31 January 2021. Ms Nerina Otto was appointed to act in the position The shareholder appoints the GCE, although the Governance, leadership and ethics • Mr Solomon Tshitangano, Chief Procurement Officer, Board identifies, nominates and evaluates potential was placed on suspension on 22 February 2021. candidates. The CFO is appointed by the Board, subject Following a disciplinary hearing, he was dismissed with to shareholder approval, whereas group executives are immediate effect on 28 May 2021. Ms Jainthree Sankar recommended by the GCE and appointed by PGC. Both was appointed to act in the position the GCE and CFO are appointed on five-year contracts, with an option to renew. All other executives are full- After year end, Mr Sandile Siyaya was appointed as time employees, unless otherwise noted below. General Manager: Primary Energy from 1 May 2021. Changes in executive leadership Refer to pages 12 and 13 for the Exco composition, with information on The following changes took place during the year: skills and years in service, as well as racial, gender and age diversity • Ms Faith Burn was appointed as Chief Information Officer from 15 May 2020 Divisional boards Our strategic context • Mr Richard Vaughan was appointed as General Divisional boards were established in March 2020 as Manager: Treasury from 15 May 2020 the first step towards functional separation. We have • Mr Vuyolwethu Tuku was appointed as Group made good progress in separating the functioning of Executive: Transformation Management Office on a the three divisions, to drive separate accountability fixed-term contract from 1 July 2020 for each division and improve business performance. • Mr Bheki Nxumalo, previously Group Executive: In addition, the relinking of employees from various Generation, was appointed as Group Executive: corporate functions to the divisions has been concluded. Group Capital from 1 September 2020 This has capacitated the divisions to function relatively • Mr Phillip Dukashe was appointed as Group independently while still aligning with and implementing Executive: Generation from 1 Apil 2021, after acting the overall Eskom strategy. in the position since 1 February 2021. Previously, The group executives for Generation, Transmission and Mr Rhulani Mathebula acted in the position from Financial review Distribution serve as divisional managing directors for 1 September 2020 their respective divisions. Operating performance Chief Executive's review 38 Our strategy and turnaround plan 43 Mr Phillip Dukashe Mr Segomoco Scheppers Mr Monde Bala Stakeholder engagement 49 Group Executive: Generation Group Executive: Transmission Group Executive: Distribution Material matters 51 Membership of the divisional boards includes the GCE, The divisional boards report to Exco on a regular basis Risks and opportunities 52 Supplementary information CFO, COO, Group Executive: Human Resources and to ensure that common challenges that have an impact Chief Information Officer, as well as senior management beyond the division are addressed by Exco, and that representation from divisional finance, human resources decision-making and implementation are aligned with and operations functions. the overall Eskom strategy. The divisional boards can make recommendations to Exco and the Eskom Board on matters requiring their approval. 36 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 37 BACK TO MENU CHIEF EXECUTIVE'S REVIEW Who we are and how we create value Governance, leadership and ethics What stood out for you over the past year? JET will see us transitioning to a cleaner and greener Restoring stakeholder trust in Eskom is critical to our Eskom is facing unprecedented challenges in an energy future, while enabling new job opportunities future success. By improving the way we engage with environment where uncertainty and disruption is the new for people displaced by the replacement of coal by stakeholders, and seeking to understand and respond norm. Operating as we do in a highly regulated market cleaner technologies, as well as the continued socio- to stakeholder interests and needs, we aim to promote that is undergoing fundamental reform in the context economic development of communities and settlements energy security in the long term. of South Africa’s energy security, decarbonisation established around our power stations. In a nutshell, and transformation agendas, we have to contend with it’s about a transition towards a low-carbon, climate- Is the legal separation going according to plan, structural implications for our business and the industry resilient economy and society in a way that does not particularly the Transmission entity? as a whole. impede socio-economic development, while still creating Last year, we established divisional boards for sustainable jobs. Generation, Transmission and Distribution to enhance On top of that, declining global and local economic Eskom intends to be a key enabler of South Africa's internal governance structures and accountability, as a conditions have been exacerbated by the effects of transition towards an economically inclusive and lower first step to functional separation. Divisionalisation was the COVID-19 pandemic, with the negative impact on carbon future. Ultimately, we want to make a vital achieved as planned by March 2020. large businesses and SMMEs alike persisting. These conditions are likely to hamper economic growth and contribution to economic growth, job creation, socio- Functional separation was targeted by March 2021. have a persistent impact on Eskom’s revenue collection. economic development and the creation of a stable, Major milestones were completed on time, but by year Eskom’s poor financial and operational performance in equitable and cohesive South Africa. end, service level agreements and IT changes still had turn negatively affects vital national priorities such as to be finalised. All the necessary documentation was economic growth, job creation and efforts to combat Has progress against the turnaround plan met completed and signed by 7 June 2021, thereby completing poverty, and remains a major risk to the South African your expectations? functional separation of the three line divisions. I am very economy. At the same time, we have been struggling Our turnaround plan focuses on operations recovery, satisfied with our progress to date. to secure cost-reflective tariff increases, and this is improving the income statement, strengthening unlikely to improve drastically in the future. That said, the balance sheet, driving business separation and Our focus has now shifted to legal separation. An accelerated base plan allows for the legal separation of Our strategic context the taxpayer cannot continue to subsidise the electricity transforming our people and culture. If we execute the consumer by way of equity injections by Government. turnaround plan successfully, and the business separation Transmission by December 2021, with Generation and You mentioned that the strategy is under review. Distribution by December 2022. Ultimately, recovering efficient cost from the user of project in particular, Eskom will be well positioned to Can you elaborate? electricity is the only sustainable way of enabling Eskom deliver value within the broader national efforts to drive A key dependency is the approval by bondholders to be financially viable, but also of rewarding private We are reviewing our long-term strategy to take account reform in the electricity supply industry, through the of changes in the operating environment, thereby and financial instrument holders of any unbundling of investors in new generation capacity. execution of DPE’s Roadmap. Eskom. However, based on engagements with investors, leveraging our infrastructure and capabilities by focusing The slowdown of the economy amid the COVID-19 on a return to operational and financial sustainability. In most areas, we are making good progress, although they question the ability of the business separation to pandemic led to an unprecedented decline in sales As I’ve mentioned on a few occasions, the trends of certain areas give me some cause for concern. On bring about financial sustainability for the company. during the year. Sales were 6.7% lower than the previous decarbonisation, decentralisation, digitisation and operations recovery, addressing load losses and We will continue to engage all our lenders to obtain year, with the biggest impact felt in the first half of the democratisation are shaping the electricity sector of the fixing new build defects are taking longer than we their support. year. Due to many sectors of the economy returning to future. had expected. We can also improve on performance Additionally, approved trading arrangements must be in operation, the impact on sales in the second half of the Financial review against the reliability maintenance recovery programme. place by 31 December 2021, otherwise the Transmission year was less severe. During the level 5 lockdown to the We have developed a new set of strategic objectives, Moreover, progress on environmental performance, informed by industry trends and the key initiatives entity cannot operate. Dependencies also include end of April 2020, the daily peak demand on the power particularly at Kendal Power Station, is not yet licence transfers and applications, policy and regulatory system reduced by between 7 500MW and 11 000MW, necessary to turn around the business. This will provide satisfactory. The high utilisation of the older coal-fired the foundation to facilitate the development of a future reforms, as well as legal and financial dependencies. as lockdown restrictions and depressed economic power stations remains significantly above international Tariff structures need to be modernised to reflect conditions led to a reduction in the average demand for electricity sector that is competitive and enabled by norms, and that will have negative long-term technical modern power system technologies, as South Africa wholesale prices, network costs and other services. electricity. We used the opportunity presented by the consequences. In addition, NERSA has to approve mechanisms for lower demand to perform much-needed maintenance at strives to achieve net zero emissions by 2050. On the income statement, some areas are on track, such how the Transmission entity will purchase energy from our power stations. We continue to focus on the five focus areas of the Generation and IPPs. Tariff levels must be aligned to the as initiatives to reduce headcount, procurement savings The initiatives that are beginning to emerge from our turnaround plan, which are shorter term steps in a much and actions to improve the tariff trajectory, but other NERSA revenue determination. Furthermore, guidance Operating performance ongoing strategy review will be pursued over the short, longer journey. I’ll return to progress against the plan a areas are lagging behind, such as divisional efficiency is awaited from DMRE regarding licensing and internal medium and long term. This will ensure that timely and little later. savings and some primary energy initiatives. And of market operations of the Transmission entity. appropriate strategic decisions are taken to catalyse Our long-term strategy positions Eskom as an enabler of course, municipal and Soweto arrear debt continues As you can see, there are a number of critical external opportunities that will improve our sustainability and the Just Energy Transition, or JET, as well as a key role to escalate, which also had a significant effect on the and regulatory decisions and dependencies at play. resilience, and also benefit the South African electricity player in executing the latest Integrated Resource Plan. balance sheet. Furthermore, the achievement of legal separation is industry. Consequently, our turnaround plan remains the Eskom was the first business in South Africa to establish largely dependent on Government playing a proactive key enabler that must be successfully delivered so that The people and culture area is performing well, a JET Office dedicated to this strategic imperative, with external stakeholder relations and employee and supportive role. we can pursue a trajectory towards a sustainable, low- evidence of our commitment to decarbonising in a carbon future. However, unless the tariffs are corrected communications ensuring alignment, despite constraints A number of dependencies are lagging behind, putting socially and economically just manner. JET will act as a imposed by COVID-19. We also completed the relinking in line with MYPD methodology, our ability to execute pivot point to enable the strategy to deliver growth. We the finalisation of separation of the Transmission entity Supplementary information these strategies will be compromised. of staff as part of the business separation and achieved by 31 December 2021 at significant risk. However, our will repower and repurpose power stations, and build on people efficiencies, but we need to continue driving the success of our Renewable Business Unit. intention remains to comply with the timelines set out in a high-performance culture. To this end, enhanced the DPE Roadmap, despite the obstacles encountered. accountability is key. 38 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 39 BACK TO MENU CHIEF EXECUTIVE'S REVIEW continued Who we are and how we create value Governance, leadership and ethics Give us an overview the financial and voluntary separation packages to managerial staff so far. Looking ahead, what are Eskom’s greatest To make our ageing power stations compliant with operational performance of the business Due to our commitment to responsible fiscal and human challenges? emission standards, we must spend more than capital management, only critical skills not available from R300 billion. Taking into account that we simply do not The results for the year demonstrate an incremental Approximately 10 000MW of Eskom’s base-load capacity the current workforce will be recruited externally. have the money and that this exercise will not add any improvement in certain operational metrics, although has to be decommissioned in the next decade, which will generation capacity, and will consume significantly more significant financial challenges remain, predominantly The responsible management of costs has resulted in create additional strain on the system and the need for water, this is quite a difficult balancing act. However, related to tariffs not being cost-reflective, coupled with the number of employees declining by 4.5% during the new generating capacity. Cleaner technologies, including non-compliance would have very a significant impact liquidity challenges and an unsustainably high debt burden. year. This is the second consecutive year that employee significant renewable capacity, has to be brought online on capacity availability, with 18GW at risk immediately, numbers have reduced. We are targeting a further to fill the gap created by both the decommissioning of As I mentioned earlier, the effects of the COVID-19 increasing to 32GW by 2025, significantly increasing the reduction in headcount of 5.8% by the 2026 financial year. stations and future demand. This has to be supported by pandemic had an undeniable impact on our bottom risk of loadshedding. If we embark on the JET timeously, a significant expansion of the transmission grid, which line, due to a significant reduction of sales, which The group lost-time injury rate has improved significantly. we can use the funds required to comply with minimum will also contribute to stimulating economic activity and was not offset by an associated reduction in primary Tragically, we recorded two employee and eight contractor emissions standards to build low- and no-carbon job creation. energy and other operating costs, although the increase fatalities during the year, despite our commitment to safety generation plant instead. was contained within inflation. The recent tariff and focus on Zero Harm. We deeply regret the loss of We welcome DMRE’s amendment of the Electricity We are engaging with key stakeholders to negotiate determination by NERSA will positively contribute to the every life in Eskom’s service, and our heartfelt condolences Regulation Act to allow generation of up to 100MW a Just Energy Transition Transaction to fundamentally journey towards financial sustainability. go to the family, friends and colleagues affected. without a licence from NERSA. Over time, this reorganise our balance sheet based on a green progressive step will greatly assist in the effort to provide Our People Plan further focuses on rebuilding commitment. Such a transaction is expected to facilitate Financial performance, funding and liquidity are covered in the Chief reliable and sufficient electricity for the economy while Financial Officer’s report from page 59 relationships with Eskom Guardians. We want to the refinancing of existing facilities on a concessional creating space for Eskom to conduct much-needed instil pride, passion and a sense of belonging and basis for a longer period, providing a level of relief for repairs on infrastructure, although it will understandably Performance of the generating plant, together with connectedness to the business, while developing agility our debt service requirements and cost of funding. have a negative impact on sales. environmental performance remain disappointing, and the resilience to cope with ongoing ambiguity, Despite green shoots emerging with the phased easing despite improvements in certain areas. Nevertheless, instability and change. Employees should feel a sense As we continue to implement the reliability maintenance of lockdown restrictions, continued uncertainty around recovery programme, many generating units are taken Our strategic context our transmission and distribution networks continue to of connection and alignment to the business and one COVID-19, particularly in the event of further lockdowns, perform well, and we are making satisfactory progress another, with improved employee morale and a common offline for planned maintenance, leaving the power is expected to continue threatening future sales volumes, on the new build programme, both in terms of delivering vision acting as enablers to drive a high-performance system constrained. We believe this a worthy short-term production cost and customers’ ability to pay. Demand is new units and correcting defects. culture. We are implementing a business case to design trade-off towards long-term operational sustainability. not expected to recover to pre-COVID-19 levels in the new working models and take advantage of benefits Consequently, customer-funded capacity alongside the short to medium term, due to the long-lasting impact of Generating plant and network performance, progress on the new build brought about by remote working. contribution by IPPs will address the immediate supply/ the economic recession experienced in 2020. programme and environmental performance are covered in the Chief demand gap and reduce the risk of loadshedding over time. Operating Officer’s commentary from page 79 Eskom has embarked on one of its most ambitious and possibly most challenging transformation journeys. These changes, together with our own efforts to Any last thoughts? Appropriate and effective culture transformation and repurpose and repower ageing power stations, will Our turnaround plan remains the key enabler for Tell us more about the people and culture area of change management strategies are critical to support the serve to reduce the country’s electricity supply gap. Eskom’s transition towards a sustainable, low-carbon the turnaround plan However, we require a solution to our debt burden and achievement of DPE’s Roadmap and our turnaround plan. future. However, unless the tariff methodology is The value of a productive partnership between Eskom, a cost-reflective tariff structure to enable us to assess properly applied and the tariff trajectory improves, our Financial review our people and our trade unions cannot be emphasised Our focus during the ongoing COVID-19 pandemic is the the extent to which we can participate in remedying the ability to execute these strategies will be compromised. enough. Employee benefit costs remain the second health and well-being of our people, maintaining the supply country’s capacity constraints. Nevertheless, we remain committed to addressing largest component of operating costs, at about 19% of of electricity to support economic recovery and supporting While it may be tempting to demand that only the the current electricity supply crisis and our financial operating costs. Consequently, we require a significant Government in containing the spread of the virus. Despite developed world should decarbonise, and allow South challenges in a manner that supports the growth and reduction in employee benefit costs over time to contain our concerted efforts, we are devastated by the loss of Africa to fuel its growth with coal, the reality is starkly development of our economy and our society, without a costs and build a more sustainable organisation. This will 145 of our colleagues to date. They will be sorely missed. different. Our economy is 25% more carbon intensive detrimental impact on our economy. be achieved by reducing our overall staff complement, On a positive note, we are proud to have been granted even while we avoid implementing forced retrenchments. approval to roll out our workplace COVID-19 vaccination than China on a per capita basis, and double the global As the great Nelson Mandela once said, “You have a programme at a number of sites. This is gaining momentum average. South Africa emits roughly half the total carbon limited time to stay on earth. You must try to use that One of the biggest focus areas of the plan therefore is to and will contribute to saving lives, not only for Eskom emitted by the African continent, and Eskom emits about period for the purpose of transforming your country into Operating performance rely on natural attrition to sustainably reduce headcount employees and their families, but also for the country. 44% of the country’s total carbon emissions. We simply what you desire it to be: a democratic, non-racial, non- and associated costs, coupled with two rounds of cannot ignore our carbon footprint. sexist country. And that is a great task.” International finance and climate action circles have a Today, we also have a tremendous task ahead of us, to dual focus on divesting from fossil fuels and increasing transition Eskom and the country to a cleaner and greener funding for renewables. In addition, the world is future, not only for the good of South Africa, but also penalising heavy carbon emitters. If a European proposal for the world, in order to mitigate the existential threat 100 % % 25 40 Events/hours Minutes 5 0.5 kg/MWh sent out ℓ/kWh sent out 1.44 is adopted, levies could be imposed on imports in posed by climate change. Each one of us has a valuable carbon-intensive sectors, such as steel from countries contribution to make, but we require the support of all our 80 20 30 4 0.4 1.40 with lower environmental standards than the EU. stakeholders to successfully implement our turnaround Therefore, JET is required to attract funding to support Supplementary information 60 3 0.3 1.36 plan and thereby, ensuring a sustainable electricity supply 15 20 the gradual shift from fossil fuel-based to cleaner power industry to power South Africa into the future. 40 2 0.2 1.32 generation, while managing the impact on the livelihoods 10 10 of communities dependent on our operations. Pivoting 20 1 0.1 1.28 to green energy will create a competitive advantage for 0 5 0 0 0.0 1.24 South African exports, whereas persisting with coal 2017 2018 2019 2020 2021 2021 2017 2018 2019 2020 2021 2021 2017 2018 2019 2020 2021 2021 Actual Target Actual Target Actual Target will lead to another era of isolation and punitive trade André de Ruyter EAF PCLF UCLF SAIFI SAIDI System minutes lost for events <1 minute Relative particulate emissions Water consumption measures. Group Chief Executive 40 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 41 BACK TO MENU OUR GROUP PERFORMANCE OUR STRATEGY AND TURNAROUND PLAN Our shareholder outlines the strategic objectives for Eskom in the Strategic Intent Statement. KPIs are Who we are and how we create value Governance, leadership and ethics MAIN HEADING AT 31 MARCH 2020 aligned to these strategic objectives and the key focus areas of our turnaround plan, with performance Turnaround objectives Six Capitals Strategic context Eskom is the lifeblood of the South African economy. As across our top 10 KPIs for 2021 set out below MAIN HEADING AT 31 MARCH 2020 Operations recovery Financial capital Declining global and local economic conditions are pointed out earlier, our mandate is to provide a stable Turnaround objectives Six Capitals MAIN HEADING exacerbated by the effects of the COVID-19 pandemic, electricity supply in a sustainable and efficient manner, to assist in lowering the cost of doing business in South AT 31 MARCH 2020 Operations recovery Improve income statement Financial capital Manufactured capital Turnaround objectives Six Capitals which continues to affect large businesses and SMMEs Financial performance Generation operations negatively. These conditions are likely to increase Africa and to enable economic growth. We fulfil this Improve our income statement and Improve reliability of the Generation fleet and mandate through an electricity network that includes Operations recovery Financial capital National Treasury's shortfall in revenue collection. Improve income statement Improve balance sheet Manufactured capital Natural capital strengthen our balance sheet reduce loadshedding Eskom's poor financial and operational performance generation, transmission and distribution, while adhering Improve balance sheet Business separation Natural capital Human capital Improve income statement Manufactured capital contributes to the country's challenges and remains to acceptable benchmark standards EBITDA Improve our EAF, % Improve the energy 16.06% 64.19% a major risk to the South African economy. At the margin, % margins on EBITDA 2021 11.67% 64.19 availability factor (EAF), which is the 2021 73.00% Improve balance sheet Natural capital same time, we have been struggling to obtain cost- Contribution to the SDGs 16.06 through revenue Business separation People and culture Human capital Social and relationship capital 2020 18.46% (2020: 66.64) 2020 66.64% certainty, cost 16.58% ratio of available 71.50% reflective tariff increases, and this is unlikely to change (2020: 18.46) energy over optimisation and 17.46% People and culture Social and relationship capital Intellectual capital 69.95% Business separation Human capital in the future. However, the taxpayer cannot continue 2019 nominal energy 2019 efficiency 23.03% 78.00% to subsidise the electricity consumer through equity Intellectual capital People and culture Social and relationship capital injections by Government. UCLF, % Reduce the Debt service Improve our ability 20.04% cover ratio to meet our debt 2021 0.11 0.30 20.04 incidence of unplanned outages 2021 15.50% Intellectual capital The high-level impact of the COVID-19 pandemic and the associated national lockdown was discussed in “Impact of COVID-19” on page 2 0.30 obligations through (2020: 22.86) 22.86% 05 | INTEGRATED REPORT | 31 MARCH 2020 0.52 to improve system 2020 2020 17.50% sufficient cash from 0.29 (2020: 0.52) availability 18.31% operations 0.47 05 | INTEGRATED REPORT | 31 MARCH 2020 2019 Against this backdrop, our strategy is being reviewed 2019 11.90% 0.56 to position Eskom to leverage our infrastructure and 05 | INTEGRATED REPORT | 31 MARCH 2020 capabilities by focusing on a return to operational and During the process of creating value, we have an impact MAIN HEADING Debt equity Strengthen our AT 31 MARCH 2020 financial sustainability. This will provide the foundation on the SDGs set out by the United Nations in its 2030 2.03 ratio balance sheet and 2021 Turnaround objectives Six Capitals to facilitate the development of a future electricity Agenda for Sustainable Development. 2.31 Network performance Our strategic context sector that is competitive, and enabled by modern power 2.03 limit growth in debt securities 2020 2.45 2.68 Refurbish our Transmission and Operations recovery Financial capital system technologies as South Africa strives to achieve Our activities directly affect the following SDGs: (2020: 2.45) and borrowings Distribution networks • Goal 7: Ensure access to affordable, reliable, 2019 3.17 Improve income statement Manufactured capital net zero emissions by 2050. We will apply repowering 3.09 System Reduce system and repurposing of power stations, and build on the sustainable and modern energy for all 3.48 minutes lost minutes lost due to 2021 • Goal 12: Ensure sustainable consumption and 3.53 success of our Renewable Business Unit as catalysts for 3.48 interruptions Improve balance sheet Natural capital MAIN HEADING AT 31 MARCH 2020 2020 4.36 the Just Energy Transition, focusing on industrialisation, production patterns 3.53 Turnaround objectives (2020: 4.36) Six Capitals job creation and the continued socio-economic • Goal 13: Take urgent action to combat climate change Environmental impact Business separation Human capital 3.16 2019 3.53 development of communities and settlements established and its impacts Address poor environmental performance Operations recovery Financial capital around our power stations. and climate change People and culture Social and relationship capital Furthermore, through our business activities, SAIDI, hours Reduce the average Improve income statement Manufactured capital 35.4 The initiatives that are beginning to emerge from the transformation initiatives and our CSI initiatives, we also Particulate emissions, Reduce the ash (particulates) 2021 0.32 0.38 35.4 interruption duration 2021 38.0 Intellectual capital ongoing strategy review will be pursued over the short, contribute to, or have to consider, the following SDGs: (2020: 36.9) 36.9 medium and long term. This will ensure that timely and Financial review kg/MWhSO emitted from experienced by 2020 • Goal 3: Ensure healthy lives and promote well-being Improve balance sheet Natural capital 0.47 38.0 coal-fired power 2020 customers appropriate strategic decisions are made to catalyse 0.38 stations, per unit of 0.33 2019 38.0 38.0 opportunities that will improve our sustainability and for all at all ages 0.47 • Goal 5: Achieve gender equality and empower all Business separation Human capital (2020: 0.47) MAIN HEADING energy sent out 2019 0.33 resilience, and also benefit the South African electricity AT 31 MARCH 2020 Turnaround objectives Six Capitals 05 | INTEGRATED REPORT | 31 MARCH 2020 women and girls industry. Consequently, our turnaround plan remains the • Goal 6: Ensure availability and sustainable management People and culture Social and relationship capital Specific Reduce the amount 1.42 Operations recovery Financial capital key enabler that must be successfully delivered so that water usage, of water consumed 2021 of water and sanitation for all 1.34 Intellectual capital we can pursue a trajectory towards a sustainable, low- ℓ/kWhSO by all power 1.42 Improve income statement MAIN HEADING MAIN AT 31 MARCHEADING Turnaround objectives Manufactured capital carbon future. However, unless the tariff methodology is • Goal 8: Promote sustained, inclusive and sustainable stations, per unit of 2020 AT 31 MARCHEADING MAIN 2020 1.42 1.35 AT 31 MARCHEADING MAIN economic growth, full and productive employment and 2020 MAIN AT 31 MARCHEADING properly applied, our ability to execute these strategies 2020 2020 energy sent out Turnaround objectives Six Capitals AT 31 MARCHobjectives 2020 decent work for all Turnaround Six Capitals 1.41 Turnaround objectives Six Capitals (2020: 1.42) 2019 Turnaround objectives Six Capitals will be compromised. Operations recovery Improve balance sheet Natural capital Turnaround objectives Six Capitals 1.36 Operations recovery Financial capital • Goal 9: Build resilient infrastructure, promote inclusive Operating performance Operations recovery Financial capital Operations recovery Financial capital Operations recovery Financial capital We continue to be guided by some critical documents Operations recovery Financial capital 05 | INTEGRATED REPORT | 31 MARCH 2020 Business separation Human capital and sustainable industrialisation and foster innovation Improve income statement Improve income statement Improve income statement Improve income statement Improve income statement Manufactured capital Manufactured capital Manufactured capital Manufactured capital and strategies which set out the shareholder's broad • Goal 15: Protect, restore and promote sustainable use Improve income statement Manufactured capital approach, policies and expectations, including: of terrestrial ecosystems, sustainably manage forests, Health and safety People and culture Social and relationship capital • The National Development Plan 2030, which depends Improve balance sheet Natural capital Support a culture of Zero Harm Strengthen balance sheet Improve balance sheet Improve balance sheet Improve balance sheet Natural capital Natural capital Natural capital combat desertification, and halt and reverse land Improve balance sheet Natural capital on a reliable, efficient and competitive energy sector, degradation and halt biodiversity loss LTIR Reduce employee Intellectual capital Business separation Human capital which will be environmentally sustainable and expand 0.22 0.22 Business separation Human capital lost-time injury rate 2021 Business separation Business separation Human capital 0.32 access for consumers of electricity Business separation Human capital Business separation Human capital (LTIR) for the group More information on SDGs is contained in the sustainability report, (2020: 0.30) 0.30 (including 2020 0.34 People and culture People and culture People and culture Social and relationship capital Social and relationship capital Social and relationship capital • The Roadmap for Eskom in a Reformed Electricity Supply which is available online People and culture People and culture Social and relationship capital occupational 2019 0.31 People and culture Social and relationship capital Industry released by DPE in October 2019 (DPE's diseases) 0.34 Intellectual capital Roadmap) Supplementary information 05 | INTEGRATED REPORT | 31 MARCH 2020 Intellectual capital Intellectual capital Intellectual capital Intellectual capital • The legislative framework provided by the National Energy Act, 2008 and supporting legislation Other metrics Graph legend Year-on-year performance • The Integrated Energy Plan and Integrated Resource Above are some of the KPIs used to measure our overall Plan 2019 (IRP 2019), setting out the most recent view Target 05 | INTEGRATED REPORT | 31 MARCH 2020 Performance improved performance. We also make use a number of other metrics 05 | INTEGRATED REPORT | 31 MARCH 2020 of the growth and future direction of the energy sector 05 | INTEGRATED REPORT | 31 MARCH 2020 05 | INTEGRATED REPORT | 31 MARCH 2020 05 | INTEGRATED REPORT | 31 MARCH 2020 to monitor performance across our business, which are Actual (target met) Performance stable highlighted throughout the report and in the supplementary Actual (target not met) Performance declined information from page 128. 42 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 43 BACK TO MENU OUR STRATEGY AND TURNAROUND PLAN continued Who we are and how we create value Governance, leadership and ethics Strategy overview Strategic objectives Digitisation phased approach, which will lead to the emergence of Our immediate priority is to address Eskom's financial Our long-term strategy and integrated long-term plan Digitisation and digitalisation have become more a new, viable Eskom. It is underpinned by three pillars, and operational challenges to stabilise the business are under review to take into account changes in the prevalent, to incorporate and coordinate distributed which aim to stabilise, optimise and grow the business. to create a sound platform to leverage capabilities, operating environment. A new set of strategic objectives generation efficiently and improve the overall efficiency All three pillars will be actioned in tandem to ensure and to pursue a growth trajectory that supports have been developed, informed by industry trends and of the grid and operations. The industry is experiencing that short-term opportunities are leveraged and risks national strategic imperatives such as the Economic the key initiatives necessary to turn around the business. an increase in digital electricity infrastructure investment are managed effectively. Reconstruction and Recovery Plan and the Just Energy and declining costs for grid technologies. New data, In the short to medium term, we are focusing on the five generated globally, will lead to new ideas and has huge Our turnaround plan focuses on operations recovery, Transition (JET). focus areas of the turnaround plan. We have also set a improving the income statement, strengthening value creation potential. number of long-term objectives. Lastly, JET will act as a the balance sheet, driving business separation and pivot point to enable the short- and long-term strategy Democratisation transforming our people and culture. The successful to enable growth. Future energy systems will incorporate many customer execution of the turnaround plan, and the business technologies through decentralised generation and separation project in particular, will result in an Eskom decentralised ownership. Artificial intelligence, that is agile and well positioned to deliver value within the blockchain, the Internet of Things and advanced analytics broader national efforts to drive reform in the electricity start-ups are disrupting the status quo and are driving supply industry, through the execution of DPE's Roadmap. Turnaround innovation in this space. objectives Approximately 10 000MW of Eskom's base-load capacity Progress against the turnaround plan is discussed from page 47 will be decommissioned in the next decade, resulting Long-term strategy in additional strain on the system and the need for new The long-term strategy positions Eskom as an enabler generating capacity. Cleaner technologies, including of the Just Energy Transition and a key role player in significant renewable capacity, has to be brought online executing the IRP. We intend to remain a critical player to fill the gap created by both the decommissioning of in the electricity sector and make a vital contribution Our strategic context stations and future demand. This has to be supported by Long-term a significant expansion of the transmission grid, which to economic growth, job creation, socio-economic development and the creation of a stable, equitable and objectives will also contribute to stimulating economic activity and cohesive South Africa. Industry job creation. Pursue financial and Just Energy Transition trends operational sustainability There is the dual focus of divestment from fossil fuels JET is about leveraging the opportunities presented and increased funding for renewables in international by the transition towards a cleaner and greener Decarbonisation finance and climate action circles. Therefore, the ability Facilitate a future competitive to attract funding as part of JET is required to support energy future, while enabling the creation of new job Decentralisation energy industry opportunities for those displaced by the replacement of the gradual shift from fossil fuel-based to cleaner power coal by these cleaner technologies. Therefore, it means Digitisation Just Energy Modernise the power system generation, while managing the impact on the livelihoods a transition towards a low-carbon, climate-resilient Democratisation Transition of communities dependent on our operations. economy and society in a manner that does not impede Financial review Strive for net zero Short- to medium-term strategy socio-economic development, but results in an increase Accelerate the repurposing emissions by 2050 Over the past few years, we have focused on cleaning up in sustainable jobs. It is not a sudden shift in economic and repowering of stations governance issues, containing costs and re-energising the activity, but occurs in a phased manner over time. business in order to set a firm foundation for growth. Actively pursue a share of By following a JET pathway, it will be possible to At the same time, there has been a concerted effort simultaneously spur economic growth, create sustainable renewable energy allocation to strengthen the financial position through demand jobs and put emissions into structural decline, as stimulation, cost curtailment and efficiencies, limiting opposed to an electricity supply that is seen to Implement an integrated capital expenditure – which has have a negative effect compromise economic growth. Eskom is a key enabler socio-economic strategy on executing our strategies and longer term plant of South Africa's transition towards an economically sustainability – as well as striving to achieve a cost- Operating performance inclusive and lower carbon future. reflective price of electricity. The equity injection from Government, which commenced in the 2020 financial The JET vision is net zero emissions by 2050, with an year, is aimed at addressing liquidity challenges, although increase in sustainable jobs. it does not support long-term financial sustainability. Industry trends Decentralisation Regrettably, the impact of the COVID-19 pandemic and The JET Office has been established to drive this vision. The long-term strategy is underpinned by four industry Large utilities are paying more attention to distributed the associated national lockdown has had a severe impact JET is a key lever to unlock the potential for local trends that are shaping the future of the electricity sector. energy, which brings about new roles and participants on our business, particularly on sales volumes. manufacturing and industrialisation, which includes in the power market. The penetration of residential meeting the demand for electric vehicles. The JET Decarbonisation and commercial rooftop solar power has increased Our turnaround plan factors in recommendations by social impact will be addressed by retraining staff in The industry is experiencing huge shifts towards more significantly in South Africa, particularly in light of new the Presidential Task Team and the Ministerial Review the required skills. Supplementary information carbon-efficient energy sources, due to many countries regulations permitting South Africans to generate their Task Team, specifically towards achieving operational and companies adopting global climate neutrality goals, own electricity for self-consumption. Decentralisation stability. The short- to medium-term strategy follows a coupled with more stringent environmental policies in line will require utility operations to be decentralised for with the Paris Agreement. This shift has led to a continued local area control. decrease in renewable energy technology costs. 