20 ANNUAL FINANCIAL STATEMENTS 22 Powering growth ... sustainably i | CONTENTS Directors’ report 2 18 Finance lease receivables 101 Nature of the business 2 19 Payments made in advance 102 Overview of the year 2 20 Trade and other receivables 103 Turnaround plan 3 21 Investments and financial trading instruments 104 Operational performance 6 22 Cash and cash equivalents 104 Financial performance 9 23 Service concession arrangements 105 Governance and compliance 11 24 Share capital 105 Human resources 15 25 Debt securities and borrowings 106 Shareholder compact performance 17 26 Payments received in advance and contract liabilities and 108 deferred income Reportable irregularities 19 27 Employee benefit obligations 109 Events after the reporting date 19 28 Provisions 112 Approval 19 29 Lease liabilities 114 Report of the audit and risk committee 20 30 Trade and other payables 115 Statement by company secretary 24 31 Revenue 115 Independent auditor’s report to Parliament on Eskom 25 Holdings SOC Ltd and its subsidiaries 32 Other income 116 Statements of financial position 38 33 Primary energy 116 Income statements 39 34 Employee benefit expense 116 Statements of comprehensive income 39 35 Impairment and writedown of assets 116 Statements of changes in equity 40 36 Other expenses 117 Statements of cash flows 41 37 Depreciation and amortisation expense 117 Notes to the financial statements: 42 38 Net fair value and foreign exchange loss 117 1 General information 42 39 Finance income 117 2 Summary of significant accounting policies 42 40 Finance cost 118 3 Capital management and going concern 53 41 Income tax 118 4 Critical accounting estimates and assumptions 56 42 Cash generated from operations 119 5 Financial risk management 62 43 Net debt reconciliation 120 6 Accounting classification and fair value 79 44 Guarantees and contingent liabilities 121 7 Segment information 83 45 Commitments 122 8 Property, plant and equipment 86 46 Related-party transactions and balances 123 9 Intangible assets 89 47 Events after the reporting date 124 10 Future fuel supplies 91 48 Restatement of comparatives 126 11 Investment in equity-accounted investees 92 49 Directors’ remuneration 130 12 Investment in subsidiaries 92 50 New standards and interpretations 132 13 Inventories 93 51 Information required by the Public Finance 135 Management Act 14 Deferred tax 94 52 Reportable irregularities and matters under investigation 143 15 Loans receivable 95 Appendix – Abbreviations, acronyms and definitions 147 16 Embedded derivatives 95 Contact details 149 17 Derivatives held for risk management 96 The annual financial statements were prepared under the supervision of the chief financial officer (CFO), C Cassim CA(SA). The financial statements have been audited in compliance with section 30 of the Companies Act and approved by the board of directors (board) on 16 December 2022. The audited financial statements of the group and Eskom as at and for the year ended 31 March 2022 are available for inspection at the company’s registered office and were published on 23 December 2022. The full suite of the group’s externally published reports, including the financial statements and integrated report, are available at www.eskom.co.za. |1 DIRECTORS’ REPORT for the year ended 31 March 2022 The directors are pleased to present their report for the year ended 31 March 2022. Eskom welcomes the announcement by President Cyril Ramaphosa in July 2022 of reforms to address the long-running electricity crisis, including the formation of a national energy crisis committee. Eskom is in full support of these reforms as they will accelerate the end of Nature of the business loadshedding and will expand and grow the electricity generation industry in South Africa through structural changes. Although this will Eskom Holdings SOC Ltd (Eskom) is South Africa’s primary electricity supplier that generates, transmits and distributes electricity to not happen overnight, the measures announced by the President will bring much-needed capacity online and enable Eskom to intensify its local industrial, mining, commercial, agricultural, redistributor (metropolitan and other municipalities) and residential customers and to maintenance efforts to deliver improvements in plant availability. Eskom is collaborating with the relevant government departments, agencies international customers in southern Africa. Eskom also purchases electricity from independent power producers (IPPs) and international and other stakeholders in the implementation of these reforms. suppliers in southern Africa. The group recorded a net loss after tax of R12.3 billion for the year (2021: R25 billion) and earnings before interest, tax, depreciation Eskom is a state-owned company, with the Minister of the Department of Public Enterprises (DPE) as the shareholder representative. and amortisation (EBITDA) of R52.4 billion (2021: R32.6 billion). The EBITDA margin increased to 21.25% (2021: 15.96%) largely due to a The state is the only shareholder in Eskom. regulatory tariff increase of 15.06% for customers supplied directly by Eskom. This increase was awarded by NERSA based on the original Multi-Year Price Determination (MYPD) 4 decision as well as a High Court order, allowing Eskom to recover an additional R10 billion in Eskom’s head office is in Johannesburg. The nature of the business of the significant operating subsidiaries is set out in note 12 in the annual revenue based on NERSA’s incorrect treatment of the R69 billion government support in its original decision. Further contributing to financial statements. The business objective of these subsidiaries is mainly for the sole benefit of Eskom. improved EBITDA performance was a partial recovery in sales volumes resulting from higher electricity demand from many sectors due to the phased easing of COVID-19 lockdown restrictions and higher commodity prices. The improvement in revenue was offset by extensive Overview of the year use of both Eskom- and IPP-owned open-cycle gas turbines (OCGTs) to alleviate generation supply constraints and avoid or minimise The information in this report covers the group performance of Eskom and its major operating subsidiaries, unless otherwise stated. loadshedding, combined with growth in other operating expenditure. A high-level summary of the pertinent issues that characterised the year under review, as well as any material developments after year end, is presented in this report. Additional information, where relevant, is contained in relevant sections of the directors’ report, annual financial Eskom’s liquidity in the short term and financial sustainability in the medium to long term are at risk due to poor operational performance, statements and integrated report. non-payment by municipal customers, high levels of borrowings and debt servicing requirements, unacceptable levels of fraud and corruption as well as regulatory uncertainty because of the lack of a clear, cost-reflective tariff path. Eskom is also experiencing an overall declining trend The board comprised of eight directors at year end, including six independent non-executive directors and two executive directors. in sales volumes of approximately 1% per year over the long term, despite the partial recovery in 2022. The board concluded that it was insufficiently constituted and lacked critical skills and experience based on the size and nature of Eskom, as well as the complexity of the operational and financial challenges that the organisation is facing. The board also identified that its audit and risk The key focus areas to manage liquidity include successful execution of Eskom’s financial turnaround objectives, which focuses on pursuing a committee lacked appropriate finance skills and experience and that the investment and finance committee was not adequately capacitated. cost-reflective tariff path, achieving cost savings, obtaining government support, reducing reliance on debt, managing the recovery of overdue Furthermore, the chairperson of investment and finance committee resigned in August 2021. The board had requested the shareholder to municipal debt and disposing of non-core assets. appoint additional independent non-executive directors to address its skills and capacity challenges on several occasions. The Minister of Finance announced a prospective debt relief solution for Eskom in his Medium-Term Budget Policy Statement (MTBPS) The Minister of Public Enterprises announced the appointment of a new board on 30 September 2022. The board has a broad range of on 26 October 2022, with government considering relief of between one-third and two-thirds of Eskom’s debt balance. Following this experience and the necessary expertise and skills to provide stability and strategic direction to Eskom and is tasked with repositioning Eskom announcement, Moody’s revised its outlook for Eskom from negative to positive, for the first time since 2007. Despite this positive sentiment, to play a key role in the evolving energy landscape and to deal with Eskom’s immediate loadshedding issues, procurement challenges, the credit rating agencies remain concerned about poor operational performance and loadshedding, the inadequate progress in addressing elimination of corruption and ensuring that there is reliability of electricity supply in the medium to long term. non-payment by municipal customers, as well as regulatory uncertainty associated with the lack of a clear, cost-reflective tariff path. Credit ratings remain at a sub-investment grade level and are unlikely to improve until these challenges are addressed and Eskom is placed on a more The new board commenced its tenure on 1 October 2022 and is fully constituted with 15 directors, including 13 independent non-executive financially sustainable footing. directors and two executive directors, thereby enhancing oversight of and strategic direction to Eskom. It has recommended the establishment of a business operations performance committee to provide oversight of technical performance, operational challenges and risks relating Eskom is embarking on a just energy transition (JET) strategy to leverage opportunities presented by the transition to a cleaner and greener to the production of electricity, in particular, performance against shareholder compact targets such as the energy availability factor (EAF). energy future, while creating job opportunities for those displaced by the replacement of coal with cleaner technologies. The JET strategy The mandate of the board strategy committee has been expanded to include governance matters and the committee has been renamed the entails a phased transition towards a low-carbon, climate-resilient economy and society in a manner that does not impede socio-economic governance and strategy committee. The people and governance committee has changed to the human capital and remuneration committee. development, but results in an increase in sustainable jobs. The board considered the delayed publication of the annual financial statements. Delays were experienced as a consequence of several Eskom’s current investment in renewable generating capacity remains modest, with one wind facility and six hydroelectric stations. However, factors, including: the aim of the JET strategy is to introduce more renewable capacity, mainly through repowering and repurposing of end-of-life coal-fired • the delay in the appointment of the new external auditors power stations, to reach the long-term objective of attaining net zero emissions by 2050. Komati power station reached the end of its • the new auditors’ extensive process of evaluating the prior period areas of significant judgement and estimates operating life on 31 October 2022 and will serve as a pilot for the repowering and repurposing of a power station on Eskom land using existing • the need for management to appoint external experts to address complex areas such as derivatives infrastructure. A total of 370MW of renewable energy, including wind and solar supported by battery storage, is planned. • resolving the numerous findings and control deficiencies emanating from the lack of compliance with well-documented policies and procedures in areas such as consumables management, contract management, and general financial record-keeping and reporting controls The board made an assessment of the ability of the group to continue as a going concern in the foreseeable future. The board considered the risks relating to the group’s going-concern status and acknowledges the challenges it faces and the various dependencies and uncertainties The 2020 and 2021 statements of financial position as well as the 2021 income statements and statements of comprehensive income have that exist both from a timing of intervention perspective as well as whether the plans will materialise as anticipated. The events, conditions been restated as a result of prior period errors identified during the external audit. Refer to note 48 in the annual financial statements for and assumptions described in note 3.2 in the annual financial statements inherently include material uncertainties that may cast significant further detail regarding the nature of the prior period restatements. All financial information presented in this report reflects the restated doubt on the going concern. results where applicable. The board has a reasonable expectation that the risks will be satisfactorily addressed with the mitigation strategies in place. The board has Operational performance remains a significant challenge, with loadshedding set to continue at least in the short to medium term. This is assessed the current cash flow projections and the continued financial support from the government, including the finalisation of the debt largely due to the unreliable and ageing generating plant and the need to operate coal-fired power stations at very high utilisation factors, relief package announced, and concluded that there is a reasonable expectation that the group has access to adequate resources and facilities outside of acceptable norms, to mitigate the capacity shortfall and avoid or minimise loadshedding. Funding constraints, capital expenditure to be able to continue its operations for the foreseeable future as a going concern. delays, environmental non-compliance, criminal acts and the loss of core, critical and scarce skills have further contributed to these challenges. Eskom’s generation plant availability reached the lowest reported levels, largely due to unprecedented levels of unplanned unavailability, Turnaround plan which resulted in loadshedding being required for a total of 65 days during the year. Remedying the need for debilitating loadshedding remains Eskom continues to focus on the priorities outlined in the turnaround plan to reposition the organisation in pursuit of its long-term strategic a top priority, and Eskom remains resolute to improve generation plant performance and reliability. objectives. The progress against the five key areas of the turnaround plan includes: The generation recovery plan aims to improve the performance of Eskom’s coal-fired power stations and address major design and • Operations recovery construction defects at new build power stations; however, the extensive maintenance that is needed to stabilise the plant requires lengthy The aim of the generation recovery plan is to improve predictability and reliability of generation plant while fixing new build defects at planned outages. Many power stations are also reaching the end of their useful lives between now and 2035 and performance will continue the Ingula, Medupi and Kusile power stations. The initiatives are however not yet bearing sufficient fruit, with deteriorating generation to deteriorate as the power stations approach their shutdown dates. The generation capacity constraints cannot be resolved without the plant performance creating insufficient available capacity to meet the country’s electricity demand, resulting in the need to implement support of all key stakeholders. Additional dispatchable capacity of 4 000MW to 6 000MW is required immediately to support the stability loadshedding. of the power system, create space for maintenance and reduce the need for loadshedding. The delay in bringing capacity online under the Department of Mineral Resources and Energy (DMRE) Risk Mitigation Independent Power Producer Procurement Programme exacerbates The transmission infrastructure has deteriorated to an extent that it may pose a risk to energy availability, with high energy losses being the problem. a key concern. The transmission network development plan is critical to strengthen and extend the network and reduce energy losses. Financial constraints are hampering the distribution division from executing its mandate of building and maintaining distribution assets and Policy shifts to enable Eskom to operate efficiently remain fundamental given the evolution of the industry, specifically around issues such as servicing customers. Initiatives have been identified to optimise distribution asset management and asset service, reduce non-technical Eskom’s debt, non-payment by municipal customers and fair tariff determinations by the National Energy Regulator of South Africa (NERSA). electricity losses and sustain revenue. 2 | | 3 DIRECTORS’ REPORT (continued) for the year ended 31 March 2022 Turnaround plan (continued) Addressing Eskom’s high debt burden, to ensure the long-term financial sustainability of the group, is a key component of the turnaround • Improve the income statement plan. As mentioned, the Minister of Finance announced a prospective debt relief solution for Eskom in the MTBPS on 26 October 2022. Improving Eskom’s income statement through revenue growth by migrating towards cost-reflective tariffs, remains a key priority. Despite Government is considering relief of between one-third and two-thirds of Eskom’s debt balance, which will lead to a direct improvement applying for revenue based on prudent and efficient costs in accordance with the MYPD methodology, the revenue and regulatory clearing in Eskom’s liquidity by reducing debt servicing requirements. The Minister of Finance indicated that government is working to finalise the account (RCA) determinations made by NERSA over recent years have not enabled the migration towards cost-reflectivity. details of the proposed solution, including the quantum of proposed relief, the relevant debt instruments, and the method for effecting the transaction. Further details will be communicated in the National Budget Speech in February 2023, together with the conditions attached A tariff increase of 15.06% was granted for the 2022 financial year, which had a positive impact on Eskom’s profitability and liquidity. However, to the relief, which are expected to deal with cost management, municipal and household overdue debt, and tariff pricing. future revenue recovery is at risk given NERSA’s decision to allow a tariff increase of only 9.61% for 2023, compared to the 20.5% that Eskom Unfortunately, limited success has been achieved in managing gross overdue municipal debt, which continues to escalate to unacceptably applied for. The tariff increase excluding the RCA amounts to only 3.49%, which is well below inflation and will be consumed by the expected high levels, increasing to R44.8 billion (2021: R35.3 billion) at year end. Eskom pursued a multipronged strategy aimed at recovering the increase in IPP purchases in 2023, leaving insufficient revenue to address Eskom’s controllable costs and provide a fair return on capital. gross overdue municipal debt owed, although progress has been slow. Interventions include negotiation of payment arrangements and Eskom lodged several review applications with the courts to challenge recent NERSA determinations. Eskom has received positive active partnering agreements with defaulting municipalities, pursuing Eskom’s legal rights, as well as participation in the multi-disciplinary outcomes in a number of cases concluded by the courts. Developments on the various matters are discussed below: revenue committee of the Eskom Political Task Team. In March 2022 the SCA affirmed the legal right of Eskom to receive payment from municipalities in its judgement against Letsemeng Local Municipality, which is a positive precedent for Eskom’s revenue collection efforts. – Revenue decision for 2023 to 2025 (MYPD 5) The National Treasury proposal to assist municipalities in crisis and deal with the arrear debt challenges is still being reviewed and Eskom submitted the MYPD 5 revenue application to NERSA in June 2021. NERSA rejected the application on the basis that the MYPD influenced due to the complexity of the issues. As indicated, it is anticipated that the Minister of Finance will announce further measures methodology was no longer valid and that it intended to develop a revised pricing methodology. Eskom submitted an urgent High Court regarding Eskom’s municipal and household arrear debt challenges in February 2023. review application, requiring NERSA to urgently process the revenue application for at least one year, as required by law. The High Court ordered NERSA to process the revenue application for 2023 in terms of the existing MYPD methodology. The sale of Eskom Finance Company SOC Ltd (EFC) was put on hold in April 2021 on the instruction of the shareholder as market conditions were not considered favourable at the time. The shareholder requested Eskom to commence with the disposal process once NERSA announced its decision in February 2022, resulting in a standard tariff increase (including the RCA) of 9.61% for 2023. The again in July 2022. The investment and finance committee approved the disposal strategy in August 2022. A request for proposal was issued reasons for the decision were published in June 2022. Eskom analysed the decision and submitted a court review application in in September 2022 and expressions of interest were received from various parties. The bidding process closed in November 2022 and July 2022, based on NERSA’s incorrect treatment of the regulatory asset base (RAB). The High Court set aside NERSA’s decision a preferred bidder was approved by the investment and finance committee in December 2022. The next steps include price negotiation on 24 October 2022, although no retrospective adjustment to 2023 was granted. NERSA has been ordered to apply its MYPD and requesting Public Finance Management Act (PFMA) approval for the sale transaction. Eskom will only be able to conclude the disposal methodology for redetermination of the valuation of the RAB, which will form the basis for NERSA’s decision for 2024 and 2025. process after obtaining PFMA approval. The High Court also issued an order in July 2022 requiring NERSA to assess the revenue application for 2024, based on the existing A capital efficiency programme has also been established to make optimal use of scarce capital to ensure delivery against Eskom’s mandate MYPD methodology by 24 December 2022. NERSA published Eskom’s revenue application for both 2024 and 2025, with public hearings despite significant financial constraints. Key optimisation levers have been defined and divisions are developing and implementing capital held in September 2022. The revenue application equates to an average tariff increase of 32.02% for 2024 and 9.74% for 2025. Eskom is efficiency roadmaps. now awaiting NERSA’s decision on 2024 and 2025, which will be dependent on the RAB valuation mentioned above. • Drive business separation – Revenue decisions for 2020 to 2022 (MYPD 4) The need to restructure Eskom is driven by an evolving South African energy market and policy landscape. The implementation of DPE’s The High Court delivered a judgement in February 2021, allowing Eskom to recover R10 billion in 2022, relating to the R69 billion roadmap for Eskom in a reformed electricity supply industry will result in the formation of new transmission, generation and distribution government support incorrectly deducted by NERSA in its MYPD 4 decision. NERSA lodged its appeal with the Supreme Court of subsidiaries that are wholly owned by Eskom. Appeal (SCA). The SCA issued an order in June 2022 on the timing of the recovery of the remaining R59 billion, which requires NERSA Eskom is applying a phased approach to the legal separation to allow for the implementation and optimisation of governance, operations to include an additional R15 billion in allowable revenue per year in 2024 to 2026, and R14 billion in 2027. and processes before final legal separation. Divisionalisation and functional separation have been completed. – RCA decision for 2019, together with the supplementary revenue decision To complete the structural reform and legal separation, Eskom requires support from government and regulators in the form of policy, NERSA awarded Eskom R1.3 billion out of the R5.4 billion supplementary tariff application in January 2021. In response, Eskom legislative and regulatory amendments, such as: submitted a review application in April 2021 which also covers NERSA’s decision on the supplementary application. NERSA opposed – dealing with implications to lenders and loan covenants given current debt challenges this review and the legal process is under way. – staff transfers and consultation with organised labour – the need for unbundled tariffs prior to separation, as well as policy and government-approved market rules – RCA decision for 2018 (MYPD 3) – a legal framework for the restructuring process and a regulatory framework and licensing requirements Eskom submitted a review application in April 2020, challenging NERSA’s decision of R3.9 billion, which NERSA opposed in – solving Eskom’s financial viability October 2020. A court date is awaited. The identification of the Eskom cash generating unit (CGU) (currently seen as a single cash generating unit for the vertically integrated – RCA decisions for 2015 to 2017 (MYPD 3) regulated business) may be impacted by the future legal separation of transmission, generation and distribution. The accounting assessment NERSA awarded R4.7 billion in January 2021 in response to the court judgement to reconsider its original RCA decision. Eskom of impairment will be considered based on the finalisation of the above matters. submitted a review application for the remitted decision in May 2021. During February 2022, the Court granted NERSA an opportunity to provide further records of its decision. The legal process is under way. Transmission progress The National Transmission Company South Africa SOC Ltd (NTCSA) was established to house the transmission business that will fulfil The status of other pending decisions by NERSA is as follows: the roles of system operator and market operator. – RCA decision for 2022 (MYPD 4) The legal separation of transmission was delayed by several critical external decisions and key dependencies, including protracted lender The RCA application will be submitted to NERSA after the publication of the 2022 annual financial statements in accordance with the consent processes and delays in obtaining a transmission licence for NTCSA. MYPD methodology and associated rules. It is imperative that decisions are made timeously to allow for the recovery of efficient and prudent costs. DMRE started the process to amend both the Electricity Regulation Act and the Electricity Pricing Policy. Current timelines suggest that the amended legislation will be promulgated in 2023. DPE is leading discussions on the possibility of introducing transitional arrangements – RCA decision for 2021 (MYPD 4) to facilitate an earlier separation of transmission. Eskom submitted an RCA application of R10.7 billion to NERSA in November 2021. NERSA has not yet issued its decision. Where critical decisions are pending and delayed, Eskom continues to work with DPE, DMRE, National Treasury and NERSA to put – RCA decision for 2020 (MYPD 4) transitional arrangements in place for the operationalisation of NTCSA and the implementation of the asset transfer agreement towards Eskom submitted an RCA application of R8.4 billion for 2020. NERSA approved R3.5 billion in December 2021 to be recovered from commencement of trade around April 2023. standard tariff customers, local special pricing arrangement customers and international customers. The reasons for the decision were published in February 2022. A decision on the timing of the implementation of the RCA is awaited. Distribution and generation progress Both the distribution and generation divisions started the journey towards legal separation, with the establishment of project management Eskom has achieved a combined cost savings of R50.7 billion over the last three years, exceeding the cumulative target of R40.4 billion. offices, development of roadmaps and the commencement of a legal due diligence. Savings of R20 billion (2021: R14.4 billion) were achieved in 2022 against a target of R20.1 billion, with the majority attributable to primary energy cost optimisation and, to a lesser extent, a reduction in targeted employee benefit costs and other sundry expenses. Regrettably, The PFMA application for the establishment of a new distribution entity has been approved by DPE and National Treasury. The way savings have been partially offset by an overspend in fuel oil and OCGTs. Expenditure on Eskom- and IPP-owned OCGTs exceeded budget forward for a preferred corporate structure depends on changes to existing legislation or new founding legislation, which affects the legal by a combined R12.8 billion during the year. separation of the generation business. • Strengthen the balance sheet Similar to the separation of the transmission business, the separation of the distribution and generation businesses depends on lender Government support of R31.7 billion (2021: R56 billion) was received during the year. The funds may only be used to settle debt and consent, as well as numerous other legislative, regulatory and policy changes. It has become apparent that, given these dependencies, the interest payments in terms of the equity conditions attached to the support. The Minister of Finance announced a total of R87.9 billion timelines proposed in the roadmap were optimistic. support to be made available until 2026, with R21.9 billion committed for 2023. Eskom’s revised plans target distribution operationalisation readiness by December 2023 and commencement of trade by April 2024. Legal separation of generation is targeted for 2025. These dates are however subject to external dependencies which may affect the timelines. 4 | | 5 DIRECTORS’ REPORT (continued) for the year ended 31 March 2022 Turnaround plan (continued) Boiler plant modifications have been completed on units 1 to 4 at Kusile power station. Modifications to units 5 and 6 will be completed • Transform Eskom’s people and culture before commercial operation. The focus is to reduce the flue gas volume and temperature since the low-load and transient instability is The people and culture objectives of the turnaround plan were established to implement change management and support the overarching not as prevalent as at Medupi and to assist the flue gas desulphurisation plant. goal of three separate subsidiaries under Eskom. Eskom aims to achieve fit-for-purpose organisational structures to ensure optimal The latest total estimated cost for the defects correction of all Medupi and Kusile units ranges between R5.6 billion and R7.2 billion. business models that are responsive to the evolving energy landscape. Mechanisms to drive a high-performance ethical culture and A contractual consultation process is under way with the boiler contractor to determine the liability for the necessary modifications to improved productivity are fundamental to the programme. correct the defects. Eskom launched its 1:1:6:10 culture transformation programme in February 2022, which is a key enabler for delivering a high-performance • Reduce the incidence of trips and full load losses to improve reliability of coal-fired power stations ethical culture for the turnaround plan. While there is continued focus on improving the reliability of coal-fired power stations, regrettably, the generation fleet recorded Refer to page 126 of the integrated report for more information on the culture transformation programme. 697 unplanned automatic grid separations trips (2021: 527) for the year, at an average of 58 trips per month. The main contributors to unplanned trips were turbine, boiler and feedwater areas of plant. Operational performance Generation performance remains poor, resulting in a shortfall in generation capacity, with loadshedding and load curtailment being required Full load losses for commercial units showed an increase to an average of 6 718MW per month (2021: 4 811MW, restated). UCLF on official to protect the system. Regrettably, generation plant availability remains constrained because of a significant increase in unplanned losses due units remains high with UCLF due to outage slips increasing to 3.99% (2021: 2.43%). to breakdowns or partial unavailability of power stations. • Accelerate the return to service of units on long-term forced outages Loadshedding was required on 65 days (2021: 47 days), comprising eight days up to stage 1, 43 days up to stage 2, four days up to stage 3 and An explosion at Medupi unit 4 on 8 August 2021 resulted in damage to the generator. The incident was caused by procedural non- 10 days up to stage 4. Loadshedding and load curtailment were implemented for 1 011 hours (2021: 670 hours) over the year, reducing supply compliance and management failures and nine employees were suspended as a result. The duration of the repairs will depend on the by an estimated 1 605GWh (2021: 1 034GWh). extent of the damage and the long-lead time of the components to be replaced. The unit is expected to return to service in August 2024. Eskom OCGTs had to be utilised extensively during the year due to the deteriorating performance of the coal-fired generation fleet, with A flue gas duct failure was experienced at Kusile unit 1 on 23 October 2022 while the unit was offline for repairs. Investigations are under production increasing 25% year-on-year. The OCGT load factor for the year was 8.7% (2021: 6.9%) against a target of 1%. way into the cause of the incident, the extent of the damage as well as the scope of work for recovery. Units 2 and 3 have also been affected and it is expected that all three units will be offline for up to six months. Technical performance • Decrease partial load losses and boiler tube leaks that prevent units from operating at full capacity Generation performance UCLF related to partial load losses deteriorated significantly, with partial load losses on average 742MW higher than the prior year. The EAF of the generating plant deteriorated to 62.02% (2021: 64.19%), mainly due to a significant increase in unplanned losses due to Partial load losses contributed approximately 42% to total UCLF for the year, with losses at Kendal, Tutuka, Majuba, Arnot and Kriel breakdowns or partial availability of stations. being the major contributors. Plans to improve permanent partial load losses remain dependent on outages. Power stations are aligning Eskom continues to operate the plant far outside acceptable norms to avoid or minimise loadshedding. The energy utilisation factor (EUF) for outage opportunities to execution of the required scope. The increase in post-outage partial load losses is being monitored. Frequent but the entire generation fleet has increased to 79.78% (2021: 76.34%). Persistent high EUF levels continue to place stress on units, thereby affecting sporadic partial load losses across the fleet continue to offset advances in some areas. reliability and leading to elevated levels of unplanned capability loss factor (UCLF). The high average fleet EUF was largely due to coal-fired The boiler tube failure rate on a 12-month moving average increased slightly to 2.44 (2021: 2.31) in 2022 for units in commercial operation. stations running at an average EUF of 93.98% (2021: 90.42%), with 14 of 15 coal-fired stations recording EUF above 90%. Given the age of the Boiler tube failures contributed 2.45% (2021: 2.29%) UCLF for the year. fleet, coal EUF levels remain substantially above the international norm of around 75% over the long term, which will have negative long-term technical consequences. • Reduce maintenance outage due to date slips and duration The reliability maintenance recovery programme seeks to empower power station teams to achieve outage excellence as the single The graph below reflects the inter-relationship of unplanned, planned and other capability loss factors with the EAF and coal EUF. greatest opportunity to improve plant performance at the best possible cost. Continued efforts are directed towards improving outage % % readiness, with central reliability maintenance recovery teams providing direction on best practice and assisting in enhancing outage 40 100 planning and overall readiness at stations. The availability of outage funding had a significant impact on the readiness of planned outages in 2022 as most outages take 18 to 24 months 80 to plan. There is focus on prioritisation of outages and budget reduction exercises. There were 84 planned maintenance outages scheduled 30 for the year of which 47 outages were completed, seven were in execution, one was cancelled and 29 were deferred. An additional 47 outages which were not originally scheduled were completed. Consideration is given to system capacity constraints, plant risks and availability of spares and resources in the scheduling of outages. 60 Only 50.94% (2021: 40.38%) of outage due dates were met, significantly below the target of 80%. 20 Post-outage UCLF deteriorated to 29.74% (2021: 21.23%), contributing 1.39% to overall UCLF. Approaches to improve the quality and 40 accuracy of outage scopes are being considered as part of the reliability maintenance recovery programme. • Maintain sufficient diesel stocks to enable the OCGTs to perform for extended periods 10 Diesel tank levels remain healthy overall and were maintained above the target of 60% during the year, although constraints occasionally 20 Unplanned capability loss factor (%) (Left axis) developed during periods of persistent high demand. However, diesel usage remained far too high given Eskom’s financial constraints. Planned capability loss factor (%) (Left axis) Other capability loss factor (%) (Left axis) Generation performance has continued to deteriorate in 2023, with increased reliance on OCGTs to avoid or minimise loadshedding. Coal energy utilisation factor (%) (Right axis) Energy availability factor (%) (Right axis) Eskom has placed a limit on diesel use for 2023 to preserve liquidity. In November 2022, Eskom was forced to strictly conserve its 0 0 2018 2019 2020 2021 2022 remaining diesel fuel reserves due to the depletion of the OCGT budget. Government assisted Eskom with the acquisition of diesel from PetroSA SOC Ltd to minimise the loadshedding required. Generation recovery plan The generation recovery plan aims to address critical pain points and fast track improvement in generation performance and plant availability. • Maintain coal stockpiles at power stations Full and partial load losses, as well as outage performance, are areas of concern. Progress on the implementation of the plan includes: Two power stations had stock below the individual minimum stockholding level at year end (2021: nil). Coal stock days (excluding Medupi) reduced to 42 days (2021: 50 days) based on the budgeted standard daily burn rate, but remain higher than target. • Address major design and construction defects at new stations Coal-related load losses contributed to capacity constraints with coal-related other capability loss factors (OCLF) of 0.64% (2021: 0.66%) The rollout of the major boiler plant defect solutions agreed for the Medupi and Kusile units has been completed. The corrections to the for the year. Matla and Kriel power stations remained the biggest contributors, accounting for around 90% of coal-related OCLF. Eskom Medupi mills during normal mill rebuilds is projected to be completed by October 2023. Further corrections are forecast for completion continues to collaborate with the relevant mines to address the coal supply challenges. after December 2027, depending on the type of solutions and outage availability of units. • Improve emissions performance Gas air heater, pulse jet fabric filter and boiler plant modifications have been implemented on all six units at Medupi power station, There were eight units (2021: five units) that operated in non-compliance with average monthly emission limits at year end, placing except for the long-lead milling modifications on all units and the duct erosion modifications on unit 6. Rollout of the mill long-lead items 4 766MW at risk of being shut down by the authorities (2021: 2 949MW). commenced during standard planned rebuild outages in February 2022. An emission recovery plan was implemented at Kendal power station which has led to a significant reduction in emissions and units A commercial agreement was recently concluded for the low-load and transient operations solution at Medupi power station, and the operating in compliance, although emissions remain worse than target. detail design and procurement of components are progressing well. Rollout of the low-load and transient solution will commence during available planned outages after March 2023 to December 2024, depending on outage availability. 6 | | 7 DIRECTORS’ REPORT (continued) for the year ended 31 March 2022 Operational performance (continued) Financial performance Technical performance (continued) Performance Network performance Eskom recorded a net loss after tax of R12.3 billion for the year, reflecting an improvement of R12.7 billion compared to the previous year System minutes lost <1 minute performance improved to 2.9 minutes (2021: 3.5 minutes) due to a reduction in interruption of supply (2021: R25 billion net loss after tax). EBITDA performance increased by R19.8 billion to R52.4 billion (2021: R32.6 billion). Most financial incidents. However, two large interruptions affected customers in areas in KwaZulu-Natal and Gauteng, both of which were caused by plant performance ratios performed better than target and improved compared to the previous year, although they remain below acceptable norms. failures. The focus remains on enhancing servitude management and addressing the root causes of poor performing lines. The increased capital budget allocation for transmission for the next five years will advance the implementation of the transmission development plan and Much of the improvement relates to Eskom beginning the year on an abnormally low base, as financial performance in the previous financial asset renewal under the transmission sustainability improvement initiatives. The emphasis is on project development and expanding supplier year was significantly hampered by COVID-19. Eskom experienced an unprecedented reduction in energy demand in 2021 during the national capacity to enable the delivery of asset creation objectives. lockdown, which negatively affected sales volumes and revenue in the prior year. Distribution network technical performance, measured by the duration and frequency of customer interruptions, continues to perform within The financial results for the year ended 31 March 2021 were subject to various restatements. The most significant restatement affecting target. Distribution energy losses have reduced to 9.62% (2021: 10.11%), amounting to 19.8TWh (2021: 20.2TWh) for the year, signifying a profitability related to net fair value losses on hedging instruments due to a correction of the valuation curve methodology, which resulted in reduction in non-technical losses. The cost of non-technical losses for the year is estimated at R2.3 billion (2021: R2.3 billion). Concerns the hedges no longer meeting the hedge effectiveness criteria in terms of International Financial Reporting Standards (IFRS). This restatement remain around breakdown of networks due to overloading caused by illegal connections, theft and vandalism of electrical equipment and resulted in the accounting of the losses on these instruments in profit or loss and not through other comprehensive income. The net loss challenges in restoring supply to unsafe areas. after tax for 2021 increased from R18.9 billion to R25 billion as a result of the restatements. The restatements are discussed in more detail in note 48 of the annual financial statements. Ongoing theft of tower members and substation equipment continues to pose risks for asset failures and network availability, as well as a safety risk to employees and contractors. The focus remains on proactive and effective risk management, intelligence gathering, stakeholder Revenue increased by R42.2 billion to R246.5 billion, mainly due to the standard tariff increase of 15.06% allowed by NERSA, together with a engagements, arrests and successful prosecution as well as the deployment of new technologies to combat these incidents. 3.4% recovery in sales volumes to 198 281GWh (2021: 191 852GWh). Sales improved across almost every sector, with the industrial, mining and rail sectors in particular benefiting from the recovery of global commodity markets. Revenue was negatively impacted by revenue not Environmental performance recognised of R14.2 billion (2021: R12.1 billion) where collectability criteria were not met, offset by R6.5 billion (2021: R5.9 billion) revenue Relative particulate emissions performance improved to 0.34kg/MWh sent out (2021: 0.38kg/MWh sent out) due to focused maintenance of recognised from customers on the cash basis. Eskom’s average electricity price amounted to 127.32c/kWh (2021: 111.04c/kWh) for the year. generating plant under the generation recovery plan, particularly an improvement in the performance at Kendal power station. Regrettably, emission performance remains worse than target. The graph below reflects the comparison between sales volumes and electricity revenue over the last few years. Rbn TWh Specific water usage remains disappointing and worsened to 1.45ℓ/kWh sent out (2021: 1.42ℓ/kWh sent out). The deterioration is attributed 300 250 to poor water management practices at power stations. Plans are in place to improve water performance across the power stations and to stop continuous discharge at both Kendal and Tutuka power stations. 250 200 Eskom submitted postponement applications in terms of the Minimum Emission Standards (MES) to the Department of Forestry, Fisheries and the Environment (DFFE) in August 2020. DFFE responded in November 2021 and approved the postponement for seven power stations which are planned to be shut down by 2030. The postponement for Majuba, Tutuka, Kendal and Kriel power stations were partially approved 200 and the postponement for Matla, Duvha, Matimba, Medupi and Lethabo power stations were rejected. 150 Eskom submitted an appeal for those stations with unfavourable decisions in December 2021. The appeal process is on hold while a 150 consultative process is under way. Full compliance with the MES would necessitate expenditure of about R330 billion or the loss of around 30 000MW by April 2025. This is unaffordable to Eskom and the South African economy, both financially and in terms of generation capacity. 100 Eskom is committed to the reduction of its impact on the environment, but it is clear that an affordable path to a greener future is critical. 100 A reduction in emissions through a retrofit programme would take approximately 15 years to be implemented at coal-fired power stations. Eskom’s proposal is to reduce emissions by shutting down old coal-fired power stations and focusing on retrofitting projects to reduce 50 50 particulate and nitrogen oxide emissions. The funding could instead be spent on adding urgently needed generation capacity through renewables, low carbon technology and strengthening the national electricity grid through Eskom’s JET strategy. Electricity revenue (Rbn) Refer to page 112 of the integrated report for more information on Eskom’s compliance with the MES. 0 0 Sales volume (TWh) 2018 2019 2020 2021 2022 Safety Regrettably, Eskom recorded four employee fatalities (2021: three, restated), two contractor fatalities (2021: eight) and 21 public fatalities Primary energy expenses increased by R16.9 billion to R132.4 billion, largely due to increased production from Eskom- and IPP-owned (2021: 20) during the year, despite the commitment to safety and Zero Harm. Physical threats to employees and contractors remain a OCGTs as well as coal-fired power stations, combined with price escalations, particularly in diesel and fuel oil. Production volumes increased concern, particularly due to community unrest during removal of illegal connections and when implementing load reduction. by 6.4TWh to meet the higher electricity demand experienced during the year. The South African Revenue Services (SARS) disallowed certain rebates relating to diesel use over several years. Eskom’s appeal was denied by SARS in October 2022 and a receivable of R3.6 billion Capacity expansion programme was written off due to uncertainty around its recovery, resulting in a corresponding increase in primary energy expenses in 2022. Eskom is The capacity expansion programme, which commenced in 2005 and is expected to be completed by 2028, aimed to build new power stations considering the appropriate action regarding this matter, including following a litigation process. and reinstate mothballed power stations to increase installed generation capacity by 17 384MW, as well as increase high-voltage transmission Eskom own generation costs increased to R84.4 billion (2021: R72.5 billion), excluding the environmental levy. Expenditure on Eskom-owned power lines by 9 756km and transmission substation capacity by 42 470MVA. The programme has increased installed generation capacity by OCGTs increased to R10 billion (2021: R4.1 billion) due to higher diesel prices and the writeoff of the diesel rebate receivable, as well as an 14 730MW, transmission lines by 8 222km and transmission substation capacity by 39 505MVA from inception to 31 March 2022. increase in OCGT production to 1 826GWh (2021: 1 457GWh). IPP expenditure increased to R35.2 billion (2021: R30.8 billion) due to more Commercial operation of Medupi unit 1 was achieved on 31 July 2021, adding 794MW capacity to the grid. This milestone signified the completion extensive use of IPP OCGTs and higher production from renewable IPPs, together with higher diesel prices. of construction activities on the 4 764MW Medupi project which commenced in May 2007. The focus is on completion of the remaining scope of Employee costs have remained relatively stable at R33 billion, despite a reduction in headcount of 5.4% to 40 421 by year end. This is largely the balance of plant, including the ash dump facility, coal stockyards and related structures. Project completion is targeted for November 2023. as a result of salary increases to bargaining unit employees, together with lower capitalisation. Kusile unit 4 was connected to the national grid on 23 December 2021 and the unit achieved full load of 800MW on 11 January 2022. Other expenses increased by R4.6 billion to R28.8 billion mainly due to growth in repairs and maintenance. Extensive planned maintenance was Commercial operation of the unit was achieved on 31 May 2022, which was earlier than the scheduled date of January 2023. required on generating plant to address performance challenges and defects in line with the generation recovery plan, while significantly higher levels The first fires on oil and first coal fires milestones were completed at Kusile unit 5 in August and September 2022 respectively. The gas air of unplanned maintenance were needed to address several critical plant issues. In addition, the availability of resources to conduct maintenance heater caught fire on 17 September 2022, resulting in a discontinuation of all commissioning activities. The extent of the damage has not yet improved due to the easing of COVID-19 lockdown restrictions. Other items include writeoffs due to damage from an explosion at Medupi unit 4, been determined and it is likely that the incident will cause a delay to the commissioning schedule. damage from a fire at Kendal unit 1 and asset register clean up, as well as provisions raised for compensation events at Koeberg power station. The commercial operation of Kusile unit 6 is planned for May 2024. The impairment of financial assets amounted to R589 million (2021: R91 million reversal) relating mainly to trade and other receivables. The writedown of other assets amounted to R0.8 billion (2021: R1.9 billion) due to a continuation of the inventory clean-up exercise to address High-voltage transmission lines of 180.5km and substation capacity of 1 065MVA were installed and commissioned during the year. Progress shortcomings in the internal controls relating to consumables management. was also made on the electrification programme, with 97 947 households connected during the year. Depreciation increased by R5.4 billion to R32 billion mainly due to the commissioning of new generation units. A total of 91 IPP projects with a capacity of 6 490MW have been connected to the grid since inception of the DMRE renewable energy independent power producer (RE-IPP) programme in 2011, although only 5 826MW (2021: 5 078MW) is in operation. A total of 8 500MW The group recorded a net fair value and foreign exchange loss on financial instruments, excluding embedded derivatives, of R4.7 billion of renewable energy is expected to come online before 2025 through existing and expected bid windows. (2021: R7.7 billion net fair value loss). Financial instruments are largely impacted by credit risk adjustments as well as interest rate and exchange rate movements. A net fair value gain of R1.6 billion was recorded on embedded derivatives (2021: R0.4 billion net fair value loss), Refer to page 90 of the integrated report for more information. linked mostly to the increase in aluminium prices during the year. 8 | | 9 DIRECTORS’ REPORT (continued) for the year ended 31 March 2022 Financial performance (continued) The total gross overdue debt increased by R6.8 billion to R52.2 billion, of which municipalities account for 85.7% and Soweto accounts for Performance (continued) 8.7%. The total gross municipal overdue debt increased to R44.8 billion (2021: R35.3 billion) at year end, of which Free State municipalities owed 35.2%, Mpumalanga municipalities owed 29.6% and Gauteng municipalities owed 12.9%. Net finance costs increased to R33.1 billion (2021: R31.1 billion) largely due to lower capitalisation of interest. Fewer borrowing costs are capitalised to the related asset base as the capacity expansion programme nears completion and new units are transferred to commercial Eskom continues to execute its municipal debt management strategy by enhancing existing revenue and debt management processes, operation. In addition, Eskom experienced a higher average cost of borrowing for the year. enforcing its rights through legal action and expediting government interventions. Eskom is focusing on the top 20 defaulting municipalities as a priority as they constitute 80% of total gross municipal overdue debt. The most significant restatement affecting the 2020 and 2021 statements of financial position related to the reclassification of a portion of coal inventory from current to non-current following a review of the quantity and usage of coal at power stations. This primarily affected the A total of 34 active payment agreements were in place with defaulting municipalities at year end, with only 10 agreements being fully working capital ratio which was restated from 1.27 to 0.95 in 2021. The working capital ratio declined to 0.90 in 2022. The restatements are honoured. discussed in more detail in note 48 of the annual financial statements. Eskom established a project management office to drive the implementation of the active partnering model which aims to assist defaulting Eskom’s financial solvency ratios have improved, with a net debt-to-equity ratio of 1.65 at year end (2021: 1.86). Net debt decreased by municipalities in their revenue collection efforts and improve municipal service delivery. Despite efforts to engage with municipalities, R11.7 billion to R389.1 billion. The net debt cash service cover ratio improved significantly to 0.76 (2021: 0.30), but remains well below only two active partnering agreements are in place with Phumelela and Msunduzi Local Municipalities. Active partnering agreements with investment-grade levels. Eskom’s liquidity remains under pressure given the financial and operational challenges it faces. The cash and cash Raymond Mhlaba and Maluti-a-Phofung Local Municipality are being negotiated. equivalents balance improved to R15.9 billion (2021: R4 billion) and will be applied towards settling Eskom’s obligations. The improvement in revenue during the year, together with government equity support of R31.7 billion which was used to service debt, led to the higher cash The total gross overdue debt for Soweto decreased by R2.9 billion to R4.5 billion. The reduction is mainly due to prescribed debt written off and cash equivalents at year end. and reversal of in duplum interest. The average payment levels for Soweto remain low at 25.1% (2021: 20.6%), despite some improvement. The graph below reflects the movement in net debt as well as the improvement in the debt-to-equity ratio and net debt cash service cover The graph below reflects the increase in the gross overdue municipal debt per province and the breakdown between the net impairment, ratio over the last few years. interest and revenue not meeting collectability criteria over the last few years. Rbn Ratio Rbn 500 4 50 400 40 3 300 30 2 200 Interest and revenue not meeting collectability criteria (Rbn) 20 Net impairment (Rbn) 1 100 Free State (Rbn) Net debt (Rbn) 10 Mpumalanga (Rbn) Net debt cash service cover (Ratio) Gauteng (Rbn) 0 0 Net debt-to-equity (Ratio) 2018 2019 2020 2021 2022 0 Other (Rbn) 2018 2019 2020 2021 2022 Gross debt securities and borrowings decreased by R5.5 billion to R396.3 billion. Eskom repaid R38.9 billion and raised R33 billion of debt Funding during the year. Eskom has successfully executed its borrowing programme by securing funding of R35.8 billion (2021: R18.9 billion), thereby exceeding the funding target of R25.5 billion in the 2022 Corporate Plan. The borrowing programme for 2022 was revised to an aspirational funding level Total debt servicing of debt securities and borrowings amounted to R71.4 billion for the year. Net cash from operating activities of R53.4 billion of R42.9 billion to accommodate the postponement of the private placement and syndicated loan from 2021. (2021: R31 billion) remains inadequate to meet debt servicing requirements and fund general capital expenditure requirements. The primary focus of the borrowing programme over the next five years is to continue to secure cost-effective funding, while not exceeding The graph below shows the movement in cash from operating activities, as well as the cash interest cover and net debt service cover ratios a gross debt balance of R400 billion, by borrowing less than is repaid annually. The borrowing programme for 2023 amounts to R58.1 billion. over the last few years. The debt repayment profile of existing debt remains pressured over both the short and long term. Interest payments of R118.9 billion and Rbn Ratio 60 2.0 debt repayments of R176.9 billion are required over the next five years. Mr R Vaughan, the group treasurer, is Eskom’s debt officer and has the relevant experience and expertise for this role. 50 Refer to page 75 of the integrated report for more information. 1.5 40 Governance and compliance Eskom has experienced corporate governance breaches in the past, most notably relating to allegations of state capture surrounding state- owned companies. 30 1.0 The Judicial Commission of Inquiry into Allegations of State Capture (Zondo Commission), led by Deputy Chief Justice Raymond Zondo, commenced in August 2018. The Zondo Commission published the first parts of its report in early 2022 and concluded its work in June 2022. 20 Part IV Volumes 3 and 4 of the report were dedicated to allegations of state capture at Eskom, while Part I Volume 2 of the report contained a limited number of recommendations related to Eskom. The Commission found serious cases of fraud and corruption perpetrated by former 0.5 executives, former board members, suppliers and their associates. 10 Cash from operating activities (Rbn) Recommendations to address these findings include instituting criminal charges, ensuring appropriate consequence management against Cash interest cover (Ratio) employees and suppliers, pursuing director delinquency proceedings and civil recovery of financial losses suffered by Eskom, among others. 0 0.0 Net debt cash service cover (Ratio) 2018 2019 2020 2021 2022 These recommendations are consistent with the board’s plan to root out fraud and corruption, promote an ethical culture and address issues related to past corporate governance breaches, with the aim of restoring Eskom’s reputation as a trusted corporate citizen and improving its financial and operational sustainability. 10 | | 11 DIRECTORS’ REPORT (continued) for the year ended 31 March 2022 Governance and compliance (continued) Eskom has revised its reference flagging procedures to include employees who resigned before disciplinary processes or investigations Eskom’s response to these governance challenges centres on the following key areas: could be concluded. Individuals who have been flagged cannot be employed in Eskom for 10 years and cannot serve as an employee of a contractor on Eskom sites. The withholding of pension benefits and the recovery of losses or damages to Eskom from flagged employees • Establishing a task team to address the recommendations of the Zondo Commission are also outlined in the revised procedure. Eskom has established a dedicated state capture task team to review the Zondo Commission report to address the recommendations and ensure appropriate legal remedies are pursued. An implementation plan has been developed, with the latest version submitted to Eskom commissioned The Ethics Institute to perform an independent ethics risk assessment to determine potential ethics opportunities, the Presidency in October 2022. Key focus areas of the implementation plan include civil recoveries, consequence management related as well as unethical behaviours and practices that place Eskom at risk. The results will be used to better manage ethics-related risks to suppliers, former employees and former directors, conducting an in-depth risk assessment, as well as the review of policies and and inform the review of Eskom’s ethics management strategy. High-risk areas will be subject to greater focus for ethics training and procedures specifically related to procurement and human resources, to support the eradication of fraud and corruption. consequence management. The Zondo Commission acknowledged the proactive steps taken by Eskom to eradicate state capture within the organisation with • Forensic investigations and disciplinary action significant matters dealt with by both Eskom and the Special Investigating Unit (SIU) to date, which have resulted in the recovery of more A total of 128 new cases (2021: 105) involving employees and suppliers were registered for internal investigation during the year and than R2 billion. 