20 INTEGRATED REPORT 22 Powering growth ... sustainably CONTENTS NAVIGATING OUR REPORT THE YEAR IN REVIEW IFC Navigation icons The following navigation icons are used to depict the Turnaround objectives six capitals (refer to page 7 to 8 for definitions): 1 Operations recovery ABOUT THIS REPORT Our finances (financial capital) Improve income statement WHO WE ARE AND HOW WE CREATE VALUE 3 Our infrastructure (manufactured capital) Strengthen balance sheet Value creation model 4 Understanding our business 6 Our interaction with the Composition of our top leadership 10 environment (natural capital) Business separation Our people FINANCIAL 71 (human capital) LEADERSHIP REPORTS 14 REVIEW Condensed annual financial statements 72 Our role in communities People and culture (social and relationship capital) Message from the Chairman 14 Our finances 75 Chief Executive’s review 17 Chief Financial Officer’s report 21 Further content Our know-how Chief Operating Officer’s commentary 24 (intellectual capital) 89 Information block or case study OPERATING PERFORMANCE 28 OUR STRATEGIC Performance indicators Additional information contained Our infrastructure 90 in the integrated report CONTEXT Our interaction with the environment 107 Throughout this integrated report, performance Our people 122 against target is indicated as follows: Our strategy and turnaround plan 29 Our role in communities 130 Supplementary information at the back   Actual performance met or exceeded target of the report Stakeholder engagement 42 Material matters 44   Actual performance almost met target Integrating risk and resilience 45 (within a 5% threshold) Information available online  Actual performance did not meet target SUPPLEMENTARY INFORMATION 134 SC   Indicates that a key performance indicator is included in the shareholder compact A list of abbreviations and glossary of terms is available on page 135 to 137 GOVERNANCE, LEADERSHIP AND ETHICS 50 Abbreviations and glossary of terms Leadership qualifications and directorships Board and Exco meeting attendance 135 138 141 We are a proud supporter member of the To complete a short survey on our Our governance framework 51 Statistical tables: technical and non-technical 142 following bodies integrated report, please click here Progress on governance clean-up 52 Plant and customer information 150 Board and its committees 56 Environmental implications of using electricity 153 King IV TM application 68 Independent sustainability assurance report 154 Executive management 70 Contact details IBC Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information THE YEAR IN REVIEW ABOUT THIS REPORT Network Board responsibility and approval EAF dropped to Eskom’s Board is accountable for the integrity and completeness of the integrated report and any supplementary 62.02% information. It is assisted in this regard by the Audit and Risk Committee and the Social, Ethics and Sustainability performance improved Committee. As noted on page 10, the new Board was appointed six months after the 2022 financial year end. As such, the new Board has had to familiarise itself with the results and matters dealt with in this report, and sign off on Eskom’s year-end reporting on behalf of the previous Board. The Board has considered the integrated report and concluded that it is presented in accordance with the Integrated Emissions Reporting Framework. Based on the reliability of information presented and the completeness of material items Loadshedding discussed, and given the combined assurance process followed, the Board approved the 2022 integrated report and 65 days performance improved supplementary information on 16 December 2022. Mpho Makwana Fathima Gany Bheki Ntshalintshali Chairman Chairperson: Audit and Chairperson: Social, Ethics and New build International support for Risk Committee Sustainability Committee 1 unit commissioned Just Energy Transition 1 unit synchronised As South Africa’s national electricity utility, Eskom’s Our integrated report is based on the guiding principles mandate is to ensure a stable electricity supply in an and content elements contained in the revised Integrated efficient manner, to contribute to lowering the cost of Reporting Framework, issued in January 2021. The content doing business and enable economic growth. As such, we is further guided by legal and regulatory requirements, such have a significant impact on the economy and the lives of as the Companies Act, 2008 and the King IV Report on South Africans. We serve a wide range of stakeholders, Corporate Governance for South Africa, 2016, as well as  andfatalities Lost-time injury rate worsened to global best practice, such as recommendations by the Task 6 Employee such as our shareholder, investors, employees, customers, suppliers, regulators, civil society and Government. Force on Climate-related Financial Disclosures (TCFD). contractor 0.24 Our value creation model depicts how the generation, transmission, distribution and sale of electricity affect value This is our primary report to stakeholders aimed predominantly at providers of financial capital, although creation by transforming inputs into electricity supplied the report seeks to provide information to a wide range of to customers, as well as