44 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 45 BACK TO MENU OUR STRATEGY AND TURNAROUND PLAN continued Who we are and how we create value Governance, leadership and ethics The purpose of the JET strategy is to provide a coupled with a continued focus on microgrids for Responding to climate change • As the counterparty to DMRE's Renewable Energy consolidated view of the approach that Eskom should take greater access to electricity We have to transition from a coal-based to a lower carbon Independent Power Producer (RE-IPP) Programme to transition from coal-fired power to more sustainable, • Ensure positive social impact through local and more climate-resilient company. As we embark on • Construction and operation of our own renewable lower-emission energy sources which support base-load manufacturing and job creation this transition, we are implementing other mitigation and energy sources demand. The strategic objectives are to: • Collaborate with Government, business, academia and adaptation measures to reduce our climate change impacts. • Investigating new opportunities for demand-side • Accelerate the repurposing and repowering of power civil society to drive a JET agenda for the country Mitigation refers to all activities undertaken to reduce management, combined with ongoing operation of stations • Leverage national and global climate and green greenhouse gas emissions (GHGs), and mainly includes existing measures • Fast-track execution of renewable energy through financing opportunities, and pursue agreements the use of lower carbon-emitting technologies, such as • Technology demonstration projects in off-grid and partnership funding models, as well as through our for repurposing, greenfield renewables, small-scale renewables and nuclear and the promotion of energy- battery storage systems own build and power purchase agreements embedded generation options and grid strengthening efficient technologies and activities. Adaptation to climate • Ongoing research into new renewable energy, • Drive research and innovation into technological change seeks to reduce the vulnerability of systems to storage and grid stabilisation technologies, as well solutions, including storage options and the hydrogen The JET strategy will focus on several key areas over the the effects of short- to long-term changes in climate. The as technologies that improve the environmental economy, thereby increasing adaptive capacity, next five years, as shown below. response includes adapting to the weather change impacts, performance of coal-fired electricity generation, climate variability and long-term climate change impacts, including future opportunities for biomass co-firing and thus allowing systems to build adaptive capacity and long- carbon capture, utilisation and storage term resilience, such as investing in drought- or flood- • Expanding the transmission grid to connect utility-scale resilient technologies. renewable energy projects from around the country Social impact studies The production of electricity from a coal-fired power station • Expansion of the distribution grid to accommodate the JUST ENERGY Job creation results in just over 1 ton of CO2 for every MWh produced. connection of mini-grid systems Doing better for people and Cleaner, sustainable electricity provision There is no commercially viable retrofit technology available • Studies to enable the deployment of gas and/or hydrogen the planet, growing localisation Local manufacture to capture and store CO2 from our large coal-fired power Repowering Dual fuel & midlife gas infrastructure to support the electricity grid as the and industrialisation industrialisation stations. Therefore, the reduction in future GHG emissions supply mix transitions Repurposing Grid upgrades & smart grids from South Africa's electricity sector is projected to come Our strategic context • Promotion of market models that accommodate from the gradual deloading and closure of existing coal- demand-side management, self-generation and IPPs Funding & financing options fired power stations as they reach their end of life, while TRANSITION Accelerated renewable Microgrids & small-scale • Ongoing promotion and deployment of smart metering energy embedded generation simultaneously building new, lower carbon facilities such as Transformational change of Partnership options systems wind and solar plant combined with gas and battery storage. business models, attracting • Engaging with NERSA on tariff structures that send This change in the future electricity generation mix of the green financing JET transaction Storage options Electric vehicles accurate price signals to all market participants to drive country is detailed in the IRP 2019. the optimal mix and use of electricity As the energy mix transitions, we are undertaking a ENABLERS Collaboration across constituencies number of activities to support this process: Cooperation agreements Policy alignment Change management • Investigating the opportunity to repurpose coal- fired electricity generation facilities for lower carbon electricity production, grid support and/or community Financial review development JET focuses on transitioning efforts over a 30-year time horizon between 2020 and 2050. The aspirational goals for 2030, 2040 and 2050 will be further refined by ongoing systems modelling that will aid in defining future Progress against the turnaround plan Regarding improving the income statement, certain areas energy net zero pathways and an appropriate energy mix. Our turnaround plan focuses on five key areas, namely: are on track, such as initiatives to reduce headcount, This systems modelling is overlaid by grid planning and procurement savings and initiatives to improve the tariff • Operations recovery financial modelling to ensure that we develop a robust, tragectory, while other areas are lagging behind, such operable plan. Collaboration with research bodies • Improving the income statement as divisional efficiency savings and some primary energy aligned to our future mix will enable the identification of • Strengthening the balance sheet initiatives. Municipal and Soweto arrear debt continues Operating performance jobs that Eskom could contribute to developing, whether • Driving business separation to escalate due to little progress on intergovernmental directly, indirectly or induced. • Transforming our people and culture interventions. The first five years of the transition are deemed to be Progress on key areas Regarding the strengthening of the balance sheet, some the most critical to enable sustainable success and to On operations recovery, there is some cause for areas are also lagging behind expectations, such as establish our position in both Eskom's and the country's concern. Fixing new build defects, as well as addressing management of obsolete stock and disposal of non-core Just Energy Transition. partial and full load losses are taking longer than we had assets, as well as optimisation of capital expenditure. expected. Performance on the reliability maintenance Regrettably, the sale of EFC to the preferred bidder recovery programme can be improved. Furthermore, was not approved by DPE. progress on environmental performance, particularly at Kendal Power Station, is not satisfactory. Of concern The progress on the legal separation of the Transmission Supplementary information is the high utilisation of the older coal-fired power entity is lagging behind, with legal and regulatory stations significantly above international norms, thereby amendments and setup of the new entity behind schedule. exacerbating the challenges. Refer to “Progress on business separation” on the next page for further information 46 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 47 BACK TO MENU OUR STRATEGY AND TURNAROUND PLAN continued STAKEHOLDER ENGAGEMENT Who we are and how we create value Governance, leadership and ethics Regarding people and culture, external stakeholder It is a requirement, and key dependency, that Eskom faces unprecedented business challenges in To restore trust in Eskom, we continue to work relations and communication with employees performed bondholders and financial instrument holders approve a context where disruption is the new norm. We on improving the transparency of reporting to the well during the year, despite constraints imposed by any unbundling of Eskom. All lenders need to be engaged operate in a highly regulated market that is undergoing shareholder, our stakeholders and the broader public. COVID-19 restrictions. We completed the relinking and their support obtained. If support is not received fundamental reform in the context of South Africa's Advocacy and stakeholder engagement remain key of staff as part of the business separation and achieved from all, an option exists to pay off the lenders that energy security, decarbonisation and transformation enablers of our strategy and turnaround plan and, as such, people efficiencies, but we need to continue driving a do not support the process in order to continue. To agendas, all of which have implications for our approach our engagements with stakeholders are carefully planned high-performance culture. obtain their approval, Eskom will have to prove to to stakeholder engagement. The Government and in terms of the approach, scope and intended outcome. investors and lenders that the business separation will Regulatory Affairs Division (GRAD) is responsible for not compromise their economic position, and that their inclusive relationship management – with Government, We remain committed to addressing the prevailing Performance on key KPIs linked to each of the turnaround areas, as well as trends, are set out on page 42. Detailed commentary on the areas is exposure to Eskom Holdings will not change materially various regulators, as well as domestic and international electricity supply crisis in a manner that supports the provided throughout the report following the business separation. Based on engagements stakeholders – as well as effective communication, image growth and development of the economy and our with investors, they question the ability of the business and brand building. society, without a detrimental impact on our economy. Progress on business separation We are keenly aware of the need to mobilise the separation to bring about financial sustainability for DPE's Roadmap sets out timelines for the restructuring Through SES, the Board provides oversight of the support of stakeholders and the broader South African the company. of Eskom from a vertically integrated utility to an effectiveness of stakeholder engagement, and delegates population to achieve success. unbundled state with three wholly owned separate legal Financial and legal advisors will be utilised to manage the the management of stakeholder relationships to Exco. entities in the form of Transmission, Generation and risks related to the various forms of debt instruments, Various functions within Eskom are responsible for Stakeholder landscape Distribution as follows: ensuring that all investors' exposure to Eskom credit engagements with different stakeholder groups, under Our broad and extensive stakeholder landscape requires after the business separation is similar to the status the oversight of Exco. navigating and prioritising a myriad of divergent and • Divisionalisation by March 2020 quo. After the transaction, both entities must pass the sometimes competing stakeholder needs and concerns. • Functional separation by March 2021 Restoring stakeholder trust in Eskom is critical to our We endeavour to take a proactive approach that • Legal separation of the Transmission entity by solvency and liquidity test set out in section 4 of the Companies Act, 2008. future success. By improving the way we engage with protects business value and seeks to create shared value December 2021 stakeholders and seeking to understand and respond to with strategic stakeholders. • Legal separation of the Generation and Distribution Furthermore, approved trading arrangements must stakeholder interests and needs – including trade-offs Our strategic context entities by December 2022 be in place by 31 December 2021, without which the and opportunities – we aim to promote energy security Our key stakeholder groups have been classified Transmission entity cannot operate. It is vital that in the long term. as authorisers, influencers, partners or enforcers. We have approached the implementation of DPE's Stakeholder groups have been categorised based on their wholesale and aligned retail tariff structures be in place Roadmap in a phased manner to ensure organisational Our interaction with stakeholders perceived influence on Eskom, and our impact on them. to give proper effect to legal separation. This requires stability during the transition. By and large, our timelines We depend on strong and productive relationships that the regulatory framework must be in place and that are aligned to those in the Roadmap. with stakeholders – Government, the financial sector, wholesale tariffs need to reflect energy purchases and Divisionalisation was achieved by March 2020, with Transmission entity services costs separately. business, labour and consumers – to deliver value. functional separation having been targeted by March 2021. However, public opinion remains very low, despite a Retail tariffs also need to be unbundled to reflect marked improvement since the previous year. Major milestones towards the completion of functional the wholesale prices, network costs and other separation having been were completed, with only service services. NERSA has to approve mechanisms for how Refer to “Our role in communities – Our reputation” on page 115 for level agreements and IT changes still to be finalised at the Transmission entity will purchase energy from additional information 31 March 2021. Functional separation of the three line Financial review Generation and IPPs. The tariff levels must be aligned to divisions was completed by 7 June 2021, with all the the NERSA revenue determination. necessary documentation completed and signed. The process of legal separation has many internal and Stakeholders' influence on Eskom An accelerated base plan was developed to allow for the High external dependencies. These areas include licence Investors legal separation of Transmission by December 2021, with Parliament Regulators transfers and applications, policy and regulatory reforms, Employees Government Generation and Distribution by December 2022. Given as well as legal and financial dependencies. Therefore, the completion of functional separation, the focus has the achievement of legal separation is dependent to a shifted to the legal separation phase. Medium large extent on Government playing a proactive and We have commissioned a due diligence exercise to supportive role. Business and Civil society Customers suppliers Operating performance review the legislative framework and landscape. The Regrettably, a number of delays are being encountered in exercise was necessary to provide guidance on relevant preparation for the legal separation of Transmission. A Low issues, so that an informed decision could be made on number of dependencies are lagging behind, and this puts International Media decisions relating to the separation of the Transmission groups the finalisation of the separation by 31 December 2021 business. In looking at how best to achieve legal at significant risk. Guidance is awaited from DMRE Low Medium High separation, consideration should also be given to the regarding licensing and internal market operations of the impact on the Generation and Distribution divisions after Transmission entity. At the moment, our projection is Eskom's impact on stakeholders legal separation of the Transmission business, as well as that separation will not be achieved by the target date. the efficient functioning of the Transmission business Partners Enforcers Authorisers Influencers Our intention remains to comply with the timelines after it has been legally separated. set out in the DPE Roadmap, despite the obstacles Supplementary information Following the due diligence exercise, several encountered. As a state-owned entity, the requirements of the South African Government are paramount to what we do. The interdependencies need to be considered: Government acts as our shareholder through DPE, setting out the mandate on which we must deliver, with other An intergovernmental steering committee comprising departments setting policy within legislative frameworks or providing oversight of our operations. Alignment with DPE The Eskom Conversion Act, 2001 and Electricity DPE, DMRE, National Treasury and Eskom has been and other Government departments is key to facilitating the best possible future for Eskom, and ultimately the country, Regulation Act, 2006 need to be amended to grant the established to focus on the financial, legal and energy through the implementation of DPE's Roadmap. Transmission entity the same access to land entitlements policy dependencies to aid in the timely legal separation currently vested in Eskom. of the three entities. 48 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 49 BACK TO MENU STAKEHOLDER ENGAGEMENT continued MATERIAL MATTERS Who we are and how we create value Governance, leadership and ethics Our stakeholder engagement strategy We require the support of all our stakeholders to Material matters are those that affect our ability to Partnerships present an opportunity for Eskom to succeed in implementing our turnaround plan, and create, preserve or erode value in the short, medium and address priority issues in collaboration with strategic thereby, ensuring a sustainable electricity supply industry long term, as set out earlier. Both positive and negative Impact of COVID-19 stakeholders such as policymakers, regulators, industry to power South Africa into the future. matters are given consideration. associations, communities, social partners and the international community. Issues raised by stakeholders Materiality determination process Matters of importance to our stakeholders often We start with the identification of relevant matters Financial sustainability Sufficient levels of advocacy and clear communication have a direct impact on our ability to create value and based on their ability to affect our value creation process, and going concern with stakeholders are necessary to educate them on the to execute our strategic objectives. As such, these by considering those matters reported in the prior challenges and conflicting priorities we face, as well as matters are considered in our strategic planning, and are year. Those matters are updated where needed based Government support and the trade-offs required to respond effectively to those considered in the determination of material matters. on a review of changes in the strategic and operating debt structure challenges. It also gives us insight into what matters to environment since the previous review. our stakeholders. Issues raised by different groups include the following: We assess other factors as part of the review, such Operational stability as topics discussed at Board level, the outcome of the Stakeholder group Issues raised risk management process and issues raised through Environmental performance Regulators Cost-reflective tariffs that include a fair return on assets; revenue management; cost curtailment initiatives; various stakeholder platforms – investor relations, key and compliance Generation business separation; nuclear programme; legal compliance customers, other customer surveys, matters raised Government Performance against the shareholder compact; availability of supply; financial and operational sustainability; by Parliament or oversight committees and the media, Climate change and future debt management; business separation; electrification and job creation; new build programme; municipal debt; and more generally via the Stakeholder Relations energy mix Just Energy Transition; IRP 2019; environmental compliance; financial management; Government support and Department. guarantees; foreign borrowing limits; governance issues We evaluate the impact of these matters on our value Restoring trust Parliament Accountability; corruption and consequence management; legal compliance; revenue management; municipal debt; irregular expenditure; extensions and deviations; availability of supply creation process by considering the effect of the matter, Governance clean-up and ethics Our strategic context given the likelihood of the matter occurring and the Investors Financial sustainability; business separation and management of loan agreements; credit ratings; funding plans and debt levels; cash projections and liquidity; revenue management and tariff certainty; cost curtailment magnitude of the consequences. Matters are prioritised High-performance culture initiatives; cleaner technology adoption; feedback on environmental, social and governance (ESG) topics based on their relative importance. Those deemed to be material matters are covered in some detail in this Customers Quality and reliability of supply; electricity pricing; accurate accounts; customer connections; electrification grants; service levels; impact of loadshedding integrated report, while other matters are dealt with either at a high level in the report, or through other Business separation progress Business and industry Social compact; availability of supply; affordable electricity and tariff certainty; forewarning of loadshedding; channels or platforms. business separation; new sources of energy; cost management; business opportunities; illegal connections; governance issues Current year material matters Employees and organised labour Job security; employee benefits; impact of business separation on employees; governance issues; electricity The material matters reported in our previous pricing; business performance; strategic direction; leadership stability By and large, the material matters are all relevant over integrated report remain applicable, although the level of Suppliers Governance issues; financial and operational performance; health and safety, skills development; supplier importance may have changed. The material matters set the short, medium and long term, and will have a negative Financial review development, localisation and industrialisation; job creation; progress on the new build programme and out below are categorised according to our turnaround impact on our ability to create value if not managed workforce demobilisation properly. objectives, even though we reflect on the six capitals as Civil society Responding to climate change; legal and environmental compliance; licence to operate; cost management; part of the determination of material matters. environmental management; community development Our strategic risks, which are aligned to our turnaround objectives and Compared to our previous report, safety has been indirectly, to the material matters, are discussed from page 53 International institutions Business separation; renewable energy; grid expansion into Africa; public-private partnerships to develop gas-to-power infrastructure; collaboration and investment opportunities removed as a material matter, but the topic is covered under operational stability. In view of the fundamental impact on our ability to create value, restoring trust has As indicated earlier, as an essential service, we were been shown separately; in the prior year it was covered allowed to continue operating at full capacity even during under reputation and trust. level 5 of South Africa's national lockdown. Therefore, Operating performance we were able to ensure supply to our customers, with Financial sustainability comprises our financial results; the suppliers being allowed to continue their supply to us. revenue outlook given the tariff trajectory and stagnant Furthermore, we did our utmost to ensure that our or declining sales volumes; cost curtailment initiatives; employees were safe while executing their duties. funding raised; liquidity and escalating municipal arrear debt. Operational stability covers both generation plant Improving the quality of stakeholder relationships and network performance, and includes loadshedding, We recognise the importance of rebuilding and coal and water security, progress on the new build strengthening confidence and trust in Eskom by programme and safety performance. implementing our turnaround plan and improving our performance, to ensure that we are able to deliver The impact of the COVID-19 pandemic and the resulting national Supplementary information on our mandate and DPE's Roadmap to transform the lockdown on our business and staff was summarised on page 2, with electricity industry. As part of that process, we need the further detail being provided throughout the report continued support and commitment of our employees and all stakeholders as we transition towards a more desirable future for Eskom and the country. Improving the quality of our relationships with stakeholders will enable that process. 50 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 51 BACK TO MENU RISKS AND OPPORTUNITIES Who we are and how we create value Governance, leadership and ethics Enterprise risk management process The programme also covers business continuity We have identified the following national disaster risks, • Deterioration in operational performance due to loss We have an established, integrated approach to managing management, encompassing planning and preparation with accountability for risk and response planning for of critical skills, poor generating plant performance risk and resilience at a corporate level, which is set out in to ensure that the organisation can continue to operate each assigned to individual Exco members. This excludes and low quality of outage execution, coupled with the Integrated Risk Management Standard. This standard in case of serious incidents or disasters, and is able to those at provincial or site level: running ageing generating plant at unacceptably high is applied across Eskom and its subsidiaries to manage recover to an operational state within a reasonably short • National blackout utilisation levels, coal-related challenges and capex all types of risks, including those affecting strategy. The period. • Severe supply constraint being constrained as a result of liquidity pressure Enterprise Risk and Resilience Policy, together with the • Nuclear incident • The inability to sustain and maintain transmission Eskom's Emergency Response Command Centre remains Enterprise Risk and Resilience Management Plan and network reliability, coupled with intolerable levels activated to coordinate the response to the COVID-19 • Economic or financial collapse Risk Appetite and Tolerance Framework, constitute the of theft and vandalism to network equipment, pandemic. Furthermore, national disaster priority risks • Cyber-attack or catastrophic IT system failure key documents governing risk which are approved by overloading of networks caused by illegal connections continue to be tabled at the Exco Operating Committee • National industrial action the Board. This is aligned to the recommendations on leading to potential system constraints, the risk of a to ensure operational oversight. good governance in King IV TM, which sets the oversight of • National drought or floods blackout and a decline in stakeholder confidence resilience or business continuity as a board-level priority. At provincial level, business units have incorporated • Environmental and climate issues • Loss of licence to operate due to poor environmental national disaster priorities into their resilience • Solar or geomagnetic storm performance, leading to plant shutdown and/or Risk owners are accountable for managing risk, which programmes and are developing plans in support of • Worldwide pandemic of infectious disease litigation is achieved mainly in the management processes of national disaster planning. A framework for electricity- divisions, subsidiaries and corporate functions, and is • Terrorism or political instability • Critical applications and various IT platforms related disaster planning has been adopted by the compromised due to attacks against network evident in decision-making processes and outcomes. National Disaster Planning Technical Task Team, initiated As noted last year, the worldwide pandemic, as well as infrastructure and business systems, cyber-security All divisions are required to develop a Risk and Resilience through the National Disaster Management Centre severe supply constraints, cyber-attacks and catastrophic shortfalls and instability leading to severe business Management Plan aligned to the divisional business plan. (NDMC). A multisector national blackout simulation IT system failures occurred during the first few months disruptions One integrated risk management information system is exercise was conducted on 18 March 2021, involving of the 2021 financial year. used for all organisational risk management information. DMRE, SAPS and participants from various sectors Risks affect Eskom on many levels, such as strategy, The Board is ultimately responsible for the governance including water, health, telecoms and banking. The Refer to page 57 of the 2020 integrated report for further information finance and operations, and ultimately, the execution Our strategic context of risks and opportunities in Eskom. The responsibility simulation was coordinated by the NDMC; engagements against our turnaround objectives and achievement of to implement and execute effective risk and resilience are under way to improve the country's capacity for Strategic risks shareholder compact KPIs. management has been delegated to Exco in order blackout response. Eskom can treat most risks, although the following are Our risk landscape is being monitored, tracked and to support the organisation in achieving its strategic paramount for future success: reported across seven risk categories approved by objectives. Exco and its Risk and Sustainability Assessment of risk • The financial sustainability of Eskom being the Board, namely finance, operations, environment Committee as well as ARC review the key priorities The objective of managing risk and resilience is to compromised due to declining sales, escalating and climate change, people, information technology, and deliverables in our Risk and Resilience Management ensure that we are able to formulate and execute our arrear debt from non-paying customers, lack of stakeholder management as well as compliance and Plan annually. strategy effectively, to operate our business efficiently cost-reflective tariffs and unsustainable levels of governance. with minimum disruption, to proactively leverage indebtedness A risk maturity assessment identified areas for improvement opportunities as these arise, and to be able to respond related to ensuring organisational resilience and improving rapidly and recover effectively from disruptions should situational awareness amid Eskom's unbundling. these materialise. It is therefore important that risks that Risk appetite statement per risk category, including Key risk Financial review affect our objectives are identified, effectively managed summary of risks indicators High-level treatment options Risk appetite and tolerance and continuously monitored. Finance Risk appetite refers to the amount and type of risk an organisation is prepared to pursue or accept in Emerging risks High appetite to be profitable by increasing revenue, effective debt EBITDA, EBITDA • Government equity support achieving its objectives, while risk tolerance refers to collection, operating at an efficient cost base and having a stable margin, savings • The Eskom Compact signed by labour, business and Emerging risks are assessed on a regular basis, based on balance sheet and restricted Government at Nedlac an organisation's readiness to bear the risk after risk an enviroscan of changes in our operating environment capex spend Eskom's unsustainable financial performance and liquidity • Focus on revenue certainty, optimising cost, treatment. This risk appetite and tolerance process serves due to global and local developments and changes challenges will lead to compromised operations, inability to divisionalisation and independent financial as an early warning mechanism when adverse risk trends reported in the business. The identification of emerging maintain its going concern status and not meeting its corporate sustainability reach unacceptable limits. This is done by developing risks is critical to ensure that risks are managed mandate. This is exacerbated by high levels of debt servicing, • Weekly meetings with DPE and National Treasury, management-approved key risk indicators (KRIs) for all proactively. Emerging risks are tracked and reported inadequate revenue awarded by NERSA, an increase in non- focusing on liquidity management Operating performance payment of municipal and other accounts leading to arrear debt major risks, in an effort to manage risks proactively. on quarterly. • Engagement with DPE and National Treasury on growth and declining revenue, contractor challenges, reduced coal ways to address the debt burden offtake against contractual terms leading to penalties, as well as The Board sets Eskom's risk appetite by approving Disaster risks Eskom's sub-investment grade credit rating • Escalation of municipal arrear debt challenges to risk appetite statements for the key risk categories, as Risks inherent to our operations that would have a Government required by King IV TM, to steer Eskom through the current significant consequence should they materialise are Environment and climate change challenges. It is imperative that management tracks risks classified as disaster risks. They have a relatively low and KRIs to understand the direction risks are taking. No appetite for non-compliance with environmental legal Number of • Strategy development for emission projects is in likelihood of materialising controls and controls are requirements causing irreversible damage to the environment, environmental place generally adequate, therefore they are usually managed as well as carbon emission reduction commitments in support of contraventions • Workshops set up on CSI and socio-economic Enterprise resilience through our resilience programmes that cater for South Africa's economy and the well-being of its people development policy to promote collaboration Our ability to respond to major threats and disruptions, disaster management and emergency preparedness. Failure to transition and implement low-carbon initiatives to • Just Energy Transition strategy as well as compliance with the Disaster Management National disaster priorities have been identified and manage emissions could lead to penalties from authorities and/or Supplementary information Act, 2002 is addressed by the Enterprise Resilience accountability for risk monitoring and response planning potential loss of Eskom's social licence to operate Programme. The programme focuses on the ongoing for each has been assigned to individual Exco members. development of resilience capabilities at site, divisional, provincial and national levels. We continuously review technical and non-technical vulnerabilities to prevent and recover from disaster incidents, in addition to undertaking regular tests and simulation exercises. 52 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 53 BACK TO MENU RISKS AND OPPORTUNITIES continued Who we are and how we create value Governance, leadership and ethics Risk appetite statement per risk category, including Key risk Organisational risks The identification and treatment of all risks is the summary of risks indicators High-level treatment options Organisational risks affect the achievement of objectives responsibility of management. All Priority 1 and emerging and may influence the execution of divisional business risks are reported quarterly to Exco and the Board, Operations plans. Risks are classified from Priority I risks at the which provide oversight as recommended by King IV TM. No appetite for a national blackout, but use loadshedding as a Energy availability • Generation recovery plan, which is revisited highest level to Priority IV risks at the lowest, based on control measure to protect the national grid while continuously factor, local and continuously to evolve the plan the quantification of risk in terms of consequence and At 31 March 2021, we had 49 Priority I risks (2020: driving increased electricity sales international sales • The appointment of a Group Executive for likelihood in terms of our Risk Appetite and Tolerance 44), which include strategic risks and those affecting trend Generation has been concluded Ageing fleet, historical maintenance backlog, declining coal quality Framework. Consequences consider the potential achievement of the shareholder compact. The positions and new plant not achieving the desired levels of performance, due • The Koeberg long-term operation project is in on the risk matrix align to our Risk Appetite and to a combination of plant design deficiencies and operational and place to avoid shutdown in 2024 impact of a risk, ranging from financial and operational maintenance inefficiencies, all contributing to the struggle to meet sustainability, sustainable asset creation, environment and Tolerance Framework. • Focus on improving reliability, reducing electricity demand. Furthermore, the ageing grid is plagued with loadshedding, addressing design defects, climate change, legal and compliance, reputation, health intolerable levels of theft and vandalism to network equipment. divisionalisation and monitoring of security plan Delays in connecting IPPs to the grid adds to the unreliability of and safety, and information management. implementation power supply, which leads to revenue delays for Distribution and • Transmission sustainability improvement plan financial penalties for Transmission Priority 1 level risks at March 2021 Priority 1 level risks at March 2020 • Distribution has launched the Energy Losses Effective load management is compromised and the balancing of Initiatives Programme 6 4 9 12 6 3 8 4 8 generation, distribution and electricity demand is increasingly • Various engagements with DPE and National challenging due to breakdowns. Failure of Eskom's Telecoms Treasury 5 8 5 5 5 3 network could lead to regional and/or national blackouts • Plans are being revised to respond to increasing Consequences Consequences Amendments to National Treasury rules and involvement of network equipment crime 4 10 4 9 3 National Treasury in Eskom's operations are affecting Eskom, especially procurement, with the inability to procure equipment or 3 1 3 1 services timeously affecting security of supply 2 2 People 1 1 Our strategic context High appetite to retain core, critical and scarce skills, and improve Number of • COVID-19 protocols performance with Zero Harm on safety being at the core of the fatalities or • Safety awareness and education programmes A B C D E A B C D E business extensive injuries • Staff engagements The outbreak of the COVID-19 pandemic affects the availability or irreversible Likelihood Likelihood disabilities • HR strategy implementation of employees due to absence from work, leading to production • Focus on ensuring that the business is sufficiently and revenue losses. A breakdown in relationship with labour and enabled and supported to transform management affects productivity and creates a harmful working • Partnership with Mancosa for employees to attend environment. The risk of a third COVID-19 wave was also skills development programmes A recent analysis of the Priority 1 risks has revealed the The changes to the electricity industry present a number anticipated following: of opportunities, such as: Information technology • The number of Priority 1 risks has remained fairly • Remedying the capacity gap and pivoting to a future No appetite for any successful cyber-intrusions on information and Availability • Continual enforcement of security compliance on constant over the past two years sustainable electricity industry operational technology networks, infrastructure and applications metrics for key all applications, as well as collaboration between • The percentage of Priority 1 risks in the 6E category, • Business separation acting as an enabler applications Group IT and application vendors representing those with the highest consequence and Attacks against network infrastructure and/or business systems • Leveraging the transmission grid Financial review may lead to compromised confidentiality and integrity of business likelihood, has nearly doubled over the past two years. • Unbundling tariffs information due to cyber-security shortfalls. Unavailability of This indicates that the severity of the risk landscape critical applications and telephony services, IT equipment failure • Attaining cost-reflective tariffs at data centres, the inability to restore data for workstations and is increasing, with nearly 32% of Priority 1 risks in the 6E category • Utility-scale renewable energy procurement data loss due to unsupported services caused by expired contracts may lead to business disruptions programmes • Five of the risks from the 2020 financial year are still in the 6E category • Opening up the electricity network for distributed Stakeholder management generation and generation for “own use” High appetite to improve Eskom's reputation with Government, RepTrak ® score • Common cause analysis found that some of the • Implementing the stakeholder engagement plan, • Focusing on delivering the Just Energy Transition stakeholders and the public in general including continuous internal and external primary causes are within our control stakeholder engagements • Treatment plans for 10 of the Priority 1 risks are not • Leveraging the Renewables Business Unit as an External political, social and media influence, construction enabling platform to pursue a transition towards a Operating performance site instability due to community unrest and Eskom's overall • Treatment plan to address risks related to National on track. This increases the likelihood of the risk sustainable development role in socio-economic challenges all Treasury delays in procurement processes materialising if not treated. These risks are discussed low-carbon future contribute to a poor reputation. Eskom's recovery is expected to address stakeholder distrust. There is a possibility of industrial in detail at the Exco Risk and Sustainability Committee We have the opportunity to harness technical and action during the annual salary negotiations, while the adverse In order to bring our risk landscape within the risk funding solutions that have become available amid the economic environment challenges stability. This is exacerbated by global climate crisis. South Africa is endowed with the potential loss of Eskom's social licence to operate if investor appetite and tolerance levels, an ”attacking the causes” and community demands for a Just Energy Transition were initiative is under way to ensure alignment to primary abundant renewable resources, which offer opportunities not considered controls and related tasks. A risk inquiry will be conducted to create the conditions under which a credible, green on all risks in the 6E category for longer than six months. and reindustrialised electricity sector can help power Compliance and governance Treatment plans are being revised to ensure that they are economic recovery. We also are presented with No appetite for any non-compliance with legislation, regulation, Number of • System improvements to enhance system controls, focused, innovative, robust and achievable within specific opportunities to unlock related priorities such as the Just policies and procedures affecting governance breaches as part increased probity checks to manage conflicts of Energy Transition while creating sustainable jobs. Supplementary information of Eskom's interest, developing contracts and conducting fraud timelines. Internal and external subject matter experts will Fraud, corruption, unethical business practices, conflict of interest caused by unethical business practices and conflicted stakeholders compliance awareness training be involved in developing treatment plans. in procurement are risk factors universe • Exco approved a new fraud detection project, Non-compliance with sections 50 and 51 of the PFMA, 1999, although progress is slow due to a lack of resources Identifying opportunities for growth caused by a lack of specialised oversight on key PFMA-related • Anti-Fraud and Corruption Integration Committee In the immediate to short term, we continue with in place, along with PFMA and fraud awareness processes, could lead to reputational damage, financial loss, training initiatives to improve the health and sustainability fruitless and wasteful expenditure and criminal prosecution of • National Treasury instructions and directives of South Africa's electricity assets, factoring in the directors management of risks that may arise over the short to medium term. 54 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 55 BACK TO MENU RISKS AND OPPORTUNITIES continued Who we are and how we create value Governance, leadership and ethics Risks and opportunities associated with climate change Sustainable tariff levels need to be balanced with We are on a journey to return to financial sustainability, The transition to cleaner sources of power is inevitable. The global drive to address the devastating repercussions addressing the affordability of such tariffs, as well as of which achieving cost-reflective tariffs is an integral The risks posed by climate change are known and of climate change affects us directly, while many of our ensuring that the tariffs are set at an optimum level component. The pursuit of the most optimal, least-cost can be transformed into economically viable and customers who will face similar pressures to reduce their to ensure that local industry remains competitive in future expansion pathway will ensure that this element environmentally sustainable opportunities within the carbon footprint are affected indirectly. the global market. The impact that tariffs have on our of the cost base can be defended, and allow appropriate current landscape, while assisting us in dealing with the customers is clearly illustrated by the erosion of the recovery of the costs in the revenue streams. This can various challenges we face. Access to funding as well as the export of goods and South African industrial base over the past decade, contribute to help reset the relationship with NERSA and services by our customers are becoming increasingly with sales decreasing from around 90TWh annually to contain the rise in tariffs required to reach cost-reflective We are committed to fast-track the transition to cleaner restricted as investors call for a faster transition away the current level of about 70TWh, together with the levels. The rise in tariffs will require a solution to address sources of power in a responsible way that considers all from fossil fuels. A number of institutional investors have spiralling arrear debt accumulation of municipalities and the affordability challenges for customers deemed to be aspects, including those of the coal mining communities already withdrawn from financing new coal projects. end-customers. vulnerable, of which inclusion of the least-cost options in that will be affected by the transition. Careful analysis of A faster transition to renewable energy sources is the mix would assist in keeping the tariffs at the lowest all the trade-offs will be undertaken to manage security required to reinstate and retain the eroding investor A financially sustainable Eskom and electricity supply possible levels. of supply and system stability, including the impacts on base. International governments and trading partners industry that encourages investment in the sector is communities. have also started to exert pressure on manufacturers required to enable and lead the transition to cleaner to reduce their carbon footprint. Failure to comply sources of energy. with the minimum standards will result in duties and Conclusion As we contemplate the future, we remain mindful of penalties being imposed, thereby negatively affecting The current landscape and favourable market conditions aimed at accelerating efforts to combat climate change The South African electricity industry is unique, and our fragile balance sheet. Therefore, we will not pursue the competitiveness of goods and services. any venture that may exacerbate the risk that already present significant opportunities that can be leveraged to future actions will need to navigate a complex policy The existing, predominantly coal-based generation fleet transform the various risks and challenges we face into environment, aggravated by prevailing financial and burdens the Sovereign. We acknowledge that we require will increasingly be subject to various external cost opportunities. operational constraints. However, South Africa has very continued support from the fiscus, electricity consumers pressures driven by climate change, which will become little option other than to transform the electricity and other key stakeholders, specifically employees, who more costly over time. A number of costs within the The country has an immediate need for a substantial sector to bring it in line with the global electricity trends. are pivotal to our ongoing sustainability. It is fundamental Our strategic context existing fleet have steadily escalated, including coal costs, amount of additional generation capacity to meet The ultimate rewards for South Africa and Eskom will that we proactively engage and collaborate with all environmental abatement capex and various taxes on demand. A number of the coal-fired stations are reaching be energy security, economic growth and job creation, role players to drive the reforms required to ensure a fossil-based generation, before factoring in externality their end of life, with a significant amount of capacity socio-economic transformation and upliftment, a low- sustainable electricity industry that will serve as a vital costs. A continued rise in these costs will potentially due to be decommissioned by 2030. The rapid decline in carbon industry with reduced environmental impacts, as platform to create a stable, equitable and cohesive threaten the long-term viability of coal generation as the cost of renewable technologies, along with abundant well as ultimate sustainability for Eskom, but avoiding the South Africa. renewables become cheaper. natural wind and solar resources, have made renewables utility death spiral. an economically viable option to start filling the gap, with Over the longer term, failure to address climate change will the benefit of shorter construction times. result in increased exposure and vulnerability of Eskom, our communities and customers to adverse climatic events A mix of the existing coal fleet combined with renewable such as floods, heatwaves and more. Such events may result options will ensure an optimal least-cost total power in damage to infrastructure and supply interruptions, all system that will ensure an affordable, reliable and stable power supply. Financial review leading to an increase in costs unless adequately addressed. While climate change poses various consequential In order to achieve the objective of a transition to financial risks that are well acknowledged and must cleaner sources of power, the new capacity would have be mitigated, the drive to combat climate change to be developed across the country. This will require requires funding. Our current financial position and the significant investment in the transmission grid to affordability of electricity to customers could pose a risk integrate the system. This expansion will also take time to the country's ability to advance the transition to the and would need to be addressed as a matter of urgency. extent and pace of change required. We also face the challenge of a large unsustainable We are addressing the challenges of a weak balance sheet; debt burden that has been characterised by an eroding Operating performance a large unsustainable debt burden; the unreliability of an investor base that is averse to lending to invest in coal, ageing fleet; and a tariff level that is not reflective of prudent as well as high interest costs, shorter debt tenors and efficient costs. Participants in the power sector – be it lower than required tariffs leading to reliance on the Eskom or IPPs – require the ability to recover costs that are shareholder for support. prudently and efficiently incurred, and to earn an adequate Access to funding from concessional financiers with return on assets. Like many regulated markets, we suffer specific mandates to drive climate change, which would from under-recovery of costs and earn insufficient returns. substitute the existing debt, can provide finance at lower The industry requires a sustainable tariff level to encourage rates over longer tenors to assist us in managing the debt investment in the sector and to deliver the much-needed burden and keep the lights on, while we embark on our clean capacity required. If a sustainable tariff level is not transition to cleaner sources of power. Supplementary information achieved, there will be no incentive for the accelerated Continued on the next page ramp-up of renewable energy. Furthermore, if we continue as the single procurer of all the power from IPPs in the absence of a cost-reflective tariff, then new power purchases will negatively affect our financial position. 56 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 57 BACK TO MENU FINANCIAL REVIEW CHIEF FINANCIAL OFFICER'S REPORT Who we are and how we create value Governance, leadership and ethics What were some of the challenges and highlights over the past year? Like many South African businesses, we have been navigating a very challenging operating environment, with growth hampered by capacity shortages and depressed economic conditions during the national lockdown. This had an adverse impact, not only on Eskom’s operations and finances, but also on the South African economy as a whole. The impact was mostly felt through a decline in sales volumes, particularly in the first quarter, with the remainder of the year focused on recovering sales and controlling our cost base. Winter sales incentives offered to key industrial customers mitigated some of the impact. Liquidity remains one of our biggest short-term challenges, threatening financial and operational stability. Access to cost-effective funding remains restricted, while an inadequate return on assets, high debt servicing and working capital requirements, as well as escalating municipal arrear debt further contribute to liquidity constraints. To manage this, we restricted organisational cash requirements through targeted savings on operating Our strategic context and capital expenditure, although it requires a delicate The decline in demand also led to lower electricity balance to maintain sufficient liquidity while supporting production. Despite this, primary energy costs increased spend required to drive the operations recovery. by 3.4% due to the use of more expensive OCGT and IPP In the medium term, our unsustainable debt burden production. Our own generation costs were contained presents the biggest threat to our financial sustainability. due to a decline in coal and nuclear production, and a We reduced the gross debt balance by R81.9 billion moderate increase in the average coal purchase cost per through debt servicing – only possible with support from ton of 3.2%. Government – and fair value adjustments on foreign Despite a 7% increase granted to bargaining unit debt, driven by the strengthening of the Rand. This led employees for the third and final year of the wage to improvements in key gearing and solvency ratios, with agreement, employee benefit costs remained stable due the debt/equity ratio reducing to 2.03. Financial review to no salary increases at managerial level and further headcount reduction. Other operating expenditure Eskom recorded a net loss after tax of increased by 28.6% due to higher decommissioning R18.9 billion. Tell us more about the impact of provision costs, increased maintenance and other COVID-19 on financial results once-off costs. After adjusting for these, the normalised COVID-19 had a significant impact on Eskom’s financial increase in operating expenses was 1.6%, well below results, largely due to the unprecedented reduction in inflation. energy demand we experienced during the earlier days Altogether, these factors resulted in EBITDA declining of the national lockdown, which caused sales volumes to to R32.8 billion, and the EBITDA margin weakening to decline by 6.7%. 16.06%. Operating performance Chief Financial Officer's report 59 Revenue still grew by 2.4% as a result of an 8.76% tariff Condensed annual financial statements 62 Finance costs remained stable due to the reduction in increase, although this was almost completely eroded by gross debt, offset by a higher average cost of borrowing. Our finances 65 the decline in sales volumes. Sales deteriorated across The strengthening of the Rand led to fair value gains, every sector, with rail, international and industrial which accounted for most of the improvement in the net customers most severely affected by the slowdown of the loss compared to the prior year. economy and depressed commodity prices. As I mentioned, the biggest impact was felt in the first quarter during level 5 of the lockdown, when movement was heavily restricted and only essential services, Supplementary information such as Eskom, were allowed to operate. By year end, sales recovered due to the phased easing of lockdown restrictions and the recovery of commodity markets. 