113 forensic investigations (2021: 46) were concluded. A total of 253 cases (2021: 238) were under investigation at year end. Eskom is working with DPE, other state-owned companies and law enforcement agencies to ensure that the recommendations are Disciplinary action was recommended against 192 employees during the year. A total of 69 suppliers were recommended to Eskom’s adequately addressed. Where the recommendations are not within Eskom’s control, as in the case of criminal prosecution, Eskom will supplier review committee for sanctions relating to non-compliance with procurement and supply chain management procedures. continue to provide the necessary support to law enforcement authorities, including the SIU, the National Prosecuting Authority (NPA), In addition, 104 confirmed cases of fraud and corruption were registered with SAPS, with five cases before the criminal courts. the Directorate of Priority Crime Investigations (the Hawks) and the South African Police Service (SAPS) to ensure the successful prosecution of implicated suppliers, former employees, former directors and associated perpetrators. Unfortunately, investigations revealed similar themes to previous years, with instances of undeclared conflicts of interest, failure to obtain permission to perform private work, improper contract management as well as general procurement irregularities being evidenced. Eskom’s state capture task team is monitoring progress against the implementation plan, which includes: Non-compliance with Eskom’s policies and procedures remains the most prevalent root cause of these issues and requires control – Consequence management of delinquent employees enhancements in affected areas to prevent recurrence. Employees implicated in state capture were dismissed or resigned in early 2018. There are currently no outstanding disciplinary actions Regrettably, instituting appropriate disciplinary proceedings against employees and suppliers remains slow, resulting in a backlog of cases. against individuals highlighted in the Zondo Commission report and no implicated individuals are currently employed by Eskom. Eskom The functions responsible for investigations and implementation of sanctions are collaborating to improve consequence management is reviewing its disciplinary procedures to ensure consequence management is dealt with more timeously and appropriately. processes, including reporting of outstanding cases. The number of long outstanding disciplinary actions are being monitored, with – Criminal proceedings quarterly feedback to Exco and the board. A disciplinary tribunal consisting of internal and external experts has been established to Eskom is monitoring all criminal matters arising from the Zondo Commission report and has engaged with the NPA regarding progress expedite the application of disciplinary action. Policies and procedures are also being reviewed to ensure consistent application of sanctions. on these matters. As mentioned, Eskom is working with law enforcement agencies to bring these matters to court as soon as possible. Where cases involve criminal conduct, they are reported to law enforcement agencies to continue their investigations even if implicated – Civil recoveries individuals have resigned from Eskom. Where appropriate, civil proceedings are instituted to recover losses incurred by Eskom. Several civil recovery proceedings have been launched by Eskom and the SIU. The SIU has sought to extend its mandate to include all An executive security steering committee has been established to address security risks relating to criminal acts, including the theft of matters raised in the Zondo Commission report. Eskom’s state capture task team is monitoring civil recovery proceedings where legal copper, vandalism of infrastructure and sabotage incidents. Improved security measures are being implemented to manage these risks and progress remains slow. reduce the number of incidents and associated losses through appropriate use of technology and the deployment of additional security. – Director delinquency proceedings Initiatives to improve the prevention of coal, diesel and fuel oil theft at Eskom’s power stations are also under way. These are critical The most effective avenue from a legal perspective to charge former directors and officials is through delinquency proceedings commodities for Eskom and are frequently targeted by known criminal syndicates. Coal deliveries by road are particularly at risk of under the Companies Act. DPE is coordinating this process across all state-owned companies. Eskom has compiled detailed evidence theft and coal-swapping for inferior quality coal. Eskom has implemented operational control mechanisms, such as tamper proof seals, regarding all implicated former directors to aid in the delinquency proceedings. and phased out its free carrier agreement transporter contracts since December 2021. All coal supply agreements require the supplier – Reporting of former delinquent directors and officials to the relevant professional body to retain responsibility for and ownership of the coal until it is weighed at the power station. Coal supplies are also pre-certified by The South African Institute of Chartered Accountants instituted disciplinary proceedings against Eskom’s former chief financial officer, laboratories to ensure they adhere to contractual quality before being delivered. A Singh, and revoked his professional membership in August 2020. Similar proceedings are being considered for other implicated Despite these interventions, investigations have discovered that in some cases these processes are deliberately bypassed through collusion individuals. Eskom is working with DPE and the Department of Justice on these matters. by criminal elements. The focus is on gathering intelligence on key role players within and external to Eskom, as well as the syndicated – Blacklisting of suppliers operations of the criminal networks. Eskom is collaborating with law enforcement and other criminal justice agencies to address possible Eskom is investigating the option of placing a provisional block on new contracts for all implicated suppliers while awaiting the shortcomings that prevent successful investigations and prosecutions on these matters. governance processes to blacklist these suppliers. Eskom is reviewing its supplier disciplinary procedures and processes to allow Limited progress has been achieved to date with regards to the civil action against seven former executives and directors, including the supplier sanctions to take place more effectively going forward. recovery of approximately R3.8 billion relating to a prepayment to Tegeta Exploration and Resources (Pty) Ltd. A number of defendants – Crime landscape risk assessment in this matter, including Mr B Molefe, Mr A Singh and Mr MM Koko, have since been arrested on fraud, corruption and money laundering Eskom is conducting a full assessment of its crime risk management landscape together with an independent service provider, which charges relating to other cases. will consider risks related to bribery and corruption, financial crime, physical asset crime, cybercrime and money laundering. Once this The NPA announced in December 2022 that a settlement agreement was concluded with ABB Ltd to pay over R2.5 billion in punitive assessment is concluded, a crime risk management programme will be embedded as part of Eskom’s standard operating procedures. reparations to South Africa as restitution for fraud and corruption relating to its contracts with Eskom. The settlement will be paid into – Review of policies and procedures the South Africa Criminal Asset Recovery Account. Eskom does not have any further details regarding the settlement, including any Eskom reviewed and considered improvements to key procurement and human resource policies and procedures to improve the potential restitution to Eskom. implementation of consequence management. These policies and procedures will be amended within the parameters of the law. Eskom is also in the process of implementing automated systems, including price check tools, digitisation of materials management and e-auction systems, to proactively address fraud- and corruption-related risks in the procurement of goods and services. • Fraud risk management and ethics The implementation of a fraud prevention plan, with the aim of maximising fraud prevention and enhancing good corporate governance practices, is progressing well. Eskom’s anti-fraud and corruption integration committee is monitoring implementation of the plan and ensuring integration between forensic, legal, ethics, industrial relations and supplier review functions. Progress is reported to the executive management committee (Exco) and audit and risk committee on a regular basis. The assurance and forensic department has been tasked with visiting each power station to identify possible fraud risks and opportunities for improved fraud detection and response activities. Visits have been conducted at 16 power stations by 30 September 2022 and four forensic cases relating to findings at Kendal and Tutuka power stations have been registered for internal investigation following these visits. Investigations on these matters are ongoing. 12 | | 13 DIRECTORS’ REPORT (continued) for the year ended 31 March 2022 Governance and compliance (continued) Board and executive committee changes • Conflicts of interest and lifestyle audits The board should consist of a minimum of three and maximum of 15 directors, with the majority being non-executive directors, in terms of Directors and employees across all occupational levels are required to complete an annual declaration of interest. Eskom enhanced its the memorandum of incorporation. Requests to appoint additional non-executive directors to strengthen the board were submitted to the conflict of interest declaration system to link directly to the Companies and Intellectual Property Commission database. The upgrade was shareholder for consideration on several occasions. implemented from 1 April 2021 to verify declarations made during 2022. Exceptions of potential non-compliance with Eskom’s conflict of interest policy are investigated. The following changes to the board occurred during the year and subsequent to year end: Disciplinary processes continue to be conducted on approximately 3 800 employees below executive and senior management level who Non-executive directors Comment had not declared business-related interests or had performed private work without prior approval. These exceptions were identified NVB Magubane Resigned on 15 August 2021 in November 2020, prior to the enhancements to Eskom’s conflict of interest declaration system. Around 94% of these matters were B Mavuso Resigned on 27 September 2022 resolved by year end. MW Makgoba Term ended on 30 September 2022 Lifestyle audits on executives and senior management were concluded in 2019 and 2020. A total of 34 high-risk cases were identified from BCE Makhubela Term ended on 30 September 2022 383 lifestyle audits and were handed over to the SIU for further investigation, with some cases still ongoing. One official was dismissed PE Molokwane Term ended on 30 September 2022 on unrelated charges, 17 cases were closed as a result of no adverse findings identified or resignations during the process, and five cases TH Mongalo Term ended on 30 September 2022 are still under investigation. The remaining 11 cases were referred to Eskom for disciplinary action, with seven employees found guilty and PM Makwana (chairman) Appointed on 1 October 2022 subject to sanctions ranging from written warnings to suspensions. FBB Abdhul Gany Appointed on 1 October 2022 LL Goqwana Appointed on 1 October 2022 It is important to note that the impact of ongoing investigations is not quantifiable until the related investigations are concluded. The outcomes of investigations are assessed once finalised and, if required, an adjustment is made to the carrying value of the related assets. These CR le Roux Appointed on 1 October 2022 investigations are complex and determining the correct accounting implications for matters that cover an extended period of time presents a APZ Mafuleka Appointed on 1 October 2022 key judgement. Refer to note 2.4 in the annual financial statements for further information on the accounting policy relating to investigations L Mkhabela Appointed on 1 October 2022 into possible corruption and the related impact on capital projects. TL Mthombeni Appointed on 1 October 2022 B Ntshalintshali Appointed on 1 October 2022 Eskom’s overall implementation of the King IV TM principles and practices remains partially effective based on the 2022 assessment. Although M Nyati Appointed on 1 October 2022 many of the required practices have been in place for many years, the board acknowledges that not all the King IV TM principles have been T Ramano Appointed on 1 October 2022 effectively adhered to. B Vilakazi Appointed on 1 October 2022 Refer to page 68 of the integrated report for more information on the King IV TM assessment. C von Eck Appointed on 1 October 2022 PFMA compliance Dr RDB Crompton, Mr AM de Ruyter and Mr C Cassim remain appointed from the previous board. Eskom has once again received a qualified audit opinion relating to the completeness and accuracy of PFMA information disclosed in note 51 of the annual financial statements as associated financial records were not complete or accurately maintained in line with legislative requirements. Mr AM de Ruyter tendered his resignation as group chief executive on 14 December 2022. He has agreed to stay for an additional period beyond the stipulated 30-day notice period to ensure continuity while the recruitment process for a successor is under way. His last day at The board is not satisfied that prior year qualification issues have been adequately addressed and considers this a significant focus area. Eskom will be 31 March 2023. Systems, controls, resources, policies and procedures as well as reporting structures will need to be enhanced to address this challenge. The following changes to Exco occurred during the year: Irregular expenditure New instances of irregularities have been detected as Eskom continues with its governance clean-up exercise. The closing balance of irregular Executive committee members Comment expenditure amounted to R67.1 billion on 31 March 2022, the majority of which relates to prior year transgressions. The opening balance was M Govender Appointed as group executive: legal and compliance on 1 October 2021 restated from R37.2 billion to R59.2 billion. The process of collecting information and reporting on irregular expenditure continues to be a J Sankar Appointed as chief procurement officer on 1 March 2022 focus area to reduce the occurrence of restatements in the future. Regrettably, the process of obtaining condonations from National Treasury has shown little progress for several years. Notice of condonation Refer to page 50 of the integrated report for more information. of 18 transactions valued at R527 million was received during the year. Eskom is working with DPE and National Treasury to ring-fence historical irregular expenditure to minimise the continued impact on the annual financial statements. Human resources Eskom seeks to recruit and retain a skilled workforce, as well as develop and source leadership and other critical and scarce skills, by Eskom established a centralised loss control department as required in terms of National Treasury Instructions, which became fully identifying skills gaps, training, maintaining a diversified learner pipeline and enabling talent development opportunities. operational from 1 April 2021. This function is responsible for conducting assessments and determinations into all occurrences of irregular as well as fruitless and wasteful expenditure, including oversight of consequence management, such as disciplinary action, condonations and Eskom adopted a hybrid work model in January 2022 to take advantage of the benefits of remote working. Qualifying employees may apply recovery of losses, although consequence management remains a challenge. Training and awareness on revised PFMA reporting procedures to work remotely, with approval subject to operational requirements and the type of work performed. The hybrid work model aims to and guidelines have been implemented and are mandatory for managerial and executive employees. contribute to creating a high-performing workforce by enabling agility, innovation and efficiency. The procurement and supply chain management department has embarked on an audit recovery programme to address the challenges with Workforce PFMA reporting which includes assessing the effectiveness of the procurement compliance monitoring systems and other internal controls. Eskom’s headcount reduced by 2 328 (2021: 2 023) to 40 421 (2021: 42 749) at year end, mainly through natural attrition as well as a net A detailed procurement audit recovery plan was developed in February 2022 and will be enhanced to address findings arising from the reduction of 1 103 fixed-term contractors in Eskom Rotek Industries SOC Ltd (Rotek) due to contracts coming to an end. Headcount is external audit. expected to remain mostly stable over the next five years, with a target of 40 381 by 2027. In addition, the procurement and supply chain management department has implemented several initiatives to reduce the occurrence of Eskom implemented a third round of voluntary separation packages during the year, limited to bargaining unit employees. The process irregular expenditure and improve commercial governance processes through its procurement roadmap. Progress on the procurement excluded positions classified as core, critical or scarce skills to minimise the impact on operations. A total of 252 applications were received, roadmap is reported to National Treasury and DPE on a regular basis in terms of the conditions of the Special Appropriation Act. of which 161 were approved. Of those, 143 offers were accepted, at a cost of R0.1 billion. The separations are not reflected in the headcount The procurement roadmap aims to: at year end, as employees exited Eskom on 30 April 2022. • reduce the number of cancellations of published tenders • improve compliance with procurement plans • reduce the number of contract modifications, expansions and deviations • enhance contract management and performance monitoring Eskom is implementing continuous reviews and monitoring to limit the use of low-value procurement mechanisms and identify contracting opportunities in accordance with revised procurement procedures. Fruitless and wasteful expenditure and criminal conduct The closing balance of fruitless and wasteful expenditure amounted to R5 billion on 31 March 2022, of which only R26 million relates to the year under review. The 2021 closing balance was restated from R4.5 billion to R5 billion. Fruitless and wasteful expenditure cannot be condoned, only recovered or removed. Losses due to criminal conduct of R2.8 billion (2021: R2.5 billion) were reported during the year, of which the majority related to non-technical energy losses including electricity theft. 14 | | 15 DIRECTORS’ REPORT (continued) for the year ended 31 March 2022 Human resources (continued) Shareholder compact performance Industrial relations The table below sets out Eskom’s performance measured against the shareholder compact that was subject to audit by the external auditors. Eskom could not reach an agreement with organised labour during the 2021 central bargaining forum (CBF) negotiations and the matter The external audit opinion relating to this audit is detailed on page 32. All the key performance indicators (KPIs) in the compact refer to the was referred to the Commission for Conciliation, Mediation and Arbitration (CCMA) for arbitration. While awaiting the outcome of the Eskom company, except for the lost-time injury rate and the finance measures which reflects the group. arbitration, Eskom implemented its final offer of a 1.5% basic increase for bargaining unit employees from 1 July 2021. The CCMA issued its Actual performance against the year-end target is indicated as follows: arbitration award in September 2022, ordering Eskom to provide an additional 1.5% increase, backdated to 1 July 2021. Actual performance for the year met or exceeded the target Actual performance for the year did not meet the target Similarly, Eskom and organised labour could not reach an agreement during the 2022 CBF negotiations. The wage dispute resulted in unlawful and unprotected industrial action at many power stations, leading to severe generation supply constraints and the implementation of stage 6 Key performance indicator Ref Unit Target Actual Actual loadshedding from 28 June 2022. 2022 2022 2021 Eskom and organised labour returned to negotiations on 1 July 2022, and concluded an agreement for a 7% basic increase for bargaining unit Focus on safety employees, along with reinstatement of previous conditions of service, bringing an end to the wage dispute. Lost-time injury rate (employee)1 rate 0.30 0.24 0.22 Improve plant operations Refer to page 122 of the integrated report for more information. Energy availability factor (a) % 74.00 62.02 64.19 Building and retaining strong skills Planned capability loss factor (b) % 10.50 10.23 12.26 The Eskom skills development programme supports the national objectives of poverty reduction, economic transformation and job creation Unplanned partial load losses (c) average MW 3 969 4 851 4 109 in terms of the National Skills Development Plan 2030. The recruitment of learners and the management of the learner pipeline aims to Unplanned automatic grid separations trips (d) number of trips 392 697 527 address the critical skills requirements of Eskom and the government. Post-philosophy outage unplanned capability loss factor (e) % 15.00 29.74 21.23 System minutes lost minutes 3.53 2.88 3.48 Retention and development of skills through a targeted employee value proposition is essential to ensure that Eskom has the required skills Payment levels excluding Soweto interest % 95.70 95.97 96.82 to meet the organisation’s needs, especially considering the operational challenges and financial constraints that Eskom is faced with. The Distribution total energy losses (f) % 9.45 9.62 10.11 learner pipeline represented 3.6% (2021: 4.1%) of the company’s workforce, with 1 238 learners at year end. Total electrification connections (g) number 99 724 97 947 106 669 System average interruption duration index (SAIDI) hours 38.00 35.46 35.36 The changing world of work, JET and evolving energy industry require the reskilling and upskilling of the workforce. A skills audit commenced in July 2021 to determine skills requirements, assess the current skills base and identify training and development needs. The skills audit Primary energy optimisation covers all technical roles across generation, transmission and distribution. Unfortunately, progress has been slow due to low participation Migration of coal delivery volume from road to rail (h) Mt 5.50 2.49 3.57 by employees and the audit has been extended into 2023 and is ongoing. The results of the skills audit will aid the development of a fit-for- Coal purchase rand/ton % increase 10.00 2.08 3.042 purpose skills strategy that drives the development of future-fit career paths, redeployment strategies and training interventions. Deliver capital expansion Generation capacity installed and commissioned (commercial operation) MW 794 794 1 598 Eskom implemented a crowdsourcing digital platform in November 2022 to attract a talent pool of highly skilled and experienced candidates Transmission lines installed km 140.00 180.54 65.61 to assist in the operational recovery of generation performance. As part of the first intake 25 individuals have been selected. In total, Eskom Transmission transformers capacity installed and commissioned MVA 500 1 065 750 has shortlisted 153 candidates of the 238 in the database. Legal separation Training spend of R0.9 billion (2021: R0.8 billion) was incurred in 2022. Training expenditure was curtailed due to Eskom’s financial challenges. Business separation key milestones – transmission, distribution date 30 June Yes No Many training interventions have transitioned to online platforms due to the COVID-19 lockdown, which has also led to some cost savings. and generation are functionally separated (functionally unbundled) 2021 Business separation key milestones – transmission is a legal (i) date 31 Dec No n/a Eskom supported further study programmes where employees seek to obtain qualifications related to their line of work, thereby building operating subsidiary of Eskom 2021 skills and expanding the leadership potential within the workforce. A total of 843 employees (2021: 303) were enrolled in further studies Ensure financial sustainability in 2022. EBITDA R million 45 113 52 374 32 6082 Two new talent development programmes are being implemented to enhance the employee value proposition, build and retain leadership Cash interest cover (j) ratio 1.79 1.68 0.85 skills and improve succession planning for general manager and group executive positions as well as middle and senior management positions. Debt service cover ratio 0.74 0.76 0.30 A total of 39 participants were selected based on nominations from divisional talent boards. These talent programmes will run from Savings from turnaround initiatives (k) R million 20 070 20 047 14 352 October 2022 to March 2024, whereafter the next cohort will be selected. Socio-economic impact: human capital Learner intake: artisans number 105 106 – Improving internal transformation Learner intake: engineers number 50 58 – Eskom is making progress in building a more diverse and inclusive workforce that reflects the demographics of the country. In the medium Learner intake: technicians number 45 51 – term, Eskom plans to develop a diversity and inclusivity policy to expand diversity goals beyond race, gender and disability to cultural, Training spend as % of gross manpower costs (l) % 3.75 2.70 2.58 generational and other diversity needs. Reduce environmental footprint in existing fleet Racial and gender equity at senior management and middle management/professionally qualified levels have shown improvement over the past Relative particulate emissions (m) kg/MWh sent out 0.31 0.34 0.38 year, although gender equity requires more focus to meet the targets. The achievement of transformation targets in some areas are hindered Specific water usage (n) ℓ/kWh sent out 1.33 1.45 1.42 by attrition, limited recruitment opportunities and ongoing financial challenges. Atmospheric emission licences compliance3 KPI in place by Yes Yes n/a 1 September 2021 Proportional representation of persons living with disabilities remains a concern, as they are well represented at lower occupational levels, Corporate social investment (CSI) but not across all levels. Group disability equity improved to 2.94% (2021: 2.93%), but remains below the target of 3.3% outlined in the White CSI committed/spend (o) R million 125.30 75.10 67.40 Paper on the Rights of Persons with Disabilities. Industrialisation and localisation Eskom’s overall gender ratio has improved to 66% male and 34% female employees (2021: 67% and 33%), although the aim is to achieve 50:50 Preferential procurement (p) % of total measurable 75.00 73.35 62.34 representation by 2030. Gender equity in Exco has improved significantly, with five out of the nine Exco members being female. procurement spend (TMPS) Refer to page 127 of the integrated report for more information on employment equity. Local content (q) % 80.00 36.63 65.994 B-BBEE score number 6 4 8 Enterprise and supplier development R billion 5.00 7.21 6.76 National industrial participation programme % 30.00 100.00 n/a Research and development % of NERSA-allocated 80.00 123.40 52.10 spend 1. Includes occupational disease. 2. Prior year information has been restated. Refer to note 48 in the annual financial statements. 3. DPE required Eskom to develop and pilot a new KPI during 2022 to measure compliance by power stations with atmospheric emission limits. This process was completed by September 2021 as required. Since then, Eskom has been measuring performance for internal benchmarking purposes. The newly developed KPI is included in the shareholder compact for reporting from 2023. 4. The comparative is based on the old definition of local content. The comparative would have been 2.17% based on the new definition. 16 | | 17 DIRECTORS’ REPORT (continued) for the year ended 31 March 2022 Shareholder compact performance (continued) The reasons for the targets that were not achieved are discussed below: Ref Key performance indicator Target Actual Reason Ref Key performance indicator Target Actual Reason 2022 2022 2022 2022 Improve plant operations Reduce environmental footprint in existing fleet (a) Energy availability factor 74.00 62.02 The energy availability factor was negatively affected by an increase in (m) Relative particulate emissions 0.31 0.34 Relative particulate emission performance has improved since 2021 unplanned maintenance due to high levels of both full and partial largely due to an improvement in performance at Kendal power unplanned load losses, offset by lower planned maintenance and losses station. However, emissions continue to exceed the target due to outside of management control. poor performance, mostly at Kendal, Tutuka, Lethabo, Matimba, Matla (b) Planned capability loss factor 10.50 10.23 Planned maintenance declined due to delays in the release of funding and and Duvha power stations because of ash plant challenges, electrostatic to compensate for the high levels of unplanned maintenance experienced precipitator performance and sulphur trioxide (SO3) plant failures. during the year. (n) Specific water usage 1.33 1.45 Water usage has deteriorated due to inadequate water management (c) Unplanned partial load losses 3 969 4 851 Unplanned partial load losses resulted from delays in procuring critical practices at power stations, including leaks and overflows at units, less spares, slippage in planned target dates to clear the maintenance recovery from on-site dams for reuse due to poor water quality from backlog to restore plant redundancy, and post-outage load losses contamination with ash and oil, ashing with cooling water to control which had to be gradually cleared over time. cooling water chemistry, as well as dam overflows. Kendal and Tutuka power stations discharged water into the environment for the entire (d) Unplanned automatic grid 392 697 Unplanned trips were mainly experienced in the turbine, boiler and year, resulting in increased raw water usage. separations trips feedwater areas of the plant. Performance was affected by a backlog of capability testing at several power stations due to unit load Corporate social investment (CSI) restrictions, maintenance defects and units operating outside their (o) CSI committed/spend 125.30 75.10 Less expenditure was incurred on CSI initiatives due to delays in the design specifications. Slow progress in addressing design deficiencies implementation of national flagship projects by the Eskom also contributed to the number of trips. Development Foundation because of the COVID-19 lockdown (e) Post-philosophy outage 15.00 29.74 The main contributor to unplanned losses that occurred within restrictions as well as other factors. unplanned capability loss factor 60 days after a unit returned from an outage include boiler, turbine, Industrialisation and localisation electrical and draught plant related losses. (p) Preferential procurement 75.00 73.35 Preferential procurement was negatively affected by spend on IPP (f) Distribution total energy losses 9.45 9.62 Non-technical losses largely resulted from electricity theft, while contracts which are not B-BBEE compliant. The calculation of TMPS technical losses were impacted by ageing distribution networks which includes spend on IPP contracts of which Eskom has no control as are constrained, overloaded and exposed to equipment theft. they were concluded in terms of the DMRE RE-IPP programme. (g) Total electrification connections 99 724 97 947 Electrification connections were impacted by the time taken to (q) Local content 80.00 36.63 Local content was impacted by a reduction in the number of contracts conclude contracts, lengthy procurement and material delivery with local content obligations. A new definition has been applied that processes and community unrest. measures local content as a percentage of the total contracts awarded Primary energy optimisation for all Eskom company procurement. Previously, local content contracted was measured as a percentage of TMPS. (h) Migration of coal delivery 5.50 2.49 Less coal was transported by rail mainly due to the unavailability of volume from road to rail the rail offloading facility at Majuba power station following a fire incident in December 2019. Rail operations at Majuba resumed in Reportable irregularities Progress has been made in clearing some of the reportable irregularities raised in previous years. Given the complex nature of some of these October 2021, but remain limited. Rail operations were negatively matters they will remain open until all related aspects are concluded. Several reportable irregularities were reported by the external auditors affected by cable theft, vandalism of rail infrastructure and availability in respect of the audit for 2022. Detailed progress on reportable irregularities can be found in note 52 of the annual financial statements. of operational resources, including locomotives. Legal separation Events after the reporting date Events after the reporting date are discussed in note 47 of the annual financial statements. (i) Business separation key Yes No The legal separation of the transmission division was delayed by a milestones – transmission is a number of critical external decisions and key dependencies, including Approval legal operating subsidiary of protracted lender consent processes and delays in obtaining a The group annual financial statements for the year ended 31 March 2022 were prepared under the supervision of the CFO, C Cassim CA(SA), Eskom transmission licence for the NTCSA. and approved by the board and signed on its behalf by: Ensure financial sustainability (j) Cash interest cover 1.79 1.68 Cash interest cover was negatively impacted by high finance costs, relating mostly to debt securities and borrowings, and insufficient operating cash flows due to poor generation plant performance, non- payment by some customer categories and a lack of cost-reflective PM Makwana AM de Ruyter C Cassim tariffs. Chairman Group chief executive Chief financial officer (k) Savings from turnaround 20 070 20 047 Savings were slightly below target primarily due to limited capital 16 December 2022 16 December 2022 16 December 2022 initiatives expenditure savings achieved. Socio-economic impact: human capital (l) Training spend as % of gross 3.75 2.70 Training spend has declined largely due to the impact of COVID-19. manpower costs Many of the training measures at the Eskom Academy of Learning have been discontinued as a result of the COVID-19 lockdown restrictions and have not yet been reinstated. 18 | | 19 REPORT OF THE AUDIT AND RISK COMMITTEE Mandate and terms of reference The following significant matters were considered: The audit and risk committee (the committee) presents its report in terms of the requirements of the PFMA, the Companies Act (section 94(7)(f)) and other applicable regulatory requirements as well as in accordance with the King IV TM Report on Corporate Significant matter Committee review and conclusion Governance for South Africa for the financial year ended 31 March 2022. Going-concern The committee continued to monitor the group and company’s liquidity and solvency closely because of the assessment financial position and related challenges and concluded that it was not trading recklessly at any time during the The role of the committee is defined in its mandate. It covers, among others, its statutory duties and assistance to the board with the oversight of financial and non-financial reporting and disclosure, internal control systems, risk management, internal and external year. The committee acknowledged the ongoing and continued support from government and the respective audit functions and combined assurance, including technology and information governance. The committee also performs the functions responsibilities of Eskom and the shareholder to address the current challenges. required by the Companies Act on behalf of the wholly-owned subsidiaries of the group, with the exception of Escap SOC Ltd, Nqaba The committee considered the key aspects as well as the material uncertainties that might impact the going- Finance 1 (RF) Ltd and Eskom Uganda Ltd which have independent audit committees. Information about the mandate, membership concern assessment as discussed in note 3.2. The going-concern assessment evaluated the liquidity of Eskom composition and attendance of meetings of the committee is set out in the 2022 integrated report under the governance, leadership and based on the latest cash flow forecasts, including servicing of debt in the 12 months after the sign-off of the annual ethics as well as supplementary information sections. financial statements and included stress-tested scenarios using lower electricity prices, changes to capital activities The committee has adopted appropriate formal terms of reference as its audit and risk committee charter, has regulated its affairs in and reducing costs. compliance with this charter and has discharged all its responsibilities contained therein. The committee considered that there has been an improvement in most of the group’s financial indicators We draw attention to the users that the committee with three members ceased to operate on 30 September 2022 and a new committee compared to the prior year, in particular the improvement in EBITDA and EBITDA margin, but noted the forecast comprising six members (includes one continuing member from the previous committee) with appropriate skills took over from decline in financial performance for 2023 as a result of poor operational performance. The committee concluded, 1 October 2022. The decision making and execution of oversight for the year under review was the responsibility of the previous after examining the forecast and stress-tested scenarios and considering Eskom’s ability to raise funding in the committee. The new committee oversaw activities from the date of their appointment to the sign-off of the annual financial statements. current market conditions, that the going-concern basis of accounting was appropriate with support from government to address the related material uncertainties. The committee recommended the adoption of the The group is applying a combined assurance model to ensure coordinated assurance activities. The committee oversees the assurance going-concern basis of preparation by the group and company to the board based on the critical factors as activities and the establishment of effective systems of internal control to provide reasonable assurance that the group’s financial and non- disclosed in note 3.2. financial objectives are achieved and that the preparation of the group’s suite of externally published reports (as detailed in the integrated report) are in accordance with the frameworks and standards set out within those reports. The committee acknowledge that there are various dependencies and uncertainties that exist both from a timing of intervention perspective as well as whether the plans to address the risks to manage the going concern will Execution of functions materialise as anticipated. The events, conditions and assumptions to manage the going concern inherently include Oversight of financial and non-financial reporting and disclosure material uncertainties that may cast significant doubt on the going-concern status. In the conduct of its duties the committee has, inter alia: Governance The committee considered the progress made in improving key governance challenges, including Eskom’s action • considered whether the annual financial statements met the fair presentation requirements of the PFMA, Companies Act and IFRS plan to address and prevent cases of corruption and fraud. • considered the appropriateness of key judgements, estimates and the accounting treatment applied to significant transactions in the annual The shareholder appointed a new board with a broad range of experience and the necessary expertise and skills financial statements to provide stability and strategic direction to Eskom, effective from 1 October 2022. The appointment of the • sought the input and views of the assurance and forensic department and the external auditors and encouraged rigorous challenging of new board also addressed the challenge that the audit and risk committee composition was not adequate in terms control, accounting and disclosure matters of the appropriate financial skills and experience for the size and risks associated with Eskom. • considered matters relating to liquidity, cost savings, budgeting and forecasting, future funding and taxation • overseen the risk management function, including the process of identifying significant risks and opportunities and the resulting mitigation Additional permanent appointments were made, specifically the general manager for assurance and forensic, group strategies executive for legal and compliance, chief information officer and chief procurement officer during the year to • considered the expertise, resources and experience of the finance function under the leadership of the chief financial officer strengthen Eskom’s leadership. The priority of the current leadership remains to turn Eskom around. Progress has been made towards restoring Eskom’s ethical culture and governance practices. The committee notes Eskom’s response to the governance challenges including the progress of the task team that was established to address the recommendations of the Zondo Commission. The committee continued its focus on monitoring the status and action taken on addressing key matters arising from investigations, reportable irregularities and past corporate governance breaches. Refer to the directors’ report for further information. The committee acknowledged that there could be adjustments to the carrying value of property, plant and equipment in the future if the outcome of internal and external investigations into fraud and corruption indicates any overcapitalisation of past expenditure incurred. The committee considered the reportable irregularities that were raised by the external auditors and the action taken to address these matters and preventative measures taken to prevent any re-occurrence thereof. The committee acknowledged that some irregularities would remain open until all related aspects have been concluded. Refer to note 52 for further information on reportable irregularities. 20 | | 21 REPORT OF THE AUDIT AND RISK COMMITTEE (continued) Execution of functions (continued) Oversight of financial and non-financial reporting and disclosure (continued) Significant matter Committee review and conclusion Significant matter Committee review and conclusion Completeness and The committee acknowledged that there are significant internal control deficiencies in the PFMA reporting Valuation of financial The committee is satisfied that management has adequately considered the valuation of financial instruments, in accuracy of certain process. instruments particular the derivatives held for risk management. Management made use of independent experts to assist with financial records in the valuation of these financial instruments to ensure alignment of the valuation curve methodology in determining terms of the The committee continued to place significant focus on addressing the shortcomings in the accuracy and the fair values of the financial instruments to market practice. The committee acknowledges that the valuation requirements of the completeness of information required by the PFMA, specifically the reporting of irregular expenditure, fruitless of these instruments is complex and that there is a need to ensure that Eskom has access to valuation professionals PFMA and and wasteful expenditure and losses due to criminal conduct. The committee is not satisfied that the prior year with the required specialised skills and knowledge. Companies Act and qualification issues have been adequately addressed as the audit qualification continued in 2022 as the PFMA the impact thereof records were not complete or accurately maintained in line with legislative requirements. Systems, controls, The committee requested that the hedging strategy be reviewed for economic effectiveness. on the audit opinion resources, policies and procedures as well as reporting structures will need to be enhanced to address this Internal control over The committee monitored the effectiveness of the control environment through feedback on the results of the challenge. financial reporting, combined assurance activities from management, assurance and forensics (internal audit) and the external A loss control department has been established in terms of the National Treasury instructions. Assessments and including information auditors. The committee scrutinised the significant risk areas and their associated remediation plans and mitigating determinations of PFMA incidents are conducted by this department from 1 April 2021 in line with revised PFMA technology general controls implemented, including those relating to segregation of duties, access management, security of reporting procedures. The execution of the mandate of the loss control function however needs improvement. controls confidential data, cyber risk, information technology infrastructure, application issues and third-party supplier Refer to the directors’ report for further information on addressing the PFMA reporting challenges. management. The committee concluded that the design of internal controls is adequate, although application and the monitoring thereof require improvement in certain areas. The committee noted significant control The committee considered the restatements of the comparative information in the annual financial statements deficiencies identified relating to compliance with contract management, supply chain management, inventory that was necessary to ensure accurate reporting in terms of IFRS requirements. The committee considered the management, plant management and operational technology procedures, among others. reasons for the adjustments to confirm that matters were appropriately addressed and that controls are in place to prevent any reoccurrence thereof. The committee will continue to monitor the progress of addressing non- The committee considered the independent auditors’ report and the qualified opinion relating to the accuracy compliance matters, including the preparation and execution of the 2023 financial reporting processes. and completeness of information disclosed in terms of the PFMA and that, except for this qualification, the consolidated annual financial statements are fairly presented in terms of IFRS. The committee is satisfied that the Recovery of overdue The committee considered the actions taken by Eskom to address municipal, Soweto and international arrear system of internal financial controls and compensating measures to combat a breakdown in these controls provide trade receivables debt, including enhancing existing revenue and debt management processes, enforcing Eskom’s rights through legal a reasonable basis for the preparation of Eskom’s financial statements. (arrear debt) action and the implementation of the active partnering solution for municipalities. The committee considered the delayed publication of the annual financial statements, arising from the late The committee, however, recognises that the challenges regarding the recovery of outstanding receivables cannot appointment of the external auditors as well as the extensive procedures required at the commencement of a be solved by Eskom alone. The continued support and cooperation from government and other stakeholders are new audit engagement. The committee also considered the time taken to resolve several key audit matters such crucial to address the root causes of the problem. It is critical that these challenges are addressed through the as the valuation of complex financial instruments and the engagement of management experts in this area, the political task team. The committee acknowledges that government plans to announce further measures to address restatement of prior period errors as well as findings and control deficiencies emanating from the lack of the outstanding receivables in the National Budget Speech in February 2023. compliance with well-documented policies, process control manuals and procedures. Valuation of The committee considered management’s feedback regarding the nature and quantum of costs capitalised to property, plant and property, plant and equipment and that the costs were necessary in bringing the asset to the condition to operate The matters listed above are considered to be key focus areas for the committee and will be monitored and reported on in future. The equipment and in the manner intended by management. committee will also monitor the relevant aspects of the legal separation that could have an impact on the role of the committee. assessment for possible impairment The committee also considered management’s feedback that an appropriate methodology has been applied to Internal control, management of risks and compliance with legal and regulatory requirements determine the useful lives of assets based on Eskom’s experience of the performance of the assets taking into The committee considered the following: account Eskom’s operating and maintenance regimes as well as the physical conditions and circumstances under • effectiveness of internal control systems and governance processes which the assets operate. • legal matters that could have a material impact on the group • reportable irregularities raised by the external auditors The committee considered the appropriateness of the CGU for the group and is satisfied that management • effectiveness of the system and process of risk management including the following specific risks: contemplated impairment indicators such as damaged plant and the impact of electricity tariffs on future cash – financial reporting flows, which have been appropriately taken into account in the impairment assessment. The committee – internal financial controls considered management’s underlying assumptions and estimates used in the calculation of the recoverable amount – fraud risks relating to financial reporting of the CGUs which confirmed that there is no impairment required on property, plant and equipment. Refer to – information technology risks relating to financial reporting and internal control note 9 for further information on the impairment assessment. – the effectiveness of the entity’s compliance with legal and regulatory requirements The committee acknowledge that there could be further writeoffs of the carrying value of property, plant and Internal and external audit equipment once the ongoing internal and external investigations into allegations of contract corruption have been The committee considered the following: finalised. Refer to note 2.4. • audit charter, annual audit plan, independence, effectiveness, coordination with external auditors and performance of the assurance and Valuation and The committee considered the briefings on the decommissioning and rehabilitation provisions, including the forensic department that reports functionally into the audit and risk committee adequacy of governance framework applied, the movement in provisions over time and the key assumptions and discount rates • appointment of the external auditors in terms of the Companies Act, Johannesburg Stock Exchange Listings’ Requirements and all other provisions used. The committee considered management’s underlying assumptions used in determining the decommissioning applicable legal and regulatory requirements provisions to assess the adequacy thereof. Detailed annual reviews are done by external experts on a rotation • decision letters, findings and remedial explanations issued by Independent Regulatory Board for Auditors (IRBA) as well as any summaries basis to re-assess the relevant decommissioning and rehabilitation liabilities against the latest international and explanations as made available by the external auditors to the committee practices and benchmarks as well as compliance to legislation. Where recent assessments were not available, the • the quality of the external audit as well as the independence and objectivity of the external auditors including the tenure of the audit firm committee is satisfied that management ensured that the information represents the best available estimate at and the rotation of the engagement partner the reporting date. • external audit plan, audit budget, actual fees and terms of engagement of the external auditors including adherence to the policy of not allowing the external auditors to provide any non-audit services The committee is satisfied that management has adequately considered the provision for compensation events as • accounting, sustainability and auditing concerns identified as a result of the internal and external audits, including reportable irregularities assessed by experts and legal advisors that it is based on the latest available information. The committee acknowledged that the provision is based on Eskom’s past experience regarding the finalisation and outcome of compensation events and that the outcome of open compensation events, which are subject to a contractual adjudication process, could be different to management’s assessment thereof. 22 | | 23 REPORT OF THE AUDIT AND RISK COMMITTEE (continued) INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT ON ESKOM HOLDINGS SOC LTD AND ITS SUBSIDIARIES Conclusion Report on the audit of the consolidated and separate financial statements The committee concluded, based on the information and explanations provided by management and the assurance and forensic department Qualified opinion and discussions with the independent external auditors, that: We have audited the consolidated and separate financial statements of Eskom Holdings SOC Ltd and its subsidiaries (the group) set out on • the expertise, resources and experience of the finance function under the leadership of the chief financial officer are adequate, but pages 38 to 146 which comprise the consolidated and separate statements of financial position as at 31 March 2022, the consolidated and recognised that there is a need for expert technical skills and finance business partnering separate income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for the year • the system and process of risk management is adequate even though the effectiveness thereof needs to be improved then ended, as well as notes to the consolidated and separate financial statements, including a summary of significant accounting policies. • the compliance framework requires continued focus to ensure application thereof, especially in terms of PFMA requirements and contract management In our opinion, except for the effects and possible effects of the matters described in the basis for qualified opinion section of this auditor’s • the internal accounting controls with compensating measures are adequate to ensure that the financial records may be relied upon for report, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial preparing the financial statements and accountability for assets and liabilities is maintained. Improvements are required to ensure the position of the group as at 31 March 2022, and their financial performance and cash flows for the year then ended in accordance with controls operate effectively. The monitoring of the implementation and continuous adherence to policies, process control manuals and International Financial Reporting Standards (IFRS) and the requirements of the Public Finance Management Act 1 of 1999 (PFMA) and the procedures will be a focus area of the process, control and assurance function Companies Act, 2008 (Act No. 71 of 2008). • consequence management needs to be improved to address instances of non-compliance with well-documented policies, process control manuals and procedures Basis for qualified opinion • the internal audit charter approved by the committee was adhered to Irregular expenditure • the expertise, resources and experience of the assurance and forensic department was considered and, although the resources have been The public entity did not fully and accurately record irregular expenditure in note 51.1 to the consolidated and separate financial statements, enhanced during the year, there is still a need for additional resources and skills as required by section 55(2)(b)(i) of the PFMA. This was due to inadequate systems of internal control to timeously detect and record this • the assurance and forensic department, under the leadership of a general manager, is operating effectively, even though improvement is expenditure in the consolidated and separate financial statements, as well as inadequate controls to ensure appropriate assessment of needed in the execution of its mandate and proactive addressing of control deficiencies by the business to prevent any re-occurrence of potential irregular expenditure arising from supply chain management processes, various investigations, and tracking of internal audit and findings forensic report findings. Certain items of possible irregular expenditure that were previously logged for assessment tests were removed • the combined assurance model is adequate. However, the monitoring and assessment of the execution of controls at levels lower than the without the tests being adequately conducted and concluded upon. Certain items were adjusted from the balance at the beginning of the year external auditors of the combined assurance model need to be enhanced which were not substantiated by supporting evidence. • the information contained in the integrated and sustainability reports is reliable and does not contradict the information in the annual In addition, the primary source registers tracking case numbers contained missing numbers in the sequence for which no explanations could financial statements be obtained, and the value of irregular expenditure did not always agree to underlying supporting documentation. • Eskom and the group have access to adequate resources, facilities and support from government to be able to continue their operations for the foreseeable future, supporting the going-concern assumption As a result of the weaknesses identified and described above, we were unable to determine the full extent of the misstatement of irregular • it is satisfied with the audit quality of the external audit as well as the independence and objectivity of the external auditors having expenditure disclosed in terms of section 55(2)(b)(i) of the PFMA stated at R67 101 million (2021: R59 177 million) and R63 337 million considered the matters set out in section 94(8) of the Companies Act. Deloitte & Touche was appointed as external auditors for the 2022 (2021: R56 104 million) in note 51.1 to the consolidated and separate financial statements respectively, as it was impracticable to do so. financial year with Mr AJ Dennis as the lead engagement partner after the contract with the previous auditors came to an end Fruitless and wasteful expenditure The committee is satisfied, notwithstanding the aspects considered in relation to the annual financial statements including the PFMA reporting The public entity did not fully record fruitless and wasteful expenditure in the note 51.2 to the consolidated and separate financial statements, challenges and control deficiencies identified, that nothing significant has come to the attention of the committee to indicate any material as required by section 55(2)(b)(i) of the PFMA. This was due to inadequate systems of internal control to timeously detect and record this breakdown in the functioning of the controls, procedures and systems during the year under review and that the controls are appropriate expenditure in the financial statements including the inappropriate assessment of possible fruitless and wasteful expenditure logged. Items with compensating measures to ensure compliance with the requirements of the Companies Act, the PFMA and IFRS. of possible fruitless and wasteful expenditure previously logged for assessment tests, were removed without the tests being adequately conducted and concluded. In addition, the primary source registers tracking case numbers, contained missing numbers in the sequence, for Recommendation of the annual financial statements which no explanations could be obtained. The committee has evaluated the annual financial statements of Eskom and the group for the year ended 31 March 2022 and, based on the information provided to it, considers that they comply, in all material respects, with the requirements of the Companies Act, the PFMA As a result of the weaknesses identified and described above, we were unable to determine the full extent of the misstatement of fruitless and and IFRS. The committee concurs that the adoption of the going-concern premise in the preparation of the annual financial statements is wasteful expenditure disclosed in the financial statements stated at R4 994 million (2021: R4 968 million) and R4 983 million (2021: R4 966 million) appropriate. disclosed in note 51.2 to the consolidated and separate financial statements respectively, as it was impracticable to do so. The committee has therefore, at its meeting held on 14 December 2022, recommended the adoption of the financial statements by the board. Losses due to criminal conduct We were unable to obtain sufficient appropriate audit evidence for the estimated non-technical revenue losses disclosed in note 51.3 to the consolidated and separate financial statements due to the lack of evidence to support the continued relevance of the model applied to determine the value of estimated non-technical revenue losses. The model, developed in 2016, contains estimates and judgements which have not been updated for changes to the key assumptions. We were not able to confirm estimated non-technical revenue losses by alternative means. In addition, we were unable to obtain sufficient and appropriate evidence that the theft of conductors, cabling and related equipment and FBB Abdul Gany other crimes included in the losses due to criminal conduct note were completely and accurately recorded due to inadequate systems of Chairperson internal control to detect and record these losses. Potential losses associated with fuel oil usage and losses arising from poor coal quality 16 December 2022 were not assessed due to inadequate systems of internal control to evaluate, investigate and monitor unusual fluctuations in fuel oil and coal usage. Consequently, we were not able to determine whether any adjustment was necessary to the estimated losses due to criminal conduct stated at R2 795 million and R2 744 million disclosed in note 51.3 to the consolidated and separate the financial statements respectively, as required by section 55(2)(b)(i) of the PFMA. Context for the opinion We conducted our audit in accordance with the International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the consolidated and separate financial statements section of our report. STATEMENT BY THE COMPANY SECRETARY We are independent of the group in accordance with Independent Regulatory Board for Auditors’ Code of Professional Conduct for Auditors In terms of section 88(2)(e) of the Companies Act of South Africa, I certify that the company has filed with the Companies and Intellectual (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled Property Commission all such returns and notices in terms of this Act, and all such returns appear to be true, correct and up to date. our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. M Manjingolo Company secretary 16 December 2022 24 | | 25 INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT ON ESKOM HOLDINGS SOC LTD AND ITS SUBSIDIARIES (continued) Report on the audit of the consolidated and separate financial statements (continued) Key audit matter How the matter was addressed in the audit Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and The recognition and measurement of these financial instruments The design of the derivative financial instruments and hedge separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and significantly affects the measurement of the consolidated and accounting models as well as certain asumptions used by separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. separate profit or loss for the year and disclosures of financial risks management were inappropriate. The impact of these inaccuracies in the consolidated financial statements. Given the combination of resulted in material misstatements in the day-one gain/loss on initial In addition to the matter described in the Basis for qualified opinion and the Material uncertainty related to going concern sections, we have inherent subjectivity and judgement involved in estimating the values recognition of cross-currency swaps and the resultant impact on determined the matters described below to be the key audit matters to be communicated in our report. The key audit matters identified are of these financial instruments and the material nature of the balance the evaluation of the hedge effectiveness of such instruments at applicable to the consolidated and separate financial statements. as well as the audit effort which involved the use of professionals subsequent reporting dates. This was further impacted by the lack with specialised skill and knowledge, the valuation of the derivative of consideration of CVA/DVA pertaining to such instruments in Key audit matter How the matter was addressed in the audit financial instruments and application of hedge accounting was determining hedge effectiveness. As a result, based on our audit Opening balances and prior period restatements considered to be a matter of significance to the current year audit of procedures, the directors engaged external valuation experts and ISA 510 Initial Audit Engagements – Opening Balances (ISA 510), Our audit procedures included the following: the consolidated and separate financial statements. adjustments were made to mitigate the above risks identified in requires the auditor to evaluate the risk of material misstatement • Interactions with, and reviews of, the predecessor auditors’ the models. The impact of this resulted in current and prior year in relation to the opening balances and to adopt audit procedures to engagement files. misstatements which have been included in the restatements reduce this risk to an acceptably low level. • Understanding key business cycles including the IT landscape. disclosure in note 48. We considered the related disclosures to be • Assessing the directors’ position papers on key judgements and appropriately adjusted in the financial statements. ISA 510 outlines the auditor’s responsibility to obtain sufficient selected accounting transactions. appropriate audit evidence about whether: Primary energy costs and inventory management • Evaluating evidence (data, models and assumptions) supporting • Opening balances contain misstatements that materially affect the Our external audit has confirmed that significant control Our overall audit approach was designed to take into account the significant estimates and selected disclosures. current period’s financial statements; and deficiencies exist over the management of the coal supply chain, results of these risks and the impact of a higher fraud risk on our audit. • In instances where, based on audit evidence evaluated, we • Appropriate accounting policies reflected in the opening balances fuel oil, consumables and spares and primary energy costs. We identified possible misstatements, and resultant restatements, we Our procedures to address this key audit matter included: have been consistently applied in the current period’s financial also identified deficiencies in the directors’ own control processes. performed the following: • Involvement of our internal forensics specialists to assess risk in statements, or changes thereto are appropriately accounted for These identified deficiencies included: – Evaluated the revised accounting treatment of the different the potential fraud areas, identify the fraud schemes and assist in and adequately presented and disclosed in accordance with the • Weighbridge controls at certain sites. transactions against the relevant IFRS. designing appropriate procedures. applicable financial reporting framework. • Quality assessment of the coal and fuel oil delivered. – Involved our internal technical audit and accounting specialists • Interactions with the group’s internal forensics experts – • The performance of inventory cycle counts. Due to the size and complexity of the group, we engaged in an to review the accounting implications and the audit procedures Assurance and Forensics. • Investigation and reconciliation of inventory losses. extensive exercise (Phase Zero) to fulfill the requirements of performed. • Assessment of weighbridge controls and systems by our forensic • The audit of cost-plus mines to ensure the group’s rights are ISA 510. These procedures were further necessitated by the material – Evaluated data, challenged methods and assumptions and and IT specialists. protected and breakdown in internal controls over financial reporting discussed timing of cash flows. • Attendance of the year end inventory counts by senior audit • The maintenance of accurate and complete inventory valuation below. – Involved our specialists where necessary to assist with the personel. reports. evaluation of data, models, assumptions and calculations. • Requesting the directors to reperform their inventory count In understanding and executing Phase Zero, we identified several – Evaluated and challenged the directors’ calculations of the In light of the above observed control deficiencies and the existence processes four times at Majuba, Arnot, Kriel, Tutuka, Camden prior period misstatements, that would materially affect the restated amounts. of fraud and corruption being widely reported both internally and and Hendrina power stations as reliance could not be placed on current period’s financial statements. The pervasive nature of these – Evaluated the appropriateness of the disclosures in the externally of Eskom, we have concluded that there has been a the accuracy of managements’ previous inventory counts and misstatements, coupled with the magnitude of the misstatements financial statements. significant breakdown in the controls over the management of coal, cycle counts due to the high percentage of count inaccuracies. resulted in prior period restatements to the consolidated and fuel oil, consumables and spares. This is considered to be a key audit • Performing analytical review procedures and benchmarking separate financial statements, that have been disclosed in note 48. We found that the restatements were performed in accordance with matter due to the significant and pervasive impact this has had on analysis to identify significant fluctuations/anomalies/outliers with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and the overall timing, level of expertise and effort associated with the respect to fuel oil. These have a significant impact on the consolidated and separate are based on relevant IFRSs. We evaluated the disclosures in note 48 current audit of the financial statements. • Performing data analytic procedures, with the assistance of our financial statements, and we consider Phase Zero and the resultant to the financial statements which contain the key explanations and IT audit function in order to identify transactions with the parties prior period restatements to be a key audit matter. impact of the adjustment on the prior year financial position and identified in media articles, Zondo Commission reports, and results of operations, and we consider these to be appropriate. Assurance and Forensics reports. Valuation of complex financial instruments and hedge accounting • Selecting a sample of the purchases made and inspecting The group and company accounts for complex financial instruments • Evaluated the design and tested the operating effectiveness of supporting documents such as the service level agreements, in accordance with IAS 39 Financial Instruments: Recognition and certain internal controls over the group and company’s valuation proof of delivery, proof of payments and the invoices, in order to Measurement and IFRS 9 Financial Instruments, which prescribes of derivative financial instruments and hedging accounting determine the validity and existence thereof. the principles for recognition and measurement of the financial process. Based on the above procedures, we have concluded on the existence instruments and hedge accounting. The derivatives held for risk • Involved valuation professionals with specialised skills and of coal, fuel oil and consumables and spares as reflected on the management are not managed on a held-to-collect and/or for sale knowledge, who assisted in the evaluation of the group and balance sheet following certain adjustments. business model and the default classification and measurement is company’s hedge documentation for certain contracts, for therefore at fair value through profit or loss unless they meet the the purposes of determining whether the related accounting Our procedures confirm the existence of significant control criteria for and have been designated as cash flow hedges. treatment was in accordance with the requirements of the deficiencies in coal inventory management at certain sites, as well prevailing accounting standards. as in the monitoring and measurement of fuel oil usage at certain Significant judgment is exercised by the group in the recognition and • Assessed the competence, qualifications, and objectivity of power stations namely Majuba, Tutuka, Camden and Grootvlei in valuation of the derivatives financial instruments and cash flow hedges. group directors’ external specialists used in the valuation of the the generation division. As per note 6.2, the group’s valuations of cross-currency swaps derivative financial instruments. include the credit risk of Eskom (known as debit value adjustment • For a sample of instruments, with the assistance of our valuation DVA) and counterparties (known as credit value adjustment CVA) specialists we: where appropriate. A stochastic modelling approach is followed – Challenged the appropriateness of the valuation methodology where the expected future exposure to credit risk for Eskom and and technique used by the directors in the valuation of the its counterparties (considering default probabilities and recovery instruments. rates derived from market data) is modelled at inception and on – Reperformed the valuation using an independent model and subsequent valuation dates. compared the fair value results to directors’ valuation to assess the reasonableness of directors’ model methodology and the output of model calculations. 