considering the impact of our stakeholders. We strive to provide a balanced, transparent business on the six capitals. Our integrated report aims and complete account of our performance, by focusing on to provide a transparent and balanced account of how we matters material to our ability to create or dilute value. Headcount down by Net loss before tax improved to create, preserve or erode value. We also consider qualitative and quantitative matters material to our operations and strategic objectives, as 2 328 R15.8 billion Our value creation model is set out on page 4 to 5 Approach to presentation well as strategic risks and opportunities and our operating context. This integrated report reviews our financial, operational, Through our short-term turnaround objectives, our use environmental, social and governance performance for of and impact on the six capitals are connected to our the financial year from 1 April 2021 to 31 March 2022, strategy, material matters, organisational and strategic as well as the future outlook. Unless otherwise stated, risks, key performance indicators (KPIs) and performance. Arrear municipal debt rose to Government support both financial and non-financial performance data in this In our context, short term means within one year after R44.8 billion R31.7 billion report relates to the 2022 financial year. Significant events occurring to the date of approval have been covered. year end, medium term within one to five years, and long term more than five years. The report covers the group performance of Eskom We are embedding a holistic approach to decision-making Holdings SOC Ltd (Eskom) and its major operating in ensuring security of electricity supply. It is applied by subsidiaries, unless otherwise stated. Unless noted management, executives and the Board, such as when Legal separation otherwise, information presented is comparable to that the various capitals and trade-offs between them are of prior years. The integrated report should be read in continually considered. An example of such trade-offs is the conjunction with the group annual financial statements, for use of costly diesel turbines to ensure stability of the grid process continues a complete overview of financial performance. and provide security of supply to customers, at the expense of financial capital. Similarly, running generation plant Eskom’s group annual financial statements are available at www.eskom.co.za/investors/integrated-results. Restatements above emission limits to ensure security of supply, at the due to prior period errors are dealt with in note 48 expense of natural capital. Another example would be the headcount reduction to manage employee benefit costs, at the expense of skills available to the business. | 1 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information ABOUT THIS REPORT continued WHO WE ARE AND Preparation process Our suite of reports HOW WE CREATE VALUE Our Chief Financial Officer, Mr Calib Cassim CA(SA), Our 2022 suite of reports comprise: oversees the preparation and presentation of the integrated report and supplementary information. A dedicated team from the Group Finance Division produces the integrated report, by collaborating with representatives from all areas of the business to source the information presented in the report. The content relies heavily on our strategic Corporate Plan, as well as information contained in a quarterly report to our shareholder, all of which are approved by Eskom’s Integrated report and supplementary information Board prior to submission to the Department of Public The integrated report is prepared in accordance with Enterprises. the Integrated Reporting Framework. It considers our The content is further guided by the material matters value creation model, strategy, risks and opportunities, determined during the preparation process. Content is performance and outlook, as well as governance of these reviewed by subject matter experts from the business, areas. Supplementary information of interest to a variety as well as Exco, the Audit and Risk Committee and the of stakeholders is available at the back of the report. Social, Ethics and Sustainability Committee. In approving The external auditors provided reasonable assurance the integrated report, the Board assumes ultimate on selected KPIs, while the Assurance and Forensic WHAT YOU 1 accountability for the content, completeness and reliability Department provided reasonable assurance limited to of the report. certain aspects of the report. WILL FIND IN Financial information is presented in South African Rand, Annual financial statements THIS SECTION our functional and presentation currency. Figures are taken The consolidated annual financial statements of Eskom from Eskom’s group annual financial statements, which Holdings SOC Ltd have been prepared in accordance with Value creation model 4 are prepared in accordance with International Financial IFRS as well as the requirements of the Companies Act, Reporting Standards (IFRS). Non-financial data is reported 2008 and the PFMA, 1999, and have been audited by our Understanding our business 6 regularly to Exco and the Board, and included in the independent auditors, Deloitte & Touche. Composition of our top leadership 