58 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 59 BACK TO MENU CHIEF FINANCIAL OFFICER'S REPORT continued Who we are and how we create value Governance, leadership and ethics How was Eskom’s funding affected? Lastly, Government is providing support in the form of To curtail costs, we are pursuing a number of initiatives We can’t deny the importance of cost savings to improve Our three main liquidity sources are cash generated from equity, with funds restricted for the settlement of debt to reduce our annual cost base by a cumulative liquidity and financial viability. Our priority is optimising operations, external borrowings and equity support from and interest, which amounted to R102.7 billion for the R61.8 billion by 2023. We achieved combined savings capital expenditure and working capital, reducing primary Government. year. We received R56 billion to address some of these of R30.7 billion so far, exceeding the cumulative target energy costs and containing the wage and interest bills. requirements, and remain dependent on Government of R20.3 billion. The majority of savings come from We depend largely on Government support to reduce As I indicated, our financial results were negatively support, given the lack of cost-reflective tariffs. optimising primary energy working capital, but this does our debt balance, with the objective of lowering debt affected by a decline in sales coupled with an increase not necessarily lead to an immediate improvement in the service costs over time. The R31.7 billion committed for in primary energy costs despite lower volumes, which Cash and cash equivalents declined to R4 billion. bottom line. the 2022 financial year was received in full by July 2021. had a knock-on effect on our ability to generate What are you doing to manage liquidity? sufficient cash flows – the reality is that cash generated Despite our best efforts, limited success has been We continue to comply with the equity conditions We are implementing various initiatives through the achieved in managing municipal arrear debt, which attached to the Special Appropriation Act, 2019, and from operations is simply inadequate to support an turnaround plan, to improve our income statement and continued to escalate to unacceptably high levels, engage regularly with DPE and National Treasury to asset-intensive business with a highly leveraged capital strengthen our balance sheet by: increasing by 26% to R35.3 billion at year end. Payment ensure we receive Government support timeously. structure such as ours. The debt service cover and cash interest cover ratios declined, as operating cash flows • Pursuing the migration to cost-reflective tariffs levels are showing early signs of improvement because of Government has reaffirmed its commitment to stabilising remain inadequate to fund even the interest owed, • Delivering sustainable cost optimisation and our municipal debt management strategy and ring-fencing our balance sheet in the 2020 Medium-Term Budget before considering capital repayment of debt and capital efficiencies arrear accounts, leading to lower interest charges. We Policy Statement, with financial support of R225.8 billion investments into our asset base. This shortfall can only • Pursuing all available avenues to recover amounts due continue to pursue existing debt management processes committed to the end of the 2026 financial year. In be corrected through cost-reflective tariffs. to Eskom and enforce Eskom’s rights through legal action. addition to funds already received, a further R21.9 billion and R21 billion are committed for the 2023 and 2024 • Reducing our reliance on debt and containing debt We are negotiating active partnering agreements with With respect to borrowings, we intended to raise financial years. The phasing of the support thereafter is service costs with Government’s assistance defaulting municipalities to assist them in their revenue R30.8 billion in funding in 2021, but this was later yet to be confirmed. revised to R39 billion to improve liquidity. By year end, • Exploring opportunities for the disposal of non-core collection efforts. We entered into our first agreement we secured funding of R18.9 billion, as a number of assets with Msunduzi Local Municipality in April 2021. Various Discussions with Government continue to assist in the challenges prevented us from achieving our aspiration. initiatives are being explored to address the outstanding strategic reorganisation and strengthening of our balance Our strategic context To address the inadequate tariff, we submitted court Soweto debt in a sustainable manner. sheet to address the unsustainable debt burden. The For instance, delays in receiving approval of Government review applications to challenge NERSA’s recent Eskom Social Compact signed by labour, business and guarantees meant that planned funding of around revenue and RCA determinations. Judgments have been Unfortunately, the arrear debt challenge cannot be Government at Nedlac is an important milestone, laying R17 billion had to be postponed to the 2022 financial favourable, although legal processes are slow and subject solved by Eskom alone – a structural solution is required, the foundation for a long-lasting solution. year. Additionally, Moody’s and Fitch downgraded the to opposition and appeal by NERSA. Successful review along with continued support and cooperation from Sovereign and Eskom’s credit ratings in November 2020 outcomes resulted in the award of a tariff increase of Government and other stakeholders to address the root We will deliver on our municipal debt management on the back of South Africa’s negative economic outlook. 15.06% for the coming financial year, which will support causes of the problem and resolve the challenges. strategy and pursue active partnering agreements to slow Our credit rating remains at sub-investment grade level, our financial sustainability. Although a number of the growth in arrear debt, and leverage our relationship which limits our access to unguaranteed funding and review applications are pending, we expect favourable What is the outlook for the coming year? with Government and the Eskom Political Task Team increases the cost of borrowing. outcomes as our applications adhere to the principles COVID-19 will continue to have a negative impact on to achieve sustainable solutions for the recovery of of prudent and efficient costs in line with the MYPD financial performance, as demand is unlikely to recover municipal and Soweto arrear debt. Access to cost-effective funding in domestic and methodology. We also submitted proposals to NERSA to pre-COVID-19 levels for the next five years. The Maintaining strong investor relationships and engaging Financial review foreign markets remains restricted due to low investor for the restructuring of tariffs, to modernise the tariff impact on sales in 2022 is expected to be less severe, confidence, exacerbated by risk-averse market structure based on the planned legal separation and more with lenders on the planned legal separation while with a budgeted loss of R15.2 billion. We continue to managing existing debt are key priorities in our transition sentiment driven by COVID-19, thereby necessitating accurately reflect component costs. monitor and assess the impact of the economic climate Government guarantees. Despite some delays, National towards a greener energy future. on sales volumes, cost of production and customers’ Treasury expressed its commitment to support Eskom’s ability to pay, to better manage our response to Despite a number of difficulties over the past year, applications for Government guarantees to maintain these challenges. We will consider negotiated pricing our overarching objective remains to return Eskom adequate liquidity to continue operating as a going agreements and other avenues to stimulate sales volumes to financial and operational sustainability through the concern. where appropriate. turnaround plan. Ultimately, this requires resolving Eskom’s capital and tariff structure to ensure long-term Unfortunately, profitability continues to be hindered by financial sustainability. Operating performance the lack of cost-reflective tariffs as well as deteriorating generating plant performance, driving the use of more expensive OCGT and IPP production to avoid or minimise loadshedding. The unsustainable debt burden Calib Cassim has resulted in our interest bill being the second largest Chief Financial Officer R billion % expense after primary energy. We have received R billion Ratio R billion Ratio 50 30 600 3.5 50 2.0 favourable court judgments on a number of NERSA 40 3.0 review applications, which, together with reducing our 20 500 30 40 1.5 level of debt over the long term, is expected to improve 20 2.5 10 10 400 30 our financial sustainability going forward. 2.0 Supplementary information 0 0 300 1.0 -10 1.5 20 The successful execution of the turnaround plan should -20 200 1.0 0.5 enable Eskom to return to profitability by 2026, although -30 100 49 56 56 0.5 10 this is dependent on fair regulatory returns. We believe -40 -50 0 0.0 0 0.0 that a move to cost-reflective tariffs is a necessary step 2017 2018 2019 2020 2021 2021 2017 2018 2019 2020 2021 2021 Actual Target 2017 2018 2019 2020 2021 Actual 2021 Target Actual Target to ensure Eskom’s financial sustainability, as well as the Net profit/(loss) before tax EBITDA Cash from operations sustainability of the future generation, transmission and Debt securities and borrowings Debt/equity ratio Debt service cover ratio EBITDA margin Government support Cash interest cover ratio distribution entities. The recent tariff determination by NERSA is certainly a positive first step. 60 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 61 BACK TO MENU CONDENSED ANNUAL FINANCIAL STATEMENTS Who we are and how we create value Governance, leadership and ethics The group and company financial results set out in the condensed financial statements that follow have been extracted Condensed group statements of financial position from the consolidated annual financial statements of Eskom Holdings SOC Ltd for the year ended 31 March 2021, which at 31 March 2021 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. Restated 2021 2020 The consolidated annual financial statements have been prepared under the supervision of the Chief Financial Officer, Rm Rm % Mr Calib Cassim CA(SA), and were duly approved by the Board of Directors on 23 August 2021. Assets Non-current assets 697 723 698 177 – The consolidated annual financial statements have been audited by the group's independent auditors, SizweNtsalubaGobodo Grant Thornton Inc, in accordance with the Public Audit Act of South Africa, 2008, the General Property, plant and equipment and 666 225 657 189 1 Notice issued in terms thereof and International Standards on Auditing. The independent auditors issued a qualified intangible assets Future fuel supplies 4 414 4 295 opinion relating to the completeness of irregular expenditure disclosed in note 52 in terms of the PFMA. Except for Investment in equity-accounted investees 420 397 this qualification, the consolidated annual financial statements are fairly presented in terms of IFRS. Furthermore, and subsidiaries the independent auditors reported a material uncertainty relating to Eskom's ability to continue as a going concern. Derivative assets used in hedging activities Derivatives held for risk management 9 968 33 918 71 declined due to the strengthening of the Rand However, this does not affect their opinion. Other non-current assets 16 696 2 378 The consolidated annual financial statements, which detail the financial performance of the group and company, are available online Current assets 83 925 116 404 28 Increase in coal stock, maintenance spares and Inventories 37 527 33 573 12 Neither the future performance plans nor strategies referred to in the integrated report have been reviewed or consumables due to the Generation recovery plan Loans receivable 310 27 reported on by the group's independent auditors. Derivatives held for risk management 1 411 23 718 94 Trade and other receivables 24 413 22 391 9 The increase is largely attributable to Insurance investments 14 401 11 981 municipalities and metros, as well as diesel Condensed group income statements Financial trading assets – 152 rebates for the year ended 31 March 2021 Other current assets 1 822 1 572 Our strategic context Refer to the condensed group statement of Cash and cash equivalents 4 041 22 990 82 Restated cash flows on the next page 2021 2020 Assets held-for-sale – 8 642 Rm Rm % Total assets 781 648 823 223 5 Continuing operations 8.76% tariff increase, offset by an unprecedented 6.7% Share capital of R56 billion issued in exchange Revenue 204 326 199 468 2 decline in sales, predominantly due to the COVID-19 Equity for Government support, offset by the loss for lockdown Capital and reserves 215 836 186 068 16 the year Other income 2 662 1 238 Primary energy (115 903) (112 119) 3 Liabilities Debt of R65.6 billion repaid, offset by Price escalations as well as higher OCGT and IPP usage, Non-current liabilities 462 457 502 763 8 Employee benefit expense (32 887) (33 158) 1 R15.8 billion debt raised. Foreign-denominated offset by lower Eskom production Net impairment (loss)/reversal (1 367) 61 borrowings declined due to the strengthening of Debt securities and borrowings 356 852 408 151 13 the Rand, further reducing the gross balance Other expenses (24 018) (18 674) 29 7% increase for the bargaining unit under the three-year Embedded derivatives 208 5 wage settlement, offset by headcount reduction through Financial review Profit before depreciation and 32 813 36 816 11 Derivatives held for risk management 3 562 1 802 Includes post-retirement medical aid benefits, natural attrition and VSPs, coupled with no managerial as well as annual, occasional and service leave amortisation expense and net fair Deferred tax 347 3 757 salary increases balances. Less leave was taken during the value and foreign exchange gain/(loss) Employee benefit obligations 15 414 13 530 14 (EBITDA) national lockdown Increase in decommissioning provision costs due to Provisions 50 150 41 300 21 Depreciation and amortisation (27 016) (27 779) expense a reduction in the long-term discount rate, increased Lease liabilities 8 447 8 875 Increase in decommissioning provisions due maintenance as well as other once-off items Contract liabilities and deferred income 23 943 22 577 to a reduction in the long-term discount rate, Operating profit (EBIT) 5 797 9 037 36 Other non-current liabilities 3 534 2 766 from 4.82% to 3.86% Net fair value and foreign exchange 1 238 (6 924) 118 The biggest contributors to the decline in performance gain/(loss) on financial instruments, is the impact of lower sales volumes on revenue, the Current liabilities 103 355 132 919 22 The majority of the balance relates to excluding embedded derivatives use of more expensive production and the increase in deferred income due to grants from DMRE's other expenses Debt securities and borrowings 44 974 75 531 40 Net fair value and foreign exchange (355) 2 298 electrification programme Operating performance (loss)/gain on embedded derivatives Embedded derivatives 1 283 1 131 Derivatives held for risk management 4 808 1 139 Profit before net finance cost 6 680 4 411 Employee benefit obligations 3 732 3 293 Swing from a fair value loss to a fair value gain due to Net finance cost (31 509) (31 407) – Provisions 6 395 5 991 the strengthening of the Rand Finance income 2 400 2 610 Trade and other payables 37 114 40 175 8 Finance cost (33 909) (34 017) Stable performance due to an overall reduction in debt, Payments received in advance 2 796 3 430 offset by higher average borrowing cost and lower Other current liabilities 2 253 2 229 Share of profit of equity-accounted 71 63 interest capitalised to projects investees after tax Liabilities held-for-sale – 1 473 The biggest contributor is the reduction of Loss before tax (24 758) (26 933) Performance was hindered by the COVID-19 Total liabilities 565 812 637 155 11 R81.9 billion in debt securities and borrowings Income tax 5 824 6 164 lockdown. We recorded an improvement of only Supplementary information R1.8 billion, with the biggest contributor being the net Total equity and liabilities 781 648 823 223 5 Loss for the year (18 934) (20 769) 9 fair value gain achieved on financial instruments Asset increased Asset decreased Liability decreased Liability increased Income/gain increased Income/gain decreased Expense/loss decreased Expense/loss increased The statements of comprehensive income and statements of changes in equity are available in the consolidated annual financial statements 62 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 63 BACK TO MENU CONDENSED ANNUAL FINANCIAL STATEMENTS continued OUR FINANCES Condensed group statements of cash flows for the year ended 31 March 2021 Restated 2021 2020 Rm Rm % Cash flows from operating activities Loss before tax (24 758) (26 933) 8 Adjustment for non-cash items 67 808 68 184 Changes in working capital (12 980) (4 913) 164 Governance, leadership and ethics Cash generated from operations 30 070 36 338 Net cash flows from/(used in) derivatives 1 399 (81) held for risk management Finance income received 278 377 Finance cost paid (42) (60) Operating cash flows of R30.7 billion remain inadequate Income taxes paid (1 047) (367) to meet debt servicing requirements, and are unable to fund even the interest component of R37.1 billion, Net cash from operating activities 30 658 36 207 15 emphasising the need for Government support Cash flows used in investing activities Disposals of property, plant and 208 508 equipment and intangible assets Acquisitions of property, plant and (22 706) (24 269) 6 equipment and intangible assets Our strategic context Acquisitions of future fuel supplies (1 559) (1 261) Payments made in advance (139) (2) Cash used in provisions (885) (846) Net cash used in derivatives held for risk (1 049) (120) management Net acquisition of insurance investments (1 989) (2 742) Net cash from loans receivable and 299 66 finance lease receivables Dividends received 95 105 Finance income received 1 400 1 550 10 Investing activities relate mainly to capital expenditure on the new build programme, Generation outage Highlights Improvements Net cash used in investing activities (26 325) (27 011) 3 and technical plan requirements as well as network infrastructure. Eskom group-funded capital expenditure • Government support of R56 billion received to support • Solvency ratios improved due to Government Cash flows (used in)/from financing was contained due to liquidity challenges going concern status, with a further R31.7 billion support, but remain well below acceptable levels Financial review activities committed for the 2022 financial year • Net finance costs remained stable due to gross debt Debt securities and borrowings raised 15 756 32 036 51 Payments made in advance (329) (642) • Favourable High Court judgments on NERSA's revenue reduction of R81.9 billion Debt securities and borrowings repaid (65 586) (31 511) 108 and RCA decisions, with a 15.06% tariff increase for the 2022 financial year Share capital issued 56 000 49 000 14 Net cash from derivatives held for risk 7 859 1 843 management Challenges Lowlights Net cash from financial trading assets 152 9 Net cash used in finance lease liabilities (710) (456) • The COVID-19 lockdown, depressed economic • Net loss after tax of R18.9 billion for the year and financial trading liabilities conditions and supply constraints hampered revenue • EBITDA margin decreased to 16.06% (2020: 18.46%, Finance income received 791 597 growth, with a 6.7% reduction in sales volumes restated) mainly due to a contraction in sales volumes Operating performance Financing activities showed a net outflow, with total Finance cost paid (37 070) (39 111) 5 • Total primary energy cost grew by 3.4% due to • Cash and cash equivalents declined to R4 billion at debt servicing of R102.7 billion (45% ), offset by Taxes paid (78) (84) debt raised of R15.8 billion, net of commercial paper. coal cost increases and increased use of expensive year end (2020: R23 billion) due to high debt servicing Net cash (used in)/from financing (23 215) 11 681 299 Debt raised was lower due to the postponement OCGTs and IPPs, offset by lower production and operational requirements, coupled with funding of R17 billion in facilities, coupled with efforts to volumes overall challenges activities reduce reliance on debt and limit future debt servicing requirements. This was only possible through • Further credit rating downgrades because • Continued escalation in arrear municipal debt to Net (decrease)/increase in cash and (18 882) 20 877 190 cash equivalents Government support of R56 billion of concerns around operational and financial R35.3 billion (2020: R28 billion), coupled with poor Cash and cash equivalents at the beginning 22 990 2 031 sustainability payment levels and limited interventions from the of the year • Lack of a cost-reflective tariff path continues Eskom Political Task Team Foreign currency translation 12 (22) As reported previously, payments of R5.3 billion to hinder long-term financial sustainability, with Effect of movements in exchange rates (159) 136 scheduled for 31 March 2020 were delayed to operating cash flows insufficient to service debt Supplementary information on cash held 1 April 2020 due to technical IT issues. Nevertheless, Assets and liabilities held-for-sale 80 (32) liquidity remains constrained due to debt servicing and working capital requirements, and limited debt raising Cash and cash equivalents at the end 4 041 22 990 82 activities. Eskom is reliant on Government support to of the year service debt Inflow increased Inflow decreased Outflow decreased Outflow increased 64 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 65 BACK TO MENU OUR FINANCES continued Who we are and how we create value Governance, leadership and ethics We require financial capital in the form of debt or equity margin decreased to 16.06% (2020: 18.46%, restated), In the first quarter of the year, we experienced a We did well to contain growth in our own generation to fund our operations. Debt includes guaranteed and despite receiving a tariff increase of 8.76%. This is due year-on-year decline of 16.5% in sales volumes, largely costs, with a modest 1.6% increase to R72.9 billion unguaranteed borrowings from external lenders. Equity to a contraction in sales volumes, driven predominantly due to the national lockdown implemented from (2020: R71.7 billion), excluding the environmental levy. should ideally be created through sustainable profits by a reduction in electricity demand amid the national 27 March 2020 in response to the outbreak of the Total coal burn costs (excluding the environmental levy) generated from sufficient revenue to cover our costs, or lockdown in response to the COVID-19 pandemic and, COVID-19 pandemic. The overall decline in sales volumes increased by 2.3% to R68.1 billion (2020: R66.6 billion). through support received from our shareholder. to a lesser extent, loadshedding and load curtailment experienced by year end was less severe, in part due to Production volumes from coal-fired stations declined required to alleviate supply constraints. Further the phased easing of the national lockdown, the return by 4.2%, while the average coal purchase cost per ton Financial results of operations contributing to the decline in EBITDA performance to operations of many sectors and the recovery of increased by 3.2% due to coal contract escalations. The group recorded a net loss after tax of R18.9 billion was the use of more expensive primary energy sources, commodity markets in the latter half of the year. for the year (2020: R20.8 billion, restated), and EBITDA of despite a reduction in overall production, as well as The following graphs set out the breakdown of primary In addition, relief was granted to eligible key industrial energy costs, net of pre-commissioning expenditure R32.8 billion (2020: R36.8 billion, restated). Our EBITDA growth in other operating expenditure. customers through the winter incentive programme, capitalised and lease accounting adjustments. The by offering reduced summer energy rates for a period contribution of the particular source to primary energy Profitability and working capital of five weeks, to recover the production lost during costs and total TWh energy produced is provided in Target Target Target Target Actual Actual Actual the initial national lockdown. The incentive played a brackets. Measure and unit 2024 2022 2021 met? 2021 2020 2019 role in supporting sales volumes during the high winter Company tariff season. Primary energy breakdown R7.2 billion (6%) Electricity revenue per kWh (including environmental 158.66 124.99 109.79 111.04 101.86 90.01 Unfortunately, demand is not expected to recover to n/a levy), c/kWh pre-COVID-19 levels in the short to medium term, due Electricity operating costs, R/MWh 1 221.07 1 005.43 908.05 905.32 803.00 729.26 to the long-lasting impact of the economic recession. Group Our Corporate Plan reflects largely stagnant sales R30.8 billion (27%) EBITDA, R millionSC 68 053 45 113 23 522 32 813 36 816 31 417 volumes of approximately 190TWh per year for at least 13.5TWh (6%) EBITDA margin, % 22.84 19.13 11.67 16.06 18.46 17.46 the next five years. 2021 Our strategic context Current ratio 0.98 1.23 1.40 1.27 1.09 1.00 R68.2 billion (59%) Free funds from operations (FFO), R million 84 464 48 789 40 041 43 638 41 120 29 047 We are working with Government on possible solutions to 190TWh (85%) stimulate sales and assist vulnerable sectors in a sustainable R5 billion (4%) FFO after net interest paid, R million 49 589 19 451 1 863 7 359 2 606 (5 940) 8.8TWh (4%) manner, in support of industrial policy. We have received R4.1 billion (4%) numerous applications for negotiated pricing agreements 1.5TWh (1%) R0.7 billion (1%) While most financial performance ratios performed Year-on-year decline in sales volumes 9.9TWh (4%) (NPAs); engagements are taking place regarding the better than target and improved compared to the TWh % market dynamics faced by these customers and sectors. Coal and other Electricity imports previous year, a number of challenges prevent us from Nuclear fuelR7.6 billionIPPs (7%) Distributors 3.5 4.1 achieving long-term financial sustainability. In terms of the regulatory framework, NERSA is required OCGT fuel n/a Environmental levy Residential 0.4 3.0 to approve all non-standard tariffs and NPA applications Sales and revenue Commercial 0.8 7.5 in terms of the NPA frameworks issued by DMRE. Net electricity revenue for the group amounted to Industrial 4.7 10.4 NERSA is in the process of developing regulatory rules to R28.1 billion (25%) R202.6 billion (2020: R197.3 billion), an increase of 2.7% Financial review 12TWh (5%) Mining 1.7 6.0 provide further guidance on the implementation of these compared to the prior year. Excluded from this amount Agricultural 0.3 5.4 frameworks. We have submitted a number of long-term 2020 is pre-commissioning revenue of R4 billion relating to Rail 0.7 25.7 NPA applications to NERSA to be adjudicated, subject to Medupi and Kusile capitalised during the year (2020: R66.6 billion (59%) International 1.7 11.1 PFMA approval. 200.3TWh (85%) R5.7 billion). R4.7 billion (4%) Operating costs 8.6TWh (4%) Total 13.8 6.7 R billion TWh R4.3 billion (4%) 250 Revenue +2.7% 220 Operating expenses, R billion 1.3TWh (1%) R0.8 billion (1%) Sales volumes -6.7% 220 215 13.3TWh (5%) Refer to the fact sheet on page 138 for the number of customers by 200 5.7% 200 210 customer segment, as well as electricity sales by customer category, both 180 Coal and other Electricity imports volumes and revenue 160 Nuclear fuel IPPs Operating performance 150 205 140 OCGT fuel Environmental levy 200 120 Sales volumes declined across every sector, with the 100 195 100 rail, international and industrial sectors most severely Expenditure on Eskom-owned OCGTs decreased to 80 50 190 affected. Industrial customers, particularly in the 60 R4.1 billion, despite an increase in supply to 1 457GWh, 185 ferrochrome sector, were negatively affected by the 40 mainly due to favourable diesel prices during the year 0 180 economic downturn and depressed commodity prices at 20 (2020: R4.3 billion to produce 1 328GWh). The OCGT 2017 2018 2019 2020 2021 the end of the prior financial year, which affected sales 0 2017 2018 2019 2020 2021 2021 load factor increased to 6.90% (2020: 6.28%) to ensure during 2021. This was exacerbated by the COVID-19 Target Electricity revenue Sales volumes system stability during periods of supply constraints. lockdown, with customers in many sectors temporarily Primary energy costs Employee benefit expense halting or curtailing operations, entering into business Depreciation and amortisation Other operating expenses IPP expenditure increased due to more extensive use of Eskom has seen a trajectory of declining sales over recent CAGR renewable IPPs during the year. The total expenditure on Supplementary information rescue or closing down. The rail industry in particular years, with an approximate 1% reduction in sales volumes was affected by widespread vandalism and cable theft, IPP OCGTs (excluding the lease accounting adjustment Primary energy per year. However, the slowdown of the economy amid combined with port closures and lower demand on of R1.6 billion) amounted to R2.9 billion to produce Total primary energy costs (including coal, water and the COVID-19 lockdown has led to an unprecedented freight lines. 704GWh (2020: R3.3 billion to produce 711GWh), while diesel) increased by only 3.4% to R115.9 billion (2020: decline in sales during the 2021 financial year. Sales of R27.9 billion was spent on renewable IPPs to produce R112.1 billion), with costs mostly contained due to an 191 852GWh were 6.7% lower than the previous year 12 821GWh (2020: R24.8 billion to produce 11 247GWh). 8.7TWh reduction in production (excluding pre- (2020: 205 635GWh). commissioning production) and coal being sourced from cheaper short- and medium-term contracts. 66 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 67 BACK TO MENU OUR FINANCES continued Who we are and how we create value Governance, leadership and ethics A comparison of the primary energy unit cost of the Maintenance expenditure is the most significant Compared to the prior year, net finance costs have Our gross debt securities and borrowings have decreased various generation categories is shown below: contributor to other operating expenditure. The group's remained stable at R31.5 billion due to an overall to R401.8 billion (2020: R483.7 billion), a reduction of repairs and maintenance (before intergroup eliminations) reduction in debt, offset by a higher average cost of R81.9 billion. We repaid debt of R65.6 billion and raised Unit cost, R/MWh 2021 2020 % change borrowings and lower capitalisation of interest. debt of R15.8 billion during the year, net of commercial for the year increased to R16.6 billion (2020: R14 billion), Coal1 421 397 6.0 18.7% higher than the prior year due to inflationary paper. In addition, foreign borrowings were affected Nuclear 105 100 5.0 pressure and costs associated with delivering on the COST OF DEBT AND INVESTMENT RETURN by the recent strengthening of the Rand against major Eskom-owned OCGTs2 2 778 3 231 (14.0) Generation recovery plan. currencies, leading to a further reduction in gross debt. IPPs3 2 280 2 347 (2.9) Average cost of debt 9.66% (2020: 9.58%) Altogether, we reduced net interest-bearing debt by IPP OCGTs4 3 579 4 049 (11.6) Average investment return 3.87% (2020: 6.81%) R11.3 billion, after accounting for cash and exchange rate Renewable IPPs 2 178 2 206 (1.3) MAINTENANCE SPEND PER DIVISION movements on net derivative assets. International purchases3 567 550 3.1 Generation R12.5 billion (2020: R9.9 billion) 26% The average cost of debt is based on a blend of fixed and Transmission R0.7 billion (2020: R0.6 billion) 3.6% floating rates, with 72% of our borrowings on fixed rates All of our solvency ratios performed better than target 1. Excludes pre-commissioning production of 5 735GWh from certain Distribution R3.4 billion (2020: R3.4 billion) 0.6% to hedge against interest rate exposures. for the year, although they remain well below investment- Medupi and Kusile units (2020: 8 751GWh). 2. The average cost is calculated on fuel and start-up costs only, grade levels. The improvement is largely attributable to R billion 2021 2020 the Government equity received, which supported our excluding storage and demurrage costs. Despite outage deferrals and lower than budgeted 3. Note that the unit costs of IPPs and international purchases are spend in the first half of the year due to the national Debt securities and borrowings 401.8 483.7 liquidity and helped us to reduce our debt balance during based on the full cost of operation, whereas the unit cost of Eskom- lockdown, Generation conducted extensive planned Net market making liabilities – 0.1 the year. Nevertheless, the cash interest cover ratio and owned generation is based only on the primary energy cost. Given Cash and cash equivalents (4.0) (23.0) debt service cover ratios declined compared to the prior that IPP and international purchases are treated as a variable cost in maintenance during the summer months. Maintenance Eskom's accounts, this treatment is considered appropriate. spend in Transmission and Distribution was in line with Net derivatives held for risk management (3.0) (54.7) year. Operating cash flows remain inadequate and are 4. The average cost is calculated on the net amount spent on the prior year due to resource constraints and the Total net interest-bearing debt 394.8 406.1 unable to fund even the interest component of our debt energy, excluding capacity charges, and after the lease accounting deferral of activities. servicing requirements. adjustment. 1. In the table above, assets are reflected as negative amounts. Net fair value gain on financial instruments and The increase in the costs of production were largely due embedded derivatives Credit ratings and funding Our strategic context to inflationary and periodic contractual increases across The group recorded a net fair value gain on financial Solvency ratios these sources. The decline in Eskom-owned and IPP instruments, excluding embedded derivatives, of OCGT unit costs were as a result of favourable diesel Target Target Target Target Actual Actual Actual R1.2 billion (2020: R6.9 billion net fair value loss), Measure and unit 2024 2022 2021 met? 2021 2020 2019 price movements during the year. whereas a net fair value loss of R0.4 billion was recorded on embedded derivatives (2020: R2.3 billion Group Other operating costs The number of employees (including fixed-term net fair value gain). FFO as % of gross debt, % 15.82 9.57 7.99 9.53 7.72 5.88 contractors) declined by 4.5% to 42 749 (2020: 44 772) FFO (after net interest) as % of gross debt, % 9.29 3.82 0.37 1.61 0.49 (1.20) Exchange rate movements had a significant impact due to natural attrition and voluntary separation Cash interest cover, ratioSC 2.06 1.79 0.31 0.85 0.94 0.94 on the fair value of financial instruments as well as packages offered to managerial staff. Net employee embedded derivatives during the year. At the outset of Debt service cover, ratioSC 1.01 0.74 0.11 0.30 0.52 0.47 benefit costs for the year amounted to R32.9 billion, the COVID-19 pandemic and the national lockdown in Gross debt/EBITDA, ratio 7.84 11.30 21.65 13.96 14.46 15.73 after capitalisation of costs to qualifying assets (2020: March 2020, the Rand weakened substantially following Debt/equity (including long-term provisions), ratio 1.99 2.09 2.31 2.03 2.45 3.17 Financial review R33.2 billion, restated). Despite the reduction in the downgrade of the Sovereign by credit rating agencies. headcount, employee costs have remained relatively Gearing, % 67 68 70 67 71 76 However, the Rand has subsequently recovered and stable, with a decline of only 0.8%, largely as a result of strengthened against major currencies during the 2021 a 7% salary increase for bargaining unit employees under financial year. Credit ratings Our ratings remain at sub-investment grade level, the three-year wage agreement concluded in the 2019 financial year. Overtime costs declined to R2.1 billion Summary of Eskom's credit ratings at 31 March 2021 affecting our ability to access unguaranteed funding. (2020: R2.3 billion), while contract labour costs and In July 2021, NERSA approved a 10-year NPA for Standard & Fitch: local The downgrades may further limit sources of funding other staff-related costs, such as training and travel, the South32 Hillside aluminium smelter, effective Rating Poor's Moody's currency and increase our cost of borrowing. Continued were also contained largely due to restrictions during from 1 August 2021, with a Rand-denominated tariff Government support and the outlook for the South Foreign currency CCC+ caa1 n/a the national lockdown. and escalation linked to the South African Producer African economy remain critical to stabilise our credit Local currency CCC+ caa1 B ratings. On 21 May 2021, Standard & Poor's and Fitch Operating performance Price Index. This decision comes at a time when the Standalone ccc- caa3 ccc- Other operating expenditure, including maintenance, affirmed South Africa's long-term credit rating, which South African economy is ailing, thus providing an increased to R24 billion (2020: R18.7 billion), an increase Outlook Negative Negative Negative bodes well for our future standalone credit rating actions opportunity for industrial growth and ensuring the of 28.6%, largely due to higher decommissioning Last rating action Affirmed Downgrade Downgrade due to the intrinsic relationship between Eskom and the continued availability of aluminium for the economy. provision costs, increased maintenance to address plant Last action date 25 Nov 2020 24 Nov 2020 26 Nov 2020 Sovereign. performance challenges, as well as certain once-off items. Net finance cost and debt These once-off items include R4 billion for Kusile On 12 May 2020, Standard & Poor's affirmed our local Due to our financial and operational challenges, the R billion 2021 2020 and foreign currency credit ratings, but revised their work under construction written off in the prior year, perceived risk of credit default has increased. We R1.3 billion written off in the current year in respect of Debt securities and borrowings 31.2 34.0 outlook to negative. This was subsequently affirmed on continually assess the potential for a breach of loan Duvha Unit 3 due to cancelling the recovery project, as Derivatives held for risk management 6.6 6.9 25 November 2020. covenants and events of default and take proactive Other 7.8 7.7 action to prevent their occurrence. Despite our Supplementary information well as R0.9 billion in costs associated with boiler defects On 24 November 2020, Moody's downgraded our and compensation events in the current year. Gross finance cost 45.6 48.6 challenges, no events of default have occurred to date. local and foreign currency ratings from B3 to caa1. Finance income (2.4) (2.6) On 26 November 2020, Fitch downgraded our local Decommissioning, mine closure and rehabilitation Cost of borrowings capitalised to assets (11.7) (14.6) provision costs increased due to the long-term discount currency credit rating from B+ to B. These rating actions rate decreasing to 3.86% at year end (2020: 4.82%). Net finance cost 31.5 31.4 followed the downgrade of the Sovereign by Moody's After adjusting for these items, the normalised increase and Fitch on 20 November 2020 due to South Africa's in other operating expenditure is well below inflation. negative economic outlook and limited capacity to mitigate the fiscal impact of COVID-19. 68 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 69 BACK TO MENU OUR FINANCES continued Who we are and how we create value Governance, leadership and ethics Funding activities and risks Anticipated capital and interest cash flows (net of swaps) of the existing debt portfolio at 31 March 2021, Funding progress against the 2021 borrowing Demand for Eskom's unguaranteed debt remains R billion programme limited as investor mandates typically restrict access 80 to sub-investment grade arrangements unless they 70 Adjusted Committed Potential sources, R billion target by year end are guaranteed. At 31 March 2021, we have utilised 60 R305 billion, or 87%, of the guarantees available under Development finance institutions (DFIs) 11.8 9.3 50 Government's R350 billion Guarantee Framework Export credit agencies (ECAs) 0.7 0.1 40 Agreement (GFA) (2020: R324 billion). Once Domestic bonds and notes > one year 5.4 5.4 previously guaranteed debt is repaid, the guarantees 30 Domestic bonds and notes ≤ one year 3.1 3.1 become available once again. 20 Derivative loans 1.0 1.0 Private placement1 7.0 – As mentioned, certain funding could not be secured 10 Syndicated loan1 10.0 – and had to be postponed to the first half of the 2022 0 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044+ Total 39.0 18.9 financial year due to delays in receiving Government guarantees. National Treasury has expressed its Capital Interest 1. Planned funding, originally targeted for 2021, postponed to 2022. commitment to supporting Eskom and will consider 2. The table above includes the rolling of commercial paper, whereas applications for Government guarantees to ensure the debt raised figure in the statement of cash flows does not. Our debt repayment profile remains pressured over Government support 3. Committed sources include funding raised or signed facilities with that Eskom maintains adequate liquidity to continue both the short and long term, with debt repayments Government support remains a key enabler to reducing milestone drawdowns. operating as a going concern. of R152 billion and interest payments of approximately our debt balance and strengthening our balance sheet. Our borrowing programme for 2021 was revised from The availability period of the GFA expires on R125 billion over the next five years to 31 March 2026. R30.8 billion to R39 billion to accommodate additional 31 March 2023, after which we will not be able to Total anticipated debt service costs for 2022 amount to A total of 56 billion ordinary shares with a par value funding initiatives to improve our liquidity. Despite that, apply for new guarantees. Discussions will be held R71.1 billion, significantly lower than the repayments of of R1 were issued in return for the equity received we were only able to secure debt funding of R18.9 billion with the shareholder and National Treasury regarding R102.7 billion during the current year. during the year. We remain compliant with the Our strategic context for the year (2020: R50.9 billion). Delays in receiving the extension of the GFA to adequately address any conditions of the Special Appropriation Act, 2019 potential risk. Managing liquidity to ensure that Government support is received Government guarantees has meant that planned funding, including a private placement of USD500 million and a Liquidity remains one of our greatest challenges, limiting when required. syndicated loan of R10 billion, have had to be postponed our ability to achieve financial and operational sustainability. The borrowing programme for the coming financial to the first half of the 2022 financial year. Nevertheless, As discussed previously, access to cost-effective funding year includes the issuance of an international bond. The 2021 National Budget confirmed Government's we were still able to manage our year-end liquidity remains restricted due to low investor confidence, However, due to the higher cost of borrowing, we only continued support to Eskom's balance sheet and requirements through effective cost management and saturated borrowing capacity and credit rating downgrades. plan to access this market if necessary, when a suitable restructuring, with R31.7 billion committed for the deferral of capital expenditure. The lack of cost-reflective tariffs and escalating municipal opportunity arises and the cost is justified. While the coming financial year. The full amount was received by arrear debt also contribute to our liquidity constraints. market has indicated that an issuance without Government July 2021 and we will rely on this support to meet liquidity Despite depressed demand for bonds in the local market, guarantees is possible, this would increase the cost of Cash and cash equivalents have declined considerably, requirements. Government has expressed its commitment we secured our target for the year. International market borrowing substantially. Commitment to sustainability with an available balance of R4 billion at year end (2020: to providing a further R21.9 billion and R21 billion in appetite was affected by Sovereign and Eskom credit risk, targets is likely to be required for a new issuance. R23 billion). Liquidity was affected by the postponement of support for the 2023 and 2024 financial years. Financial review which has worsened because of the economic downturn and the impact of the COVID-19 lockdown. certain debt facilities as well as high debt servicing costs, Although Government support addresses short-term coupled with inadequate cash from operations due to The primary focus of our borrowing programme over liquidity requirements, it does not adequately support higher working capital requirements and poor profitability. the next five years is to continue to secure cost-effective long-term financial sustainability. The only way to achieve We had to rely on Government support to maintain a funding and reduce our debt burden. Compared to the that remains through cost-reflective tariffs. Unless positive cash balance at year end, with R56 billion received five-year period from 2021 to 2025, the borrowing our tariff challenges are resolved, further Government during the year (2020: R49 billion). programme to 2026 has decreased by R16.6 billion, support will be required to alleviate our debt burden. reflecting our intention to limit growth in debt securities Liquidity and solvency risks continue to threaten Eskom's Price applications to support revenue and borrowings as well as related debt service costs. ability to continue as a going concern. To improve requirements liquidity, we have restricted organisational cash Operating performance Improving our income statement through higher revenue Annual borrowing programme R billion requirements through targeted savings on operating remains a key focus, by growing sales volumes and migrating 2022 25.5 expenditure and by limiting capital expenditure. towards cost-reflective tariffs from NERSA. Despite 2023 24.8 Improving our profitability and solvency ratios in a applying for revenue based on prudent and efficient costs in 2024 24.1 sustainable manner requires successful implementation accordance with the MYPD methodology, the revenue and 2025 20.3 of our turnaround objectives. The financial turnaround RCA determinations made by NERSA over recent years 2026 10.7 objectives include the following initiatives to support have not enabled the migration towards cost-reflectivity as 105.3 liquidity, each of which is discussed in more detail below: Total envisaged in the Electricity Pricing Policy. IMPROVE THE INCOME STATEMENT As reported previously, we have lodged review We had planned to secure borrowings of R25.5 billion during the 2022 financial year, however, due to the Pursue cost-reflective tariffs applications with the High Court to challenge a number Supplementary information postponement of the private placement and syndicated Achieve sustainable cost curtailment measures of recent revenue and RCA determinations. The basis of loan, the adjusted borrowing programme includes raising each of our review applications is that NERSA's MYPD an estimated R41.6 billion in 2022. This increase is a STRENGTHEN THE BALANCE SHEET methodology has not been implemented rationally. rephasing and will not result in the Board-approved Furthermore, recent decisions violate the requirement of Obtain Government support borrowing programme of R105.3 billion over the next the Electricity Regulation Act, 2006 that prices, charges, Reduce reliance on debt five years being exceeded. Funding of R16.2 billion for tariffs and revenues set by the regulator “must enable an Manage arrear debt 2022 was already committed at 31 July 2021. efficient licensee to recover the full cost of its licensed Dispose of non-core assets activities, including a reasonable margin or return”. 70 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 71 BACK TO MENU OUR FINANCES continued Who we are and how we create value Governance, leadership and ethics The table below provides an update on the review applications. We welcome the various judgments of the High Court. These successful review outcomes resulted in a tariff In August 2020, we submitted proposals for the Original application and decision Outcome of review application Progress increase of 15.06% from 1 April 2021 for customers restructuring of tariffs to NERSA – existing tariff RCA decisions for the 2015 to 2017 financial years (MYPD 3) supplied directly by Eskom. Tariffs for municipal structures no longer accurately reflect the component distributors increased by 17.80% from 1 July 2021. costs for energy, network and retail requirements, Eskom application: R66.7 billion In February 2019, we submitted a High Court In January 2021, NERSA awarded an additional and need to be modernised to address prevailing application to review the decision for years two amount of R4.7 billion in respect of the RCA. This tariff adjustment will contribute towards improving NERSA decision: R32.7 billion to four of MYPD 3. The judgment in June 2020 We reviewed the decision in May 2021. NERSA our financial sustainability. The tariff adjustment includes circumstances and the planned legal separation. set aside NERSA's decision and found that has not opposed this review. amounts awarded relating to the outcomes of the the failure to process the decisions within a The proposals were published for comment in reasonable time was inconsistent with the court review of the 2015 to 2017 RCA decisions and November 2020 and a public hearing was held in Constitution. It required NERSA to urgently the supplementary tariff application for 2019, as well February 2021. NERSA's decision was expected ahead reconsider its RCA balance decision. as the High Court judgment which granted a partial of the 2022 financial year, however, a second round of RCA decision for the 2018 financial year (MYPD 3) recovery of the incorrectly deducted R69 billion equity. public consultation is planned. Therefore, the decision is only expected during the 2022 financial year, for Eskom application: R21.6 billion In April 2020, we submitted the founding NERSA served its opposing affidavit on On 2 June 2021, we submitted our MYPD 5 revenue implementation in the 2023 financial year. Once a NERSA decision: R3.9 billion affidavit for the review of the decision. 