26 | | 27 INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT ON ESKOM HOLDINGS SOC LTD AND ITS SUBSIDIARIES (continued) Report on the audit of the consolidated and separate financial statements (continued) Key audit matters (continued) Key audit matter How the matter was addressed in the audit Key audit matter How the matter was addressed in the audit Valuation of the compensation events provisions relating to mega-build projects The key assumptions with the most significant impact on the cash Our procedures included the following: As disclosed in note 2.18, note 29 and note 44 to the consolidated Our audit procedures included the following: flow forecasts were: • Testing of the key controls relating to the preparation and review and separate financial statements, the group recognises provisions • We assessed the design and implementation of controls operating • Revenue growth which is dependent on electricity sales of the group’s cash flow forecasts and the impairment model. for compensation events. to ensure that compensation events settled are valid and that volumes and generation capacity as well as the forecasted • Testing of inputs into the cash flow forecast. appropriate provision is raised for outstanding claims. price of electricity, which path is based on tariff increases to be • Given that the assumptions with the most significant impact is These provisions are recognised based on contractual obligations and • We considered the appropriateness of the oversight performed determined by the National Electricity Regulator of South Africa the forecasted sales price and the forecasted available generation measured based on the best estimate of the expenditure required to by the compensation events committee, the responsible contract (NERSA). capacity identified by the directors, we settle the present obligation at the end of the reporting period. The managers and Eskom executives. • The discount rate which is based on the regulatory electricity – Challenged the expectation as to the electricity price path amount of the provisions is based on directors’ assessment of the • For a sample of claims submitted by contractors we performed pricing methodology where the rate of return on the entity’s which clarity has now been attained through the most most likely amounts due based on the current information available. the following: assets should equate to its weighted average cost of capital. The recent Court rulings both on methodology inputs and on the The group expects to settle the majority of these provisions within – Obtained an understanding of the status of the contract determination of the weighted average cost of capital is highly adjustments required to correct the prior year assumptions 12 months. through discussion with contract managers and internal complex. applied by NERSA. The finalisation of the obligation depends on factors outside the experts including engineers and quantity surveyors. • Long term growth rates and EBITDA margins. – Challenged the model assessing the generation capacity, control of the group, for example, arbitration and dispute resolution – Assessed the validity of each claim with reference to contract • Adoption of a consistent pricing methodology by NERSA in line specifically the energy wheel. processes, which could impact the timing and quantum of the documentation. with the prevelant pricing methodology. • Considered the directors’ ability to accurately forecast, based on settlement of these claims. Each claim is assessed individually to – Held discussions with directors’ internal experts and, where a comparison of historical actual performance against previous applicable, external experts, to obtain an understanding of The complexity of the above results in complex accounting respective forecasts. determine culpability and to conclude on the strength of the claim. considerations, and this was determined as a key audit matter. the significant assumptions, judgements and methods used in • We engaged our internal valuation and engineering specialists to The group relies on its contract managers, internal and external determining the estimates, the outcome of their estimates and perform the following: engineers and quantity surveyors and where necessary, other the basis of their conclusions. – Critically evaluate whether the directors’ assertion regarding experts, in the determination of the provision for compensation – Considered the reasonableness of estimates made in a single CGU and the value in use calculation complies with the events. recognising the provision for compensation events, through requirements of IAS 36 Impairment of assets. inspection of claim submissions, quantity surveyor reports, – Benchmark the growth rates and forecasted sustainable The estimation of the amount required to settle claims arising from and correspondence between the contractor and Eskom. EBITDA margin. compensation events requires significant judgement. Due to the • Assessed the competence, capabilities and objectivity of – Assess the weighted average cost of capital (discount rate) and high level of judgement and estimation required in determining the directors internal and where applicable, external experts, the determination of this rate. provision for compensation events, it is considered to be a key through inspection of their qualifications and their membership – Assess the forecasted available generation capacity and audit matter. of professional organisations. evaluated this against the 2035 Just Energy Programme. • Considered the historical accuracy of previous provisions raised – Stress-tested the future projected cash flows specifically in and settlements ultimately made. relation to the key assumptions of price and energy availability • For material claims and those currently in dispute resolution factor inputs. and arbitration processes, we held discussions with the group’s – Analysed the future projected cash flows used in the models internal legal counsel, obtained confirmations from the group’s to determine whether they are reasonable and supportable external legal advisors and inspected correspondence in respect given the current macroeconomic climate and expected of these matters. future performance of the CGU, against external market data, • We updated our understanding of claims in progress to the date historical performance and forecasts. of signing the financial statements and updated our understanding – Recalculated the value in use of the CGU. of subsequent rulings and whether these should be adjusted as at – Considered the appropriateness of the disclosures and 31 March 2022. sensitivity analyses presented. We assessed the adequacy of the disclosures made in the financial The discount rate and other assumptions were within independently statements with reference to the disclosure requirements of determined acceptable ranges. IAS 37 Provisions, Contingent liabilities and Contingent assets. For the determination of an appropriate recoverable amount for We did not identify material discrepancies in directors’ judgements the CGU, the model is dependent on NERSA approving the tariffs and conclusions. in line with the regulatory electricity pricing methodology which is consistently applied. This is a significant assumption, as the group Impairment of property, plant and equipment and indefinite useful life intangible assets has resorted to lodging court applications to oppose certain As disclosed in note 2.6, note 8 and note 9 of the consolidated and In evaluating the impairment model of property, plant and equipment assumptions NERSA applied in the revenue determination where separate financial statements, the directors assessed the property, and intangible asset balances within the CGU, we reviewed the value the directors believe NERSA has not complied with the published plant and equipment and intangible asset balances for impairment in in use calculation prepared by the directors, with a particular focus multi-year price determination methodology. Note 47 discloses line with IAS 36 Impairment of Assets. on the assumptions with the most significant impact. This included the outcome of Eskom’s court review applications against NERSA the forecasted sales price, the forecasted available generation revenue determination decisions. The recoverable amount of a group of assets, or CGU, is to be capacity, discount rates, the long term growth rate and consistent measured whenever there is an indication that the value of the implementation of the pricing methodology as identified by the We considered the related disclosures of the key dependencies and group of assets or the CGU may be impaired. Significant judgement directors. the sensitivities in the impairment model to be appropriate. is required by the directors in assessing the impairment of the group of assets or the CGU, which is determined with reference to fair value less cost to sell or the value in use, based on the cash flow forecast for the CGU. Impairment indicators were identified as a result of the continuing losses of the group and company, worse than expected financial performance as a result of increased generation costs and lower than expected energy availability factor being achieved. 28 | | 29 INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT ON ESKOM HOLDINGS SOC LTD AND ITS SUBSIDIARIES (continued) Report on the audit of the consolidated and separate financial statements (continued) Key audit matter How the matter was addressed in the audit Key audit matters (continued) The completeness and accuracy of the consolidated and separate While the audit procedures we have performed have provided us Key audit matter How the matter was addressed in the audit financial statements, is dependent on, in part: with sufficient and appropriate audit evidence for our opinion and Valuation of the power station-related environmental restoration and mine-related closure, pollution control and • Designing and maintaining an effective control environment, that our opinion is not modified in respect of these significant deficiencies rehabilitation provisions includes day to day controls, as well as reconciliation controls, except to the extent outlined in the basis for qualified opinion As disclosed in note 28 to the consolidated financial statements, the • Obtained the group’s environmental models which are used to • Maintaining a sufficient complement of resources with an above, the significant control deficiencies resulted in significant group and company recorded R49.8 billion (2021: R47.3 billion) in determine the value of the environmental remediation provisions. appropriate level of controls knowledge, expertise and training management effort to appropriately address the matters identified closure and rehabilitation provisions as at 31 March 2022. Provisions • Assessed the design and implementation of controls over the commensurate with financial reporting requirements, and delayed the audit process and the resultant reporting on the for closure and rehabilitation are recognised by the group when model preparation, the inputs and the review. • Designing and maintaining effective information technology financial statements. there is a present legal or constructive obligation, it is more likely • The nuclear related closure and related provisions, we involved general controls for significant applications used in the preparation of the financial statements, including access and The following are the primary procedures we performed to address than not that an outflow of resources will be required to settle the an international nuclear specialist to assess the appropriateness this key audit matter: obligation, and the amount can be reliably estimated. of the model and provisions against latest international standards monitoring changes within those significant applications, and • Designing and maintaining effective controls to timely detect and • We applied auditor judgement to plan the nature, timing, and to ensure all areas of exposure have been considered, quantified extent of our audit procedures to be performed over financial Auditing the group’s rehabilitation and decommissioning provisions and recorded appropriately. The specialist assessed the nature independently review instances where individuals with access to was complex due to the significance, as well as the high estimation post a journal may also have edited or created the journal entry. statement account balances. and timing of the costs included within the cash flow forecasts. • We altered the timing of the audit procedures and completed uncertainty, of the provisions. The determination of the provisions is • For the other power generating plants and mine related closure based on, among other assumptions, judgements and estimates of the Our audit confirmed that the group had developed policies and these closer to the balance sheet date. and rehabilitation provisions, engaged our environmental procedures, to ensure a sound control environment, however, these • The audit process was delayed to allow management, the current damage caused, nature, timing and amount of future costs to specialists, who performed the following procedures: be incurred to rehabilitate the power stations and mine sites, and are not always adhered to nor are there monitoring procedures and directors and the auditors sufficient time to close out on the key – Obtained the latest external directors’ environmental specialist controls to assess and enforce the implementation of the policies areas of judgement. discount rates. These assumptions are inherently judgmental and reports prepared for the rehabilitation and decommissioning subject to change due to continued power generation and mining and procedures. • We re-assessed certain critical judgements and reviewed provision of each power station and cost-plus mine, as well as critical decisions taken on certain estimates and judgements in activity and rehabilitation, legislation and environmental changes, the models prepared by the directors. A number of the controls breakdowns had been identified by the which cannot be predicted with certainty and thus requires specific the prior year. – Reviewed the methodology, including significant key technical group’s assurance and forensics department, however monitoring • We evaluated our scoping thresholds and control risk assessments focus and the involvement of specialists on our team. judgements and estimates, applied by the environmental of the remediation of these deficiencies were not deemed adequate. considering the material breakdowns in controls. specialists with respect to the closure and rehabilitation • We increased the number of sample selections compared to what provisions. The decentralised nature of the group’s operations has resulted in ineffective lines of communication and authority in executing the we would have otherwise made had the public entity’s controls – Engaged our valuation specialists to review the discount rates been properly designed and operated effectively. used by the directors in the closure and rehabilitation models. group’s directives. No clear lines of responsibility exist, resulting in an inability to assign accountability. • We evaluated the sufficiency of audit evidence obtained by – Tested the mathematical accuracy of the closure and assessing the results of procedures performed, including the rehabilitation provisions calculations. The directors’ controls with respect to the review of the underlying appropriateness of the nature and extent of such evidence. – Assessed the competence, qualifications, and objectivity of financial information of the group and its components, including • We brought an element of unpredictability to areas highlighted directors’ external specialists. reconciliations performed in the financial reporting close process, through our risk assessment processes by scoping and subscoping – Assessed the adequacy of the disclosures within note 28 to the appropriate application of IFRS and consideration of accounting to address specific risks in particular sites or over certain account consolidated financial statements. positions relating to significant estimates and judgements, in respect balances, by changing the timing of our procedures, by revisiting We identified significant internal control deficiencies in the of key account balances and classes of transactions, are not operating sites to assess the adherence to the policy and procedure manual, determination and valuations of provisions for closure and rehabilitation effectively. by obtaining external confirmation in areas where the internal costs, which resulted in numeric misstatements and restatements. processes were not providing the required audit evidence and The breakdowns in controls are contributory factors to the by reperformance of processes to evaluate the results internal Furthemore, with respect to the nuclear plant decommissioning restatements disclosed in note 48. processes yielded. and spent fuel provisions, there was no evaluation of the continued The impact of the above material breakdown of internal controls relevance and appropriateness of the decommissioning model and Based on the audit procedures performed and the level of expertise and the extent to which these significant deficiencies are linked and effort associated with the current year audit, we are satisfied the inputs into the model were not updated resulting in the estimates to a likelihood of material misstatement including the risk of fraud and assumptions for labour, foreign currency and inflation rates that our audit procedures were sufficient to mitigate the impact of and error, had an impact on the overall timing, level of expertise the material breakdown in financial controls. requiring adjustment to be aligned to current market information and effort associated with the current year audit of the financial and align to industry guidance and accounting standards. statements and thus is a key audit matter. We identified misstatements resulting from incorrect discount rates, double discounting of water treatment costs and spent fuel costs in Material uncertainty related to going concern the power station and nuclear station respective decommissioning We draw attention to the matter below. models, and inappropriate treatment of the water management costs with respect to a cost-plus mine. We draw attention to note 3.2 in the consolidated and separate financial statements which indicates that the group incurred a net loss of R12 330 million (2021: R25 016 million), and the company incurred a net loss of R14 312 million (2021: R26 696 million) for the year ended The directors processed the relevant adjustments to correct the 31 March 2022. In addition, the current liabilities exceed current assets at year end. above misstatements identified and this is appropriately disclosed in note 28 as well as the restatement note 48. As disclosed in note 3.2, the group is faced by significant challenges that is evidenced by: • the continued losses experienced by the group and company, Material breakdowns in internal controls over financial reporting and the impact on the audit of the financial statements • the declining generation capacity on the back of plant performance challenges resulting in increased fuel spend on OCGT generating Strong internal controls over the financial reporting process are key Eskom’s challenges are well understood by every South African and capacity, to ensuring that financial statements are reliable and fairly presented. so in accepting the audit engagement Deloitte planned to use and • above inflation cost increases, deploy senior audit personnel, international and internal specialists • the continuous increase in overdue electricity receivables, Internal control is defined as the process designed, implemented with skill in areas of complexity and judgement. • the court proceedings against NERSA to regularise the tariff determination methodology, and and maintained by those charged with governance, management • the negotiation of significant new and renewed funding and the need for Government support. and other personnel to provide reasonable assurance about the Informed by our Phase Zero work discussed above, we adopted a achievement of an entity’s objectives with regard to reliability of fully substantive audit approach to the audit of the consolidated and The mitigating strategies and actions as disclosed in note 3.2 are numerous but various dependencies and uncertainties both internal and financial reporting, effectiveness and efficiency of operations, and separate financial statements. external to the company will impact the ability to deliver against these strategies, which indicates the existence of a material uncertainty that may compliance with applicable laws and regulations. cast significant doubt on the group and company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. 30 | | 31 INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT ON ESKOM HOLDINGS SOC LTD AND ITS SUBSIDIARIES (continued) Report on the audit of the consolidated and separate financial statements (continued) We performed procedures to determine whether the reported performance information was consistent with the approved performance Emphasis of matter planning documents. We performed further procedures to determine whether the indicators and related targets were measurable and We draw attention to the matters below. Our opinion is not modified in respect of these matters. relevant, and assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete. Restatement of corresponding figures We did not identify any material findings on the usefulness and reliability of the reported performance information for these key performance areas. As disclosed in note 48 to the consolidated and separate financial statements, the corresponding figures for March 2021 and March 2020 were Other matter restated as a result of errors in the financial statements at and for the year ended 31 March 2022. We draw attention to the matter below. Events after the reporting period Achievement of planned targets We draw attention to note 47 in the consolidated and separate financial statements, which discloses several material non-adjusting and Refer to shareholders compact performance section of the directors’ report pages 17 to 19 for information on the achievement of planned adjusting subsequent events. This includes the court rulings relating to NERSA applications, the diesel rebate ruling from SARS as well as targets. several plant incidents subsequent to year end. Adjustment of material misstatements Significant new accounting policy – Investigations into possible corruption and related impact on capital projects We identified material misstatements in the financial sustainability section of the annual performance report submitted for audit resulting We draw attention to note 2.4 in the consolidated and separate financial statements, which describes the new accounting policy related to from corrections to the underlying financial statements submitted for audit. As management subsequently corrected the misstatements, we the investigations into possible corruption at the group and the potential impact on the valuation of capital projects, once the investigations did not raise material findings on the usefulness and reliability of the reported performance information. are completed. Report on the audit of compliance with legislation Other matter We draw attention to the matter below. Our opinion is not modified in respect of this matter. Introduction and scope In accordance with the PAA and the general notice issued in terms thereof, we have a responsibility to report material findings on the public Previous period audited by a predecessor auditor entity’s compliance with specific matters in key legislation. We performed procedures to identify findings but not to gather evidence to The consolidated and separate financial statements of the group for the year ended 31 March 2021 were audited by another auditor in terms express assurance. of section 4(3) of the Public Audit Act of South Africa, Act 25 of 2004 (PAA). A qualified opinion on those statements was issued on 26 August The material findings on compliance with specific matters in key legislation are as follows: 2021 as the group did not fully and accurately record irregular expenditure in terms of section 55(2)(b)(i) of the PFMA. Annual financial statements Responsibilities of the accounting authority for the consolidated and separate financial statements The financial statements submitted for auditing were not fully prepared in accordance with the prescribed financial reporting framework The board of directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of the consolidated (IFRS) as required by section 55(1)(b) of the PFMA. The submitted financial statements contained material misstatements on primary energy, and separate financial statements in accordance with IFRS and the requirements of the Companies Act and PFMA, and for such internal impairments and write down of assets, other expenses, net fair value and foreign exchange gains and losses, depreciation and amortisation control as the accounting authority determines is necessary to enable the preparation of consolidated and separate financial statements that expense, net fair value and foreign exchange (loss)/gain, other expenses, finance cost, income tax, deferred tax, property, plant and equipment, are free from material misstatement, whether due to fraud or error. inventories, derivatives, trade and other receivables, capital reserves and provisions, identified by the auditors which were subsequently In preparing the consolidated and separate financial statements, the accounting authority is responsible for assessing the group’s ability to corrected. Furthermore, the note disclosure relating to going concern, business impairments, and complex financial instruments was not continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless provided and subsequently updated. In addition, significant number of restatements to the prior year comparative information were identified the accounting authority either intends to liquidate the group or to cease operations, or has no realistic alternative but to do so. and corrected. The details of the restatements have been described in note 48 to the consolidated and separate financial statements. Expenditure management Auditor’s responsibilities for the audit of the consolidated and separate financial statements Effective and appropriate steps were not taken to prevent irregular expenditure, as required by section 51(1)(b)(ii) of the PFMA. As reported Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from in the basis for the qualified opinion the amount of irregular expenditure disclosed in note 51.1 of the company financial statements does not material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a reflect the full extent of the irregular expenditure incurred. The majority of the irregular expenditure disclosed in the financial statements high level of assurance but is not a guarantee that an audit conducted in accordance with the ISAs will always detect a material misstatement was caused by non-compliance with section 51(1)(a)(iii) of the PFMA. Similar non-compliance was reported in the prior year. when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. Effective steps were not taken to prevent fruitless and wasteful expenditure, as required by section 51(1)(b)(ii) of the PFMA. As reported in the basis for the qualified opinion the amount of fruitless and wasteful expenditure disclosed in note 51.2 of the company financial statements does A further description of our responsibilities for the audit of the consolidated and separate financial statements is included in the annexure not reflect the full extent of the fruitless and wasteful expenditure incurred. The majority of the fruitless and wasteful expenditure disclosed to this auditor’s report. in the financial statements was caused by poor procurement and project management. Similar non-compliance was reported in the prior year. Report on other legal and regulatory requirements Revenue management In accordance with our responsibilities in terms of sections 44(2) and 44(3) of the Auditing Profession Act, we report that we have identified Effective and appropriate steps were not taken to collect all revenue due from local small power users, as required by section 51(1)(b)(i) of reportable irregularities in terms of the Auditing Profession Act. We have reported such matters to the IRBA. The matters pertaining to the the PFMA. Furthermore, the steps taken to collect revenue due from local large power users (municipalities) were not effective in recovering reportable irregularities have been described in note 52.1 to the consolidated and separate financial statements. all revenue due as required by the PFMA. Similar non-compliance was reported in the prior year. Report on the audit of the annual performance report Procurement and contract management Introduction and scope We were unable to obtain sufficient appropriate audit evidence that, in all instances, quotations were awarded in accordance with the In accordance with the PAA and the general notice issued in terms thereof, we have a responsibility to report on the usefulness and legislative requirements as due proper record keeping was not maintained. Similar limitations were also reported in the prior year. reliability of the reported performance information against predetermined objectives for selected key performance areas presented in the In some instances, goods, works, or services were not procured through a procurement process which is fair, equitable, transparent, and shareholders compact performance section of the directors’ report. We performed procedures to identify material findings but not to competitive, as required by section 51(1)(a)(iii) of the PFMA. Limitations were also reported in the prior year. gather evidence to express assurance. In some instances, tenders and quotations were awarded to bidders based on preference points that were not awarded in accordance with Our procedures address the usefulness and reliability of the reported performance information, which must be based on the entity’s the requirements of the Preferential Procurement Policy Framework Act (PPPFA) and Preferential Procurement Regulation. Similar non- approved performance planning documents. We have not evaluated the completeness and appropriateness of the performance indicators compliance was also reported in the prior year. included in the planning documents. Our procedures do not examine whether the actions taken by the entity enabled service delivery. Our procedures do not extend to any disclosures or assertions relating to the extent of achievements in the current year or planned performance In some instances, tenders and quotations were awarded to bidders that did not score the highest points in the evaluation process, as strategies and information in respect of future periods that may be included as part of the reported performance information. Accordingly, required by section 2(1)(f) of PPPFA and section 11 of the 2017 Preferential Procurement Regulation. our findings do not extend to these matters. In some instances, tenders and quotations were awarded to bidders based on functionality criteria that were not stipulated in the original We evaluated the usefulness and reliability of the reported performance information in accordance with the criteria developed from the invitation for bidding and quotations, as required by the 2017 Preferential Procurement Regulation 5(1) and (3). performance management and reporting framework, as defined in the general notice, for the following selected key performance areas In some instances, tenders and quotations were awarded to bidders based on pre-qualification criteria that were not stipulated and/or presented in the shareholders compact performance section of the directors’ report for the year ended 31 March 2022 (pages 17 to 19): differed from those stipulated in the original invitation for bidding and quotations, in contravention of the 2017 Preferential Procurement • Improve plant operations Regulation 4(1) and 4(2). • Deliver capital expansion • Ensure financial sustainability In some instances, tenders which failed to achieve the minimum qualifying score for functionality criteria were not disqualified as unacceptable • Reduce environmental footprint in existing fleet in accordance with the 2017 Preferential Procurement Regulation 5(6). In some instances, tenders which achieved the minimum qualifying score for functionality criteria were not evaluated further in accordance with the 2017 Preferential Procurement Regulation 5(7). 32 | | 33 INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT ON ESKOM HOLDINGS SOC LTD AND ITS SUBSIDIARIES (continued) Report on the audit of compliance with legislation (continued) Leadership did not ensure that adequate entity and process level controls were designed, implemented and monitored to prevent, identify Introduction and scope (continued) and correct non-compliances within the supply chain environment and quantify the full extent of irregular expenditure, thereby addressing Procurement and contract management (continued) the repeat qualification. There was no comprehensive process to address the repeat findings related to irregular expenditure. Some of the bid documentation for procurement of commodities designated for local content and production, did not always stipulate the Leadership did not adequately exercise oversight responsibility regarding compliance and related internal controls to ensure that compliance minimum threshold for local production and content as required by the 2017 Preferential Procurement Regulation 8(2). requirements were met in order to prevent irregular expenditure, fruitless and wasteful expenditure, and reporting on losses due to criminal Consequence management conduct. We were unable to obtain sufficient appropriate audit evidence that disciplinary steps were taken against officials who had incurred irregular The accounting authority did not ensure that there were adequate controls in place to ensure that amounts included in the annual financial expenditure and fruitless and wasteful expenditure as required by section 51(1)(e)(iii) of the PFMA. This was due to some investigations into statements and PFMA disclosure notes are supported by registers which are complete and accurate. Some underlying information supporting irregular and fruitless and wasteful expenditure not being performed. A similar limitation was reported in the prior year. This limitation registers were not always recorded, values were not always accurate, and information was not always sufficient and appropriate and format resulted in a reportable irregularity as reported on the report on other legal and regulatory requirements above. of underlying registers at times made it impracticable to allow for efficient audit process. Where investigations were performed, disciplinary steps were not taken against some of the officials who had permitted irregular and Management has continued the journey of implementing proper record keeping in a timely manner to ensure that complete, relevant and fruitless and wasteful expenditure, as required by section 51(1)(e)(iii) of the PFMA. accurate information is accessible and available to support the reporting of irregular expenditure. While there is some progress made, we Allegations of financial misconduct against some members of the accounting authority were not properly investigated in accordance with the identified instances where proper record keeping ensuring complete, relevant and accurate information to support reporting on irregular requirements of treasury regulation 33.1.3. expenditure was not yet implemented. In some instances, fictitious documents were created for audit purposes. Documents were also intentionally destroyed by Eskom employees. Investigations were not conducted into all allegations of financial misconduct committed by some of the officials, as required by treasury regulation 33.1.1. Leadership and management developed forward looking action plans as part of addressing prior year issues related to consequence management for irregular, fruitless and wasteful expenditure and the prior year qualification. The implementation of these actions plans is In some instances, disciplinary hearings were not held for confirmed cases of financial misconduct committed by some of the officials, as still in progress and therefore the public entity has not completely implemented consequences for historic transgressions as well as non- required by treasury regulation 33.1.1. compliance in the current period. Due to inadequate processes of management of cases and investigations, we are unable to obtain sufficient evidence that allegations of Management did not in all instances adequately implement review and monitoring controls to prevent non-compliance with applicable laws corruption or theft, fraud, extortion, forgery, uttering a forged document which exceeded R100 000 were reported to the SAPS, as required and regulations relating to supply chain management. In addition, the lack of related internal controls on certain of these items were also by section 34(1) of the Prevention and Combatting of Corrupt Activities of South Africa. A similar limitation was also reported in the prior highlighted to management as potential fraud risk indicators. Where controls did not prevent non-compliance with supply chain management year. This limitation resulted in a reportable irregularity as reported in the report on other legal and regulatory requirements above. legislation, detection controls were also deficient as not all irregular expenditure and fruitless and wasteful expenditure were identified and disclosed. Other information The accounting authority is responsible for the other information. The other information comprises the information included in the document Management regularly reports on splitting of orders but did not design and implement adequate controls to investigate and where necessary titled “Eskom Annual financial statements 31 March 2022” which includes the directors’ report, the report of the audit and risk committee take the appropriate action against both delinquent suppliers and employees to prevent the splitting of orders to avoid the competitive and statement by the company secretary as required by the Companies Act which were obtained prior to the date of this report. The other bidding process for goods and services as we still identified instances of splitting of orders. information does not include the consolidated and separate financial statements, our auditor’s report and those selected key performance Management has developed categories for various compliance requirements on the Enterprise Resource Planning (ERP) system, however, areas presented in the shareholder compact performance section of the directors’ report that have been specifically reported on in this the discipline to complete system inputs adequately, highlighting the nature of procurement process being followed, was not reviewed and auditor’s report. monitored. This results in compliance related matters not being supported by complete and accurate registers. Our opinion on the financial statements and findings on the compliance with legislation do not cover the other information and we do not Leadership did not act on a timely basis on various assurance and forensic report findings, thus contributing to the lack of compliance with express an audit opinion or any form of assurance conclusion on it. the company’s internal policies and procedures and resulting in a less than satisfactory control environment. In connection with our audit, our responsibility is to read the other information and, in doing so, consider whether the other information Leadership did not provide adequate oversight to address the significant backlogs in forensic matters not timeously investigated and ensuring is materially inconsistent with the consolidated and separate financial statements and the selected key performance areas presented in the disciplinary processes are timeously effected on matters that were investigated. This results in non-adherence of legislation. shareholder compact performance section of the directors’ report, or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, Although there is a project underway, management did not timeously implement adequate controls to evaluate and confirm the continued we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report relevance of the non-technical revenue losses model and update the key assumptions used. in this regard. The accounting authority did not exercise adequate oversight over the financial statements before submitting them for audit. We identified Internal control deficiencies material misstatements to the financial statements submitted for audit, as well as restatements to the prior year financial results. The We considered internal control relevant to our audit of the consolidated and separate financial statements, reported performance group’s financial reporting controls were not adhered to by component financial management to ensure the reporting of IFRS compliant information and compliance with applicable legislation; however, our objective was not to express any form of assurance on it. The matters financial information that is based on accurate and complete financial records. This has highlighted the lack of ownership and accountability reported below are limited to the significant internal control deficiencies that resulted in the basis for the qualified opinion, the restatements, for accurate and complete financial records and financial reporting at a component level and further indicates a lack of financial oversight, and the findings on compliance with legislation included in this report. monitoring and review of component financial information. As previously reported, the accounting authority has embarked on an action plan to address the internal control deficiencies as part of Management did not implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information is exercising its oversight responsibility regarding compliance with applicable legislation and internal control. Although policies and procedures accessible and available to support credible financial reporting. This resulted in delays in submission of information impacting the audit exist and are communicated, there is a lack of discipline in the business to adhere to these policies and procedures. This, together with the process and ultimately the audit outcome. lack of adequate monitoring and effective consequence management procedures, resulted in a lack of accountability at the operational level The consistent performance by management of routine key financial controls such as inventory cycle counts, review of stock obsolescence, and a less than satisfactory control environment. asset verification and supplier creditor reconciliations were not always adequately performed during the year. In addition, the controls around Furthermore, in the prior year, the accounting authority introduced a loss control function in an effort to reduce the occurrence of irregular the accounting positions relating to significant estimates and judgements, in respect of key account balances and classes of transactions, are and fruitless and wasteful expenditure as described in the prior year directors’ report. However, management did not adequately implement not operating effectively. the continuous review and monitoring controls relating to self-assessment for supply chain management, irregular, fruitless and wasteful Management did not implement appropriate weighbridge controls which is critical for inventory management at certain sites. Although expenditure, nor did they implement the mechanism of effective collaboration between the assurance, and forensic, and loss control identified by management, the control procedures to adequately assess coal quality in terms of the contractual arrangements, were not functions to identify PFMA related issues. This resulted in not all PFMA related matters being identified and investigated timeously to act as implemented effectively at all sites. Management did not implement appropriate controls over monitoring and measurement of fuel oil usage a deterrent for future perpetrators. This further results in an ineffective assurance process. at certain sites. These significant control deficiencies result in ineffective inventory management, the inability to respond to inventory losses The accounting authority did not exercise adequate oversight over those responsible for compliance and the implementation of effective and excessive usage variances and the inability to take action against delinquent employees and or suppliers where proven. The controls over action plans to ensure that all significant prior year audit findings are remediated appropriately and that the backlogs of transgressions were inventory and primary energy at certain sites are lacking and this could result in loss to the company. investigated and concluded timeously. The treasury function within the group manages a large portfolio of debt and financial instruments. The valuation of such instruments is Management did not address the backlog relating to alleged possible irregular and fruitless and wasteful expenditure within the specified complex and there was a lack of technical skillset to appropriately evaluate and critique the key inputs and assumptions in the models. There timeframe as required by the National Treasury frameworks and instruction notes. is a lack of technical expertise to robustly review and evaluate these complex models and the impact on the hedge accounting process in line with relevant accounting standards. 34 | | 35 INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT ON ESKOM HOLDINGS SOC LTD AND ITS SUBSIDIARIES (continued) Internal control deficiencies (continued) Annexure – Auditor’s responsibility for the audit The executive authority did not fill vacant board positions and some of the vacancies were for individuals with the requisite financial skills As part of an audit in accordance with the ISAs, we exercise professional judgement and maintain professional scepticism throughout our resulting the audit and risk committee functioning without a member with financial skill. This has only recently been addressed through the audit of the consolidated and separate financial statements, and the procedures performed on the reported performance information for appointment of the new board members. selected key performance areas and on the group’s compliance with respect to the selected subject matters. Other reports Financial statements We draw attention to the following engagements conducted by various parties which had, or could have, an impact on the matters reported In addition to our responsibility for the audit of the consolidated and separate financial statements as described in this auditor’s report, we also: in the consolidated and separate financial statements, reported performance information, compliance with applicable legislation and other • identify and assess the risks of material misstatement of the consolidated and separate financial statements whether due to fraud or error, related matters. These reports did not form part of our opinion on the financial statements or our findings on the reported performance design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a information or compliance with legislation. basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls Matters under investigation • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the The Zondo Commission of Enquiry dedicated a whole report to the alleged contract maladministration and corruption within the Eskom circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group’s internal control Holdings SOC Ltd environment in the context of state capture. As disclosed in note 52.2 and note 2.4 to the financial statements, various • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by matters are reported to be under investigation. During the financial year under review the regulatory authorities and the accounting authority the board of directors, which constitutes the accounting authority conducted investigations into alleged irregularities, fraud and corruption within the procurement environment and other areas of the entity. • conclude on the appropriateness of the accounting authority’s use of the going concern basis of accounting in the preparation of the In addition, there were findings of maladministration regarding supply chain management and other improper conduct associated with state financial statements. We also conclude, based on the audit evidence obtained, whether a material uncertainty exists relating to events or capture that have been brought to the attention of the accounting authority. As at the reporting date, investigations remain ongoing, and we conditions that may cast significant doubt on the ability of Eskom Holdings SOC Ltd and its subsidiaries to continue as a going concern. could not determine the extent of the impact of the outcomes of these investigations to the consolidated and separate financial statements. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures We refer you to the accounting policies note 2.4 where the policies regarding recognition, measurement and disclosure of investigations in the financial statements about the material uncertainty or, if such disclosures are inadequate, to modify our opinion on the financial have been discussed. statements. Our conclusions are based on the information available to us at the date of this auditor’s report. However, future events or conditions may cause a public entity to cease operating as a going concern Limited assurance and agreed upon procedures engagements • evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and determine whether the At the date of this report, we have commenced/completed the following engagements: financial statements represent the underlying transactions and events in a manner that achieves fair presentation • Agreed upon procedures on net sent out power megawatt hours, gross sent out power megawatt hours and actual sent out power • obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to production figures to NERSA for the year ended 31 December 2021. The report was issued to the accounting authority on 21 April 2022. express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the • Agreed upon procedures on compliance with the requirements of the Financial Markets Act No. 19 of 2012, including the Financial group audit. We remain solely responsible for our audit opinion. Services Board Notices 96 and 100 of 2013 and the Strate Central Securities Depository (Strate) Rules, Circular 15p/2022 for the period 1 April 2021 to 8 September 2022. The report was issued to the accounting authority on 30 November 2022. Communication with those charged with governance • Agreed upon procedures on the group’s generation, transmission and distribution activities regulatory financial report as issued to We communicate with the accounting authority regarding, among other matters, the planned scope and timing of the audit and significant NERSA. This engagement is in progress at the date of our audit report. audit findings, including any significant deficiencies in internal control that we identify during our audit. • Agreed upon procedures on the National Treasury consolidation template that covered the period from 1 April 2021 to 31 March 2022. This engagement is in progress at the date of our audit report. We also provide the accounting authority with a statement that we have complied with relevant ethical requirements regarding independence, • Limited assurance reports on the compliance of the issue of the Domestic Multi-Term Note with the relevant provisions of the commercial and to communicate with them all relationships and other matters that may reasonably be thought to have a bearing on our independence paper exemption notice (the “notice”). The reports were issued on 3 and 10 March 2022. and, where applicable, actions taken to eliminate threats or safeguards applied. Auditor tenure From the matters communicated to those charged with governance, we determine those matters that were of most significance in the audit In terms of the IRBA rule published in Government gazette number 39475 dated 4 December 2015, we report that Deloitte & Touche has of the consolidated and separate financial statements of the current period and are therefore key audit matters. We describe these matters been the auditor of Eskom Holdings SOC Ltd and its subsidiaries for one year with the appointment being affected on 2 November 2021. in this auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in this auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest of such communication. Deloitte & Touche Registered Auditor Per: André J. Dennis Partner 16 December 2022 5 Magwa Crescent Waterfall City Waterfall 2090 36 | | 37 STATEMENTS OF FINANCIAL POSITION INCOME STATEMENTS at 31 March 2022 for the year ended 31 March 2022 Group Company Group Company Restated1 Restated1 Restated1 Restated1 Restated1 Restated1 2022 2021 2020 2022 2021 2020 2022 2021 2022 2021 Note Rm Rm Rm Rm Rm Rm Note Rm Rm Rm Rm Assets Revenue 31 246 520 204 326 246 520 204 326 Non-current 718 412 710 419 708 263 719 602 710 860 715 968 Other income 32 1 494 2 662 2 013 4 331 Property, plant and equipment 8 665 070 661 694 652 314 667 105 663 654 653 919 Primary energy 33 (132 439) (115 492) (132 439) (115 492) Intangible assets 9 3 624 3 656 3 830 3 355 3 358 3 558 Employee benefit expense 34 (32 985) (32 887) (27 858) (27 319) Future fuel supplies 10 6 304 4 390 4 389 6 304 4 390 4 389 (Impairment)/reversal of impairment of financial assets 35 (589) 91 (544) 146 Investment in equity-accounted investees 11 418 420 397 95 95 95 Impairment and writedown of other assets 35 (847) (1 886) (833) (1 890) Investment in subsidiaries 12 – – – 380 380 384 Other expenses 36 (28 780) (24 206) (36 261) (32 469) Inventories 13 11 516 11 001 9 921 11 516 11 001 9 921 Deferred tax 14 9 971 6 280 96 10 906 6 651 – Profit before depreciation and amortisation expense and net fair Loans receivable 15 7 830 8 007 49 5 650 5 758 5 937 value and foreign exchange loss (EBITDA) 52 374 32 608 50 598 31 633 Embedded derivatives 16 822 – – 822 – – Depreciation and amortisation expense 37 (32 009) (26 585) (31 933) (26 579) Derivatives held for risk management 17 8 046 11 185 33 918 8 046 11 185 33 918 Net fair value and foreign exchange loss 38 (3 126) (8 049) (3 281) (8 648) Finance lease receivables 18 258 292 338 258 292 338 Profit/(loss) before net finance cost and share of profit of Payments made in advance 19 2 064 1 800 1 676 2 063 1 799 1 675 equity-accounted investees 17 239 (2 026) 15 384 (3 594) Trade and other receivables 20 2 489 1 694 1 335 3 102 2 297 1 834 Net finance cost (33 063) (31 142) (34 089) (32 252) Current 83 173 66 839 102 621 64 966 52 052 90 735 Finance income 39 2 364 2 400 1 360 1 409 Inventories 13 23 086 22 481 21 132 22 850 22 229 20 889 Finance cost 40 (35 427) (33 542) (35 449) (33 661) Taxation 38 120 136 – – – Loans receivable 15 319 310 27 – – – Share of profit of equity-accounted investees after tax 11 52 71 – – Embedded derivatives 16 117 – – 117 – – Loss before tax (15 772) (33 097) (18 705) (35 846) Derivatives held for risk management 17 463 1 358 23 718 464 1 360 23 718 Income tax 41 3 442 8 081 4 393 9 150 Finance lease receivables 18 35 35 34 35 35 34 Payments made in advance 19 749 1 377 1 398 748 1 351 1 395 Loss for the year 2 (12 330) (25 016) (14 312) (26 696) Trade and other receivables 20 25 163 22 716 21 053 26 534 24 574 22 233 Insurance investments 21 17 318 14 401 11 981 – – – Financial trading assets 21 – – 152 – – 152 Cash and cash equivalents 22 15 885 4 041 22 990 14 218 2 503 22 314 Assets held-for-sale – – 8 642 – – – Total assets 801 585 777 258 819 526 784 568 762 912 806 703 Equity STATEMENTS OF COMPREHENSIVE INCOME Capital and reserves 235 314 215 304 185 524 215 191 197 180 169 090 for the year ended 31 March 2022 Liabilities Non-current 453 876 460 416 499 495 452 545 458 705 498 855 Group Company Restated1 Restated1 Debt securities and borrowings 25 345 490 357 411 408 151 344 568 356 486 408 107 2022 2021 2022 2021 Embedded derivatives 16 – 208 5 – 208 5 Note Rm Rm Rm Rm Derivatives held for risk management 17 5 415 3 736 74 5 415 3 736 74 Deferred tax 14 348 388 3 855 – – 2 972 Loss for the year2 (12 330) (25 016) (14 312) (26 696) Payments received in advance 26 2 576 2 867 2 355 2 589 2 867 2 355 Other comprehensive income/(loss) 647 (1 204) 630 (1 214) Contract liabilities and deferred income 26 25 525 23 943 22 577 25 525 23 943 22 577 Employee benefit obligations 27 16 404 15 414 13 530 16 067 15 089 13 232 Items that may be reclassified subsequently to profit or loss (690) (564) (695) (576) Provisions 28 49 257 47 335 39 662 49 250 47 264 39 640 Cash flow hedges Lease liabilities 29 8 032 8 447 8 875 8 031 8 445 8 873 Changes in fair value 17 (328) (878) (328) (878) Trade and other payables 30 829 667 411 1 100 667 1 020 Net amount transferred to profit or loss Current 112 395 101 538 133 034 116 832 107 027 138 758 Ineffective portion of cash flow hedges 38 (477) 478 (477) 478 Debt securities and borrowings 25 50 804 44 415 75 531 53 498 47 556 80 107 Net amount transferred to initial carrying amount of hedged items (145) (400) (145) (400) Embedded derivatives 16 – 1 283 1 131 – 1 283 1 131 Foreign currency translation differences on foreign operations 5 12 – – Derivatives held for risk management 17 4 563 4 538 1 139 4 563 4 538 1 143 Income tax thereon 41 255 224 255 224 Payments received in advance 26 3 880 2 796 3 430 3 879 2 809 3 437 Items that may not be reclassified subsequently to profit Contract liabilities and deferred income 26 1 921 1 729 1 540 1 921 1 729 1 540 or loss 1 337 (640) 1 325 (638) Employee benefit obligations 27 3 450 3 732 3 293 3 129 3 403 3 018 Provisions 28 8 944 5 307 5 991 8 801 5 234 5 933 Re-measurement of benefits 27 1 737 (890) 1 718 (887) Lease liabilities 29 571 522 475 571 522 474 Income tax thereon 41 (400) 250 (393) 249 Trade and other payables 30 37 994 37 082 40 175 40 468 39 951 41 761 Taxation 266 132 115 – – – Total comprehensive loss for the year2 (11 683) (26 220) (13 682) (27 910) Financial trading liabilities 21 2 2 214 2 2 214 Liabilities held-for-sale – – 1 473 – – – Total liabilities 566 271 561 954 634 002 569 377 565 732 637 613 Total equity and liabilities 801 585 777 258 819 526 784 568 762 912 806 703 1. Refer to note 48. 1. Refer to note 48. 2. A nominal amount is attributable to the non-controlling interest in the group. The remainder is attributable to the owner of the company. 38 | | 39 STATEMENTS OF CHANGES IN EQUITY STATEMENTS OF CASH FLOWS for the year ended 31 March 2022 for the year ended 31 March 2022 Share Cash flow Unrealised Foreign Accumulated Total Group Company capital hedge fair value currency profit equity Restated1 Restated1 reserve reserve translation 2022 2021 2022 2021 reserve Note Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Cash flows from operating activities Group Cash generated from operations 42 54 145 30 417 52 140 28 151 Net cash (used in)/from derivatives held for risk management (899) 1 402 (896) 1 398 Balance at 31 March 2020 as restated 132 000 413 (10 248) (3) 63 362 185 524 Finance income received 441 278 441 278 Previously reported 132 000 6 825 (17 612) (3) 64 858 186 068 Finance cost paid (25) (42) (25) (42) Prior year restatements, net of tax1 – (6 412) 7 364 – (1 496) (544) Income taxes paid (218) (1 046) – – Loss for the year – – – – (25 016) (25 016) 53 444 31 009 51 660 29 785 Other comprehensive (loss)/income, net of tax – (576) – 12 (640) (1 204) Cash flows used in investing activities Share capital issued 56 000 – – – – 56 000 Disposals of property, plant and equipment 331 182 328 183 Transfers between reserves – – (607) – 607 – Disposals of intangible assets – 26 – 26 Acquisitions of property, plant and equipment (28 093) (22 891) (28 271) (23 327) Balance at 31 March 2021 188 000 (163) (10 855) 9 38 313 215 304 Acquisitions of intangible assets (343) (166) (149) (55) Loss for the year – – – – (12 330) (12 330) Acquisitions of future fuel supplies (2 468) (1 559) (2 468) (1 559) Other comprehensive (loss)/income, net of tax – (695) – 5 1 337 647 Disposals of insurance investments 18 543 12 966 – – Share capital issued 31 693 – – – – 31 693 Acquisitions of insurance investments (21 144) (14 955) – – Transfers between reserves – – 1 184 – (1 184) – Payments made in advance – (139) – (139) Cash used in provisions (318) (885) (318) (885) Balance at 31 March 2022 219 693 (858) (9 671) 14 26 136 235 314 Net cash from/(used in) derivatives held for risk management 178 (1 049) 178 (1 049) Net cash from loans receivable 176 264 136 94 Company Cash from finance lease receivables 36 35 36 35 Balance at 31 March 2020 as restated 132 000 413 (10 248) – 46 925 169 090 Dividends received 75 47 655 1 086 Previously reported 132 000 6 825 (17 612) – 48 413 169 626 Dividends received – investment in equity-accounted investees 11 54 48 – – Prior year restatements, net of tax1 – (6 412) 7 364 – (1 488) (536) Finance income received 1 150 1 400 260 398 (31 823) (26 676) (29 613) (25 192) Loss for the year – – – – (26 696) (26 696) Other comprehensive loss, net of tax – (576) – – (638) (1 214) Cash flows used in financing activities Share capital issued 56 000 – – – – 56 000 Debt securities and borrowings raised 43 33 036 15 756 35 029 16 285 Payments made in advance 43 (471) (132) (471) (132) Transfers between reserves – – (607) – 607 – Debt securities and borrowings repaid 43 (38 854) (65 586) (41 267) (67 016) Balance at 31 March 2021 188 000 (163) (10 855) – 20 198 197 180 Share capital issued 24 31 693 56 000 31 693 56 000 Loss for the year – – – – (14 312) (14 312) Net cash (used in)/from derivatives held for risk management 43 (2 769) 7 859 (2 769) 7 859 Other comprehensive (loss)/income, net of tax – (695) – – 1 325 630 Cash used in lease liabilities 43 (417) (497) (416) (496) Share capital issued 31 693 – – – – 31 693 Net cash from financial trading assets 43 – 152 – 152 Net cash used in financial trading liabilities 43 – (213) – (213) Transfers between reserves – – 1 184 – (1 184) – Finance income received 656 791 618 775 Balance at 31 March 2022 219 693 (858) (9 671) – 6 027 215 191 Finance cost paid (32 547) (37 267) (32 640) (37 381) Taxes paid (66) (78) (66) (78) Share capital (9 739) (23 215) (10 289) (24 245) Refer to note 24 for details regarding share capital. Net increase/(decrease) in cash and cash equivalents 11 882 (18 882) 11 758 (19 652) Cash and cash equivalents at beginning of the year 4 041 22 990 2 503 22 314 Cash flow hedge reserve Foreign currency translation 5 12 – – The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments Effect of movements in exchange rates on cash held (43) (159) (43) (159) (forward exchange contracts and cross-currency swaps) related to hedged transactions that have not yet occurred. The cross-currency Assets and liabilities held-for-sale – 80 – – swap hedges foreign exchange rate and interest rate risk of the future interest payments and the principal repayment on bonds and loans (denominated in US dollar, euro and yen). Cash and cash equivalents at end of the year 22 15 885 4 041 14 218 2 503 Unrealised fair value reserve Cash flow allocation The cumulative net change in the fair value of financial instruments that have not been designated as cash flow hedging instruments is Cash flows that form part of the changes in the line items of the statement of financial position are classified into operating, investing and recognised in profit or loss. The unrealised portion of the net change in fair value is not distributable and has been reallocated from a financing activities in a manner that is most appropriate to the group. As a result, the cash flows associated with some line items in the distributable reserve (accumulated profit) to a non-distributable reserve. statement of financial position may be split into multiple cash flow activities in the statement of cash flows. These line items are: Derivatives held for risk management Foreign currency translation reserve Derivatives held for risk management are classified as operating, investing or financing activities based on the allocation of the cash flows of The foreign currency translation reserve comprises exchange differences resulting from the translation of the results and financial position the underlying hedged item. Refer to note 17. of foreign operations. Payments made in advance Accumulated profit Payments made in advance that relate to the raising of debt securities and borrowings are classified as financing activities. Payments related to Accumulated profit is the amount of cumulative profit retained in the business after tax. No dividend has been proposed in the current or the acquisition of property, plant and equipment and intangible assets are allocated to investing activities. All other payments made in advance prior year. There are no restrictions on the distribution of dividends. are deemed operational in nature and are therefore included within operating activities. Refer to note 19. Provisions Non-controlling interest Cash flows related to provisions for compensation events where the cost of property, plant and equipment includes these costs are classified The non-controlling interest in the group is a nominal amount. as investing activities. All other provisions are operational in nature and are classified as operating activities. Refer to note 28. Finance income and costs Finance income and costs are allocated in line with the allocation of the related balances on which the income or cost arose. The interest income classified as financing activities was earned incidental to the financing activities and has thus been classified as such in the statement of cash flows. 