10 quarterly shareholder report. Sustainability report The sustainability report supplements and provides more Assurance approach to improve credibility detailed information on our sustainable development The Audit and Risk Committee and the Board rely on a impact than that provided in the integrated report. combined assurance approach to assess the adequacy of The report is guided by the reporting principles of internal controls and risk management processes. the Global Reporting Initiative (GRI), and considers The consolidated annual financial statements have our contribution to the United Nations’ Sustainable been audited by the group’s independent auditors, Development Goals (SDGs). Deloitte & Touche, who issued a qualified opinion relating to information disclosed in terms of the Public Forward-looking statements Finance Management Act, 1999 (PFMA). Except for this qualification, the consolidated annual financial statements Certain statements in this report regarding Eskom’s are fairly presented in terms of IFRS. Furthermore, the business operations may constitute forward-looking independent auditors have emphasised a number of matters statements. These include all statements other than in their report, including a material uncertainty relating to statements of historical fact, including those regarding Eskom’s ability to continue as a going concern. However, the financial position, business strategy, management this does not affect their opinion. plans and objectives for future operations. Forward- looking statements constitute our current expectations The independent auditor’s report is incorporated in the annual based on reasonable assumptions, data or methods financial statements that may be imprecise and/or incorrect and that may be incapable of being realised and as such, are not The Assurance and Forensic Department provided intended to be a guarantee of future results. Actual reasonable assurance limited to certain quantitative results could differ materially from those projected in information, and to a lesser extent, some qualitative any forward-looking statements due to various events, aspects of the report. The group’s external auditors risks, uncertainties and other factors. Eskom neither provided assurance on the sustainability KPIs contained intends nor assumes any obligation to update or revise in the shareholder compact; all of the KPIs scoped in for any forward-looking statements, whether as a result of reasonable assurance received an unqualified opinion. new information, future events or otherwise. The independent sustainability assurance report is included Future performance plans and/or strategies referred from page 154 to in the integrated report have not been reviewed or reported on by the independent auditors. 2 | | 3 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR GROUP PERFORMANCE MAIN HEADING AT 31 MARCH 2020 VALUE CREATION MODEL Turnaround objectives Six Capitals MAIN HEADING Our shareholder outlines the strategic objectives for Eskom in the Strategic Intent Statement. KPIs are aligned to these strategic AT 31 MARCH 2020 Operations recovery Financial capital objectives and the key focus areas of our turnaround plan, with performance across our top 10 KPIs for 2022 set out below. Turnaround objectives Six Capitals MAIN HEADING AT 31 MARCH 2020 Operations recovery Improve income statement Financial capital Manufactured capital Turnaround objectives Six Capitals Financial performance Generation operations Improve our income statement and Improve reliability of the Generation fleet and Operations recovery Financial capital Improve income statement Improve balance sheet Manufactured capital Natural capital strengthen our balance sheet reduce loadshedding Improve income statement Manufactured capital Improve balance sheet Business separation Natural capital Human capital EBITDA Improve our EAF, % Improve the energy 21.25% 62.02% margin, % margins on EBITDA 2022 19.02% 62.02 availability factor (EAF), which is the 2022 74.00% Improve balance sheet Natural capital 21.25 through revenue Business separation People and culture Human capital Social and relationship capital 15.96% (2021: 64.19) 2021 64.19% certainty, cost 2021 ratio of available 73.00% (2021: 15.96) 11.67% optimisation and energy over 66.64% Business separation Human capital 2020 People and culture Social and relationship capital Intellectual capital 18.46% nominal energy efficiency 2020 16.58% 71.50% People and culture Social and relationship capital Intellectual capital UCLF, % Reduce the Debt service Improve our ability 25.35% cover ratio to meet our debt 2022 0.76 0.74 25.35 incidence of unplanned outages 2022 14.00% Intellectual capital 0.76 obligations through (2021: 20.04) 05 | INTEGRATED REPORT | 31 MARCH 2020 20.04% 0.30 to improve system 2021 2021 15.50% sufficient cash from 0.11 (2021: 0.30) availability 22.86% operations 2020 0.52 05 | INTEGRATED REPORT | 31 MARCH 2020 2020 17.50% 0.29 05 | INTEGRATED REPORT | 31 MARCH 2020 MAIN HEADING Debt equity Strengthen our AT 31 MARCH 2020 1.82 2022 Turnaround objectives Six Capitals ratio balance sheet and 1.97 Network performance 1.82 limit growth in debt securities 2021 2.04 2.31 Refurbish our Transmission and Operations recovery