19 October 2020. A court date is awaited. application to NERSA, for financial years 2023 to 2025. decision is made, additional proposals will be submitted It is envisaged that NERSA will announce its revenue to NERSA to address other shortfalls of the existing tariff Revenue decision for the 2019 financial year decision by December 2021, in time for the municipal structure amid the planned restructuring of Eskom. Eskom application: R220 billion, In June 2018, we lodged a review application In July 2020, we submitted a supplementary budgeting process to commence, as required by or effective increase of 19.9% to set aside this decision. Judgment was tariff application of R5.4 billion to NERSA. National Treasury. NERSA decision: R190.4 billion, delivered in March 2020, and determined that In October 2020, NERSA published a Refer to page 69 of our 2020 integrated report for a discussion of the or effective increase of 5.23% the decision was procedurally unfair, irrational, consultation paper for stakeholder comment, Based on the 2020 audited annual financial statements, proposed structural tariff changes unreasonable and unlawful. Eskom was allowed followed by public hearings in November and we submitted an RCA application of R8.4 billion to to submit a supplementary tariff application December 2020. to NERSA to recover the costs had a lawful NERSA on 11 December 2020. NERSA is analysing and The RCA balance for 2021 will be calculated in decision been made. In January 2021, NERSA awarded an amount consulting on the application in terms of its mandate, accordance with the MYPD methodology. An application Our strategic context of R1.3 billion against the supplementary tariff will be submitted to NERSA after the publication of our and envisages making a decision during the 2022 financial application. We are taking this decision on review, in conjunction with the 2019 RCA year. It is imperative that decisions are made timeously to 2021 annual financial statements. decision discussed below. allow the recovery of efficient and prudent costs, on our path towards financial sustainability. RCA decision for the 2019 financial year Eskom application: R27.3 billion The reasons for decision was published in The founding affidavit was lodged in April NERSA decision: R13.3 billion October 2020. In January 2021, based on 2021. NERSA has communicated its decision detailed analysis of the reasons for decision, the to oppose the review application, however, its Board resolved to take the 2019 RCA decision opposing affidavit has not been submitted on on review. The review application also includes time. NERSA's decision on the supplementary application for the 2019 financial year. Revenue decision for financial years 2020 to 2022 (MYPD 4) Financial review Eskom application: In October 2019, we submitted an urgent The judgment required Eskom to recover the R220 billion for 2020 application for interim relief of the incorrectly R69 billion in a phased manner over a three-year R252 billion for 2021 appropriated equity. A second application sought period, starting in the 2022 financial year. R292 billion for 2022 a review of the merits of deducting equity (effective annual increases of 15%) injections from allowable revenue, requesting NERSA was granted leave to appeal the the court to make a substitution decision for judgment on the timing of the recovery of the NERSA decision: the recovery of the R69 billion over three years, incorrectly deducted R69 billion equity in the R206 billion for 2020 from the 2022 financial year onwards. Supreme Court of Appeal. We applied for R222 billion for 2021 execution of the order to uphold the existing R233 billion for 2022 Judgment on the urgent application was issued judgment while awaiting the outcome of the (standard tariff increases of 9.41%, in February 2020. Although not granted, the appeal process. In February 2021, pending Operating performance 8.10% and 5.22%, respectively) judge made it clear that the deduction of finalisation of the appeal, a judgment was equity support from revenue violated the basic received from the High Court, allowing Eskom The decision resulted in a shortfall principles of accounting and concluded that the to recover R10 billion of allowable revenue in of R102 billion over MYPD 4. In decision by NERSA is open for review. the 2022 financial year. determining the allowable revenue, NERSA deducted the annual R23 billion In July 2020, the judgment on the second NERSA lodged its appeal with the Supreme Court Government support from the return application set aside NERSA's revenue decision of Appeal in June 2021. A court date is awaited. on assets, resulting in a negative return for the 2020 to 2022 financial years. on assets. Supplementary information 72 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 73 BACK TO MENU OUR FINANCES continued Who we are and how we create value Governance, leadership and ethics Controlling expenditure to improve liquidity benefit costs and other sundry expenses. Primary energy Invoiced municipal debt (including interest) and Dealing with defaulting municipalities Improving our income statement through sustainable savings primarily relate to working capital, and do not percentage of total debt in arrears at 31 March 2021, Despite the negative effect of the COVID-19 lockdown, cost curtailment and efficiencies is another focus area necessarily lead to an immediate improvement in the R billion we have continued our efforts to address arrear of our turnaround plan. We are targeting a reduction income statement. 50 municipal debt through our municipal debt management 30% 80% of R61.8 billion in our cost base by 2023, and we have strategy. The objectives of our strategy include: already achieved combined savings of R30.7 billion in The Turnaround Management Office, supported by the 40 76% 2020 and 2021, exceeding the cumulative target of Results Management Office, is responsible for tracking and monitoring the implementation of initiatives to 30 72% CURRENT ACCOUNT MANAGEMENT R20.3 billion so far. ensure that they yield the required savings. Some Stop defaulting and enforce payment of current 68% amounts Planned and achieved cost savings, R billion initiatives are under way and will continue to deliver 20 62% 70 value going forward. We are identifying additional 61.8 FUTURE DEBT MANAGEMENT 60 initiatives, with an increased focus on procurement, 10 working capital and capital expenditure. In particular, Reduce and/or eliminate overdue debt 50 0 40.4 procurement is an ongoing area of improvement to 2017 2018 2019 2020 2021 40 ensure that we derive optimal value from suppliers. ARREAR DEBT MANAGEMENT 30.7 30 Current amounts CAGR Prevent future defaulting through pre-emptive action 20.3 Managing arrear debt Arrear municipal debt (including interest) 20 16.3 Collection of the revenue owed to Eskom and recovery To achieve these, we are enhancing existing revenue 10 6.2 of arrear debt remain priorities to improve liquidity and and debt management processes, enforcing Eskom's strengthen our balance sheet. Arrear municipal debt by province, R million rights through legal action and expediting Government 0 2020 2021 2020 2021 2022 2023 1 522 (4%) Actual Actual Target Target Target Target Systemic challenges in South Africa, such as crime and 1 515 (4%) interventions. social inequality, economic pressures on businesses as 2 084 (6%) Over the past year, we have laid the groundwork for an Cumulative actual Cumulative target well as shifts to self-generation technology have led active partnering model to assist defaulting municipalities Our strategic context to declining electricity sales volumes over many years, 2 314 (7%) 13 565 (38%) in their revenue collection efforts. Through this model, For the 2021 financial year, we achieved savings of coupled with persistent revenue recovery challenges. Eskom will act as an agent for the supply of electricity, R14.4 billion against a target of R14.1 billion. Savings were Unfortunately, these factors have been exacerbated by maintenance services and collection of revenue on behalf measured against agreed baselines and achieved through the impact of the COVID-19 lockdown, with a continued 4 051 (11%) of municipalities. On 28 April 2021, we entered into our various initiatives, with a significant portion attributable culture of non-payment in some sectors. first active partnering agreement with Msunduzi Local to primary energy, complemented by savings in employee Municipality in KwaZulu-Natal to provide maintenance Key debt management indicators at 31 March 2021 services and assist the municipality with capacity building and skills transfer. We are negotiating agreements with Target Target Target Target Actual Actual Actual 10 289 (29%) other municipalities and have engaged 45 municipalities to Measure and unit 2024 2022 2021 met? 2021 2020 2019 Free State North West Eastern Cape date, including all of the top 20 defaulting municipalities. Arrear debt as % of revenue, % 2.58 3.74 4.16 3.24 3.69 4.30 Mpumalanga Northern Cape Other Gauteng Maluti-a-Phofung, our largest defaulter, did not agree Financial review Average debtors days (including Soweto and 81.18 89.18 97.82 101.92 90.01 82.50 to all terms of a proposed agreement, which was due international), days to be signed in June 2021. In accordance with a High Debtors days – municipalities, average debtors days 148.11 143.18 143.13 140.65 116.05 94.28 Court order, the matter was referred to NERSA for Debtors days – large power top customers excluding 15.88 15.84 16.17 15.01 14.60 13.46 The top 10 defaulting municipalities owed mediation. In July 2021, NERSA concluded that it lacks disputes, average debtors days R24 billion in arrear debt (or 68% of total arrear the jurisdiction to mediate the dispute. We are preparing Other large power user debtors days (<100GWh p.a.), 17.40 17.46 18.28 17.50 16.98 17.19 municipal debt) at year end. The substantial growth to return to court to resolve the matter. average debtors days in arrear amounts is clear. Debtors days – small power users excluding Soweto, 52.42 52.45 48.40 50.07 44.09 42.61 average debtors days Municipality, R million 2021 2020 PAYMENT AGREEMENTS Payment levels excluding Soweto interest, % SC 95.70 95.70 95.70 96.82 96.24 95.79 1. Maluti-a-Phofung Local 5 804 5 071 AT 31 MARCH 2021 Operating performance Municipality, Free State 43 active payment agreements in place, with only 1. Debtors days are based on amounts processed on our billing system, and are shown before accounting adjustments relating to non-collectability. 2. Emalahleni Local Municipality, 4 668 3 587 Therefore, the amounts may not agree with those disclosed in the annual financial statements. Mpumalanga 10 fully honoured 3. Matjhabeng Local Municipality, 3 719 3 025 This includes 12 of the top 20 defaulting Average debtors days have worsened across municipal, Arrear municipal debt Free State municipalities, with only two fully honoured Soweto and international customer categories compared Total arrear municipal debt has escalated to unsustainably 4. Emfuleni Local Municipality, 2 714 1 972 Gauteng Non-adherence to payment agreements continues to to the prior year. In particular, arrear municipal debt has high levels, amounting to R35.3 billion (including interest) 5. Govan Mbeki Local Municipality, 2 318 1 768 contribute to the increase in arrear municipal debt seen a significant increase, in conjunction with continued at year end (2020: R28 billion). The top 20 defaulting Mpumalanga low payment levels in Soweto. Average municipal debtors municipalities account for 81% of total arrear municipal 6. Ngwathe Local Municipality, 1 320 1 220 days are unacceptably high at over 140 days, with the debt (2020: 81%), with over 38% owed by Free State We are exploring all avenues to collect the revenue Free State trend of non-payment worsening amid the effects of the municipalities. At year end, there were 47 municipalities 7. Lekwa Local Municipality, 1 292 1 085 due to us, with interruption of supply being the last resort. Regrettably, Eskom has been interdicted from Supplementary information COVID-19 lockdown. with total arrear debt of more than R100 million each Mpumalanga (2020: 45) – this has grown considerably during recent 8. Thaba Chweu Local Municipality, 840 708 interrupting supply to various defaulting municipalities. years, demonstrating the pervasive nature of the Mpumalanga In December 2020, the Supreme Court of Appeal For details of debtors by category, including impairment and carrying 9. Ditsobotla Local Municipality, 677 570 (SCA) dismissed our appeal of a High Court judgment values, refer to notes 5.1.1 and 19 in the consolidated annual financial problem. North West statements in March 2019, which set aside our decision to interrupt 10. Modimolle-Mookgophong Local 619 549 Municipality, Limpopo supply to Emalahleni and Thaba Chweu municipalities. The SCA concluded that the dire situation faced by these municipalities obliged the national and provincial governments to intervene, in terms of the Constitution. 74 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 75 BACK TO MENU OUR FINANCES continued During the year, we revised our debt collection process Disposal of non-core assets to align with the Intergovernmental Relations Framework We aim to raise more than R2 billion from the disposal of Act, 2005, in compliance with the SCA judgment. non-core immovable properties. As part of this strategy, This affects the time to collect and, in some instances, we sold two high-rise office buildings in Kimberley and municipalities are frivolously declaring disputes to delay Johannesburg to the Department of Human Settlements the collection process. In January 2021, we approached for R76 million during the year. the Constitutional Court to appeal the ruling of the SCA. We await a court date. The Board approved an offer for the disposal of Eskom Finance Company SOC Ltd (EFC) in January 2021, We cannot solve our municipal debt challenges on with both parties agreeing to an effective date of our own – continued support and cooperation from 31 March 2021, subject to all approvals being obtained. Government is crucial to address the root causes However, the proceeds would only be received over of the problem. We are fully participating in the a period of time. Regrettably, the sale of EFC to the work of the Eskom Political Task Team and its Multi- preferred bidder was not approved by DPE. disciplinary Revenue Committee (MdRC). Unfortunately, improvements from their initiatives are yet to be seen. Future focus areas The MdRC is focusing its efforts on dealing with the • Exploring avenues to stimulate sales volumes amid top 20 defaulting municipalities, to ensure interventions the COVID-19 pandemic and South Africa's economic are in place to improve the payment levels of the most recession indebted municipalities. • Maintaining strong relationships with investors to assist us in our transition towards a new energy future In addition, we have developed a proposal for National Treasury to take over the municipal arrear debt, with • Engaging with lenders on the legal separation and the intention of reinforcing National Treasury's financial management of existing debt oversight of affected municipalities. Discussions continue • Strengthening the balance sheet and reducing our as we engage National Treasury on how to leverage reliance on debt to contain debt service costs their authority to ensure municipalities prioritise the • Improving long-term financial sustainability and settlement of the arrear amounts due to Eskom. strengthening standalone credit ratings • Actively monitoring cash flows in conjunction with Residential arrear debt National Treasury and DPE and delivering on the While arrear municipal debt has grown rapidly over equity conditions to ensure timeous Government the past few years, Soweto arrear debt has increased support at a slower rate. Nevertheless, small power users, particularly in Soweto, comprise tens of thousands • Pursuing a cost-reflective tariff path to recover of residential customers, presenting a much greater prudent and efficient costs as well as a fair return on challenge to manage and collect individual outstanding assets amounts compared to the few hundred municipal • Implementing sustainable cost curtailment initiatives customers. Average payment levels in Soweto remain to achieve cumulative savings of R61.8 billion by 2023 low, at 20.6% for the year (2020: 20.7%). • Delivering on the municipal debt management strategy and pursuing active partnering with municipalities to Total invoiced Soweto debt has decreased to R7.5 billion improve revenue collection (including interest) at year end (2020: R12.8 billion). • Leveraging our relationship with Government to Of this, only R536 million is deemed collectable and achieve sustainable solutions to Eskom's debt balance is reflected as trade receivables in our annual financial of R401.8 billion and the recovery of municipal and statements. The reduction in Soweto debt is mainly due to Soweto arrear debt the write-off of prescribed debt of R5.3 billion and write- back of non-compliant “in duplum” interest of R3.3 billion. During the year, the Board granted approval for management to engage with the City of Johannesburg for the proposed transfer of customers in Eskom's licensed areas of supply to City Power. These include Soweto and Sandton. Negotiations have commenced; the Soweto debt balance, regulatory processes as well as social, human resource and financial implications are being considered. International arrear debt Only EDM of Mozambique remains in arrears, with R449 million outstanding at year end, of which 96% is overdue. The parties have agreed that only the disputed amount of R350 million will be subject to mediation. The remaining debt is being settled in terms of a debt repayment plan concluded in April 2020. Mediation We are committed to rebuilding Eskom to make it stronger, more stable and ready to preparations are under way. grow towards a brighter future. Eskom Holdings SOC Ltd Reg No 2002/015527/30 76 | INTEGRATED REPORT | 31 MARCH 2021 BACK TO MENU MAIN HEADING OPERATING CHIEF OPERATING OFFICER'S COMMENTARY PERFORMANCE Who we are and how we create value Governance, leadership and ethics How would you sum up the past year? Operational performance varied quite significantly between divisions. Generation’s operational and environmental performance was below expectations, necessitating loadshedding to protect the integrity of the electricity grid. The impact of COVID-19 on our business over the past year is undeniable, but we capitalised on the low demand during the initial lockdown period to do significantly more much-needed planned maintenance. The transmission and distribution networks delivered improved and sustained performance on key reliability measures, and we continue to make steady progress on the new build programme. Tell us about the performance of the plant Let us be candid, the performance of generating plant was below par. Plant availability declined to below 65%, mainly due to higher levels of planned maintenance. However, there was a noticeable improvement in the level of unplanned outages, although a large portion of capacity of Camden Power Station was unavailable due to ash dam constraints. Our strategic context Excluding the new build stations, the average age of life is an investment into sustainable and less carbon- the plant is around 40 years, and stations have not intensive electricity generation infrastructure. been maintained adequately over the past decade. The average coal purchase price increase was contained This, together with utilisation levels higher than the well within target, with less coal procured under norm, negatively affected plant sustainability. short- and medium-term contracts. Coal stock levels The low plant availability resulted in us having to make were stable over the past year, following the successful extensive use of peaking capacity to meet demand rebuilding of coal stock levels in previous years. No during periods of poor base-load generation capacity power station recorded stock below its individual to avoid or minimise loadshedding. We spent R7 billion minimum stockholding level at year end. Steps are being utilising Eskom’s and IPP OCGTs to support the power implemented to reduce coal-related load losses, including lowering stone contamination and working with mines to Financial review system, which, given our financial position, is not sustainable. We regret the 47 days of loadshedding we improve coal quality. had to implement during the year, given the cost to the Transmission network performance achieved target, with economy and the disruption to customers. system minute <1 performance improving significantly. The Generation recovery plan implemented to allow for However, the failure of ageing assets led to two major fast-tracked improvement in generation performance and incidents. plant availability is delivering positive results. Noteworthy The distribution network continues to perform well. progress has been made in several areas, with others also Both the duration and frequency of interruptions showing good performance. We have also implemented improved, with a combination of maintenance, network the reliability maintenance recovery programme to Operating performance improvement projects and micromanagement of provide intensified support to power stations during restoration times yielding promising results. The load outages. We introduced a self-funded production bonus in the line divisions to reward employees for improved reduction initiative contributed positively to reducing Chief Operating Officer's commentary 79 efficiency, operational productivity and production equipment failure from overloading. However, we have performance. observed a marked increase in electricity theft during the Our infrastructure 81 national lockdown period, despite a decline in demand. Our interaction with the environment 95 The Generation Group Executive was appointed, Losses increased predominantly on feeders serving together with placement of power station general prepaid customers, evidence of an increase in electricity Our people 106 managers and critical appointments, bringing much- theft. Escalating municipal debt levels remain an area needed leadership stability. requiring focused attention. Our role in communities 114 Supplementary information Koeberg continues to operate well and within the Are you satisfied with the progress on the new required safety parameters, and at the lowest primary energy cost of our base-load stations. Activities under build programme? the long-term operation project to extend Koeberg’s life Progress on the new build programme is very by another 20 years, which includes the replacement of encouraging. As expected, two units at Kusile achieved six steam generators, are progressing in accordance with commercial operation during the year, adding installed the baseline schedule. Extending the station’s operating capacity of 1 598MW. However, construction of high- 78 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 79 BACK TO MENU CHIEF OPERATING OFFICER'S COMMENTARY continued OUR Who we are and how we create value Governance, leadership and ethics voltage transmission lines was adversely affected by lockdown restrictions and other related challenges, resulting in us not achieving the year-end target. Capital What do you intend focusing on over the coming year? INFRASTRUCTURE Generation’s commitment to prioritise reliability expenditure was restricted in response to the drastic maintenance remains on track, evidenced by the highest reduction in sales during the earlier stages of the national planned maintenance in three years. The focus is on lockdown, as well as delays in the funding programme. proper upfront planning to ensure we address plant At Medupi, boiler plant modifications developed with issues, prevent outage slips and ensure that the plant the original contractor have been implemented on all performs reliably after outages. Proper outage planning six units for the gas air heater, pulse jet fabric filter, takes two years, so it may take some time before we duct erosion and short-lead items of the mills. The see a significant improvement. Other areas receiving the exception is the duct erosion on Unit 6 and the long- necessary priority are partial load losses, boiler tube leaks and coal quality improvement. However, funding lead mill modifications that will commence in October availability poses a huge risk to the ability of stations to 2021. At Kusile, all boiler plant modifications for the prepare properly for outages in the 2022 financial year. three operational units will be done during outages from June 2021, while modifications on non-commercial Plans to improve plant reliability are dependent on units will be rolled out during construction. Additional outages, and we cannot continue to defer outages due to necessary modifications are being developed to further the constrained system. That said, frequent and sporadic enhance the performance of the units. plant unavailability across the fleet will continue until the reliability maintenance programme takes effect. Outages Last year, I indicated that we were investigating potential to address new build design defects as well as those overpayments to a number of contractors involved in the to implement mid-life refurbishments at older stations construction of Kusile. In December 2020, ABB South also have to be accommodated. Going forward, we can Africa repaid about R1.56 billion through a voluntary expect some degree of loadshedding, but we will not Our strategic context disclosure. We are working with the SIU to set aside compromise on planned maintenance. another contract that was irregularly awarded to ABB. The investigations on potential overpayments continue. We strive for operational excellence in our business operations and this entails going back to basics, by We are pleased that Medupi Unit 1 achieved commercial implementing the correct processes and behaviours that operation on 31 July 2021, signifying completion of support a culture of excellence. Disciplined execution of construction activities on the 4 764MW project, our standard operating procedures is a priority. which commenced in May 2007. Unfortunately, that milestone has been overshadowed by the explosion of We continue to focus on improving the sustainability of the generator at Medupi Unit 4 on 8 August 2021, which our network within capital budget constraints. The ageing seems to have been caused by a deviation in operating infrastructure, however, introduces some short- and procedure during a short-term outage, resulting in medium-term risks. Financial review extensive damage to the generator. We are grateful that Improving emission performance, particularly at Kendal, no injuries were sustained during the incident. Until remains a focus as part of the Generation recovery completion of the Major Event Investigation, employees plan. Poor performing units are placed on outage, Highlights Challenges involved have been placed on precautionary suspension. and investigations and repairs are under way. We are undertaking emission reduction projects to reduce • Matimba Power Station achieved EAF performance above • Managing coal quality within contracted specifications How would you describe the environmental particulate matter emissions, as well as sulphur and 80% for the eighteenth consecutive year • Lower output by renewable IPPs due to delays in performance over the year? nitrogen oxides. • Koeberg recorded no UAGS trips during the year commercial operation of projects, mainly as a result of Our environmental performance showed some • Kusile Units 2 and 3 achieved commercial operation, adding the national lockdown Despite the unsatisfactory Generation performance in improvement, but remains below expectations. We are installed capacity of 1 598MW to the national grid • Ageing network assets and reduced investment in the past year, we are optimistic as we look ahead and network infrastructure negatively affecting network Operating performance engaging the authorities on emission targets, and cheaper collectively build on the Transmission and Distribution Improvements sustainability and available capacity and practical ways to reduce overall emissions. performance improvements. Our focus remains committed • The negative economic outlook and socio-economic to stabilising and optimising the business, and driving the • Investments in wet coal handling, specifically drainage Despite not meeting target, relative particulate emission improvements, have paid dividends. Stations survived challenges contributed to an increase in distribution operations recovery area of the turnaround plan to improve performance has shown significant improvement since almost two weeks of storms due to Cyclone Eloise without non-technical losses, particularly due to electricity theft Eskom’s long-term sustainability. After all, excellence is the the previous year, largely due to a relative improvement gradual outcome of striving to do better together. loadshedding due to wet coal Lowlights in performance at Kendal and opportunity maintenance • Increase in planned maintenance on generating plant undertaken during level 5 of the national lockdown. Lastly and most importantly, I would like to express my • Transmission system reliability improved, with both system • High unplanned load losses resulted in capacity Kendal has implemented an emission recovery plan heartfelt gratitude to the Operations crew for their minutes <1 and major incident performance meeting target constraints, leading to loadshedding on 47 days across all units since late 2019, which has led to a commitment, individual contributions, tireless efforts and • Utilisation of gas turbines remained high, at a • Distribution technical performance metrics continued to significant reduction in emissions, with units operating in resilience despite a daunting and challenging year – they improve combined cost of energy (Eskom and IPP-owned Supplementary information general compliance since December 2020. are the real heroes and heroines of our organisation and OCGTs) of R7 billion (2020: R7.5 billion) • Medupi Unit 3 reached full generation capacity in April 2020, country, doing everything in their power to keep the • High levels of asset vandalism, equipment theft Specific water use for electricity generation was below following successful repair of the major plant design defects lights burning and our economy prosperous. and overloaded networks have led to increased during a 75-day unit outage target but remained the same as the previous year. breakdowns and maintenance costs, limited returns The Generation Environmental Compliance Steering • Significant progress is being made in the correction of the on investment and an increased safety risk major plant defects previously identified on the Medupi and Committee, established in June 2020, has increased its • Certain large-scale emissions control projects are Kusile units focus on water management. We are confident that we Jan Oberholzer behind schedule, putting at risk the achievement of • Plant defect modifications at Ingula Pumped Storage will see positive improvements in due course. Chief Operating Officer the 2019 Minimum Environmental Standards targets Scheme were successful, with the plant now operating at design capacity 80 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 81 BACK TO MENU OUR INFRASTRUCTURE continued Who we are and how we create value Governance, leadership and ethics Our infrastructure constitutes our manufactured capital. Renewable energy IPP generation continued to support fuel levels at OCGT stations and/or water levels at Generation performance It consists of our generation fleet and transmission and the power system throughout the year, with wind pumped storage stations are low, coupled with times of Our purpose is to meet the country's electricity demand distribution networks, supplemented by IPP capacity. generation in particular supporting the evening peaks. particularly high levels of unplanned breakdowns of our by providing electricity at a reasonable price. To do It includes new power stations and high-voltage The highest wind generation over the past year was generating plant. this, Eskom operates 30 base-load, mid-merit, peaking transmission lines being constructed under our new build 2 114MW on 1 December 2020. The average load factor and renewable power stations, with a total nominal programme, together with projects aimed at delivering for wind generation over the evening peak was 43.7% capacity of 46 466MW. Four small hydroelectric stations The cost of loadshedding customer and IPP connections, refurbishing existing for the year. Wind generation had to be curtailed on are not considered for capacity management purposes. A study by Nova Economics on behalf of Eskom estimates assets and ensuring environmental compliance. 15 occasions over the night minimum period, due to very The median age of our coal-fired stations is approaching that 1% loadshedding (as percentage of electricity sales) low demand between 1:00 and 4:00. 40 years. We ensure security of electricity supply to the country is associated with a 0.4% decrease in GDP growth. The through effective operation of our assets. The supply and During the summer months, wind generation output cost of an entire day of loadshedding to the economy is Detailed information on the installed and nominal capacity of each of demand of electricity is balanced in real time to ensure aligns well with the country's demand profile, peaking estimated as: our power stations, as well as IPP capacity, is set out in the fact sheet on stability of the national grid. in the evening and dropping to low levels overnight. In • Stage 1 (or loadshedding 1 000MW): R235.5 million pages 136 and 137 winter, wind generation tends to peak during a cold front • Stage 2 (2 000MW): R471.3 million Managing supply and demand in the Western Cape, but drops once the cold front Medupi Unit 3 reached official status (one year after Role of the System Operator moves northwards and demand increases in Gauteng, • Stage 3 (3 000MW): R706.7 million commercial operation) on 1 August 2020 and has To protect the interconnected power system, the thereby creating a double blow to the system. • Stage 4 (4 000MW): R942.4 million since contributed to performance measures. The unit System Operator balances electricity supply from power recorded an energy availability factor (EAF) of 73.42% stations and demand from customers within a range, Estimates indicate that the energy-intensive primary and for the 2021 financial year. Medupi Unit 2 reached official The implementation of a nationwide lockdown on secondary industries, such as agriculture, utilities and as close as possible to 50Hz in real time. The various status on 1 December 2020; the unit recorded an EAF of 27 March 2020 to reduce the spread of COVID-19 manufacturing, are the worst affected by loadshedding. defence systems to protect the network are tested 54.18% for the financial year. resulted in a drastic reduction in demand. During the By contrast, the more service-oriented industries are less regularly, to maintain our ability to respond effectively level 5 lockdown, the daily peak demand on the power significantly affected. The agricultural sector seems to be Kusile Units 2 and 3 achieved commercial operation on to prevent a major system event, such as a regional or system reduced by between 7 500MW and 11 000MW. the most adversely affected, because of its heavy reliance 29 October 2020 and 29 March 2021 respectively, adding national blackout. Our strategic context The average demand reduction during level 5 was on electricity for irrigation and refrigeration purposes. installed capacity of 1 598MW to the grid. Furthermore, 5 680MW. During the level 4 lockdown period, the Furthermore, the manufacturing sector is most affected Medupi Unit 1 is synchronised to the grid, and Eskom's base-load customers are high load factor, average demand reduction was 3 300MW. Since the in absolute terms. contributes energy to the grid on an intermittent basis large industrial customer operations that operate beginning of the level 3 lockdown, the average reduction while undergoing testing in preparation for commercial continuously, i.e. 24/7/365. Eskom has approximately has been 1 000MW or less. operation. The unit achieved commercial operation on The implementation of the 2021 Winter Plan commenced 145 key industrial customer accounts and these 31 July 2021. on 1 April 2021, running until 31 August 2021. Three high-volume customers contribute significantly to Loadshedding implemented during the year scenarios of unplanned unavailability were considered for Kusile Unit 2 recorded an EAF of 62.04% for the unit's our revenue. Many of these customers, specifically Loadshedding was required on 47 days during the the plan, namely 11 000MW, 12 000MW and 13 000 MW first five months of commercial operation. Kusile Unit 3 the smelters, provide interruptibility or demand year (2020: 46 days) – 42 days up to stage 2, three (with uncertainty of approximately 4 000MW due to will be measured for commercial EAF from 1 April 2021. response, which is utilised by the System Operator days up to stage 3 and two days up to stage 4. Nine volatility). For unplanned unavailability up to 12 000MW, to maintain grid stability. The peak demand response Nominal capacity of 1 875MW relating to 14 units at days of continuous loadshedding was implemented no loadshedding would be required. At 13 000MW, provided during constrained periods reduces the Hendrina, Grootvlei and Komati Power Stations was in from 10 to 18 March 2021, the longest continuous the Winter Plan showed a possible 30 days of stage 1 Financial review cost of open-cycle gas turbine (OCGT) usage reserve storage at 31 March 2021, with another 185MW loadshedding ever implemented. loadshedding during the winter months. Regrettably, and assists with limiting loadshedding to other in extended inoperability, requiring major repairs (2020: unplanned unavailability often exceeded this level, at customers. Base-load customers significantly In comparison, loadshedding was implemented for 1 784MW and 760MW, respectively). times requiring load curtailment of large customers and contribute to both energy and network fixed a total of 666 hours to shed 1 034GWh in 2021 loadshedding. costs, and their presence reduces the upward price (2020: 816 hours for 1 291GWh; 2019: 417 hours for pressure on all other customers. Large industrial 812GWh). The time in each stage is depicted below. Target Target Target Target Actual Actual Actual operations sustain local economies with jobs and Stage 6 loadshedding was implemented for the first Measure and unit 2024 2022 2021 met? 2021 2020 2019 facilitates the growth of downstream beneficiation in and only time on 9 December 2019. the country. Energy availability factor (EAF), % SC 72.00 74.00 73.00 64.19 66.64 69.95 Loadshedding in each stage, hours Planned capability loss factor (PCLF), % SC 10.50 10.50 10.00 12.26 8.92 10.18 Operating performance 600 558 549 System performance Unplanned capability loss factor (UCLF), % 16.00 14.00 15.50 20.04 22.86 18.31 We again had to make extensive use of peaking capacity 500 Other capability loss factor (OCLF), % 1.50 1.50 1.50 3.51 1.58 1.56 in the form of pumped storage stations, as well as 400 Partial load losses, average MWSC 3 215 3 969 3 150 4 109 4 651 3 443 both Eskom- and IPP-owned OCGTs and, at times, hydro stations, to meet demand during periods of poor Post-philosophy outage UCLF, % SC 13.00 15.00 16.00 21.23 29.91 17.05 300 base-load generation availability, when high levels of Unplanned automatic grid separations (UAGS trips), 356 392 448 527 594 517 207 planned and unplanned maintenance were being carried 200 number SC 128 101 out. Despite the high cost of running OCGT stations, 89 91 100 57 we make use of these stations within our financial Technical performance Ash dam capacity constraints at Camden Power Station 34 30 30 21 4 constraints, given the cost of loadshedding to the 0 Stage 1 Stage 2 Stage 3 Stage 4 Stage 6 Plant availability of our generation fleet is measured by contributed OCLF of 2.05% during the year. Supplementary information country. Eskom-owned and IPP OCGTs supplied a total EAF, which continues to perform significantly below of 2 161GWh during the year (2020: 2 039GWh) at a cost 2019 2020 2021 expectation. Plant availability has declined to below We have to operate the plant far outside acceptable of R7 billion (2020: R7.5 billion). 65%, largely due to an increase in losses outside of a norms – as evidenced in the high utilisation factor Loadshedding remains the last resort to maintain the station's control (OCLF) and more planned maintenance discussed below – to avoid or minimise loadshedding, Operational, system performance and environmental data can be supply/demand balance, or to protect the power system (PCLF) compared to the previous year, offset by a slight which results in the high level of unplanned breakdowns. accessed on our Data Portal at by ensuring sufficient reserve capacity to respond to reduction in unplanned maintenance (UCLF). www.eskom.co.za/sites/publicdata/Pages/default.aspx significant unplanned breakdowns or disruptions to supply. Loadshedding is required mostly when diesel 82 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 83 BACK TO MENU OUR INFRASTRUCTURE continued Who we are and how we create value Governance, leadership and ethics The energy utilisation factor (EUF) for the entire Unit 1 was forced to shut down on 3 January 2021, due Generation recovery plan At Medupi, boiler plant modifications have been generation fleet has declined slightly to 76.34% (2020: to an increase in leakage on one of the steam generators The extended operation beyond the previously implemented on all six units. Boiler modifications on the 78.98%). Persistent high EUF levels continue to place after being online for 295 days. The scheduled outage approved shutdown dates of power stations at the end last unit were completed during a 75-day outage, which stress on units, ultimately affecting their reliability and was planned to start on 22 February, therefore the of their economic life was considered in the updated ended in June 2021. The gas air heater, pulse jet fabric leading to high levels of UCLF. The high average fleet decision was taken to commence with the refuelling plan. The use of operational units at these stations is filter (PJFF) and some of the mill modifications were EUF was largely due to coal-fired stations running at outage, as the fuel had to be removed from the reactor being reviewed for extended use beyond 2025 or until implemented on all six Medupi units. an average EUF of 90.42% (2020: 93.33%), with all 15 of to allow the steam generators to be inspected. One sufficient new capacity comes online. the coal-fired stations with an EUF greater than 80%. leaking tube was identified, accounting for the leak-rate Agreement was reached on the rollout of all the milling Considering the age of Eskom's fleet, the actual EUF that resulted in the shutdown. The cause was determined The Generation recovery plan, which aims to address modifications. The first set of long-lead modification remains substantially above the international norm of and the repair completed during the refuelling outage. critical pain points to allow for fast-tracked improvement items for 15 mills will be installed during mill rebuild around 75% over the long term, which will have negative The unit returned to service on 16 June 2021, and is in generation performance and plant availability, is outages on Medupi and Kusile starting in July 2021. An long-term technical consequences. operating at full capacity. delivering results. Progress has been made on many of in-house PJFF redesign project was started by Medupi the areas, with some areas showing good performance, Power Station to run in parallel with the long-term The base plan for the year catered for 73 outages. Of Koeberg long-term operation and steam generator as discussed below. Outage effectiveness and the timely evaluation of the contractor's modifications. A functional those, 60 outages had been executed by year end, with replacement projects return to service of units is starting to improve, with specification is expected by October 2021. 13 deferred. Furthermore, an additional 24 outages The long-term operation (LTO) project will extend the post-outage unplanned losses and unit trips improving not catered for in the base plan had been completed. year-on-year. At Kusile, boiler plant modification outages for the life of Koeberg Nuclear Power Station for an additional Consideration is given to system capacity constraints, three operational units commenced in June 2021, 20 years to 2045, in line with the IRP 2019 expectations plant risks and availability of spares and resources when while the modifications on the units under construction for continued energy security beyond 2024. Compared Correct major defects at new stations scheduling outages. will be rolled out during construction. The guarantee to the cost of new build, the extension of Koeberg is Decrease unit trips and full load losses inspections on Units 2 and 3 are planned to commence economically viable and will secure 1 860MW for another Resolve long-term forced outages in October 2021 and January 2022, respectively. 20 years. Extending the station's operating life is an The national lockdown from 27 March 2020 resulted in a significant reduction in demand, which led to excess investment into sustainable and less carbon-intensive Reduce partial load losses and boiler tube leaks Reduce the incidence of trips and full load losses to improve electricity generation infrastructure. Our strategic context generation capacity. In order to optimise the excess Enhance outage performance reliability of coal-fired power stations capacity, we undertook higher short-term maintenance, Due to their contribution to poor system performance The LTO activities are progressing in accordance with the Fill critical vacancies particularly during levels 5 and 4 of the national baseline schedule, except for the seismic hazard analysis, and the associated cost of restarting the units in order lockdown, with some units being placed in cold reserve Maintain sufficient diesel stocks for OCGTs to supply load to the grid, improving trips performance which has been delayed. An alternate approach is being during that time. developed to mitigate against the effect of the delays. The Maintain coal stockpiles remains a key focus area. The coal fleet recorded 511 impact of the COVID-19 lockdown and the reduction Improve emissions performance UAGS trips for the year (2020: 568), which is an average in the budget for capital expenditure due to financial of approximately 43 trips per month and an improvement We have implemented the reliability maintenance over the prior year. Tutuka, Medupi, Kriel and Duvha constraints had a negative impact on the progress of LTO Good performance during 2021 recovery programme to provide intensified support Progress made since prior year account for approximately 51% of the UAGS trips. to power stations. It is a centre-led programme to activities. The risk is being addressed by optimising scope Little progress during 2021 ensure integration across the generation fleet, process and engaging with the NNR. Full load losses showed a decrease against the prior year, management compliance, enhanced project controls for The extension will include the replacement of Koeberg's to an average of 4 753MW per month (2020: 5 339MW). Address major design and construction defects at new stations transparency, and risk escalation through a core team. Significantly lower demand in the early stages of Financial review six steam generators, which have been in operation Modifications to correct design defects were successfully The ultimate aim is to improve outage performance to since 1984, during the next refuelling outage on each of the national lockdown provided the space for more reduce the risk of loadshedding, thereby supporting implemented during the outage on Medupi Unit 3 that opportunity maintenance and for some units to be placed the units. Once removed, the current steam generators ended in April 2020. It included modifications to the South Africa's economy. Nevertheless, the power will be stored on the Koeberg site, where they will be in cold reserve. This contributed to the reduction in full system remains vulnerable and volatile, with the risk of reheater spray flow, pulse jet fabric filter, gas air heater, load losses. packaged and dismantled for final disposal at a national milling plant, duct and reheater erosion protection, loadshedding expected to be reduced significantly only nuclear waste repository. after the reliability maintenance has been caught up. coupled with boiler optimisation and performance Accelerate the return to service of units on long-term The three steam generators for Unit 1 have been testing. The optimisation process, official performance forced outages We cannot continue to defer outages due to the delivered to Koeberg. Two of the three steam generators verification test and mill inspections were completed. Kendal Unit 5 (640MW) was taken out of service in constrained system. Outages to address the design for Unit 2 are nearing completion of manufacturing and The official test report confirmed that the reheater January 2020 due to its high emissions, and began defects at Medupi and Kusile as well as outages to spray flow was reduced, but that the low-load boiler its planned outage for repairs to the electrostatic Operating performance factory testing, and are scheduled for delivery during implement mid-life refurbishments at older stations the last quarter of 2021. The third steam generator has stability issues persist. Agreement was reached with the precipitators to comply with emissions limits in July 2020. have to be accommodated, in addition to the required been delayed due to a factory mishandling issue and is contractor to develop a solution for the low load and The unit returned to service in June 2021. reliability outages at all stations. undergoing analysis of its future usability. transient operation in lieu of the reheater modification. Decrease partial load losses and boiler tube leaks that Koeberg performance Following the readiness review during December 2020 The design of the solution has commenced and consists prevent units from operating at full capacity Koeberg continues to operate well and within the for the Koeberg Unit 1 refuelling outage, it was concluded of three modifications. One modification that does not Plans to improve permanent partial load losses are required safety parameters, and at the lowest primary that the steam generator replacement (SGR) project require physical plant modification has been completed dependent on outages. Power stations are aligning outage energy cost of our base-load stations. The refuelling posed a significant risk of a prolonged extension to the and will be technically ready for implementation and opportunities to execution of the required scope. Gains outage on Unit 2 was delayed due to the national outage due to certain work packages and plans still being evaluation in September 2021; actual implementation in partial load loss post-outage are being monitored. lockdown and international travel ban restricting required reviewed, and the licence for the original steam generator is dependent on contractual negotiations. The concept Frequent but sporadic partial load losses across the fleet Supplementary information resources. Due to the lower demand during the national interim storage facility not being complete. The decision design of the two remaining modifications has been continue to offset advances in some areas. lockdown, the unit was shut down on 4 April 2020, and was made to delay installation of the steam generators to completed. The basic design options have been received was brought back to service on 13 July 2020. The unit the next outage, as it had the least impact on the overall from the contractor, with the detail design expected by was finally shut down for a refuelling and maintenance generation energy planning. 