1. Refer to note 48. 1. Refer to note 48. 40 | | 41 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2022 1. General information Foreign operations Eskom Holdings SOC Ltd (Eskom), a state-owned company and holding company of the group, is incorporated and domiciled in The assets and liabilities of foreign operations (including fair value adjustments arising on acquisition) are translated to rand at the the Republic of South Africa. Eskom is a vertically integrated operation that generates, transmits and distributes electricity to local prevailing exchange rates at the reporting date. The income and expenses of foreign operations are translated to rand at the average industrial, mining, commercial, agricultural, redistributor (metropolitan and other municipalities) and residential customers, and to exchange rate. Foreign currency differences arising as a result of these transactions are recognised in other comprehensive income international customers in southern Africa. Eskom also purchases electricity from IPPs and international suppliers in southern Africa. within the foreign currency translation reserve. These represent the significant activities of the group. The business focus of the subsidiaries is primarily to support the electricity business. The nature of the businesses of the significant operating subsidiaries is set out in note 12. 2.4 Property, plant and equipment Recognition and measurement Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost includes environmental 2. Summary of significant accounting policies rehabilitation costs, borrowing costs and transfers from equity of any gains or losses on qualifying cash flow hedges of foreign The principal accounting policies applied in the preparation of these separate and consolidated financial statements are set out below. currency transactions. Work under construction includes the cost of materials and direct labour and any other directly attributable costs incurred in bringing an item of property, plant and equipment to its present location and condition. Significant parts of an item 2.1 Basis of preparation and measurement of property, plant and equipment that have different useful lives are accounted for as separate items (major components). Spare Statement of compliance parts classified as strategic and critical spares are recognised as property, plant and equipment and are only capable of operating in The consolidated financial statements of Eskom Holdings SOC Ltd at and for the year ended 31 March 2022 comprise the company, the manner intended by management when they are installed. Items of property, plant and equipment transferred from customers its subsidiaries, joint ventures, associates and structured entities (together the group). The separate and consolidated financial are initially recognised at fair value in accordance with IAS 16 Property, plant and equipment and any related revenue is recognised in statements have been prepared in accordance with IFRS and in the manner required by the PFMA and the Companies Act. The accordance with IFRS 15 Revenue from contracts with customers, within revenue. financial statements have been prepared on the going-concern basis and were approved for issue by the board on 16 December 2022. Subsequent costs are capitalised only when it is probable that future economic benefits associated with the item will flow to the group Basis of measurement and the cost of the item can be measured reliably. When part of an asset is being replaced, the carrying amount of the replaced part The separate and consolidated financial statements are prepared on the historical-cost basis except for the following items which is derecognised. Repairs and maintenance are charged to profit or loss during the financial period incurred. are measured at fair value: • derivatives held for risk management Owned land and spare parts are not depreciated. Depreciation on other owned assets is calculated using the straight-line method to • embedded derivatives allocate cost over the estimated useful lives (limited to residual values). Right-of-use assets are depreciated on a straight-line basis • certain investments and financial trading instruments over the shorter of the lease term and the estimated useful life of the assets. The useful lives of owned and right-of-use assets are as follows: Functional and presentation currency The consolidated financial statements are presented in South African Rand (rounded to the nearest million unless otherwise stated), Owned Right-of-use which is the company’s functional currency and the presentation currency of the group. Years Years Changes in accounting policies Buildings and facilities 8 to 40 2 to 5 The group has consistently applied the accounting policies to all periods presented in these consolidated financial statements. Plant • Generating 3 to 80 2 to 15 2.2 Consolidation • Transmitting 3 to 50 n/a Subsidiaries • Distributing 5 to 55 n/a Subsidiaries are consolidated from the date on which control is transferred to the group until the date that control ceases. Investments • Other 3 to 40 40 in subsidiaries are accounted for at cost less impairment losses in the separate financial statements of the company. When the group Equipment and vehicles 2 to 15 2 to 5 ceases to have control of an entity, it derecognises the assets and liabilities of the subsidiary and any components of equity. Any resulting gain or loss is recognised in profit or loss. The depreciation method, residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date. The accounting policies of the subsidiaries have been adjusted, where necessary, to ensure consistency with the policies adopted by The estimation of the useful lives and residual values of property, plant and equipment is an area of judgement. The estimation is based the group. on professional judgement and independent expert opinion, where available, considering historical performance, the circumstances and operating environment in which the assets operate, alignment to industry benchmarks as well as expectations about the future. Investment in equity-accounted investees Investments in equity-accounted investees (associates and joint ventures) are accounted for at cost less impairment losses in the Gains or losses on the disposal or writeoff of an item of property, plant and equipment are recognised in profit or loss within separate financial statements of the company and on the equity method of accounting in the financial statements of the group. The other income or other expenses. Projects in works under construction that have been discontinued are written off and included in group’s share of post-acquisition profits or losses of these investments is recognised in profit or loss within share of profit of equity- other expenses. accounted investees. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Investigations into possible corruption and related impact on capital projects Accounting policies of associates and joint ventures have been adjusted where necessary to ensure consistency with the policies Eskom acknowledges that there is evidence that its control environment to ensure that capital contracts were awarded appropriately, adopted by the group. If the financial statements of the associate or joint venture were prepared as of a different date to that of the subsequent changes and amendments to such contracts were valid, and that value was received, has not operated effectively. This group (maximum of three months difference), adjustments were made to the group financial statements for significant transactions was further confirmed by the Zondo Commission, which focused on corruption and maladministration at state-owned entities and and events that occurred between the date of the financial statements of the associate or joint venture and the date of the financial institutions. statements of the group. Several contracts are under investigation by the SIU. The Zondo Commission identified and highlighted further matters that will be 2.3 Foreign currency translation internally investigated or handed over to the SIU, specifically regarding: Transactions and balances • contracts being irregularly awarded Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the • non-compliance with contractual terms in submitting claims transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year • modifications to contracts where the value added to Eskom is questionable end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when Eskom is reliant on the SIU who has the requisite knowledge and access to systems and data to evaluate and investigate these complex recognised in other comprehensive income for qualifying cash flow hedges. transactions and the consequential effects thereof. Eskom does not have access to the SIU investigations and related progress as the Translation differences relating to changes in the amortised cost are recognised in profit or loss and other changes in the carrying details are only made available to Eskom once an investigation is finalised. amount are recognised within fair value through other comprehensive income. The investigations are complex and determining the correct accounting implications for these irregularities that cover an extended Non-monetary items are measured at historical cost. period of time presents a key judgement. At such time that the outcome of these investigatons provides sufficient evidence to conclude that there were corruption and/or other irregularities resulting in over-capitalisation of costs, an adjustment is made to the Foreign loans are initially recognised at the exchange rate prevailing at transaction date and are translated at spot rate at every carrying value of the related assets and recorded in profit or loss. In the case of a claim made against these suppliers, a receivable is reporting date. Foreign exchange gains and losses that relate to financial assets and liabilities at amortised cost are presented in profit only recognised at such time where a recovery of an overpayment is virtually certain. or loss within net fair value and foreign exchange gain/loss. Internal investigations into corruption and maladministration are completed from time-to-time and where wasteful, fruitless and fraudulent expenditure is identified, these are expensed and the carrying value of the related asset reduced. These writeoffs will have an impact on the EBITDA at the time of recognition but are non-cash in nature. 42 | | 43 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 2. Summary of significant accounting policies (continued) Right-of-use assets 2.5 Intangible assets The group recognises a right-of-use asset at lease commencement (the date the underlying asset is available for use). Right-of-use Research and development assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease Research expenditure is recognised as an expense as incurred. liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease payments made at or before the commencement date. Refer to note 2.4 for details regarding the depreciation of right-of-use assets Development expenditure (relating to the design and testing of new or improved products) is capitalised only if the expenditure can and to note 2.6 regarding assessment for impairment of right-of-use assets. be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in Lease liabilities profit or loss within other expenses. Subsequent to initial recognition, development expenditure is measured at cost less accumulated The group recognises a lease liability at the commencement of a lease at the present value of the lease payments that have to be made amortisation and any accumulated impairment losses. over the lease term. The lease payments include fixed payments and variable payments dependent on an index or rate. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs The group uses the incremental borrowing rate at lease commencement to calculate the present value of lease payments if the previously capitalised that have been discontinued are written off and included in other expenses. interest rate implicit in the lease is not readily determinable. The incremental borrowing rate requires a degree of judgement regarding the determination of an appropriate discount rate for the lease term and is based on borrowings of a similar term which Capitalised development costs are amortised from the point at which the asset is ready for use on a straight-line basis over its useful takes into account current market conditions. life. Subsequent to initial recognition, the capitalised development costs are measured at cost less accumulated amortisation and impairment losses. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for lease payments made. The carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term or a change Rights of the in-substance fixed lease payments. Rights consist mainly of servitudes and rights of way under power lines. A servitude right is granted to Eskom for an indefinite period (useful life) and is therefore not amortised. Short-term leases and leases of low-value assets The group applies the short-term lease recognition exemption to leases with a term of less than 12 months. The group also applies Computer software the lease of low-value assets recognition exception to leases with a value of less than R75 000. Lease payments on short-term leases Computer software and licences acquired have a finite useful life and are measured at cost less accumulated amortisation and and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term. any accumulated impairment losses. If software is integral to the functionality of related equipment, it is capitalised as part of the equipment. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Lessor accounting Finance leases Amortisation is calculated using the straight-line method to allocate costs over the estimated useful lives of software of between Finance lease receivables mainly comprise premium power supply equipment contracts. 3 and 10 years. Amortisation methods and useful lives of assets are reviewed at each reporting date and adjusted if appropriate. The present value of the lease payments is recognised as a receivable when property, plant and equipment are leased out under a Concession assets finance lease. The difference between the gross receivable and the present value of the receivable is disclosed as unearned finance Concession assets consist of the right to charge for the usage of the infrastructure under service concession arrangements. The capital income within finance lease receivables. Lease income is recognised over the term of the lease using the net investment method, which expenditure incurred in respect of the service concession arrangements (fair value at initial recognition), including borrowing costs on reflects a constant periodic rate of return. Finance lease receivables are assessed for impairment and derecognised in accordance with qualifying capital expenditures, is capitalised (refer to note 2.7) and amortised over the estimated useful life of the concession asset, the requirements for financial assets. which is the concession period during which it is available for use (refer to note 23). Subsequent to initial recognition, the concession assets are measured at cost less accumulated amortisation and impairment losses. Operating leases Leases where substantially all of the risks and rewards of ownership are not transferred are classified as operating leases. Payments 2.6 Impairment of non-financial assets received under operating leases are recognised in profit or loss within other income on a straight-line basis over the period of The carrying amounts of non-financial assets within the scope of IAS 36 Impairment of assets are assessed at each reporting date to the lease. determine whether there is any indication of impairment. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or if there are indicators of impairment. Assets that have an 2.9 Payments made in advance indefinite useful life (rights) are tested annually for impairment. Securing debt raised Payments are made in advance to lenders for the commitment and issuing fees incurred in raising debt. The group’s assets are grouped at the smallest identifiable group of assets (cash-generating units (CGUs)), that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The identification of CGUs involves some Environmental rehabilitation trust fund judgement. Eskom (company) has been identified as a single CGU as it is a vertically integrated regulated business, and the segments Contributions were made by Eskom to environmental rehabilitation trust funds that were established to fund the financial obligation do not generate largely independent cash flows. Eskom’s core operating assets (generation, transmission, and distribution) function in respect of the rehabilitation of certain coal mines from which Eskom sources its coal for the generation of electricity. The trust together to deliver and earn revenue from the sale of electricity to customers in South Africa. The end product is the sale of funds are controlled by third parties and will be used solely for the environmental rehabilitation of the relevant coal mines. The electricity generated, transmitted, and distributed through the vertically integrated value chain at a single price as determined by contributions made to the trust funds are recognised separately from the environmental rehabilitation provision in accordance with NERSA. Some of the excess capacity in the grid is sold by the transmission segment to international customers. The identification of the requirements of IFRIC 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds. Fair value the Eskom CGU may be impacted by the future legal separation of transmission, generation and distribution into separate entities. adjustments on the trust funds are recognised in profit or loss within net fair value and foreign exchange gain/loss. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Value in use is based on the estimated Other future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the Other payments made in advance comprise mainly of payments made to suppliers to reserve manufacturing capacity and resources time value of money and the risks specific to the asset or CGU. An impairment loss is recognised for the amount by which the asset’s for the future construction of assets as well as for support and maintenance of IT infrastructure. These amounts will be used as carrying amount exceeds its recoverable amount. Non-financial assets that were subject to impairment are reviewed for possible partial settlement towards the future amounts payable to the suppliers. In the event of default or non-performance, there are various reversal of the impairment at each reporting date. Impairment losses or reversals are recognised in profit or loss within impairment remedies in place, including performance bonds, early cancellation penalties and guarantees that can be used to recover outstanding and writedown of other assets. payments in advance. 2.7 Capitalisation of borrowing costs 2.10 Financial instruments Borrowing costs attributable to the construction of qualifying assets are capitalised as part of the cost of these assets over the period 2.10.1 Financial assets (excluding derivatives) of construction, until the asset is substantially ready for its intended use. All other borrowing costs are expensed in the period in Classification which they occur. The appropriate classification of a financial asset is determined on acquisition of the financial asset and is based on: Borrowing costs for qualifying assets financed by specific borrowings are capitalised using the actual interest expense incurred. • whether the contractual terms of the financial asset gives rise to contractual cash flows that are solely payments of principal Borrowing costs for qualifying assets not financed by specific borrowings are capitalised at the weighted average of the borrowing and interest costs (capitalisation rate) using the borrowings applicable to the entity in the group. • the objective of the business model in which the financial asset is held at a portfolio level that best reflects the way the business is managed 2.8 Leases Financial assets are not reclassified subsequent to their initial recognition unless the group changes its business model for managing The group assesses at contract inception whether a contract is or contains a lease if the contract conveys the right to control the use financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the of an identified asset for a period of time in exchange for consideration. change in the business model. Lessee accounting The group recognises right-of-use assets relating to the right to use the underlying assets and lease liabilities for the lease payments except for short-term leases and leases of low-value assets, where the recognition exemption is applied. 44 | | 45 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 2. Summary of significant accounting policies (continued) Expected credit losses are probability-weighted estimates of credit losses. Credit losses are measured as the difference between the 2.10 Financial instruments (continued) cash flows due in accordance with the contract and the cash flows expected to be received, discounted at the effective interest rate 2.10.1 Financial assets (excluding derivatives) (continued) of the financial asset. Classification (continued) All financial assets subject to impairment based on the general approach are monitored to assess whether they have been subject to The group may irrevocably designate a financial asset on initial recognition that otherwise meets the requirements to be measured at a significant increase in credit risk after initial recognition. There will be a significant increase in credit risk when: amortised cost or at fair value through other comprehensive income, as at fair value through profit or loss, if doing so, eliminates or • payments are more than 30 days past due significantly reduces an accounting mismatch that would otherwise arise. The group may also irrevocably elect on initial recognition of • a significant qualitative event has occurred an equity investment that is not held for trading to present subsequent changes in the investment’s fair value, in other comprehensive income. This election is made on an investment-by-investment basis. Where it is assessed that a counterparty’s credit risk has increased significantly from its initial low risk designation, the related asset is moved from stage 1 to stage 2. The group did not designate any financial assets at fair value through profit or loss and has not elected to present equity investments at fair value through other comprehensive income. An assessment is performed at each reporting date to determine whether financial assets subject to impairment are credit-impaired. Financial assets are classified into the following categories: A financial asset is credit-impaired when there is observable evidence that one or more event has occurred that has had a detrimental impact on the estimated future cash flows expected to flow from the asset such as: Amortised cost • significant financial difficulty of the borrower, issuer or customer A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at fair value through • a breach of contract such as a default (where the counterparty is unlikely to pay its obligations) or being more than 90 days profit or loss: past due • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal • restructuring of a loan or advance on terms that the group would not otherwise consider amount outstanding • it is probable that the borrower or customer will enter bankruptcy or other financial reorganisation • it is held within a business model whose objective is to hold assets to collect contractual cash flows • the disappearance of an active market for a security because of financial difficulties Fair value through other comprehensive income Where the counterparty is assessed to be credit-impaired, the related asset is disclosed in stage 3. A financial asset is measured at fair value through other comprehensive income if it meets both of the following conditions and is not designated as at fair value through profit or loss: Summary of staging • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal Instrument Criteria used for assessment of expected credit loss measurement amount outstanding 12-month expected credit loss Lifetime expected credit loss • it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets Stage 1 Stage 2 Stage 3 Fair value through profit or loss Low credit risk Not credit-impaired or significant Credit-impaired or All financial assets not classified as measured at amortised cost or fair value through other comprehensive income are measured at increase in credit risk default fair value through profit or loss. Trade and other Not applicable (simplified approach Elected to measure loss allowances at Financial asset more Measurement receivables applied and therefore use lifetime an amount equal to the lifetime than 90 days past due Initial recognition expected credit loss) expected credit losses Financial assets are initially measured at fair value on the date of commitment to purchase (trade date). The transaction price is Finance leases, loans Credit risk is assessed as low (where Financial asset more than 30 days past Financial asset more generally the best indicator of fair value. If a contract with a customer has a significant financing component, the related financial asset receivable (other than the credit risk rating assigned is due than 90 days past due is initially measured at the transaction price excluding the time value of money. home loans) and financial equivalent to the globally understood Where the fair value of a financial asset is different to the transaction price, a day-one gain or loss may arise. If the fair value has been guarantees definition of investment grade) determined based on market-observable data the whole day-one gain or loss is recognised immediately in profit or loss. If the fair Loans receivable Financial asset is not past due Financial asset more than 30 days past Financial asset more value has not been based on market-observable data the day-one gain or loss is deferred in the statement of financial position and (home loans) due than 90 days past due amortised over the term of the instrument in profit or loss. Investments and cash and Credit risk is assessed as low (where Significant increase in credit risk since There is objective Any directly attributable transaction costs are included in the initial measurement of financial assets except for financial assets at fair cash equivalents the credit risk rating assigned is initial recognition but there is no evidence that the value through profit or loss where directly attributable transaction costs are recognised in profit or loss. equivalent to the globally understood objective evidence of loss (ie the counterpar t y is After initial recognition definition of investment grade) counterparty is still considered likely unlikely to pay its Amortised cost to pay its obligations) obligations Financial assets at amortised cost are measured at amortised cost after initial recognition using the effective interest rate method less any accumulated impairment losses. Interest income, foreign exchange gains and losses and impairments are recognised in profit or loss. Derecognition Financial assets are derecognised when the right to receive cash flows from the assets has expired or substantially all the risks and Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. rewards of ownership have transferred from the group. Realised gains or losses on derecognition are determined using the last-in- Fair value through other comprehensive income first-out method. Gains and losses, including those accumulated in other comprehensive income, are recognised in profit or loss. Financial assets at fair value through other comprehensive income are measured at fair value after initial recognition. Interest income The gross carrying amount of a financial asset is written off when the group has no reasonable expectation of recovering a calculated using the effective interest method, foreign exchange gains and losses and impairments are recognised in profit or loss. financial asset. Other net gains and losses are recognised in other comprehensive income. Fair value through profit or loss 2.10.2 Financial liabilities (excluding derivatives) Financial assets at fair value through profit or loss are measured at fair value after initial recognition. Changes in the fair value after Classification initial recognition (including any interest or dividend income) are recognised in profit or loss. Financial liability balances have been classified as either amortised cost or other liabilities. Impairment Measurement Loss allowances are recognised for expected credit losses on financial assets measured at amortised cost or fair value through other Initial recognition comprehensive income. Loss allowances are calculated using the general or simplified approach. Financial liabilities are measured at fair value on the date of commitment (trade date). Where financial liabilities are carried at amortised cost, transaction costs are included in the value of the financial liability. Where financial liabilities are carried at fair value The general approach requires impairment to be measured using a 12-month or lifetime expected credit loss. The lifetime expected through profit or loss, transaction costs are recognised in profit or loss. Fees paid on the establishment of loan facilities are recorded credit loss method will be used if, after initial recognition, there is a significant increase in the credit risk of a financial asset or if it as a payment made in advance where it is probable that some or all of the facility will be drawn down. Refer to note 2.9. The fees paid becomes credit-impaired. The simplified approach requires impairment to be measured using a lifetime expected credit loss. The are recognised as transaction costs upon drawdown and then amortised to profit or loss within finance costs from the date of first simplified approach is applied to trade and other receivables. drawdown to final maturity of each facility. The maximum period considered when estimating expected credit losses is the maximum contractual period over which the group is exposed to credit risk. The 12-month expected credit losses are the portion of the expected credit loss resulting from default events that are possible within 12 months after reporting date (or a shorter period if the expected life of the instrument is less than 12 months). Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected life of the financial instrument. 46 | | 47 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 2. Summary of significant accounting policies (continued) The changes in fair value of embedded derivatives are recognised in profit or loss within net fair value and foreign exchange gain/loss. 2.10 Financial instruments (continued) The impact of the fair value gains or losses is taken into account in the calculation of current and deferred tax. 2.10.2 Financial liabilities (excluding derivatives) (continued) 2.10.5 Repurchase and resale agreements Measurement (continued) Repurchase agreements are included in financial trading liabilities or financial trading assets dependent on whether securities are After initial recognition bought or sold. Agreements to resell securities are recorded as repurchase agreements and included in financial trading assets when Financial liabilities at amortised cost are measured at amortised cost using the effective interest method. Financial liabilities classified the securities are bought for market-making activities. The difference between the sale and repurchase price or purchase and resale as at fair value through profit or loss are measured at fair value. The group did not designate any financial liabilities at fair value through price is treated as interest accrued over the life of the repurchase or resale agreement using the effective-yield method. profit or loss. 2.10.6 Financial guarantees Derecognition Financial guarantees are contracts that require the group to make specified payments to reimburse the holder for a loss that it incurs Financial liabilities are derecognised when the obligation expires, is discharged or cancelled, or there is a substantial modification to because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. the terms of the liability. Realised gains and losses are determined using the last-in-first-out method. Financial guarantees issued are initially measured at fair value and subsequently at the loss allowance calculated in accordance with 2.10.3 Derivatives held for risk management IFRS 9 Financial instruments. Classification and measurement Derivatives held for risk management are not managed on a held-to-collect and/or for sale business model and the default classification 2.11 Future fuel supplies and measurement is therefore at fair value through profit or loss unless they meet the criteria for and have been designated as cash Coal flow hedges. The right to future coal supplies from coal mines is measured at cost. Cost includes payments made to coal suppliers for mine establishment and related equipment in terms of cost-plus agreements. The cost also includes the initial estimate of environmental Economic hedges rehabilitation of the mine as well as changes in the estimated timing or amount of outflow of resources or changes in the discount Certain derivative instruments do not qualify for cash flow hedge accounting but are used for economic hedging. Changes in the fair rate. The cost is amortised to coal inventory over the lesser of the life of the agreement or the underlying assets. value of these derivative instruments (realised and unrealised gains or losses) are recognised in profit or loss within net fair value and foreign exchange gain/loss. Nuclear Expenditure incurred to obtain, convert, enrich and fabricate fuel assemblies is stated at cost in future fuel supplies. The fuel Cash flow hedges assemblies are transferred to inventory when they are received. Costs include the transfer from equity of any gains or losses on The relationship between hedging instruments and hedged items as well as risk management objectives and the strategy for qualifying cash flow hedges relating to purchases of raw materials, fabrication and enrichment. undertaking various hedging transactions are documented at the inception of a transaction. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective 2.12 Inventories in offsetting changes in fair values or cash flows of hedged items. Coal, liquid fuel, maintenance spares and consumables Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and includes It is expected that the values of the hedging instrument and hedged item will move in opposite directions as a result of the hedged expenditure incurred in acquiring inventories and other costs in bringing inventory to its present location and condition as well as the risks (foreign exchange and interest rate risks). cost of ongoing programmes to rehabilitate the environment and other closure costs for active mines that are charged to profit or The hedge ratio is based on a hedging instrument with the same notional amount in currency terms as the hedged item or portion loss within primary energy as the coal is consumed. thereof designated for hedge accounting. This results in a hedge ratio of 1:1 or 100%. The Eskom Grid Code specifies the minimum coal inventory level to be on stockpile at the coal-fired power stations (either 10 or Day-one gains and losses are deferred in the statement of financial position (in derivatives held for risk management) and amortised 20 days). All coal inventory up to the grid code level (except for Medupi, Matimba and Lethabo power stations) is classified as non- on a straight-line basis over the term of the hedging instrument to profit or loss. Unamortised day-one gains and losses are written current as it is not anticipated that it will be used within 12 months from the reporting date. All of the coal inventory at Medupi and off to profit or loss if the related financial instrument is derecognised (extinguished) before maturity date. Day-one gains and losses Matimba power stations and 50 days at Lethabo power station is classified as non-current as it is not expected that the coal will be on hedging instruments are predominantly a function of the inclusion of credit, liquidity and other risks in the terms of the trading used within 12 months from the reporting date as it is foreseen that the planned production requirements of these stations will be instrument. These risks are not included in the determination of a hypothetical derivative used to measure fair value movements in a met from the minimum contractual offtake of the underlying coal supply agreements. hedged item and are therefore excluded from any hedge accounting relationships. Nuclear fuel The effective realised and unrealised portion of changes in the fair value of derivatives that are designated and qualify as cash flow Nuclear fuel consists of enriched and fabricated fuel assemblies and fuel in reactors. Nuclear fuel is stated at the lower of cost and hedges is recognised in other comprehensive income within the cash flow hedge reserve. The gain or loss relating to the ineffective net realisable value. Cost is determined on the first-in-first-out basis and includes cost for the management of fuel assemblies that portion is recognised immediately in profit or loss within net fair value and foreign exchange gain/loss. are recognised to profit or loss on a straight-line basis within primary energy over the estimated useful life of the fuel in the reactor (average 46 months). Nuclear fuel is classified as current as it is expected to be realised within the normal operating cycle. Cumulative gains or losses existing in other comprehensive income where the hedged item is a non-financial asset are included in the initial carrying amount of the asset when the forecast transaction results in the recognition of a non-financial asset. Gains and losses 2.13 Share capital recognised in the cash flow hedge reserve in other comprehensive income will affect profit or loss in the periods during which the Ordinary shares are classified as equity. relevant non-financial assets are expensed to profit or loss. 2.14 Income tax Cumulative gains or losses existing in other comprehensive income where the hedged item is a financial liability are taken to profit Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive or loss within finance cost or net fair value and foreign exchange gain/loss when the cash flows occur on the hedged financial liability. income or equity, in which case it is recognised on that basis. When a hedging instrument expires, is sold or a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss 2.15 Deferred tax existing in equity at that time remains in other comprehensive income until the forecast transaction occurs. If a forecast transaction Deferred tax is recognised on temporary differences arising between the carrying amounts of assets and liabilities for financial is still expected to occur, the cumulative gains or losses in other comprehensive income are reclassified from equity to profit or loss reporting purposes and the amounts used for tax purposes. Deferred tax is determined using tax rates (and laws) enacted or in the same periods during which the hedged forecast cash flows affect profit or loss. If a forecast transaction is no longer expected substantively enacted at the reporting date and that are expected to apply when the related deferred tax asset is realised or the to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to profit or loss deferred tax liability is settled. Deferred tax assets are reviewed at each reporting date and derecognised if it is no longer probable within net fair value and foreign exchange gain/loss. that the related tax benefits will be realised. The measurement of deferred tax reflects the tax consequences that would follow from Sources of ineffectiveness include the following: the manner in which the group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. • period mismatches between the hedging instrument and hedged item Deferred tax is not recognised for: • the fair value of the hedging instrument at the hedge relationship designation date (if not zero) • temporary differences on the initial recognition of assets or liabilities in a transaction other than a business combination that, at • the fair value or cash flow of the hedged item and hedging instrument are dependent on different variables the time of the transaction, affects neither accounting nor taxable profit or loss • temporary differences relating to investments in subsidiaries and associates to the extent that the group is able to control the 2.10.4 Embedded derivatives timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future Embedded derivatives that are closely related to the host contract are not separated and are effectively accounted for as part of the hybrid instrument. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is Derivatives that are separated are accounted for on terms that result in a fair value of zero at the date of inception. Option-based also recognised in respect of temporary differences arising on the assets and provisions created in respect of decommissioning and derivatives are separated on the terms stated in the contracts and will not necessarily have a fair value equal to zero at the initial nuclear waste management and closure, pollution control and rehabilitation. Future taxable profits are determined based on business recognition of the embedded derivative resulting in day-one gains or losses. These day-one gains or losses are recognised in deferred plans for legal entities in the group. income and amortised over the period of the agreement to profit or loss. 48 | | 49 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 2. Summary of significant accounting policies (continued) Pension benefits are provided by the EPPF to all pensioners of the fund in terms of the rules of the fund. The annual pension benefit 2.16 Payments received in advance, contract liabilities and deferred income on retirement is based on a defined formula of 1.085/600 of the final average emoluments over the last year of service multiplied Customer connections by the pensionable service period in months. The formula does not limit the benefits payable to the assets and contributions made Customer connections arise when customers make a contribution to Eskom to construct regular distribution and transmission assets to the fund. However, the rules of the fund state that any deficit on the valuation of the fund will be funded by increases in future or when the constructed assets are transferred to Eskom to connect customers to the electricity network. Contributions are made contributions (if consented to by the employer) or reductions in member benefits (as agreed by the members). The obligation on in advance in terms of a financing agreement or the completed assets are transferred to Eskom. Eskom as the employer to contribute towards the deficit is an area of judgement. Customer connections received in advance are initially recognised as payments received in advance. Management noted when applying the requirements in IAS 19 that the benefit formula does not limit the payments to the assets in existence in the fund at the payment date. As a result, management concluded that the actuarial and investment risk fall on Eskom The related customer connections that arise when customers transferred distribution and transmission assets to Eskom to connect when considering the requirements of IAS 19 and therefore classified the fund as a defined benefit fund. to the electricity network are accounted for when the customer hands over the completed assets to Eskom. If there is a substantial surplus on the valuation of the fund, future contributions may be decreased or pensioner benefits may be Connections for electricity customers that were connected after 1 April 2018 (transition date to IFRS 15) improved as determined and appropriated by the trustees of the fund. The surplus is not controlled by Eskom, but by the trustees When the connection provides the customer with a material right, the connection is allocated to deferred income (contract liabilities) of the fund in terms of the Pension Fund Act and rules of the EPPF. An asset ceiling is therefore applied in the case of a surplus that when the customer is connected to the electricity network. The deferred income is recognised in profit or loss within revenue on a limits the net benefit asset to zero. straight-line basis over the estimated customer relationship period as the connection provides the customer with a material right of renewal that extends the revenue recognition period beyond the initial contractual period. The pension benefits plan is funded. The cost to the employer, in the form of employer contributions, is actuarially determined. When the connection does not provide the electricity customer with a material right, the connection is recognised in full in profit or Return on plan assets in excess of interest, adjustments to the asset ceiling and actuarial gains or losses on the obligation are loss within revenue when the customer is connected to the electricity network. recognised in other comprehensive income within re-measurement of benefits. The expense or income recognised in profit or loss includes the current service cost, interest income on plan assets and interest expense on the defined benefit obligation and the Connections for electricity customers that were connected after 30 June 2009 but before 1 April 2018 irrecoverable surplus (effect of asset ceiling). Connections were recognised in profit or loss when the customer was connected to the electricity network in terms of IFRIC 18 Transfers of assets from customers. Occasional and service leave The liability for occasional and service leave is of a long-term nature in terms of IAS 19 as it is not expected to be settled wholly within Connections for electricity customers that were connected before 30 June 2009 12 months after the reporting period but there is no unconditional right to defer settlement for at least 12 months after the reporting Connections were allocated to deferred income when the customer was connected to the electricity network. The deferred income period. The full provision is therefore presented as a current liability in the statement of financial position. is recognised in profit or loss within revenue on a straight-line basis over the expected useful lives of the related assets. An actuarial valuation of the occasional and service leave liability is performed at the reporting date. All actuarial gains or losses and Refer to note 2.19 for revenue recognition of connections. past service costs are recognised in profit or loss within employee benefit expense. The present value of the benefit is determined by using government bonds which have maturities similar to the liability. Grants Government grants for electrification are initially recognised in payments received in advance and allocated to deferred income Bonus when the related asset has been connected to the electricity network. The deferred income is recognised in profit or loss within Annual and production bonuses are short-term employee benefits which are expensed as the related services are provided. A liability depreciation and amortisation expense on a straight-line basis over the expected useful lives of the related assets. for annual bonuses is accrued on a proportionate basis as services are rendered. A liability for production bonus is raised on the estimated amount payable in terms of the scheme. 2.17 Employee benefit obligations Post-employment medical benefits 2.18 Provisions All permanent employees qualify for post-employment medical benefits, except for new employees appointed on or after 1 June 2003 Provisions are recognised when the group has a present legal or constructive obligation as a result of a past event, when it is probable at a managerial level. The entitlement to post-employment medical benefits is conditional on the employee remaining in service up that an outflow of resources will be required to settle the obligation and when the amount can be reliably estimated. Provisions are to retirement when the employee qualifies for the full benefit. Retirement includes any early retirement from age 55 up to normal not recognised for future operating losses. retirement at age 65. The valuation of long-term provisions requires a degree of judgement regarding the future cash flows and the timing thereof. The group accounts for its post-employment medical benefits obligation as a defined benefit plan in line with IAS 19 Employee Provisions are determined by discounting the expected future cash flows using pre-tax discount rates that reflects current market benefits. The post-employment medical benefits plan is unfunded. The cost to the employer, in the form of employer contributions, assessments of the time value of money and, where appropriate, the risks specific to the liability. The increase in the provision due to is actuarially determined. Provision is made for the estimated cost over the period until the date of early retirement at age 55 when the passage of time is recognised as finance costs. further service by the employee will lead to no material amount of further benefits to the employee. Actuarial gains or losses are The initial cost of a provision is capitalised against the cost of the related asset if it meets the requirements for capitalisation. Changes recognised in other comprehensive income within re-measurement of benefits. Interest and other expenses related to these benefits in the liability for capitalised provisions are added to, or deducted from, the cost of the related asset. Any amount exceeding the cost are recognised in profit or loss. of the related asset is allocated to profit or loss. Pension benefits The main categories of provisions include the following: All permanent employees of the group are members of the Eskom Pension and Provident Fund (EPPF) in terms of its rules and conditions. Power station-related environmental restoration – nuclear plant and other generating plant The provision includes the estimated decommissioning cost of nuclear and other generating plant. The estimated cost of The EPPF is registered as a defined benefit fund in terms of the requirements of the Pension Funds Act. decommissioning at the end of the productive life of plant is based on engineering and technical estimates and reports from The assets and pension benefits are administered by the EPPF which is a separate legal entity to the group. The board of trustees of independent experts. The initial cost of the provision is capitalised against property, plant and equipment. the EPPF consists of an equal number of employer (includes appointing of a non-executive chair and an expert) and member (includes A provision is also raised for the management of fuel assemblies and radioactive waste, which is recognised and measured based on a managerial, labour and pensioners) representatives. The board of trustees is required by law to act in the best interest of the plan report from independent experts that is periodically assessed by specialists. The costing and methodologies are revised on a regular participants in terms of the rules of the fund and the provisions of the Pension Funds Act and are responsible for setting policies basis to ensure alignment with the requirements of the National Nuclear Regulator of South Africa. The cost for the fuel assemblies including those governing investments and ensuring that there are sufficient assets to meet the plan obligations as they become due. is included in the cost of inventory while the fuel is in the reactor. The cost relating to radioactive waste is charged to profit or loss The board of trustees generally targets to have a portfolio mix of a combined 70% in equity and property and 30% in debt instruments. within primary energy. The board of trustees aims to keep fund assets at a level such that no plan deficits (based on actuarial valuations performed) will arise. Mine-related closure, pollution control and rehabilitation Eskom, Rotek and the EPPF itself are the employers in the EPPF. The fund is measured as a whole and there is no policy in place for The provision includes the estimated cost of physical, biophysical and social closure and environmental rehabilitation of the mine proportionate allocation of net assets to individual entities of the group. where a legal or constructive obligation exists. The initial cost of the provision is capitalised against future fuel. The cost of ongoing closure and rehabilitation programmes for active mines is charged to inventory and subsequently to profit or loss within primary The fund is accounted for in terms of IAS 19 as a defined benefit plan however, the terms of the fund do not automatically require the energy as the coal is consumed, while the cost relating to defunct mines is charged directly to profit or loss. employer to make good any deficit should it arise. Compensation events The contributions to the EPPF comprise 19.55% of pensionable emoluments of which 12.25% is contributed by the employer and Compensation events and claims are a normal part of construction agreements, and are triggered by changes in scope of work or 7.30% by members. Contributions are made by each employer in the fund. time needed to complete the work. A dispute resolution process, as outlined in the contractual agreements, is followed as and when a compensation event or claim arises, and are dealt with through a structured process involving notification, consulation, assessment and agreement or adjudication. 50 | | 51 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 2. Summary of significant accounting policies (continued) Revenue Nature and timing of satisfaction of Revenue recognition 2.18 Provisions (continued) activity performance obligation, including Compensation events (continued) significant payment terms All open compensation events and claims are assessed at the reporting date by management’s experts and legal advisors based on Connections Connections arise from contracts Connections that were completed from 1 April 2018 are recognised as follows: the latest available information to determine the probability of an outflow of resources and the best estimate of the expenditure with customers who will also become • connections relating to electricity purchasing customers where there is that would be required to settle the present obligation and are charged to profit or loss within other expenses. There is significant electricity purchasing customers once a material right are allocated to deferred income when the customer is judgement applied by management and the board, based on past experience regarding the finalisation and outcome of compensation they are connected and those who will connected to the electricity network. The deferred income is recognised events, in determining the appropriate provision for these matters. not purchase electricity (eg property in profit or loss within revenue on a straight-line basis over the estimated developers). customer relationship period of 25 years. Refer to note 26 for the contract Other liabilities of connections recognised on a straight-line basis Other provisions include provisions made for contractual obligations relating to onerous contracts, litigation matters, guarantees, • connections relating to electricity purchasing customers where there is not and maintenance and restoration of the infrastructure under service concession arrangements. These provisions are recognised a material right are recognised as revenue over the initial contract term based on contractual obligations and measured based on the best estimate of the expenditure that would be required to settle the • connections relating to non-electricity purchasing customers are present obligation at the end of the reporting period and are charged to profit or loss within other expenses. recognised as revenue at a point in time when the customer is connected to the electricity network The amount of the provisions is based on management’s assessment of the most likely amounts due based on the current information available. The group expects to settle the majority of these provisions within 12 months. The finalisation of an obligation depends on Other Ad hoc requests for electricity-related Revenue is recognised at a point in time when the service is completed. factors outside the control of the group, for example, arbitration and dispute resolution processes, which could impact the timing. services that are distinct from the It is not expected that any additional liability in excess of the amounts provided would have a material adverse effect on the group’s sale of electricity or the connection financial position, liquidity or cash flow. of customers to the grid. 2.19 Revenue from contracts with customers The assessment to defer revenue for connection charges from electricity customers required judgement because of divergent Eskom’s main revenue activity is the sale of electricity which is recognised when electricity is consumed by the user. The subsidiaries international treatments based on contract and operational differences. Changes to the recognition of customer connections is not support this main activity but are not considered to be part of the main revenue activity as their operations include providing home expected based on the current information available. loans to Eskom employees, insurance, maintenance and construction services. The assessment of whether or not a connection charge is a material right or not in terms of IFRS 15 requires judgement of what Revenue is recognised when a customer obtains control of the goods or services supplied. The amount of revenue recognised is constitutes a material right from the perspective of the customer and results in different accounting treatments as discussed above. measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. 2.20 Finance income Finance income comprises interest receivable on loans, trade receivables, finance lease receivables and income from financial market Customers that fail the collectability criterion are accounted for on a cash basis and revenue is only recognised when cash is received investments. (refer to note 4.6). Finance income is calculated by applying the effective interest rate method to the gross carrying amount of non-credit-impaired An invoice is still raised for sales to customers accounted for on a cash basis. Eskom has a statutory obligation to charge value added financial assets (ie at the amortised cost of the financial asset before adjusting for any expected credit loss allowance). Finance income tax (VAT) for local customers, payable to the SARS, when an invoice is created which gives rise to a receivable that is accounted for on credit-impaired financial assets is calculated by applying the effective interest rate to the amortised cost of the credit-impaired as a statutory receivable within other receivables. A portion of the VAT on revenue recognised on a cash basis (for municipalities financial assets (ie the gross carrying amount less the allowance for expected credit losses). Interest income is recognised in profit recorded on a cash basis) are not expected to be realised within 12 months after the reporting period because of the low payment or loss. levels of the municipalities which are accounted for on the cash basis and are therefore classified as non-current. 2.21 Finance cost An impairment is raised based on the discounted cash flows at a market related interest rate. The expected recovery period is based Finance cost comprises interest and fees payable on debt securities and borrowings and lease liabilities, interest resulting from on current information and past experience limited to a maximum recovery period of 5 years to provide for a recovery from SARS derivatives held for risk management and interest from the unwinding of discount on liabilities. Borrowing costs which are not through a writeoff. capitalised are recognised in profit or loss. Refer to note 2.7. When cash is received from the customer, the transaction price is recognised in profit or loss within revenue, and the related 2.22 Net debt payment for VAT is allocated against the trade and other receivables balance. Gross debt is the aggregate of debt securities and borrowings and lease liabilities. The group’s principal revenue-generating activities are as follows: Net debt is calculated by adjusting gross debt for related payments made in advance, derivatives held for risk management, financial Revenue Nature and timing of satisfaction of Revenue recognition trading instruments and cash and cash equivalents. activity performance obligation, including significant payment terms 3. Capital management and going concern Electricity Performance obligation is settled when Revenue is recognised over time as electricity is consumed by the customer 3.1 Capital management sales electricity is supplied to the customer. (ie when control is transferred) and is billed for on a monthly basis. Revenue The objective of capital management is to ensure that the group is sustainable over the long term. The government, as the sole Most customers pay for electricity is measured based on the consideration specified in a contract with a shareholder, and the board have the responsibility to ensure that the group is adequately capitalised and that the business is attractive after consumption and have terms customer and excludes amounts collected on behalf of third parties. to investors and lenders. ranging between 15 and 45 days. Some customers prepay for electricity. The group’s funding consists of equity investments by the shareholder, funds generated from operations and funds borrowed on local Connections Connections arise when customers Connections that were completed before 30 June 2009 were allocated to and foreign debt markets with strong government support. There were no changes to the group’s approach to capital management make a contribution to Eskom to deferred income when the customer was connected to the electricity during the financial year. The following capital reserves are managed by the group: construct regular distribution and network. The deferred income is recognised in profit or loss within revenue transmission assets or when the on a straight-line basis over the expected useful life of the related assets. Group Company constructed assets are transferred to Restated Restated Connections that were completed after 30 June 2009 were recognised as 2022 2021 2022 2021 Eskom to connect customers to the revenue when the customer was connected to the electricity network in Note Rm Rm Rm Rm electricity network. terms of IFRIC 18. Share capital 24 219 693 188 000 219 693 188 000 Accumulated profit 26 136 38 313 6 027 20 198 Net debt 43 389 139 400 751 392 577 404 503 634 968 627 064 618 297 612 701 Facilities available – debt securities and borrowings1 22 285 38 565 22 285 38 565 1. Facilities in foreign currency are converted to rand at mid-spot rate at reporting date. Refer to note 5.2.1. 52 | | 53 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 3. Capital management and going concern (continued) 3.2 Going concern 3.1 Capital management (continued) The board made an assessment of the ability of the group to continue as a going concern in the foreseeable future. The board: 3.1.1 Share capital • Reviewed the performance of the group for the period ended 31 March 2022 including the net loss after tax of R12 330 million and An additional R31 693 million (2021: R56 000 million) of shares was issued during the year. the net current liabilities of R29 222 million. • Noted the improvement in the majority of the group’s financial indicators compared to the prior year, in particular the improvement 3.1.2 Accumulated profit in EBITDA and EBITDA margin. Revenue • Noted the improvement in the cash and cash equivalents balance of R15.9 billion (2021: R4 billion) that will be applied towards Eskom analyses the Integrated Resource Plan (which forecasts the growth in long-term electricity demand) and evaluates the settling Eskom’s debt obligations. alternative options to meet and manage forecast demand. This information impacts the planning process and informs the revenue • Considered the impact of the deteriorating generation plant performance and the continuous increase in overdue electricity applications made to NERSA for tariff increases that will allow Eskom to be financially sustainable. receivables (including the impact of non-recoverability of long outstanding electricity receivables). It is uncertain when the ongoing corrective action to address these challenges will be effective. Operating cost • Considered the impact of the cash flow forecast for the 24 months ending 31 March 2024 and the projected net loss pre-tax for The group continues to pursue cost-saving opportunities to assist in ensuring financial sustainability. 2023, estimated at R23 132 million (unaudited). • Considered that Eskom is in a debt reliant liquidity situation that resulted from low tariffs, stagnant and contracting sales volumes, The following non-GAAP income statement measures are monitored by management: above inflation cost increases, constrainted generating plant performance and the capital programme to increase and replace Group Company generating and transmitting capacity. Restated Restated • Noted that there is a need to secure funding of R58 billion in 2023 (39% of the funding for 2023 has been secured by November 2022). 2022 2021 2022 2021 Funding of R15 billion is in an advanced stage of negotiation. The balance will be funded through a private placement and a syndicated % % % % loan and is expected to be finalised during the fourth quarter of the 2023 financial year. A substantial portion of the required funding of R63 billion for the 2024 financial year is in an advanced stage of negotiation. The negotiation of new and renewed funding is EBITDA margin 21.25 15.96 20.52 15.48 inherently uncertain in terms of timing, pricing and the group’s ability to secure additional funds in the short term. Net loss margin (5.00) (12.24) (5.81) (13.07) • Considered the impact of the current economic climate and the sovereign’s credit ratings on Eskom’s ability to raise funds, including that the rating agencies have recently expressed a more optimistic outlook on Eskom. 3.1.3 Net debt • Recognised that Eskom continues to face various challenges that resulted from mismanagement and corruption. Progress has been made in cleaning-up irregularities and improving processes, but it is taking time to identify all issues and take appropriate Group Company corrective action and implement consequence management. Refer to the Governance and compliance section of the directors’ Restated Restated report for information regarding Eskom’s action plan to address the findings from the Zondo Commission. 2022 2021 2022 2021 • Considered the possible impact if key risks materialise and acknowledged that the positive outcome of undecided court proceedings Rm Rm Rm Rm lodged against NERSA and the liquidation of the RCA balances continues to be an important consideration. The timing of rulings Funding spent 102 568 128 738 102 902 128 814 and the liquidation of the RCA balances in the case of positive outcomes remains uncertain. • Acknowledges that an acceptable price increase, the ability to raise funding and improved plant performance are critical factors in Debt repayment and net finance costs 70 745 102 062 73 289 103 622 the going-concern assessment. Investment funding requirements 31 823 26 676 29 613 25 192 • Considered the resignation of the group chief executive and the possible impact thereof. The board is comfortable that there is Funding raised 102 568 128 738 102 902 128 814 sufficient continuity and there will be no adverse impact on Eskom’s funding activities. Cash from operations 53 444 31 009 51 660 29 785 The challenges that the group is facing are being addressed by the following mitigation strategies and actions: Financing activities 61 006 78 847 63 000 79 377 • Continuous engagement is taking place with the shareholder and National Treasury to ensure that the challenges that impact the Utilisation of cash (11 882) 18 882 (11 758) 19 652 group’s going-concern status are addressed satisfactorily within a reasonable timeframe. Government believes that it is critical that a credible, comprehensive, and long-term strategy (which incorporates addressing municipal receivables, providing greater The following ratios play an important role in the credit ratings given to Eskom, which in turn influences the cost of funding. Eskom’s clarity and transparency in tariff pricing, addressing operational efficiencies, and unbundling) is developed to fully optimise Eskom’s credit rating is affected by its own financial position as well as the credit rating of the sovereign: balance sheet, primarily to reduce the need for further government bailouts while also putting Eskom on a path to long term financial stability. Group Company • Government continues to support Eskom to operate as a going concern given the strategic role that Eskom plays in pursuit of Restated Restated government objectives, with committed support of R21.9 billion in 2023 and R21 billion in 2024 to alleviate pressure largely Unit 2022 2021 2022 2021 relating to debt redemption and interest payments. The board is managing and regularly reporting on the conditions relating to the Net debt: equity Ratio 1.65 1.86 1.82 2.05 support that was allocated through the Special Appropriation Act in November 2019. The unallocated amount of the government Net debt: EBITDA Ratio 7.43 12.29 7.76 12.79 guarantee facility of R350 billion is available until 31 March 2023. The expiry of the guarantee facility does not impact the existing Net debt service cover Ratio 0.76 0.30 0.70 0.29 guarantee issued which will remain in place until settlement of guaranteed debt. Free funds from operations: net debt % 16.24 10.72 15.41 10.25 • Funding options, with the support of National Treasury, are being pursued to implement the group’s borrowing programme. The Minister of Finance announced in his MTBPS in October 2022 that National Treasury is leading a process to finalise a debt-relief Eskom’s credit ratings at 31 March were as follows: package designed to restore Eskom to a profitable, transparent, and efficient company. The specifics of the debt relief package are Rating Outlook being finalised, and further details are expected to be announced in the 2023 Budget review. 2022 2021 2022 2021 • The Eskom roadmap released by the DPE on 20 October 2019 provides a degree of clarity on the role that Eskom will play in the Standard & Poor’s unfolding future of the country’s electricity supply industry. Foreign currency CCC+ CCC+ Negative Negative • Progress has been made to prepare the business for the legal unbundling. The implications and requirements of the implementation Local currency CCC+ CCC+ Negative Negative including legislative and regulatory changes, legal structure and ownership, ultimate industry structure as well as addressing Moody’s Eskom’s financial viability including the debt challenge are being addressed and followed up with government. The full financial and Foreign currency Caa1 Caa1 Negative Negative cash flow impact of the unbundling remains uncertain. Local currency Caa1 Caa1 Negative Negative • Court proceedings were lodged against NERSA regarding tariff and RCA decisions with positive outcomes on concluded cases. As Fitch Ratings the outcomes of such decisions are required to be implemented by NERSA in future revenue tariff decisions, the timing and extent Foreign currency – – Negative Negative of the impact of revenue has not been considered in the cash flow forecast for the next 24 months. Local currency B B Negative Negative • The group’s cost structures and capital programme are continuously reviewed to extract cost savings and improve cash flows. It is envisaged that the group’s costs savings for 2023 will be R19.8 billion (unaudited), and that the cumulative target of R61.8 billion by Net debt is sourced globally to ensure the lowest cost of funding. Where funds are received and have not yet been spent, they are 2023 set by the shareholder will be exceeded. Although positive results are expected from continued cost savings initiatives, there invested to provide the maximum possible return while ensuring minimal capital risk and matching the maturity term requirements is a risk that these savings may not materialise as expected due to above inflationary cost increases and deteriorating generating of the spending of the amount. plant performance. • The group’s generation capacity is managed as a critical focus area to ensure appropriate steps are being taken to manage the Net debt is managed via the continuous monitoring of current and potential debt funding arrangements to achieve the most favourable performance challenges. A further worsening of generating plant performance could negatively impact cash flow due to lost terms possible. These terms and costs are heavily dependent on Eskom’s credit rating. Eskom is focusing on alleviating the rating revenue and increase in costs, in particular the level of OCGT spend required. agencies’ concerns regarding the high leveraged financial profile, inadequate electricity price path and funding requirements of Eskom. Refer to note 43 for a reconciliation of the movements and analysis of the composition of net debt. 54 | | 55 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 3. Capital management and going concern (continued) The following valuation assumptions were used for the valuation and are regarded as the best estimates by management: 3.2 Going concern (continued) Year ended 31 March 2022 • There is continued focus on implementing various strategies in an effort to recover overdue trade receivables, including participation with the multi-disciplinary revenue committee of the Eskom political task team. The successful outcome of these Input Unit 2021 2022 2023 2024 2025 2026 strategies are uncertain. Aluminium price USD per ton 3 537 3 483 3 354 3 220 3 093 2 976 • The group is aware of the impact of large capital projects on its statement of financial position and will only engage on such projects Aluminium volatility Year-on-year (%) 27 27 27 27 27 27 with full disclosure and support of the shareholder. Rand/USD Rand per USD 14.60 15.24 15.89 16.57 17.27 18.01 • There is continued focus to address the shortcomings relating to the completeness of the irregular as well as fruitless and wasteful USD/Rand volatility Year-on-year (%) 18.00 18.00 18.00 18.00 18.00 18.00 expenditure reporting process in terms of the PFMA (resulted in the qualified audit opinion in current and previous years) and the Rand interest rates Continuous actual/365 days (%) 5.62 6.96 6.38 6.63 6.83 7.04 clean-up of the related challenges in the commercial environment. Dollar interest rates Annual actual/365 days (%) 0.75 1.75 2.34 2.42 2.35 2.26 The board considered the risks relating to the group’s going-concern status and acknowledges the challenges it faces and the various South African PPI Year-on-year (%) 8.75 4.85 5.35 5.50 5.50 5.50 dependencies and uncertainties that exist both from a timing of intervention perspective as well as whether the plans materialised United States PPI Year-on-year (%) 8.41 1.95 2.00 2.00 2.00 2.00 as anticipated. The events, conditions and assumptions described above inherently include material uncertainties that may cast Electricity usage Electricity usage per maximum significant doubt on the going concern. capacity (%) 97.46 97.46 97.46 97.46 97.46 97.46 Aluminium/exchange rate Correlation coefficient (%) 13.40 13.40 13.40 13.40 13.40 13.40 The board has a reasonable expectation that the risks will be satisfactorily addressed with the mitigation strategies in place. The Counterparty default Cumulative probability of board continues to manage these strategies as a priority as it is important that they materialise as envisaged. The board has assessed probability default (%) 0.56 1.08 2.52 4.37 6.87 9.73 the current cash flow projections, and, after carefully considering the progress of the initiatives above and the continued financial support from the government including the finalisation of the debt relief package announced, concluded that there is a reasonable expectation that the group has access to adequate resources and facilities to be able to continue its operations for the foreseeable Sensitivity analysis future as a going-concern. The consolidated and separate financial statements have therefore been prepared on a going-concern basis. The effect on profit/loss before tax of an increase or decrease in the assumptions is: Group and company 4. Critical accounting estimates and assumptions Input Unit Change in assumption increase decrease The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and Rm Rm liabilities within the next financial year are discussed in this note. 2022 The methods and types of assumptions used in preparing the sensitivity analyses did not change compared to the previous period. Aluminium price USD per ton 1% 153 (170) Sensitivity analyses are calculated based on a change in a single key assumption keeping all other assumptions constant. In practice it Rand/USD Rand per USD 1% 450 (341) is unlikely that changes in assumptions would occur in isolation from one another. All relevant inputs are listed and sensitivities have Rand interest rates Continuous actual/365 days (%) 100 basis points 63 (65) then been provided for the key sources of estimation uncertainty. Dollar interest rates Annual actual/365 days (%) 100 basis points (99) 107 4.1 Embedded derivatives South African PPI Index 1% (72) 62 Eskom entered into a new agreement during the year to supply electricity to an electricity-intensive business where the revenue United States PPI Index 1% 32 (48) from the contract is based on an approved tariff with a possible upside charge that is applicable only if both the aluminium and foreign Correlation (ALU/USD/ZAR) Correlation coefficient 100 basis points (51) 51 exchange rate simultaneously exceed predefined thresholds. The agreement gave rise to an option based embedded derivative. The valuation of the embedded derivative reflects the benefit to Eskom attributable to the upside charge when both the thresholds are 4.2 Post-employment medical benefits simultaneously breached. Valuation The previous agreements with the electricity-intensive business that gave rise to embedded derivatives where the revenue from The estimated present value of the anticipated expenditure for both in-service and retired members is calculated by independent these contracts was linked to commodity prices and foreign currency rates or foreign producer price indices ended during the year. actuaries using the projected unit credit method annually. This method accounts for the accrued service liability separately from the current cost liability. The accrued service liability is based on the completed service to the valuation date for the in-service members Valuation and the full liability in respect of retired members. The current cost liability is the cost of providing the benefit over the next year. Valuation techniques are used to determine the fair value as there is no active market for embedded derivatives. The present value of the obligation is determined by using government bonds which have maturities similar to the liability. The embedded derivative is valued independently from the host contract. A Monte Carlo valuation method was used which uses The fund is exposed to inflation risk, interest rate risks and changes in the life expectancy for beneficiaries. random paths to model the price of aluminium and the USD/ZAR exchange rate. The simulation paths allow for varying prices Valuation assumptions depending on the underlying simulations being above or below the threshold levels. The fair value of the embedded derivative reflects The principal actuarial assumptions used were: a probability-weighted estimate of the upside benefit to Eskom in terms of the Monte Carlo method. Group Company Input and valuation assumptions Unit 2022 2021 2022 2021 The aluminium price and USD/ZAR exchange rate are modelled on a correlation-weighted stochastic basis, while economic forecasts of purchase price indices (PPI) are used. Projected cash flows are weighted with the survival probability of the counterparty and Discount rate % 12.0 13.8 12.0 13.8 discounted at the appropriate risk-free rate approximated by the USD overnight index swap curve. Medical aid inflation % 8.6 10.2 8.6 10.2 Male longevity years 14.42 14.42 14.42 14.42 The United States and South African PPI with the aluminium price and USD/ZAR exchange rate correlation are significant unobservable Female longevity years 20.82 20.82 20.82 20.82 inputs used in the model. Other inputs were obtained from appropriate market data providers or were otherwise modelled using market standard modelling procedures which do not attract significant uncertainty or judgement. Weighted average duration years 18.00 18.10 18.10 18.20 Assumptions regarding future mortality have been based on published mortality tables and statistics derived from experience. 56 | | 57 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 4. Critical accounting estimates and assumptions (continued) Sensitivity analysis 4.2 Post-employment medical benefits (continued) The effect on fund obligations of an increase or decrease in the assumptions is: Valuation (continued) Group and company Sensitivity analysis Change in 2022 2021 The effect of an increase or decrease in the assumptions is: assumption increase decrease increase decrease Group Company Rm Rm Rm Rm Change in 2022 2021 2022 2021 Discount rate 1% (7 311) 11 764 (6 760) 7 873 assumption increase decrease increase decrease increase decrease increase decrease Inflation rate 1% 11 849 (7 687) 8 232 (7 144) Rm Rm Rm Rm Rm Rm Rm Rm Future mortality 1 year (1 524) 1 493 (1 543) 1 506 Effect on aggregate current service cost and finance cost 4.4 Occasional and service leave Discount rate 1% (185) 228 (203) 249 (184) 227 (201) 247 Valuation Medical aid inflation 1% 429 (342) 439 (351) 424 (337) 433 (346) An actuarial valuation is done on an annual basis for occasional and service leave. The accrued liability is determined by valuing all Future mortality 1 year 58 (58) 60 (61) 57 (57) 60 (59) future leave expected to be taken and payments to be made in respect of benefits up to the valuation date. Allowance is made for the Effect on post- assumed benefit options employees will exercise and salary increases up to the date the benefit is estimated to be paid. The present employment medical value of the obligation is determined by using government bonds which have maturities similar to the liability. benefits obligation Valuation assumptions Discount rate 1% (2 072) 2 587 (1 904) 2 365 (2 037) 2 544 (1 870) 2 324 The principal actuarial assumptions used were: Medical aid inflation 1% 2 598 (2 108) 2 379 (1 939) 2 556 (2 073) 2 339 (1 905) Future mortality 1 year 411 (414) 380 (383) 402 (405) 372 (375) Group and company 2022 2021 4.3 Pension benefits % % Valuation Discount rate 12.0 13.8 The estimated present value of the anticipated expenditure for both in-service and retired members is calculated by independent actuaries using the projected unit credit method annually. This method accounts for the accrued service liability separately from the General price inflation 6.6 8.2 current cost. The accrued service liability is based on the completed years service to the valuation date in respect of current in- Salary increases 8.1 9.7 service members and the full liability in respect of pensioners. The current cost liability is the cost of providing the benefit over the Leave usage 8.0 8.0 next year. The present value of the obligation is determined by using government bonds which have maturities similar to the liability. Assumptions regarding future mortality have been based on published mortality tables and statistics derived from experience. For The liability is compared to the fair value of the plan assets to determine a resultant deficit or surplus (which would be subject to an details regarding current longevities underlying the values of the occasional and service leave obligation at the reporting date refer asset ceiling). The fair value of the plan assets represents the market value of the assets. to note 4.2. The fund is exposed to inflation, interest rate risks, changes in the life expectancy for pensioners, changes in the age profile of members, equity and debt market risk, and foreign exchange risk. Sensitivity analysis Based on current experience, 8% (2021: 8%) of the leave is utilised. If the rate at which leave is taken is 16% (2021: 16%), then the Valuation assumptions liability will increase by R98 million (2021: R108 million) for the group and R92 million (2021: R103 million) for the company. If the rate The principal actuarial assumptions used were: at which leave is taken is 4% (2021: 4%), then the liability will decrease by R55 million (2021: R61 million) for the group and R52 million Group and company (2021: R58 million) for the company. Unit 2022 2021 The carrying amount of the occasional and service leave liability for the group is R1 284 million (2021: R1 426 million) and R1 147 million Discount rate % 12.0 13.8 (2021: R1 311 million) for the company. Long-term price inflation rate % 6.6 8.2 Future salary inflation % 8.1 9.7 4.5 Power station-related environmental restoration and mine-related closure, pollution control and Future pension increases % 6.6 8.2 rehabilitation Male longevity years 13.5 13.5 Valuation Female longevity years 19.7 19.7 These provisions are determined by discounting the current estimated future decommissioning and rehabilitation costs. The present Weighted average duration years 14.9 16.3 value of the obligation is determined by using government bonds which have maturities similar to the liability. Valuation assumptions and estimated payment dates Assumptions regarding future mortality have been based on published mortality tables and statistics derived from experience. The real discount rates used for these provisions and estimated payment dates of the costs are: Group and company Restated 2022 2021 % Year % Year Nuclear plant 2.6 – 4.1 2026 – 2041 2.6 – 4.3 2026 – 2041 Coal, pump storage, open cycle gas turbine and renewable stations 1.3 – 4.1 2023 – 2099 1.5 – 4.1 2023 – 2099 Spent nuclear fuel 1.3 – 4.2 2023 – 2125 1.5 – 4.1 2022 – 2125 Mine-related closure, pollution control and rehabilitation 1.3 – 4.2 2023 – 2150 1.5 – 4.0 2022 – 2150 58 | | 59 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 4. Critical accounting estimates and assumptions (continued) The change in the impairment model for the municipality portfolio was accounted for as a change in estimate in terms of IAS 8 and 4.5 Power station-related environmental restoration and mine-related closure, pollution control and applied prospectively. The comparative information and disclosures were not amended. rehabilitation (continued) The following details are applicable to the models used for the various financial asset balances: Valuation (continued) Sensitivity analysis Financial asset Model details The effect on the provisions of an increase or decrease in the assumptions is: International Expected credit losses were calculated using a benchmark approach that assigns a probability of default to a Group and company electricity client based on the size and country in which the client operates. The benchmark levels are based on a study Restated receivables performed by the Bank of International Settlements and external agency benchmark data. Credit ratings were 2022 2021 assigned to these categories which were then used to determine the probability of default. These probabilities Change in of default are considered to represent a long-run average over an economic cycle. The through-the-cycle assumption increase decrease increase decrease probability of default was used to estimate the expected credit loss due to the lack of data showing a relationship Rm Rm Rm Rm between the probability of default and macro-economic factors across the various jurisdictions. It is expected Nuclear plant 1% (823) 924 (825) 933 that international electricity receivables will behave in an acyclical manner similar to local electricity receivables Coal, pump storage, open cycle gas turbine and and therefore no forward-looking adjustments were made. The loss given default was aligned to the corporate renewable stations 1% (2 304) 2 962 (2 314) 2 994 loss given default based on the South African Reserve Bank (SARB) requirements. Spent nuclear fuel 1% (1 641) 2 478 (1 463) 2 228 Local large and Expected credit losses were calculated using a provision matrix which utilises a transition approach. Mine-related closure, pollution control and small power user The probability of default relevant to balances with similar characteristics was determined by analysing their rehabilitation 1% (1 719) 2 652 (1 673) 2 301 electricity most recent historical loss rates. Default probabilities are not thought to be sensitive to changes in South African receivables macro-economic factors such as gross domestic product (GDP) and unemployment rates due to their short-term 4.6 Revenue from contracts with customers nature and therefore no forward-looking adjustment was made. The loss given default was calculated using the Customer connections long-run average recovery rates. Connection charges are charged to customers in exchange for connection to Eskom’s electricity network. This connection enables Intercompany The expected credit losses were calculated using a dual rating approach, which relies on key financial ratios to Eskom to sell electricity to these customers over the estimated customer relationship period. The customer relationship period loans receivable determine a through-the-cycle probability of default. The through-the-cycle probability of default was updated refers to the period the customer remains a purchaser of electricity from Eskom at a given point of supply. A period of 25 years was with economic information to produce a point-in-time probability of default, which is consistent with the current determined after considering, inter alia, assumptions about the life-cycle of the distribution network used to supply electricity to and future forecasted economic conditions. The loss given default was aligned to the corporate loss given default customers. based on the SARB requirements. Collectability of amounts receivable Intercompany The estimates of the probability of default were based on the external rating of Eskom mapped to an internal Revenue may only be recognised if it is believed at the time of sale that the revenue is likely to be recovered from the customer. This trade and other rating scale. These probabilities of default are considered to represent a long-run average over an economic recoverability requirement is not considered to have been met in contracts with customers who have a poor payments history and receivables cycle. Probability of default data for listed corporates shows that default rates are sensitive to changes in South for which Eskom does not have the ability to manage the credit risk due to external facts and circumstances (for example socio- African GDP and therefore a forward-looking adjustment factor was calculated using a macro-economic forecast. economic or political reasons). Eskom accounts for revenue from these contracts on a cash (rather than accrual) basis. The probability of default was not adjusted as the forward-looking adjustment factor was not material. The loss Where the recoverability requirement is met, revenue is recognised on an accrual basis. The risk of non-collection is reflected in the given default was aligned to the corporate loss given default based on the SARB requirements. expected credit loss as an impairment expense rather than an adjustment to the revenue recognised. Other Expected credit losses were calculated using a benchmark approach that assigns a probability of default to a receivables, client based on the size and country in which the client operates. The benchmark levels are based on a study 4.7 Expected credit loss on financial assets finance lease performed by the Bank of International Settlements and external agency benchmark data. Credit ratings were The expected credit loss on financial assets is calculated using the following formula: receivables and assigned to these categories which were then used to determine the probability of default. These probabilities Expected credit loss = Exposure x Probability of default x Loss given default loans receivable of default are considered to represent a long-run average over an economic cycle. Probability of default data for (excluding home listed corporates shows that default rates are sensitive to changes in South African GDP and therefore a forward- The exposure is the amount outstanding less any collateral. The probability of default measures the likelihood that the amount loans) looking adjustment factor was calculated using a macro-economic forecast. The probability of default was not outstanding will become more than 90 days past due. The loss given default measures the expected credit loss in the event that the adjusted as the forward-looking adjustment factor was not material. The loss given default was aligned to the outstanding amount becomes more than 90 days past due. Cash flows are discounted at the original effective interest rate over the corporate loss given default based on the SARB requirements. expected recovery period. Loans receivable The estimates of the probability of default are influenced by factors including whether a client is still employed The financial assets that are subject to IFRS 9 impairment are stratified using factors such as the balance type, credit risk rating, (home loans) by Eskom and whether they are in arrears. Performing loans are assigned a medium risk rating, under-performing existence and type of collateral, remaining term to maturity, delinquency status and geographical location. loans a medium-high risk rating and non-performing loans a high risk rating. There is a reduced risk of default relating to clients still employed by Eskom as payments are received via payroll deductions. The probability of The potential ongoing impact of COVID-19 restrictions on the economy has been factored into the expected credit loss calculations at default is determined based on the likelihood that current employees become ex-employees and default on their 31 March 2022 in a manner consistent with that applied in the comparative financial year. The group applied judgement in determining loans. Forward looking information is based on reasonable and supportable forecasts of future economic whether a significant increase in credit risk had occurred as a result of COVID-19 and no indicators of a significant increase were conditions, including experience judgement. The loss in the event of default is determined as the difference identified at the reporting date. between the outstanding loan amount and the amount that can be recovered through the legal collection process The impact of COVID-19 on expected credit losses at 31 March 2022 was calculated based on the group’s best estimates using (ie the sales price of the property less the costs of disposal). The historical loss experience is adjusted for current information available at the time of preparation of the financial statements and includes forward-looking assumptions. The probability observable data to determine the loss given default. of default was increased in a manner similar to the default rate levels observed by Standard & Poor’s in 2016 (31 March 2021: Investments, The estimates of the probability of default were based on the external credit ratings of the counterparts using increased in a manner similar to the default rate levels observed by Standard & Poor’s during the 2008 financial crisis) to account for financial trading an external rating scale mapped to an internal rating scale. These probabilities of default are considered to the forward-looking stress scenario impact of COVID-19 as this was determined to be the most appropriate stress scenario. The assets and represent a long-run average over an economic cycle. Probability of default data for listed corporates shows that probability of defaults of the municipality and small power user portfolios were not increased as the models for these portfolios are financial default rates are sensitive to changes in South African GDP and therefore a forward-looking adjustment factor considered to be sensitive to the economic environment and are representative of the stress scenario impact of COVID-19. guarantees was calculated using a macro-economic forecast. The probability of default was not adjusted as the forward- looking adjustment factor was not material. The loss given default was aligned to the corporate loss given default The probability of default of the expected credit loss models was adjusted despite the acyclical probability of default behaviour based on the SARB requirements. observed historically due to the severity of the COVID-19 impact and the global point-in-time probability of default reported by external rating agencies. The impairment estimation technique applied to the municipality customer portfolio was changed in the current reporting period due to the unavailability of certain external inputs required by the previous model. The municipality portfolio was previously impaired using a scorecard approach and is now impaired using a provision matrix approach. The change in estimation technique did not have a material impact on the impairment values calculated. 60 | | 61 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 5. Financial risk management 5.1.1 Trade and other receivables The group’s integrated risk and resilience management process enables management to assess and respond to all material risks that Impairment analysis may affect the achievement of organisational objectives. 2022 The group maintains an integrated risk and resilience management framework comprising governance structures, management policies Stage 2 Stage 3 Total and guidance standards with a focus on risk and resilience assessments, treatment plans, monitoring and reporting. The management Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying of financial risks, as defined by IFRS 7 Financial instruments: disclosures, falls within these overarching structures, policies and standards. for value for impair- value for value impair- ment impair- The management of financial risks is delegated by the board to the audit and risk committee. Day-to-day management of financial ment ment risks is carried out in the area in which the risks arise. Risk assessments, treatment plans and monitoring measures are reported to Rm Rm Rm Rm Rm Rm Rm Rm Rm the audit and risk committee on a quarterly basis. Trade receivables The group’s exposure to risk, its objectives, policies and processes for managing the risk and the methods used to measure it have Group and been consistently applied in the years presented. company The group has exposure to the following risks as a result of its financial instruments: International 1 193 (14) 1 179 432 (351) 81 1 625 (365) 1 260 • credit risk – the risk of financial loss to the group if a customer or other counterparty to a financial instrument fails to meet its B- to BB+ 1 113 (10) 1 103 432 (351) 81 1 545 (361) 1 184 contractual obligations • market risk – the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign Below B- 80 (4) 76 – – – 80 (4) 76 exchange rates, commodity prices, interest rates or equity prices Local large power • liquidity risk – the risk that the group will not have sufficient financial resources to meet its obligations when they fall due, or will users – have to do so at excessive cost municipalities 9 131 (290) 8 841 1 808 (1 653) 155 10 939 (1 943) 8 996 5.1 Credit risk 0–30 days 8 526 (157) 8 369 – – – 8 526 (157) 8 369 The carrying amounts of financial assets represent the maximum credit exposure. The group’s maximum exposure as a result of 30–90 days 605 (133) 472 – – – 605 (133) 472 financial guarantees issued is disclosed in note 44.1. More than 90 days or credit impaired – – – 1 808 (1 653) 155 1 808 (1 653) 155 Local large power users – other 10 454 (20) 10 434 449 (359) 90 10 903 (379) 10 524 0–30 days 10 264 (6) 10 258 – – – 10 264 (6) 10 258 30–90 days 190 (14) 176 – – – 190 (14) 176 More than 90 days or credit impaired – – – 449 (359) 90 449 (359) 90 Local small power users – Soweto More than 90 days or credit impaired – – – 6 (6) – 6 (6) – Local small power users – other 2 363 (132) 2 231 1 222 (875) 347 3 585 (1 007) 2 578 0–30 days 2 008 (53) 1 955 – – – 2 008 (53) 1 955 30–90 days 355 (79) 276 – – – 355 (79) 276 More than 90 days or credit impaired – – – 1 222 (875) 347 1 222 (875) 347 23 141 (456) 22 685 3 917 (3 244) 673 27 058 (3 700) 23 358 Trade and other receivables Group 24 150 (480) 23 670 4 262 (3 547) 715 28 412 (4 027) 24 385 Trade receivables 23 141 (456) 22 685 3 917 (3 244) 673 27 058 (3 700) 23 358 Other receivables (B- to BB+) 1 009 (24) 985 345 (303) 42 1 354 (327) 1 027 Company 26 238 (519) 25 719 4 163 (3 482) 681 30 401 (4 001) 26 400 Trade receivables 23 141 (456) 22 685 3 917 (3 244) 673 27 058 (3 700) 23 358 Other receivables (B- to BB+) 3 097 (63) 3 034 246 (238) 8 3 343 (301) 3 042 62 | | 63 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 5. Financial risk management (continued) ECL percentages used 5.1 Credit risk (continued) Restated 5.1.1 Trade and other receivables (continued) 2022 2021 Impairment analysis (continued) Stage 2 Stage 3 Total Stage 2 Stage 3 Total Restated % % % % % % 2021 Stage 2 Stage 3 Total Trade receivables Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying Group and company for impair- value for impair- value for impair- value International 1 81 22 2 90 22 ment ment ment Rm Rm Rm Rm Rm Rm Rm Rm Rm B- to BB+ 1 81 23 2 90 24 Below B- 5 – 5 7 – 7 Trade receivables Group and Local large power users – municipalities1 3 91 18 5 90 21 company International 1 196 (28) 1 168 350 (315) 35 1 546 (343) 1 203 0–30 days (2021: BBB- to AAA) 2 – 2 – – – B- to BB+ 1 057 (18) 1 039 350 (315) 35 1 407 (333) 1 074 30–90 days (2021: B- to BB+) 22 – 22 1 – 1 Below B- 139 (10) 129 – – – 139 (10) 129 More than 90 days or credit impaired (2021: Below B-) – 91 91 34 90 71 Local large power Local large power users – other – 80 3 1 79 5 users – municipalities 7 737 (354) 7 383 1 791 (1 617) 174 9 528 (1 971) 7 557 30–90 days 7 – 7 25 – 25 BBB- to AAA 5 801 (9) 5 792 – – – 5 801 (9) 5 792 More than 90 days or credit impaired – 80 80 – 79 79 B- to BB+ 966 (14) 952 2 – 2 968 (14) 954 Local small power users – Soweto Below B- 970 (331) 639 1 789 (1 617) 172 2 759 (1 948) 811 More than 90 days or credit impaired – 100 100 – 100 100 Local large power users – other 7 935 (54) 7 881 499 (392) 107 8 434 (446) 7 988 Local small power users – other 6 72 28 7 74 33 0–30 days 7 773 (13) 7 760 – – – 7 773 (13) 7 760 0–30 days 3 – 3 3 – 3 30–90 days 162 (41) 121 – – – 162 (41) 121 More than 90 days 30–90 days 22 – 22 25 – 25 or credit impaired – – – 499 (392) 107 499 (392) 107 More than 90 days or credit impaired – 72 72 – 74 74 Local small power users – Soweto 2 83 14 3 84 17 More than 90 days or credit impaired – – – 95 (95) – 95 (95) – Other receivables Group 2 88 24 5 95 31 Local small power users – other 2 074 (139) 1 935 1 285 (956) 329 3 359 (1 095) 2 264 Company 2 97 9 4 100 11 0–30 days 1 752 (59) 1 693 – – – 1 752 (59) 1 693 30–90 days 322 (80) 242 – – – 322 (80) 242 Age analysis of trade receivables balances More than 90 days or credit impaired – – – 1 285 (956) 329 1 285 (956) 329 Restated 2022 2021 18 942 (575) 18 367 4 020 (3 375) 645 22 962 (3 950) 19 012 <1 year >1 year >2 years >3 years <1 year >1 year >2 years >3 years Trade and other % % % % % % % % receivables Group 19 744 (619) 19 125 4 331 (3 671) 660 24 075 (4 290) 19 785 International 84 13 3 – 86 14 – – Trade receivables 18 942 (575) 18 367 4 020 (3 375) 645 22 962 (3 950) 19 012 Local large power users – Other receivables municipalities 96 1 2 1 91 4 1 4 (B- to BB+) 802 (44) 758 311 (296) 15 1 113 (340) 773 Local large power users – Company 22 359 (728) 21 631 4 277 (3 632) 645 26 636 (4 360) 22 276 other 100 – – – 99 1 – – Local small power users – Trade receivables 18 942 (575) 18 367 4 020 (3 375) 645 22 962 (3 950) 19 012 Soweto 100 – – – 72 13 8 7 Other receivables (B- to BB+) 3 417 (153) 3 264 257 (257) – 3 674 (410) 3 264 Local small power users – other 83 8 5 4 76 10 6 8 1. The methodology used to calculate allowance for impairment changed in 2022. Reference to days is applicable to the 2022 determination where reference to credit ratings is applicable to the 2021 calculation. 64 | | 65 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 5. Financial risk management (continued) A large number of residential customers are on a prepaid basis thereby eliminating credit risk relating to these customers. Eskom has 5.1 Credit risk (continued) well-established credit control measures for conventional customers that include: 5.1.1 Trade and other receivables (continued) • increased security deposits and guarantees Reconciliation of movements in allowance for impairment • conversion of customers to prepayment • early identification of and engagement with non-paying customers Restated • negotiation of mutually acceptable payment arrangements 2022 2021 • disconnection of supply Stage 2 Stage 3 Total Stage 2 Stage 3 Total • use of debt collectors Note Rm Rm Rm Rm Rm Rm • taking legal measures such as issuing letters of demand and pursuing adverse listing of defaulting customers Group All billed customers must provide security and this requirement can only be deviated from based on sound business decisions. The Balance at beginning of the year 619 3 671 4 290 823 5 595 6 418 granting of deviations for a customer must be approved according to the revenue security policy. Raised/(reversed) to the income statement 35 179 502 681 182 (353) (171) Progress on the collection process is regularly reviewed. Strict procedures are in place governing the writeoff of trade receivables. Reversed on payment of opening balance (256) (2 079) (2 335) (453) (2 045) (2 498) Where balances are assessed to not be collectable (for example deceased customers and businesses in liquidation after completion Remeasurement of opening balances held at year end (51) 46 (5) 12 (111) (99) of business rescue), writeoffs are considered. Outstanding amounts after recovery from the security held are written off once the Raised on new balances 486 2 535 3 021 623 1 803 2 426 relevant governance and legal collection processes have been followed. The process of recovery continues unless it is confirmed that there is no prospect of recovery or the costs of such action will exceed the benefits to be derived. Transfer of balances between stage 2 and 3 (252) 252 – (383) 383 – Finance income on stage 3 balances – 144 144 – 133 133 The main classes of trade receivables are: Writeoffs (66) (1 022) (1 088) (3) (2 087) (2 090) International customers Balance at end of the year 20 480 3 547 4 027 619 3 671 4 290 Electricity supply agreements are entered into with key international customers who comprise utility companies, governments of neighbouring countries and sundry large power users. Their payment terms are between 10 and 45 days. Impairment is assessed Company based on the country-specific risk. Balance at beginning of the year 728 3 632 4 360 898 5 567 6 465 Raised/(reversed) to the income statement 35 76 497 573 215 (363) (148) International customers are not required to provide upfront security. If they default, new payment arrangements are negotiated, or supply is curtailed. Certain international customers may be required to pay upfront when their credit risk profile has changed. Reversed on payment of opening balance (368) (1 988) (2 356) (453) (2 045) (2 498) Remeasurement of opening balances held at year end (49) 80 31 12 (111) (99) There were no material changes to the expected credit loss percentages compared to the prior year. Raised on new balances 493 2 405 2 898 656 1 793 2 449 Local large power users Transfer of balances between stage 2 and 3 (252) 252 – (383) 383 – Local large power users comprise South African redistributors (metropolitan and municipal) and commercial, industrial and mining Finance income on stage 3 balances – 144 144 – 133 133 customers usually with supplies above 100kVA. Payment terms are individually negotiated and are normally a maximum of 15 days, Writeoffs (33) (1 043) (1 076) (2) (2 088) (2 090) except for certain bulk redistributing municipalities which are at a maximum of 30 days. Balance at end of the year 20 519 3 482 4 001 728 3 632 4 360 Municipalities are required to provide security for all new supplies or where they request an upgrade of existing supply points. Where a large power user has an acceptable credit rating from an approved rating agency, the provision of security is amended based on the type of risk as defined in the revenue security policy. Security held for trade receivables (guarantees and deposits) Group and company Eskom continues to execute its municipal debt management strategy to ensure maximum collections from non-paying municipalities. Unfortunately, Eskom’s attempts to enforce contractual credit control is hampered by drawn out litigation and interdicts granted by 2022 2021 the courts in the interest of municipal end-consumers. Eskom is advocating an active partnering solution whereby Eskom supports Fair value of security held Security Rene- Fair value of security held Security Rene- municipalities with distribution, reticulation and revenue collection services. Credit- Not Total called gotiated Credit- Not Total called gotiated impaired credit- upon balances impaired credit- upon balances Interventions include: recei- impaired recei- impaired • entering into special payment arrangements vables recei- vables recei- • promoting and implementing an active partnering solution for municipalities vables vables • following the Promotion of Administrative Justice Act processes to restrict, interrupt or terminate supply Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm • restricting electricity supply if the set maximum demand levels are exceeded • terminating supply where no other option is available International – 6 6 – – – 6 6 – – • issuing of summonses Local large • pursuing the attachment of assets power users 319 13 567 13 886 43 2 572 361 11 996 12 357 52 3 215 Municipalities 278 628 906 2 2 553 247 530 777 3 3 174 Eskom continues to work closely with the Department of Co-operative Governance and Traditional Affairs, National Treasury and other government departments as well as relevant stakeholders to resolve the systemic challenges which have given rise to municipal Other 41 12 939 12 980 41 19 114 11 466 11 580 49 41 arrear debt. Local small power users 177 2 485 2 662 90 72 165 2 316 2 481 92 50 There were no material changes to the expected credit loss percentages compared to the prior year. Soweto 13 – 13 1 – 13 – 13 2 2 Local small power users Other 164 2 485 2 649 89 72 152 2 316 2 468 90 48 Local small power users comprise local customers that have a supply of 100kVA or less in size. Payment terms for small power customers is 30 days. 496 16 058 16 554 133 2 644 526 14 318 14 844 144 3 265 New customers are required to provide security equivalent to between one and three months’ consumption at the commencement of the supply agreement. The level of security is reviewed if a customer defaults on their payment obligation or requires additional Additional information electricity supply capacity. In these instances, additional security is required to cover between one and three months of recent Trade receivables consumption before supply will commence. All new customers will preferably be on prepayment terms. Credit risk attributable to trade receivables is assessed taking into account the following counterparty characteristics: • geographic location of the customer (both internationally and within South Africa) • size of demand (large or small power user) • receivable ageing profile • security held (deposits and guarantees) • payment history 66 | | 67 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 5. Financial risk management (continued) The management of credit risk is governed by the following policies: 5.1 Credit risk (continued) • trading in financial instruments is only conducted with selected counterparties after credit limits have been authorised 5.1.1 Trade and other receivables (continued) • only financial institutions and/or counterparties with an independent minimum rating of A1 are accepted for investments. If there Additional information (continued) are no independent ratings, the credit quality of the counterparty is assessed, taking into account its financial position, past Trade receivables (continued) experience and other factors Local small power users (continued) • all exposures are based on mark-to-market values. Transaction or close-out netting takes place in accordance with the terms and The residential revenue management strategy, which includes Soweto, continues to be implemented. Soweto receivables are an conditions of the underlying trading agreements identified high credit risk area subject to specific credit risk management as the collection of revenue from customers in Soweto • minimum credit-rating requirements for financial institutions are maintained to assess the risk categories by rating class and to remains a challenge. The payment levels expressed as a percentage of billed revenue (excluding interest) for the year was 25% ascertain the probability of default inherent in each rating class (2021: 21%). • approved concentration risk parameters and collateral management procedures are in place. Concentration of credit risk is managed by setting credit risk limits at a counterparty-specific level. Concentration credit risk limits are used as second tier limits There were no material changes to the expected credit loss percentages for small power users (other than Soweto) compared to in relation to counterparty credit limits. Counterparty-specific exposure is monitored against a set concentration of credit risk the prior year. limits in relation to the total credit risk exposure to all counterparties Other receivables Risk is measured by determining a default probability per counterparty using default probabilities assessed by rating agencies for Other receivables comprise of various sundry receivables. There are no significant balances with specific repayment terms. various types of credit ratings. These default probabilities are then applied to the market value of the investment placed to determine No security is held in respect of these balances and no interest has been charged on overdue balances. the capital at risk. There were no material changes to the expected credit loss percentages compared to the prior year. The treasury department’s policies and practices are designed to preserve the independence and integrity of decision-making and ensure credit risks are accurately assessed, properly approved, continually monitored and actively managed. 5.1.2 Derivatives held for risk management and cash and cash equivalents Impairment analysis The following are monitored and reported on: • aggregate credit risk exposure Restated • limits utilisation including any breaches 2022 2021 • hold-limit exceptions Not Subject to Total Not Subject to Total • risk profile changes subject to impairment subject to impairment • risk concentrations impairment impairment Stage 1 Stage 1 Where the credit risk of a particular counterparty has increased, a reassessment of the valuation of the instrument is made. In making Rm Rm Rm Rm Rm Rm this assessment, the counterparty is assessed for the following factors: • significance of financial difficulty Group • probability of bankruptcy Derivatives held for risk management 8 509 – 8 509 12 543 – 12 543 • probability of breach of contract BBB- to AAA 3 493 – 3 493 5 505 – 5 505 B- to BB+ 5 016 – 5 016 7 038 – 7 038 5.1.3 Insurance investments Impairment analysis Cash and cash equivalents – 15 885 15 885 – 4 041 4 041 Group BBB- to AAA – 423 423 – 138 138 Not Subject to impairment Total B- to BB+ – 15 459 15 459 – 3 901 3 901 subject to Stage 1 Unrated – 3 3 – 2 2 impairment Gross Gross Allowance Carrying Gross Allowance Carrying Company for value for value Derivatives held for risk management 8 510 – 8 510 12 545 – 12 545 impairment impairment BBB- to AAA 3 494 – 3 494 5 507 – 5 507 Rm Rm Rm Rm Rm Rm Rm B- to BB+ 5 016 – 5 016 7 038 – 7 038 2022 Cash and cash equivalents – 14 218 14 218 – 2 503 2 503 B- to BB+ – 15 183 (10) 15 173 15 183 (10) 15 173 Not subject to credit risk 2 145 – – – 2 145 – 2 145 BBB- to AAA – 424 424 – 75 75 B- to BB+ – 13 791 13 791 – 2 426 2 426 2 145 15 183 (10) 15 173 17 328 (10) 17 318 Unrated – 3 3 – 2 2 2021 B- to BB+ – 12 546 (79) 12 467 12 546 (79) 12 467 The gross values of cash and cash equivalents approximate its carrying value as the impairments calculated are immaterial. Not subject to credit risk 1 934 – – – 1 934 – 1 934 The asset and liability committee (Alco) manages credit risk arising from the treasury department’s activities in the financial markets 1 934 12 546 (79) 12 467 14 480 (79) 14 401 with the objective of maximising the rate of return on investments while not exceeding approved levels of credit risk exposure. It is chaired by the chief financial officer and reports on a quarterly basis to Exco and the audit and risk committee. There were no material changes to the expected credit loss (ECL) percentages compared to the prior year. There was a slight improvement in the ECL percentage in 2022 due to investing with counterparties with better credit ratings than in 2021. The committee’s terms of reference are maintained and approved by the chief financial officer. They are aligned to the Exco credit risk governance standards and are supplemented by appropriate policies and procedures. Escap invests in listed shares and negotiable certificates of deposit to satisfy its capital adequacy requirements in line with insurance regulations in South Africa. The listed shares do not expose the group to credit risk. Investments in negotiable certificates of deposit Specific activities undertaken by the Alco include the following: are made with banks with an investment-grade credit rating. • assessing the credit quality of counterparties and approving credit limits based on this assessment • monitoring the adherence to credit limits • approving methodologies for the management of counterparty exposure • ensuring that, where applicable, transactions with counterparties are supported by trading agreements • facilitating and managing the issuing of financial guarantees by the group To assist the Alco to discharge its mandate, the portfolio assessment section within the treasury function provides it with regular feedback on all treasury credit risk-related matters. 68 | | 69 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 5. Financial risk management (continued) Stage 1 Stage 2 Stage 3 Total 5.1 Credit risk (continued) Gross Allow- Carrying Gross Allow- Carrying Gross Allow- Carrying Gross Allow- Carrying 5.1.4 Finance lease receivables ance value ance value ance value ance value Impairment analysis for for for for impair- impair- impair- impair- Group and company ment ment ment ment Stage 1 Stage 3 Total Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying Company for value for value for value 2022 impairment impairment impairment Other loans Rm Rm Rm Rm Rm Rm Rm Rm Rm B- to BB+ 5 657 (7) 5 650 – – – – – – 5 657 (7) 5 650 2022 2021 B- to BB+ 296 (3) 293 2 (2) – 298 (5) 293 Other loans 2021 B- to BB+ 5 779 (21) 5 758 – – – – – – 5 779 (21) 5 758 B- to BB+ 337 (11) 326 2 (1) 1 339 (12) 327 Home loans There were no material changes to the expected credit loss percentages compared to the prior year. EFC provides loan facilities mainly for the purchase of immoveable property to the employees of the group. Credit risk policies are The supply of electricity to customers may be in the form of either a standard or premium power supply. A standard power supply in place requiring staff to meet various criteria on valuation, affordability and credit history in compliance with the National Credit is the least life-cycle cost technically acceptable solution as defined in the South African Grid Code and the Distribution Network Act before they are granted home loans. Code whereas with a premium supply the customer’s connection requirement exceeds the specifications of a standard supply. This Home loans are extended up to a maximum of 112% of the market value of the property being purchased to cater for bond and is achieved through the installation of premium supply equipment for which the customer is required to pay a connection charge. transfer costs. Credit risk exposure is mitigated by having: Connection charges for premium supply contracts were repayable on a monthly basis over a maximum period of 25 years. This payment option is no longer available for new premium supplies as the connection charges are payable upfront. • recourse to the value of the underlying properties through mortgage contracts • monthly instalments deducted from the salaries of employees The standard payment terms for trade receivables are also applied to the premium supply equipment connection charge customers. The credit risk exposure resulting from premium supply contracts is managed by monitoring payment levels of the customer’s trade Credit risk is re-assessed when an employee leaves the service of the group. Ex-employees may make arrangements for a monthly receivable balance. There were no significant overdue or distressed balances relating to finance lease receivables in the current or debit order or over-the-counter deposits to settle monthly instalments. prior financial year. Security in the form of bank guarantees is required from customers before the asset is constructed and is in place EFC closely monitors properties held as collateral where the related loans are considered to be credit-impaired in order to mitigate for a maximum period of 14 years to cover irrecoverable costs in the event of early termination of the supply contract. In addition, potential credit losses. the premium supply equipment serves as security for the outstanding finance lease receivable balance. Group 5.1.5 Loans receivable Unit 2022 2021 Impairment analysis Carrying value of credit-impaired balances Rm 241 193 Stage 1 Stage 2 Stage 3 Total Fair value of properties held as security for credit-impaired loans Rm 182 129 Gross Allow- Carrying Gross Allow- Carrying Gross Allow- Carrying Gross Allow- Carrying ance value ance value ance value ance value Weighted average loan to value ratio % 85 87 for for for for Average repayment period years 25 28 impair- impair- impair- impair- ment ment ment ment Eskom guarantees all losses EFC incurs where the loan granted by EFC exceeded 80% of the market value of the property at the time Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm of origination. Refer to note 44 for details regarding this guarantee. Group Other loans 2022 Home loans 7 435 (8) 7 427 235 (3) 232 285 (44) 241 7 955 (55) 7 900 The Alco manages credit risk arising from loans to subsidiaries with the objective of reducing the costs on the group’s consolidated liability. Credit risk on loans by Eskom to EFC are mitigated through the same means that EFC mitigates its loans to employees. B- to BB+ 7 435 (8) 7 427 235 (3) 232 – – – 7 670 (11) 7 659 Below B- – – – – – – 285 (44) 241 285 (44) 241 There were no material changes to the expected credit loss percentages compared to the prior year. Other loans 250 (2) 248 1 – 1 1 (1) – 252 (3) 249 5.2 Market risk B- to BB+ 250 (2) 248 1 – 1 – – – 251 (2) 249 A significant part of market risk encountered by the group arises from financial instruments that are managed centrally within the group’s treasury department. Below B- – – – – – – 1 (1) – 1 (1) – The objective of the group’s market risk management framework is to protect and enhance the statement of financial position and 7 685 (10) 7 675 236 (3) 233 286 (45) 241 8 207 (58) 8 149 profit or loss by managing and controlling market risk exposures and to optimise the funding of business operations and facilitate capital expansion. Restated 2021 The basis for calculating risk and sensitivity measures are consistent with the prior year. Sensitivity analysis assume that only the input Home loans 7 640 (14) 7 626 248 (4) 244 230 (37) 193 8 118 (55) 8 063 being analysed changes with all other variables remaining constant. B- to BB+ 7 640 (14) 7 626 248 (4) 244 – – – 7 888 (18) 7 870 Financial instruments mainly managed by the treasury department Below B- – – – – – – 230 (37) 193 230 (37) 193 The treasury department is responsible for managing market risk within the risk management framework approved by Exco and the Other loans 256 (4) 252 2 – 2 2 (2) – 260 (6) 254 board. The overall authority for the management of market risks within the treasury department is vested in the Alco. Measurement and reporting occurs on a daily and/or monthly basis and is performed by an independent section within the treasury department. B- to BB+ 256 (4) 252 2 – 2 – – – 258 (4) 254 Financial derivatives are used to manage market risk. Below B- – – – – – – 2 (2) – 2 (2) – Financial instruments managed by various divisions and subsidiaries 7 896 (18) 7 878 250 (4) 246 232 (39) 193 8 378 (61) 8 317 Market risk arises mainly from changes in foreign exchange rates and, to a limited extent, commodity and equity prices. The divisions and subsidiaries are responsible for identifying the exposure arising from these risks. They liaise with the centralised treasury department to hedge (economic and cash flow hedges) these exposures appropriately on their behalf. 70 | | 71 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 5. Financial risk management (continued) Sensitivity analysis 5.2 Market risk (continued) Group and company 5.2.1 Currency risk Restated Currency risk arises primarily from purchasing imported goods and services directly from overseas or indirectly via local suppliers, 2022 2021 foreign sales and foreign borrowings. The group is exposed to foreign exchange risk arising from future commercial transactions and 1% 1% 1% 1% recognised assets and liabilities that are denominated in a currency other than the functional currency of the group. All transactions increase decrease increase decrease in excess of R150 000 are hedged (ie economic or cash flow hedges). Currency exposure is identified by the business and hedged and Rm Rm Rm Rm managed by the central treasury department. Hedging instruments consist of cross-currency swaps and forward exchange contracts. Most of the forward exchange contracts have a maturity of less than one year from the reporting date and are rolled over at maturity Profit/(loss) before tax when necessary. Hedging instruments are entered into once the exposure is firm and ascertainable. Rand/EUR exposure 36 (36) 49 (49) Rand/USD exposure 123 (123) 209 (203) EUR USD GBP JPY SEK Rand/other currency 1 (1) 2 (2) Foreign currency exposure (notional amounts in millions per currency) Equity 2022 Rand/EUR exposure 25 (25) 32 (32) Group Rand/USD exposure 12 (12) 15 (15) Liabilities Rand/other currency 6 (6) – – Debt securities and borrowings (1 588) (8 234) – (231) – Trade and other payables (28) (4) (1) – (10) 5.2.2 Commodity risk Gross statement of financial position exposure (1 616) (8 238) (1) (231) (10) The group is exposed to commodity risk where commodities are either used directly (liquid fuels) or indirectly as a component of Estimated forecast purchases1 (302) (179) (6) (143) (284) plant, equipment or inventory (eg aluminium, copper or steel). Gross exposure (1 918) (8 417) (7) (374) (294) The exposures are hedged economically by means of futures and/or options. Economic hedging is applied where it is practical (a Derivatives held for risk management 2 1 918 8 419 7 374 294 relevant hedging instrument exists) based on the optimal economic solution and in compliance with the SARB requirements. The Net exposure – 2 – – – periods of the hedging instrument and that of the hedged item are not the same because of SARB regulations that limit the number of years which can be hedged. Company Liabilities 5.2.3 Interest rate risk Debt securities and borrowings (1 588) (8 234) – (231) – Interest rate risk is the risk that the group’s financial position may be adversely affected as a result of changes in interest rate levels, Trade and other payables (27) (4) (1) – (10) yield curves and spreads. Gross statement of financial position exposure (1 615) (8 238) (1) (231) (10) Debt securities and borrowings and derivatives held for risk management at variable rates expose the group to cash flow risk and Estimated forecast purchases1 (302) (179) (6) (143) (284) those at fixed rates expose the group to fair value risk. The group’s policy is to restrict the maximum effective portion of the external Gross exposure (1 917) (8 417) (7) (374) (294) debt (excluding the trading portfolio which is managed within the constraints of the risk management framework) exposed to an Derivatives held for risk management 2 1 917 8 419 7 374 294 interest rate reset within the next 12-month period to 40%. Net exposure – 2 – – – The group’s quantitative exposure to interest rate risk is disclosed in note 25. Mid-spot rate for one unit of the currency to the rand 16.19 14.59 19.18 0.12 1.56 Sensitivity analysis 2021 The group analyses its interest rate exposure on a dynamic basis by conducting a sensitivity analysis. This involves determining the Group impact on profit or loss of defined interest rate shifts. The same interest rate shift is used for each simulation for all currencies. Liabilities The sensitivity analysis for interest rate risk excludes finance costs capitalised. Debt securities and borrowings (1 896) (8 550) – (693) – Trade and other payables (52) (3) (1) – (10) The simulation is performed on a monthly basis to verify that the maximum loss potential is within the limit set by management. The results of the simulation are included in the table below: Gross statement of financial position exposure (1 948) (8 553) (1) (693) (10) Estimated forecast purchases1 (338) (185) (9) (140) (2) Group Company Gross exposure (2 286) (8 738) (10) (833) (12) Restated Restated Derivatives held for risk management 2 2 286 8 736 10 833 12 2022 2021 2022 2021 +100 -100 +100 -100 +100 -100 +100 -100 Net exposure – (2) – – – basis basis basis basis basis basis basis basis Company points points points points points points points points Liabilities Rm Rm Rm Rm Rm Rm Rm Rm Debt securities and borrowings (1 896) (8 550) – (693) – Profit/(loss) before tax Trade and other payables (52) (3) (1) – (10) Rand interest rates 1 916 (2 016) 2 392 (2 504) 1 908 (2 008) 2 366 (2 479) Gross statement of financial position exposure (1 948) (8 553) (1) (693) (10) EUR interest rates (294) 265 (423) 402 (294) 265 (423) 402 Estimated forecast purchases1 (338) (185) (9) (140) (2) USD interest rates (2 144) 2 263 (2 858) 2 999 (2 144) 2 263 (2 858) 2 999 Gross exposure (2 286) (8 738) (10) (833) (12) Other currency interest rates – – (1) 1 – – (1) 1 Derivatives held for risk management 2 2 286 8 736 10 833 12 Equity Net exposure – (2) – – – Rand interest rates 1 840 (1 949) 1 765 (1 877) 1 840 (1 949) 1 765 (1 877) EUR interest rates (359) 382 (440) 474 (319) 342 (440) 474 Mid-spot rate for one unit of the currency to the rand 17.32 14.75 20.34 0.13 1.69 USD interest rates (1 786) 1 908 (1 774) 1 907 (1 786) 1 908 (1 774) 1 907 Other currency interest rates (2) 3 – – (2) 3 – – 1. Represents future purchases contracted for. 2. Includes notional value and accrued interest. 72 | | 73 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 5. Financial risk management (continued) 5.3.1 Key liquidity indicators 5.2 Market risk (continued) Group Company 5.2.3 Interest rate risk (continued) Restated Restated Fixed and floating rate debt Unit 2022 2021 2022 2021 Group and company Weighted average term to maturity of debt securities and borrowings years 6.66 6.65 6.60 6.65 2022 2021 Working capital ratio 0.90 0.95 0.89 0.94 fixed floating fixed floating Cash interest cover ratio 1.68 0.85 1.61 0.81 % % % % Net debt service cover ratio 0.76 0.30 0.70 0.29 Proportion of fixed versus floating rate debt at 31 March1 62 38 63 37 Liquid assets Rm 15 885 4 041 14 218 2 503 5.2.4 Equity price risk Management has set a minimum weighted average term to maturity for debt securities and borrowings of five years. The term limits are Equity price risk arises from investments listed on the Johannesburg Stock Exchange. Changes in the fair value of equity securities independently monitored and reported to the Alco on a monthly basis and to Exco and the audit and risk committee on a quarterly basis. held by the group will fluctuate because of changes in market prices caused by factors specific to the individual equity issuer or factors The cash interest cover and debt service cover ratios measure the ability to fund debt costs via cash from operations. Management affecting all similar equity securities traded on the market. has targeted 3.5 for cash interest cover and 1.5 for net debt service cover. The investment policy is approved by the Escap board and monitored by the Escap audit and risk committees. Exposure to market Liquid assets are investments identified as having the potential to be quickly converted into cash. These consist of cash and cash equivalents. risk is limited through diversification and by applying strict investment criteria. 