31 October 2021. outage on 11 August 2020. It returned to service on 21 October 2020, loading up to full capacity within a week. The revised plan is to install the steam generators during More detail on the design and construction defects, as well as the status the respective outages in 2022. of the plant defect correction plan for Medupi and Kusile, are set out from page 92 84 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 85 BACK TO MENU OUR INFRASTRUCTURE continued Who we are and how we create value Governance, leadership and ethics UCLF related to partial load losses for the 2021 year is Maintain sufficient diesel stocks to enable the open-cycle Target Target Target Target Actual Actual Actual better than the previous year, with an average reduction gas turbines to perform for extended periods Measure and unit 2024 2022 2021 met? 2021 2020 2019 of 542MW from the prior year. Just over 60% of partial Diesel tank levels remain healthy and were maintained OCGT production, GWh 633 211 211 1 457 1 328 1 202 load losses were recorded at Tutuka, Kendal, Medupi, well above the target of 50% to year end. Storage and Duvha and Arnot. Major cooling tower refurbishments OCGT diesel usage, R million1 2 812 867 1 250 4 075 4 303 3 768 supply capacity for OCGT diesel fuel has been increased are still to be implemented at Tutuka, Kriel, Arnot, to compensate for the high demand. 1. The 2024 target is the cumulative target over the next three years. Duvha and Matla, but these projects have long lead times. 2. The OCGT cost includes diesel storage and demurrage costs of R79 million (2020: R59 million; 2019: R51 million) incurred when not utilising During the early stages of the national lockdown, the the OCGTs. The boiler tube failure rate 12-month moving indicator possibility of the shutdown of refineries created a risk for commercial units has deteriorated slightly to 2.26 to diesel supply. To mitigate the risk, enabling contracts The two IPP-owned OCGTs also had to be used Energy supplied by IPPs boiler tube failures per unit per year (2020: 2.13). This were put in place to ensure that urgent demand could extensively, producing 704GWh (2020: 711GWh) at a We procure renewable energy from IPPs under DMRE's is more than double the aspiration level of one boiler be met. cost of R4.5 billion to Eskom (2020: R4.8 billion), which RE-IPP Programme, which is derived from ministerial tube failure per unit per year. Some 36% of failures are Maintain coal stockpiles at power stations includes a fixed capacity charge of R1.6 billion (2020: determinations. Under existing bid windows, 8 500MW due to the maintenance backlog caused by the deferral R1.6 billion). of renewable energy is expected to come online before of planned philosophy outages, mainly due to system At year end, no power station had stock below its 2025. Since inception of the RE-IPP Programme in 2011, constraints. individual minimum stockholding level (2020: none), Refer to “Energy supplied by IPPs” on this page for further information a total of 86 IPP projects with a capacity of 6 490MW and all stations were at or above expected levels. Based on the use of IPP-owned OCGTs Reduce maintenance outage due date slips and duration have been connected to the grid, although only 5 078MW on the budgeted standard daily burn, coal stock days At station level, Reliability Maintenance Recovery (RMR) is in operation (2020: 4 201MW). (excluding Medupi and Kusile) have remained stable at Update on Duvha Unit 3 over-pressurisation incident Implementation Committees are gaining momentum. 50 days (2020: 50 days). We have concluded that the rebuild of Duvha Unit 3 Grid connection of Bid window 3.5, 4 and 4B projects Engineering specialists have to sign off on outage (575MW), which suffered an over-pressurisation incident have been affected by the COVID-19 outbreak and scope during a scope freeze six months prior to each on 30 March 2014, is no longer deemed economically related national response. Nevertheless, the projects are outage execution. Central RMR resources have been Coal supply was largely unaffected by the national lockdown, as mines and logistic operators were viable, given that the station is scheduled to be progressing towards scheduled grid connection dates. allocated to support outages at 11 stations regarding decommissioned in 2034 and there is no formal plan to Commencement of commercial operation of many of the Our strategic context scope, planning, execution, recovery and continuous allowed to operate and supply stations under the lockdown regulations. Nevertheless, the situation extend the station's life beyond that. Furthermore, since Bid window 4 generators has been similarly delayed. This improvement. Older stations that were not included the IRP 2019 ends in 2030, there is no clear direction led to a reduction in the renewable energy available for in the programme before are being onboarded. was monitored daily. beyond this. The cancellation of the project was approved purchase during the 2021 financial year. Nevertheless, funding availability poses a huge risk to by the Board's Investment and Finance Committee. An the ability of stations to prepare properly for outages Coal-related load losses coincided with periods where Further procurement under the RE-IPP Programme amount of R1.3 billion was written off, relating to amounts in the 2022 financial year, and to order long-lead spares our generating plant was also experiencing significant has been initiated with the release of the Bid window 5 incurred on the unit since the over-pressurisation incident. for outages during the 2023 financial year. capacity constraints. Coal quality issues at Kriel and requests for proposal, calling for 1 600MW from wind Matla Power Stations account for almost 80% of Benchmarking and 1 000MW from photovoltaic projects. The closing Post-outage UCLF is a key measure to track outage Koeberg Nuclear Power Station date for bids is 4 August 2021. effectiveness, and is measured up to 60 days after a unit coal-related OCLF. We are working with the mines in question and exploring other initiatives to address We are still affiliated to the World Association of synchronises to the grid after maintenance. The RMR Government's Independent Power Producer Office these issues. Nuclear Operators (WANO) and the Institute of will look at improving the quality and accuracy of outage has announced eight preferred bidders from the Risk Nuclear Power Operations (INPO). South Africa remains Financial review scope by developing a holistic approach, by focusing on Mitigation IPP Procurement (RMIPPP) Programme. Refer to “Our interaction with the environment – Securing our coal a member of the International Atomic Energy Agency units that undergo general overhauls, mini overhauls and These projects will supply 1 846MW of dispatchable requirements” from page 96 for more information on coal performance (IAEA). These affiliations facilitate defining standards, interim repairs. Post-outage UCLF has shown significant generation capacity. Under DMRE's timelines, the first sharing best practice, conducting periodic safety reviews, improvement compared to the previous year, contributing Improve emissions performance capacity from the programme is required before the end training personnel, and benchmarking performance. 1% to overall UCLF for the year (2020: 1.30%). of December 2021. Despite some improvement over the past year, emissions The next routine WANO peer review of Koeberg was Due date performance is calculated for units that were performance is not yet at desired levels. delayed due to the COVID-19 travel restrictions, and is We have applied to purchase energy under short-term on outage for more than 21 days and for reliability scheduled for August 2021. IPP programmes. Regulatory approval for the contracts outages longer than 14 days. For the year under review, Refer to “Our interaction with the environment – Particulate and is pending, as NERSA declined cost recovery approval gaseous emissions” from page 99 for more information on emissions For the review period, Koeberg's mean performance 40.38% of outages met their due date (2020: 35.90%), without a ministerial determination. There is a possibility performance has deteriorated slightly, with improved performance Operating performance still significantly below the target of 80%. of 300MW being procured and coming into operation in three of the 15 WANO performance indicators, Use of open-cycle gas turbines during the 2022 financial year. Fill critical staff vacancies and enable the training of countered by a deterioration in four of the indicators. key staff Poor generating plant performance led to extensive use Performance was affected negatively by the slip on of Eskom's OCGTs during the year. The load factor for the Unit 2 refuelling outage, and the forced shutdown The Group Executive: Generation was appointed on the year was 6.90% against a target of 1% (2020: 6.28%). of Unit 1 due to an increase in leakage on one of the 1 April 2021. Furthermore, the three cluster manager The cost was lower than in the prior year, due to a lower steam generators. positions – who focus on operational performance in an average diesel price. effort to improve the reliability of our ageing fleet – have been filled, and 125 new learners were appointed. Supplementary information 86 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 87 BACK TO MENU OUR INFRASTRUCTURE continued Who we are and how we create value Governance, leadership and ethics Energy capacity and purchases Network performance Available IPP capacity and energy procured under various IPP programmes for the year to 31 March 2021 are set out in Our network consists of transmission assets, which evacuate energy from our power stations, and our distribution the following table. network, which transmits electricity from the high-voltage transmission network and IPPs to customers, including Target Target Target Target Actual Actual Actual municipalities and metros that manage their own distribution networks. Measure and unit 2024 2022 2021 met? 2021 2020 2019 Detail of our transmission and distribution power lines and transformers is set out in the fact sheet on page 137 Total capacity, MW 15 210 8 336 6 356 6 083 5 206 4 981 Total energy purchases, GWh 81 063 20 263 14 994 13 525 11 958 11 344 Target Target Target Target Actual Actual Actual Measure and unit 2024 2022 2021 met? 2021 2020 2019 Total spent on IPPs, R million 180 526 42 390 33 453 32 470 29 694 26 655 Lease accounting adjustment, R million2 (9 375) (2 054) (1 631) n/a (1 638) (1 631) (1 703) Number of system minutes lost <1, minutesSC, 1 3.53 3.53 3.53 3.48 4.36 3.16 Total expenditure, R million 171 151 40 336 31 822 30 832 28 063 24 952 Number of major incidents >1 minute, number 2 2 2 2 3 3 Weighted average cost, c/kWh3 223 209 223 240 248 235 System average interruption duration index (SAIDI), 38.0 38.0 38.0 35.4 36.9 38.0 hours SC 1. The 2024 target is the cumulative target over the next three years. System average interruption frequency index (SAIFI), 19.6 19.6 19.6 13.2 14.4 14.9 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 events IFRS 16. Refer to note 2.8 in the annual financial statements for the related accounting policy. Restoration time, %2 93.0 91.0 85.0 92.5 93.5 66.8 3. The weighted average cost is calculated on the total amount spent on energy, before the IFRS 16 lease adjustment. Distribution energy losses, % SC 9.42 9.45 9.71 10.11 8.79 8.47 Utilisation of IPP OCGT peakers was in line with the IPP operational capacities by type at 31 March 2021, prior year, aiding Eskom-owned OCGTs in ensuring MW 1. One system minute is equivalent to interrupting the whole of South Africa at maximum demand for one minute. 26 (0%) 2. Restoration time analyses the time it takes to restore supply during an unplanned outage by measuring the percentage of dispatched work orders system stability to minimise or avoid loadshedding during 500 (8%) restored within 7.5 hours. a shortage of plant capacity. The IPP OCGT peakers recorded an annual load factor of 8% (2020: 8.05%), Compared to the prior year, system minute <1 To manage the risk to our networks, Board approved Our strategic context against a target of 1%, while renewable IPPs attained an 1 005 (17%) performance has improved significantly. However, the Transmission sustainability improvement plan in average load factor of 32.3% (2020: 32%). 2 395 (39%) two major incidents occurred in July 2020, affecting April 2020. It includes initiatives for the replacement of During the year, 877MW of renewable IPP capacity was smelter loads in KwaZulu-Natal and industrial loads in assets in poor condition, system expansion for growth commissioned, against a target of 1 000MW. It comprised North West. Both incidents were due to the failure of and reliability, security upgrades and improvement 415MW wind, 458MW solar photovoltaic (PV) and 4MW ageing assets, which includes substation plant and line actions for leading risk indicators. Implementation of hydro energy. We expect 273MW of renewable capacity hardware. Towards the latter part of the year, two large this plan is affected by capital budget constraints, with a to be commissioned during the coming year. interruptions caused by protection failures at substations shortfall relating to network expansion to accommodate 2 157 (36%) negatively affected system minutes performance. IPPs required by the IRP 2019, as well as N-1 network investments. Going forward, the focus will be on addressing the Wind Diesel Landfill and biomass root causes relating to poor performing transmission Both the duration and frequency of interruptions on Solar PV Concentrating solar power lines. Furthermore, ongoing incidents of tower member the distribution network improved compared to the Financial review and substation theft continue to pose risks for asset prior year. The worst performing network feeders Cross-border sales and purchases of electricity failures and transmission network availability. Proactive based on the previous year's performance were selected The aim of the Southern African Power Pool is to provide reliable and economical electricity supply to its members, nine and effective risk management, intelligence gathering, for improvement. The combination of maintenance, of which are interconnected, with the remaining three countries targeting to be connected by 2022. stakeholder engagement as well as the deployment of new network improvement projects and micromanagement of technologies are employed to combat these incidents. restoration times have yielded results. International sales and purchases Target Target Target Target Actual Actual Actual GWh 2024 2022 2021 met? 2021 2020 2019 International sales 34 678 12 054 12 998 13 497 15 189 12 461 Transmission's sustainability improvement plan install 20 000MVA of new transformer capacity. The Operating performance International purchases 25 395 8 457 8 457 8 812 8 568 7 355 The five-year sustainability improvement plan was implementation of the plan has been substantively approved by the Board in April 2020. It included affected by financial constraints, resulting in a capital Net sales 9 283 3 597 4 541 4 685 6 621 5 106 initiatives for the replacement of assets in poor budget shortfall of more than 50% over the five-year 1. The 2024 target is the cumulative target over the next three years. condition; system expansion for growth and reliability period. This translates to increased asset condition (N-1), partly to support the IRP 2019; integrated risks for operational sustainability and system expansion Sales volumes reduced year-on-year reduction due to thereby increasing available supply. Furthermore, security resource planning and contracting; security upgrades and delays to enable the IRP 2019. loss of the contract to supply ZESCO (Zambia), which of supply was improved by extending the agreement with improvement actions for leading risk indicators. expired in February 2020, and Skorpion Zinc Mine HCB for 150MW for one year to September 2021. The integrated resource planning and contracting The initiative for the replacement of ageing assets in initiative focuses on enabling a learner pipeline, as well (Namibia), which has been under care and maintenance Export growth strategy poor condition includes a progressive annual investment as gearing the procurement supply chain and execution since April 2020. The contract terminated in January 2021. Although our export growth strategy is aimed at increase over the medium term towards a desired capacity to the required level. The security enhancement Supplementary information Purchase volumes have increased marginally year-on- maximising cross-border electricity sales through existing sustainability level of replacing 2% of substation assets initiative includes intruder and tampering detection year. The COVID-19 pandemic resulted in Hidroelèctrica transmission infrastructure, and also by constructing annually. The system expansion initiative is based on the technologies, surveillance and response solutions, as well de Cahora Bassa (HCB) having to put its maintenance additional transmission lines with the support of regional delivery of projects as contained in the Transmission as community and stakeholder engagements. The intent plan on hold, due to contractors having to be repatriated partners, it is severely hampered by generation constraints Development Plan, which includes requirements to of improving leading indicators covers improvement in to their countries of origin for the duration of the due to the poor performance of the coal-fired fleet. As a enable the IRP 2019. This requires an estimated capital the number of line faults as well as in plant availability and Mozambican lockdown. As a result, all five generators result, only non-firm new contracts can be concluded. investment of R51 billion over the next five years to human performance. have been available since the second week of April 2020, construct approximately 3 160km of new lines and 88 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 89 BACK TO MENU OUR INFRASTRUCTURE continued Who we are and how we create value Governance, leadership and ethics Despite the time to restore supply to customers The load reduction initiative has contributed positively Losses due to conductor theft, cabling and related Delivering capacity expansion performing better than target, concerns remain around to reducing equipment failure of power transformers, equipment amounted to R139 million for the year We embarked on a capacity expansion programme in 2005 the breakdown of networks; illegal connections that jumpers, conductors and cables related to overloading (2020: R115 million), and involved 3 765 incidents to build new power stations and reinstate mothballed overload the network; theft and vandalism of electrical caused by illegal connection and bypassing of meters. (2020: 4 798 incidents). We continue to collaborate with stations to increase installed generation capacity by equipment; and challenges in restoring supply to deep other affected SOCs, industry role players, the National 17 384MW, as well as increase high-voltage transmission rural customers and unsafe urban areas. Energy losses and equipment theft Prosecuting Authority and the South African Police Overall energy losses on our networks have increased power lines by 9 756km and transformer capacity by Service to combat these losses. These actions resulted 42 470MVA to strengthen the transmission network. To address equipment theft and vandalism, we have to 11.78% (2020: 9.89%), of which 10.11% relates to the in 111 arrests (2020: 120) and the recovery of R5 million initiated a technology-based security programme to distribution environment (2020: 8.79%), and 2.31% to The programme is expected to be completed by 2025. worth of stolen material (2020: R4 million). mitigate equipment theft. To this end, we are establishing transmission lines (2020: 2.22%). Transmission lines Since inception of the programme to 31 March 2021, an internal security control centre; installing non-lethal produce technical losses only, where some of the energy Equipment theft has a severe impact on local network installed generation capacity has increased by 13 936MW, fences and CCTV cameras at substations; replacing is lost in the form of heat as energy is transmitted. performance. It leads to loss of revenue, but more transmission lines by 8 042km and transmission copper underground cables with aluminium cable; and significantly, poses an increased risk of loss of life or substation capacity by 38 440MVA. investing in security guards at certain sites. Distribution losses are due to both technical and non- injury to the public and employees. Theft and vandalism technical losses. We have observed a marked increase of network equipment is still driven by external socio- Excluding capitalised borrowing costs, the Medupi in electricity theft during the national lockdown period, economic conditions, with conductor theft constituting project has cost R120.6 billion to date (2020: Distribution's network development plan despite a decline in demand. Distribution energy losses the highest number of incidents. R118.4 billion), while the total cost to completion is The network development plan is based on planning amounted to 20.2TWh for the year (2020: 18.4TWh), R145 billion (2020: R137.4 billion). The Kusile project has needs identified for the period from 2020 to 2025. with the increase in losses predominantly arising on cost R141.1 billion to date (2020: R137.4 billion), and the Investment in the refurbishment of the network prepaid feeders, which is evidence of an increase in cost to completion is R161.4 billion. will address the reliability of the network, while the electricity theft. strengthening of the network will address capacity constraints. Both will support future growth, which is Non-technical losses for the year are estimated at Target Target Target Target Actual Actual Actual being prioritised within budgetary constraints. R2 319 million (2020: R1 977 million). These relate mainly Measure and unit 2024 2022 2021 met? 2021 2020 2019 Our strategic context to electricity theft through illegal connections, tampering Generation capacity installed and commissioned Capital of about R48 billion is to be invested in the and bypassing of electricity meters as well as the purchase (commercial operation), MWSC 2 394 794 1 594 1 598 1 588 − network development plan over the next five years. of electricity tokens from unregistered or illegal vendors, Transmission lines installed, km SC 620.0 140.0 92.5 65.6 127.9 378.7 The aim is to refurbish or replace between 2–3% of the but also includes meter reading and billing errors. Transmission transformer capacity installed and asset base annually, continue with the electrification commissioned, MVA SC 1 815 500 500 750 250 540 programme funded by DMRE, and to facilitate IPP The percentage distribution energy losses has increased significantly since the prior year. Our ageing networks, 1. The 2024 target is the cumulative capacity to be commissioned and/or installed over the next three years. connections where connected to the distribution network. which are often constrained and overloaded, further contribute to technical losses. Kusile Unit 2 achieved commercial operation (CO) on The availability and reliability of the synchronised units at The capital allocated to the division, constrained 29 October 2020, with issues in the mill performance, Medupi and Kusile are steadily improving. This is a result by liquidity pressures, is not adequate to address Curtailing energy losses due to a culture of non-payment, plant failures and the COVID-19 lockdown delaying of the continuous interventions taken in correcting major the requirements of the network development illegal connections, theft and fraud remains a concern. commercialisation. Kusile Unit 3 achieved commercial plant defects and improving operational inefficiencies. plan. Customer connections are prioritised above Interventions were put in place to better manage non- operation on 29 March 2021. The fabric filter plant Six units at Medupi and three units at Kusile contribute Financial review technical energy losses include: bags have already been replaced, as part of the defects energy to the national grid. strengthening and refurbishment of the network. However, the focus will be on capital spend to improve • Audits were completed on 8 014 large customers, correction process. The construction of high-voltage transmission lines the asset management lifecycle in support of network 12 714 small customers and 273 984 prepaid was negatively affected by the COVID-19 lockdown sustainability. customers, with an estimated reduction of 428GWh Medupi Unit 1 achieved CO on 31 July 2021, restrictions, non-placement of major contracts and in losses after being synchronised to the national grid on capital budget constraints, with the target for the year • R14 million in fines were collected after disconnecting 27 August 2019. The milestone signifies completion not being achieved. Nevertheless, more new transformer illegal connections and following up on incidents of of construction activities on the 4 764MW project, capacity than planned was commissioned. Impact of load reduction meter tampering which commenced in May 2007. The planned The Distribution Division has implemented load reduction • A model to create cooperative partnerships with operational life of Medupi Power Station is 50 years. across several areas of business to protect the network It uses direct dry-cooling systems due to the water Operating performance infrastructure from overloading, equipment failures and communities is being explored as a possible solution to reduce non-technical energy losses scarcity in the Lephalale area, and is the fourth explosions. The efficient operation of the network within largest coal-fired plant and the largest dry-cooled the designed parameters is necessary to support the Interventions to investigate and better manage technical power station in the world. reliability of supply. energy losses include the following: Load reduction refers to switching off a network to • Reporting on high-voltage technical losses is in place, protect infrastructure once there is a surge in electricity with estimation of medium-voltage technical losses in demand beyond the specific network's designed capacity. progress We have seen a slight reduction in transformer failures in • Modelling of IPP losses is in progress, to evaluate the areas where load reduction has been implemented. impact of IPP operations on the distribution network • A power factor correction study indicated that Supplementary information We have engaged with communities on the need for load pursuing an overall customer power factor correction reduction and the merits of protecting the network. as a strategy would not improve distribution technical During these engagements, we highlighted the dangers of losses. A second phase is under way, to evaluate illegal connections, meter tampering and non-payment possible savings in technical losses for electricity. Certain communities have responded positively, by taking a leading role in advocating for the • The impact of voltage and phase imbalances are being legal use of electricity and paying for services. evaluated to determine potential savings from a reduction in technical losses 90 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 91 BACK TO MENU OUR INFRASTRUCTURE continued Who we are and how we create value Governance, leadership and ethics Group funded capital expenditure (excluding capitalised borrowing costs) per division • Gas air heater mechanical performance, erosion and Battery energy storage systems Target Actual Actual Actual operational performance in terms of ash carry over The distributed battery storage project is to be situated Division, R million 2021 2021 2020 2019 and outlet temperature stratification at remote sites with limited access to our distribution • Furnace exit gas temperature resulting in excessive networks, but close to renewable IPP plant. Phase 1 of Group Capital 13 482 9 331 9 902 19 613 Generation 10 178 9 775 8 580 8 704 reheater spray water flow the project consists of 800MWh of distributed battery Transmission 960 702 800 782 • Milling plant defects storage. DFFE granted environmental authorisation Distribution 4 352 2 389 2 675 3 810 approvals for all but one of the phase 1 distribution • Air and flue gas ducting erosion sites located in the Western Cape, Eastern Cape and Subtotal 28 972 22 197 21 957 32 909 Another major defect at Medupi is control and KwaZulu-Natal. Future fuel (coal and nuclear) 2 631 1 495 1 031 550 263 instrumentation (C&I) repeated distributed control Other areas including subsidiaries and intergroup eliminations 875 428 451 Approval was obtained from the World Bank to issue system card failures on Units 6, 5 and 4 as well as the Total Eskom group-funded capital expenditure1 32 478 23 955 23 416 33 910 the bidding documents for the entire Phase 1 of the balance of plant. A further major defect at Kusile is project to the market in March 2021. Tender enquiries the western fill water treatment plant laboratory and 1. Capital expenditure includes additions to property, plant and equipment, intangible assets and future fuel, but excludes strategic spares, construction closed in June 2021 and tender evaluations have stock and capitalised borrowing costs. demineralised water storage tanks. commenced. Phase 2 of the project consists of 640MWh Regarding the dust handling plant, ash silos and at Distribution substations and is in development. Capital expenditure for the year was R8.5 billion lower The last remaining unit at Medupi achieved CO on conditioning plant, the technical design analysis than target, mainly across Group Capital and Distribution 31 July 2021. Delays in the completion of the dust Risks include schedule slippage beyond the end dates of indicated that there are no design defects, but the Divisions, due to the deferral of outages, resource handling plant (DHP) due to contractual matters and the the World Bank facilities; finalisation of the memorandum quality of construction and materials problematic. This constraints and a slowdown in activities as a result of the COVID-19 pandemic all affected the schedule. Unit 1 of understanding between Eskom funders; and DMRE and is being addressed as part of normal construction and national lockdown. The constraints imposed on capital is supporting the national grid, but has experienced NERSA approval for the deviation from the current IRP contractual activities. in response to the dramatic reduction in sales during some delays in conducting optimisation and capability and NERSA licence. With the delays experienced, the the earlier stages of the national lockdown, as well as tests. The 72-hour test run, Grid Code Compliance In April 2019, the total cost for fixing the major latest forecast for construction completion of Phase 1 the delays in the funding programme, contributed to the and capability tests were all completed in March 2021. plant defects at Medupi and Kusile was estimated at is November 2022, which is beyond the end date of the Our strategic context lower expenditure. Furthermore, capital savings were The unit has also undergone some correction of major R7.2 billion. The latest total estimated cost for the World Bank facilities. There is an opportunity to extend targeted through our cost saving initiatives to offset plant defects. defects correction of all Medupi and Kusile units, based the World Bank facility of December 2021, subject to the financial impact of lower sales volumes during the on the best available information, ranges between Eskom demonstrating commitment and good progress. national lockdown. Construction of the DHP has been completed and is R5.6 billion and R7.2 billion. We have entered into available to convey ash. The focus is on completing the Medupi FGD retrofit a contractual consultation process with the boiler Due to financial constraints, capex was reduced by 41% remaining scope on the balance of plant (outside plant) We remain committed to the construction of the contractor to determine the liability for the necessary for the 2022 financial year, thereby limiting funds available including, but not limited to, the ash dump facility, ash Medupi flue gas desulphurisation (FGD) retrofit project, modifications to correct the defects. At the conclusion for technical plan maintenance. silos, coal stockyards and building structures with their as confirmed in correspondence to the World Bank in of the process, where Eskom is adjudicated not to be associated systems, to close out the project. June 2020. This is in line with the World Bank's loan Medupi and Kusile project performance contractually liable, the plant defect correction costs agreement. DFFE also emphasised in June 2020 that Units have been synchronised to the grid and attained After limited construction activities in the early days of will be fully recovered from the relevant contractors. Eskom's power stations must comply with regulations commercial status as follows: the national lockdown, construction and commissioning At this stage, the total boiler defect costs are being split and applicable law. Compliance with environmental Financial review activities on Kusile Units 4 to 6 gradually resumed equally between Eskom and the contractor at both Medupi regulations for emissions control remains a key priority. Medupi Power Station from May 2020, but have been affected by the DHP and Kusile. A contractual process is under way, including Installed First Commercial commercial issues. A contract was placed with ERI to The Board approved the continuation of the Medupi contractual level discussions and possibly the Dispute Unit capacity synchronisation operation complete the DHP at Kusile, given that ERI completed FGD project in October 2020; the cost is estimated at Arbitration Board, to determine liability, where the liable Unit 6 794MW March 2015 August 2015 the DHP at Medupi after the previous contractor had R38.4 billion. Assessment of the request for information party will be fully responsible for the related defect costs. entered business rescue. On Unit 4, the boiler chemical for a suitable FGD technology was concluded in Unit 5 794MW September 2016 April 2017 January 2021. Our strategy is to avoid technology risk by clean, first oil fire, first coal fire and boiler blow-through The forecast for the completion of the major defects Unit 4 794MW May 2017 November 2017 milestones were completed in February, April, June and correction of the Medupi and Kusile units with the allocating it to the private sector to select the technology July 2021 respectively. On Unit 5, the turbine on barring contractor is 2023. Further corrections which will be solution. Endorsement and support of this strategy was Unit 3 794MW April 2018 July 2019 distributed control system (DCS) milestone was achieved done in-house, with or without third-party involvement, granted in April 2021 by the Generation divisional board and the Investment and Finance Committee. Board Operating performance Unit 2 794MW October 2018 November 2019 is forecast for completion in 2025, depending on in March 2021, while the draught group run and chemical Unit 1 794MW August 2019 July 2021 clean milestones are under way. On Unit 6, DCS the outage availability of the units under Generation approval was obtained at the end of June 2021. energisation is in progress. Division's outage plan. In July 2021, the World Bank approved the extension of Kusile Power Station the FGD implementation deadline from 30 June 2025 Correcting major design and construction defects Other projects Installed First Commercial at Medupi, Kusile and Ingula Power Stations Majuba Rail 68km dedicated railway to 30 June 2027. The key priorities are to complete the Unit capacity synchronisation operation The project will ensure security of coal supply to technology selection and resolve funding constraints Major defects tracked under the Generation recovery Unit 1 799MW December 2016 August 2017 plan are defined as system or equipment defects that Majuba Power Station through a 68km dedicated rail before proceeding with any solution and commencing reduce, or have the potential to significantly reduce, the logistics solution, resulting in the achievement of positive environmental approval activities. Unit 2 799MW March 2018 October 2020 EAF of multiple units at the new build stations, and where economic, environmental and social benefits by switching Unit 3 799MW April 2019 March 2021 the available contractual defect resolution remedies have the transportation of coal from road trucks to rail Supplementary information Unit 4 800MW June 20221 January 20231 not been effective. transportation. The project commenced in 2005 and has suffered numerous setbacks due to approval delays, Unit 5 800MW June 20231 December 20231 The major defects at both Medupi and Kusile (unless as well as construction and commercial challenges. Unit 6 800MW November 2023 1 May 20241 otherwise indicated) are: Commercial operation is targeted for December 2021. • Pulse jet fabric filter plant (PJFF) poor performance due 1. Future dates are based on the P80 schedule. to inadequate pulsing system and flue gas flow entry 92 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 93 BACK TO MENU OUR INFRASTRUCTURE continued OUR INTERACTION WITH THE ENVIRONMENT Who we are and how we create value Governance, leadership and ethics R&D projects Microgrids and embedded generation The mandate of our Research, Testing and Development Successful demonstration of both the Ficksburg rural (RT&D) Department is to: microgrid as well as the Lynedoch smart integration of embedded generation (SIEG) pilots have facilitated • Research, select and develop technologies that a change in Distribution Division's strategy to deploy support our strategic objectives small-scale embedded generation and microgrids as • Create and apply knowledge to practical business future product offerings. The knowledge gained from challenges by demonstrating selected technologies, early demonstration of these disruptive technologies and develop new revenue streams has positioned Eskom to manage distributed generation • Provide specialised technical consulting, testing technologies and deliver product offerings to meet the and inspection services to support operational requirements of the future customer. decision-making Komati repurposing Progress on high priority and flagship projects The Komati repurposing initiative entered the first phase Business model for technical development of of a three-phased approach in line with Generation's black-owned suppliers and intellectual property repowering programme, after submission of an management expression of interest to the market. The first phase Our focus is on business development of technical seeks to demonstrate pre-commercialised energy services that cannot be sustained in-house due to storage solutions and conduct a feasibility study on how resource and financial constraints. We have partnered existing assets can be repurposed to maintain system with the CSIR's Enterprise Creation for Development for inertia and frequency stability. Subsequent phases the development of entities to support Eskom, the South will focus on demonstrating emerging repowering African electricity supply industry and other industries. technologies and socio-economic initiatives to support We are targeting development of at least one sustainable repowering. Our strategic context business plan by the end of 2021. Future focus areas Several online workshops were convened to explore business opportunities related to RT&D's areas of • Executing the business separation programme, expertise, including air quality monitoring, system focusing on legal, regulatory and policy issues dynamics, remotely piloted aircraft systems, eutectic • Continuing to drive execution of the Generation freeze crystallisation, microgrid installation, remote recovery plan to improve plant performance over the temperature logging and biomonitoring. medium to long term • Successfully executing the Koeberg steam generator High-voltage direct current (HVDC) test facility replacement and LTO projects to extend the life of the No funding has been allocated to the project since 2020. station As such, all work has been put on hold until further funding becomes available. • Concluding agreements with new IPP projects, Financial review specifically the Risk Mitigation Programme (announced Discussions were held with the South African Bureau by DMRE) and RE-IPPP Bid window 5 of Standards' National Electrical Test Facility (SABS- • Supporting implementation of the Small-Scale Highlights Challenges NETFA) to explore possible funding for the project, Embedded Generation Framework, which was in accordance with the memorandum of cooperation developed this year • All stations were above their minimum stockholding • High coal demand from more expensive power between SABS and Eskom. The Transmission Division has • Reviewing the cross-border pricing strategy, and levels at year end stations due to generation performance challenges expressed an interest in funding the completion of the optimising and maintaining current cross-border • No new environmental legal contravention incidents • Reduction in cost-plus mine production because of facilities, with discussions under way. contracts or extending agreements were reported by Transmission, Distribution or delays in capital expansion projects • Facilitating skills transfer and development in the region Eskom Rotek Industries during the year • Lack of new mining investment and execution of Smart electricity platform • The Ingula Nature Reserve wetlands have been existing mining rights could affect future coal supply. Operating performance The project is aimed at developing a smart information • Sustaining transmission system reliability and reducing technology and operational technology platform to declared wetlands of international importance by the Investors prefer clean energy, with minimal funding line faults International Ramsar Convention for carbon-intensive technology integrate customer-centric products, including eMobility, • Prioritising capital investment for the strengthening distributed energy resources, energy storage, smart Improvements • Several notices received from DFFE regarding and refurbishment of distribution networks as well as non-compliances in Generation, Distribution (on an metering and other emerging technologies. connecting new customers to the network • Increase in coal purchase cost per ton well below existing query) and Group Capital Divisions Limited availability of CSIR resources has negatively • Correcting all major plant defects at Medupi and target, leading to coal optimisation savings exceeding Lowlights affected project timelines. However, work has Kusile by 2023, as part of the Generation recovery the target, in support of the turnaround plan commenced on the functional requirement specification. plan, to attain a technically acceptable level of new • Kendal Power Station has been operating in general • Continuing poor environmental performance, with Several workshops and information sharing sessions have plant performance compliance with emission limits since December 2020 relative particulate emissions, specific water use and been held to discuss project requirements and onboard • Completing the Medupi and Kusile projects within the • Generation continues to increase the percentage of environmental legal contraventions well outside Supplementary information the CSIR team. revised Board-approved completion dates of the 2022 ash beneficiated tolerance levels and 2025 financial years, respectively • Generation has shown steady progress in phasing out • Criminal charges laid against Eskom regarding Kendal's • Driving completion of the battery storage (1 440MWh transformers containing polychlorinated biphenyls particulate emissions challenges of storage capacity) and Medupi FGD projects (PCBs), with 85% of contaminated transformers • Constraints at ash disposal facilities at Camden curtailed phased out the station's operation • Seven environmental legal contravention incidents at power stations in terms of the OHD recorded during the year, with total environmental legal contraventions at 80, mostly water-related 94 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 95 BACK TO MENU OUR INTERACTION WITH THE ENVIRONMENT continued Who we are and how we create value Governance, leadership and ethics By and large, the impact of our activities on the Coal supply strategy Our top 10 coal suppliers are set out below. There are are being implemented to reduce future coal-related load environment is negative. To a large extent, we rely on the Our coal strategy favours long-term dedicated coal two new entrants to the list since last year. losses, including reducing contamination and working with use of mainly non-renewable or scarce resources such as contracts with coal delivered by conveyor, to ensure mines to improve coal quality. Our long-term goal remains Supplier Contract type coal, water, nuclear fuel and diesel to generate electricity. security of supply to our coal-fired stations and minimise to determine coal quality at the point of delivery. In addition, emissions from our power stations and waste coal transport by road. It includes investing in cost-plus Exxaro Coal Mix of cost-plus and fixed-price generated in the form of ash and nuclear waste also have mines to support contractual supply, to ensure optimal Seriti Coal Cost-plus Investment in cost-plus mines a detrimental impact on the environment, if not properly cost of coal and security of coal supply from dedicated South32 Mix of cost-plus and fixed-price We will only consider recapitalisation for mines where managed. We cannot deny that our activities destroy coal resources. Glencore Fixed-price long-term benefits can be demonstrated through increased natural capital – both through the use of non-renewable Universal Coal Fixed-price volumes of acceptable quality coal, to limit the amount natural resources, as well as producing emissions and The volumes and value of coal purchased over the past Mbuyelo Fixed-price of coal required on expensive short- and medium-term waste – to deliver electricity to customers. year were made up as follows: Mzimkhulu Mining Fixed-price contracts. The majority of cost-plus mines require Wescoal Fixed-price significant investment or recapitalisation to increase Nevertheless, we endeavour to limit the damage of Coal volumes Mwelase Mining (new) Fixed-price production and/or maintain existing production. Until then, our activities on the environment through our value Into Africa Mining And Fixed-price Exploration (new) lower production is to be expected from these mines. We of Zero Harm. Environmental compliance is critical 29% will consider financing the expansion at cost-plus mines to to retaining our licence to operate and supporting the access remaining contracted reserves, to support contract security of electricity supply to customers and the Coal quality extensions through increased production. country as a whole. Coal-related load losses for the year amounted to 0.71% 44% OCLF (2020: 0.73%), and are due to factors such as poor Negotiations on the extension of existing cost-plus Our aim is to reduce our environmental footprint quality coal or coal contaminated by stones. Matla and Kriel agreements for Lethabo, Kendal, Kriel, Matla and on several fronts, for example through by reducing were the biggest contributors, accounting for 59% and 28% Tutuka continue. particulate emissions through a number of initiatives, of coal-related load losses respectively. A number of steps using less water with less efficient units being taken out of service, and using dry-cooled technology in our newer 27% Technical performance Our strategic context stations, namely Matimba, Kendal, Medupi and Kusile. These new stations are being commissioned with fabric Value of coal purchased Target Target Target Target Actual Actual Actual Cost-plus Short-/medium-term contracts Measure and unit 2024 2022 2021 met? 2021 2020 2019 filter plants to reduce particulates, as well as low NO x Fixed-price technology to reduce NO x emissions. Kusile is being Coal burnt, Mt1 n/a 104.57 107.80 n/a 104.87 108.61 113.76 commissioned with FGD technology to reduce SO2 . 28% Coal purchased, Mt n/a 101.37 110.10 n/a 109.96 119.25 118.25 Medupi will be retrofitted with FGD technology. Coal purchase R/ton, % increase SC 10.0 10.0 11.0 3.2 16.3 14.1 Coal stock days n/a 31 31 82 81 67 Our current investment in renewable generating Normalised coal stock days, budgeted standard n/a 31 31 50 50 36 capacity is modest, with one wind facility, hydro stations 49% daily burn2 and a number of small solar PV projects. We aim to Road-to-rail migration (additional tonnage 20.3 5.5 10.5 3.6 7.5 8.2 drive the Just Energy Transition to introduce more transported on rail), Mt SC renewable capacity, to reach our long-term objective of Financial review attaining net zero emissions by 2050, with an increase in 23% 1. The current year coal burnt figure excludes 5 735kt burnt during the commissioning of Medupi Units 3 and 2 and Kusile Units 2 and 3 (2020: 4 910kt sustainable jobs. for pre-commissioning burn). 2. Normalised coal stock days exclude coal at Medupi and Kusile. 