5.3.2 Primary sources of funding and unused facilities Carrying values of investments per sector The primary sources to meet Eskom’s liquidity requirements are cash generated from operations, cash inflows from maturing financial assets purchased, funds committed by government, signed and committed export credit agencies and development funding institution Group facilities, as well as local and foreign debt issued in the market. To supplement these liquidity sources under stress conditions, undrawn 2022 2021 loans, commercial paper facilities and unutilised government guarantees are in place. All figures are quoted in notional amounts. portfolio portfolio Rm % Rm % ZAR EUR USD 2022 2021 2022 2021 2022 2021 Banks, financial services and insurance 746 35 433 22 m m m m m m Basic materials and resources 554 26 492 25 Group and company Consumer goods and services 677 32 887 46 Facilities available Other 168 7 122 7 Export credit agencies – – 20 286 – 1 2 145 100 1 934 100 Crédit Agricole Corporate and Investment Bank – Coface – – – 44 – – Banque Nationale de Paris Paribas – Coface – – – 201 – – A 1% increase or decrease in share prices would have increased/decreased profit or loss before tax by R21 million (2021: R19 million). Kreditanstalt für Wiederaufbau – Hermes – – 20 411 – – Export-Import Bank of the United States – – – – – 1 5.3 Liquidity risk Liquidity risk can arise from mismatches in the timing of cash flows from revenue with capital and operational outflows. Funding risk Development financing institutions 3 446 4 072 – 73 1 269 1 899 arises when the necessary liquidity to fund illiquid asset positions, such as building new electricity capacity, cannot be obtained at the World Bank – – – – – 289 expected terms and when required. African Development Bank 2 095 2 631 – 73 25 25 Clean technology fund – African Development Bank – – – – 58 58 The objective of the group’s liquidity and funding management is to ensure that all foreseeable operational, capital expansion and loan Clean technology fund – World Bank – – – – 215 215 commitment expenditure can be met under both normal and stressed conditions. The group has adopted an overall statement of New Development Bank – – – – 140 155 financial position approach, which consolidates all sources and uses of liquidity, while aiming to maintain a balance between liquidity, Kreditanstalt für Wiederaufbau – – – – 94 100 profitability and interest rate considerations. Agence Française de Développement 1 351 1 441 – – – – China Development Bank – – – – 737 1 057 The management of group liquidity and funding risk is centralised in the treasury department in accordance with practices and limits set by Exco and the board. The group’s liquidity and funding management process includes: General banking facilities – 250 – – – – • projecting cash flows and considering the cash required by the group and optimising the short-term liquidity as well as the long- 3 446 4 322 20 359 1 269 1 900 term funding • monitoring financial position liquidity ratios Facilities available (Rand equivalent) 3 446 4 322 324 6 218 18 515 28 025 • maintaining a diverse range of funding sources with adequate back-up facilities • managing the concentration and profile of debt maturities Funds received during the year • actively managing the funding risk by evaluating optimal entry points into the various markets per the official borrowing programme Export credit agencies • maintaining liquidity and funding contingency plans Kreditanstalt für Wiederaufbau – Hermes – – 18 521 – – Development financing institutions 626 255 12 3 359 527 Eskom has an established corporate governance structure and process for managing the risks regarding guarantees and contingent World Bank 2 – – – – 18 58 liabilities. All significant guarantees issued by Eskom are approved by the board and are managed on an ongoing basis by the treasury African Development Bank 3 536 255 12 3 – – department and by Exco and audit and risk committee. Refer to note 44. New Development Bank4 – – – – 15 14 The guarantees are administratively managed by the treasury department. Updated guarantee schedules are compiled every month, Kreditanstalt für Wiederaufbau5 – – – – 6 – taking cognisance of any changed risk factors and are submitted to each of the committees for consideration and action. Risk factors Agence Française de Développement6 90 – – – – – and assumptions affecting probability calculations are reassessed twice a year and presented to the above committees. China Development Bank7 – – – – 320 455 Eskom’s guarantees are diverse and unlinked, such that a trigger event for any one guarantee is unlikely to precipitate a trigger event 626 255 30 55 359 527 in respect of other guarantees. Funds received during the year (Rand equivalent) 626 255 486 953 5 238 7 773 Given that there would be forewarning of payments required in terms of the other guarantees, and considering the amounts of the guarantees, it is expected that Eskom will be able to raise the required liquidity to effect any required payments. 1. Reporting refinements on unused facilities resulted in the 2021 numbers being restated. 2. Funds received were reimbursements on payments made by Eskom to various suppliers for goods and services related to the Medupi power station and Majuba rail projects. 3. Funds received were reimbursements on payments made by Eskom to various suppliers for goods and services supplied for the Medupi power station boilers and turbines as well as transmission projects. 4. Funds received were for the renewable energy integration and transmission augmentation project. 5. Funds received were for the renewable grid integration and strengthening programme. 1. The methodology for calculating the fixed and floating debt rate was simplified to reflect the rate as per the loan agreement, previously derivatives that would hedge the loans 6. Funds received were for phase 2 of the Namaqualand strengthening project. were included in the calculation. 7. Funds received were for the Medupi and Kusile power stations. 74 | | 75 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 5. Financial risk management (continued) Cash flows 5.3 Liquidity risk (continued) Nominal 0–3 4–12 1–5 >5 5.3.2 Primary sources of funding and unused facilities (continued) inflow/outflow months months years years Government guarantees available Rm Rm Rm Rm Rm 2022 2021 2022 Domestic General Total Domestic General Total Group multi-term multi-term Financial assets note note Loans receivable 15 061 227 675 3 293 10 866 programme programme Derivatives held for risk management 9 260 (52) (98) 6 667 2 743 Rm Rm Rm Rm Rm Rm Finance lease receivables 423 17 51 251 104 Group and company Trade and other receivables 27 805 25 365 1 581 859 – Opening balance 5 225 40 244 45 469 2 936 22 860 25 796 Insurance investments 17 328 6 129 11 199 – – Cash and cash equivalents 15 885 15 885 – – – Guarantee granted 145 000 205 000 350 000 145 000 205 000 350 000 Accumulated amounts used (139 775) (164 756) (304 531) (142 064) (182 140) (324 204) 85 762 47 571 13 408 11 070 13 713 Facilities withdrawn – 2 002 2 002 – 2 384 2 384 Financial liabilities Facilities repaid 2 020 14 306 16 326 7 625 15 000 22 625 Debt securities and borrowings 670 309 7 195 64 676 215 363 383 0751 Facilities raised (6 333) (21 764) (28 097) (5 336) – (5 336) Derivatives held for risk management 9 584 2 745 6 922 13 068 (13 151) Guarantee swap 7 000 (7 000) – – – – Lease liabilities 15 140 455 1 356 8 581 4 748 Trade and other payables 36 576 27 832 7 782 962 – Closing balance 7 912 27 788 35 700 5 225 40 244 45 469 Financial trading liabilities 2 2 – – – Guarantee granted 152 000 198 000 350 000 145 000 205 000 350 000 731 611 38 229 80 736 237 974 374 672 Accumulated amounts used (144 088) (170 212) (314 300) (139 775) (164 756) (304 531) Company Financial assets Loan covenants Loans receivable 5 730 2 666 3 064 – – There are various loan covenants, both of a financial and non-financial nature, attached to the loan facilities. The covenants generally fall into the following categories: Derivatives held for risk management 9 261 (52) (97) 6 667 2 743 Finance lease receivables 423 17 51 251 104 • Prepayment events – certain events trigger pre-payment of outstanding amounts before the original maturity date, usually within Trade and other receivables 30 177 27 785 1 540 852 – 30 days of notice. • Events of default – Eskom must, on occurrence of these events, without delay notify the lender whose loan is triggered and all Cash and cash equivalents 14 218 14 218 – – – other lenders that such an event has occurred. If not cured or remedied within specified periods, they trigger acceleration of 59 809 44 634 4 558 7 770 2 847 outstanding amounts (immediately due and payable upon notice) and cancellation of undisbursed funds. Cross default to other loans may be triggered in most instances. Acceleration will lead to calling of government guarantees and event of default of Financial liabilities government debt. Debt securities and borrowings 671 924 7 934 66 738 214 697 382 5551 • Suspension and cancellation events – occurrence of these events trigger suspension and/or cancellation of undisbursed amounts. Derivatives held for risk management 9 584 2 745 6 922 13 068 (13 151) Cancellation usually occurs if the event that has triggered suspension is not cured or remedied within a specified period (usually Lease liabilities 15 138 456 1 355 8 580 4 747 60 days after suspension). Trade and other payables 38 711 29 989 7 760 962 – • Representation and warranties – Eskom makes certain representations about its status and information provided to the lenders Financial trading liabilities 2 2 – – – by signing the loan agreement. Making false and/or misleading representation and warranties is an event of default in all the Financial guarantees 104 104 – – – agreements. 735 463 41 230 82 775 237 307 374 151 The covenants are closely monitored for compliance. Eskom proactively notifies and engages with lenders should an event of default be anticipated to remedy the possible event before a default is triggered, including obtaining an extension of a submission deadline or a waiver for a potential breach. All possible events and possible covenant breaches were successfully remedied before default and there were no loan defaults or breaches during the year. There were also no breaches that resulted in the early repayment of a facility at the reporting date. 5.3.3 Contractual cash flows The contractual undiscounted cash flows of the group’s financial assets and liabilities are indicated on the basis of their earliest possible contractual maturity. The cash flows for derivatives held for risk management are presented on a net basis in line with the classification in the statement of financial position. Contractual cash flows are a function of forward exchange rates and forward interest rates and are a point-in-time calculation that are impacted by market conditions at that time. The contractual cash flows of financial trading assets and liabilities are disclosed based on their contractual maturities. Some of these instruments are held for trading and may be sold or settled prior to contractual maturity. Only cash flows relating to financial instruments and financial guarantees have been presented and do not include future cash flows expected from the normal course of business and related commodity-linked pricing agreements. 1. The maturity profile of undiscounted contractual payments of debt securities and borrowings due after 5 years comprise of R227 billion (2021: R252 billion) between years 5 and 10 and R156 billion (2021: R181 billion) beyond year 10. 76 | | 77 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 5. Financial risk management (continued) 6. Accounting classification and fair value 5.3 Liquidity risk (continued) 6.1 Accounting classification 5.3.3 Contractual cash flows (continued) Restated Restated 2022 2021 2021 Fair value Amortised Other Total Fair value Amortised Other Total Cash flows through cost assets and through cost assets and profit liabilities1 profit liabilities1 Nominal 0–3 4–12 1–5 >5 or loss or loss inflow/outflow months months years years Note Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Group Group Financial assets Financial assets Loans receivable 15 – 8 149 – 8 149 – 8 317 – 8 317 Loans receivable 15 072 215 644 3 258 10 955 Derivatives held for risk management 17 627 (69) 570 4 991 12 135 Home loans – 7 900 – 7 900 – 8 063 – 8 063 Finance lease receivables 504 19 56 248 181 Other loans – 249 – 249 – 254 – 254 Trade and other receivables1 23 254 22 629 625 – – Embedded derivatives 16 939 – – 939 – – – – Insurance investments 17 749 5 859 11 890 – – Derivatives held for risk Cash and cash equivalents 4 041 4 041 – – – management 17 4 710 – 3 799 8 509 8 205 – 4 338 12 543 78 247 32 694 13 785 8 497 23 271 Foreign exchange contracts 24 – 19 43 24 – 8 32 Financial liabilities Cross-currency swaps 4 494 – 3 780 8 274 8 032 – 4 330 12 362 Debt securities and borrowings 715 011 12 349 60 886 208 658 433 1182 Credit default swaps 5 – – 5 5 – – 5 Derivatives held for risk management 6 070 3 299 4 930 8 352 (10 511) Inflation-linked swaps 187 – – 187 144 – – 144 Lease liabilities 16 911 456 1 364 6 999 8 092 Finance lease receivables 18 – – 293 293 – – 327 327 Trade and other payables 38 373 29 577 8 121 675 – Financial trading liabilities 2 2 – – – Trade and other receivables 20 – 24 385 – 24 385 – 19 785 – 19 785 776 367 45 683 75 301 224 684 430 699 Insurance investments 21 2 145 15 173 – 17 318 1 934 12 467 – 14 401 Company Negotiable certificates of Financial assets deposit – 15 173 – 15 173 – 12 467 – 12 467 Listed shares 2 145 – – 2 145 1 934 – – 1 934 Loans receivable 5 837 2 654 3 183 – – Derivatives held for risk management 17 627 (69) 570 4 991 12 135 Cash and cash equivalents 22 – 15 885 – 15 885 – 4 041 – 4 041 Finance lease receivables 504 19 56 248 181 Bank balances – 7 877 – 7 877 – 4 041 – 4 041 Trade and other receivables1 26 637 23 936 2 066 635 – Fixed deposits – 8 008 – 8 008 – – – – Cash and cash equivalents 2 503 2 503 – – – 7 794 63 592 4 092 75 478 10 139 44 610 4 665 59 414 53 108 29 043 5 875 5 874 12 316 Financial liabilities Financial liabilities Debt securities and Debt securities and borrowings 707 764 9 696 57 319 207 631 433 1182 borrowings 25 – 396 294 – 396 294 – 401 826 – 401 826 Derivatives held for risk management 6 068 3 299 4 928 8 352 (10 511) Lease liabilities 16 909 456 1 364 6 997 8 092 Eskom bonds – 161 635 – 161 635 – 161 171 – 161 171 Trade and other payables 40 533 31 772 8 086 675 – Commercial paper – 1 058 – 1 058 – 1 251 – 1 251 Financial trading liabilities 2 2 – – – Eurorand zero coupon bonds – 6 318 – 6 318 – 5 600 – 5 600 Financial guarantees 52 52 – – – Foreign bonds – 61 916 – 61 916 – 55 553 – 55 553 771 328 45 277 71 697 223 655 430 699 Development financing institutions – 124 438 – 124 438 – 143 174 – 143 174 Export credit facilities – 17 735 – 17 735 – 23 343 – 23 343 Floating rate notes – – – – – 2 027 – 2 027 Other loans – 23 194 – 23 194 – 9 707 – 9 707 Embedded derivatives 16 – – – – 1 491 – – 1 491 Derivatives held for risk management 17 5 015 – 4 963 9 978 4 379 – 3 895 8 274 Foreign exchange contracts 3 531 – 436 3 967 3 827 – 398 4 225 Cross-currency swaps 1 403 – 4 527 5 930 450 – 3 497 3 947 Credit default swaps 81 – – 81 102 – – 102 Lease liabilities 29 – – 8 603 8 603 – – 8 969 8 969 Trade and other payables 30 – 36 796 – 36 796 – 35 892 – 35 892 Financial trading liabilities 21 2 – – 2 2 – – 2 5 017 433 090 13 566 451 673 5 872 437 718 12 864 456 454 1. The contractual cash flows have been restated to remove the cash flows related to sales to customers that are accounted for on the cash basis. 2. The maturity profile of undiscounted contractual payments of debt securities and borrowings due after 5 years comprise of R227 billion (2021: R252 billion) between years 5 and 1. Other assets and liabilities include derivatives held for risk management designated as hedges measured at fair value through other comprehensive income and finance leases 10 and R156 billion (2021: R181 billion) beyond year 10. measured at amortised cost. The total assets measured at amortised cost amounts to R46 561 million, the total liabilities measured at amortised costs amounts to R446 219 million. 78 | | 79 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 6. Accounting classification and fair value (continued) 6.2 Fair value 6.1 Accounting classification (continued) Valuation processes The group has a control framework in place for the measurement of fair values. It includes a valuation team that ultimately reports Restated to the chief financial officer and has overall responsibility for all significant fair value measurements. 2022 2021 Fair value Amortised Other Total Fair value Amortised Other Total The valuation team regularly reviews significant unobservable inputs and valuation adjustments. Where third-party information, such through cost assets and through cost assets and as broker quotes or pricing services, is used to measure fair value, this information is assessed as to whether it provides adequate profit liabilities1 profit liabilities1 support for the accounting treatment applied including the level of the fair value hierarchy assigned to it. or loss or loss Note Rm Rm Rm Rm Rm Rm Rm Rm Principal markets The group is involved in various principal markets because of the unique funding activities undertaken where the fair value is Company determined by each participant in the different principal markets. The principal markets include: Financial assets • capital and money markets Loans receivable • development financing institutions Loans to subsidiaries 15 – 5 650 – 5 650 – 5 758 – 5 758 • export credit agencies Embedded derivatives 16 939 – – 939 – – – – Derivatives held for risk Fair value hierarchy management 17 4 711 – 3 799 8 510 8 207 – 4 338 12 545 Fair value measurements are categorised into the different levels in the fair value hierarchy based on the inputs to the valuation techniques used. There were no changes in the valuation techniques applied. The hierarchy levels are defined as follows: Foreign exchange contracts 25 – 19 44 26 – 8 34 Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Cross-currency swaps 4 494 – 3 780 8 274 8 032 – 4 330 12 362 Level 2: Inputs other than quoted prices included within level 1 that are observable, either directly (ie as prices) or indirectly (ie Credit default swaps 5 – – 5 5 – – 5 derived from prices). Inflation-linked swaps 187 – – 187 144 – – 144 Level 3: Unobservable inputs. Finance lease receivables 18 – – 293 293 – – 327 327 There were no transfers between level 1, 2 or 3 of the fair value hierarchy during the year. The group recognises transfers between Trade and other receivables 20 – 26 400 – 26 400 – 22 276 – 22 276 levels of the fair value hierarchy at the end of the reporting period during which the transfers have occurred. The group’s policy for determining when transfers between levels in the hierarchy have occurred includes monitoring of the following factors: Cash and cash equivalents 22 – 14 218 – 14 218 – 2 503 – 2 503 • changes in market and trading activity (eg significant increases/decreases in activity) Bank balances – 6 210 – 6 210 – 2 503 – 2 503 • changes in inputs used in valuation techniques (eg inputs becoming/ceasing to be observable in the market) Fixed deposits – 8 008 – 8 008 – – – – Valuation techniques 5 650 46 268 4 092 56 010 8 207 30 537 4 665 43 409 Financial instrument Valuation technique Financial liabilities Debt securities and Level 1: Quoted prices (unadjusted) in active markets borrowings 25 – 398 066 – 398 066 – 404 042 – 404 042 Financial trading assets (government bonds) and Quoted bid price in active markets. A market is regarded as active when it Eskom bonds – 163 622 – 163 622 – 161 171 – 161 171 insurance investments (listed shares) is a market in which transactions for the asset or liability take place with Commercial paper – 595 – 595 – 3 184 – 3 184 sufficient frequency and volume to provide pricing information on an Eurorand zero coupon ongoing basis. bonds – 6 318 – 6 318 – 5 600 – 5 600 Financial trading liabilities (short-sold government Quoted bid price in active markets. A market is regarded as active when it Foreign bonds – 61 916 – 61 916 – 55 553 – 55 553 bonds) is a market in which transactions for the asset or liability take place with Development financing sufficient frequency and volume to provide pricing information on an institutions – 124 438 – 124 438 – 143 174 – 143 174 ongoing basis. Export credit facilities – 17 735 – 17 735 – 23 343 – 23 343 Floating rate notes – – – – – 2 027 – 2 027 Level 2: Inputs other than quoted prices included within level 1 that are observable Other loans – 23 442 – 23 442 – 9 990 – 9 990 Loans receivable, insurance investments (negotiable A discounted cash flow technique is used which uses expected cash flows Embedded derivatives 16 – – – – 1 491 – – 1 491 certificates of deposit), debt securities and and a market-related discount rate. borrowings and financial trading assets and liabilities Derivatives held for risk (repurchase agreement assets and liabilities) and management 17 5 015 – 4 963 9 978 4 379 – 3 895 8 274 trade and other receivables Foreign exchange Derivatives held for risk management Valuation determined with reference to broker quotes as well as use of contracts 3 531 – 436 3 967 3 827 – 398 4 225 discounted cash flow and option pricing models. Broker quotes are tested Cross-currency swaps 1 403 – 4 527 5 930 450 – 3 497 3 947 for reasonableness by discounting expected future cash flows using a Credit default swaps 81 – – 81 102 – – 102 market interest rate for a similar instrument at the measurement date. Lease liabilities 29 – – 8 602 8 602 – – 8 967 8 967 Valuations of cross-currency swaps include the credit risk of Eskom (known as debit value adjustment) and counterparties (known as credit value Trade and other payables 30 – 39 551 – 39 551 – 38 843 – 38 843 adjustment) where appropriate. A stochastic modelling approach is Financial trading liabilities 21 2 – – 2 2 – – 2 followed where the expected future exposure to credit risk for Eskom and its counterparties (considering default probabilities and recovery rates 5 017 437 617 13 565 456 199 5 872 442 885 12 862 461 619 derived from market data) is modelled. Trade and other payables and cash and cash Fair values have not been disclosed for financial instruments where the equivalents carrying amounts are a reasonable approximation of fair value. Level 3: Unobservable inputs Embedded derivatives Fair valued using unobservable inputs. Refer to note 16 for a movement reconciliation and to note 4.1 for information regarding the valuation techniques and assumptions used. 1. Other assets and liabilities include derivatives held for risk management designated as hedges measured at fair value through other comprehensive income and finance leases measured at amortised cost. The total assets measured at amortised cost amounts to R46 561 million, the total liabilities measured at amortised costs amounts to R446 219 million. 80 | | 81 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 6. Accounting classification and fair value (continued) Measured Restated 6.2 Fair value (continued) at fair 2022 2021 Fair value hierarchy (continued) value Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 The fair value hierarchy of financial instruments is as follows: Rm Rm Rm Rm Rm Rm Company Measured Restated Financial assets at fair 2022 2021 Loans receivable value Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Loans to subsidiaries1 No – 5 654 – – 5 771 – Rm Rm Rm Rm Rm Rm Embedded derivatives Yes – – 939 – – – Group Derivatives held for risk management – 8 510 – – 12 545 – Financial assets Foreign exchange contracts Yes – 44 – – 34 – Loans receivable – 7 237 – – 7 388 – Cross-currency swaps Yes – 8 274 – – 12 362 – Home loans No – 7 119 – – 7 263 – Credit default swaps Yes – 5 – – 5 – Inflation-linked swaps Yes – 187 – – 144 – Other loans No – 118 – – 125 – Trade and other receivables No – 26 400 – – 22 276 – Embedded derivatives Yes – – 939 – – – Derivatives held for risk management – 8 509 – – 12 543 – Financial liabilities Debt securities and borrowings – 389 924 – – 408 716 – Foreign exchange contracts Yes – 43 – – 32 – Cross-currency swaps Yes – 8 274 – – 12 362 – Eskom bonds No – 154 025 – – 148 291 – Credit default swaps Yes – 5 – – 5 – Commercial paper No – 596 – – 3 192 – Inflation-linked swaps Yes – 187 – – 144 – Eurorand zero coupon bonds No – 5 271 – – 4 557 – Foreign bonds No – 61 382 – – 58 588 – Trade and other receivables No – 24 385 – – 19 785 – Development financing institutions No – 124 807 – – 153 676 – Insurance investments 2 145 15 175 – 1 934 12 795 – Export credit facilities No – 19 888 – – 26 973 – Floating rate notes No – – – – 2 028 – Negotiable certificates of deposit No – 15 175 – – 12 795 – Other loans No – 23 955 – – 11 411 – Listed shares Yes 2 145 – – 1 934 – – Embedded derivatives Yes – – – – – 1 491 Financial liabilities Derivatives held for risk management – 9 978 – – 8 274 – Debt securities and borrowings – 387 850 – – 406 363 – Foreign exchange contracts Yes – 3 967 – – 4 225 – Eskom bonds No – 152 035 – – 148 291 – Cross-currency swaps Yes – 5 930 – – 3 947 – Commercial paper No – 759 – – 1 123 – Credit default swaps Yes – 81 – – 102 – Eurorand zero coupon bonds No – 5 271 – – 4 557 – Financial trading liabilities Foreign bonds No – 61 382 – – 58 588 – Repurchase agreements Yes – 2 – – 2 – Development financing institutions No – 124 807 – – 153 676 – Export credit facilities No – 19 888 – – 26 973 – Floating rate notes No – – – – 2 028 – 7. Segment information Other loans No – 23 708 – – 11 127 – Management has determined the reportable segments based on the reports regularly provided, reviewed and used by Exco to make Embedded derivatives Yes – – – – – 1 491 strategic decisions and assess performance of the segments. Exco assesses the performance of the operating segments based on a measure of profit or loss consistent with that of the financial statements. The amounts provided to Exco with respect to total assets Derivatives held for risk management – 9 978 – – 8 274 – and liabilities are measured in terms of IFRS. These assets and liabilities are allocated based on the operation of the segment and the Foreign exchange contracts Yes – 3 967 – – 4 225 – physical location of the assets. Cross-currency swaps Yes – 5 930 – – 3 947 – The operations in each of the group’s reportable segments are as follows: Credit default swaps Yes – 81 – – 102 – Segment Operations Financial trading liabilities Repurchase agreements Yes – 2 – – 2 – Generation Consists of the following components: • primary energy procurement • electricity generation • planning, development, execution and monitoring of generation-related capital projects Transmission Consists of the following components: • transmission grids and the integrated demand management area. These functions operate and maintain the transmission network for transmitting electricity and also sell bulk electricity to international customers • the southern African energy and energy planning and market development areas. Their activities include systems operations, purchase or sale of electricity from or to southern African countries, purchase of electricity from IPPs and wholesale energy for the purposes of energy trading Distribution Consists of five operating clusters who provide, operate and maintain the distribution network for distributing electricity as well as a retail function that sells electricity to local large and small power users All other Relates to operating segments which are below the quantitative thresholds for determining a reportable segment segments in terms of IFRS 8 Operating segments which includes the group’s subsidiaries as well as all service and strategic functions which do not qualify as a reportable segment in terms of IFRS 8 1. The fair value of the loan is calculated based on the assumption that there are no changes in the manner of recovery of the loan. This assumes that the outstanding amount would be recovered based on the collections from the underlying loans and advances in EFC in the normal course of business. 82 | | 83 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 7. Segment information (continued) Restated The revenue earned by subsidiaries is presented in the segment note in line with what is reported in the respective subsidiary 2021 financial statements. Inter-segment transfer pricing for the flow of electricity from generator to consumer is allocated between Gene- Trans- Distri- All other Reallo- Group the generation, transmission and distribution segments based on cost recovery plus a return on assets informed by the regulatory ration mission bution segments cation and determination. All direct corporate overhead costs are allocated to the relevant segments and a cost driver apportionment is used to inter- split the remaining overhead costs on an equal basis between segments. Net finance costs, net fair value and foreign exchange gains/ segment (losses) are allocated to segments based on divisional funding requirements. trans- Inter-segment revenue/recoveries for 2021 have been restated as a profit equalisation entry, that resulted in a consistent return actions on assets between the generation, transmission and distribution segments to reflect the NERSA return that was made at an Eskom Rm Rm Rm Rm Rm Rm level, was previously presented in the segment report but not reflected in the reports reviewed internally. The impact of the error External revenue – 10 065 194 261 1 607 (1 607) 204 326 was a reduction of R2 769 million and R1 318 million in the generation and distribution segments respectively and an increase in the Inter-segment revenue/recoveries 136 566 32 910 (169 286) 12 585 (12 775) – transmission segment of R4 087 million on the inter-segment revenue/recoveries line (net impact of zero); with a resultant impact on EBITDA, (loss)/profit before net finance (cost)/income, (loss)/profit before and after tax. Total revenue 136 566 42 975 24 975 14 192 (14 382) 204 326 Other income 2 340 277 516 1 609 (2 080) 2 662 The 2021 segment information has also been updated in line with the restatements presented in note 48. Primary energy (79 662) (35 818) (12) – – (115 492) The segment information provided to Exco for the reportable segments is as follows: Employee benefit expense (10 942) (2 347) (11 583) (8 015) – (32 887) (Impairment)/reversal of impairment of financial assets (44) (133) 333 (230) 165 91 2022 Impairment and writedown of other assets (1 860) (7) (19) (4) 4 (1 886) Gene- Trans- Distri- All other Reallo- Group Other expenses (24 232) (1 824) (9 566) (2 834) 14 250 (24 206) ration mission bution segments cation and inter- Profit/(loss) before depreciation and amortisation segment expense and net fair value and foreign exchange trans- (loss)/gain (EBITDA) 22 166 3 123 4 644 4 718 (2 043) 32 608 actions Depreciation and amortisation expense (18 925) (3 076) (3 977) (847) 240 (26 585) Rm Rm Rm Rm Rm Rm Net fair value and foreign exchange (loss)/gain (7 778) (455) (616) 796 4 (8 049) External revenue – 11 022 235 498 1 252 (1 252) 246 520 (Loss)/profit before net finance (cost)/income and Inter-segment revenue/recoveries 157 536 43 624 (201 107) 14 106 (14 159) – share of profit of equity-accounted investees (4 537) (408) 51 4 667 (1 799) (2 026) Net finance (cost)/income (22 982) (5 206) (2 769) (407) 222 (31 142) Total revenue 157 536 54 646 34 391 15 358 (15 411) 246 520 Other income 233 199 566 1 606 (1 110) 1 494 Finance income 710 92 326 1 214 58 2 400 Primary energy (91 920) (40 509) (10) – – (132 439) Finance cost (23 692) (5 298) (3 095) (1 621) 164 (33 542) Employee benefit expense (10 921) (2 422) (11 323) (8 319) – (32 985) Share of profit of equity-accounted investees – – – 71 – 71 Reversal of impairment/(impairment) of financial assets 45 (13) (564) 311 (368) (589) (Loss)/profit before tax (27 519) (5 614) (2 718) 4 331 (1 577) (33 097) Impairment and writedown of other assets (793) (3) (38) (15) 2 (847) Income tax – – – 7 941 140 8 081 Impairment of other assets – reversed – – – 5 ( 5) – Other expenses (28 037) (2 533) (9 506) (6 271) 17 567 (28 780) (Loss)/profit for the year (27 519) (5 614) (2 718) 12 272 (1 437) (25 016) Profit before depreciation and amortisation expense Other information and net fair value and foreign exchange (loss)/gain Segment assets 538 481 78 895 115 931 67 402 (23 871) 776 838 (EBITDA) 26 143 9 365 13 516 2 675 675 52 374 Investment in equity-accounted investees – – – 420 – 420 Depreciation and amortisation expense (24 067) (3 125) (4 391) (650) 224 (32 009) Net fair value and foreign exchange (loss)/gain (4 360) (510) 1 598 144 2 (3 126) Total assets 538 481 78 895 115 931 67 822 (23 871) 777 258 (Loss)/profit before net finance (cost)/income and share Total liabilities 79 347 19 116 47 458 440 6511 (24 618) 561 954 of profit of equity-accounted investees (2 284) 5 730 10 723 2 169 901 17 239 Additions and transfers to property, plant and Net finance (cost)/income (26 291) (4 143) (2 438) (452) 261 (33 063) equipment and intangible assets 17 076 3 160 6 249 (2 944) (350) 23 191 Finance income 487 104 524 1 055 194 2 364 Finance cost (26 778) (4 247) (2 962) (1 507) 67 (35 427) Group Revenue Non-current assets Share of profit of equity-accounted investees – – – 52 – 52 2022 2021 2022 2021 (Loss)/profit before tax (28 575) 1 587 8 285 1 769 1 162 (15 772) Geographical information Rm Rm Rm Rm Income tax – – – 3 917 (475) 3 442 South Africa 235 070 193 943 677 212 671 663 (Loss)/profit for the year (28 575) 1 587 8 285 5 686 687 (12 330) Foreign countries 11 450 10 383 268 297 Other information 246 520 204 326 677 480 671 960 Segment assets 544 427 79 450 120 496 82 858 (26 064) 801 167 Investment in equity-accounted investees – – – 418 – 418 The group’s reportable segments operate mainly in South Africa, which is Eskom’s country of domicile. Total assets 544 427 79 450 120 496 83 276 (26 064) 801 585 Revenue is allocated based on the country in which the customer is located after eliminating inter-segment transactions. There is no significant revenue derived from a single external customer by any of the reportable segments. Total liabilities 85 499 19 408 50 038 439 8581 (28 532) 566 271 Additions and transfers to property, plant and Non-current assets disclosed for geographical information comprise non-current assets other than deferred tax assets and financial equipment and intangible assets 20 944 2 890 4 531 410 (247) 28 528 instruments. 1. Represents the external debt and borrowings that is accounted for in the treasury segment. 1. Represents the external debt and borrowings that is accounted for in the treasury segment. 84 | | 85 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 8. Property, plant and equipment Land, Plant Equip- Work Total Land, Plant Equip- Work Total buildings Gene- Trans- Distri- Spares ment under buildings Gene- Trans- Distri- Spares ment under and rating mitting buting and and con- and rating mitting buting and and con- facilities other vehicles struction facilities other vehicles struction Note Rm Rm Rm Rm Rm Rm Rm Rm Note Rm Rm Rm Rm Rm Rm Rm Rm 2021 2022 Group Group Carrying value at beginning of Carrying value at beginning of the year as restated 8 840 294 295 44 506 75 308 14 524 5 663 209 178 652 314 the year 8 932 344 223 45 472 77 429 14 581 5 087 165 970 661 694 Cost 11 070 411 575 64 779 129 461 16 251 17 510 210 097 860 743 Cost 11 392 474 233 68 001 136 422 16 365 17 660 165 970 890 043 Accumulated depreciation and Accumulated depreciation and impairment losses (2 230) (117 280) (20 273) (54 153) (1 727) (11 847) (919) (208 429) impairment losses (2 460) (130 010) (22 529) (58 993) (1 784) (12 573) – (228 349) Additions and transfers 131 181 89 340 125 277 21 882 23 025 Additions and transfers 83 986 48 317 245 355 26 151 28 185 Transfers of assets from Transfers of assets from customers – – 509 1 106 – – – 1 615 customers – – (36) 1 124 – – – 1 088 Commissioning of assets Commissioning of assets constructed 200 66 793 2 649 5 752 29 99 (75 522) – constructed 305 40 579 4 019 4 180 68 236 (49 387) – Basis adjustment – cash flow Basis adjustment – cash flow hedge reserve – – – – – – (32) (32) hedge reserve – – – – – – (142) (142) Finance cost capitalised 40 – – – – – – 11 716 11 716 Finance cost capitalised 40 – – – – – – 8 184 8 184 Provisions capitalised 28 – 2 125 – – – – 1 011 3 136 Provisions capitalised 28 – 626 – – – – 1 751 2 377 Disposals and writeoffs (12) (16) (3) (6) (10) (44) (2 263) (2 354) Disposals and writeoffs (47) (1 335) (683) (300) (2) (100) (636) (3 103) Depreciation (227) (19 155) (2 278) (5 071) (87) (908) – (27 726) Depreciation (201) (24 259) (2 317) (5 545) (87) (804) – (33 213) Carrying value at end of Carrying value at end of the year 8 932 344 223 45 472 77 429 14 581 5 087 165 970 661 694 the year 9 072 360 820 46 503 77 205 14 805 4 774 151 891 665 070 Cost 11 392 474 233 68 001 136 422 16 365 17 660 165 970 890 043 Cost 11 683 509 058 71 313 138 558 16 615 17 457 151 891 916 575 Accumulated depreciation and Accumulated depreciation and impairment losses (2 460) (130 010) (22 529) (58 993) (1 784) (12 573) – (228 349) impairment losses (2 611) (148 238) (24 810) (61 353) (1 810) (12 683) – (251 505) Company Company Carrying value at beginning of Carrying value at beginning of the year as restated 8 620 296 118 44 710 75 549 14 524 4 365 210 033 653 919 the year 8 526 346 355 45 686 77 683 14 581 3 896 166 927 663 654 Cost 10 769 414 574 65 023 129 803 16 251 14 290 210 952 861 662 Cost 10 902 477 755 68 266 136 793 16 365 14 386 166 927 891 394 Accumulated depreciation and Accumulated depreciation and impairment losses (2 149) (118 456) (20 313) (54 254) (1 727) (9 925) (919) (207 743) impairment losses (2 376) (131 400) (22 580) (59 110) (1 784) (10 490) – (227 740) Additions and transfers 123 181 88 340 125 241 22 360 23 458 Additions and transfers 79 984 47 316 246 302 26 389 28 363 Transfers of assets from Transfers of assets from customers – – 509 1 106 – – – 1 615 customers – – (36) 1 124 – – – 1 088 Commissioning of assets Commissioning of assets constructed 20 67 315 2 670 5 781 29 83 (75 898) – constructed 281 41 361 4 028 4 186 68 200 (50 124) – Basis adjustment – cash flow Basis adjustment – cash flow hedge reserve – – – – – – (32) (32) hedge reserve – – – – – – (142) (142) Finance cost capitalised 40 – – – – – – 11 716 11 716 Finance cost capitalised 40 – – – – – – 8 184 8 184 Provisions capitalised 28 – 2 125 – – – – 1 011 3 136 Provisions capitalised 28 – 626 – – – – 1 751 2 377 Disposals and writeoffs (12) (15) (3) (6) (10) (44) (2 263) (2 353) Disposals and writeoffs (46) (1 335) (683) (300) (2) (99) (594) (3 059) Depreciation (225) (19 369) (2 288) (5 087) (87) (749) – (27 805) Depreciation (194) (24 485) (2 328) (5 562) (88) (703) – (33 360) Carrying value at end of Carrying value at end of the year 8 526 346 355 45 686 77 683 14 581 3 896 166 927 663 654 the year 8 646 363 506 46 714 77 447 14 805 3 596 152 391 667 105 Cost 10 902 477 755 68 266 136 793 16 365 14 386 166 927 891 394 Cost 11 166 512 941 71 587 138 929 16 615 14 126 152 391 917 755 Accumulated depreciation and Accumulated depreciation and impairment losses (2 376) (131 400) (22 580) (59 110) (1 784) (10 490) – (227 740) impairment losses (2 520) (149 435) (24 873) (61 482) (1 810) (10 530) – (250 650) Writeoffs includes amounts written off as a result of damage to Medupi Unit 4 as well as scrapping and clean up of assets. The ongoing internal and external investigations, including by the SIU, into allegations of contract corruption could result in further writeoffs once finalised and after the related accounting impact have been assessed. Refer to note 2.4. 86 | | 87 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 8. Property, plant and equipment (continued) Land, Plant Equipment Total The total depreciation charge for property, plant and equipment is disclosed in profit or loss in the following categories: buildings Generating Spares and and facilities and other vehicles Group Company Rm Rm Rm Rm Rm Restated Restated 2022 2021 2022 2021 2021 Note Rm Rm Rm Rm Group Carrying value at beginning of the year as restated 142 7 019 110 64 7 335 Depreciation and amortisation expense 37 33 201 27 714 33 348 27 793 Primary energy 12 12 12 12 Cost 234 9 768 567 70 10 639 Accumulated depreciation and impairment losses (92) (2 749) (457) (6) (3 304) 33 213 27 726 33 360 27 805 Additions 119 – – – 119 Average rates of finance cost capitalised to qualifying assets: Disposals and writeoffs (8) – – – (8) Group and company Depreciation (99) (651) (12) (14) (776) 2022 2021 Carrying value at end of the year 154 6 368 98 50 6 670 % % Cost 281 9 768 567 70 10 686 General borrowings 9.64 9.15 Accumulated depreciation and impairment losses (127) (3 400) (469) (20) (4 016) Specific borrowings 8.13 8.62 Company Property, plant and equipment includes the following right-of-use asset balances: Carrying value at beginning of the year as restated 141 7 019 110 61 7 331 Land, Plant Equipment Total Cost 233 9 768 567 67 10 635 buildings Generating Spares and Accumulated depreciation and impairment losses (92) (2 749) (457) (6) (3 304) and facilities and other vehicles Additions 119 – – – 119 Rm Rm Rm Rm Rm Disposals and writeoffs (8) – – – (8) 2022 Depreciation (98) (651) (12) (13) (774) Group Carrying value at end of the year 154 6 368 98 48 6 668 Carrying value at beginning of the year 154 6 368 98 50 6 670 Cost 280 9 768 567 67 10 682 Cost 281 9 768 567 70 10 686 Accumulated depreciation and impairment losses (126) (3 400) (469) (19) (4 014) Accumulated depreciation and impairment losses (127) (3 400) (469) (20) (4 016) Additions 51 – – – 51 Disposals and writeoffs (2) – – – (2) 9. Intangible assets Depreciation (77) (651) (12) (14) (754) Rights Computer Concession Total Carrying value at end of the year 126 5 717 86 36 5 965 software assets Note Rm Rm Rm Rm Cost 284 9 768 506 70 10 628 Accumulated depreciation and impairment losses (158) (4 051) (420) (34) (4 663) 2022 Group Company Carrying value at beginning of the year 3 177 182 297 3 656 Carrying value at beginning of the year 154 6 368 98 48 6 668 Cost 3 393 1 555 575 5 523 Cost 280 9 768 567 67 10 682 Accumulated amortisation and impairment losses (216) (1 373) (278) (1 867) Accumulated depreciation and impairment losses (126) (3 400) (469) (19) (4 014) Additions and transfers 122 27 194 343 Additions 51 – – – 51 Amortisation 37 – (152) (223) (375) Disposals and writeoffs (2) – – – (2) Depreciation (77) (651) (12) (13) (753) Carrying value at end of the year 3 299 57 268 3 624 Carrying value at end of the year 126 5 717 86 35 5 964 Cost 3 515 1 346 821 5 682 Accumulated amortisation and impairment losses (216) (1 289) (553) (2 058) Cost 283 9 768 506 67 10 624 Accumulated depreciation and impairment losses (157) (4 051) (420) (32) (4 660) Company Carrying value at beginning of the year 3 177 181 – 3 358 Cost 3 393 1 218 – 4 611 Accumulated amortisation and impairment losses (216) (1 037) – (1 253) Additions and transfers 122 27 – 149 Amortisation 37 – (152) – (152) Carrying value at end of the year 3 299 56 – 3 355 Cost 3 515 1 016 – 4 531 Accumulated amortisation and impairment losses (216) (960) – (1 176) 88 | | 89 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 9. Intangible assets (continued) The price increase used for group and company was: Rights Computer Concession Total Year ended 31 March software assets 2023 2024 2025 2026 2027 2028 Note Rm Rm Rm Rm % % % % % % 2021 2022 Group Price increase 9 13 13 13 13 10 Carrying value at beginning of the year 3 138 421 271 3 830 Cost 3 358 4 984 465 8 807 Year ended 31 March Accumulated amortisation and impairment losses (220) (4 563) (194) (4 977) 2022 2023 2024 2025 2026 2027 % % % % % % Additions and transfers 39 17 110 166 Writeoffs – (26) – (26) 2021 Amortisation 37 – (230) (84) (314) Price increase 13 15 10 10 10 9 Carrying value at end of the year 3 177 182 297 3 656 A pre-tax nominal discount rate of 12.46% (2021: 12.46%) was used as derived from the NERSA determination. An average long-term Cost 3 393 1 555 575 5 523 growth rate of 1.9% (2021: 2%) was used to extrapolate cash flow projections after year five. The growth rate was restricted to the Accumulated amortisation and impairment losses (216) (1 373) (278) (1 867) available capacity. Company It is not expected that a reasonable possible change in any of the key assumptions would cause the carrying value of the CGU to Carrying value at beginning of the year 3 138 420 – 3 558 exceed the recoverable amount. This conclusion is based on the value in use exceeding the carrying amount by about 30% and on the results of the following sensitivity analyses: Cost 3 358 4 655 – 8 013 Accumulated amortisation and impairment losses (220) (4 235) – (4 455) Price and discount rate sensitivity As indicated, an EBITDA margin of 30% to 35% is used as a proxy for return on assets in the value-in-use calculation. The discount Additions and transfers 39 16 – 55 rate is an input to derive cost reflective tariffs in terms of the principles of the regulatory framework and it is therefore not Writeoffs – (26) – (26) appropriate to perform a sensitivity with these inputs (price and discount rate) in isolation. A conservative price path has been Amortisation 37 – (229) – (229) assumed over a number of years to move Eskom to a fair price. The sensitivity analysis therefore considered the impact on the value in use if the price path to cost reflective tariffs took one year longer than assumed. An increase of one year in the price path results Carrying value at end of the year 3 177 181 – 3 358 in the overall value in use exceeding the carrying amount by 28%. Cost 3 393 1 218 – 4 611 Other sensitivities Accumulated amortisation and impairment losses (216) (1 037) – (1 253) A 1% cumulative increase in primary energy costs over the 2024 to 2050 periods results in the value in use exceeding the carrying amount by about 28%. Impairment assessment of the Eskom CGU (including property, plant and equipment and indefinite A 1% cumulative increase in total operating expenses over the 2024 to 2050 periods results in the value in use exceeding the carrying useful life of intangible assets) amount by about 23%. The CGU of Eskom was assessed for impairment because of liquidity, financial and operational performances challenges. The recoverable amount of the Eskom CGU was determined based on its value in use and no impairment loss was recognised on the CGU. Rights are part of the Eskom CGU and were tested for impairment as part of the CGU. 10. Future fuel supplies The value-in-use calculation is based on the regulatory electricity pricing methodology where the rate of return on Eskom’s assets Group and company should be equal to its weighted average cost of capital (WACC) to allow for the price of electricity to be cost reflective. The price of Restated electricity can only be cost reflective if the return on assets equals the WACC. In reality, the electricity price is not cost-reflective 2022 2021 and Eskom earns a return on assets that is much lower than its pre-tax WACC. Coal Nuclear Total Coal Nuclear Total Note Rm Rm Rm Rm Rm Rm The value-in-use calculation assumed that the electricity price will migrate to cost reflectivity over a period of time in line with the Electricity Pricing Policy. An EBITDA margin of 30% to 35% was assumed as a proxy for return on assets. The price path is aligned to Carrying value at beginning of the year 4 349 41 4 390 4 259 130 4 389 this assumption to ensure an EBITDA margin within the range. Net additions 1 914 554 2 468 311 1 249 1 560 Provisions capitalised 28 113 – 113 422 – 422 Estimates in the value-in-use calculation include long-term growth rates, electricity sales volumes, price path, available generation Basis adjustment – cash flow hedge reserve – (3) (3) – (368) (368) capacity and discount rates. Estimates are based on past experience and expectations of future changes in the market, including the Transfer to inventories 13 (642) (22) (664) (643) (970) (1 613) prevailing economic climate. Carrying value at end of the year 5 734 570 6 304 4 349 41 4 390 The cash flow projections were based on the Eskom Corporate Plan for 2023 to 2027 and an extrapolation until the electricity price is cost reflective. The projections after the first five years were extrapolated based on the estimated long-term average growth rates, inflation and available existing capacity. The extrapolation beyond the first five years was deemed appropriate as generating plant have long useful lives and it is estimated that it could take longer than five years to achieve a cost-reflective price. A declining sales trajectory limited to available capacity was assumed. The available capacity depends on new generating units becoming available and decommissioning of old power stations. It was assumed that there will be no new electricity production sources, both from Eskom and IPPs. The usage of the OCGTs was restricted to an average load factor of between 3% and 6%. The EAF of the power stations was aligned to the current performance, with a gradual improvement over time. The price of electricity is a key input in the value-in-use calculation. The price path is based on the NERSA determination (adjusted for the impact of the court decisions relating to the treatment of the government equity support and the RCA decisions) and a gradual migration towards cost reflectivity. The price path is considered to be conservative, taking into account the recent history of several court decisions in favour of Eskom as well as outstanding court proceedings and RCA applications. Management concluded that the key assumptions (which includes price path, EAF and OCGT usage) are reasonable. 90 | | 91 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 11. Investment in equity-accounted investees 2022 2021 Group Company Investment Accumulated Dividend Investment Accumulated Dividend 2022 2021 2022 2021 at cost impairment declared at cost impairment declared Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Balance at beginning of the year 420 397 95 95 Escap SOC Ltd 380 – 600 380 – – Share of profit after tax 52 71 – – Eskom Development Foundation – – – – – – Dividends received (54) (48) – – Eskom Enterprises SOC Ltd –1 – – –1 – 1 000 Balance at end of the year 418 420 95 95 Eskom Finance Company SOC Ltd –1 – – –1 – – National Transmission Company South Africa SOC Ltd2 –1 – – – – – The group’s investments in joint ventures and associates are not individually material. PN Energy Services SOC Ltd 4 (4) – 4 (4) 37 The group’s share of the results of its joint ventures and associates, all of which are unlisted, is as follows: 384 (4) 600 384 (4) 1 037 2022 2021 Group Company Group Company All subsidiaries continue to be accounted for as previously assessed as there has not been any change in the outcome of the control Name Main business Country of Interest Share of Investment Share of Investment assessment. The group does not have any subsidiaries with a material non-controlling interest. All subsidiaries were incorporated in incorporation held profit at cost profit at cost South Africa with the exception of Eskom Uganda Ltd which was incorporated in Uganda. after tax after tax for the year for the year % Rm Rm Rm Rm 13. Inventories Directly held Restated Motraco – Mozambique Electricity 2022 2021 Transmission Company SARL1 transmission Mozambique 33 70 95 71 95 Coal and Nuclear Maintenance Total Coal and Nuclear Maintenance Total liquid fuel fuel spares and liquid fuel fuel spares and Indirectly held consumables consumables Trans Africa Projects (Pty) Ltd Engineering services South Africa 50 (18) – Note Rm Rm Rm Rm Rm Rm Rm Rm 52 71 Group Carrying value The share capital of the group’s investment in joint ventures comprises ordinary shares. The joint ventures are structured as separate at beginning of vehicles and the group has a residual interest in the net assets. The relevant activities are jointly controlled in accordance with the the year 17 474 2 575 13 433 33 482 15 769 2 185 13 099 31 053 agreements under which the entities are established. The joint arrangements have therefore been classified as joint ventures. Changes in working capital (77) (768) 2 437 1 592 1 335 (672) 2 220 2 883 12. Investment in subsidiaries Transfer from future fuel supplies 10 642 22 – 664 643 970 – 1 613 2022 2021 Provisions Name Main business Interest Interest capitalised 28 (380) 91 – (289) (273) 92 – (181) held held Net writedowns % % and writeoffs 35 – – (847) (847) – – (1 886) (1 886) Directly held 17 659 1 920 15 023 34 602 17 474 2 575 13 433 33 482 Escap SOC Ltd Insurance 100 100 Eskom Development Foundation NPC Corporate social investment 100 100 Maturity analysis 17 659 1 920 15 023 34 602 17 474 2 575 13 433 33 482 Eskom Enterprises SOC Ltd Non-regulated electricity supply industry Non-current 11 516 – – 11 516 11 001 – – 11 001 activities in South Africa and electricity Current 6 143 1 920 15 023 23 086 6 473 2 575 13 433 22 481 supply and related services outside South Africa 100 100 Company Eskom Finance Company SOC Ltd Finance (employee housing loans) 100 100 Carrying value at National Transmission Company South Africa SOC Ltd Transmission and trading of electricity – beginning of the not trading 100 n/a year 17 474 2 575 13 181 33 230 15 769 2 185 12 856 30 810 PN Energy Services SOC Ltd Not trading 100 100 Changes in working capital (77) (768) 2 439 1 594 1 335 (672) 2 211 2 874 Indirectly held Transfer from Eskom Rotek Industries SOC Ltd Construction and abnormal load future fuel supplies 10 642 22 – 664 643 970 – 1 613 transportation 100 100 Provisions Eskom Uganda Ltd1 Operations management 100 100 capitalised 28 (380) 91 – (289) (273) 92 – (181) Golang Coal SOC Ltd Coal exports 67 67 Net writedowns Nqaba Finance 1 (RF) Ltd Residential backed mortgage securities 100 100 and writeoffs 35 – – (833) (833) – – (1 886) (1 886) Pebble Bed Modular Reactor SOC Ltd Reactor driven generation project – not 17 659 1 920 14 787 34 366 17 474 2 575 13 181 33 230 trading 100 100 South Dunes Coal Terminal Company SOC Ltd Coal exports 69 69 Maturity analysis 17 659 1 920 14 787 34 366 17 474 2 575 13 181 33 230 Non-current 11 516 – – 11 516 11 001 – – 11 001 Current 6 143 1 920 14 787 22 850 6 473 2 575 13 181 22 229 Nuclear fuel of R1 362 million (2021: R1 965 million) will be recovered more than 12 months after the reporting date. 1. Year end is 31 December. 1. Nominal. 2. The National Transmission Company South Africa SOC Ltd was registered in 2022. 92 | | 93 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 14. Deferred tax Government is assisting Eskom with addressing the long outstanding arrear municipal debt challenge and is also actively engaging with Eskom to assist with obtaining cost reflective tariffs which will enhance future profitability. Group Company Assets Liabilities Assets Liabilities The Eskom Corporate Plan for 2023 to 2027 assumes a conservative price path and does not include the recent favourable decisions Restated Restated Restated Restated by the courts against NERSA. Eskom has successfully reviewed NERSA’s revenue and regulatory clearing account decisions since 2017. 2022 2021 2022 2021 2022 2021 2022 2021 The High Court ordered that R59 billion be recovered from 2024 to 2027. This will entail the recovery of R15 billion per year from Note Rm Rm Rm Rm Rm Rm Rm Rm 2024 to 2026 and R14 billion in 2027. Eskom has also successfully reviewed the RAB valuation approach undertaken by NERSA in the 2023 decision where the High Court ordered NERSA to reverse the significant mistakes made in the 2024 and 2025 determinations. Reconciliation of movements in balances There was a substantial improvement in EBITDA and cash from operations in 2022 compared to 2021. This resulted from the High Balance at beginning Court order against NERSA to allow Eskom an additional R10 billion for 2022, being the first tranche of the R69 billion that was of the year 6 280 96 388 3 855 6 651 – – 2 972 incorrectly deducted by NERSA in its MYPD 4 decision. Recognised in profit or loss 41 3 828 8 667 (48) (495) 4 393 9 150 – – A 1% increase in the price represents a R2.6 billion increase in revenue, and therefore, a R15 billion implies a price increase of 5.8% before any other adjustments. Raised/reversal of temporary differences 4 272 8 667 (38) (495) 4 872 9 150 – – The announcement in October 2022 by the Minister of Finance in the MTBPS that government is working on details of a proposed Change in tax rate (444) – (10) – (479) – – – solution to Eskom’s debt position indicated a possible debt take-over of between 33% and 67%. No specific details were given Recognised in other regarding the debt instruments to be taken over as well as the timing and method for effecting the transaction as further details will comprehensive income 41 (137) 474 8 – (138) 473 – – be provided in the 2023 National budget speech. There is a risk that the debt take-over could have tax implications that will reduce the assessed loss and the deferred tax asset. This was not factored into the deferred tax calculation due to the uncertainty of the Raised/reversal of transaction. The debt take-over will have a material impact on Eskom’s net profit where a R100 billion debt take-over will favourably temporary differences (213) 474 7 – (214) 473 – – impact finance cost with at least R7 billion. Change in tax rate 76 – 1 – 76 – – – Transfer from liabilities 15. Loans receivable to assets – (2 972) – (2 972) – (2 972) – (2 972) Assets and liabilities Restated held-for-sale – 15 – – – – – – 2022 2021 Gross Allowance Carrying Gross Allowance Carrying Balance at end of the year 9 971 6 280 348 388 10 906 6 651 – – for value for value Comprising 9 971 6 280 348 388 10 906 6 651 – – impairment impairment Rm Rm Rm Rm Rm Rm Property, plant and equipment (94 902) (90 412) 604 264 (93 968) (90 064) – – Group Tax losses 70 645 63 330 (146) – 70 645 63 330 – – Home loans 7 955 (55) 7 900 8 118 (55) 8 063 Trade and other Other 252 (3) 249 260 (6) 254 receivables 13 468 12 153 4 348 13 476 12 174 – – Payments made in 8 207 (58) 8 149 8 378 (61) 8 317 advance (159) (134) – – (159) (134) – – Loans receivable – 1 – 2 – 6 – – Maturity analysis 8 207 (58) 8 149 8 378 (61) 8 317 Insurance investments – – 79 51 – – – – Non-current 7 887 (57) 7 830 8 066 (59) 8 007 Derivatives held for Current 320 (1) 319 312 (2) 310 risk management 315 62 – (1) 315 62 – – Embedded derivatives 50 417 – – 50 417 – – Company Provisions 11 823 12 054 (17) (242) 11 814 12 056 – – Loans to subsidiaries 5 657 (7) 5 650 5 779 (21) 5 758 Employee benefit obligations 5 183 5 178 (176) (34) 5 184 5 178 – – Maturity analysis 5 657 (7) 5 650 5 779 (21) 5 758 Payments received Non-current 5 657 (7) 5 650 5 779 (21) 5 758 in advance 3 548 3 631 – – 3 549 3 626 – – The loan to EFC has been classified as non-current as it was not expected that the loan would be settled within 12 months from On 23 February 2022, the Minister of Finance announced a 1% decrease in the corporate tax rate for all companies with a tax year the reporting date as the intention and practice has been to extend the loan facility to a future date upon maturity. ending on or after 31 March 2023. The new tax rate of 27% was substantively enacted by 31 March 2022 and has therefore been applied to all deferred tax balances that are expected to reverse after 1 April 2022. 16. Embedded derivatives The group has R262 189 million (2021: R226 179 million) and the company has R261 648 million (2021: R226 179 million) of unused tax losses available for offset against future taxable income. 2022 2021 Asset Liability Liability The tax losses mainly arose from favourable tax incentives claimed on the new build projects in terms of the South African income Note Rm Rm Rm tax law. The tax incentives resulted in the creation of taxable temporary differences of R348 619 million (2021: R322 135 million). The tax losses are available to use against future income tax liabilities and do not expire. A deferred tax asset of R70 645 million Group and company (2021: R63 330 million) has been recognised relating to the tax loss as Eskom has sufficient taxable temporary differences to use Balance at beginning of the year – (1 491) (1 136) against the tax loss. The reversal of the taxable temporary differences will result in Eskom being liable for future income tax payments. Day 1 fair value recognised in deferred income 26 808 – – Net fair value gain/(loss) 38 131 1 491 (355) The company has a closing deferred tax asset balance of R10 906 million (2021: R6 651 million) that was recognised as management concluded that it is probable that the business will generate sufficient future taxable profits. Based on the approved five-year Balance at end of the year 939 – (1 491) corporate business plan, Eskom will return to profitability and be liable for income tax payments which will unwind the deferred tax asset position. The tax losses will be fully utilised based on the current forecasts. Maturity analysis 939 – (1 491) Key factors considered to determine the future profitability and taxable income of Eskom include: Non-current 822 – (208) • impact of recent regulatory developments Current 117 – (1 283) • generating plant performance • trend relating to non-payment by municipalities • any restrictions on the future use of tax losses • whether any of the tax losses will expire 94 | | 95 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 17. Derivatives held for risk management Foreign Cross- Commodity Credit Inflation- Total Foreign Cross- Commodity Credit Inflation- Total exchange currency forwards default linked exchange currency forwards default linked contracts swaps swaps swaps contracts swaps swaps swaps Note Rm Rm Rm Rm Rm Rm Note Rm Rm Rm Rm Rm Rm 2022 2022 Company Group Net (liability)/asset at beginning Net (liability)/asset at beginning of the year (4 191) 8 415 – (97) 144 4 271 of the year (4 193) 8 415 – (97) 144 4 269 Net fair value (loss)/gain (4 850) (4 552) 6 21 (32) (9 407) Net fair value (loss)/gain (4 852) (4 552) 6 21 (32) (9 409) Recognised in profit or loss 38 (4 611) (4 463) 6 21 (32) (9 079) Recognised in profit or loss 38 (4 613) (4 463) 6 21 (32) (9 081) Recognised in other Recognised in other comprehensive income (239) (89) – – – (328) comprehensive income (239) (89) – – – (328) Finance cost accrued – 106 – – 75 181 Finance cost accrued – 106 – – 75 181 Cash paid/(received) 5 118 (1 625) (6) – – 3 487 Cash paid/(received) 5 121 (1 625) (6) – – 3 490 Net (liability)/asset at end of the year (3 923) 2 344 – (76) 187 (1 468) Net (liability)/asset at end of the year (3 924) 2 344 – (76) 187 (1 469) Hedge exposure covered (3 923) 2 344 – (76) 187 (1 468) Hedge exposure covered (3 924) 2 344 – (76) 187 (1 469) Debt securities and borrowings (3 358) 2 344 – (76) 187 (903) Debt securities and borrowings (3 358) 2 344 – (76) 187 (903) Other (565) – – – – (565) Other (566) – – – – (566) Assets Assets Economic hedging 25 4 494 – 5 187 4 711 Economic hedging 24 4 494 – 5 187 4 710 Cash flow hedging 19 3 780 – – – 3 799 Cash flow hedging 19 3 780 – – – 3 799 44 8 274 – 5 187 8 510 43 8 274 – 5 187 8 509 Maturity analysis 44 8 274 – 5 187 8 510 Maturity analysis 43 8 274 – 5 187 8 509 Non-current – 7 863 – – 183 8 046 Non-current – 7 863 – – 183 8 046 Current 44 411 – 5 4 464 Current 43 411 – 5 4 463 Liabilities Liabilities Economic hedging 3 531 1 403 – 81 – 5 015 Economic hedging 3 531 1 403 – 81 – 5 015 Cash flow hedging 436 4 527 – – – 4 963 Cash flow hedging 436 4 527 – – – 4 963 3 967 5 930 – 81 – 9 978 3 967 5 930 – 81 – 9 978 Maturity analysis 3 967 5 930 – 81 – 9 978 Maturity analysis 3 967 5 930 – 81 – 9 978 Non-current – 5 334 – 81 – 5 415 Non-current – 5 334 – 81 – 5 415 Current 3 967 596 – – – 4 563 Current 3 967 596 – – – 4 563 Notional amount in foreign currency m m m m m m Notional amount in foreign currency m m m m m m EUR 988 924 – – – 1 912 EUR 989 924 – – – 1 913 USD 2 415 5 961 – – – 8 376 USD 2 415 5 961 – – – 8 376 GBP 7 – – – – 7 GBP 7 – – – – 7 JPY 143 230 – – – 373 JPY 143 230 – – – 373 SEK 294 – – – – 294 SEK 294 – – – – 294 ZAR – – – 5 088 1 000 6 088 ZAR – – – 5 088 1 000 6 088 96 | | 97 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 17. Derivatives held for risk management (continued) Foreign Cross- Commodity Credit Inflation- Total Foreign Cross- Commodity Credit Inflation- Total exchange currency forwards default linked exchange currency forwards default linked contracts swaps swaps swaps contracts swaps swaps swaps Note Rm Rm Rm Rm Rm Rm Note Rm Rm Rm Rm Rm Rm Restated Restated 2021 2021 Company Group Net asset/(liability) at beginning Net asset/(liability) at beginning of the year 9 264 47 859 (4) (701) 1 56 419 of the year 9 268 47 859 (4) (701) 1 56 423 Net fair value (loss)/gain (14 300) (30 600) (5) 608 97 (44 200) Net fair value (loss)/gain (14 302) (30 600) (5) 608 97 (44 202) Recognised in profit or loss 38 (13 510) (30 512) (5) 608 97 (43 322) Recognised in profit or loss 38 (13 512) (30 512) (5) 608 97 (43 324) Recognised in other Recognised in other comprehensive income (790) (88) – – – (878) comprehensive income (790) (88) – – – (878) Finance cost accrued – 216 – (4) 46 258 Finance cost accrued – 216 – (4) 46 258 Cash paid/(received) 845 (9 060) 9 – – (8 206) Cash paid/(received) 841 (9 060) 9 – – (8 210) Net (liability)/asset at end of the year (4 191) 8 415 – (97) 144 4 271 Net (liability)/asset at end of the year (4 193) 8 415 – (97) 144 4 269 Hedge exposure covered (4 191) 8 415 – (97) 144 4 271 Hedge exposure covered (4 193) 8 415 – (97) 144 4 269 Debt securities and borrowings (3 594) 8 415 – (97) 144 4 868 Debt securities and borrowings (3 594) 8 415 – (97) 144 4 868 Other (597) – – – – (597) Other (599) – – – – (599) Assets Assets Economic hedging 26 8 032 – 5 144 8 207 Economic hedging 24 8 032 – 5 144 8 205 Cash flow hedging 8 4 330 – – – 4 338 Cash flow hedging 8 4 330 – – – 4 338 34 12 362 – 5 144 12 545 32 12 362 – 5 144 12 543 Maturity analysis 34 12 362 – 5 144 12 545 Maturity analysis 32 12 362 – 5 144 12 543 Non-current – 11 045 – – 140 11 185 Non-current – 11 045 – – 140 11 185 Current 34 1 317 – 5 4 1 360 Current 32 1 317 – 5 4 1 358 Liabilities Liabilities Economic hedging 3 827 450 – 102 – 4 379 Economic hedging 3 827 450 – 102 – 4 379 Cash flow hedging 398 3 497 – – – 3 895 Cash flow hedging 398 3 497 – – – 3 895 4 225 3 947 – 102 – 8 274 4 225 3 947 – 102 – 8 274 Maturity analysis 4 225 3 947 – 102 – 8 274 Maturity analysis 4 225 3 947 – 102 – 8 274 Non-current – 3 634 – 102 – 3 736 Non-current – 3 634 – 102 – 3 736 Current 4 225 313 – – – 4 538 Current 4 225 313 – – – 4 538 Notional amount in foreign currency m m m m m m Notional amount in foreign currency m m m m m m EUR 1 179 1 101 – – – 2 280 EUR 1 180 1 101 – – – 2 281 USD 2 631 6 063 – – – 8 694 USD 2 631 6 063 – – – 8 694 GBP 10 – – – – 10 GBP 10 – – – – 10 JPY 140 691 – – – 831 JPY 140 691 – – – 831 SEK 12 – – – – 12 SEK 12 – – – – 12 ZAR – – – 5 088 1 000 6 088 ZAR – – – 5 088 1 000 6 088 The hedging practices and accounting treatment are disclosed in note 2.10.3 in the accounting policies. The derivative instruments used to hedge the various financial risks are set out as follows: Derivative Financial risk hedged Exposure Foreign exchange contracts Market (currency) Electricity generation, transmission and distribution activity purchases and loans denominated in foreign currencies Cross-currency swaps Market (currency and interest rate) Foreign fixed rate bonds and other foreign fixed or floating borrowings Commodity forwards Market (commodity) Electricity sales in terms of agreements where the sales price is influenced by the market price for aluminium Credit default swaps Credit Event of default by Eskom on debt securities and borrowings Inflation-linked swaps Market (interest rate) Finance cost that are dependent on current interest rates 98 | | 99 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 17. Derivatives held for risk management (continued) Ineffective cash flow hedges Hedging relationships directly affected by interbank offered rate reform The change in the fair value of the hedging instrument of R1 509 million (2021: R8 308 million) and for the hedged item (represented Eskom created a steering committee to manage the transition from interbank offered rates to alternative risk free rates to assess the by a hypothetical derivative) of R1 910 million (2021: R10 218 million) were used to calculate hedge effectiveness. The cash flow impact on valuations, accounting systems, policies and procedures. Refer to note 50.2 for details on the relief provided in phase 1 of hedge reserve is adjusted to the lower in absolute amounts of the cumulative gain or loss of the hedging instrument and hedged item the IFRS interest rate benchmark reform. from inception of each hedge. During the year a gain of R477 million (2021: a loss of R478 million) was recognised in profit or loss as ineffectiveness. Refer to note 38. Eskom has exposure to USD foreign loans and cross-currency transactions that are linked to the USD London interbank offered rate. At 31 March 2022, the nominal value of foreign loans and cross-currency interest rate swaps was USD3.4 billion and USD1.5 billion Day-one gain/loss respectively. All of the loans and USD1.1 billion of the cross-currency interest rate swaps qualify for cash flow hedge accounting. The group recognises a day-one gain/loss on initial recognition of cross-currency swaps held as hedging instruments where applicable. It is expected that the uncertainty of the transition to a new rate relating to particular elements of a single hedging relationship will end Group and company at different times. While Eskom will follow the International Swaps and Derivatives Association (ISDA) fall-back protocol for derivatives Cross- Inflation- Total (hedging instruments), it is expected that it will come into effect after bilateral negotiations on the new interest protocol have been currency linked swaps swaps concluded with loan (hedged item) counterparties. Eskom expects most of its counterparties to convert to the new interest protocol by Rm Rm Rm the end of the 2023 financial year and thereafter transition all its derivatives before the ISDA fall-back protocol deadline of end of June 2023. Loss at 31 March 2020 as restated (1 497) (22) (1 519) Once the bilateral negotiations are concluded, the uncertainty around the timing and amount of the risk free rate-based cash flows Day-one loss recognised (146) – (146) of the hedged item will be eliminated, but the hedging instrument will by default continue to be measured with reference to changes Amortised to profit or loss 127 3 130 in interbank offered rates until the ISDA fall-back protocol is implemented. The consequence of this delay between the modification of the hedged item and the hedging instruments in cash flow hedges will potentially introduce a new source of hedge ineffectiveness, Loss at 31 March 2021 (1 516) (19) (1 535) specifically any changes in the basis risk between the risk free interest rate on the hedged item and the interbank offered interest Day-one loss recognised (267) – (267) rates on the hedging instrument. Amortised to profit or loss 194 3 197 Cash flow hedges Loss at 31 March 2022 (1 589) (16) (1 605) Contractual cash flows are a function of foreign exchange and interest rates and are a point-in-time calculation that are impacted by market conditions at that time. This may result in future contractual cash outflows or inflows even though the fair value of the derivative may be reflected as an asset or liability. 18. Finance lease receivables Group and company Group and company Carrying Undiscounted 0–3 4–12 1–5 >5 2022 2021 amount cash flows months months years years Gross Unearned Allowance Carrying Gross Unearned Allowance Carrying Rm Rm Rm Rm Rm Rm receivables finance for value receivables finance for value income impairment income impairment The periods in which the cash flows of derivatives Rm Rm Rm Rm Rm Rm Rm Rm designated as cash flow hedges are expected to occur are: 2022 Non-current 355 (93) (4) 258 429 (127) (10) 292 Foreign exchange contracts Between one and five years 251 (89) (2) 160 248 (105) (5) 138 Assets 19 19 17 2 – – After five years 104 (4) (2) 98 181 (22) (5) 154 Liabilities (436) (438) (151) (287) – – Cross-currency swaps Current 68 (32) (1) 35 75 (38) (2) 35 Assets 3 780 3 699 4 (104) 2 861 938 423 (125) (5) 293 504 (165) (12) 327 Liabilities (4 527) (4 097) (84) (2 910) (8 396) 7 293 (1 164) (817) (214) (3 299) (5 535) 8 231 Restated 2021 Foreign exchange contracts Assets 8 8 8 – – – Liabilities (398) (394) (133) (261) – – Cross-currency swaps Assets 4 330 5 463 1 (228) 2 434 3 256 Liabilities (3 497) (1 719) (48) (2 522) (6 587) 7 438 443 3 358 (172) (3 011) (4 153) 10 694 The periods in which the cash flows associated with derivatives are expected to impact profit or loss are: 2022 Foreign exchange contracts Assets 19 8 978 50 103 686 8 139 Liabilities (436) (438) (151) (287) – – Cross-currency swaps Assets 3 780 3 699 4 (104) 2 861 938 Liabilities (4 527) (4 097) (84) (2 910) (8 396) 7 293 (1 164) 8 142 (181) (3 198) (4 849) 16 370 Restated 2021 Foreign exchange contracts Assets 8 8 825 14 18 251 8 542 Liabilities (398) (394) (133) (261) – – Cross-currency swaps Assets 4 330 5 463 1 (228) 2 434 3 256 Liabilities (3 497) (1 719) (48) (2 522) (6 587) 7 438 443 12 175 (166) (2 993) (3 902) 19 236 100 | | 101 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 19. Payments made in advance 20. Trade and other receivables Restated Restated 2022 2021 2022 2021 Securing Environ- Other Total Securing Environ- Other Total Receivable Amounts Allowance Carrying Receivable Amounts Allowance Carrying debt mental debt mental before not for value before not for value raised rehabi- raised rehabi- collect- meeting impair- collect- meeting impair- litation litation trust fund trust fund ability collect- ment ability collect- ment Rm Rm Rm Rm Rm Rm Rm Rm adjust- ability adjust- ability ments criteria ments criteria Group Rm Rm Rm Rm Rm Rm Rm Rm Balance at beginning of the year 1 137 1 361 679 3 177 1 371 1 166 537 3 074 Group Payments made 471 – 265 736 132 – 362 494 Financial instruments Expense recognised – – (244) (244) – – (183) (183) Trade receivables Net fair value gain – 109 – 109 – 195 – 195 International 1 625 – (365) 1 260 1 546 – (343) 1 203 Transfers (830) – (135) (965) (366) – (37) (403) Local large power users 61 772 (39 930) (2 322) 19 520 49 008 (31 046) (2 417) 15 545 Balance at end of the year 778 1 470 565 2 813 1 137 1 361 679 3 177 Municipalities 50 869 (39 930) (1 943) 8 996 40 574 (31 046) (1 971) 7 557 Other 10 903 – (379) 10 524 8 434 – (446) 7 988 Maturity analysis 778 1 470 565 2 813 1 137 1 361 679 3 177 Local small power users 7 805 (4 214) (1 013) 2 578 10 212 (6 758) (1 190) 2 264 Non-current 529 1 470 65 2 064 350 1 361 89 1 800 Current 249 – 500 749 787 – 590 1 377 Soweto 4 219 (4 213) (6) – 6 853 (6 758) (95) – Other 3 586 (1) (1 007) 2 578 3 359 – (1 095) 2 264 Company Balance at beginning of 71 202 (44 144) (3 700) 23 358 60 766 (37 804) (3 950) 19 012 the year 1 137 1 361 652 3 150 1 371 1 166 533 3 070 Other receivables 1 354 – (327) 1 027 1 113 – (340) 773 Payments made 471 – 265 736 132 – 336 468 72 556 (44 144) (4 027) 24 385 61 879 (37 804) (4 290) 19 785 Expense recognised – – (219) (219) – – (180) (180) Non-financial Net fair value gain – 109 – 109 – 195 – 195 instruments 3 267 – – 3 267 4 625 – – 4 625 Transfers (830) – (135) (965) (366) – (37) (403) VAT 31 – – 31 30 – – 30 Balance at end of the year 778 1 470 563 2 811 1 137 1 361 652 3 150 Diesel rebate – – – – 1 655 – – 1 655 Maturity analysis 778 1 470 563 2 811 1 137 1 361 652 3 150 VAT on cash basis receivables 3 236 – – 3 236 2 940 – – 2 940 Non-current 529 1 470 64 2 063 350 1 361 88 1 799 Current 249 – 499 748 787 – 564 1 351 75 823 (44 144) (4 027) 27 652 66 504 (37 804) (4 290) 24 410 Maturity analysis 75 823 (44 144) (4 027) 27 652 66 504 (37 804) (4 290) 24 410 Non-current 2 493 – (4) 2 489 1 697 – (3) 1 694 Current 73 330 (44 144) (4 023) 25 163 64 807 (37 804) (4 287) 22 716 Company Financial instruments Trade receivables International 1 625 – (365) 1 260 1 546 – (343) 1 203 Local large power users 61 772 (39 930) (2 322) 19 520 49 008 (31 046) (2 417) 15 545 Municipalities 50 869 (39 930) (1 943) 8 996 40 574 (31 046) (1 971) 7 557 Other 10 903 – (379) 10 524 8 434 – (446) 7 988 Local small power users 7 805 (4 214) (1 013) 2 578 10 212 (6 758) (1 190) 2 264 Soweto 4 219 (4 213) (6) – 6 853 (6 758) (95) – Other 3 586 (1) (1 007) 2 578 3 359 – (1 095) 2 264 71 202 (44 144) (3 700) 23 358 60 766 (37 804) (3 950) 19 012 Other receivables 3 343 – (301) 3 042 3 674 – (410) 3 264 74 545 (44 144) (4 001) 26 400 64 440 (37 804) (4 360) 22 276 Non-financial instruments 3 236 – – 3 236 4 595 – – 4 595 Diesel rebate – – – – 1 655 – – 1 655 VAT on cash basis receivables 3 236 – – 3 236 2 940 – – 2 940 77 781 (44 144) (4 001) 29 636 69 035 (37 804) (4 360) 26 871 Maturity analysis 77 781 (44 144) (4 001) 29 636 69 035 (37 804) (4 360) 26 871 Non-current 3 113 – (11) 3 102 2 322 – (25) 2 297 Current 74 668 (44 144) (3 990) 26 534 66 713 (37 804) (4 335) 24 574 102 | | 103 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 20. Trade and other receivables (continued) 23. Service concession arrangements Group and company The group operates a service concession for the generation and transmission of electricity through its operations in Uganda. 2022 2021 Eskom Uganda Ltd (Eskom Uganda) entered into an operation and maintenance agreement with Uganda Electricity Generation Note Rm Rm Company Ltd (UEGCL) in 2002, which is linked to a power purchase agreement concluded with Uganda Electricity Transmission Reconciliation of movements in amounts not meeting collectability criteria Company Ltd (UETCL). In terms of the agreements, Eskom Uganda operates and maintains two hydro-electric power stations in Uganda, from which it supplies electricity to UETCL. The dams, powerhouses, related switchyard facilities, high voltage substations, Balance at beginning of the year 37 804 34 197 land and movable property together constitute the ‘energy assets’ in terms of the agreement. The concession period is 20 years Revenue not meeting collectability criteria 31 14 215 12 112 (ending in March 2023). Finance income not meeting collectability criteria 39 1 644 1 120 Cash basis revenue recognised 31 (6 543) (5 935) Eskom Uganda is entitled to receive revenue from UETCL, based on electricity supplied at tariffs regulated by the Electricity Writeoffs (2 976) (3 690) Regulatory Authority of Uganda. It also receives a fee to cover it for investment in additional energy assets where required. This has been recognised as an intangible asset. Balance at end of the year 44 144 37 804 The plant remains the property of and will revert to UEGCL at the end of the concession period. At that point Eskom Uganda will Refer to note 5.1.1 for a reconciliation of the movements in allowance for impairment. have no further obligation in respect of the plant. In terms of the agreement between the Government of the Republic of Uganda (GOU) and Eskom Uganda, GOU shall pay Eskom 21. Investments and financial trading instruments Uganda a buyout amount at the end of the contract term to affect the transfer of the operations and all rights over the plant. Eskom Uganda submitted a buyout amount to GOU at the end of October 2022 which is currently being evaluated. It is expected that Eskom Portfolio Managed by Purpose Uganda will transfer the approved buyout amount to Eskom Enterprises in instalments. The natural close out of the concession agreement is not impacted by the decision by the Uganda government to nationalise the energy sector. Insurance Escap To maintain adequate ring-fenced capital reserves to meet the statutory solvency requirements of the Insurance Act Group Financial trading Treasury To reduce the funding cost of the company 2022 2021 Rm Rm 21.1 Insurance investments Summarised statements of financial position1 Group Assets 2022 2021 Intangible assets 268 297 Taxation 9 5 Gross Allowance Carrying Gross Allowance Carrying Inventories 30 30 for value for value Payments made in advance 2 22 impairment impairment Trade and other receivables 81 61 Rm Rm Rm Rm Rm Rm Cash and cash equivalents 157 84 Negotiable certificates of deposit 15 183 (10) 15 173 12 546 (79) 12 467 547 499 Listed shares 2 145 – 2 145 1 934 – 1 934 Liabilities 17 328 (10) 17 318 14 480 (79) 14 401 Debt securities and borrowings 4 7 Deferred tax 32 20 21.2 Financial trading instruments Provisions 52 72 Employee benefit obligations 6 5 Group and company Trade and other payables 68 43 2022 2021 Assets Liabilities Net Assets Liabilities Net 162 147 liabilities liabilities Summarised income statements Rm Rm Rm Rm Rm Rm Revenue 422 320 Eskom bonds – 2 (2) – 2 (2) Profit before tax 41 58 Taxation (13) (18) Financial trading liabilities – encumbered assets Profit after tax 28 40 Eskom concluded sale and repurchase transactions of both Eskom and government bonds with approved counterparties. The group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or The balances and transactions above are included in the respective line items in the statements of financial position and income substantially all of the risks and rewards of the transferred assets or a portion of them. The transferred assets are not derecognised statements. if all or substantially all risks and rewards are retained. The difference between the sale and repurchase price is treated as interest accrued over the life of the agreement using the effective-yield method. 24. Share capital 22. Cash and cash equivalents Group and company 2022 2021 Group Company Shares Shares 2022 2021 2022 2021 Rm Rm Rm Rm Authorised ordinary shares 300 000 000 000 300 000 000 000 Bank balances 7 877 4 041 6 210 2 503 Issued Fixed deposits 8 008 – 8 008 – Balance at beginning of the year 188 000 000 001 132 000 000 001 Share capital issued 31 692 945 000 56 000 000 000 15 885 4 041 14 218 2 503 Balance at end of the year 219 692 945 001 188 000 000 001 Unissued 80 307 054 999 111 999 999 999 The unissued share capital is under the control of the Government of the Republic of South Africa, represented by the DPE, as the sole shareholder. 1. Financial information as at December year end. 104 | | 105 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 25. Debt securities and borrowings Group Company Group Company Currency Security Interest rate Nominal Maturity Carrying value Carrying value Restated Restated number date 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Rm Rm Rm Rm % % m m Rm Rm Rm Rm Eskom bonds 161 635 161 171 163 622 161 171 Balances carried forward Commercial paper 1 058 1 251 595 3 184 from the previous page 230 927 223 575 232 451 225 508 Eurorand zero coupon bonds 6 318 5 600 6 318 5 600 Development financing Foreign bonds 61 916 55 553 61 916 55 553 institutions4 124 438 143 174 124 438 143 174 Development financing institutions 124 438 143 174 124 438 143 174 Export credit facilities 17 735 23 343 17 735 23 343 USD n/a 2 – 3.12 – 965 Jul 21 – 14 282 – 14 282 Floating rate notes – 2 027 – 2 027 ZAR n/a 2 5.47 4.99 867 1 000 Aug 28 874 1 008 874 1 008 Other loans 23 194 9 707 23 442 9 990 USD n/a 2 1.67 1.46 126 145 Aug 28 1 840 2 145 1 840 2 145 396 294 401 826 398 066 404 042 EUR n/a 2 – – 471 521 Aug 29 7 630 9 026 7 630 9 026 ZAR n/a 2 4.67 4.06 5 356 6 070 Aug 29 5 396 114 5 396 114 Maturity analysis 396 294 401 826 398 066 404 042 ZAR n/a 2 10.10 10.10 2 951 3 344 Sep 29 2 946 3 339 2 946 3 339 Non-current 345 490 357 411 344 568 356 486 USD n/a 2 3.47 – 6 – Sep 30 81 – 81 – Current 50 804 44 415 53 498 47 556 ZAR n/a 10.47 10.37 12 000 15 000 Jan 31 12 145 15 267 12 145 15 267 EUR n/a 2 1.50 1.50 403 448 Feb 31 5 929 7 222 5 929 7 222 Group Company USD n/a 2 1.19 0.95 6 6 Aug 31 84 6 110 84 6 110 Currency Security Interest rate Nominal Maturity Carrying value Carrying value ZAR n/a 4.68 4.07 912 1 006 Mar 32 914 1 008 914 1 008 number date USD n/a 2 3.33 2.45 3 263 2 943 Sep 33 46 887 42 786 46 887 42 786 2022 2021 2022 2021 2022 2021 2022 2021 USD n/a 2 3.42 3.12 8 8 Feb 36 105 94 105 94 % % m m Rm Rm Rm Rm ZAR n/a 2 8.12 7.64 4 116 4 410 Feb 36 4 093 4 382 4 093 4 382 Eskom bonds 161 635 161 171 163 622 161 171 USD n/a 2 – 0.74 – 81 May 38 – 1 191 – 1 191 ZAR n/a 2 9.14 9.17 29 063 29 327 May 38 30 127 30 437 30 127 30 437 ZAR E1751 – 9.97 – 2 928 Aug 21 – 3 023 – 3 023 USD n/a 2 1.39 2.02 1 1 Aug 38 13 8 13 8 ZAR ECN22 – 10.17 – 5 000 Mar 22 – 5 005 – 5 005 ZAR n/a 2 5.07 4.45 791 255 Nov 38 798 256 798 256 ZAR ES232 9.06 9.31 21 664 19 784 Jan 23 20 230 20 370 22 217 20 370 USD n/a 2 1.26 1.36 40 25 Mar 39 589 369 589 369 ZAR ECN24 10.37 10.37 5 000 5 000 Mar 24 4 988 4 972 4 988 4 972 ZAR n/a 2 10.24 10.24 2 832 2 917 Nov 43 2 903 2 991 2 903 2 991 ZAR ES262 9.29 9.29 32 950 32 904 Apr 26 32 688 32 336 32 688 32 336 USD n/a 2 0.25 0.25 32 35 May 51 473 515 473 515 ZAR EL282 2.55 2.55 6 278 6 278 May 28 10 140 9 549 10 140 9 549 USD n/a 2 0.25 0.25 42 42 Aug 51 611 624 611 624 ZAR EL292 1.90 1.90 5 370 4 653 Nov 29 8 150 6 715 8 150 6 715 ZAR EL302 2.30 2.30 5 136 4 396 Jul 30 7 446 6 061 7 446 6 061 Export credit facilities2 17 735 23 343 17 735 23 343 ZAR EL312 2.10 2.10 5 699 4 843 Jun 31 7 749 6 338 7 749 6 338 ZAR ECN32 2.95 2.95 5 000 5 000 Mar 32 6 770 6 394 6 770 6 394 JPY n/a 0.88 0.88 230 691 May 22 28 92 28 92 ZAR ES332 9.21 9.21 34 542 34 542 Sep 33 30 580 30 389 30 580 30 389 EUR n/a 1.25 1.25 15 25 Sep 23 230 414 230 414 ZAR EL362 2.25 2.25 5 594 4 637 Jan 36 7 130 5 761 7 130 5 761 EUR n/a 0.38 0.37 4 6 Jul 24 64 96 64 96 ZAR EL372 2.25 2.25 5 418 4 443 Jan 37 6 871 5 522 6 871 5 522 EUR n/a 4.75 4.74 374 489 Jan 27 5 746 8 067 5 746 8 067 ZAR ES422 10.39 10.38 21 437 21 295 Apr 42 18 893 18 736 18 893 18 736 EUR n/a 2.44 2.46 314 398 Jul 27 4 739 6 485 4 739 6 485 ZAR n/a 6.28 5.67 1 147 1 320 Jul 27 1 048 1 210 1 048 1 210 Commercial paper 1 058 1 251 595 3 184 USD n/a 2.32 2.32 449 515 Mar 31 5 880 6 979 5 880 6 979 ZAR n/a3 5.07 4.62 600 3 269 Jun 224 – – 595 3 184 Floating rate ZAR n/a 5.72 8.40 129 154 May 225 130 154 – – notes4 ZAR n/a 2 – 6.87 – 2 000 Apr 21 – 2 027 – 2 027 ZAR n/a 5.80 8.48 621 728 May 235 625 732 – – Other loans6 23 194 9 707 23 442 9 990 ZAR n/a 5.65 7.51 301 363 May 525 303 365 – – ZAR n/a 6.31 – 14 390 – Oct 22 14 445 – 14 445 – Eurorand zero ZAR n/a 6.91 6.39 1 000 1 000 Aug 23 1 010 1 009 1 010 1 009 coupon bonds1 6 318 5 600 6 318 5 600 ZAR n/a 9.27 7.45 1 000 1 750 Mar 24 1 002 1 753 1 002 1 753 ZAR n/a 8.82 8.57 4 250 4 250 Feb 25 4 300 4 299 4 300 4 299 ZAR n/a 13.33 13.33 8 000 8 000 Aug 27 4 078 3 598 4 078 3 598 ZAR n/a 11.88 11.54 2 300 2 500 Feb 27 2 400 2 602 2 400 2 602 ZAR n/a 11.89 11.89 7 500 7 500 Dec 32 2 240 2 002 2 240 2 002 On ZAR n/a3 4.08 3.52 285 326 demand – – 285 327 Foreign bonds 61 916 55 553 61 916 55 553 On USD n/a 6.90 6.90 1 000 1 000 Aug 23 14 710 14 845 14 710 14 845 ZAR n/a – 10.00 37 44 demand 37 44 – – USD n/a 7.39 7.39 1 250 1 250 Feb 25 18 284 18 436 18 284 18 436 USD n/a 5.42 – 500 – Jul 27 6 877 – 6 877 – 396 294 401 826 398 066 404 042 USD n/a 8.47 8.47 500 500 Aug 28 7 363 7 438 7 363 7 438 USD n/a1 6.37 6.37 1 000 1 000 Aug 28 14 682 14 834 14 682 14 834 Balances carried forward to the next page 230 927 223 575 232 451 225 508 1. Holders have a right to first charge against revenue and assets of Eskom in terms of section 7 of the Eskom Conversion Act. 2. Government guaranteed. 3. Includes, inter alia, instruments issued to subsidiaries. 4. Latest in a range of maturity dates is indicated for these instruments. 5. Nqaba breached an early amortisation event trigger in June 2020. As a result, the cash flows from the assets in the securitisation structure are applied to repay the capital to all noteholders in a reducing order of rank (pari passu if equal rank) on a quarterly basis on or before the final maturity date, which is 32 years from the scheduled maturity date. 6. Comprises of loans with various banking institutions. 106 | | 107 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 26. Payments received in advance and contract liabilities and deferred income Customer Government Other Total Customer Government Other Total connections grant connections grant Note Rm Rm Rm Rm Note Rm Rm Rm Rm 26.2 Contract liabilities and deferred income 26.1 Payments received in advance 2022 2022 Group and company Balance at beginning of the year 3 994 21 678 – 25 672 Group Transfers of property, plant and equipment from customers 309 – – 309 Balance at beginning of the year 4 125 948 590 5 663 Transfers from payments received in advance 26.1 455 2 071 – 2 526 Payments received 1 266 2 456 396 4 118 Day 1 fair value gain 16 – – 808 808 Transfers to contract liabilities and deferred income 26.2 (455) (2 071) – (2 526) Income recognised 37 (248) (1 567) – (1 815) Income recognised (432) (132) (235) (799) Amortisation of day 1 fair value 38 – – (54) (54) Balance at end of the year 4 504 1 201 751 6 456 Balance at end of the year 4 510 22 182 754 27 446 Maturity analysis 4 504 1 201 751 6 456 Maturity analysis 4 510 22 182 754 27 446 Non-current 2 545 – 31 2 576 Non-current 4 249 20 603 673 25 525 Current 1 959 1 201 720 3 880 Current 261 1 579 81 1 921 Company 2021 Balance at beginning of the year 4 125 948 603 5 676 Group and company Payments received 1 266 2 456 395 4 117 Balance at beginning of the year 2 902 21 215 – 24 117 Transfers to contract liabilities and deferred income 26.2 (455) (2 071) – (2 526) Transfers of property, plant and equipment from customers 993 – – 993 Income recognised (432) (132) (235) (799) Transfers from payments received in advance 26.1 309 1 906 – 2 215 Income recognised 37 (210) (1 443) – (1 653) Balance at end of the year 4 504 1 201 763 6 468 Balance at end of the year 3 994 21 678 – 25 672 Maturity analysis 4 504 1 201 763 6 468 Maturity analysis 3 994 21 678 – 25 672 Non-current 2 545 – 44 2 589 Non-current 3 776 20 167 – 23 943 Current 1 959 1 201 719 3 879 Current 218 1 511 – 1 729 2021 Group Balance at beginning of the year 3 937 1 227 621 5 785 27. Employee benefit obligations Payments received 962 1 725 257 2 944 Post- Pension Bonus Leave Total Transfers (311) (1 909) 2 (2 218) employment benefits Transfers to contract liabilities and deferred income 26.2 (309) (1 906) – (2 215) medical Other (2) (3) 2 (3) benefits Note Rm Rm Rm Rm Rm Income recognised (463) (95) (290) (848) 2022 Balance at end of the year 4 125 948 590 5 663 Group Maturity analysis 4 125 948 590 5 663 Balance at beginning of the year 16 121 – 446 2 579 19 146 Recognised in profit or loss Non-current 2 700 – 167 2 867 Employee benefit expense – raised 346 3 086 425 836 4 693 Current 1 425 948 423 2 796 Finance cost 40 2 224 259 – – 2 483 Company Recognised in other comprehensive income Balance at beginning of the year 3 937 1 227 628 5 792 Re-measurement of benefits (822) (915) – – (1 737) Payments received 962 1 725 256 2 943 Cash paid (716) (2 430) (441) (1 144) (4 731) Transfers (311) (1 909) 2 (2 218) Balance at end of the year 17 153 – 430 2 271 19 854 Transfers to contract liabilities and deferred income 26.2 (309) (1 906) – (2 215) Other (2) (3) 2 (3) Maturity analysis 17 153 – 430 2 271 19 854 Income recognised (463) (95) (283) (841) Non-current 16 404 – – – 16 404 Current 749 – 430 2 271 3 450 Balance at end of the year 4 125 948 603 5 676 Maturity analysis 4 125 948 603 5 676 Company Balance at beginning of the year 15 777 – 386 2 329 18 492 Non-current 2 700 – 167 2 867 Recognised in profit or loss Current 1 425 948 436 2 809 Employee benefit expense – raised 344 2 841 375 718 4 278 Finance cost 40 2 177 259 – – 2 436 Recognised in other comprehensive income Re-measurement of benefits (803) (915) – – (1 718) Cash paid (697) (2 185) (386) (1 024) (4 292) Balance at end of the year 16 798 – 375 2 023 19 196 Maturity analysis 16 798 – 375 2 023 19 196 Non-current 16 067 – – – 16 067 Current 731 – 375 2 023 3 129 108 | | 109 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 27. Employee benefit obligations (continued) 27.2 Pension benefits Movement reconciliation Post- Pension Bonus Leave Total employment benefits 2022 2021 medical Fund Asset Fund Net asset/ Fund Asset Fund Net asset/ benefits assets ceiling obligations (liability) assets ceiling obligations (liability) Note Rm Rm Rm Rm Rm adjustment adjustment Rm Rm Rm Rm Rm Rm Rm Rm 2021 Group Asset/(liability) at Balance at beginning of the year 14 200 – 447 2 176 16 823 beginning of the year 162 616 (51 417) (111 199) – 127 236 (35 459) (91 777) – Recognised in profit or loss Recognised in profit Employee benefit expense – raised 284 1 889 442 1 235 3 850 or loss Finance cost 40 1 910 89 – – 1 999 Employee benefit Recognised in other comprehensive income expense – – (3 086) (3 086) – – (1 889) (1 889) Re-measurement of benefits 402 488 – – 890 Finance cost 22 253 (7 096) (15 416) (259) 16 988 (4 787) (12 290) (89) Cash paid (675) (2 466) (443) (832) (4 416) Recognised in other Balance at end of the year 16 121 – 446 2 579 19 146 comprehensive income Maturity analysis 16 121 – 446 2 579 19 146 Re-measurement Non-current 15 414 – – – 15 414 of benefits (5 297) (11 536) 17 748 915 21 187 (11 171) (10 504) (488) Current 707 – 446 2 579 3 732 Return on plan Company assets in excess of finance cost (5 297) – – (5 297) 21 187 – – 21 187 Balance at beginning of the year 13 885 – 386 1 979 16 250 Adjustment to asset Recognised in profit or loss ceiling – (11 536) – (11 536) – (11 171) – (11 171) Employee benefit expense – raised 283 1 652 386 1 109 3 430 Actuarial gain/(loss) – – 17 748 17 748 – – (10 504) (10 504) Finance cost 40 1 868 89 – – 1 957 Recognised in other comprehensive income Payments received Re-measurement of benefits 399 488 – – 887 by the fund 3 793 – (1 363) 2 430 3 866 – (1 400) 2 466 Cash paid (658) (2 229) (386) (759) (4 032) Employer funded 2 430 – – 2 430 2 466 – – 2 466 Balance at end of the year 15 777 – 386 2 329 18 492 Member funded 1 363 – (1 363) – 1 400 – (1 400) – Maturity analysis 15 777 – 386 2 329 18 492 Payments made by the fund (6 510) – 6 510 – (6 661) – 6 661 – Non-current 15 089 – – – 15 089 Current 688 – 386 2 329 3 403 Benefit and pension payments (6 236) – 6 236 – (6 027) – 6 027 – Refer to note 4 for relevant critical accounting estimates and assumptions. Fund management costs (310) – 310 – (303) – 303 – 27.1 Post-employment medical benefits Net transfers to/(from) the fund 36 – (36) – (331) – 331 – Group Company 2022 2021 2022 2021 Asset/(liability) Rm Rm Rm Rm at end of the year 176 855 (70 049) (106 806) – 162 616 (51 417) (111 199) – Actuarial (loss)/gain Financial assumptions (406) (1 407) (399) (1 382) Fund assets composition Experience adjustments 1 228 1 005 1 202 983 Group and company 822 (402) 803 (399) 2022 2021 Domestic International Total Domestic International Total Expected maturity analysis of undiscounted benefits Rm Rm Rm Rm Rm Rm Non-current 311 603 551 255 308 578 546 433 Equities 73 550 32 926 106 476 68 527 33 689 102 216 Between one and two years 814 782 793 761 Bonds 34 931 3 113 38 044 34 093 4 347 38 440 Between two and five years 3 122 3 120 3 043 3 041 After five years 307 667 547 353 304 742 542 631 Issued by Eskom 2 707 – 2 707 3 008 – 3 008 Other 32 224 3 113 35 337 31 085 4 347 35 432 Current 749 707 731 688 Property 11 715 – 11 715 117 – 117 312 352 551 962 309 309 547 121 Cash 2 560 2 459 5 019 7 149 892 8 041 Hedge funds 1 400 – 1 400 1 321 – 1 321 The group expects to pay R749 million and the company R731 million in contributions to this plan in the 2023 financial year. Refer to Collective investment schemes – 14 201 14 201 – 12 481 12 481 note 4.2 for the principal actuarial assumptions used and a sensitivity analysis. 124 156 52 699 176 855 111 207 51 409 162 616 110 | | 111 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 27. Employee benefit obligations (continued) Power station-related Mine-related Compen- Other Total 27.2 Pension benefits (continued) environmental closure, sation restoration pollution events Group and company Nuclear Other control and plant generating rehabili- 2022 2021 tation plant Rm Rm Note Rm Rm Rm Rm Rm Rm Actuarial gain/(loss) 2022 Financial assumptions 10 475 (16 289) Company Experience adjustments 7 273 5 785 Balance at beginning of the year 17 317 14 811 15 259 3 119 1 992 52 498 17 748 (10 504) Recognised in profit or loss (514) (245) (517) 2 746 (704) 766 Expected maturity analysis of undiscounted benefits Raised – 1 5 326 2 746 101 8 174 Non-current 1 302 616 2 276 563 Reversed (648) (364) (6 053) – (805) (7 870) Between one and two years 6 074 6 059 Change in discount rate 134 118 210 – – 462 Between two and five years 20 816 21 270 Capitalised to property, plant and equipment 8 74 552 – 1 751 – 2 377 After five years 1 275 726 2 249 234 Raised – – – 5 911 – 5 911 Current 5 584 5 463 Reversed – – – (4 160) – (4 160) 1 308 200 2 282 026 Change in discount rate 74 552 – – – 626 Capitalised to future fuel supplies 10 – – 113 – – 113 The group expects to pay R2 471 million and the company R2 203 million in contributions to this plan in the 2023 financial year. Refer Raised – – 105 – – 105 to note 4.3 for the principal actuarial assumptions used and a sensitivity analysis. Reversed – – (9) – – (9) 27.3 Bonus Change in discount rate – – 17 – – 17 The bonus comprises of an accrual for a thirteenth cheque generally paid in November. Managerial employees can choose to spread Capitalised to inventories 13 91 – (380) – – (289) the payment over the course of the year instead of all being paid in November. Raised 91 – 42 – – 133 Reversed – – (422) – – (422) 28. Provisions Finance cost 40 1 383 1 175 1 166 – 17 3 741 Power station-related Mine-related Compen- Other Total environmental closure, sation Cash paid (82) – (338) (412) (323) (1 155) restoration pollution events control and Balance at end of the year 18 269 16 293 15 303 7 204 982 58 051 Nuclear Other plant generating rehabili- tation Maturity analysis 18 269 16 293 15 303 7 204 982 58 051 plant Note Rm Rm Rm Rm Rm Rm Non-current 18 163 16 105 14 867 – 115 49 250 Current 106 188 436 7 204 867 8 801 2022 Group 2021 Balance at beginning of the year 17 317 14 811 15 259 3 119 2 136 52 642 Group Recognised in profit or loss (514) (245) (517) 2 746 (659) 811 Balance at beginning of the year as restated 14 818 11 806 14 164 2 429 2 436 45 653 Recognised in profit or loss 186 536 490 159 2 107 3 478 Raised – 1 5 326 2 746 156 8 229 Raised – – 2 044 338 2 150 4 532 Reversed (648) (364) (6 053) – (815) (7 880) Reversed (1 389) (29) (2 090) (179) (43) (3 730) Change in discount rate 134 118 210 – – 462 Change in discount rate 1 575 565 536 – – 2 676 Capitalised to property, plant and equipment 8 74 552 – 1 751 – 2 377 Capitalised to property, plant and equipment 8 831 1 294 – 1 011 – 3 136 Raised – – – 5 911 – 5 911 Raised – – – 9 252 – 9 252 Reversed – – – (4 160) – (4 160) Reversed – – – (8 241) – (8 241) Change in discount rate 74 552 – – – 626 Change in discount rate 831 1 294 – – – 2 125 Capitalised to future fuel supplies 10 – – 113 – – 113 Capitalised to future fuel supplies 10 – – 422 – – 422 Raised – – 105 – – 105 Raised – – 211 – – 211 Reversed – – (9) – – (9) Reversed – – (501) – – (501) Change in discount rate – – 17 – – 17 Change in discount rate – – 712 – – 712 Capitalised to inventories 13 91 – (380) – – (289) Capitalised to inventories 13 92 – (273) – – (181) Raised 91 – 42 – – 133 Raised 92 – – – – 92 Reversed – – (422) – – (422) Reversed – – (273) – – (273) Finance cost 40 1 383 1 175 1 166 – 17 3 741 Finance cost 40 1 429 1 175 911 – 20 3 535 Cash paid (82) – (338) (412) (362) (1 194) Cash paid (39) – (455) (480) (2 427) (3 401) Balance at end of the year 17 317 14 811 15 259 3 119 2 136 52 642 Balance at end of the year 18 269 16 293 15 303 7 204 1 132 58 201 Maturity analysis 17 317 14 811 15 259 3 119 2 136 52 642 Maturity analysis 18 269 16 293 15 303 7 204 1 132 58 201 Non-current 17 258 14 811 15 004 – 262 47 335 Non-current 18 163 16 105 14 867 – 122 49 257 Current 59 – 255 3 119 1 874 5 307 Current 106 188 436 7 204 1 010 8 944 112 | | 113 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 28. Provisions (continued) Group Company Power station-related Mine-related Compen- Other Total Restated Restated environmental closure, sation 2022 2021 2022 2021 restoration pollution events Note Rm Rm Rm Rm Nuclear Other control and plant generating rehabili- Movement reconciliation plant tation Balance at beginning of the year 8 969 9 350 8 967 9 347 Note Rm Rm Rm Rm Rm Rm Additions 51 119 51 119 2021 Disposals – (8) – (8) Company Finance costs 40 1 300 1 365 1 300 1 364 Balance at beginning of the year as restated 14 818 11 806 14 164 2 429 2 356 45 573 Cash paid (1 717) (1 857) (1 716) (1 855) Recognised in profit or loss 186 536 490 159 2 045 3 416 Capital (417) (497) (416) (496) Raised – – 2 044 338 2 073 4 455 Finance costs (1 300) (1 360) (1 300) (1 359) Reversed (1 389) (29) (2 090) (179) (28) (3 715) Change in discount rate 1 575 565 536 – – 2 676 Balance at end of the year 8 603 8 969 8 602 8 967 Capitalised to property, plant and equipment 8 831 1 294 – 1 011 – 3 136 Refer to note 36 for short-term and low-value lease expenses. Raised – – – 9 252 – 9 252 30. Trade and other payables Reversed – – – (8 241) – (8 241) Change in discount rate 831 1 294 – – – 2 125 Financial instruments 36 796 35 892 39 551 38 843 Capitalised to future fuel supplies 10 – – 422 – – 422 Trade and other payables 23 230 24 386 23 704 25 175 Accruals 7 455 5 881 9 736 8 044 Raised – – 211 – – 211 Deposits 6 111 5 625 6 111 5 624 Reversed – – (501) – – (501) Non-financial instruments 2 027 1 857 2 017 1 775 Change in discount rate – – 712 – – 712 VAT 1 399 1 219 1 389 1 137 Capitalised to inventories 13 92 – (273) – – (181) Environmental levy 628 638 628 638 Raised 92 – – – – 92 Reversed – – (273) – – (273) 38 823 37 749 41 568 40 618 Maturity analysis 38 823 37 749 41 568 40 618 Finance cost 40 1 429 1 175 911 – 20 3 535 Cash paid (39) – (455) (480) (2 429) (3 403) Non-current 829 667 1 100 667 Current 37 994 37 082 40 468 39 951 Balance at end of the year 17 317 14 811 15 259 3 119 1 992 52 498 Maturity analysis 17 317 14 811 15 259 3 119 1 992 52 498 31. Revenue Non-current 17 258 14 811 15 004 – 191 47 264 Redistributors (metropolitan and municipal customers) 98 063 84 436 98 063 84 436 Current 59 – 255 3 119 1 801 5 234 Invoiced to customers 105 369 90 228 105 369 90 228 Refer to note 4.4 for relevant critical accounting estimates and assumptions. Amounts not meeting collectability criteria 20 (13 849) (11 727) (13 849) (11 727) Recognised on a cash received basis 20 6 543 5 935 6 543 5 935 29. Lease liabilities Residential 7 091 6 366 7 091 6 366 2022 2021 Invoiced to customers 7 457 6 751 7 457 6 751 Gross Future Carrying Gross Future Carrying Amounts not meeting collectability criteria 20 (366) (385) (366) (385) payables finance value payables finance value Industrial 48 204 37 026 48 204 37 026 charges charges Mining 36 630 30 708 36 630 30 708 Rm Rm Rm Rm Rm Rm Commercial 16 723 14 304 16 723 14 304 Group Agricultural 11 600 10 262 11 600 10 262 Non-current 13 329 (5 297) 8 032 15 091 (6 644) 8 447 International 11 450 10 383 11 450 10 383 Rail 3 477 2 977 3 477 2 977 Between one and five years 8 581 (4 540) 4 041 6 999 (4 319) 2 680 Public lighting 257 232 257 232 After five years 4 748 (757) 3 991 8 092 (2 325) 5 767 Post-paid electricity sales 233 495 196 694 233 495 196 694 Current 1 811 (1 240) 571 1 820 (1 298) 522 Prepaid electricity sales 10 966 9 941 10 966 9 941 15 140 (6 537) 8 603 16 911 (7 942) 8 969 Total electricity sales 244 461 206 635 244 461 206 635 Company Connections 1 459 1 295 1 459 1 295 Non-current 13 327 (5 296) 8 031 15 089 (6 644) 8 445 Other 1 674 387 1 674 387 Between one and five years 8 580 (4 539) 4 041 6 997 (4 319) 2 678 Gross revenue 247 594 208 317 247 594 208 317 After five years 4 747 (757) 3 990 8 092 (2 325) 5 767 Capitalised to property, plant and equipment (1 074) (3 991) (1 074) (3 991) Current 1 811 (1 240) 571 1 820 (1 298) 522 246 520 204 326 246 520 204 326 15 138 (6 536) 8 602 16 909 (7 942) 8 967 Sales of electricity to local customers are included in the distribution operating segment. International sales are included in the transmission segment. Other revenue consists of reconnection fees and ad hoc sundry revenue. Connections occur mainly within the transmission and distribution operating segments. 114 | | 115 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 Group Company Group Company Restated Restated Restated Restated 2022 2021 2022 2021 2022 2021 2022 2021 Note Rm Rm Rm Rm Note Rm Rm Rm Rm 32. Other income 36. Other expenses Insurance proceeds 60 – 437 1 194 Managerial, technical and other fees 745 566 731 548 Insurance premiums 98 331 – – Lease expense 998 946 164 203 Services income 439 349 – – Management fee income – – 151 131 Short term 943 890 109 145 Operating lease income 270 242 190 200 Low value 55 56 55 58 Dividend income 75 47 655 1 086 Auditors’ remuneration1 152 176 139 161 Other 552 1 6931 580 1 7201 Net loss on disposals and writeoffs of property, plant and equipment 1 494 2 662 2 013 4 331 and intangible assets 2 772 2 169 2 731 2 168 Repairs and maintenance, transport and other expenses 24 113 20 349 32 496 29 389 33. Primary energy 28 780 24 206 36 261 32 469 Own generation costs 91 920 79 662 91 920 79 662 Generation costs 84 408 72 471 84 408 72 471 37. Depreciation and amortisation expense Environmental levy 7 512 7 191 7 512 7 191 Depreciation of property, plant and equipment 8 33 201 27 714 33 348 27 793 Amortisation of intangible assets 9 375 314 152 229 International electricity purchases 5 316 4 998 5 316 4 998 Contract liabilities and deferred income recognised (government grant) 26.2 (1 567) (1 443) (1 567) (1 443) Independent power producers 35 203 30 832 35 203 30 832 32 009 26 585 31 933 26 579 132 439 115 492 132 439 115 492 Generation costs relate to the cost of coal (including logistics), uranium, water and liquid fuels that are used in the generation of electricity. Eskom 38. Net fair value and foreign exchange loss uses a combination of short-, medium- and long-term agreements with Loss on items carried at fair value (7 139) (42 886) (7 294) (43 483) suppliers for coal purchases and long-term agreements with the Financial trading liabilities – (1) – (1) Department of Water Affairs to reimburse the department for the cost incurred in supplying water to Eskom. Insurance investments 157 599 – – Derivatives held for risk management 17 (9 081) (43 324) (9 079) (43 322) 34. Employee benefit expense Embedded derivatives 16 1 622 (355) 1 622 (355) Salaries 24 789 25 001 22 183 22 455 Deferred income 26 54 – 54 – Overtime 2 055 2 103 1 588 1 728 Payments made in advance 109 195 109 195 Post-employment medical benefits 346 284 344 283 Gain on foreign currency translation of items carried at amortised cost 3 536 35 315 3 536 35 313 Pension benefits 3 088 1 889 2 841 1 652 Annual bonus2 1 305 1 362 1 148 1 197 Trade and other receivables (8) (2) (8) – Production bonus3 172 129 169 129 Cash and cash equivalents (43) (159) (43) (159) Leave 836 1 235 718 1 109 Trade and other payables 20 58 20 54 Debt securities and borrowings 3 567 35 418 3 567 35 418 Direct costs of employment 32 591 32 003 28 991 28 553 Direct training and development 68 50 54 37 Amounts recycled from cash flow hedge reserve Temporary and contract staff costs 1 721 2 366 285 359 Ineffective portion of cash flow hedges 477 (478) 477 (478) Other staff costs 661 670 584 572 (3 126) (8 049) (3 281) (8 648) Gross employee benefit expense 35 041 35 089 29 914 29 521 Capitalised to property, plant and equipment (2 056) (2 202) (2 056) (2 202) 32 985 32 887 27 858 27 319 39. Finance income Financial trading assets – 1 – 1 Insurance investments 637 669 – – 35. Impairment and writedown of assets Loans receivable 566 587 237 280 35.1 Financial assets Finance lease receivables 37 43 37 43 Loans receivable (8) 21 (14) 10 Trade and other receivables 468 310 468 311 Finance lease receivables (6) 4 (6) 4 Trade and other receivables 5 681 (171) 573 (148) Invoiced to customers 2 112 1 430 2 112 1 431 Insurance investments (69) 67 – – Amounts not meeting collectability criteria 20 (1 644) (1 120) (1 644) (1 120) 598 (79) 553 (134) Cash and cash equivalents 656 790 618 774 Bad debts recovered – trade and other receivables (9) (12) (9) (12) 2 364 2 400 1 360 1 409 589 (91) 544 (146) 35.2 Other assets Investment in subsidiaries – – – 4 Inventories 13 847 1 886 833 1 886 847 1 886 833 1 890 1. Includes R1 176 million recovery from a supplier. 2. The annual bonus represents a thirteenth cheque. Refer to note 27.3. 3. The production bonus is self-funded and rewards employees for improved efficiency, operational productivity and performance in the production environment. 1. Non-audit services of R0.5 million were rendered by the group’s statutory auditors. 116 | | 117 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 Group Company Restated Restated Restated 2022 2021 2022 2021 2022 2021 Before Tax Net of Before Tax Net of Note Rm Rm Rm Rm tax tax tax tax Rm Rm Rm Rm Rm Rm 40. Finance cost Recognised in other comprehensive income Debt securities and borrowings 29 107 31 437 29 176 31 599 Group Eskom bonds 14 562 13 225 14 576 13 225 Cash flow hedges (950) 255 (695) (800) 224 (576) Commercial paper 67 236 111 343 Net change in fair value (328) 89 (239) (878) 431 (447) Eurorand zero coupon bonds 718 636 718 636 Net amount transferred to profit or loss (477) 129 (348) 478 (319) 159 Foreign bonds 4 268 5 728 4 268 5 728 Net amount transferred to initial carrying amount of Development financing institutions 7 059 8 125 7 059 8 125 hedged items (145) 37 (108) (400) 112 (288) Export credit facilities 1 204 1 450 1 204 1 450 Floating rate notes 3 264 3 264 Foreign currency translation differences 5 – 5 12 – 12 Other loans 1 226 1 773 1 237 1 828 Re-measurement of benefits 1 737 (400) 1 337 (890) 250 (640) Derivatives held for risk management 6 708 6 583 6 708 6 583 792 (145) 647 (1 678) 474 (1 204) Employee benefit obligations 27 2 483 1 999 2 436 1 957 Company Provisions 28 3 741 3 535 3 741 3 535 Cash flow hedges (950) 255 (695) (800) 224 (576) Lease liabilities 29 1 300 1 365 1 300 1 364 Trade and other payables 272 339 272 339 Net change in fair value (328) 89 (239) (878) 431 (447) Net amount transferred to profit or loss (477) 129 (348) 478 (319) 159 Gross finance cost 43 611 45 258 43 633 45 377 Net amount transferred to initial carrying amount of Capitalised to property, plant and equipment 8 (8 184) (11 716) (8 184) (11 716) hedged items (145) 37 (108) (400) 112 (288) 35 427 33 542 35 449 33 661 Re-measurement of benefits 1 718 (393) 1 325 (887) 249 (638) 768 (138) 630 (1 687) 473 (1 214) 41. Income tax Recognised in profit or loss Current tax 434 1 081 – – 42. Cash generated from operations Current year 404 1 064 – – Group Company Under provided in prior years 30 17 – – Restated Restated Deferred tax 14 (3 876) (9 162) (4 393) (9 150) 2022 2021 2022 2021 Rm Rm Rm Rm Reversal of temporary differences 3 585 79 2 922 91 Loss before tax (15 772) (33 097) (18 705) (35 846) Raised/reversal of temporary differences 6 395 (587) 5 674 (591) Adjustments for: 79 688 75 477 79 680 75 682 (Over)/under provided in prior years (622) 666 (615) 682 Change in tax rate (2 188) – (2 137) – Depreciation and amortisation expense 32 009 26 585 31 933 26 579 Depreciation expense – primary energy 12 12 12 12 Tax losses (7 461) (9 241) (7 315) (9 241) Impairment and writedown of assets (excluding bad debts recovered) 1 445 1 807 1 386 1 756 Raised/reversal of temporary differences (10 683) (8 967) (10 531) (8 967) Net fair value loss on financial instruments 3 126 8 049 3 281 8 648 Under/(over) provided in prior years 600 (274) 600 (274) Net loss on disposals and writeoffs of property, plant and equipment 2 772 2 169 2 731 2 168 Change in tax rate 2 622 – 2 616 – Transfer of assets from non-electricity purchasing customers (779) (622) (779) (622) Writeoff of diesel rebate 3 466 – 3 466 – Dividend income (75) (47) (655) (1 086) Increase in employee benefit obligations 4 693 3 850 4 278 3 430 (3 442) (8 081) (4 393) (9 150) Increase in provisions 811 3 478 766 3 416 Reconciliation between standard and effective tax rate: Decrease in contract liabilities and deferred income (248) (210) (248) (210) R million Payments made in advance recognised in profit or loss 244 183 219 180 Taxation income at standard rate (4 416) (9 267) (5 237) (10 037) Payments received in advance recognised in profit or loss (799) (848) (799) (841) Non-taxable income1 (491) (905) (455) (884) Finance income (2 364) (2 400) (1 360) (1 409) Expenses not deductible for tax purposes2 1 031 2 091 820 1 771 Finance cost 35 427 33 542 35 449 33 661 Change in tax rate 434 – 479 – Share of profit of equity-accounted investees (52) (71) – – Taxation income per the income statement (3 442) (8 081) (4 393) (9 150) 63 916 42 380 60 975 39 836 % Changes in working capital: (9 771) (11 963) (8 835) (11 685) Taxation income at standard rate 28.00 28.00 28.00 28.00 Payments made in advance (265) (223) (265) (197) Non-taxable income 3.11 2.73 2.43 2.47 Expenses not deductible for tax purposes (6.54) (6.31) (4.38) (4.94) Increase in inventories (1 495) (2 863) (1 497) (2 854) Change in tax rate (2.75) – (2.56) – Increase in trade and other receivables (7 369) (1 783) (6 785) (2 624) Increase/(decrease) in trade and other payables 847 (3 106) 724 (2 403) Taxation income per the income statement 21.82 24.42 23.49 25.53 Expenditure incurred on employee benefit obligations (4 731) (4 416) (4 292) (4 032) Expenditure incurred on provisions (876) (2 516) (837) (2 518) Payments received in advance 4 118 2 944 4 117 2 943 1. Eskom received various non-taxable income including dividends, government grants and recoveries from suppliers. 54 145 30 417 52 140 28 151 2. Non-deductible expenditure includes fruitless and wasteful expenditure and donations made. 118 | | 119 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 43. Net debt reconciliation 44. Guarantees and contingent liabilities The net debt reconciliation includes the changes arising from financing activities. Group Company Debt Lease Financial Financial Derivatives Payments Cash Net debt Restated Restated securities liabilities2 trading trading held for made in and cash Unit 2022 2021 2022 2021 and assets3 liabilities3 risk advance5 equivalents6 borrowings1 management4 44.1 Financial guarantees Rm Rm Rm Rm Rm Rm Rm Rm EFC loans to group employees EFC has granted loans (secured by mortgage bonds on the Group properties) to qualifying employees of the group. Eskom has Balance at 31 March 2020 issued guarantees to EFC to the extent to which the loan values as restated 483 682 9 350 (152) 214 (55 049) (1 371) (22 990) 413 684 of employees exceed the current value of the mortgage security. Net cash (decrease)/ increase (49 830) (497) 152 (213) 7 859 (132) 18 882 (23 779) Eskom’s guarantee exposure is governed by the default probability Net fair value and foreign of EFC, which is influenced by the risk of significant fluctuations exchange (gains)/losses (35 418) – – 1 42 579 – 159 7 321 in interest rates that might cause default on repayments. The risk-adjusted credit exposure of EFC is calculated by applying a Foreign currency rating agency’s annual default probabilities. translation – – – – – – (12) (12) Assets and liabilities Guarantee issued/contract value Rm – – 941 933 held-for-sale 1 462 – – – – – (80) 1 382 Default probability % – – 11.02 5.62 Other movements 1 930 116 – – (257) 366 – 2 155 Financial guarantee Rm – – 104 52 Balance at 31 March 2021 401 826 8 969 – 2 (4 868) (1 137) (4 041) 400 751 Changes in variables will not have a significant impact on profit Net cash decrease (5 818) (417) – – (2 769) (471) (11 882) (21 357) or loss. Net fair value and foreign exchange (gains)/losses (3 567) – – – 8 722 – 43 5 198 44.2 Contingent liabilities Foreign currency Legal claims translation – – – – – – (5) (5) There are legal claims in process against Eskom as a result of Other movements 3 853 51 – – (182) 830 – 4 552 disputes with various parties. Based on the evidence available, there is no present obligation relating to these claims. The claims Balance at 31 March 2022 396 294 8 603 – 2 903 (778) (15 885) 389 139 are disclosed as a contingent liability and amounted to Rm 525 5951 523 5851 Company Balance at 31 March 2020 Compensation events as restated 488 214 9 347 (152) 214 (55 049) (1 371) (22 314) 418 889 The final settlement of open compensation claims are generally far below the amount claimed by contractors. The adjudication rulings Net cash (decrease)/ are mostly in favour of Eskom, resulting in no additional expenditure being incurred. Eskom recognises a provision based on the best increase (50 731) (496) 152 (213) 7 859 (132) 19 652 (23 909) estimate of the potential expenditure required to settle open compensation claims. Net fair value and foreign There are uncertainties relating to the finalisation of open compensation events which are subject to a contractual adjudication exchange (gains)/losses (35 418) – – 1 42 579 – 159 7 321 process where the outcome could be different to management’s assessment of the probability of an outflow of resources and best Other movements 1 977 116 – – (257) 366 – 2 202 estimate of the expenditure. Balance at 31 March 2021 404 042 8 967 – 2 (4 868) (1 137) (2 503) 404 503 Net cash decrease (6 238) (416) – – (2 769) (471) (11 758) (21 652) Net fair value and foreign exchange (gains)/losses (3 567) – – – 8 722 – 43 5 198 Other movements 3 829 51 – – (182) 830 – 4 528 Balance at 31 March 2022 398 066 8 602 – 2 903 (778) (14 218) 392 577 Financing activities excludes cash and cash equivalents. 1. Refer to note 25. 2. Refer to note 29. 3. Refer to note 21.2. 4. Refer to note 17 (hedge exposure covering debt securities and borrowings). 5. Refer to note 19 (securing debt raised). 6. Refer to note 22. 1. The legal claims for 2021 have been restated by R417 million due to incorrect assessment of claims outstanding. 120 | | 121 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 Group Company 46. Related-party transactions and balances The group is wholly owned by the government represented by the DPE. Eskom (and its subsidiaries) are classified as schedule 2 Restated Restated public entities in terms of the PFMA. Eskom is part of the national sphere of government and its related parties in that sphere include 2022 2021 2022 2021 national departments (including the shareholder), constitutional institutions and public entities (schedule 1, 2 and 3). A list of related Rm Rm Rm Rm parties is provided by National Treasury on its website www.treasury.gov.za. 45. Commitments Related parties include subsidiaries, associates and joint ventures of the group and post-employment benefit plans for the benefit of 45.1 Capital expenditure employees. It also includes key management personnel of Eskom and close family members of these related parties. Key management Contracted capital expenditure 25 684 25 343 25 612 25 266 personnel for Eskom include the group’s board of directors and Exco. Disclosure of related-party transactions with key management personnel is included in note 49. Disclosure on the government guarantees to Eskom are included in note 5.3.2. Within one year1 16 260 13 196 16 189 13 120 One to five years1 9 423 12 129 9 423 12 129 Group Company After five years 1 18 – 17 2022 2021 2022 2021 Note Rm Rm Rm Rm Capital expenditure excludes finance costs capitalised and foreign currency fluctuations. Transactions Sales of goods and services 13 340 12 827 13 859 13 837 The capital expenditure will be financed through debt with government support and internally generated funds. National departments 1 508 1 494 1 508 1 494 Public entities 7 639 7 311 7 518 6 938 The capital programme will be reviewed and reprioritised by management in line with the funds available. Subsidiaries, associates and joint ventures 4 193 4 022 4 833 5 405 Government grant funding received for electrification 45.2 Leases National departments 2 456 1 724 2 456 1 724 As lessee The future minimum lease payments payable under non-cancellable Purchases of goods and services 18 337 10 598 31 396 21 784 leases are: Constitutional institutions 14 10 14 10 Within one year 234 85 40 41 National departments 1 880 1 975 1 880 1 975 Short-term leases 192 41 – – Public entities 13 713 5 990 13 045 4 593 Low-value leases 41 44 39 41 Subsidiaries, associates and joint ventures 300 157 14 272 12 977 Right-of-use leases not yet commenced 1 – 1 – Eskom Pension and Provident Fund 2 430 2 466 2 185 2 229 One to five years 52 77 49 72 Bad debts expense 33 – 2 – Low-value leases 50 77 47 72 National departments 1 – 1 – Right-of-use leases not yet commenced 2 – 2 – Public entities 32 – 1 – Total 286 162 89 113 Net fair value and foreign exchange gain Short-term leases 192 41 – – Subsidiaries, associates and joint ventures – – 1 2 Low-value leases 91 121 86 113 Finance income 64 148 301 428 Right-of-use leases not yet commenced 3 – 3 – National departments 8 9 8 9 The lease payments payable under non-cancellable leases are of a similar Public entities 56 139 56 139 nature to the right-of-use, short-term and low-value leases recognised in Subsidiaries, associates and joint ventures – – 237 280 the statement of financial position and income statement. Finance cost1 8 447 7 460 8 583 7 707 As lessor The future minimum lease payments receivable under non-cancellable National departments 7 8 7 8 operating leases are: 267 145 182 69 Public entities 8 215 7 311 8 215 7 311 Subsidiaries, associates and joint ventures – – 136 247 Within one year 137 110 52 34 Eskom Pension and Provident Fund 225 141 225 141 One to five years 119 35 119 35 After five years 11 – 11 – Dividend income Subsidiaries, associates and joint ventures – – 654 1 085 The lease payments receivable under non-cancellable leases are of a similar nature to the right-of-use, short-term and low-value leases recognised in the statement of financial position and income statement. Lease income 5 7 8 11 National departments – 1 – 1 Public entities 5 6 5 6 Subsidiaries, associates and joint ventures – – 3 4 Lease expenses 7 8 11 11 Public entities 7 8 7 8 Subsidiaries, associates and joint ventures – – 4 3 Environmental levy Public entities 33 7 512 7 191 7 512 7 191 1. Bonds are bearer instruments and it is therefore unknown if the initial counterparty still holds the bonds. Transactions in the secondary market where Eskom is not the 1. The contracted capital expenditure for 2021 has been restated to exclude an overstatement due to contingency amounts for compensation events that have been recorded in provisions. counterparty are therefore excluded. 122 | | 123 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 46. Related-party transactions and balances (continued) National energy crisis committee Government announced measures in July 2022 to address the country’s long-running electricity crisis, including the formation of a Group Company national energy crisis committee. Some progress has been made on the implementation of these measures in collaboration with the 2022 2021 2022 2021 relevant government departments, agencies and other stakeholders. Note Rm Rm Rm Rm Court rulings relating to NERSA applications Outstanding balances (due by related parties) There were the following developments after 31 March 2022 regarding Eskom’s court review applications against NERSA revenue Receivables and amounts owed by related parties 1 708 3 178 4 254 5 812 determination decisions: National departments 125 135 125 135 • Revenue decision for the 2020 to 2022 financial years (MYPD 4) – R59 billion Public entities 1 200 2 698 1 131 2 406 The SCA issued an order in June 2022 on the timing of the recovery of R59 billion which requires NERSA to include an additional Subsidiaries, associates and joint ventures 383 345 2 998 3 271 R15 billion in allowable revenue per year in the 2024 to 2026 financial years and R14 billion in the 2027 financial year. • Revenue decision for the 2023 to 2025 financial years (MYPD 5) Loans receivable NERSA published the reasons for the revenue decision in June 2022. Eskom submitted a court review application in July 2022 Subsidiaries, associates and joint ventures1 – – 5 657 5 779 based on NERSA’s incorrect treatment of the RAB. The High Court set aside the decision in respect of the valuation of the RAB Total due by related parties 1 708 3 178 9 911 11 591 on 24 October 2022 and ordered NERSA to apply the MYPD methodology to redetermine the valuation of the RAB which will form the basis for the NERSA decision for 2024 and 2025. Outstanding balances (due to related parties) Debt securities and borrowings 112 555 118 967 115 422 122 478 EFC disposal The Minister of Public Enterprises requested Eskom in July 2022 to re-commence with the disposal process of EFC. The investment National departments 22 32 22 32 and finance committee approved the disposal strategy in August 2022. A request for proposal was issued in September 2022 and Public entities 109 826 115 927 109 826 115 927 expressions of interest were received from various parties. The bidding process closed in November 2022 and a preferred Subsidiaries, associates and joint ventures2 – – 2 867 3 511 bidder has been approved in December 2022 by the investment and finance committee. The next steps include price negotiation Eskom Pension and Provident Fund 2 707 3 008 2 707 3 008 and requesting PFMA approval for the sale transaction. There was no accounting impact on the annual financial statements as the classification criteria in terms of IFRS 5 Non-current assets held for sale and discontinued operations were only met after the Payables and amounts owed to related parties 3 592 3 391 7 340 7 156 reporting date. Constitutional institutions 6 – 6 – National departments 338 445 338 445 Provision for compensation events Public entities 2 940 2 621 2 710 2 444 Certain claims relating to compensation events between Eskom and its suppliers were finalised by the Dispute Adjudication Board after 31 March 2022. The provision for compensation events was increased by R984 million to account for the differences between Subsidiaries, associates and joint ventures 18 30 3 996 3 972 the actual and expected settlements recorded on 31 March 2022. Refer to note 28. Eskom Pension and Provident Fund 290 295 290 295 Payments received in advance 1 196 942 1 211 958 Diesel rebate claimed from SARS SARS disallowed certain refunds of fuel and road accident levies on diesel used at the Gourikwa and Ankerlig power stations to National departments 1 196 942 1 196 942 generate electricity based on its view that Eskom did not maintain certain supporting documentation required to claim the refunds. Subsidiaries, associates and joint ventures – – 15 16 Eskom submitted an internal administrative appeal to SARS against this decision on 1 June 2020. SARS advised Eskom that its appeal has been disallowed on 25 October 2022. Eskom is considering the appropriate action regarding this matter, including following a Derivative liabilities held for risk management litigation process, alternative dispute resolution process or review. Based on the outcome of the appeal and the uncertainty around Subsidiaries, associates and joint ventures – – 1 1 the recovery of the refunds, trade and other receivables was reduced by R3.6 billion with a corresponding increase in primary energy Total due to related parties 117 343 123 300 123 974 130 593 cost to reverse the refunds receivable recorded on 31 March 2022. Refer to note 20. Guarantees Plant incidents Guarantees issued contract value The following material plant events occurred after 31 March 2022: Subsidiaries, associates and joint ventures 44.1 – – 941 933 • The first fires on oil and first coal fires milestones were completed at Kusile unit 5 in August and September 2022 respectively. However, the gas air heater caught fire on 17 September 2022, resulting in a discontinuation of all commissioning activities. The Commitments extent of the damage has not yet been determined and it is likely that the incident will cause a delay to the commissioning schedule. Eskom does not have any material commitments with its related parties. • A flue gas duct failure was experienced at Kusile unit 1 on 23 October 2022 while the unit was offline for repairs. Investigations are under way into the cause of the incident, the extent of the damage as well as the scope of work for recovery. Units 2 and 3 have also been affected and it is expected that all three units will be offline for up to six months. 47. Events after the reporting date The following significant events occurred after 31 March 2022: Closure and repurposing of Komati power station Komati power station reached the end of its operating life on 31 October 2022. The power station will serve as a pilot for the Changes in board repowering and repurposing of a power station on Eskom land using existing infrastructure, in line with the Eskom JET strategy. Ms B Mavuso resigned from the board on 27 September 2022. The term of the remaining independent board members, except The installation of a microgrid assembly plant as well as an agrivoltaic plant to demonstrate the simultaneous use of land for power Dr RDB Crompton, ended on 30 September 2022. New board members were appointed effective 1 October 2022. Refer to the generation and agriculture has started. An environmental impact assessment for a solar photovoltaic plant supported by battery governance and compliance section in the directors’ report for details. storage is in progress. The group chief executive, Mr A de Ruyter tendered his resignation on 14 December 2022. Mr de Ruyter agreed to stay for an Settlement agreement by the National Prosecuting Authority additional period beyond the stipulated 30-day notice period to ensure continuity while Eskom embarks on a search for his successor. The National Prosecuting Authority announced in December 2022 that a settlement agreement was concluded with ABB Ltd to pay His last day at Eskom will be 31 March 2023. over R2.5 billion in punitive reparations to South Africa as restitution for fraud and corruption relating to its contracts with Eskom. The settlement will be paid into the South Africa Criminal Asset Recovery Account and will be used as restitution for victims and to Equity support assist in building capacity and resources in the country’s ongoing fight against corruption. Eskom does not have any further details Eskom received R1 billion on 30 May 2022, R2 billion on 8 June 2022 and R1 billion on 28 June 2022 as part of the ongoing support regarding the investigation and settlement, including any potential restitution to Eskom. from government. Prospective debt relief The Minister of Finance announced a prospective debt relief solution for Eskom in the MTBPS on 26 October 2022. Government is finalising the details of the proposed solution, including the quantum of the proposed relief, the relevant debt instruments and the method for effecting the transaction. Further detail will be communicated in the National Budget Speech in February 2023, together with the conditions attached to the relief. 1. The effective interest rate on the loans to subsidiaries is 4.75% (2021: 3.67%). 2. Refer to note 25 for effective interest rate and maturity date relating to intercompany instruments. 124 | | 125 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 48. Restatement of comparatives Group Company The 2020 and 2021 statements of financial position as well as the 2021 income statements, statements of comprehensive income and Previously Adjust- Restated Previously Adjust- Restated statements of cash flows have been restated as a result of the following prior period errors: reported ments reported ments Note Rm Rm Rm Rm Rm Rm Group Company Statements of financial position at 31 March 2021 Previously Adjust- Restated Previously Adjust- Restated Assets reported ments reported ments Non-current Note Rm Rm Rm Rm Rm Rm Property, plant and equipment 662 569 (875) 661 694 663 840 (186) 663 654 Statements of financial position Land, buildings and facilities 8 932 – 8 932 8 526 – 8 526 at 31 March 2020 Generating plant (a) 344 647 (424) 344 223 345 382 973 346 355 Transmitting plant (a) 45 511 (39) 45 472 45 686 – 45 686 Assets Distributing plant (a) 77 447 (18) 77 429 77 683 – 77 683 Non-current Spares and other (a) 14 211 370 14 581 14 211 370 14 581 Property, plant and equipment 653 359 (1 045) 652 314 654 395 (476) 653 919 Equipment and vehicles 5 087 – 5 087 3 896 – 3 896 Work under construction (a) 166 734 (764) 165 970 168 456 (1 529) 166 927 Land, buildings and facilities 8 840 – 8 840 8 620 – 8 620 Generating plant (a) 295 220 (925) 294 295 296 032 86 296 118 Future fuel supplies (k) 4 414 (24) 4 390 4 414 (24) 4 390 Transmitting plant (a) 44 548 (42) 44 506 44 710 – 44 710 Inventories (b) – 11 001 11 001 – 11 001 11 001 Deferred tax (d) 6 459 (179) 6 280 6 920 (269) 6 651 Distributing plant (a) 75 327 (19) 75 308 75 549 – 75 549 Loans receivable 8 017 (10) 8 007 – 5 758 5 758 Spares and other 14 524 – 14 524 14 524 – 14 524 Equipment and vehicles 5 663 – 5 663 4 365 – 4 365 Loans to subsidiaries (e) – – – – 5 758 5 758 Work under construction (a) 209 237 (59) 209 178 210 595 (562) 210 033 Home loans (e) 7 825 (10) 7 815 – – – Other 192 – 192 – – – Future fuel supplies (k) 4 295 94 4 389 4 295 94 4 389 Derivatives held for risk management (i) 9 968 1 217 11 185 9 968 1 217 11 185 Inventories (b) – 9 921 9 921 – 9 921 9 921 Payments made in advance (f) 1 928 (128) 1 800 1 927 (128) 1 799 Deferred tax (d) 115 (19) 96 – – – Trade and other receivables (h) – 1 694 1 694 – 2 297 2 297 Loans receivable 27 22 49 – 5 937 5 937 Current Inventories 37 527 (15 046) 22 481 37 275 (15 046) 22 229 Loans to subsidiaries (e) – – – – 5 937 5 937 Home loans (e) – 22 22 – – – Coal and liquid fuel (b) 20 054 (13 581) 6 473 20 054 (13 581) 6 473 Other 27 – 27 – – – Nuclear fuel 2 575 – 2 575 2 575 – 2 575 Maintenance spares and consumables (c) 14 898 (1 465) 13 433 14 646 (1 465) 13 181 Payments made in advance (f) 1 898 (222) 1 676 1 897 (222) 1 675 Loans receivable 310 – 310 5 758 (5 758) – Trade and other receivables (h) – 1 335 1 335 – 1 834 1 834 Loans to subsidiaries (e) – – – 5 758 (5 758) – Current Home loans 248 – 248 – – – Inventories 33 573 (12 441) 21 132 33 330 (12 441) 20 889 Other 62 – 62 – – – Coal and liquid fuel (b) 17 569 (11 721) 5 848 17 569 (11 721) 5 848 Derivatives held for risk management (i) 1 411 (53) 1 358 1 413 (53) 1 360 Nuclear fuel 2 185 – 2 185 2 185 – 2 185 Payments made in advance (f) 1 667 (290) 1 377 1 641 (290) 1 351 Maintenance spares and consumables (c) 13 819 (720) 13 099 13 576 (720) 12 856 Trade and other receivables 24 413 (1 697) 22 716 26 871 (2 297) 24 574 Taxation (d) 140 (4) 136 – – – Trade (g) 21 952 (2 940) 19 012 21 952 (2 940) 19 012 Other (h) 2 461 1 243 3 704 4 919 643 5 562 Loans receivable 27 – 27 5 937 (5 937) – Equity Loans to subsidiaries (e) – – – 5 937 (5 937) – Capital and reserves 215 836 (532) 215 304 197 716 (536) 197 180 Other 27 – 27 – – – Share capital 188 000 – 188 000 188 000 – 188 000 Trade and other receivables 22 391 (1 338) 21 053 24 067 (1 834) 22 233 Cash flow hedge reserve (i) 155 (318) (163) 155 (318) (163) Unrealised fair value reserve (i) (11 986) 1 131 (10 855) (11 986) 1 131 (10 855) Trade (g) 20 780 (2 563) 18 217 20 780 (2 563) 18 217 Foreign currency translation reserve 9 – 9 – – – Other (h) 1 611 1 225 2 836 3 287 729 4 016 Accumulated profit 39 658 (1 345) 38 313 21 547 (1 349) 20 198 Equity Liabilities Non-current Capital and reserves 186 068 (544) 185 524 169 626 (536) 169 090 Debt securities and borrowings (o) 356 852 559 357 411 355 927 559 356 486 Share capital 132 000 – 132 000 132 000 – 132 000 Derivatives held for risk management (i) 3 562 174 3 736 3 562 174 3 736 Cash flow hedge reserve (i) 6 825 (6 412) 413 6 825 (6 412) 413 Deferred tax (d) 347 41 388 – – – Unrealised fair value reserve (i) (17 612) 7 364 (10 248) (17 612) 7 364 (10 248) Provisions 50 150 (2 815) 47 335 50 079 (2 815) 47 264 Foreign currency translation reserve (3) – (3) – – – Power station-related environmental Accumulated profit 64 858 (1 496) 63 362 48 413 (1 488) 46 925 rehabilitation – Nuclear plant (l) 19 015 (1 757) 17 258 19 015 (1 757) 17 258 Power station-related environmental Liabilities rehabilitation – Other generating plant (k) 15 270 (459) 14 811 15 270 (459) 14 811 Non-current Mine-related closure, pollution control and Derivatives held for risk management (i) 1 802 (1 728) 74 1 802 (1 728) 74 rehabilitation (k) 15 603 (599) 15 004 15 603 (599) 15 004 Other 262 – 262 191 – 191 Deferred tax (d) 3 757 98 3 855 2 803 169 2 972 Provisions 41 300 (1 638) 39 662 41 278 (1 638) 39 640 Current Debt securities and borrowings (o) 44 974 (559) 44 415 48 115 (559) 47 556 Power station-related environmental Derivatives held for risk management (i) 4 808 (270) 4 538 4 808 (270) 4 538 rehabilitation – Nuclear plant (l) 15 406 (1 385) 14 021 15 406 (1 385) 14 021 Provisions 6 395 (1 088) 5 307 6 322 (1 088) 5 234 Power station-related environmental Power station-related environmental rehabilitation – Other generating plant (k) 11 932 (126) 11 806 11 932 (126) 11 806 rehabilitation – Nuclear plant 59 – 59 59 – 59 Mine-related closure, pollution control and Mine-related closure, pollution control and rehabilitation (k) 13 686 (127) 13 559 13 686 (127) 13 559 rehabilitation 255 – 255 255 – 255 Other 276 – 276 254 – 254 Compensation events 3 119 – 3 119 3 119 – 3 119 Other (m) 2 962 (1 088) 1 874 2 889 (1 088) 1 801 Trade and other payables (n) 411 – 411 411 609 1 020 Trade and other payables (n) 37 114 (32) 37 082 39 194 757 39 951 Current Taxation (d) – 132 132 – – – Taxation (d) – 115 115 – – – 126 | | 127 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 The details of the restatements are discussed below. 