3. Future targets shown as n/a are dependent on system requirements. Net zero emissions means that any emissions are Cost-plus Fixed-price 4. The 2024 road-to-rail target is the cumulative target over the next three years. balanced by offset projects, which absorb an equivalent Short-/medium-term contracts amount of CO2 from the atmosphere. In order to meet The increase in the average coal purchase price was Implementing coal haulage and the road-to-rail the 1.5°C global warming target in the Paris Agreement, There has been a slight shift from short- to medium-term contained well within the target, due to the slight migration plan global carbon emissions should reach net zero around contracts to fixed price contracts over the past year, shift away from supply under short- and medium-term Three power stations are supplied with coal on rail, mid-century. which had a favourable impact on the cost of coal, as contracts. This follows the success of rebuilding coal namely Grootvlei, Majuba and Tutuka, and we are Operating performance short- and medium-term coal tends to be more expensive. stock levels in previous years – coal stock levels were targeting new rail opportunities at Arnot towards the stable over the past year. end of the 2021 calendar year. Future rail opportunities Securing our resource requirements In support of our long-term coal procurement strategy, at Camden have been put on hold due to uncertainty Our primary energy sources include coal, nuclear fuel, we have issued requests for proposal (RFPs) to the No station had stock below its individual station around the remaining life of Camden. The shareholder diesel, gas, limestone (used in FGDs) and water. These market for supply to Arnot, Camden, Kriel, Matla and minimum stockholding level (2020: none). Coal stock compact target for the year was not met, mainly due have to be sourced, procured and delivered to our Tutuka, and in some cases, contracts have been awarded. days remain higher than target due to more coal than to the unavailability of the rail offloading facility at power stations in the necessary amounts, at the required Coal requirements have been largely secured for the needed being delivered to Medupi, Kusile and Lethabo. Majuba Power Station, after the fire in December 2019. quality, at the right time and at optimal cost. next 18 to 24 months. Implementation of the long-term Coal requirements at Medupi and Kusile are affected Provisional indications are that rail operations at strategy is progressing and the shortfall, accounting for by delays in the commissioning of units, although we Majuba will resume from September 2021. The national Securing our coal requirements updates to both supply and demand, has been reduced to continue to receive coal in terms of take-or-pay coal lockdown contributed to the delay in resuming Going forward, investors will pursue clean energy, with 0.75 billion tons of uncontracted coal to cover the life of supply contracts. The low quality of coal supplied to operations. minimal funding for carbon technology, thereby signalling Supplementary information all coal-fired power stations. Lethabo makes it unsuitable for use by any other station, disinvestment in the South African coal industry by and there is no financial benefit to reducing production multinationals. by the cost-plus mine supplying Lethabo. 96 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 97 BACK TO MENU OUR INTERACTION WITH THE ENVIRONMENT continued Who we are and how we create value Governance, leadership and ethics Furthermore, commercial delays between Eskom and Eskom's assurance of water supply is not at immediate Reducing our environmental footprint Transnet Freight Rail (TFR) for rail siding operations risk due to our status as a strategic user. Business We track a number of key performance indicators to measure our environmental performance, including relative delayed the resumption of rail operations to Tutuka. continuity plans are in place at Eskom facilities and sites particulate emissions, specific water consumption and the number of reported legal contravention incidents. Rail Safety Regulator approval has delayed the start of to cater for possible water restrictions by municipalities a rail service to Arnot. TFR is engaging the regulator to and water boards. Refer to the fact sheet on page 127 for information on the environmental implications of using or saving electricity resolve and expedite approvals. For a discussion of our water usage, refer to “Reducing water Regrettably, road logistics recorded eight public fatalities consumption” on page 102 in this section Target Target Target Target Actual Actual Actual during the year (2020: six), as well as six contractor Measure and unit 2024 2022 2021 met? 2021 2020 2019 fatalities (2020: two). We continue to promote road The Department of Water and Sanitation (DWS) Relative particulate emissions, kg/MWh sent out SC, 1, 2 0.30 0.31 0.32 0.38 0.47 0.47 safety and participate in road safety awareness campaigns continues to experience severe budgetary, financial Specific water consumption, ℓ/kWh sent out SC,1 1.30 1.33 1.34 1.42 1.42 1.41 with the Mpumalanga government, given the impact of and resource constraints, affecting its ability to manage Net raw water consumption, Mℓ3 n/a n/a n/a n/a 270 736 286 553 292 344 our coal haulage operations on road safety and road existing operations, maintenance and implementation conditions, of new bulk water infrastructure to ensure future Environmental legal contraventions in terms of the 1 1 1 7 5 2 water security to Eskom. A joint task team between OHD, number4 Securing our water requirements DWS, Eskom and Sasol has been established to mitigate Carbon dioxide (CO2), Mt n/a n/a n/a n/a 206.8 213.2 220.9 Water security risks relating to Eskom's existing needs against these water supply risks and to escalate critical Sulphur dioxide (SO2), kt 5 n/a n/a n/a n/a 1 604 1 721 1 853 The Integrated Vaal River System (IVRS) storage stood matters to the Director-General: DWS for support and Nitrogen oxide (NO x as NO2), kt 6 n/a n/a n/a n/a 804 851 890 at 91.7% at 23 March 2021 (30 March 2020: 65.9%). The intervention. Particulate emissions, kt n/a n/a n/a n/a 71.35 94.92 99.87 IVRS level has recovered significantly due to good rainfall Mokolo Crocodile Water Augmentation Project 1. Relative particulate emissions values and specific water consumption include Medupi Units 3, 4, 5 and 6 as well as Kusile Unit 1, but exclude units in the catchment areas, however, the IVRS is likely to (MCWAP) Phase 2 synchronised but not yet in commercial operation. Units are only included one year after achieving commercial operation, therefore Kusile Units 2 remain in deficit until Phase 2 of the Lesotho Highlands and 3 as well as Medupi Unit 2 are still excluded. The water delivery date from MCWAP Phase 2A has Water Project is commissioned by 2026. Unofficially, 2. Particulate emissions reported at certain coal-fired power stations, Kendal and Kriel specifically, exceeded the range of the station's particulate moved out to August 2026 (from October 2025 reported emission monitors for periods during the year. This may have resulted in an understatement of particulate matter emissions. The extent of the Our strategic context the project is likely to be delayed by another two years, previously). Eskom signed the water supply agreement understatement and its impact on the materiality of final figures can, however, not be quantified. with construction delayed due to COVID-19 travel with DWS in January 2021. At this stage, the delay is 3. No target is set for net raw water consumption or for emission volumes. Therefore, the target for these measures is shown as not applicable. restrictions. Other initiatives such as water conservation unlikely to affect the FGD project, which is also delayed. 4. Specific cases of environmental legal contravention incidents that are considered to be of very high significance in terms of its impact on the and water demand management have to be implemented environment and/or on Eskom in that they have a material business impact and illustrate a significant failure of business systems, are recorded as by all sectors, including Eskom, to mitigate against future Securing our nuclear fuel requirements incidents in terms of the OHD. water security risks in the IVRS. Koeberg's nuclear fuel demand can be met until 2025 5. Our sulphur dioxide performance figures are calculated based on coal characteristics and power station design parameters using coal analysis and coal by existing contracts for the supply of nuclear fuel burnt tonnages. Figures include coal-fired and gas turbine power stations, as well as oil consumed during power station start-ups. For carbon dioxide The Mokolo River System, which supplies raw water emissions, it also includes the underground coal gasification plant. fabrication services and the delivery of fabricated nuclear to Matimba and Medupi Power Stations, has also 6. NO x reported as NO2 is calculated using average station-specific emission factors (which are measured intermittently) and tonnages of coal burnt. fuel to Koeberg. We have entered into contracts until received good rainfall, resulting in the Mokolo Dam level 2028 for the supply of enriched uranium product, which increasing to 100.4% on 30 March 2021 (October 2020: Particulate and gaseous emissions Department of Environmental Affairs. Full compliance is used in nuclear fuel fabrication. 40%). As a result, the likelihood of water curtailments Burning coal to produce electricity produces four major with the new plant standards requires all coal-fired pollutants in the form of emissions: particulate matter power stations to implement emission reduction Financial review to Eskom has reduced significantly, although the risk See note 10 on future fuel supplies and note 20 on inventories in the remains until the Mokolo Crocodile Water Augmentation consolidated annual financial statements for further information on (PM), carbon dioxide (CO2), sulphur dioxide (SO2) and technologies, such as fabric filter plant (FFP), low NO x Project Phase 2A is commissioned. Matimba and Medupi nuclear fuel balances nitrogen oxides (NO x). The National Environmental burners and/or FGD. Several of the particulate matter will continue to minimise their water usage and reuse Management: Air Quality Act, 2004 (NEMAQA) requires projects are under way, and will be completed by 2025 water where possible. the installation of technology to reduce emissions. as required. Since the early 1980s, we have implemented pollution reduction technology, thereby reducing particulate It is projected that our relative particulate matter matter emissions by more than 80%. We recorded the emissions will reduce by 51% by 2030, SO2 by 22% worst particulate emission performance in 20 years and NO x by 27%, compared to a 2020 baseline. in 2019 and 2020, primarily because of challenges The estimated reduction is based on units running Operating performance experienced at Kendal Power Station. at the allowable limit value and changes following an upgrade or retrofit, or unit shutdown, which could Further details of particulate and gaseous emissions are available in the have a negative impact on plant availability. By 2039, technical statistical table on pages 130 and 131 Eskom's relative particulate matter emissions are expected to reduce by 70%, SO2 by 54% and NO x Minimum Emission Standards by 56%. Minimum Emission Standards (MES) for South Africa were published in 2013, and amended in 2018. They In July 2020, Minister Creecy of the Department of stipulate emission limits, which require Eskom to reduce Forestry, Fisheries and the Environment (DFFE) provided gaseous emissions of sulphur dioxide and nitrogen approval for Eskom to operate stations under pre- oxides, as well as particulate matter. Supplementary information 1 April 2020 emission limits until decisions on our most In 2014 and again in 2019, we committed to retrofitting recent MES applications were made. The extension several power stations to reduce emissions under allowed us to continue operating affected power stations postponement applications granted by the then legally. DFFE indicated in November 2020 that it aimed to process all the applications submitted within 12 months. 98 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 99 BACK TO MENU OUR INTERACTION WITH THE ENVIRONMENT continued Who we are and how we create value Governance, leadership and ethics We submitted a MES exemption application in Kendal emission challenges Offset programmes Emission reduction projects September 2020, which aimed to balance environmental Poor performance of the electrostatic precipitators In terms of the 2015 MES postponement application, We remain at risk of not meeting commitments made in impact and financial affordability. However, it was (ESPs), the SO3 plant tripping as well as poor availability we are required to implement an air quality offset previous minimum emission postponement applications withdrawn based on high-level discussions with DPE and of the dust handling plant have contributed to the high programme to reduce particular matter emissions, to due to project delays and constraints on available funding. DFFE. We are preparing a comprehensive Just Energy levels of emissions at Kendal. The station has been improve ambient air quality in communities adjacent The consequences of non-compliance could be the Transition and emission reduction alternative approach implementing an emission recovery plan across all units to our power stations. Interventions include insulating withdrawal of licences to operate, DFFE not granting to present to DFFE. since late 2019, which has led to a significant reduction homes with ceilings, switching households from coal further postponements, or not meeting specific loan in emissions and units operating in compliance, although to electricity and liquid petroleum gas, and addressing agreement conditions, such as the World Bank's Medupi We have assessed the impact of full compliance, which emissions remain high compared to other stations. the burning of waste. Initial engagements with the FGD loan conditions. could necessitate expenditure of some R300 billion. KwaZamokuhle community took place during the It would also have very significant impacts on capacity The earlier repairs to Units 1 and 2 in terms of the Various emission abatement technologies have been year, and the initiatives were received positively by availability, both immediately and after 2025. recovery plan led to an improvement in the performance installed at our stations. These include electrostatic the community. of these units. The station is implementing interim precipitators (ESPs) (at Duvha, Kendal, Komati, Kriel, Compliance with atmospheric emission licences repairs on Units 2 and 3, and redoing the correlation Despite progress during the 2021 financial year, Lethabo, Matimba, Matla and Tutuka); SO3 flue gas Atmospheric emissions include any emission that results tests. This has resulted in improvements in performance there have been delays in contracting for the lead conditioning plants to improve the efficacy of ESPs (at the in air pollution, and includes particulate and gaseous at Units 1, 2 and 3. Units 5 and 6 have completed outages implementations at KwaZamokuhle and eZamokuhle, stations mentioned before, except at Tutuka); fabric filter emissions. We have to obtain an atmospheric emission to improve emissions performance. due to commercial delays in the contracts for stoves and plant (at Arnot, Camden, Duvha, Grootvlei, Hendrina, licence to allow the emission of atmospheric pollutants heaters, and the national lockdown restrictions during Kusile, Majuba and Medupi); boilers with low NO x design within certain limits. A criminal case was opened in September 2019, relating the COVID-19 pandemic. (at Kendal and Matimba); low NO x burners (at Camden, to non-compliance with Kendal's AEL between April 2015 Kusile and Medupi); and flue gas desulphurisation Coal-fired stations operate in general compliance to and April 2019. Eskom appeared in the Witbank Gaseous emissions emission limits set in terms of their atmospheric emission (at Kusile). Magistrates Court on criminal charges in January 2021, SO2 emission limits licences (AELs). However, occasional exceedances and the matter was postponed to June 2021. If found We are undertaking the following emission reduction Exceedances of daily SO2 limits have been recorded of these limits occur and they are reported to the guilty, Eskom could be issued a fine of up to R25 million. projects to reduce particulate matter emissions, as well by all coal-fired power stations on 279 days in total Our strategic context authorities as required. Our AELs allow us to declare Subsequently, the hearing was postponed again to as sulphur and nitrogen oxides: during the year (2020: 449). Of those exceedances, emergency incidents referred to as NEMA section August 2021 at the request of the NPA. 160 occurred at Matimba, which is now operating under • At Lethabo, a high-frequency power supply (HFPS) 30 incidents. A total of 47 section 30 incidents were a monthly AEL limit rather than a daily limit. Medupi, was installed on Unit 3. HFPS will be installed on other reported during the year (2020: 33). In addition to the criminal case, an administrative which also operates on a monthly AEL limit, reported units, with the next one planned for the second half process was initiated and a compliance notice issued It is estimated that all coal-fired units combined have 86 exceedances on its units. The poor SO2 emissions of the coming year. The commercial process for the in December 2019 in respect of continued AEL non- exceeded their allowable daily particulate matter performance at these stations is due to the generally ESP upgrades and refurbishment of the SO3 flue gas compliances. We appealed the notice. Minister Creecy emission limits on 1 896 days during the year (2020: higher sulphur content of Waterberg coal. conditioning plant is ongoing responded that we could operate only one of the 2 466 days). Although many of these are permissible in worst performing units at a time. Additionally, we had • Work on the NO x projects at Majuba, Matla NOx emission limits terms of AEL provisions, 524 were non-compliances with to provide plans to address the emission levels at the and Tutuka is on hold pending a reassessment of stations' AELs, with Kendal accounting for 485 instances. Exceedances of allowed daily NO x emissions have been station. Accordingly, Unit 5 was put on extended outage, the requirements for these projects in light of Kendal has had to continue operating with damaged recorded by all coal-fired power stations on 125 days which was completed in June 2021. engagements with the authorities regarding the MES equipment due to generation constraints. However, in total during the year (2020: 409). Lethabo reported Financial review applications since the implementation of repairs to a number of units, In August 2020, DFFE approved our action plan for the 65 exceedances during the year. The remainder of the exceedances were reported at Kendal and were generally • The technology approach for the particulate matter the station has remained in general compliance since return to compliance of Kendal's units. The station is reduction at Tutuka has been reassessed given funding December 2020. tracking the delivery of the plan, which is progressing due to monitoring issues. constraints. Revised commercial documentation is well. Failure to comply with the plan is considered being prepared At year end, five coal-fired units were operating in non- non-compliance with the directive, and could result in compliance with average monthly emissions limits: three • At Kriel, the HFPS, ESP and SO3 upgrades on the first further censure. unit will commence during the coming year at Lethabo and two at Tutuka. This placed 2 949MW at risk of censure or closure by the authorities (2020: Nevertheless, due to generation constraints, it was 11 units of 6 858MW). necessary to continue to operate the station even though the ESP damage and dust handling plant issues Operating performance Relative particulate emissions were not resolved on all units. Contrary to our initial Despite not meeting target, relative particulate emission understanding, DFFE has confirmed that it is an offence performance has shown significant improvement since to operate any of the units in non-compliance with the the previous financial year, largely due to a relative AEL limits, notwithstanding the action plan. improvement in performance at Kendal and opportunity maintenance undertaken during level 5 of the national We received a letter in March 2021, alleging further non- lockdown. Furthermore, stations continue to focus compliance at the station, leading to additional charges on improving emission performance, as part of the that may be included in the criminal case. We issued Generation recovery plan. Poor performing units are a response, and await further developments, which placed on outage, and investigations and repairs are may include adding of further charges to the existing under way. Supplementary information criminal case. Additionally, Kriel, Lethabo, Matla and Tutuka also experienced periods of poor performance, due to a number of issues, such as poor coal quality and poor performance of the dust handling and SO3 plant. 100 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 101 BACK TO MENU OUR INTERACTION WITH THE ENVIRONMENT continued Who we are and how we create value Governance, leadership and ethics Ashing facilities and ash utilisation We established the Generation Environmental We raised the following provisions relating to The results of the carbon footprint study for the Ash produced from the combustion of coal by our Compliance Steering Committee (GECS) in June 2020 environmental rehabilitation and restoration: 2020 calendar year, compared to the 2019 results, power stations is the largest source of waste from our to focus on water management, including other are presented in the table below: operations. Our power stations produced 30.83Mt of ash environmental aspects. The committee is chaired by the Actual Actual Actual (2020: 32.04Mt), with Lethabo and Matimba the biggest Group Executive: Generation to monitor and track the R million 2021 2020 2019 GHG emissions by source, tCO2e 2020 2019 contributors. implementation of water actions at power stations to Power station-related 19 074 16 203 17 797 Scope 1 reduce specific water usage and address the increase environmental restoration – Ash sold from six stations in terms of our ash utilisation in water spillages that result in environmental legal nuclear plant Stationary combustion 201 260 329 212 192 077 strategy increased slightly to 3.1Mt for the year (2020: contraventions. The GECS has increased the focus on Power station-related 15 270 11 932 14 460 Eskom motor vehicle fleet 37 810 81 797 2.9Mt), or just over 10% of total ash produced. This environmental restoration – Fugitive emissions 73 904 36 212 water management and, although results are not yet other power plant brings the total ash beneficiated to 26.79Mt over the visible, we expect to see improvements in due course Waste disposal 3 820 3 468 Mine-related closure, pollution 15 858 14 291 13 906 12 past decade. The exclusion by DFFE of ash and gypsum if the focus remains. control and rehabilitation Non-combustion product use 9 from waste requiring a waste management licence, Scope 2 when extracted for beneficial use at our sites, provides Reducing environmental legal contraventions Total environmental provisions 50 202 42 426 46 163 Electricity and heat purchased1 n/a n/a additional opportunities for ash beneficiation – such as A total of 80 environmental legal contravention incidents the use of ash in bricks, cement, soil amelioration, road were recorded against a tolerance level of 18 (2020: 59). Refer to note 29 in the consolidated annual financial statements for more Scope 3 construction and mine backfilling. Of these, 68 were water-related incidents, nine related information on these provisions Coal delivery to site 238 338 269 963 to air quality, two to waste and one related to regulations Use of employee vehicles 6 669 12 627 Since late April 2020, all eight Camden units (totalling around environmental impact assessments. Generation Investing in renewable energy Air travel 1 008 3 368 1 481MW nominal capacity) were shut down due to the Division was responsible for 78 of the incidents, and safety risk resulting from ash dam capacity constraints. Eskom's Sere Wind Farm contributed 305GWh to the Vehicle rental 2 225 1 903 Group Capital Division for two. national grid during the year (2020: 283GWh), with an This contributed OCLF of 2.05% during the year. The Total2 201 624 115 212 601 425 current ash dam had reached its maximum height and Of the legal contraventions, seven were classified as average load factor of 33.25% and an average availability poses a safety risk to personnel on site and neighbouring OHD contraventions (as defined earlier) (2020: five), factor of 94.48% (2020: 30.67% and 97.40% respectively). 1. As electricity generation is Eskom's main activity, scope 2 indirect emissions are in principle accounted for as scope 1 direct emissions Our strategic context communities. all of which were water-related. Six contraventions The eight rooftop and ground-mounted PV sites in under the GHG Protocol. were recorded in Generation, while one was related to operation at our facilities sent out 3GWh during the year 2. Due to different scopes and input assumptions, the results are not The units were brought back online between August activities by Group Capital at Camden Power Station. directly comparable with our CO2 emissions reported in the table on and October 2020, with around three units running (2020: 3.8GWh). page 130. continuously until the new ash dam is due to be Subsequent to year end, performance relating to We continue to purchase renewable energy from IPPs. completed by the end of the 2022 financial year. In the environmental legal contraventions has shown an The total GHG emissions for 2020 were Renewable energy sources include wind, solar power, meantime, the station will redirect a portion of the improvement. 201 624 115tCO2e, which is favourable compared to the biomass, landfill gas and small hydro technologies. ashed volume to free up space that would allow limited 2019 figure. This indicates a decrease in Eskom's overall operation of units. A total of 668kt of ash was diverted Information on the disposal of ash, asbestos, PCB-containing material, carbon footprint because of lower electricity demand, For capacity provided by renewable IPPs, refer from page 87 to a nearby mine as backfill material during the year. as well as nuclear waste and used nuclear fuel is set out in the technical and therefore production, due to the various lockdown statistical table on pages 130 and 131 measures implemented in response to the COVID-19 Reducing water consumption As reported last year, we received no allocation for pandemic. The majority of these emissions were caused As a strategic water user, we are assured of water supply Provisions for environmental restoration and renewable energy capacity under the IRP 2019, effectively by the burning of fossil fuels at our power stations for Financial review in the short to medium term. We are implementing rehabilitation curtailing our own investment in renewable technology the generation of electricity. Coal, diesel and kerosene comprehensive strategic water implementation and We make provision for the following obligations: for the foreseeable future. consumption contributed over 99.8% of our GHG management plans at all coal-fired power stations to • Decommissioning the nuclear plant, including Responding to climate change emissions. reduce water use and ensure compliance. Regrettably, rehabilitation of the associated land, as well as managing The purpose of South Africa's proposed Climate Change Coal delivery to site is the second biggest source of GHG implementation of the water strategy has, to date, not led spent nuclear fuel assemblies and radioactive waste Bill is to build an effective climate change response and emissions. These mainly relate to the transportation of to a reduction in water usage at coal-fired power stations. • Decommissioning other generating plant and ensure the long-term, just transition to a climate resilient coal to power stations by third-party trucks. However, Water performance remains very disappointing. rehabilitation of the associated land and lower carbon economy and society. This is to be this was lower than the reported figure for 2019. The The poor performance is caused by poor technical • Estimated cost of closure at the end of the life of done within the context of sustainable development third highest source of GHG emissions was fugitive performance of coal-fired stations, combined with cost-plus mines, together with pollution control and for South Africa. emissions, which relates to the incidental release or Operating performance ageing plant and long lead times to address some of the rehabilitation of the land, where a contractual or leak of SF6 gas due to the failure or malfunctioning of constructive obligation exists to pay the coal suppliers Our carbon footprint root causes of high water consumption and poor water gas-insulated switchgear and circuit breakers. Both We conducted a carbon footprint study to calculate management practices. the Transmission and Distribution operations were our annual carbon footprint for the 2020 calendar year. considered, hence the significant increase in SF6 Specific water usage A carbon footprint estimates the total greenhouse gas emissions compared to 2019, when only Transmission Specific water use for the generation of electricity for (GHG) emissions (including scope 2 and 3) caused by data was included. the year is worse than target, but remained the same as an organisation, expressed in tons of carbon dioxide the prior year. equivalent (tCO2e). This provides insights into the There was a considerable reduction in GHG emissions sources and magnitude of our GHG emissions and allows associated with all travel. Eskom fleet emissions, use of us to improve the management of our GHG emissions. employee vehicles and air travel emissions all reduced because of travel restrictions in response to the Supplementary information The footprint was calculated in line with the globally COVID-19 pandemic. recognised GHG Protocol: A Corporate Accounting and Reporting Standard. Since the calculation of our carbon footprint covers a different scope and may utilise different assumptions to the regulated reporting requirements, the results are not directly comparable. 102 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 103 BACK TO MENU OUR INTERACTION WITH THE ENVIRONMENT continued Who we are and how we create value Governance, leadership and ethics Carbon mitigation mechanisms The Just Energy Transition (JET) Office is responsible Risk management Future focus areas The purpose of the Carbon Tax Act, 2019 (CTA) is to for identifying and assessing JET-related risks and Identification and assessment of risks • Implementing the long-term coal strategy to ensure levy a carbon tax on GHG emissions, to encourage opportunities, controls and treatment plans. Progress The Enterprise Risk and Resilience Department has security of coal supply, at an optimal cost the market to reduce consumption of carbon-intensive is reported directly to the GCE and the JET Steering established risk structures within each division, consisting • Pursuing the following high priority levers to support products. The CTA came into effect on 1 June 2019. Committee on a monthly basis. These risks and of risk owners, risk coordinators and risk and resilience the strategy objectives: opportunities are directly linked to Eskom's climate practitioners. The risk owners are accountable for the Eskom is not expected to have a carbon tax liability – Extending cost-plus contracts to match power change imperatives. identification, assessment and management of risk, which until January 2023 due to the rebates allowed in the stations' lifespan and utilising the dedicated coal is integrated in the management processes and is evident CTA. After that, the liability is expected to be more Strategy reserve for supply to other power stations. It in decision-making processes and outcomes. Risks are than R11 billion per year, which would add 4–5% to Climate-related risks and opportunities includes reinvestment in cost-plus mines to enable classified from Priority I to Priority IV. the required year-on-year increase in the tariff, since Climate-related risks and opportunities with high levels of contractual supply and more, thereby ensuring carbon tax will be a pass-through cost in terms of the uncertainty regarding their nature, timing, development Risk management in Eskom optimal cost of coal and security of coal supply from regulatory rules. and/or deployment were identified for the different time We apply an integrated approach to managing risks dedicated sources horizons: the short term from 2021 to 2023 (1–3 years); per the Integrated Risk Management Framework and – Extending existing long-term fixed-price contracts Task Force on Climate-Related Financial medium term from 2023 to 2030 (3–7 years); and long Standard. Climate-related risks are managed by the for designated power stations, with the option to Disclosures term from 2030 to 2050 (7–30 years). CCSD Department, the line divisions – Generation, supply other power stations In the 2020 integrated report, we disclosed climate- related information aligned to the recommendations by Transmission and Distribution – and the JET Office. – Sourcing uncontracted coal for the remaining life of We have prioritised three key climate-related risks the Task Force on Climate-Related Financial Disclosures power stations through open tender and four opportunities with the highest likelihood Integration into Eskom's overall risk management (TCFD). This year, we disclose relevant climate-related of impacting Eskom's business, strategy and financial – Striving to move coal as economically as possible, Eskom's Risk and Resilience Policy, together with the leaning towards a tied colliery model delivering coal information to build an improved understanding of our planning. These are considered at Exco and Board level. Enterprise Risk and Resilience Management Plan and by conveyor, with rail and road transportation as climate-related risks, opportunities and the associated Addressing the climate-related risks and opportunities is our Risk Appetite and Tolerance Framework, comprise less preferred alternatives financial impacts. critical to our sustainability. the key documents governing risk approved by the • Driving the operations recovery initiative of the Governance Board. This is aligned to the recommendations on good Our strategic context turnaround plan, and agreeing on the emissions Board and executive oversight of climate change RISKS governance as contained in King IV TM, which introduced All time horizons compliance strategy to maintain Eskom's licence to The Board is responsible for examining and approving the the oversight of resilience or business continuity as a Potential damage to Eskom's assets and operations operate, specifically relating to emissions, waste integrated report, annual financial statements, Corporate board-level priority. All Priority I and emerging risks are due to extreme weather events and water Plan and corporate strategy, which incorporates strategic reported to Exco and the Board, which provide oversight Medium term (3–7 years) as recommended by King IV TM. • Ensuring full compliance with MES regulations and objectives to strive for net zero emissions by 2050, with limits as required by DFFE. However, this could Failure to transition and implement low-carbon initiatives, an increase in sustainable jobs. Metrics and targets necessitate expenditure of approximately R300 billion, including associated socio-economic initiatives The Board is supported by two board-level committees Potential loss of Eskom's social licence to operate Eskom's performance metrics include GHG emissions which is not affordable, coupled with significant that govern all climate-related matters, namely the data and compliance. effects on available capacity, both in the short term Social, Ethics and Sustainability Committee (SES) and the and beyond 2025. A total of 18GW could be affected OPPORTUNITIES We submit an annual GHG report to the DFFE based on Audit and Risk Committee (ARC). These committees Short term (1–3 years) immediately, increasing to 32GW by 2025 – this could the DFFE Technical Guidelines (for scope 1 emissions). are regularly informed of climate-related risks and Pursuit of public-private partnerships lead to a significant increase in loadshedding Financial review These are based on the 2006 Intergovernmental Panel on opportunities. These matters are discussed at scheduled Large-scale rollout of cleaner and greener energy, such as Climate Change (IPCC) GHG Guidelines and 2019 IPCC • Improving operational practices at power stations to Board committee meetings, following the approved solar PV, battery storage and microgrids reduce water use and decrease emissions, thereby Refinements. governance processes. The proceedings at each meeting Medium term (3–7 years) improving legal compliance are guided by an agenda plan that is monitored and Repowering and repurposing existing coal sites Also refer to the carbon footprint calculation on page 103 • Addressing non-compliance and shortcomings to updated as it progresses from one meeting to the next. Re-energise the manufacturing sector ensure full compliance with licences and permits Priority I climate-related risks are monitored and tracked Our climate change policy is intended to support South • Increasing volumes of ash beneficiated at power at Exco and Board levels. Climate-related scenarios Africa to meet its nationally determined contribution, stations Management's role and responsibilities Two scenarios were considered in the 2020 integrated which requires the country's GHG emissions to peak • Leading the Just Energy Transition by using generating report. The “soft decarbonisation” scenario was built by 2025 at between 398Mt and 614Mt per year; plateau plant approaching the end of life, through repurposing The GCE is the highest management-level position Operating performance on domestic policy considerations such as South Africa's for up to a decade; and then decline in absolute terms and repowering as alternatives to full decommissioning responsible for relaying the main climate change Nationally Determined Contribution (NDC) under the thereafter. DFFE has proposed an enhanced ambition of power station sites. Thereafter, JET will be used as decisions and guidelines set by the Board to the rest of Paris Agreement and DMRE's IRP 2019. The “ambitious to the current target for stakeholder comment. the key enabler to set the course for a Generation of the organisation. The GCE and the CFO serve as the interface between the Board and executive management. decarbonisation” scenario requires more ambitious the future We previously participated in DFFE's voluntary carbon The GCE and Exco are responsible for approving, action beyond what has been specified in the IRP 2019, budget process from 2016 to 2020. We will continue implementing and executing effective risk and resilience with carbon neutrality envisaged by 2050. to do so until the expected mandatory company-level management of the climate change risks. These scenarios were considered in order to understand carbon budgets are implemented under the proposed how climate-related risks and opportunities may affect Climate Change Bill. We submitted our 2020 annual Exco's Risk and Sustainability Committee monitors, Eskom over time, and to test our strategy resilience progress report for the previous Pollution Prevention manages and informs the GCE and Exco on the progress to different futures. There are numerous other studies Plan, as well as a subsequent Pollution Prevention Plan Supplementary information made in addressing climate-related challenges. looking at aggressive decarbonisation, such as the CSIR, for the 2021 to 2026 period. The Climate Change and Sustainable Development University of Cape Town and Meridian. DFFE is also Just Energy Transition (CCSD) Department is responsible for developing and proposing an enhanced NDC. implementing Eskom's climate change-related strategies Our Just Energy Transition strategy was discussed under “Our strategic and policies, as well as identifying and assessing climate- Our system modelling team has been developing Eskom- context – Our strategy and turnaround plan” from page 45 related risks, opportunities, controls and treatment plans. specific scenarios, which are under discussion. 104 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 105 BACK TO MENU OUR PEOPLE Who we are and how we create value Governance, leadership and ethics Our people are key to successfully delivering on our mandate and executing our strategic objectives. To achieve To reduce headcount further, Exco approved another this, we need to recruit and retain a skilled workforce and round of voluntary separation packages (VSPs) for adequately reward our people for their contribution. Eskom's managerial employees in November 2020. The process was open to employees in non-core Our values are aimed at driving a culture of performance and non-critical roles, to minimise the impact of and accountability. Our desired organisational culture separation on critical operations, maintenance and is supported by effective employee engagement, our outages, or regulated positions. Employees aged employee value proposition, consequence management between 60 and 62 were also eligible, regardless of and accountability. being core or critical. Staff were required to exit We have to develop and source leadership and other Eskom by 28 February 2021. critical and scarce skills, by developing and training our A total of 188 applications were received, of which 94 people, maintaining a diversified learner pipeline and were approved. Of those, 74 offers were accepted, at enabling advancement opportunities. We ensure that a cost of R112 million. This was in addition to the 185 we have skilled people in the appropriate positions exits as part of the first round of VSPs, at a cost of through periodic skills audits; adequately rewarding R286 million. employee efforts through employee value proposition initiatives; and keeping our finger on the pulse of employee sentiment through targeted employee Our staff turnover rate during the past year was engagement. approximately 4.8%, with the movement in our We remain dedicated to our value of Zero Harm to headcount shown below. promote safety excellence in all areas, by providing a safe working environment for employees and contractors Number of employees 2021 2020 Our strategic context that supports strict occupational hygiene, mitigates safety Headcount at 1 April 44 772 46 665 risks and is free of incidents. We are further committed Add: Appointments 157 524 to protecting members of the public from exposure to Less: Resignations (670) (1 188) the hazards of our operations and infrastructure, by Retirements (824) (960) implementing initiatives to educate the public on the Deaths in service (318) (161) safe use of electricity. Dismissals (96) (127) Absconded (10) (10) Our workforce Separation packages1 (259) – The group headcount stood at 42 749 at year end Other (3) 29 (2020: 44 772), including permanent staff and fixed-term Headcount at 31 March 42 749 44 772 contractors, consisting of 36 124 Eskom employees and 6 625 ERI employees (2020: 37 765 and 7 007 respectively). 1. VSPs announced during 2020 became effective on 1 April 2020, Financial review Of these, approximately 84% were covered by collective therefore related staff movements are included in the turnover Challenges analysis for 2021. A total of 185 employees exited during the first Highlights bargaining agreements. round, and 74 during the second round. • Strong stakeholder support for collaborative • Ensuring an adequately skilled workforce while We have reduced our headcount over recent years, platforms to address safety challenges, such as the meeting transformation and learner intake targets, mainly through natural attrition and voluntary separation After primary energy costs, employee benefit costs GCE Contractor Forum and Eskom Executive Forum given financial constraints and headcount targets packages at managerial level. Our ability to fill vacancies remain the second largest component of operating costs • Loss of institutional knowledge due to staff is limited by financial constraints and headcount targets. before depreciation, interest and fair value adjustments, turnover, including those accepting voluntary However, the moratorium may be relaxed for core, constituting about 19% of operating costs. Consequently, separation packages critical and scarce skills, subject to approval. We are we require a significant reduction in employee benefit Improvements costs to contain our costs and build a more sustainable • Achieving disability equity at all occupational targeting a group headcount of 40 263 by the 2026 organisation. Operating performance • Employee benefit costs were successfully managed levels, with the number of persons living with financial year. disabilities declining at a faster rate than headcount, within budget, driven by a reduction in headcount and extending the reasonable accommodation of Change in group headcount For a discussion of employee benefit costs, refer to “Our finances – • Production bonuses implemented for qualifying persons living with disabilities Other operating costs” on page 68 operational staff 50 000 • Achieving a reduction in overtime costs, given 47 500 • Launch of divisional improvement plans and an continued poor generating plant performance -4.5% Natural attrition and managing overtime remain key 7 312 5 718 organisational safety culture survey, aimed at 45 000 levers to achieving a reduction in employee benefit • Low morale in the management layer due to 7 373 improving safety perceptions and performance, and 42 500 costs. Nevertheless, opportunities to reduce overtime several years of no or negligible cost-of-living salary 7 007 reinforcing an interdependent safety culture have been limited, due to the high levels of unplanned 6 625 adjustments 40 000 • Challenges being experienced by staff working from 37 500 maintenance over the past year requiring extensive 41 940 41 316 home during lockdown maintenance work and repairs. 39 292 40 263 35 000 Supplementary information 37 765 36 124 Lowlights • Minimising the high number of contractor fatalities 32 500 and contractor lost-time injury incidents The composition of our employee benefit costs is set out in note 35 of 30 000 the consolidated annual financial statements • Fatalities recorded among employees, contractors 2017 2018 2019 2020 2021 2021 Target and members of the public Eskom ERI 106 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 107 BACK TO MENU OUR PEOPLE continued Who we are and how we create value Governance, leadership and ethics The breakdown of our workforce at 31 March based on Learning and development age is shown below. Internal and external training interventions provide We are conducting salary negotiations for learning and development opportunities for our people. bargaining unit employees with NUM, NUMSA and 50 Training expenditure of R820 million incurred during the Solidarity through the Central Bargaining Forum. past year constituted 2.58% of gross employee benefit Eskom offered a 1.5% increase in basic salary, 40 costs (2020: R1.1 billion amounting to 3.67%). Training dependent on efficiencies and savings being realised expenditure was curtailed due to our current financial from certain elements of employee benefits where 30 there are excesses, such as overtime, travel and challenges and the effects of the national lockdown. transfer benefits. Changes to certain conditions of 20 We support further study programmes where employees service are also proposed. seek to obtain qualifications related to their line of work 10 or of benefit to the organisation. This enables building Two of the trade unions demanded a 15% increase skills for future sourcing pools and the expansion of in basic salary and variations to other conditions 0 of service, including other benefits, while the third 20-29 30-39 40-49 50-59 60+ leadership potential within our workforce. A total of 303 employees are enrolled at various academic demanded 9.5%. After negotiations deadlocked, 2019 2020 2021 institutions to obtain qualifications related to Eskom's Eskom referred the matter to the Commission for line of work (2020: 182). Around 54% of those enrolled Conciliation, Mediation and Arbitration (CCMA) The divisional breakdown of our workforce at are women. There is a moratorium on supporting new for mediation, but the CCMA has issued a non- year end is shown below. About three-quarters of masters and doctoral studies due to financial constraints; resolution certificate. The trade unions have referred employees (including direct support staff) are involved employees on existing programmes continue to receive the matter for arbitration. in the generation, transmission and distribution of support. electricity to customers, with the remainder employed We have decided to implement our final 1.5% basic in the new build programme, corporate support Remuneration and benefits increase and changes to the conditions of service functions and our subsidiary ERI, which supports the Our aim is to attract and retain skilled, high-performing offer with effect from 1 July 2021. This decision has Our strategic context electricity business. About 2 000 support staff have been employees. To remain competitive, we provide market- been formally communicated to the three recognised relinked to line divisions in preparation for the business related remuneration structures, benefits and conditions trade unions. This will enable management to better separation process. of service, within the guidelines set by the shareholder. protect jobs at Eskom, address and manage the risk to our sustainability, thereby allowing Eskom to play Guaranteed package the critical role of supplying electricity to the South 6 625 (15%) Managerial employees receive a guaranteed package, African economy and in the public interest. SCAN TO VERIFY 12 182 (28%) including benefits such as medical aid, pension, dread 2 578 (6%) disease cover, group life and death benefits. In line with Performance bonuses the conditions of the Special Appropriation Act, 2019 1 154 (3%) Based on a recent survey of 54 456 students at Given the operating loss for the 2021 financial year, no attached to the Government support to Eskom, no 27 South African universities, Eskom was ranked short-term incentive bonus is payable to employees. increases were awarded to managerial employees during as the third most attractive employer among Furthermore, no performance bonuses have been paid the 2021 financial year. 2 874 (7%) engineering students. We ranked fifth in 2020. since 2018. Financial review Bargaining unit employees receive a basic salary, which Furthermore, under the conditions of the Special includes a thirteenth cheque (referred to as an annual In an effort to limit the need for external recruitment, Appropriation Act, 2019, no incentive bonus may be 17 336 (41%) bonus) as well as other benefits, such as pension, medical we use internal talent boards to identify high- paid to non-unionised employees relating to the 2021 aid, death benefits, and a housing, cell phone and car performing individuals as well as developmental needs financial year. Generation Transmission Distribution allowances (subject to qualifying criteria). Basic salaries among staff; perform succession planning for critical Group Capital Support functions Subsidiaries and conditions of service are negotiated through the Line divisions have implemented a production bonus workforce segments; and actively manage talent collective bargaining process, with any resulting increases scheme to reward qualifying employees for improved pools and careers in line with our workforce plan and awarded in July each year. These annual increases are productivity which result in a financial benefit to Eskom. transformation objectives. For information on the racial and gender breakdown of our workforce, approved by Exco and ratified by the PGC. Based on the An amount of R129 million was awarded during the refer to “Improving internal transformation” from page 111 2018 negotiations, bargaining unit employees received a Operating performance We plan to perform a skills audit during the coming year, with 59% going towards Distribution staff, 38% to year, to develop a fit-for-purpose future skills strategy 7% increase during the 2021 financial year. Generation, 1% to Transmission and 2% to ERI employees. Building and retaining strong skills and ultimately, create a highly responsive, multi-skilled Our skills development programme supports the The second phase of adjustments relating to unjustifiable and innovative workforce that adapts to the new world National Development Plan 2030 (NDP), which aims to race- and gender-based income differentials, due to be of work. eliminate poverty and reduce inequality over the next implemented in 2019, remains pending, due to prevailing decade. In support of the NDP, we continue to recruit Learner pipeline financial constraints. No income differential adjustments learners and manage a learner pipeline to address the Eskom's learner pipeline constituted 1 465 learners at have been applied to senior managers. requirements of the business and those of Government, year end (2020: 1 517), comprising 1 440 in technical as articulated in our shareholder compact. disciplines and 25 non-technical. The learner pipeline Executive remuneration is discussed under “Governance, leadership and represented 4.1% of company headcount, which is ethics – Remuneration and benefits” on page 32 Supplementary information We are focusing our efforts on managing talent in considered sufficient for existing business needs. a sustainable manner and ensuring that our existing Artisans made up almost 60% of the learner pipeline. workforce is adequately supported in their developmental needs, thereby retaining critical skills using a targeted We were not able to appoint any workplace integrated employee value proposition. Commitment to skills learning (WIL) learners during the past year due to development is essential to ensure that we have the COVID-19 lockdown restrictions. Nevertheless, required skills for the organisation's needs, especially 72 Eskom bursaries were awarded to obtain a considering the continuing financial constraints. formal qualification as an engineer or technician. 