48. Restatement of comparatives (continued) Group Company Property, plant and equipment (a) Various adjustments were made to property, plant and equipment including assets for which incorrect useful lives have been Previously Adjust- Restated Previously Adjust- Restated reported ments reported ments used, extension of asset useful lives not accounted for, completed assets under construction not timeously transferred to commercial operation, additional insurance expenditure from the group insurance entity (eliminated in group) and writeoff of Note Rm Rm Rm Rm Rm Rm aged assets under construction where there are no further expected future economic benefits. The description of the nature of Income statements for the year ended the restatements to property, plant and equipment is as follows: 31 March 2021 Primary energy (115 903) 411 (115 492) (115 903) 411 (115 492) Group Company Impairment of financial assets 119 (28) 91 146 – 146 2020 2021 2020 2021 Impairment and writedown of other assets (1 486) (400) (1 886) (1 490) (400) (1 890) Rm Rm Rm Rm Other expenses (24 018) (188) (24 206) (32 255) (214) (32 469) Additional insurance expenditure under-charged by Escap in previous years 67 87 597 739 Depreciation and amortisation expense (27 016) 431 (26 585) (26 983) 404 (26 579) Change in discount rate on provision for environmental rehabilitation (267) (490) (267) (490) Net fair value and foreign exchange gain/(loss) 883 (8 932) (8 049) 284 (8 932) (8 648) Under-recording of critical spares reclassified from inventory to property, Finance cost (33 909) 367 (33 542) (34 028) 367 (33 661) plant and equipment – 371 – 371 Scrapping – asset clean up recorded in the incorrect reporting period (60) (187) (60) (187) Loss before tax (24 758) (8 339) (33 097) (27 482) (8 364) (35 846) Scrapping – over capitalisation of assets reversed in the incorrect Income tax 5 824 2 257 8 081 6 880 2 270 9 150 reporting period (553) (542) (553) (542) Useful life correction 225 614 225 614 Loss for the year (18 934) (6 082) (25 016) (20 602) (6 094) (26 696) Aged assets under construction written off in the incorrect reporting period (396) (654) (357) (617) Statements of comprehensive income for Other (61) (74) (61) (74) the year ended 31 March 2021 Loss for the year (18 934) (6 082) (25 016) (20 602) (6 094) (26 696) (1 045) (875) (476) (186) Items that may be reclassified subsequently to profit or loss (6 658) 6 094 (564) (6 670) 6 094 (576) The additional insurance expenditure under-charged by Escap in previous years as well as the reclassification of critical spares Cash flow hedges from inventory had an impact on the cash flow statement resulting in a movement between changes in working capital under operating activities and acquisitions of property, plant and equipment under investing activities. Changes in fair value (j) (9 249) 8 371 (878) (9 249) 8 371 (878) Amortisation of effective portion of Inventories terminated cash flow hedges (j) (276) 276 – (276) 276 – (b) A portion of coal inventory held at power stations was reclassified from current to non-current (2021: R11 001 million, Ineffective portion of cash flow hedges (j) 661 (183) 478 661 (183) 478 2020: R9 921 million) with a related increase in primary energy cost following a review of the quantity and usage of coal at power Net amount transferred to initial carrying stations. It was concluded that a portion of the coal inventory is not expected to be used within 12 months as certain inventory amount of hedged items (400) – (400) (400) – (400) are at higher levels than required for compliance with the electricity grid code and emergencies to ensure security of supply. Foreign currency translation differences on foreign operations 12 – 12 – – – A significant part of the coal inventory, which is separately stock-piled, resulted from coal purchases in terms of take-or-pay Income tax thereon 2 594 (2 370) 224 2 594 (2 370) 224 arrangements in excess of required coal levels over a number of years (2021: R2 580 million, 2020: R1 800 million). The weighted average price relating to these stockpiles were separately calculated, resulting in a restatement to correct the overstatement of Items that may not be reclassified subsequently coal inventory. to profit or loss (640) – (640) (638) – (638) (c) Consumable inventory reduced because of an insufficient provision for obsolescence in prior periods (2021: R1 120 million, Total comprehensive loss for the year (26 232) 12 (26 220) (27 910) – (27 910) 2020: R720 million) as well as a decrease in consumable inventory as certain critical spares were reclassified between property, plant and equipment and inventory (2021: R371 million). This resulted in a movement between changes in working capital under Statements of cash flows for the year operating activities and acquisitions of property, plant and equipment under investing activities in the statements of cash flows. ended 31 March 2021 Cash flows from operating activities 30 658 351 31 009 29 285 500 29 785 Deferred and income taxation Cash flows used in investing activities (26 325) (351) (26 676) (24 692) (500) (25 192) (d) Tax impact of the restatements. Cash flows used in financing activities (23 215) – (23 215) (24 245) – (24 245) Cash and cash equivalents at beginning of the Loans receivable year 22 990 – 22 990 22 314 – 22 314 (e) The loan receivable to EFC has been re-classified as non-current as it was not expected that the loan would be settled within 12 Foreign currency translation 12 – 12 – – – months from the reporting date as the intention and practice has been to extend the loan facility to a future date upon maturity. Effect of movements in exchange rates on cash Payments made in advance held (159) – (159) (159) – (159) (f) Payments made in advance relating to commitment fees incurred on debt facilities that expired prior to the previous reporting Assets and liabilities held-for-sale 80 – 80 – – – period were written off to the income statement and had an overall impact of zero between payments made in advance and Cash and cash equivalents at end of the year 4 041 – 4 041 2 503 – 2 503 finance costs in the cash flows used in financing activities in the statements of cash flows. Trade and other receivables The impacted notes to the annual financial statements have been updated where relevant because of the restatements, including (g) Non-current classification on other receivables: A review of payment levels indicated that certain receivables (VAT portion where a movement reconciliation has been presented. The restatements also resulted in various consequential restatements in the paid over to SARS for municipalities and Soweto recorded on a cash basis) are not expected to be realised within 12 months capital management, critical accounting estimates and assumptions, financial risk management and fair value disclosures. There was after the reporting period because of the low payment levels experienced. The related VAT receivable was also reclassified as a also a restatement in the information reported on segment reporting and directors’ remuneration. non-financial instrument because the related sales did not meet the collectability criterion and it is expected that the VAT will ultimately be recovered from SARS once the outstanding customer debt is written off. (h) Non-current classification on other receivables: Certain insurance claims between group entities were re-classified to non- current as the claims are being settled over a period exceeding 12 months (eliminated in group). Derivatives held for risk management (i) The derivatives held for risk management was restated to correct the curve methodology and resultant fair values as the valuation curve methodology in determining the fair values of the financial instruments were not aligned to market practice in prior years. 128 | | 129 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 48. Restatement of comparatives (continued) Salaries Derivatives held for risk management (continued) Salaries consist of a guaranteed package that includes Eskom’s medical and pension fund contributions. No fees were paid to (j) The cash flow hedge reserve was restated because of the incorrect application of certain requirements of IFRS in previous executives who serve on the boards of Eskom subsidiaries. years. The calculation of the hedge effectiveness and the quantification of the resultant hedging reserve contained errors from Notice payments the incorrect inclusion of certain limiting rules, not including credit adjustments in measuring hedge effectiveness and the These consist of payments made in terms of contractual agreements. impact of the incorrect curve methodology as noted above. The correction of certain of these errors resulted in certain hedge relationships that were historically considered as effective no longer meeting the hedge effectiveness requirements of IFRS, Other payments resulting in the immediate unwinding of the cash flow hedge reserve. The correction of the errors also resulted in changes to Other payments include accumulated leave paid out, sign-on bonuses, long service awards and expenditure related to telephone, the quantification of the cash flow hedge reserve. security services, operating vehicle, professional subscriptions as well as spouse funeral and dreaded disease cover. Provisions Bonuses (k) A single discount rate was previously used in the valuation of power station-related environmental restoration and mine-related Short-term bonus closure, pollution control and rehabilitation provisions. These provisions were restated to align the discount rates used in If applicable, a short-term incentive bonus is paid after year end. No short-term bonuses were awarded in the current or prior the valuation with the expected timing of the associated cash flows per location, with a related impact in property, plant and financial years. equipment, future fuel supplies, finance costs and other expenses. Long-term bonus (l) The nuclear plant decommissioning and spent fuel provisions were adjusted because certain assumptions in the calculation If applicable, a long-term incentive bonus is paid after year end in cash and consists of the vested amount in a reporting period. No relating to labour, foreign currency and inflation rates were not updated to reflect current market information. A further new long-term bonus units have been awarded since 1 April 2017 due to Eskom’s current financial constraints. overstatement resulted from the inclusion of a portion of the spent fuel management cost in both the spent fuel and plant decommissioning provisions. 2022 2021 (m) A coal off-take provision was restated to correct an overprovision as management incorrectly determined the contractual R’000 R’000 termination date of a coal supply agreement. Housing loans Trade and other payables C Cassim 3 032 3 173 (n) Additional insurance premium expenditure was charged by Escap in previous years and capitalised to property, plant and equipment. N Otto – 478 J Sankar 695 727 Debt securities and borrowings (o) Commitment fees incurred in raising debt and discount/premium on bonds that are estimated to be written off to profit and loss 3 727 4 378 during the next 12 months has been reclassified from non-current to current. Home loan balances are disclosed when an individual is in the role of an executive director or group executive. The interest rate on the loans from EFC at 31 March 2022 was 5.75% (2021: 5.25%). The loans are repayable over a maximum period of 30 years. The terms and conditions applicable to ex-employees 49. Directors’ remuneration are applied on resignation. The background to directors’ remuneration and an overview of the main provisions of the remuneration policy is included in the remuneration and benefits section in the integrated report. The details of the board (governing body) and executive management 49.2 Non-executive directors remuneration are included in this note. The details regarding the appointments, resignations and other changes in roles of directors Non-executive directors receive a fixed fee and are reimbursed for out-of-pocket expenses incurred in during the year are included in the directors’ report. fulfilling their duties. Their emoluments were as follows: 49.1 Executive directors and group executives MW Makgoba 1 599 1 687 The remuneration of the group chief executive and the chief financial officer (executive directors) and Exco members (group executives) RDB Crompton 717 717 are disclosed below. Eskom’s prescribed officers are the group executives. The group chief executive and the chief financial officer have RSN Dabengwa - 227 fixed-term contracts. The group executives have permanent contracts based on Eskom’s standard conditions of service. NVB Magubane 255 645 BCE Makhubela 682 648 The emoluments for the executives of the group were as follows: B Mavuso 593 593 Restated PE Molokwane 711 711 2022 2021 TH Mongalo 717 717 Name Salary Notice Other Total Salary Notice Other Total 5 274 5 945 payment payments remuneration payment payments remuneration earned and earned and cash paid cash paid1 R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Executive directors 11 940 – 222 12 162 11 940 – 211 12 151 AM de Ruyter 7 040 – 71 7 111 7 040 – 101 2 7 141 C Cassim 4 900 – 151 5 051 4 900 – 1102 5 010 Group executives 22 938 169 1 084 24 191 21 592 – 1 410 23 002 JA Oberholzer 5 496 – 161 5 657 5 496 – 1302 5 626 FS Burn 3 400 – 80 3 480 2 9763 – 6392 3 615 M Govender 1 550 – 35 1 585 – – – – ND Harris – – – – 263 – 32 266 NB Hewu – – – – 2 833 – 3132 3 146 N Minyuku 3 100 – 92 3 192 1 4223 – 41 1 463 N Otto 1 017 – 10 1 027 678 – 542 732 EM Pule 3 339 – 536 3 875 3 339 – 1872 3 526 J Sankar 1 795 – 162 1 957 145 – 22 147 MS Tshitangano 380 169 6 555 2 385 – 402 2 425 V Tuku 2 861 – 2 2 863 2 0554 – 12 2 056 1. The total remuneration earned and cash paid was restated with an increase of R1 million as explained below. 2. Other payments have been restated to include spouse funeral and dreaded disease cover, long service awards, sign on bonuses, accumulated leave paid out and payment of professional subscriptions. 34 878 169 1 306 36 353 33 532 – 1 621 35 153 3. Salary amounts have been restated to reflect a recalculated apportionment where Exco members started during the month. 4. Salary amount has been restated to reflect a backdated salary increase. 130 | | 131 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 50. New standards and interpretations Topic Summary of requirements Impact 50.1 Standards, interpretations and amendments to published standards that are not yet effective The following new standards, interpretations and amendments to existing standards have been published that are applicable for future Annual The amendments to IAS 41 Agriculture remove the IAS 41 is not applicable as the group does not accounting periods that have not been adopted early by the group. These standards and interpretations will be applied in the first year improvements requirement to exclude cash flows for taxation when have any agricultural assets as defined in that they are applicable to the group which is the financial period beginning on or after the effective date. 2018-2020 cycle measuring fair value, thereby aligning the fair value IAS 41. – amendments to measurement requirements in IAS 41 with those in IFRS 13 Topic Summary of requirements Impact IFRS 1, IFRS 9, Fair value measurement. IAS 41 and IFRS 16 Onerous contracts: The amendments clarify that the costs of fulfilling a contract No material impact. The group already The amendments deleted references to reimbursements The amendments to IFRS 16 are not expected (1 January 2022) cost of fulfilling a comprise both: accounts for onerous contracts on the full relating to leasehold improvements in the illustrative to have a material impact. Contracts with contract – • the incremental costs – direct labour and materials cost approach. example 13 in IFRS 16. The amendments remove the leasehold improvements have been amendments to • an allocation of other direct costs – an allocation of the potential for confusion in identifying lease incentives. considered in terms of the measurement IAS 37 Provisions, depreciation charge for an item of property, plant and guidance of IFRS 16 and the update to the contingent liabilities equipment used in fulfilling the contract illustrative example will not impact this and contingent assets assessment. (1 January 2022) This clarification is unlikely to affect provisions that are already based on the full cost approach, but will result in Amendments to Amendments were made to replace older references that The amendments are not expected to have a the recognition of larger and potentially more provisions for IFRS 3 – reference referred to the Framework for the preparation and presentation material impact. There are currently no those based on the incremental cost approach. to the Conceptual of financial statements with Conceptual framework for financial business combinations in the group. framework for reporting. The Conceptual framework for financial reporting is The amendments will apply to open contracts on adoption financial reporting applicable from 1 January 2020 and the references and without the need to restate comparatives. (1 January 2022) related details were aligned accordingly. Property, plant and The amendments prohibit entities from deducting any The amendments will have a material impact Classification of IAS 1 has been amended to clarify the requirements of The group is currently in the process of equipment: proceeds proceeds from selling items produced while bringing that on Eskom’s results. It is expected that the liabilities as current determining if a liability is current or non-current. evaluating the detailed requirements of the before intended use asset to the location and condition necessary for it to be amendments will have an impact on the cost or non-current standard to assess the impact on the financial – amendments to capable of operating in the manner intended by management of power stations under construction from 1 – amendments to The amendments clarify: statements. IAS 16 from the cost of an item of property, plant and equipment. April 2021 where the proceeds from selling IAS 1 Presentation of • what is meant by a right to defer settlement (1 January 2022) Instead, the proceeds from selling such items and the costs electricity and the cost to produce the financial statements • that a right to defer must exist at the end of the reporting of producing those items are recognised in profit or loss. electricity is currently allocated to the cost (1 January 2024) period of the power station. • that classification is unaffected by the likelihood that an entity will exercise its deferral right The amendments are applicable retrospectively only to It is expected that the carrying amount of • that only if an embedded derivative in a convertible items of property, plant and equipment made available for property, plant and equipment will increase liability is itself an equity instrument would the terms of a use on or after the beginning of the earliest period by an estimated R2.4 billion (before the liability not impact its classification presented in the financial statements in which the impact of depreciation) at 31 March 2022 amendments are first applied. with a similar accompanying net change in These amendments have to be applied retrospectively. profit and loss (increase in revenue of R3.6 billion offset with an increase in primary IFRS 17 Insurance IFRS 17 introduces one accounting model for all insurance The group is currently in the process of energy costs of R1.1 billion) to account for contracts and contracts in all jurisdictions that apply IFRS. Once effective, evaluating the detailed requirements of the the cumulative impact of this restatement amendments to IFRS 17 will replace IFRS 4 Insurance contracts. standard to assess the impact on the financial relating to items made available for use on or IFRS 17 statements. after 1 April 2021. (1 January 2023) It requires an entity to measure insurance contracts using It is expected that the standard will mainly updated estimates and assumptions that reflect the timing impact the financial statements of Escap in These amendments will align the accounting of cash flows and take into account any uncertainty relating the group. and taxation treatments relating to proceeds to insurance contracts. The financial statements of an entity before intended use with no temporary will have to reflect the time value of money of estimated differences and deferred tax from the payments required to settle incurred claims. Insurance effective date. contracts will be measured only on the obligations created by the contracts. An entity will also be required to Annual The amendments to IFRS 1 First-time adoption of International The amendments to IFRS 1 are not applicable recognise profits as an insurance service is delivered, rather improvements Financial Reporting Standards simplifies the application of as all subsidiaries of the group apply IFRS. than on receipt of premiums. 2018-2020 cycle IFRS 1 for a subsidiary that becomes a first-time adopter of – amendments to IFRS standards later than its parent. Disclosure of The amendments aim to help entities provide accounting The group is currently in the process of IFRS 1, IFRS 9, accounting policies policy disclosures that are more useful by replacing the evaluating the detailed requirements of the The amendments to IFRS 9 Financial instruments clarify the The amendments to IFRS 9 are not expected IAS 41 and IFRS 16 – amendments to requirement for entities to disclose their significant amendments to assess the impact on the fees that an entity includes when assessing whether the to have a material impact. Fees are normally (1 January 2022) IAS 1 and IFRS accounting policies with a requirement to disclose their accounting policy disclosures. terms of a new or modified financial liability are substantially taken into account in line with the amendment Practice statement 2 material accounting policies. different from the terms of the original financial liability. when assessing whether the terms of a new Making materiality These fees include only those paid or received between the or modified financial liability are substantially The practice statement provides guidance and examples on It is expected that there could be a reduction judgements borrower and the lender, including fees paid or received by different to the original liability. how entities apply the concept of materiality in making in the detail disclosed in the accounting (1 January 2023) either the borrower or lender on the other’s behalf. An decisions about accounting policy disclosures. policies. entity applies the amendments to financial liabilities that are Definition of The amendments to IAS 8 introduces a definition of The amendments are not expected to have a modified or exchanged on or after the beginning of the accounting estimate accounting estimates. material impact on the group. annual reporting period in which the entity first applies the – amendments to amendments. The amendments clarify the distinction between changes in The group will apply the definitions where IAS 8 Accounting policies, changes in an accounting estimate, changes in accounting policies and applicable. accounting estimates the correction of errors. The use of measurement and errors techniques and inputs to develop accounting estimates are (1 January 2023) also clarified. 132 | | 133 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 50. New standards and interpretations (continued) 51. Information required by the Public Finance Management Act 50.1 Standards, interpretations and amendments to published standards that are not yet effective Section 55(2)(b)(i) of the PFMA requires that the particulars of any irregular expenditure, any fruitless and wasteful expenditure as (continued) well as material losses due to criminal conduct be disclosed in the annual financial statements. Any losses due to criminal conduct that individually or collectively (where items are closely related) exceed R25 million in terms of the significance and materiality Topic Summary of requirements Impact framework, as agreed with the shareholder, have to be reported. Deferred tax related Targeted amendments were made to IAS 12 to clarify how The amendments are not expected to have a 51.1 Irregular expenditure to assets and companies should account for deferred tax on certain material impact on the group as the group Irregular expenditure is defined as expenditure, other than unauthorised expenditure, incurred in contravention of or that is not in liabilities arising transactions eg leases and decommissioning provisions. already comply with these requirements. The accordance with a requirement of any applicable legislation. The scope includes transgressions of any laws and regulations regardless from a single group recognises a deferred tax asset and a of whether or not the expenditure was justified from a business perspective, value was received, the breaches were deliberate or transaction The amendments narrow the scope of the initial recognition deferred tax liability for temporary exemption so that it does not apply to transactions that give accidental, or the breaches happened unknowingly or in good faith. – amendments to differences arising on initial recognition of IAS 12 Income taxes rise to equal and offsetting temporary differences. As a leases and decommissioning provisions. Irregular expenditure is incurred when the related transaction is recognised in terms of IFRS. The irregular expenditure is removed (1 January 2023) result, a deferred tax asset and a deferred tax liability will from the note through a process of condonation by the relevant authority, recovery or removal. have to be recognised for temporary differences arising on the initial recognition of a lease and a decommissioning Balance at Expenditure Condoned Recovered/ Balance provision. beginning removed at end of of the year the year The amendments apply retrospectively. Note Rm Rm Rm Rm Rm Sale or contribution These amendments address the conflict between the No material impact. The group is currently 2022 of assets between guidance on consolidation and equity accounting when a not disposing of any of its investments in Group an investor and its parent loses control of a subsidiary in a transaction with an associates or joint ventures. PFMA 23 168 2 095 (13) – 25 250 associate or joint associate or joint venture. The parent recognises the full venture – gain on the loss of control under the consolidation standard, Use of sole source (a) 3 899 929 – – 4 828 amendments to IFRS but under the standard on associates and joint ventures, the Incorrect classification as emergency procurement (b) 391 12 (4) – 399 10 and IAS 28 parent recognises the gain only to the extent of unrelated Tender processes not adhered to and insufficient (optional adoption, investors’ interests in the associate or joint venture. The delegation of authority (c) 10 218 851 (9) – 11 060 effective date amendments require the full gain to be recognised when the Modifications exceeding allowed amounts (d) 8 660 303 – – 8 963 deferred indefinitely) assets transferred meet the definition of a business under PPPFA 5 592 862 – – 6 454 IFRS 3 Business combinations. Incorrect tender process applied (e) 860 24 – – 884 50.2 Standards, interpretations and amendments to published standards that are effective and applicable Tax clearance certificates (f) 4 713 626 – – 5 339 to the group Designated sectors (g) 19 212 – – 231 Amendments to The amendments provide relief to lessees from applying No material impact. The group has not CIDB regulations IFRS 16 Leases – IFRS 16 to rent concessions as a direct consequence of the offered or received any rent concessions in Contracts awarded without following CIDB COVID-19-related COVID-19 pandemic. A lessee may elect as a practical response to the COVID-19 pandemic. requirements (h) 1 733 5 (327) – 1 411 rent concessions expedient to not assess whether a COVID-19 related rent (1 June 2020) and concession from a lessor is a lease modification. A lessee National Treasury instructions the further that makes this election accounts for a change in lease Expenditure not in accordance with National amendments to payments in terms of IFRS 16 as if the change were not a Treasury instructions (i) 497 – – – 497 cater for the period lease modification. Various commercial requirements beyond 30 June 2021 Breach of more than one legislative requirement (j) 28 169 5 483 (187) – 33 465 (1 April 2021) The amendment was extended by 12 months until 30 June 2022. Other 18 6 – – 24 Interest rate The amendments address issues that might affect financial The group has a number of instruments that 59 177 8 451 (527) – 67 101 benchmark reform reporting as a result of a reform of an interest rate are linked to IBOR. phase 2 – benchmark, including the impact on contractual cash flows Company amendments to and hedging relationships arising from the replacement of The group intends to use the practical PFMA 20 403 1 454 (9) – 21 848 IFRS 9, IAS 39, an interest rate benchmark with an alternative benchmark expedients where applicable. Use of sole source (a) 1 941 601 – – 2 542 IFRS 7, IFRS 4 and rate. The amendments provide practical relief from certain These amendments had no impact on the Incorrect classification as emergency procurement (b) 214 5 – – 219 IFRS 16 requirements in IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 group in this financial period as the benchmark Tender processes not adhered to and insufficient (1 January 2021) relating to: interest rates have not yet been replaced. delegation of authority (c) 9 670 545 (9) – 10 206 • changes in the basis for determining contractual cash flows Modifications exceeding allowed amounts (d) 8 578 303 – – 8 881 of financial assets, financial liabilities and lease liabilities PPPFA 5 295 857 – – 6 152 • hedge accounting Incorrect tender process applied (e) 674 19 – – 693 The amendments introduce a practical expedient for Tax clearance certificates (f) 4 602 626 – – 5 228 modifications of financial instruments and leases that result Designated sectors (g) 19 212 – – 231 directly from IBOR reform. The amendments also provide specific relief from discontinuing hedging relationships. CIDB regulations Contracts awarded without following CIDB Once the new benchmark rate is in place, the hedged items requirements (h) 1 725 2 (327) – 1 400 and hedging instruments are remeasured based on the new rate and any hedge ineffectiveness will be recognised in National Treasury instructions profit or loss. Expenditure not in accordance with National Treasury instructions (i) 496 – – – 496 The amendments require additional disclosure about the Various commercial requirements entity’s exposure to risks arising from interest rate Breach of more than one legislative requirement (j) 28 169 5 437 (187) – 33 419 benchmark reform and related risk management activities. Other 16 6 – – 22 The amendments apply retrospectively. 56 104 7 756 (523) – 63 337 134 | | 135 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 51. Information required by the Public Finance Management Act (continued) Balance at beginning of the year Expenditure1 Condoned Recovered/ Balance 51.1 Irregular expenditure (continued) Previously Adjustments Restated removed at end of reported the year Balance at beginning of the year Expenditure1 Condoned Recovered/ Balance removed at end of Note Rm Rm Rm Rm Rm Rm Rm Previously Adjustments Restated reported the year 2021 Note Rm Rm Rm Rm Rm Rm Rm Company 2021 PFMA 20 523 (3 011) 17 512 5 633 (1 566) (1 176) 20 403 Group Use of sole source (a) 1 209 – 1 209 732 – – 1 941 PFMA 29 850 (3 011) 26 839 7 034 (9 529) (1 176) 23 168 Incorrect classification as emergency procurement (b) 3 458 (3 247) 211 3 – – 214 Use of sole source (a) 9 837 – 9 837 2 023 (7 961) – 3 899 Tender processes not Incorrect classification as adhered to and insufficient emergency procurement (b) 3 580 (3 247) 333 58 – – 391 delegation of authority (c) 8 253 236 8 489 3 923 (1 566) (1 176) 9 670 Tender processes not Modifications exceeding adhered to and insufficient allowed amounts (d) 7 603 – 7 603 975 – – 8 578 delegation of authority (c) 8 748 236 8 984 3 978 (1 568) (1 176) 10 218 Modifications exceeding PPPFA 4 002 – 4 002 1 293 – – 5 295 allowed amounts (d) 7 685 – 7 685 975 – – 8 660 Incorrect tender process PPPFA 4 292 – 4 292 1 300 – – 5 592 applied (e) 673 – 673 1 – – 674 Tax clearance certificates (f) 3 313 – 3 313 1 289 – – 4 602 Incorrect tender process applied (e) 852 – 852 8 – – 860 Designated sectors (g) 16 – 16 3 – – 19 Tax clearance certificates (f) 3 424 – 3 424 1 289 – – 4 713 CIDB regulations Designated sectors (g) 16 – 16 3 – – 19 Contracts awarded without following CIDB requirements (h) 1 527 (18) 1 509 216 – – 1 725 CIDB regulations Contracts awarded without National Treasury following CIDB requirements (h) 1 533 (18) 1 515 218 – – 1 733 instructions Expenditure not in National Treasury accordance with National instructions Treasury instructions (i) 496 – 496 – – – 496 Expenditure not in accordance with National Various commercial Treasury instructions (i) 497 – 497 – – – 497 requirements Breach of more than one Various commercial legislative requirement (j) 69 21 210 21 279 6 890 – – 28 169 requirements Breach of more than one Other 16 (13) 3 16 (3) – 16 legislative requirement (j) 69 21 210 21 279 6 890 – – 28 169 26 633 18 168 44 801 14 048 (1 569) (1 176) 56 104 Other 18 (13) 5 16 (3) – 18 36 259 18 168 54 427 15 458 (9 532) (1 176) 59 177 1. Refer to the expenditure analysis for the restatements. 136 | | 137 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 51. Information required by the Public Finance Management Act (continued) Restatement and reclassification of prior year information 51.1 Irregular expenditure (continued) The opening balances and expenditure for the prior year have been restated where management assessed the adjustment to be Expenditure analysis quantitatively or qualitatively material to users. The process of collecting and reporting on irregular expenditure continues to be a focus area to reduce the occurrence of restatements in the future. 2022 2021 Current Prior Total Previously Adjustments Restated Reclassification of prior year information has also been made between categories where a different classification grouping has been year years reported assessed to be more appropriate. Note Rm Rm Rm Rm Rm Rm Details of the material restatements have been included in the notes below where relevant. Group PFMA 1 682 413 2 095 8 285 (1 251) 7 034 (a) Use of sole source State-owned entities are required to procure goods and services in a manner that is fair, equitable, transparent, competitive Use of sole source (a) 859 70 929 2 023 – 2 023 and cost-effective. Expenditure was incurred on awards which did not follow proper tender processes where awards were Incorrect classification as incorrectly allocated to predetermined suppliers. emergency procurement (b) 1 11 12 1 309 (1 251) 58 Tender processes not adhered to The irregular expenditure reported for 2022 relates to cost incurred in the current year on non-compliant contracts from prior and insufficient delegation of years. There was only one new incident reported during the year that relates to a transaction that occurred in 2021. authority (c) 535 316 851 3 978 – 3 978 Modifications exceeding allowed Sole source requests are scrutinised to confirm compliance with criteria before approval through the relevant governance amounts (d) 287 16 303 975 – 975 processes. The requirement to obtain National Treasury approval for these transactions has since been repealed through the PFMA Supply chain management (SCM) National Treasury Instruction No. 3 of 2021/22, effective 1 April 2022. PPPFA 752 110 862 1 300 – 1 300 (b) Incorrect classification as emergency procurement Incorrect tender process applied (e) 5 19 24 8 – 8 Irregular expenditure was incurred where emergency purchases did not meet the National Treasury requirements for emergency Tax clearance certificates (f) 612 14 626 1 289 – 1 289 procurement. Seven incidents of irregular expenditure were reported in this category, one of which occurred during the year. Designated sectors (g) 135 77 212 3 – 3 The requirement to obtain National Treasury approval for these transactions has since been repealed through the PFMA SCM CIDB regulations National Treasury Instruction No. 3 of 2021/22, effective 1 April 2022. Contracts awarded without following CIDB requirements (h) 3 2 5 230 (12) 218 Prior year incidents previously reported totalling R4 498 million (R3 247 million within opening balances and R1 251 million within expenditure) within this category were reclassified as breaches of more than one legislative requirement occurred. National Treasury instructions Expenditure not in accordance with (c) Tender processes not adhered to and insufficient delegation of authority National Treasury instructions (i) – – – 260 (260) – Irregular expenditure was incurred where incorrect tender processes were followed and/or transactions were executed without the appropriate approvals. Various commercial requirements Breach of more than one legislative The 2021 opening balance was restated by R236 million due to the identification of additional irregular expenditure following requirement (j) 5 304 179 5 483 1 572 5 318 6 890 the completion of investigations. Other 5 1 6 16 – 16 (d) Modifications exceeding allowed amounts 7 746 705 8 451 11 663 3 795 15 458 National Treasury required that their approval be obtained for any modification made during 1 May 2016 to 1 April 2022 to an original contract where the value of the modification was more than 20% or R20 million for construction-related goods, works Company or services and 15% or R15 million for all other goods or services. The group did not initially comply with this requirement PFMA 1 181 273 1 454 6 884 (1 251) 5 633 predominately due to a misinterpretation of the instruction note. The requirement to obtain National Treasury approval for Use of sole source (a) 531 70 601 732 – 732 these transactions has since been repealed through the PFMA SCM National Treasury Instruction No. 3 of 2021/22, effective Incorrect classification as 1 April 2022. emergency procurement (b) – 5 5 1 254 (1 251) 3 The disclosure in this category is historically incomplete because it is impractical due to the large volume of transactions and Tender processes not adhered to limitations in the previous financial reporting system to ringfence the entire population of panels and task orders that were and insufficient delegation of authority (c) 363 182 545 3 923 – 3 923 issued and modified between 2016 and 2018. Modifications exceeding allowed (e) Incorrect tender process applied amounts (d) 287 16 303 975 – 975 The PPPFA requires that the preferential points calculation is determined inclusive of VAT. Certain procurement was incorrectly PPPFA 747 110 857 1 293 – 1 293 done where the preferential points calculation was determined exclusive of VAT. The controls continue to be effective with two new incidents reported during the year, both of which occurred in prior years. Incorrect tender process applied (e) – 19 19 1 – 1 Tax clearance certificates (f) 612 14 626 1 289 – 1 289 (f) Tax non-compliance Designated sectors (g) 135 77 212 3 – 3 The PPPFA regulations require that tenders may only be awarded to tenderers whose tax matters have been declared to be in CIDB regulations order by SARS. Internal processes require that the tax status of all successful tenderers is confirmed to be compliant prior to concluding a contract. Three new incidents, which occurred in prior years, were reported during the year. Contracts awarded without following CIDB requirements (h) – 2 2 228 (12) 216 (g) Designated sectors National Treasury instructions Where local production and content is of critical importance in the award of tenders in designated sectors, such tenders must Expenditure not in accordance with be advertised with a specific tendering condition that only locally produced goods, services or works or locally manufactured National Treasury instructions (i) – – – 260 (260) – goods that meet the stipulated minimum threshold for local production and content will be considered. Contracts were awarded to suppliers despite having declared a local content threshold that was below the required stipulated threshold as per the Various commercial requirements Department of Trade and Industry list of designated materials. Breach of more than one legislative requirement (j) 5 296 141 5 437 1 572 5 318 6 890 Internal processes make it mandatory for commercial practitioners to indicate whether the transaction has designated elements Other 5 1 6 16 – 16 or not. 7 229 527 7 756 10 253 3 795 14 048 138 | | 139 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 51. Information required by the Public Finance Management Act (continued) Balance at beginning of the year Expenditure Recovered Removed Balance 51.1 Irregular expenditure (continued) Previously Adjustments Restated at end of (h) Contracts awarded without following CIDB requirements reported the year The group did not always comply with the Construction Industry Development Board (CIDB) regulations regarding the Rm Rm Rm Rm Rm Rm Rm advertising of tenders, grading of contractors and publishing of awards. Two new incidents were reported during the year, both of which occurred in prior periods. 2021 Group Prior period incidents totalling R30 million (R18 million relating to opening balances and R12 million relating to comparative Project management 2 121 492 2 613 2 – – 2 615 expenditure) were restated due to prior year errors in quantification and disclosure. Procurement and contract management 335 (1) 334 1 283 – – 1 617 (i) Expenditure not in accordance with National Treasury instructions Eskom instituted legal action to recover the amounts reported in this category. The supplier is currently under liquidation. No Interest and penalties 3 – 3 2 – (2) 3 new incidents were reported during the year. Other 734 – 734 1 – (2) 733 3 193 491 3 684 1 288 – (4) 4 968 Prior year incidents totalling R260 million included within this category were recategorised due to the breach of more than one legislative requirement category. Company Project management 2 119 492 2 611 2 – – 2 613 (j) Breach of more than one legislative requirement Procurement and contract In certain instances, transgression of more than one legislative requirement is identified. All identified breaches have been logged management 334 – 334 1 283 – – 1 617 in the central condonation register for investigation. Continuous improvements are made to processes to address breaches. Interest and penalties 3 – 3 2 – (2) 3 Prior year incidents totalling R4 758 million (R3 247 million within opening balances and R1 511 million within expenditure) were Other 734 – 734 1 – (2) 733 reclassified as breaches of more than one legislative requirement from other irregular expenditure categories. 3 190 492 3 682 1 288 – (4) 4 966 Prior year incidents totalling R21 770 million (R17 963 million within opening balances and R3 807 million within expenditure) were restated. The restatement comprises of six major incidents dating back to a number of years. The creation of the loss control function in 2021 led to increased identification and quantification of historical irregular expenditure. Expenditure analysis 2022 2021 51.2 Fruitless and wasteful expenditure Fruitless and wasteful expenditure is expenditure made in vain that could have been avoided had reasonable care been exercised. Current Prior Total Total Fruitless and wasteful expenditure is reported in the annual financial statements when it is confirmed. year years Rm Rm Rm Rm Balance at beginning of the year Expenditure Recovered Removed Balance Group Previously Adjustments Restated at end of Project management – 17 17 2 reported the year Procurement and contract management – 1 1 1 283 Rm Rm Rm Rm Rm Rm Rm Interest and penalties – 7 7 2 Other – 1 1 1 2022 Group – 26 26 1 288 Project management 2 615 – 2 615 17 – – 2 632 Company Procurement and contract management 1 617 – 1 617 1 – – 1 618 Project management – 8 8 2 Interest and penalties 3 – 3 7 – – 10 Procurement and contract management – 1 1 1 283 Other 733 – 733 1 – – 734 Interest and penalties – 7 7 2 Other – 1 1 1 4 968 – 4 968 26 – – 4 994 – 17 17 1 288 Company Project management 2 613 – 2 613 8 – – 2 621 The group experienced 100 (2021: 45) and the company 71 (2021: 44) incidents of fruitless and wasteful expenditure during the year. The opening balance for fruitless and wasteful expenditure in the group increased with a restatement of R110 million relating to the Procurement and contract management 1 617 – 1 617 1 – – 1 618 purchase of unused land for an incident that was not previously disclosed as it was still under investigation. The opening balance increased by a further R381 million relating to an overpayment to a contractor for construction of a power station that took place in Interest and penalties 3 – 3 7 – – 10 2018. The matter is under investigation. Other 733 – 733 1 – – 734 4 966 – 4 966 17 – – 4 983 140 | | 141 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 51. Information required by the Public Finance Management Act (continued) (c) Fraud 51.3 Criminal conduct Material incidents (greater than R25 million) Material losses caused by criminal conduct and any disciplinary, civil or criminal action taken in respect of such losses are reported There were no individually material incidents that occurred in the year. in terms of the materiality framework. Immaterial incidents (less than R25 million) Group Company Eskom concluded 65 (2021: 17) investigations into fraud during the year. The internal control measures in the affected areas have Note 2022 2021 2022 2021 been reviewed and enhancements recommended to the accountable line managers for implementation. This includes controls, disciplinary, criminal and civil proceedings against those involved. Losses incurred (Rm) Theft of conductors, cabling and related equipment (a) 316 139 315 139 51.4 Matters under assessment and determination Estimated non-technical revenue losses (b) 2 291 2 319 2 291 2 319 Matters under assessment and determination include the following: Fraud • various non-compliances to PFMA section 51(1)(a)(iii) regarding the principles of fair, equitable, transparent, competitive and cost Immaterial incidents (less than R25 million) (c) 14 12 10 4 effective procurement including inappropriate: – use of sole sources and emergencies Other crimes – modifications to contracts Immaterial incidents (less than R25 million) 174 77 128 77 – emergency procurement 2 795 2 547 2 744 2 539 – various non-adherence to tender processes including breaches of delegation of authority • application of Preferential Procurement Regulations Losses recovered (Rm) – tax non-compliance Theft of conductors, cabling and related equipment (a) 18 5 18 5 – application of evaluation criteria for measuring functionality Estimated non-technical revenue losses (b) 447 563 447 563 – designated sectors • potential losses due to a lack of reasonable care in project and contract management Fraud • interest and penalties being levied against Eskom due to instances of late payment of suppliers Immaterial incidents (less than R25 million) (c) 1 8 1 – Other crimes Some of the reviews and assessments are conducted by independent external parties. Immaterial incidents (less than R25 million) 4 6 3 6 Relevant disclosure will be made in a subsequent financial year should any losses or expenditure incurred prove to be irregular, 470 582 469 574 fruitless and wasteful or due to criminal conduct. Number of incidents Theft of conductors, cabling and related equipment (a) 3 226 3 765 3 220 3 763 52. Reportable irregularities and matters under investigation Fraud 52.1 Reportable irregularities Immaterial incidents (less than R25 million) (c) 65 17 20 9 The external auditors raised certain reportable irregularities in terms of section 45 of the Auditing Profession Act. Progress was made in clearing these reportable irregularities. Other crimes Immaterial incidents (less than R25 million) 1 568 1 692 1 457 1 680 The table below reflects the status of the reportable irregularities at 31 March 2022. The discussion focused on items that were open at the previous year end and new items identified in the current year. 4 859 5 474 4 697 5 452 Number of arrests Description Action Status Theft of conductors, cabling and related equipment (a) 244 111 243 111 Reportable irregularities – 30 September 2017 Estimated non-technical revenue losses (b) 16 – 16 – 1. A parliamentary inquiry was held into perceived • Action plans have been initiated to deal with the Closed Fraud maladministration, governance and procurement findings of the Zondo Commission. The detail actions Immaterial incidents (less than R25 million) (c) 7 1 6 – issues at Eskom. Certain representations made are discussed in the directors’ report. Other crimes by previous and current directors and officials • Eskom is working with the investigating and Immaterial incidents (less than R25 million) 176 84 165 84 indicated that there could have been a breach of prosecuting authorities. fiduciary duties in terms of the requirements of • An accounting policy, investigation into possible 443 196 430 195 the Companies Act. corruption and related impact on capital projects, was developed to account for any capitalised costs (a) Theft of conductors, cabling and related equipment associated with fraud and corruption. Actions to combat losses through criminal conduct are managed in collaboration with other affected state-owned companies, • The directors’ report presents Eskom’s response to industry role players, the NPA and the SAPS, including: the Zondo Commission report. • realignment of security contracts (scope and resources) and optimisation of deployment Reportable irregularities – 31 March 2020 • review of the Eskom asset disposal process and strategies • focus on asset management and protection, including implementation of unique marking and tracking capabilities 2. The underlying irregular expenditure register • Action discussed in reportable irregularity number 6 Encapsulated in • drive policy and legislative changes to address scrap and market regulation used to disclose irregular expenditure as part of below. finding 6 • introduction of integrated, intelligent and smart security technologies and systems to reduce dependence on the human factor the annual financial statements, per the such as use of drones, intelligent cameras, alarm systems requirements of PFMA section 55(2)(b)(i), was • focused strategies and projects on revenue losses – metering, vending, tampering, disruptive operations, etc. not complete and accurate. (b) Estimated non-technical revenue losses Reportable irregularities – 31 March 2021 Non-technical losses arise mainly from meter tampering and bypasses, illegal connections to the electricity network and illegal 3. Eskom failed to effect corrective action for • Action discussed in reportable irregularity number 4 Encapsulated in vending of electricity. The management of non-technical losses focuses on ensuring that all energy supplied is accounted for. identified non-compliance to the National below. finding 4 The energy losses management programme focused on minimising the non-technical revenue losses. Environment Management Act (NEMA) thereby Eskom invoiced R752 million (2021: R685 million) of revenue relating to these losses during the year, of which R447 million breaching fiduciary duties. (2021: R563 million) has been received. 142 | | 143 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2022 52. Reportable irregularities and matters under investigation (continued) 52.1 Reportable irregularities (continued) Description Action Status Description Action Status Reportable irregularities – 31 March 2022 7. Tender documents were requested for audit • A high-level preliminary investigation into the Open, pending purposes. These documents were purposefully incident was completed. finalisation of 4. Eskom failed to effect corrective action for • Eskom has initiated several initiatives to comply with Open, pending destroyed in a fire. Management was made • On further investigation it was established that there disciplinary process identified non-compliance to the NEMA thereby the requirements of the act, but unsatisfactory implementation of aware of the matter and failed to investigate are several other alleged misconducts by the breaching fiduciary duties. progress has been made. action items whether there are additional circumstances individual. • Eskom’s Integrated Particulate Emission Reduction around whether the documents were destroyed • A team led by the Hendrina power station Strategy for the recovery of Kendal emission to avoid audit findings, and to ensure appropriate management is reviewing supporting documentation performance was approved by the DFFE on consequence management. and will draft a charge sheet that will include this 12 August 2020. misconduct. • Eskom completed emission recovery outages at units • Once completed, a disciplinary process will be 1, 2, 5 and 6 of Kendal power station by instituted against the employee. November 2021. • The Eskom procurement and supply chain • Outages planned for units 3 and 4 were rescheduled management procedure is under review to deal with to April and May 2023. the retention period of files of unsuccessful bidders • Compliance to emission limits improved in the as the current procedure does not explicitly provide second half of the year after the outages and unit guidance thereon. optimisation was completed. • A strong worded message condemning such actions • The criminal case in respect of the non-compliance was issued to all employees by the group chief to the atmospheric emission license is ongoing. executive. 5. A backdated cross functional team appointment • Management recognised the significant control Closed • The ethics training material will be updated to letter was submitted for audit purposes. deficiency and the seriousness of the matter. include the destroying of documents. It is compulsory Management was made aware of the significant • Management investigated the finding. for all employees to attend ethics training annually. internal control deficiency and fraud indicators • A disciplinary hearing was held, and the employee 8. Allegations of financial misconduct against the • The matter is pending as it needs to be evaluated and Open, pending noted through communication of an audit was sanctioned. accounting authority was not reported to the referred as appropriate. evaluation and finding. Based on the management response, • It was confirmed that it was the first time that the executive authority. Thus, the relevant executive • The board is currently finalising its management finalisation of management failed to investigate whether there employee acted in this manner. authority could not ensure that an appropriate response to allow the auditors to conclude their reportable were additional circumstances where documents • A message from top management was sent to all investigation process was followed and that reporting obligations in terms of section 45 of the irregularity process were falsified and/or re-created to avoid findings employees regarding the seriousness of the matter disciplinary proceedings are initiated in terms of Auditing Professions Act. and implement consequence management and that such behaviour will not be tolerated. National Treasury regulations section 33.1.3. procedure on the official that falsified the • Compulsory ethics training will include a section on signature on cross functional team falsification of documentation. 9. Due to the backlog of forensic cases, • A backlog of 931 incidents have not been assessed. Open, pending appointment letter. management are not meeting the requirements • Additional resources have been allocated to deal assessment of the of section 33.1.2 of the National Treasury with the backlog. backlog of open 6. Certain financial records were not complete or • A loss control function was established to manage Open, pending Regulations and have not met the 30-day • All assessments are targeted to be conducted by incidents accurately maintained in line with legislative the PFMA reporting requirements. addressing of PFMA investigation deadline as required. In addition, 31 March 2023. requirements of the PFMA and Companies Act. • Management acknowledged that there are internal reporting management is not meeting its fiduciary duty This includes: control deficiencies in the PFMA reporting process. challenges and requirements as delays in investigations will • Incomplete registers relating to required • All employees are required to attend PFMA confirmation that impact on Eskom’s ability to mitigate any PFMA disclosure which resulted in scope training annually. other compliance possible future exposures to financial losses and limitations relating to information not • Eskom is in the process of requesting a temporary matters have been to implement effective consequence provided by management to the auditors. reprieve from the PFMA reporting in the annual addressed management. This results in the accounting • Keeping of accurate and complete accounting financial statements to clean-up the past. Eskom may authority not being in a position to confirm that records for preparing the annual financial always receive a qualified audit report relating to all relevant matters are reported in terms of statements. PFMA reporting requirements unless the history is section 34(1) of the Prevention and Combatting • Multiple non-compliances of PFMA cleaned-up. of Corrupt Activities Act. (section 40, 51 and 55) and the Companies • Restatements were necessary to comply with IFRS Act (section 28, 29 and 93). The inaccurate and accurately record certain balances. and incomplete financial record keeping is a • Management was instructed to update all outdated material breach of the fiduciary duties of reports and to substantiate outdated balances. management. • Other non-compliance matters raised by the auditors will be addressed. • A hard close will be implemented before 31 March 2023 to ensure that all identified non- compliance issues are corrected. • Refresher training will be conducted. 144 | | 145 NOTES TO THE FINANCIAL STATEMENTS continued APPENDIX – ABBREVIATIONS, ACRONYMS AND DEFINITIONS for the year ended 31 March 2022 52. Reportable irregularities and matters under investigation (continued) Accounting, audit and other financial terms 52.1 Reportable irregularities (continued) CGU Cash Generating Unit Description Action Status EBITDA Profit before depreciation and amortisation expense and net fair value and foreign exchange (loss)/ gain 10. Management has not complied with sections • Bi-monthly engagements are taking place with Open, pending 51(1)(a)(i), 51(1)(e)(iii) and 55(1)(a) of the PFMA divisional people relations practitioners to ensure: finalisation of GDP Gross Domestic Product as they failed to: – timeous capturing and monitoring of case overdue IAS International Accounting Standard/(s) • Conduct investigations of instances of information on the SAP industrial relations outstanding cases IFRIC International Financial Reporting Interpretations Committee irregular and fruitless and wasteful module IFRS International Financial Reporting Standard/(s) expenditure reported in previous years to – management of the prevailing data integrity issues IRBA Independent Regulatory Board for Auditors determine if disciplinary steps need to be when capturing and attaching information ISA International Standards on Auditing taken against liable officials. – complete and correct capturing of the people PPI Producer Price Index • Take disciplinary actions against any official relations cases per division R Rand who made or permitted irregular and fruitless • Quarterly checks are being conducted between the Rm Rand millions and wasteful expenditure based on the industrial relations, PFMA and assurance and forensic VAT Value Added Tax outcome of investigations. departments to ensure all cases are identified and WACC Weighted Average Cost of Capital • Provide supporting documentation to reported. Quarterly feedback is provided to Exco confirm that disciplinary steps were taken and relevant board sub committees regarding the Currencies against all the officials who made or permitted number of outstanding cases that has not been CAD Canadian Dollar irregular and fruitless and wasteful actioned. expenditure based on the outcome of • An internal and external disciplinary tribunal CHF Swiss Franc investigations and whether the outcome of consisting of experts has been put in place to EUR Euro disciplinary processes was executed. expedite disciplinary processes. GBP Pound Sterling (United Kingdom) • The disciplinary procedures are being reviewed to JPY Japanese Yen ensure consistent sanctions. Guidelines for sanctions SEK Swedish Krona will be provided to the chairs of disciplinary USD United States Dollar processes. ZAR South African Rand • A flagging system was introduced to alert the organisation about employees who were dismissed Entities or resigned pending an investigation and/or Company Eskom Holdings SOC Ltd disciplinary hearing. EFC Eskom Finance Company SOC Ltd • Engaged with the EPPF to understand and confirm EPPF Eskom Pension and Provident Fund the process to withhold an employee’s pension. Escap Escap SOC Ltd Eskom Uganda Eskom Uganda Ltd 52.2 Matters under investigation Group Eskom Holdings SOC Ltd and its subsidiaries There are currently various internal and external investigations being conducted into alleged fraud and malfeasance by current and Motraco Mozambique Transmission Company SARL former Eskom employees as well as external parties. Eskom is working with relevant authorities regarding these matters. NTCSA National Transmission Company South Africa SOC Ltd Nqaba Nqaba Finance 1 (RF) Ltd Rotek Eskom Rotek Industries SOC Ltd UEGCL Uganda Electricity Generation Company Ltd UETCL Uganda Electricity Transmission Company Ltd Legislation Companies Act Companies Act, No. 71 of 2008 Insurance Act Insurance Act, No. 18 of 2017 NEMA National Environment Management Act, No. 107 of 1988 PAA Public Audit Act, No. 25 of 2004 PFMA Public Finance Management Act, No. 1 of 1999 PPPFA Preferential Procurement Policy Framework Act, No. 5 of 2000 Measures GWh Gigawatt hour kg Kilogram km Kilometre kWh Kilowatt hour kWhSO Kilowatt hour Sent Out ℓ Litre Mt Million tons MVA Mega volt ampere MW Megawatt MWh Megawatt hour MWhSO Megawatt hour Sent Out TWh Terawatt hour 146 | | 147 APPENDIX – ABBREVIATIONS, ACRONYMS AND DEFINITIONS continued CONTACT DETAILS Other Telephone numbers Websites and email addresses Alco Asset and Liability Committee www.eskom.co.za Board Board of Directors Eskom head office +27 11 800 8111 Eskom website Contact@eskom.co.za B-BBEE Broad-Based Black Economic Empowerment +27 11 800 3343 CA(SA) Chartered Accountant of South Africa Eskom Media Desk +27 11 800 3378 Eskom Media Desk MediaDesk@eskom.co.za CFO Chief Financial Officer +27 11 800 6103 CIDB Construction Industry Development Board DFFE Department of Forestry, Fisheries and Environment InvestorRelations@eskom. Investor Relations +27 11 800 2775 Investor Relations DMRE Department of Mineral Resources and Energy co.za DPE Department of Public Enterprises Eskom whistle-blowing hotline 0800 112 722 Forensic investigations forensic@eskom.co.za EAF Energy Availability Factor EUF Energy Utilisation Factor www.behonest.co.za DPE whistle-blowing hotline 0801 212 136 DPE whistle-blowing website dpe@behonest.co.za Exco Executive Committee GCE Group Chief Executive www.eskom.co.za/ Eskom Development GE Group Executive Eskom Development Foundation +27 11 800 8111 about-eskom/corporate- Foundation IPP Independent Power Producer social-investment/ JET Just Energy Transition 08600 ESKOM or Promotion of Access to KPI Key Performance Indicator National call centre PAIA@eskom.co.za 08600 37566 Information Act requests MTBPS Medium-term Budget Policy Statement CustomerServices@eskom. MYPD Multi-Year Price Determination Customer SMS line 35328 Customer Service co.za NERSA National Energy Regulator of South Africa NPA National Prosecuting Authority Facebook EskomSouthAfrica YouTube EskomOfficialSite OCGT Open Cycle Gas Turbine OCLF Other Capacity Loss Factor Twitter Eskom_SA MyEskom Customer app RAB Regulatory Asset Base RCA Regulatory Clearing Account SAPS South African Police Service Physical address Postal address SARB South African Reserve Bank SARS South African Revenue Services Eskom Megawatt Park SIU Special Investigations Unit 2 Maxwell Drive PO Box 1091 TMPS Total Measured Procurement Spend Sunninghill Johannesburg Sandton 2000 UCLF Unplanned Capacity Loss Factor 2157 Zondo Commission Judicial Commission of Inquiry into Allegations of State Capture Group Company Secretary Company registration number Definitions Office of the Company Secretary PO Box 1091 Eskom Holdings SOC Ltd Cash interest cover ratio Net cash flows from operating activities divided by the aggregate of interest paid and received from Johannesburg 2002/015527/30 financing activities 2000 EBITDA Revenue plus other income minus primary energy, employee benefit expense, impairment of financial assets, impairment of other assets and other expenses EBITDA margin EBITDA divided by revenue Our suite of reports covering our integrated results for 2022 is available at www.eskom.co.za/investors/integrated-results Free funds from operations Net cash flows from operating activities minus cash flows from changes in working capital Liquid assets Treasury investments plus cash and cash equivalents Net debt Debt securities and borrowings plus lease liabilities minus treasury investments minus financial trading assets plus financial trading liabilities plus derivative liabilities held for risk management (used to hedge other items of net debt) minus derivative assets held for risk management (used to hedge other items of net debt) minus payments made in advance (used to secure borrowings raised) minus cash and cash equivalents Net debt service cover Net cash flows from operating activities divided by the aggregate of debt repaid and interest paid and received from financing activities Net profit margin Net profit divided by revenue Working capital current assets Inventories plus payments made in advance (current portion) plus trade and other receivables (current portion) plus taxation asset Working capital current liabilities Trade and other payables (current portion) plus payments received in advance (current portion) plus provisions (current portion) plus employee benefit obligations (current portion) plus taxation liability Working capital ratio Working capital current assets divided by working capital current liabilities Refer to the integrated report for definitions relating to the shareholder compact key performance indicators. JOINT VENTURE [0007] 148 |