108 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 109 BACK TO MENU OUR PEOPLE continued Who we are and how we create value Governance, leadership and ethics Organisational effectiveness Levels of sick leave within the organisation have shown Industrial relations Racial equity by level of employment, % Our Organisational Effectiveness Centre of Excellence a significant decline since the prior year, which is mainly The value of a productive partnership between Eskom, 100 focuses on supporting and enabling the HR strategy associated with employees working from home. The our people and our trade unions cannot be emphasised and People Plan by rebuilding relationships with sick absenteeism frequency rate (SAFR) – measuring enough. We promote sound and fair labour practices and 80 Eskom Guardians, and driving pride, passion and a the number of absences due to illness per employee deal with grievances, disciplinary action, disputes and sense of belonging and connectedness to the business, over a 12-month rolling period – of 0.94% (2020: suspensions appropriately. A grievance dealt with quickly 60 while developing agility and resilience to cope with 2.33%) is well within the target of 2.04%. The gross sick has less of a negative effect on employee morale and will 93.97 92.75 85.45 85.65 80.00 80.10 79.66 75.00 ongoing ambiguity, instability and change. Three multi- absenteeism rate (GSAR) – reflecting the days lost due enhance labour stability. 40 73.72 72.70 dimensional and integrated areas are intended to drive to illness as a percentage of total potential workdays – a desired culture of performance. These are employee of 1.63% (2020: 2.88%) remains well within the target In total, 74% of grievances were resolved against a target 20 engagement, our employee value proposition as well as of 3.50%. All employees with high SAFR and GSAR of 70%. About 92% of disciplinary actions resulted in organisational culture and change management. rates are referred to Eskom clinics for fitness-for-duty sanctions, against a target of 90%. This indicates that 0 Top Senior Middle Skilled Semi-skilled assessments and managed accordingly. employees are not being subjected to unwarranted management management management and professionals Employee engagement initiatives are in place to create a disciplinary measures. The three most common acts of Target Actual harmonious workplace, increase employee engagement misconduct related to failing to comply with operating Gender equity by level of employment, % levels and to help employees feel a sense of connection The future of work procedures, making a false statement or performing 45 and alignment to the business and one another, thereby New ways of work are emerging in response to the private work without consent. rebuilding employee morale and creating a common vision pandemic. The emergence of COVID-19 put pressure on 36 as enablers towards driving a high-performance culture. At year end, 31 employees had been on suspension organisations to come to terms with progress brought with pay for a period longer than 90 days, mainly due Given the COVID-19 pandemic, associated initiatives had about by the fourth industrial revolution (4IR). Eskom, 27 to prolonged investigations and disciplinary processes 42.85 to be adapted to accommodate the “new normal”, by 41.99 like many other organisations, was compelled to adapt its 39.60 38.95 37.95 (2020: 27). Follow-ups are done to ensure that 36.20 18 leveraging digital and virtual technology. operating model when faced with the undeniable impact 28.29 investigations and disciplinary processes are expedited. 25.98 of the pandemic on the structure of work. COVID-19 had 20.00 We launched an internal digital publication, The Guardian, 9 12.50 an impact on traditional models, which were premised on Our strategic context which features key strategic business updates and The dispute lodged with the CCMA regarding the decision frequent face-to-face engagements between employer and to award no increases to senior management for 2019 0 inspiring stories from across the business; celebrates and Top Senior Middle Skilled Semi-skilled employee, manager and employee, or teams. In the wake remains unresolved, with a date for arbitration still awaited. management management management recognises employees who have achieved excellence; and and professionals of national lockdowns to curb the spread of the pandemic promotes leadership visibility. Furthermore, the Advice for being implemented by governments around the globe, Improving internal transformation Target Met target Actual did not meet target André engagement platform and mobile application was companies had no choice but to adapt. Actual almost target (within 5% threshhold) One of the key initiatives through which meaningful designed and developed in-house. The response has been transformation can be realised is employment equity. overwhelmingly positive, with employees engaging with the We implemented new work strategies, with 70% of the workforce initially working remotely. The pressures We continue to make progress in ensuring equitable GCE and sharing their innovative ideas on how to improve While no targets are set at executive level, gender created by the crisis required Eskom to support the representation of the workforce at all occupational Eskom. The Eskom EVP National Lockdown Programme and disability equity continue to lag behind other national strategies put in place to curb the spread of levels, to truly reflect the demographics of the country. was launched at the start of the COVID-19 pandemic. It occupational levels. provides employees with access to useful psychosocial COVID-19 and thereby, rethink how we operate. During resources, tips and activities to benefit the employees and this period of isolation, organisations learned valuable Our group and company employment equity performance at senior Our gender ratio remains relatively stable, at 67% male Financial review management level, as well as at professional and middle management their families during the national lockdown. lessons, some of which were positive, such as increased levels, is set out in the statistical tables from page 132 and 33% female employees at all occupational levels. productivity in some instances and reducing operating Wherever possible, vacancies that arise due to natural Eskom has embarked on one of its most ambitious and costs. Nevertheless, there were also negative effects, like attrition are targeted and reserved for women under Racial equity at senior management and at middle possibly most challenging transformation journeys. employees feeling isolated. the Eskom Women Advancement Programme. Vacancies management/professionally qualified levels has shown Appropriate and effective culture transformation and in senior management and middle management/ Based on feedback from a survey of employees, HR significant improvement over the past year, while also change management strategies are critical in supporting professionally qualified occupational levels continue to be has developed a business case to design new working achieving the target set by the shareholder. Gender DPE's Roadmap and our turnaround plan. The Eskom ring-fenced for employment equity purposes. models and take advantage of benefits brought about equity at senior management and at middle management/ change management strategy and customised initiatives by remote working. Exco approved the business case in professionally qualified levels has shown some have been implemented across all key Eskom-wide November 2020; implementation is under way. improvement since the prior year, although targets have strategic projects. The Organisational Culture and not been achieved. Operating performance Change Management Programme was designed to capacitate employees and empower leaders with The disability target for the year was not met. knowledge, change management skills and practical tools Proportional representation of persons living with in order to drive the desired culture. The uptake of this disabilities remains a concern, as they are well represented programme has been extremely successful, with over at lower occupational levels, but not across all levels. 12 700 employees registered and actively utilising the platform. The achievement of transformation targets are hindered by our ongoing financial challenges. Health and wellness The health and wellness of our people is important to us. We seek to improve work attendance and productivity Supplementary information as well as the health and well-being of every employee, through the prevention of occupational diseases and injuries, early detection of occupational and lifestyle diseases (such as hypertension, diabetes and HIV), medical surveillance and fitness-for-duty assessments, as well as other wellness programmes. 110 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 111 BACK TO MENU OUR PEOPLE continued Who we are and how we create value Governance, leadership and ethics Focus on safety In addition to ensuring compliance with statutory Future focus areas Our operations are subject to legal, regulatory and licence conditions surrounding occupational health, safety and requirements, we continue to pursue safety initiatives • Implementing the 2019 People Plan in the following environmental compliance. We use the lost-time injury rate (LTIR) to assess our safety performance, together with the and manage our activities to reduce the number areas: driving a culture of performance and number of fatalities among employees and contractors. LTIR is a proportional representation of the occurrence of lost- of fatalities and injuries. These include training and accountability; building critical capabilities; increasing time injuries per 200 000 working hours over a 12-month period. The LTIR target reflected in the table below indicates our awareness interventions, proactive safety assessments employee productivity; managing employee benefit tolerance level. In accordance with our value of Zero Harm, the target is zero. and active management of areas requiring improvement. costs; and aligning shareholder targets to ensure Regrettably, there has been a noticeable increase in financial sustainability Target Target Target Target Actual Actual Actual • Supporting the Eskom turnaround plan, partly by Measure and unit 2024 2022 2021 met? 2021 2020 2019 physical threats to our employees and contractors working in high-density areas, particularly due to supporting Transmission to achieve legal separation, Fatalities (employees and contractors), number − − − 10 9 7 community unrest when removing illegal connections with particular focus on people and culture Fatalities (public), number − − − 20 17 22 and implementing load reduction. We condemn violent transformation Lost-time injury rate, index (including occupational 0.30 0.30 0.32 0.22 0.30 0.31 behaviour against our people as they are acting in the • Focusing on Eskom's management of COVID-19, diseases) – groupSC interest of public safety when executing their duties. including the rollout of the workplace COVID-19 vaccination programme at a number of sites Despite our commitment to safety and focus on Zero Public fatalities and public safety programmes are discussed under “Our • Continuing to safeguard the lives of employees and role in communities – Public safety” on page 117 contractors as they perform work in our communities Harm, we recorded two employee fatalities (2020: none) IN MEMORIAM and eight contractor fatalities during the year (2020: Eskom and its subsidiaries, contractors and suppliers nine). The causes of all fatalities are shown below. We extend our heartfelt condolences to have successfully implemented measures to ensure the families, friends and colleagues of the 1 compliance with COVID-19 requirements on health following people who lost their lives in and safety in the workplace issued by the Department service to Eskom and our customers: of Employment and Labour. We ensure accountability 1 3 and responsibility for adherence to the regulations, to Our strategic context Employees protect employees and contractors from transmission Sonwabo Benjamin Rengqe of the disease. 2021 Brenden William Thomas 2 Contractors Lufefe Baleni Xolani Kasile Diphapang Twoboy Letanta 3 Thupane Reuben Letsoalo Electrical contact Crime-related Nelson Muntuwekhaya Magqibelo 2 Falls from heights Vehicle accidents Busisani Sinenhlanhla Memela 3 Msawenkosi Njobeni Financial review Bongani Patrick Radebe 2020 1 A total of 11 occupational disease incidents have been confirmed for the group for the year under review (2020: 19). As in the past, these relate mainly to noise-induced hearing loss incidents, which account for more than 60% 1 of cases. It should be noted that, due to the COVID-19 2 pandemic, audiometry medical surveillance and fitness- for-duty screening tests followed a risk-based approach. Electrical contact Crime-related Operating performance Falls from heights Vehicle accidents Due to this approach and the number of employees Chemical contact Struck by/caught between objects working from home, fewer audiometric tests were conducted during the 2021 financial year. Similar to the causes of fatalities, the main reasons for lost-time incidents are falls from heights or from the same level; motor vehicle accidents; slips, trips and At 17 August 2021, Eskom had recorded 6 980 positive falls; and incidents related to being struck by or caught COVID-19 cases (including 43 reinfections), comprising between objects. 5 775 employees and 1 205 contractors, with 6 140 recoveries. Sadly, 128 employees and 17 contractors have succumbed to the disease. All affected employees and their families are offered psychosocial support. Initially, more Supplementary information confirmed cases were being recorded in the Western Cape, with Koeberg Nuclear Power Station being the epicentre. However, a rise in cases has been seen in Mpumalanga, Gauteng, Limpopo, KwaZulu-Natal and the Eastern Cape. 112 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 113 BACK TO MENU OUR ROLE IN COMMUNITIES Who we are and how we create value Governance, leadership and ethics Our role in communities considers the communities in The international RepTrak ® Pulse reputation study, which which we operate, our relationships with customers, scores reputation along seven key reputation drivers, suppliers and the public in general, as well as the has shown a steady decline in our reputation over recent beneficiaries of our electrification efforts and CSI years. In addition, the global energy sector has a poor activities. and declining reputation, which affects our overall score. Eskom plays a critical role in South Africa's skills Eskom's RepTrak ® Pulse score development, economic empowerment and 100 transformation efforts. We strive to be a customer- centric organisation that delivers world-class customer 75 service. In addition, we add value to the lives of ordinary South Africans through our commercial mandate as 47.4 50 46.2 well as our developmental responsibilities, such as electrification and job creation. 28.4 26.9 29.1 25 24.1 We understand the significant impact that our 20.8 communities and stakeholder relationships have on our 0 business, and acknowledge that the level of trust in our 2014 2015 2016 2017 2018 2019 2020 organisation has eroded in the past decade, thereby Weak (40 – 59) Poor (0 – 39) damaging our reputation. Nevertheless, as we are operating in a highly regulated market that is undergoing fundamental reform in the context of South Africa's The 2020 study again ranked Eskom the lowest out of energy security, decarbonisation and transformation the top 50 South African companies and the 98 global agendas, we are presented with an opportunity to reset energy utilities surveyed. Despite this, the improvement Our strategic context our stakeholder engagement capabilities and rebuild in our score over the last year signifies that our efforts in trust in Eskom. restoring trust are starting to bear fruit. All reputation drivers show an upward trajectory, with Eskom's To this end, we aim to gather the support of and leadership achieving the largest increase, followed collaborate with communities and stakeholders to by performance. contribute to Eskom reaching its strategic destination for the benefit of the country as a whole. We are deeply Rebuilding and strengthening the public's confidence and committed to addressing South Africa's electricity trust in Eskom remains one of our key priorities. Eskom's supply crisis in a manner that supports the growth and newly established Government and Regulatory Affairs development of our economy and the transformation Division will lead and support initiatives to restore our of society. reputation through effective communication, image and brand building, and inclusive relationship management. Our reputation Financial review A company's reputation affects its social licence to In an effort to improve transparency, we publish relevant Highlights Challenges operate, its ability to attract and retain skills, its access operational, system performance and environmental data • Established Eskom's Government and Regulatory • Procurement spend with the majority of supplier to customers, the extent to which customers will prefer through the Eskom Data Portal on our website. Affairs Division to improve relationships with categories remains below target its products and services, and whether stakeholders are stakeholders and support South Africa's energy future • Financial challenges, exacerbated by the impact willing to support or advocate on behalf of the company. The information can be accessed at www.eskom.co.za/dataportal of COVID-19, limited the implementation of CSI programmes Customer service performance Target Target Target Target Actual Actual Actual Operating performance Improvements Lowlights Measure and unit 2024 2022 2021 met? 2021 2020 2019 Key Customer Delight, % 80.0 80.0 80.0 86.2 81.5 81.7 • Customer satisfaction improved, particularly for top • Eskom's B-BBEE score worsened during the year, from level 7 to level 8 Customer Delight, % 75.0 75.0 75.0 75.9 73.6 72.7 customers, although unreliability of supply and slow resolution of interruptions remain a concern • Eskom's reputation remains poor, scoring the CustomerCare, index 8.2 8.2 8.2 8.4 8.5 8.5 lowest of 98 global energy utilities based on the international RepTrak® Pulse reputation survey We measure customer satisfaction through a range Key Customer Delight has improved over the year, with of statistical perception and interaction-based large customers valuing the personalised service received customer surveys, conducted by independent research from key customer executives. Unreliability of supply organisations. This helps us to better understand the (including loadshedding, load curtailment and unplanned Supplementary information needs of our customers and respond accordingly, with outages) remains the main complaint of key customers. the aim of delivering customer satisfaction and ultimately stimulating sales and improving revenue collection. Customer Delight measures perception among residential, small- and medium-sized customers. CustomerCare measures customer satisfaction following interaction with our customer service channels. 114 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 115 BACK TO MENU OUR ROLE IN COMMUNITIES continued Who we are and how we create value Governance, leadership and ethics Performance is in line with prior years, with some If IPP expenditure were excluded from TMPS, Skills development through our new build Future focus areas customers' satisfaction affected by slow resolution of preferential procurement from B-BBEE compliant projects • Restoring our reputation and the public's confidence supply interruptions, inaccurate and late billing, and suppliers would have improved to approximately 77%, A total of 13 480 contractor employees were employed and trust in Eskom delayed responses to queries. exceeding the target of 75%. Engagements with DMRE at the Medupi and Kusile new build sites and on large • Repositioning Eskom through stakeholder engagement and the Department of Trade, Industry and Competition transmission projects at 31 March 2021 (2020: 13 318). and shaping the debate around policy and regulatory Our contribution to supplier development are intended to discuss the appropriate classification of Demobilisation continues as various packages in the decisions Our contribution to nation building is a critical social IPP expenditure. new build projects are concluded. The primary focus of transformation and reputational driver. We aim to • Driving change and the success of Eskom's turnaround our demobilisation efforts are to ensure that there has deliver sustainable supplier development, localisation and plan through the recently launched Eskom Rising been appropriate upskilling of affected workers and that industrialisation by leveraging our procurement spend ESKOM-WIDE campaign job losses are mitigated in towns and local communities to deliver on both Eskom's and Government's policies surrounding these projects. • Improving customer satisfaction, given the negative In 2021, we awarded 1 299 contracts and transformation strategy. Work is under way to impact of unreliable supply on customers worth R102.5 billion implement supplier development programmes agreed Public safety • Increasing procurement spend with under-represented Local content of R67.7 billion with the shareholder, and to address the root causes of We are strongly committed to Zero Harm to employees, supplier categories Eskom's poor B-BBEE recognition level. Our target is to contractors and the public. To this end, we conduct • Delivering transformation outcomes through supplier NEW BUILD achieve a level 4 B-BBEE score within three years. nationwide public safety awareness campaigns to educate development programmes In 2021, we awarded 83 contracts the public on how to use electricity safely and correctly, • Maintaining support for our electrification and CSI Total measured procurement spend (TMPS) for the by raising awareness about the hazards of illegal group on all active contracts amounted to R155.6 billion worth R6.9 billion activities Local content of R3.9 billion connections, overloading misuse of electricity plugs and • Continuing campaigns to educate the public on for the year, of which 64.51% was spent with B-BBEE purchasing prepaid electricity from ghost vendors. Sadly, compliant suppliers (2020: R154.2 billion, and 65.97%). electricity safety and the hazards of illegal activities Since inception of the new build programme, there were 20 public fatalities during the year (2020: 17), Procurement spend with black youth-owned and black with 14 being the result of electrical contact. we have awarded contracts worth R227 billion women-owned suppliers improved to 3.46% (2020: (2020: R226.7 billion) 2.65%) and 12.24% (2020: 10.10%) of TMPS respectively, Our strategic context exceeding their targets of 2% and 12%. Local content of R169.5 billion (2020: R165.6 billion) In July 2020, we launched a new campaign on energy losses to educate customers about the implementation of load Regrettably, procurement spend targets in the remaining reduction in high-density areas, to protect overloaded categories were not met due to previously compliant The group and company procurement equity performance is set out in the non-technical statistical tables from page 132 infrastructure from repeated failure and explosions as a suppliers not renewing their B-BBEE certificates, as well result of illegal activities. Regrettably, there has been a as IPP contracts concluded in terms of DMRE's RE-IPP noticeable increase in physical threats to our employees Programme, which were negotiated by DMRE. and contractors working in these areas, particularly due to community unrest when removing illegal connections Maximising our socio-economic contribution and implementing load reduction. We condemn violent behaviour against our people as they are acting in the Target Target Target Target Actual Actual Actual Measure and unit 2024 2022 2021 met? 2021 2020 2019 interest of public safety when executing their duties. Our safety campaigns specifically encourage the public Financial review Total electrification connections, number SC 312 480 99 724 85 428 106 669 163 613 191 585 to report low-hanging power lines, meter tampering and vandalism to electrical infrastructure in their communities. Corporate social investment committed spend, R million 387.5 125.3 153.8 67.4 123.8 132.4 Corporate social investment, number of beneficiaries 2 100 000 700 000 750 000 802 635 1 479 395 933 139 The #MamaKnowsBest campaign was launched in 1. The 2024 target is the cumulative target over the next three years. August 2020 as part of Eskom's Electricity Safety Month, to educate the public and reduce electricity-related Electrification development, skills development, education, social injuries and fatalities. Our collaboration with schools, to Our most direct socio-economic contribution is through upliftment, health, philanthropy and welfare, through educate children on the dangers of electricity through the rollout of DMRE's electrification programme, which well-established national programmes. various campaigns and competitions, remains effective. Operating performance connects previously disadvantaged households and farm We are also working with the Department of Basic dweller houses in our licensed areas of supply. Regrettably, The Foundation approved 78 projects, grants and donations to the value of R67.4 million during the year, Education to assist in the inclusion of electricity safety DMRE reduced the funding for the 2021 programme information in South Africa's Life Orientation curriculum. by R1 billion, leading to a corresponding reduction in assisting 802 635 beneficiaries. Unfortunately, COVID-19 the target for the year. We did well to deliver these restrictions and financial constraints affected our ability Nuclear safety connections despite numerous challenges during the to execute a large number of planned CSI initiatives. Nuclear safety remains a priority to ensure that national lockdown over the past year. Since 1991, we have The Foundation is focusing its efforts on optimising the there is no unacceptable risk to the public. Koeberg connected approximately 5.8 million households. value, impact and sustainability of its programmes given Nuclear Power Station's LTO project, to extend the the prevailing funding constraints. Despite the challenges life of the plant by 20 years, as well as the refuelling Corporate social investment facing us, our flagship projects and initiatives (including and maintenance outage for Unit 1 are proceeding in The Eskom Development Foundation NPC (the the Eskom Business Investment Competition, the line with international standards and licensing limits. Supplementary information Foundation) is a wholly owned subsidiary of Eskom and Eskom Expo for Young Scientists and the Simama Ranta Koeberg's containment buildings remain fully effective is responsible for our CSI initiatives and improving the programme) continue to deliver a demonstrable impact. and will continue to manage containment health for the quality of life of the communities in which we operate. extended life of the plant. Initiatives focus on enterprise and rural infrastructure 116 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 117 BACK TO MENU SUPPLEMENTARY Who we are and how we create value Governance, leadership and ethics INFORMATION Our strategic context Financial review Operating performance Abbreviations 120 Plant information • Power station capacities 136 Glossary of terms 121 • Power lines and substations in service 137 Leadership qualifications and directorships 123 Customer information, such as number of 138 Board and Exco meeting attendance 126 customers, electricity sales and revenue per Environmental implications of using or saving 127 customer category Supplementary information electricity Independent sustainability assurance report 139 Statistical tables: technical and non-technical 128 Contact details 143 information We aim to make Eskom stronger, more efficient and ready to grow towards a brighter future for all. Eskom Holdings SOC Ltd Reg No 2002/015527/30 ESKOM HOLDINGS SOC LTD | 119 BACK TO MENU ABBREVIATIONS GLOSSARY OF TERMS Who we are and how we create value Governance, leadership and ethics AEL Atmospheric emissions licence LPU Large power user Arrear debt as percentage of revenue Gross arrear debt written off (relating to electricity receivables only) divided by gross electricity revenue multiplied by 100 A&F Assurance and Forensic Deparment LTIR Lost-time injury rate (see glossary) Base-load plant Largely coal-fired and nuclear power stations, designed to operate continuously ARC Audit and Risk Committee MES Minimum Emission Standards Cash interest cover (ratio) Provides a view of the company's ability to satisfy the interest burden on its borrowings by utilising cash B-BBEE Broad-based black economic empowerment Mℓ Megalitre = 1 million litres generated from operating activities. It is calculated as net cash from operating activities divided by net CAGR Compound annual growth rate MOI Memorandum of Incorporation interest paid (interest paid on financing activities less interest received from financing activities) CCMA Council for Conciliation, Mediation and Arbitration mSv Millisievert 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 CFO Chief Financial Officer Mt Million tons advance, provisions, employee benefit obligations and taxation liabilities) COGTA Department of Cooperative Governance and MVA Megavolt-ampere Daily peak Maximum amount of energy demanded by consumers in one day Traditional Affairs MW Megawatt = 1 million watts Debt/equity including long-term Net financial assets and liabilities plus non-current retirement benefit obligations and non-current COO Chief Operating Officer provisions provisions divided by total equity MWh Megawatt-hour = 1 000kWh CSA Coal supply agreement Debt service cover (ratio) Cash generated from operations divided by (net interest paid from financing activities plus debt MWhSO Megawatt-hour sent out securities and borrowings repaid) CSI Corporate social investment MYPD Multi-year price determination Decommission To remove a facility (e.g. reactor) from service and either store it safely or dismantle it DFFE Department of Forestry, Fisheries and the Environment NDP National Development Plan 2030 Demand-side management Planning, implementing and monitoring activities to encourage consumers to use electricity more DFI Development finance institution NERSA National Energy Regulator of South Africa efficiently, including both the timing and level of demand DMRE Department of Mineral Resources and Energy NNR National Nuclear Regulator EBITDA margin EBITDA as a percentage of revenue (excluding revenue not recognised due to uncollectability) DoA Delegation of authority OCGT Open-cycle gas turbine (see glossary) Electricity operating costs per MWh Electricity-related costs (primary energy costs, employee benefit costs plus net impairment loss and DPE Department of Public Enterprises other operating expenses, less other income) divided by total electricity sales in GWh multiplied OCLF Other capability loss factor by 1 000 Our strategic context DWS Department of Water and Sanitation OHS Occupational health and safety Electricity revenue per kWh Electricity revenue (including electricity revenue not recognised due to uncollectability) divided by EAF Energy availability factor (see glossary) total kWh sales multiplied by 100 PAIA Promotion of Access to Information Act, 2000 EBITDA Earnings before interest, taxation, depreciation and Embedded derivative Financial instrument that causes cash flows that would otherwise be required by modifying a contract amortisation and fair value adjustments PAJA Promotion of Administrative Justice Act, 2000 according to a specified variable such as currency ECA Export credit agency PCLF Planned capability loss factor Energy availability factor (EAF) Measure of power station availability, taking account of energy losses not under the control of plant PFMA Public Finance Management Act, 1999 management and internal non-engineering constraints ERI Eskom Rotek Industries SOC Ltd ESP Electrostatic precipitator PGC People and Governance Committee Energy efficiency Programmes to reduce energy used by specific end-use devices and systems, typically without affecting services provided EUF Energy utilisation factor (see glossary) PPA Power purchase agreement Energy utilisation factor (EUF) Ratio of actual electrical energy produced during a period of time divided by the total available energy Exco Executive Management Committee PV (Solar) photovoltaic capacity. It is a measure of the degree to which the available energy capacity of an electricity supply network is utilised. Available energy capacity refers to the capacity after all unavailable energy (planned RCA Regulatory clearing account Financial review FFP Fabric filter plant and unplanned energy losses) has been taken into account, and represents the net energy capacity RE-IPP Renewable energy independent power producer made available to the System Operator or national grid FGD Flue gas desulphurisation RMIPPPP Risk Mitigation Independent Power Producer Fatality A fatality is an incident occurring at work, or arising out of or in connection with the activities of GCE Group Chief Executive Procurement Programme persons at work, or in connection with the use of plant or machinery, in which or in consequence of GDP Gross domestic product which any person (an employee, contractor or member of the public) dies, regardless of the time SADC Southern African Development Community intervening between the injury and/or exposure to the cause and death. The date of the incident will GE Group executive reflect the date on which the incident occurred, irrespective of the date of death SAIDI System average interruption duration index GW Gigawatt = 1 000 megawatts Forced outage Shutdown of a generating unit, transmission line or other facility for emergency reasons or a condition SAIFI System average interruption frequency index in which generating equipment is unavailable for load due to unanticipated breakdown GWh Gigawatt-hour = 1 000MWh SALGA South African Local Government Association Free basic electricity Amount of electricity deemed sufficient to provide basic electricity services to a poor household Operating performance IEA International Energy Agency SAPP Southern African Power Pool (50kWh per month) IFC Investment and Finance Committee SARS South African Revenue Service Free funds from operations Cash generated from operations adjusted for working capital IFRS International Financial Reporting Standards SCOA Standing Committee on Appropriations Gross debt Debt securities and borrowings plus finance lease liabilities plus the after-tax effect of provisions and IPP Independent power producer (see glossary) employee benefit obligations SCOPA Standing Committee on Public Accounts IRP Integrated Resource Plan Gross debt/EBITDA ratio Gross debt divided by earnings before interest, taxation, depreciation, amortisation and fair value SES Social, Ethics and Sustainability Committee adjustments JET Just Energy Transition SIU Special Investigating Unit Independent non-executive director A director who: King IV TM King IV Report on Corporate Governance for South • Is not a full-time salaried employee of the company or its subsidiary Africa, 2016 SOC State-owned company • Is not a shareholder representative SPU Small power user • Has not been employed by the company and is not a member of the immediate family of an individual Supplementary information kℓ Kilolitre = 1 000 litres who is or has been, in any of the past three financial years, employed by the company in any KPI Key performance indicator TMPS Total measured procurement spend executive capacity kt Kiloton = 1 000 tons UAGS Unplanned automatic grid separations • Is not a professional advisor to the company • Is not a significant supplier or customer of the company kV Kilovolt = 1 000 volts UCLF Unplanned capability loss factor (see glossary) • Is not receiving remuneration contingent on the performance of the company kWh Kilowatt-hour = 1 000 watt-hours (see glossary) WANO World Association of Nuclear Operators Independent power producer (IPP) Any entity, other than Eskom, that owns or operates, in whole or in part, one or more independent kWhSO Kilowatt-hour sent out power generation facilities 120 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 121 BACK TO MENU GLOSSARY OF TERMS continued LEADERSHIP QUALIFICATIONS AND DIRECTORSHIPS Who we are and how we create value Governance, leadership and ethics Kilowatt-hour (kWh) Basic unit of electric energy equal to one kilowatt of power supplied to or taken from an electric Board of Directors circuit steadily for one hour at 31 March 2021 Load Amount of electric power delivered or required on a system at any specific point PROF. MALEGAPURU (MW) MAKGOBA (68) MS NELISIWE (NVB) MAGUBANE (55) Load curtailment Typically, larger industrial customers reduce their demand by a specified percentage for the duration of Interim Chairman Independent non-executive director a power system emergency. Due to the nature of their business, these customers require two hours' Independent non-executive director Appointed to Board in January 2018 notification before they can reduce demand Appointed to Board in December 2017 Qualifications Load management Activities to influence the level and shape of demand for electricity so that demand conforms to the Qualifications B Sc Electrical Engineering – Heavy Current present supply situation, long-term objectives and constraints MB ChB (University of Natal) (University of Natal) Loadshedding Scheduled and controlled power cuts that rotate available capacity between all customers when D Phil (University of Oxford) Postgraduate Diploma in Business Administration demand is greater than supply in order to avoid blackouts. Distribution or municipal control rooms Fellowship of the Royal College of (University of West London) open breakers and interrupt load according to predefined schedules Physicians of London MBA (Milpark Business School) Fellow of the Royal Society of South Africa Skills Lost-time injury (LTI) A work injury which arises out of and in the course of employment and which renders the injured Member of the Academy of Science of South Africa Advanced Management Program (INSEAD) Science, engineering and technology employee or contractor unable to perform his/her regular/normal work on one or more full calendar days or shifts other than the day or shift on which the injury occurred. It includes occupational diseases Skills Directorships and fatalities AngloGold Ashanti (Pty) Ltd Science, engineering and technology Legal, governance and risk management Consulting Engineers South Africa (CESA) Lost-time injury rate (LTIR) Proportional representation of the occurrence of lost-time injuries over 12 months per 200 000 DLO NBV (Pty) Ltd working hours Social and human sciences Enerugi 243 Holdings (Pty) Ltd Directorships Fluor South Africa (Pty) Ltd Major incident An interruption with a severity ≥1 system minute None Foskor (Pty) Ltd Maximum demand Highest demand of load within a specified period Great Karoo Renewable Energy (Pty) Ltd Just Energy Projects (Pty) Ltd Non-technical losses Energy losses due to electricity theft through illegal connections, tampering and bypassing of electricity MR ANDRÉ (AM) DE RUYTER (53) Magubane Consulting Engineers cc meters as well as the purchase of electricity tokens from unregistered or illegal vendors. It includes Group Chief Executive Matleng Energy Solutions (Pty) Ltd meter reading and billing errors Executive director Mofisto Foundation NPC Our strategic context Appointed to Board in January 2020 Musina Flair Generation (Pty) Ltd Occupational disease/illness Any confirmed disease/illness arising out of, and in the course of, an employee's employment, that is Qualifications Product Development and Management Association listed in Schedule 3 of the Compensation for Occupational Injuries and Diseases (COID) Act, 1993, (Sub-Saharan Africa) BA English and Psychology (University of Pretoria) or any other condition as determined by an occupational medical practitioner Seasoned Capital (Pty) Ltd B Civil Law (University of Pretoria) LLB (Unisa) SFF Association Off-peak Period of relatively low system demand MBA (Nyenrode University) Thebe Energy Resources Advisory Council Open-cycle gas turbine (OCGT) Liquid fuel turbine power station that forms part of peak-load plant and runs on kerosene or diesel. Trakprops 40 (Pty) Ltd Skills Designed to operate in periods of peak demand Trinergi Advisory (Pty) Ltd Commerce and industry Windcon Investments (Pty) Ltd Outage Period in which a generating unit, transmission line or other facility is out of service Legal, governance and risk management Finance, accounting and economics Peak demand Maximum power used in a given period, traditionally between 7:00 and 10:00 as well as 18:00 to 20:00 DR BANOTHILE (BCE) MAKHUBELA (36) Directorships in summer; and 6:00 to 9:00 as well as 17:00 to 19:00 in winter Independent non-executive director Schulder Property Investments (Pty) Ltd Appointed to Board in June 2017 Peaking capacity Generating equipment normally operated only during hours of highest daily, weekly or seasonal loads Tuisbaai cc Qualifications Financial review Peak-load plant Gas turbines, hydroelectric or a pumped storage scheme used during periods of peak demand B Sc (University of Zululand) MR CALIB (C) CASSIM (49) B Sc (Hons) Chemistry (University of Cape Town) Primary energy Energy in natural resources, e.g. coal, diesel, uranium, sunlight, wind and water Chief Financial Officer M Sc Chemistry (University of Cape Town) Executive director Ph D Chemistry (University of Cape Town) Pumped storage scheme A lower and an upper reservoir with a power station/pumping plant between the two. During off-peak Appointed to Board in July 2017 periods the reversible pumps/turbines use electricity to pump water from the lower to the upper Skills reservoir. During periods of peak demand, water runs back into the lower reservoir through the Qualifications Science, engineering and technology turbines, generating electricity B Com (University of Natal) B Accounting Sciences (Unisa) Directorships Reserve margin Difference between net system capability and the system's maximum load requirements (peak load or Chartered Accountant (SA) Chemical Industry Education and Training Authority (CHIETA) peak demand) Master of Business Leadership (Unisa) MJW Construction (Pty) Ltd Plero (Pty) Ltd Skills Operating performance Return on assets EBIT divided by the regulated asset base, which is the sum of property, plant and equipment, trade and Ukhulile Khubela General Trading (Pty) Ltd other receivables, inventory and future fuel, less trade and other payables and deferred income Commerce and industry Finance, accounting and economics System minutes Global benchmark for measuring the severity of interruptions to customers. One system minute is MS BUSISWE (B) MAVUSO (42) Directorships equivalent to the loss of the entire system for one minute at annual peak. A major incident is an Independent non-executive director interruption with a severity ≥1 system minute Escap SOC Ltd Appointed to Board in January 2018 Eskom Enterprises SOC Ltd Technical losses Naturally occurring losses that depend on the power systems used Eskom Finance Company SOC Ltd Qualifications B Compt (Unisa) Unit capability factor (UCF) Measure of availability of a generating unit, indicating how well it is operated and maintained Postgraduate Diploma in Management (GIBS) DR ROD (RdeB) CROMPTON (68) Master of Business Leadership (Unisa) Unplanned capability loss factor (UCLF) Energy losses due to outages are considered unplanned when a power station unit has to be taken out Independent non-executive director Association of Chartered Certified Accountants (ACCA) of service and it is not scheduled at least four weeks in advance Appointed to Board in January 2018 Skills Used nuclear fuel Nuclear fuel irradiated in and permanently removed from a nuclear reactor. Used nuclear fuel is stored Qualifications Finance, accounting and economics Supplementary information on site in used fuel pools or storage casks BA (University of Natal) Diploma in Higher Education (University of Natal) Directorships Watt The watt is the International System of Units' (SI) standard unit of power. It specifies the rate at which BA (Hons) (University of Natal) Business Leadership of South Africa NPC (BLSA) electrical energy is dissipated (energy per unit of time) Ph D Humanities (University of Natal) Business Unity South Africa NPC (BUSA) Nsilingwane Investments (Pty) Ltd Skills Resultant Finance (Pty) Ltd Commerce and industry Finance, accounting and economics Directorships Ages are shown at 31 March 2021. None Only active directorships are reflected. 122 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 123 BACK TO MENU LEADERSHIP QUALIFICATIONS AND DIRECTORSHIPS continued Who we are and how we create value Governance, leadership and ethics Board of Directors continued Executive Management Committee at 31 March 2021 at 31 March 2021 DR PULANE (PE) MOLOKWANE (44) MR ANDRÉ (AM) DE RUYTER (53) MS FAITH (FS) BURN (52) MS ELSIE (EM) PULE (53) Independent non-executive director Group Chief Executive Chief Information Officer Group Executive: Human Resources Appointed to Board in June 2017 Appointed to Exco in January 2020 Appointed to Exco in May 2020 Appointed to Exco in November 2014 1 year in Eskom <1 year in Eskom 23 years in Eskom Qualifications B Sc Physics and Chemistry Qualifications Qualifications Qualifications (University of North West) BA English and Psychology (University of Pretoria) B Sc Mathematics and Computer Science BA Social Work (University of the North) Postgraduate Diploma in Applied Radiation B Civil Law (University of Pretoria) (University of Johannesburg) BA (Hons) Psychology (University of Pretoria) Science and Technology (University of North West) LLB (Unisa) B Sc (Hons) Mathematics (University of Johannesburg) M Sc Business Engineering (Warwick University) M Sc Applied Radiation Science and Technology MBA (Nyenrode University) M Sc Mathematics (University of Johannesburg) Skills (University of North West) Skills Master of Business Leadership (Unisa) Certified Internal Auditor (CIA) Social and human sciences Ph D Chemical Technology – Environmental Engineering Commerce and industry (University of Pretoria) Skills Directorships Legal, governance and risk management Pr Sci Nat (South African Council of Natural Scientific Professions) Finance, accounting and economics Eskom Finance Company SOC Ltd Science, engineering and technology Skills Legal, governance and risk management Eskom Rotek Industries SOC Ltd Directorships Science, engineering and technology Schulder Property Investments (Pty) Ltd Directorships Directorships Tuisbaai cc MS JAINTHREE (J) SANKAR (49) Hlahlamelisa International Ministry NPC Acting Chief Procurement Officer Endulo Resources (Pty) Ltd Kingdom Consultant Center NPC Appointed to Exco in March 2021 Litestone Mzansi (Pty) Ltd South African National Blood Services NPC (SANBS) MR CALIB (C) CASSIM (49) 27 years in Eskom Nzuri Resources (Pty) Ltd Chief Financial Officer Oloenviron (Pty) Ltd Qualifications Appointed to Exco in July 2017 MS NTHATO (N) MINYUKU (42) Pulane Murimba Trust 19 years in Eskom B Com (Unisa) Group Executive: Government and Priority Performance Projects (Pty) Ltd B Com (Hons) Business (Unisa) Qualifications Regulatory Affairs Tinungu (Pty) Ltd National Diploma in Electrical Engineering Appointed to Exco in October 2020 Our strategic context B Com (University of Natal) (Durban University of Technology) <1 year in Eskom B Accounting Sciences (Unisa) MBA Sustainable Business (University of Southern Queensland) PROF. TSHEPO (TH) MONGALO (47) Chartered Accountant (SA) Qualifications Master of Project Management (University of Southern Queensland) Independent non-executive director Master of Business Leadership (Unisa) B Architectural Studies (University of Skills Appointed to Board in December 2017 Skills Witwatersrand) Qualifications Master of City Planning and Urban Design (University of Cape Town) Science, engineering and technology Commerce and industry Commerce and industry B Proc (University of Natal) Leadership in Context (GIBS) Finance, accounting and economics Social and human sciences LLB (University of Natal) Skills LLM Commercial Law (University of Cambridge) Directorships Directorships Science, engineering and technology Ph D Commercial Law (University of Cape Town) Escap SOC Ltd None Commerce and industry Skills Eskom Enterprises SOC Ltd Legal, governance and risk management Eskom Finance Company SOC Ltd Commerce and industry Social and human sciences MR VUYOLWETHU (V) TUKU (45) Legal, governance and risk management Directorships Group Executive: Transformation Social and human sciences MR JAN (JA) OBERHOLZER (62) Management Office South African Maritime Safety Authority Financial review Chief Operating Officer Appointed to Exco in July 2020 Directorships Appointed to Exco in July 2018 <1 year in Eskom Bolemo Kgango Enterprises (Pty) Ltd 28 years in Eskom (including from 1983 to 2008) MS NERINA (N) OTTO (49) Qualifications Effective Drafting Solutions (Pty) Ltd Qualifications Acting Group Executive: Legal and Compliance Hope City Investment (Pty) Ltd B Sc Electrical Engineering (University of Appointed to Exco in December 2020 B Sc Electrical Engineering (University of Pretoria) Cape Town) 23 years in Eskom Master of Business Leadership (Unisa) MBA (University of Witwatersrand) Executive Program (University of Michigan) Qualifications Skills Skills BA Legal Studies and Political Science (University of Natal) Science, engineering and technology Science, engineering and technology Commerce and industry LLB (University of Natal) Commerce and industry Finance, accounting and economics Master of Law (University of Johannesburg) Directorships Directorships Operating performance Skills Eskom Enterprises SOC Ltd Genesis Strategy Partners Legal, governance and risk management Eskom Rotek Industries SOC Ltd Jafram Projects (Pty) Ltd Directorships Wild Senna Investments (Pty) Ltd None Supplementary information Ages are shown at 31 March 2021. Only active directorships are reflected. 124 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 125 BACK TO MENU BOARD AND EXCO MEETING ATTENDANCE ENVIRONMENTAL IMPLICATIONS OF USING OR SAVING ELECTRICITY Who we are and how we create value Governance, leadership and ethics Attendance at Board and committee meetings Factor 1 for the year ended 31 March 2021 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 Members Board and Risk and Finance Governance Sustainability Committee CO2 emitted by electricity sales: Total number of meetings 14 13 12 4 4 4 206.8Mt of CO2 ÷ 191 852GWh sales = 1.08 tons per MWh 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) 14/14* 3/4 3/4 1/1 generated less Eskom's electricity consumption): Dr Rod Crompton 14/14 12/13 4/4* 206.8Mt of CO2 ÷ (201 400GWh generated less 6 625GWh own consumption) = 1.06 tons per MWh Ms Nelisiwe Magubane 11/14 11/12* 4/4 Figures represent the 12-month period from 1 April 2020 to 31 March 2021. Dr Banothile Makhubela 12/14 6/7 4/4* Factor 1 Factor 2 If electricity consumption is measured in: Ms Busisiwe Mavuso 13/14 9/12 4/4 (total energy (total energy sold) generated) kWh MWh GWh TWh Dr Pulane Molokwane 14/14 13/13* 4/4 Coal use 0.55 0.54 kilogram ton thousand tons (kt) million tons (Mt) Prof. Tshepo Mongalo 14/14 7/13 4/4* Water use1 1.41 1.39 litre kilolitre megalitre (Mℓ) thousand megalitres Executive directors Ash produced 161 158 gram kilogram ton thousand tons (kt) Particulate emissions 0.37 0.37 gram kilogram ton thousand tons (kt) Mr André de Ruyter 12/14 <13/13> <11/12> <4/4> <4/4> <3/4> CO2 emissions² 1.08 1.06 kilogram ton thousand tons (kt) million tons (Mt) SO x emissions2 8.36 8.24 gram kilogram ton thousand tons (kt) Mr Calib Cassim 13/14 <13/13> <11/12> <3/4> <4/4> Our strategic context NO x emissions3 4.19 4.13 gram kilogram ton thousand tons (kt) Previous directors 1. Volume of water used at all Eskom power stations. Mr Sifiso Dabengwa 3/3 5/5 1/1 2. Calculated figures based on coal characteristics and power station design parameters. Sulphur dioxide and carbon dioxide emissions are based on coal analysis and using coal burnt tonnages. Figures include coal-fired and gas turbine power stations, as well as oil consumed during power station Attendance as reflected above refers to directors who were members of that committee during the year to 31 March 2021 and reflects changes in start-ups and, for carbon dioxide emissions, the underground coal gasification pilot plant. committee composition during the year. 3. NO x reported as NO2 is calculated using average station-specific emission factors, which have been measured intermittently, and tonnages of * denotes the chairmanship of the Board or committee at 31 March 2021. coal burnt. <> denotes meetings attended as an official. Multiply electricity consumption or saving by the relevant factor in the table above to determine the environmental Attendance at Exco meetings implication. for the year ended 31 March 2021 Example 1: Water consumption Example 2: CO2 emissions Number Using Factor 1 Using Factor 1 Financial review of meetings Used 90MWh of electricity Used 90MWh of electricity Members Divisional responsibility attended 90 x 1.41 = 127 90 x 1.08 = 97 Total number of meetings 27 Therefore 127 kilolitres of water used Therefore 97 tons CO2 emitted Current executives Using Factor 2 Using Factor 2 Used 90MWh of electricity Used 90MWh of electricity Mr André de Ruyter Group Chief Executive 27/27 90 x 1.39 = 125.1 90 x 1.06 = 95.6 Mr Calib Cassim Chief Financial Officer 26/27 Therefore 125.1 kilolitres of water used Therefore 95.6 tons CO2 emitted Mr Jan Oberholzer Chief Operating Officer 26/27 Ms Faith Burn Chief Information Officer 23/24 For CDM-related Eskom grid emission factor information, please go to the following link: Operating performance www.eskom.co.za/OurCompany/SustainableDevelopment/Pages/CDM_Calculations.aspx Ms Nerina Otto Acting Group Executive: Legal and Compliance 6/6 or via the Eskom website: Our Company > Sustainable Development > CDM calculations Ms Nthato Minyuku Group Executive: Government and Regulatory Affairs 10/11 Ms Elsie Pule Group Executive: Human Resources 25/27 Ms Jainthree Sankar Acting Chief Procurement Officer 1/1 Mr Vuyolwethu Tuku Group Executive: Transformation Management Office 21/21 Previous executives Mr Nico Harris Acting Chief Information Officer 3/3 Supplementary information Mr Bartlett Hewu Acting Group Executive: Legal and Compliance 18/21 Mr Solomon Tshitangano Chief Procurement Officer 23/26 126 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 127 BACK TO MENU TECHNICAL STATISTICS Who we are and how we create value Governance, leadership and ethics Measure and unit 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 Customer statistics Arrear debt as % of revenue, % 3.24 3.69 4.30 RA 2.73RA 2.42 1.14 2.17 1.10 0.82 0.53 Debtors days – municipalities, average debtors days 140.7 116.1 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 15.0 14.6 13.5RA 13.9 RA 15.3RA 15.5 16.8 14.5 12.3 14.4 Debtors days – other large power users (<100 GWh p.a.), average debtors days 17.5 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 50.1 44.1 42.6RA 43.4 RA 48.8 RA 48.2 49.1 50.2 48.2 42.9 Key Customer Delight, %1 86.2 81.5 81.7 79.5 107.0 104.3RA 108.7 108.7 105.8 105.9 Customer Delight, %1 75.9 73.6 72.7 72.0 95.8 96.5RA 99.8 92.7 93.2 90.7 CustomerCare, index 8.4 8.5 8.5 9.9 9.8 8.4 8.0 8.3 8.4 8.2 Sales and revenue Total sales, GWh2 191 852 205 635 208 319 212 190 214 121 214 487 216 274 217 903 216 561 224 785 (Reduction)/growth in GWh sales, % (6.7) (1.3) (1.8) (0.9) (0.2) (0.8) (0.7) 0.6 (3.7) 0.2 Electricity revenue, R million 202 643 197 307 177 312 174 905 175 094 161 688 146 268 136 869 126 663 112 999 Growth in revenue, % 2.7 11.3 1.4 (0.1) 8.3 10.5 6.9 8.1 12.1 25.0 Electricity output Power sent out by Eskom stations, GWh (net) 201 400 214 968 218 939 221 936 220 166 219 979 226 300 231 129 232 749 237 289 Coal-fired stations, GWh (net) 183 553 194 357 200 210 202 106 200 893 199 888 204 838 209 483 214 807 218 210 Hydroelectric stations, GWh (net) 1 387 688 1 029 709 579 688 851 1 036 1 077 1 904 Pumped storage stations, GWh (net) 4 795 5 060 4 590 4 479 3 294 2 919 3 107 2 881 3 006 2 962 Gas turbine stations, GWh (net) 1 457 1 328 1 202 118 29 3 936 3 709 3 621 1 904 709 Wind energy, GWh (net) 305 283 328 331 345 311 1 2 1 2 Our strategic context Nuclear power station, GWh (net) 9 903 13 252 11 580 14 193 15 026 12 237 13 794 14 106 11 954 13 502 IPP purchases, GWh 13 526 11 958 11 344 9 584 11 529 9 033 6 022 3 671 3 516 4 107 Wheeling, GWh3 2 310 2 491 2 750 2 266 2 910 3 930 3 623 3 353 2 948 3 099 Energy imports from SADC countries, GWh3 8 812 8 568 7 355 7 731 7 418 9 703 10 731 9 425 7 698 9 939 Total electricity available (generated by Eskom and purchased), GWh2 226 048 237 985 240 388 241 517 242 023 242 645 246 676 247 578 246 911 254 434 Total consumed by Eskom, GWh4 (6 625) (6 629) (5 981) (6 031) (4 808) (4 046) (4 114) (3 862) (4 037) (3 982) Total available for distribution, GWh 219 423 231 356 234 407 235 486 237 215 238 599 242 562 243 716 242 874 250 452 Supply and demand Total Eskom power station capacity – installed, MW 51 115 49 517 48 029 48 039 46 407 45 075 44 281 44 189 44 206 44 115 Total Eskom power station capacity – nominal, MW 46 466 45 117 44 172 45 561 44 134 42 810 42 090 41 995 41 919 41 647 Total IPP power station capacity – nominal, MW 6 083 5 206 4 981 4 779 5 027 3 392 2 606 1 677 1 135 1 008 Financial review Peak demand on integrated Eskom system, MW 31 470 32 948 34 256 35 301 34 122 33 345 34 768 34 977 35 525 36 212 Peak demand on integrated Eskom system, including load reductions 34 155 34 510 35 345 35 613 34 913 34 481 36 170 36 002 36 345 37 065 and non-Eskom generation, MW National rotational loadshedding Yes Yes Yes No No Yes Yes YesRA NoRA NoRA Demand savings, MW5 – – 15.0 40.2 236.9 214.9 171.5RA 409.6RA 595.0 RA 365.0 RA Internal energy efficiency, GWh5 – – 0 1.4 6.0 1.7RA 10.4 RA 19.4 RA 28.9 RA 45.0 RA Asset creation Generation capacity installed and commissioned, MW 1 598 RA 1 588 RA 0 RA 2 387RA 1 332RA 794 RA 100 RA 120 RA 261RA 535RA Transmission lines installed, km 65.6RA 127.9 RA 378.7RA 722.3RA 585.4 RA 345.8 RA 318.6RA 810.9 RA 787.1RA 631.3RA Substation capacity installed and commissioned, MVA 750 RA 250 RA 540 RA 2 510 RA 2 300 RA 2 435RA 2 090 RA 3 790 RA 3 580 RA 2 525RA Operating performance Total capital expenditure – group (excluding capitalised borrowing costs), R billion 24.0 23.4 33.9 48.0 60.0 57.4 53.1RA 59.8 RA 60.1 58.8 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 Employee lost-time injury rate (LTIR) – group, index6, 7 0.22 RA 0.30 RA 0.31RA 0.24 0.39 0.30 0.33 0.31 – – Fatalities (employees and contractors), number 10 9 7 14 10 17 10 23RA 19 RA 24 RA Employee fatalities, number 2 – 3 3 4 4 3 5RA 3RA 13RA Contractor fatalities, number 8 9 4 11 6 13 7 18 RA 16RA 11RA 1. These measures were introduced in 2020 and are calculated on a 12-month moving average. Prior to 2020, the comparatives are for Eskom KeyCare and Enhanced MaxiCare. 2. The difference between electricity available for distribution and electricity sold is due to energy losses. Supplementary information 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 since 2020. 6. The employee LTIR includes occupational diseases and fatalities. 7. Prior to 2014, only company numbers were reported. From 2020, only group numbers are reported. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 139 to 142 of the integrated report. 128 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 129 BACK TO MENU TECHNICAL STATISTICS continued Who we are and how we create value Governance, leadership and ethics Measure and unit 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 Primary energy Coal stock, days 82 81 67 68 74 58 51 44 RA 46RA 39 RA Road-to-rail migration (additional tonnage transported on rail), Mt 3.6RA 7.5RA 8.2RA 11.6Q 13.2Q 13.6RA 12.6RA 11.6RA 10.1RA 8.5 Coal purchased, Mt 110.0 119.3 118.3 115.3 120.3 118.7 121.7 122.0 126.4 124.3 Coal burnt, Mt 104.9 108.6 113.8 115.5 113.7 114.8 119.2 122.4 123.0 125.2 Average calorific value, MJ/kg 19.82 19.08 19.24 19.81 20.05 19.57 19.68 19.77 19.76 19.61 Average ash content, % 31.24 29.65 30.98 30.92 28.62 28.19 27.63 28.56 28.69 28.88 Average sulphur content, % 0.82 0.78 0.84 0.87 0.84 1.07 0.80 0.87 0.88 0.79 Overall thermal efficiency, %1 30.61 30.65 30.99 31.22 31.20 31.08 31.44 31.30 32.00 31.53 Diesel and kerosene usage for OCGTs, Mℓ 458.7 426.2 385.0 37.8 10.0 1 247.8 1 178.6 1 148.5RA 609.7RA 225.5RA Plant performance Unplanned capability loss factor (UCLF), %2 20.04 22.86 18.31 10.18 9.90 14.91RA 15.22RA 12.61RA 12.12RA 7.97RA Planned capability loss factor (PCLF), %2 12.26RA 8.92RA 10.18 RA 10.35RA 12.14 RA 12.99 9.91RA 10.50 RA 9.10 9.07 Energy availability factor (EAF), %2 64.19 RA 66.64 RA 69.95RA 78.00 RA 77.30 RA 71.07RA 73.73RA 75.13RA 77.65RA 81.99 RA Unit capability factor (UCF), %2 67.70 68.22 71.51 79.47 78.00 72.10 74.87 76.90 RA 78.80 RA 83.00 RA Generation load factor, %2 49.0 52.6 54.4 55.9 57.9 58.8 61.5 62.8 63.6 65.1 OCGT load factor trend, % 6.9 6.3 5.7 0.6 0.1 18.6 17.6 19.3RA 10.4 RA 3.9 Unplanned automatic grid separations (UAGS trips), number2 527RA 594 RA 517 333 444 469 575 527 409 329 Integrated Eskom system load factor (EUF), %2 76.3 79.0 77.8 71.6 75.0 82.7 83.4 83.6 81.9 79.4 Network performance Total system minutes lost for events <1, minutes 3.48 RA 4.36RA 3.16RA 2.09 RA 3.80 RA 2.41RA 2.85RA 3.05RA 3.52RA 4.73RA Major incidents, number 2 3 3 0 0 1 2 0 RA 3RA 1RA System average interruption frequency index (SAIFI), events3 13.2 RA 14.4 RA 14.9 RA 17.5RA 18.9 RA 20.5RA 19.7RA 20.2RA 22.2RA 23.7RA Our strategic context System average interruption duration index (SAIDI), hours3 35.4 RA 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 Total energy losses, % 11.8 9.9 9.7 9.1 8.9 8.6 8.8 8.9 9.1 8.7 Transmission energy losses, % 2.3 2.2 2.2 2.0 2.2 2.6 2.5 2.3RA 2.8 RA 3.1RA Distribution energy losses, % 10.1RA 8.8 RA 8.5RA 7.7RA 7.6RA 6.4 6.8 7.1RA 7.1RA 6.3RA Environmental statistics Emissions Relative particulate emissions, kg/MWh sent out4, 5 0.38Q 0.47RA 0.47RA 0.27RA 0.30 RA 0.36RA 0.37RA 0.35RA 0.35RA 0.31RA Carbon dioxide (CO2), Mt4 206.8 RA 213.2RA 220.9 RA 205.5RA 211.1RA 215.6RA 223.4 233.3RA 227.9 RA 231.9 RA Sulphur dioxide (SO2), kt4 1 604 1 721 1 853 1 802 1 766 1 699 1 834 1 975RA 1 843RA 1 849 RA Nitrous oxide (N2O), t4 1 527 2 826 2 844 2 642 2 782 2 757 2 919 2 969 2 980 2 967 Nitrogen oxide (NO x) as NO2 , kt 6 804 851 890 859 885 893 937 954 RA 965RA 977RA Particulate emissions, kt 71.35 94.92 99.87 57.13 65.13 78.37 82.34 78.92RA 80.68 RA 72.42RA Water Financial review Specific water consumption, ℓ/kWh sent out 2 1.42 RA 1.42RA 1.41RA 1.30 RA 1.42RA 1.44 RA 1.38 RA 1.35RA 1.42RA 1.34 RA Net raw water consumption, Mℓ2 270 736 286 553 292 344 276 335 307 269 314 685 313 078 317 052 334 275 319 772 Waste Ash produced, Mt 30.84 32.04 33.23 31.65 32.61 32.59 34.41 34.97RA 35.30 RA 36.21RA Ash sold, Mt 3.1 2.9 2.8 2.7 2.8 2.7 2.5 2.4 2.4 2.3 Ash (recycled), % 10.1 9.1 8.4 8.6 8.5 8.3 7.3 7.0 RA 6.8 RA 6.4 RA Asbestos disposed, tons 22 475.8 59.8 464.1 144.9 383.0 274.5 991.0 458.0 374.6 448.1 Material containing polychlorinated biphenyls thermally destroyed, tons 134.3 238.3 43.1 26.3 61.9 59.8 0.0 10.2 0.9 14.3 Nuclear Public individual radiation exposure due to effluents, mSv7 0.0014 0.0004 0.0026 0.0012 0.0005 0.0006 0.0010 0.0012 0.0019 0.0024 Operating performance Low-level radioactive waste generated (steel drum), cubic metres 147.6 159.3 188.3 164.2 162.9 176.1 164.1 180.7RA 188.2RA 184.7RA Low-level radioactive waste disposed of, cubic metres 117.0 98.3 99.0 118.8 108.0 213.1 377.6 324.0 RA 54.0 RA 53.8 RA Intermediate-level radioactive waste generated (concrete drum), cubic metres 31.2 22.3 20.8 20.8 11.4 33.4 27.6 28.7RA 35.7RA 25.4 RA Intermediate-level radioactive waste disposed of, cubic metres 18 38 0 0 0 0 138 178 RA 0 RA 128 RA Used nuclear fuel, number of elements discharged 8 116 48 56 116 60 56 112 48 56 60 Used nuclear fuel, number of elements discharged, cumulative figure 2 625 2 509 2 461 2 405 2 289 2 229 2 173 2 061 2 013 1 957 Legal contraventions Environmental legal contraventions, number 80 59 24 30 29 20 20 34 RA 48 50 Environmental legal contraventions reported in terms of the Operational Health Dashboard, 7 5 2 2 0 1 1 2RA 2 5 number 9 1. Only power stations where all units have achieved commercial operation are included in the calculation. Therefore, Medupi and Kusile Power 5. At power stations with unusually high particulate emission levels, such as Kendal Power Station, the monitors often exceed their maximum limits. In Supplementary information Stations are excluded from this KPI. instances where these ranges are exceeded, particulate emissions will be reported at the maximum of the monitor range. From February 2019, it is 2. Medupi Units 2, 3, 4, 5 and 6 as well as Kusile Unit 1, having completed their first year after commissioning, have been included in the calculation of possible that actual emissions exceeded reported emissions based on measurements. KPIs for 2021. The calculation of KPIs only include units one year after achieving commercial operation and exclude units synchronised but not yet in 6. NO x reported as NO2 is calculated using average station-specific emission factors (which are measured intermittently) and tonnages of coal burnt. commercial operation. 7. The limit set by the National Nuclear Regulator is ≤0.25mSv. 3. SAIDI and SAIFI are reported after allowing for exclusions defined in the National Regulated Standards adopted from 1 April 2018. 8. The gross mass of a nuclear fuel element is approximately 670kg, with Uranium mass typically between 462kg and 464kg. 4. Calculated figures based on coal characteristics and power station design parameters based on coal analysis and using coal burnt tonnages. Figures 9. Reported in terms of the 2002 definition of the Operational Health Dashboard, including repeat legal contraventions. include coal-fired and gas turbine power stations, as well as oil consumed during power station start-ups and, for carbon dioxide emissions, includes RA Reasonable assurance provided by the independent assurance provider. Refer to pages 139 to 142 of the integrated report. the underground coal gasification pilot plant. Q Qualified by the independent assurance provider. 130 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 131 BACK TO MENU NON-TECHNICAL STATISTICS: GROUP Who we are and how we create value Governance, leadership and ethics Measure and unit 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 Finance 1 Electricity operating costs, R/MWh 893.99 791.02 712.87 622.41 651.98 617.02 587.97 528.70 495.31 363.30 EBITDA margin, % 16.06 18.46 17.46 25.57 21.19 20.29 16.54 17.23 16.98 29.37 EBITDA, R million 32 813RA 36 816RA 31 417 45 359 37 532 32 811 24 186 23 586 21 511 33 183 Cash interest cover, ratio 0.85RA 0.94 RA 0.94 1.22 1.73 1.73 1.75 2.15 3.84 7.29 Debt service cover, ratio 0.30 RA 0.52RA 0.47 0.87 1.37 1.14 0.91 1.24 1.93 3.49 Current ratio 1.27 1.09 1.00 1.03 0.85 0.83 0.81 0.71 0.68 0.76 Gross debt/EBITDA, ratio 13.96 14.46 15.73 9.74 10.84 10.95 13.60 11.77 10.48 6.07 Debt/equity (including long-term provisions), ratio 2.03 2.45 3.17 2.58 2.11 1.65 2.50 2.00 1.84 1.57 Gearing, % 67 71 76 72 68 62 71 67 65 61 Free funds from operations, R million 43 638 41 120 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 7 359 2 606 (5 940) 9 147 21 148 17 927 20 564 20 139 18 074 32 897 Free funds from operations as % of gross debt, % 9.53 7.72 5.88 9.06 11.69 10.98 11.00 11.22 11.22 18.97 Building skills Headcount (including fixed-term contractors) 42 749 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 67.4 RA 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 802 635 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 100.4 101.7 84.5 102.3 127.7 125.0 116.0 119.4 RA 96.0 RA – 53.8 Our strategic context 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 19.0 15.6 18.8 20.9 19.4 30.8 9.3 9.8 RA 6.0 RA – Black youth-owned expenditure, R billion 5.4 4.1 3.5 3.9 2.0 1.4 0.9 1.3RA – – Procurement from B-BBEE compliant suppliers, %2 64.51 65.97 58.66 80.25 98.25 81.65 89.39 91.80 RA 82.10 RA – Procurement from black-owned (BO) suppliers, % 34.60 30.38 36.17 45.20 41.49 33.61 34.41 35.30 RA – – Procurement from black women-owned (BWO) suppliers, % 12.24 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, % 3.46 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), % of TMPS 0.22 0.17 0.22 0.20 0.02 0.01 0.00 0.00 – – Procurement spend with qualifying small enterprises (QSE), % of TMPS 4.29 4.08 5.17 8.86 8.91 4.62 6.75 15.09 – – Procurement spend with exempted micro enterprises (EME), % of TMPS 8.07 9.77 14.01 10.21 11.24 5.89 5.78 – – – Employment equity Disabilities, number of employees 1 252 1 348 1 416 1 441 1 396 1 311 1 325 1 305RA 1 137RA 1 032RA Employment equity – disability, % 2.93 3.01 3.03 2.96 2.93 2.73 2.89 2.77RA 2.43RA 2.36RA Financial review Racial equity in senior management, % black employees 73.72 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 80.10 78.04 76.22 75.27 73.50 71.68 71.77 70.60 RA 69.00 – Gender equity in senior management, % female employees 41.99 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 38.95 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 139 to 142 of the integrated report. Q Qualified by the independent assurance provider. Operating performance Supplementary information 132 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 133 BACK TO MENU NON-TECHNICAL STATISTICS: COMPANY Who we are and how we create value Governance, leadership and ethics Measure and unit 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 Finance1 Electricity revenue per kWh (including environmental levy), c/kWh 111.04 101.86 90.01 85.06 83.60 76.24 67.91 62.82 58.49 50.27 Electricity operating costs, R/MWh 905.32 803.00 729.26 634.69 662.98 628.00 600.72 535.08 487.92 367.05 EBITDA margin, % 15.58 17.65 16.21RA 24.48 20.32 19.13 16.28 16.15 17.48 28.69 EBITDA, R million 31 836 35 199 29 168 43 428 35 989 30 932 23 811 22 101 22 147 32 414 Cash interest cover, ratio 0.80 0.90 0.91RA 1.18 RA 1.73 1.64 1.62 2.14 3.97 7.36 Debt service cover, ratio 0.28 0.49 0.46 0.84 1.37 1.09 0.82 1.28 1.98 3.52 Current ratio 1.27 1.09 0.99 1.04 0.86 0.86 0.82 0.70 0.67 0.76 Gross debt/EBITDA, ratio 14.45 15.25 17.08 10.26 11.39 11.71 13.84 12.59 10.09 6.15 Debt/equity (including long-term provisions), ratio 2.25 2.68 3.50 RA 2.77RA 2.22RA 1.71 2.67 2.12 1.96RA 1.69 RA Gearing, % 69 73 78 73 69 63 73 68 66 63 Free funds from operations, R million 42 163 39 465 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 5 754 818 (7 897) 8 017 19 776 16 260 20 343 18 455 19 090 32 343 Free funds from operations as % of gross debt, % 9.17 7.35 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) 36 124 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, % 2.58 RA 3.67RA 3.85RA 5.21RA 4.89 RA 4.45RA 6.18 RA 7.87RA – – Learner intake – Engineers, number2 0 RA 16RA 10 1 241 1 480 895 1 315 1 962RA 2 144 RA 2 273RA Learner intake – Technicians, number2 0 RA 11RA 3 838 1 209 415 826 815RA 835RA 844 RA Learner intake – Artisans, number2 0 RA 91RA 0 1 815 2 155 1 955 1 752 2 383RA 2 847RA 2 598 RA Learner intake2 0 118 21 726Q 3 048 Q 1 370 – – – – Transformation Our strategic context Socio-economic contribution Job creation on new build projects, number 13 480 13 318 23 982 38 111 39 277 23 169 25 875 25 181RA 35 759 28 616 Total number of electrification connections, number3 106 669 RA 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), % 65.99Q 92.84 Q 91.51RA 87.16RA 73.37Q 75.22Q 25.13 40.80 RA – – Local content contracted (new build), % 56.94 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 98.8 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 50.1 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 17.4 14.6 18.1 19.7 17.3 30.2 8.9 9.6RA 5.7RA 3.3RA Black youth-owned expenditure, R billion 4.4 3.7 3.1 3.4 1.7 1.3 0.9 1.3RA 1.20 RA – Procurement from B-BBEE compliant suppliers, % 4 62.34 RA 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, % 31.62 27.70 33.08 Q 40.93RA 36.98 RA 30.98 RA 34.91 32.70 RA 22.10 14.60 Financial review Procurement from black women-owned (BWO) suppliers, % 10.98 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, % 2.76 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), % of TMPS 0.15 0.12 0.15Q 0.11RA 0.02RA 0.01RA 0.00 0.00 – – Procurement spend with qualifying small enterprises (QSE), % of TMPS 3.36 3.37 4.47Q 7.80 RA 7.67RA 4.03RA 6.74 11.90 – – Procurement spend with exempted micro enterprises (EME), % of TMPS 6.83 9.12 13.32Q 9.32RA 10.15RA 4.81RA 5.12 – – – Employment equity Disabilities, number of employees 1 113 1 198 1 265 1 292 1 263 1 271 1 294 1 283RA 1 126RA 1 022RA Employment equity – disability, % 3.08 RA 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 73.67RA 70.72RA 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 80.18 RA 78.06RA 76.25RA 75.35RA 73.60 RA 71.98 RA 72.28 RA 71.20 RA 69.60 65.69 Operating performance Gender equity in senior management, % female employees 42.63RA 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 39.69 RA 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 includes 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 139 to 142 of the integrated report. Q Qualified by the independent assurance provider. LA Limited assurance provided by the independent assurance provider. Supplementary information 134 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 135 BACK TO MENU PLANT INFORMATION Who we are and how we create value Governance, leadership and ethics Power station capacities Total nominal at 31 March 2021 capacity Name of station MW The difference between installed and nominal capacity reflects auxiliary power consumption and reduced capacity Nominal capacity of Eskom-owned power stations 46 466 caused by the age of the plant. Independent power producers (IPP) capacity 6 083 Total Total Concentrating solar power 500 Number and installed installed nominal Gas/liquid fuel 1 005 Years commissioned, capacity of generator sets capacity capacity Name of station Location first to last unit MW MW MW Hydroelectric 18 Landfill 8 Base-load stations Solar PV energy 2 157 Coal-fired (15) 43 256 38 773 Wind 2 395 Arnot Middelburg Sep 1971 to Aug 1975 6x370 2 220 2 100 Total nominal capacity available to the grid – Eskom and IPPs 52 549 Camden1 Ermelo Mar 2005 to Jun 2008 3x200; 1x196; 2x195; 1x190; 1x185 1 561 1 481 Duvha 2 Emalahleni Aug 1980 to Feb 1984 5x600 3 000 2 875 1. Former moth-balled power stations that have been returned to service. The original commissioning dates were: Grootvlei1 Balfour Apr 2008 to Mar 2011 4x200; 2x190 1 180 570 • Camden was originally commissioned between August 1967 and September 1969 Hendrina3 Middelburg May 1970 to Dec 1976 6x200; 2x195; 1x170 1 760 1 135 • Grootvlei was originally commissioned between June 1969 and November 1977 Kendal 4 Emalahleni Oct 1988 to Dec 1992 6x686 4 116 3 840 • Komati was originally commissioned between November 1961 and March 1966 Komati1 Middelburg Mar 2009 to Oct 2013 4x100; 4x125; 1x90 990 114 Due to technical and/or financial constraints, some units at these stations have been derated. Kriel Bethal May 1976 to Mar 1979 6x500 3 000 2 850 2. The Duvha Unit 3 recovery project has been cancelled, and the unit removed from the installed base. Kusile 4 Ogies Aug 2017 to Mar 2021 3x799 2 397 2 160 3. Certain units are under extended inoperability and their capacity has been removed from the nominal base. Under construction 3x800 – – 4. Dry-cooled unit specifications based on design back-pressure and ambient air temperature. Lethabo Vereeniging Dec 1985 to Dec 1990 6x618 3 708 3 558 5. Pumped storage facilities are net users of electricity. Water is pumped during off-peak periods so that hydro electricity can be generated during Majuba4 Volksrust Apr 1996 to Apr 2001 3x657; 3x713 4 110 3 843 peak periods. Matimba4 Lephalale Dec 1987 to Oct 1991 6x665 3 990 3 690 Our strategic context 6. Use restricted to periods of peak demand, dependent on the availability of water in the Gariep and Vanderkloof Dams. Matla Bethal Sep 1979 to Jul 1983 6x600 3 600 3 450 7. Installed and operational, but not included for capacity management purposes. Medupi4 Lephalale Aug 2015 to Nov 2019 5x794 3 970 3 597 Under construction 1x794 – – Tutuka Standerton Jun 1985 to Jun 1990 6x609 3 654 3 510 Power lines and substations in service Nuclear (1) at 31 March 2021 Koeberg Cape Town Jul 1984 to Nov 1985 2x970 1 940 1 860 Category 2021 2020 2019 2018 2017 Peaking stations Power lines Gas/liquid fuel turbine stations (4) 2 426 2 409 Transmission power lines, km1 33 158 33 027 32 698 31 951 32 220 Acacia Cape Town May 1976 to Jul 1976 3x57 171 171 765kV 2 784 2 784 2 784 2 784 2 782 Ankerlig Atlantis Mar 2007 to Mar 2009 4x149.2; 5x148.3 1 338 1 327 533kV DC (monopolar) 1 032 1 032 1 035 1 035 1 035 Financial review Gourikwa Mossel Bay Jul 2007 to Nov 2008 5x149.2 746 740 400kV 19 760 19 743 19 421 18 804 18 943 Port Rex East London Sep 1976 to Oct 1976 3x57 171 171 275kV 7 342 7 228 7 218 7 218 7 358 Pumped storage schemes (3) 5 2 732 2 724 220kV 1 351 1 351 1 351 1 221 1 220 132kV 889 889 889 889 882 Drakensberg Bergville Jun 1981 to Apr 1982 4x250 1 000 1 000 Ingula Ladysmith Jun 2016 to Feb 2017 4x333 1 332 1 324 Distribution overhead power lines, km 358 100 351 023 347 284 341 874 344 993 Palmiet Grabouw Apr 1988 to May 1988 2x200 400 400 132kV and higher 26 441 24 777 24 666 24 646 25 011 Hydroelectric stations (2) 6 600 600 44 to 88kV 2 21 367 20 767 20 735 23 904 23 794 33kV 2 3 730 3 563 3 420 – – Gariep Norvalspont Sep 1971 to Mar 1976 4x90 360 360 1 to 22kV 306 561 301 916 298 463 293 324 296 188 Vanderkloof Petrusville Jan 1977 to Feb 1977 2x120 240 240 Operating performance Distribution underground cables, km 8 288 7 734 7 651 7 769 7 499 Total used for capacity management purposes 50 954 46 366 132kV and higher 97 86 86 79 75 Renewable energy 44 to 88kV 2 209 190 189 415 215 33kV 2 323 4 4 – – Wind energy (1)7 1 to 22kV 7 659 7 454 7 372 7 275 7 209 Sere Vredendal Mar 2015 46x2.2 100 100 Total all power lines, km 399 546 391 784 387 633 381 594 384 712 Total capacity including renewable energy 51 054 46 466 Other hydroelectric stations (4)7 61 – Total transformer capacity, MVA 310 123 306 949 297 512 285 737 276 583 Colley Wobbles Mbashe River 3x14 42 – Transmission, MVA 3 154 500 153 135 152 415 151 105 147 415 First Falls Umtata River 2x3 6 – Distribution and reticulation, MVA 155 623 153 814 145 097 134 632 129 168 Supplementary information Ncora Ncora River 2x0.4; 1x1.3 2 – Total transformers, number 420 455 391 231 385 085 383 284 372 995 Second Falls Umtata River 2x5.5 11 – Transmission, number 449 446 444 442 433 Total Eskom power station capacities (30) 51 115 46 466 Distribution and reticulation, number 420 006 390 785 384 641 382 842 372 562 Available nominal capacity – Eskom-owned 90.90% 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. 3. Base of definition: transformers rated ≥30MVA and primary voltage ≥132kV. 136 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 137 BACK TO MENU CUSTOMER INFORMATION INDEPENDENT SUSTAINABILITY ASSURANCE REPORT Who we are and how we create value Governance, leadership and ethics Category 2021 2020 2019 2018 2017 Independent assurance provider's reasonable assurance report on selected key performance indicators to the directors of Eskom Number of Eskom customers Distributors 804 805 800 800 802 Introduction Residential1 6 720 150 6 577 905 6 358 523 6 120 122 5 838 754 We have been engaged to perform an independent assurance engagement for Eskom Holdings SOC Ltd (Eskom) on Commercial 52 880 52 909 52 556 51 848 50 956 selected key performance indicators (KPIs) reported in Eskom's integrated report for the year ended 31 March 2021. Industrial 2 649 2 684 2 705 2 703 2 706 Our engagement was conducted by a team with relevant experience in sustainability reporting. Mining 945 961 981 993 1 012 Agricultural 79 115 80 451 81 303 81 638 81 806 Subject matter Rail 475 475 493 501 510 We have been engaged to provide a reasonable assurance opinion in our report on the following selected KPIs, marked International 11 11 11 11 11 with RA in the statistical tables of the integrated report. The selected KPIs described below have been prepared in accordance with Eskom's reporting criteria that are available on Eskom's website, at 6 857 029 6 716 201 6 497 372 6 258 616 5 976 557 www.eskom.co.za/OurCompany/SustainableDevelopment/Pages/Sustainable_Development.aspx Electricity sales per customer category, GWh No Indicator Unit of measure Boundary Reporting criteria Distributors 82 446 85 984 87 236 87 133 89 718 Residential1 10 949 11 293 11 748 12 302 11 863 Focus on safety Commercial 9 696 10 486 10 558 10 539 10 339 1. Lost-time injury rate (LTIR) (including occupational diseases) Index Eskom group Occupational Health Industrial 40 881 45 610 48 717 47 854 48 295 and Safety Act Mining 26 991 28 703 28 972 30 235 30 559 Agricultural 5 461 5 770 5 796 5 711 5 405 Improve operations Rail 1 931 2 600 2 831 3 148 2 849 2. Planned capability loss factor (PCLF) % Generation Eskom's measurement International 13 497 15 189 12 461 15 268 15 093 specification document 3. Energy availability factor (EAF) % Generation 191 852 205 635 208 319 212 190 214 121 4. Unplanned partial load losses (UCLF PLL) Average MW Generation Our strategic context International sales to countries in southern Africa, GWh 13 497 15 189 12 461 15 268 15 093 5. Unplanned automatic grid separation (UAGS) trips Number of trips Generation Botswana 785 1 261 247 147 984 6. Post-philosophy outage unplanned capability loss factor (UCLF) % Generation eSwatini 677 1 011 766 839 986 7. EAF and UCLF post-CO and official – Medupi Power Station % Generation Lesotho 324 426 292 276 252 Mozambique 8 263 8 358 8 339 8 326 8 120 8. EAF and UCLF post-CO and official – Kusile Power Station % Generation Namibia 1 493 2 013 1 518 2 147 2 089 9. Transmission technical energy losses savings1 MWh Transmission Zambia 78 238 258 362 352 Zimbabwe 1 791 1 245 456 2 250 1 743 10. Payment levels excluding Soweto interest1 % Distribution Short-term energy market 2 86 637 585 921 567 11. System average interruption duration index (SAIDI) Hours Distribution Electricity revenue per customer category, R million 12. System average interruption frequency index (SAIFI) Number Distribution Distributors 90 228 85 656 77 231 72 935 73 009 Financial review Residential1 16 924 16 069 14 771 14 585 14 070 13. Total electrification connections Number Distribution Commercial 14 304 14 067 12 385 11 726 11 279 14. System minutes lost <1 Minutes Transmission Industrial 36 805 37 762 36 047 33 798 33 213 Mining 30 708 29 968 26 550 26 277 25 915 15. Distribution total energy losses % Distribution Agricultural 10 262 9 839 8 682 8 154 7 659 16. Restoration time % Distribution Rail 2 977 3 323 3 119 3 151 2 990 IPP network charge 221 184 121 198 190 Deliver capital expansion International 10 383 12 229 8 241 9 530 10 682 17. Generation capacity installed and commissioned MW Generation Eskom's measurement specification document Gross electricity revenue 212 812 209 097 187 147 180 354 179 007 18. Transmission lines installed Km Transmission Less: Revenue capitalised3 (3 991) (5 683) (3 393) (2 172) (717) Operating performance Less: Revenue not recognised 4 (12 113) (10 190) (8 914) (3 635) (3 196) 19. Transmission transformer capacity installed and commissioned MVA Transmission Add: Recognised on the cash basis5 5 935 4 083 2 472 358 – Reduce environmental footprint in existing fleet Electricity revenue less capitalised revenue per note 32 202 643 197 307 177 312 174 905 175 094 20. Relative particulate emissions kg/MWh sent out Generation Environmental Act in the annual financial statements 21. Specific water usage ℓ/kWh sent out Generation Water Act 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. 22. Carbon dioxide emissions kg/kWh sent out Generation Eskom's measurement Energy is traded on a daily, weekly and monthly basis as there is no long-term bilateral contract. specification document 3. Revenue from the sale of production, while testing generating plant not yet commissioned, is capitalised to plant. Primary energy optimisation 4. 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 customer debt when conditions change, has been applied since 2015. External revenue of R12 113 million was thus not recognised at 31 March 2021. 23. Migration of coal delivery volume from road to rail Mt Grootvlei and Tutuka Eskom's measurement Power Stations specification document Supplementary information 5. Under IFRS 15, certain supplies to distributors were recognised on the cash basis, due to uncertainty around collectability at the time of sale. 24. Coal purchases Rand/ton % increase % Generation and Primary Energy Divisions 25. Coal stock days recovery Days Generation and Primary Energy Divisions 138 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 139 BACK TO MENU INDEPENDENT SUSTAINABILITY ASSURANCE REPORT continued Who we are and how we create value Governance, leadership and ethics No Indicator Unit of measure Boundary Reporting criteria Directors' responsibilities SizweNtsalubaGobodo Grant Thornton Inc applies The directors are responsible for the selection, the International Standard on Quality Control 1 and Ensure financial sustainability preparation and presentation of the selected KPIs accordingly maintains a comprehensive system of quality 26. EBITDA R million Eskom group Eskom's measurement in accordance with Eskom's reporting criteria. This control, including documented policies and procedures specification document responsibility includes the identification of stakeholders regarding compliance with ethical requirements, 27. Cash interest cover Ratio Eskom group and stakeholder requirements, material issues, professional standards and applicable legal and regulatory 28. Debt service cover Ratio Eskom group commitments with respect to sustainability performance requirements. 29. Disposal of Eskom Finance Company R million Eskom group and design, implementation and maintenance of internal controls relevant to the preparation of the integrated Our responsibility 30. Savings from turnaround initiatives R million Eskom group report that is free from material misstatement, whether Our responsibility is to express a reasonable assurance due to fraud or error. opinion on the selected KPIs based on the procedures Socio-economic impact: human capital we have performed and the evidence we have obtained. 31. Training spend as % of gross manpower costs % Eskom company Eskom's measurement The directors are also responsible for determining the We conducted our assurance engagement in accordance specification document appropriateness of the measurement and reporting with ISAE 3000 (revised), issued by the International 32. Learner intake – Engineers in training (WIL)1 Number Eskom company criteria in view of the intended users of the selected KPIs Auditing and Assurance Standards Board. That standard 33. Learner intake – Technicians P1 and P2 (WIL)1 Number Eskom company and for ensuring that those criteria are publicly available requires that we plan and perform our engagement to 34. Learner intake – Plant operators1 Number Eskom company to the report users. obtain reasonable assurance about whether the selected KPIs are free from material misstatement. 35. Learner intake – Artisans (WIL)1 Number Eskom company Inherent limitations 36. Bursaries – Engineers and technicians (Eskom)1 Number Eskom company Non-financial performance information is subject to A reasonable assurance engagement in accordance with more inherent limitations than financial information, ISAE 3000 (revised) involves performing procedures to 37. Disability equity in total workforce % Eskom company obtain evidence about the measurement of the selected given the characteristics of the subject matter and the 38. Racial equity in senior management % Eskom company methods used for determining, calculating, sampling and KPIs and related disclosures in the report. The nature, estimating such information. The absence of a significant timing and extent of procedures selected depend on Our strategic context 39. Gender equity in senior management % Eskom company body of established practice on which to draw allows the auditor's professional judgement, including the 40. Racial equity in professionals and middle management % Eskom company for the selection of certain different but acceptable assessment of the risks of material misstatement of the 41. Gender equity in professionals and middle management % Eskom company measurement techniques, which can result in materially selected KPIs, whether due to fraud or error. different measurements and can impact comparability. In making those risk assessments we considered internal Industrialisation and localisation Qualitative interpretations of relevance, materiality and controls relevant to Eskom's preparation of the selected 42. Local content contracted % Eskom company Eskom's measurement the accuracy of data are subject to individual assumptions specification document KPIs. A reasonable assurance engagement also includes: 43. Preferential procurement % of total Eskom company and judgements. The precision thereof may change over measured time. It is important to read the report in the context of • Evaluating the appropriateness of quantification procurement the reporting criteria. methods, reporting policies and internal guidelines spend used and the reasonableness of estimates made by 44. Competitive supplier development programme (CSDP) % of total capital Eskom company Further, because of the test nature and other inherent Eskom procurement limitations of an audit, together with the inherent • Assessing the suitability in the circumstances of Financial review spend limitations of internal controls, there is an unavoidable Eskom's use of the applicable reporting criteria as a 45. Enterprise and supplier development R million Eskom company risk that some, even material, misstatements may not be basis for preparing the selected information detected, even though the audit is properly planned and • Evaluating the overall presentation of the selected 46. Research and development % of NERSA- Eskom company performed in accordance with the International Standard allocated spend sustainability performance information on Assurance Engagements (ISAE) 3000 (revised), 47. B-BBEE score level Number Eskom company B-BBEE amended Assurance Engagements other than Audits or Reviews of We believe that the evidence we have obtained is sufficient Codes of Good Practice Historical Financial Information. and appropriate to provide a basis for our opinion. Socio-economic impact: corporate social investment (CSI) Where the information relies on factors derived by Qualified opinion 48. CSI committed spend R million Eskom company Eskom's measurement independent third parties, our assurance work has In our opinion, and subject to the inherent limitations Operating performance specification document not included an examination of the derivation of those outlined elsewhere in this report, except for the effects Legal separation factors and other third-party information. of the matters described in the “Basis for qualified opinion” section of our report, the selected KPIs as set 49. Business separation key milestones1 Date Eskom company Eskom's measurement Our independence and quality control out in the “Subject matter” paragraph above for the specification document We have complied with the independence and all year ended 31 March 2021 are prepared, in all material 1. KPIs not assured in prior year other ethical requirements of the International Code of respects, in accordance with Eskom's reporting criteria. Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Basis for qualified opinion Standards Board for Accountants, which is founded Enterprise and supplier development on fundamental principles of integrity, objectivity, We were unable to obtain sufficient appropriate audit professional competence and due care, confidentiality evidence for the reported achievement of R6.8 billion. Supplementary information and professional behaviour. There were limited reporting processes and systems to consistently collate, review and monitor the data The IRBA Code is consistent with the corresponding that supports the reliable measurement of the KPI. sections of the International Ethics Standards Board for The reported achievement could not be confirmed by Accountants’ International Code of Ethics for Professional alternative means. Consequently, we were unable to Accountants (including International Independence determine whether any adjustments are required to the Standards). reported achievement of R6.8 billion. 140 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 141 BACK TO MENU INDEPENDENT SUSTAINABILITY ASSURANCE REPORT continued CONTACT DETAILS Who we are and how we create value Governance, leadership and ethics Local content contracted Restriction of liability Telephone numbers Websites and email addresses There were inadequate performance management Our work has been undertaken to enable us to express systems to maintain records to enable reliable reporting a reasonable assurance opinion on the selected KPIs to Eskom head office +27 11 800 8111 Eskom website www.eskom.co.za Contact@eskom.co.za on achievement of targets. Sufficient appropriate audit the directors of Eskom in accordance with the terms of evidence could not be provided in some instances while, our engagement and for no other purpose. We do not Eskom Media Desk +27 11 800 3343 Eskom Media Desk MediaDesk@eskom.co.za in other cases, the evidence provided did not agree to accept or assume liability to any party other than Eskom +27 11 800 3378 +27 11 800 6103 the recorded achievements. The reported achievement for our work, for this report, or for the conclusion we could not be confirmed by alternative means. have reached. Investor Relations +27 11 800 2775 Investor Relations InvestorRelations@eskom.co.za Consequently, we were unable to determine whether Eskom whistle-blowing hotline 0800 112 722 Forensic investigations Investigate@eskom.co.za any further adjustments were required to the reported achievement of 65.99%. DPE whistle-blowing hotline 0800 111 628 DPE whistle-blowing website www.thehotlineapp.co.za DPE@thehotline.co.za Relative particulate emissions SizweNtsalubaGobodo Grant Thornton Inc Eskom Development Foundation +27 11 800 8111 Eskom Development Foundation www.eskom.co.za/csi The reported achievement of 0.38kg/MWh sent out was CSI@eskom.co.za understated. This was due to the particulate emission Registered auditors National call centre 08600 ESKOM or Promotion of Access to PAIA@eskom.co.za monitors operating beyond their effective range (maxing Per BF Zwane 08600 37566 Information Act requests out). Emissions exceeding this limit could not be Chartered Accountant (SA) recorded. The particulate emission monitors had reached Customer SMS line 35328 Customer Service CustomerServices@eskom.co.za Director their limit for 9 149 hours out of a total of 379 124 hours, Facebook EskomSouthAfrica YouTube EskomOfficialSite which constitutes 2.41% of the operational hours. We 24 August 2021 were unable to confirm the extent of the emissions Twitter Eskom_SA MyEskom Customer app for the time that the monitors were maxed out by alternative means. Consequently, we were unable to determine the extent of any adjustments that were Our strategic context required to the reported achievement. Physical address Postal address Eskom Megawatt Park PO Box 1091 Other matters 2 Maxwell Drive Johannesburg Our report includes the provision of reasonable Sunninghill 2000 assurance on selected KPIs, on which we were previously Sandton not required to provide assurance, as indicated in the 2157 table above. Hence, with regard to these KPIs, the Group Company Secretary Company registration number current year information relating to prior reporting Office of the Company Secretary Eskom Holdings SOC Ltd periods has not been subject to assurance procedures. PO Box 1091 2002/015527/30 Johannesburg Website 2000 The maintenance and integrity of the Eskom website is the responsibility of Eskom management. Our Financial review procedures did not involve consideration of these Feedback on or queries relating to our report may be directed to IRfeedback@eskom.co.za matters and accordingly, we accept no responsibility for Our suite of reports covering our integrated results for 2021 is available at http://www.eskom.co.za/IR2021 any changes to either the information in the report or our independent reasonable assurance report that may have occurred since the initial date of its presentation on the Eskom website. Operating performance Supplementary information 142 | INTEGRATED REPORT | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 143 BACK TO MENU NOTES JOINT VENTURE [0006] 144 | INTEGRATED REPORT | 31 MARCH 2021