Financial capital (2021: 2.04) and borrowings Distribution networks Refer to page 27 2.44 2020 Improve income statement Manufactured capital 2.68 System Reduce system 2.88 minutes lost minutes lost due to 2022 3.53 2.88 interruptions Improve balance sheet Natural capital MAIN HEADING 3.48 AT 31 MARCH 2020 2021 3.53 Turnaround objectives (2021: 3.48) Six Capitals Environmental impact 4.36 MANDATE Business separation Human capital 2020 3.53 for our top 10 KPIs Address poor environmental performance Operations recovery Financial capital and climate change People and culture Social and relationship capital Improve income statement SAIDI, hours Manufactured capital Reduce the average 35.5 Particulate emissions, Reduce the ash (particulates) 2022 0.34 0.31 35.5 interruption duration 2022 38.0 Intellectual capital (2021: 35.4) 2021 35.4 kg/MWhSO emitted from experienced by Improve balance sheet Natural capital 0.38 38.0 2021 coal-fired power customers 0.34 stations, per unit of 0.32 0.47 MAIN HEADING Business separation Human capital 2020 36.9 38.0 (2021: 0.38) energy sent out 2020 0.33AT 31 MARCH 2020 Turnaround objectives Six Capitals 05 | INTEGRATED REPORT | 31 MARCH 2020 People and culture Social and relationship capital Specific Reduce the amount Operations recovery Financial capital To supply stable electricity in an efficient and sustainable manner, 1.45 of water consumed 2022 water usage, 1.33 Intellectual capital ℓ/kWhSO by all power stations, per unit of 2021 1.42 Improve income statement MAIN HEADING MAIN MAIN AT 31 MARCH 2020 Turnaround objectives Manufactured capital 1.45 1.34 MAIN AT 31 MARCHEADING AT 31 MARCH 2020 MAIN AT 31 MARCHEADING 2020 2020 Turnaround objectives Six Capitals energy sent out 1.42 AT 31 MARCHobjectives Turnaround 2020 Turnaround objectives Six Capitals Six Capitals (2021: 1.42) 2020 Turnaround objectives Six Capitals Operations recovery Turnaround objectives Six Capitals 1.35 Improve balance sheet Natural capital Operations recovery Financial capital Operations recovery Financial capital Operations recovery Financial capital Operations recovery Financial capital Operations recovery Financial capital 05 | INTEGRATED REPORT | 31 MARCH 2020 Improve income statement Business separation Human capital Improve income statement Manufactured capital Improve income statement Manufactured capital Improve income statement Manufactured capital Improve income statement Manufactured capital Improve income statement Manufactured capital Health and safety to contribute to lowering the cost of doing business in South Africa People and culture Social and relationship capital Improve balance sheet Natural capital Strengthen balance sheet Improve balance sheet Natural capital Support a culture of Zero Harm Improve balance sheet Improve balance sheet Improve balance sheet Natural capital Natural capital Natural capital LTIR Reduce employee Intellectual capital Business separation Human capital 0.24 Business separation Human capital 0.24 lost-time injury rate 2022 Business separation Business separation Human capital Business separation Human capital 0.30 Business separation Human capital (LTIR) for the group (2021: 0.22) 2021 0.22 People and culture Social and relationship capital (including 0.32 People and culture People and culture Social and relationship capital Social and relationship capital People and culture People and culture Social and relationship capital occupational People and culture Social and relationship capital 0.30 2020 diseases) 0.34 05 | INTEGRATED REPORT | 31 MARCH 2020 Intellectual capital Intellectual capital Intellectual capital Intellectual capital Intellectual capital and enable economic growth Other metrics Graph legend Year-on-year performance Above are some of the KPIs used to measure our overall 05 | INTEGRATED REPORT | 31 MARCH 2020 Target 05 | INTEGRATED REPORT | 31 MARCH 2020 Performance improved performance. We also make use a number of other metrics 05 | INTEGRATED REPORT | 31 MARCH 2020 05 | INTEGRATED REPORT | 31 MARCH 2020 05 | INTEGRATED REPORT | 31 MARCH 2020 to monitor performance across our business, which are Actual (target met) Performance stable highlighted throughout the report and in the supplementary Actual (target not met) Performance declined information from page 142. | 27 Six Capitals INPUTS Renewable generation System Operator Transmission OUTCOMES Finance Finance ery Six Capitals R35.8 billion Funding secured Financial capital Maintain the frequency Provide a reliable and R71.4 billion Debt and interest repaid R31.7 billion Government support Renewable energy efficient transmission R246.5 billion Revenue of the power system is supplied by IPPs, network and energy R52.4 billion EBITDA ery Financial capital Nuclear at 50Hz, to balance primarily in the form market services in South R44.8 billion Municipal arrear debt electricity supply and ement Manufactured capital Six Capitals generation Infrastructure of solar photovoltaic demand in real time Africa and neighbouring 47 145MW Nominal power station capacity (PV) and wind energy, Infrastructure ement ery Six Capitals Manufactured capital Financial capital We operate Koeberg markets heet 6 831MW IPP capacity Natural capital and by Eskom, using  794MW New capacity from Medupi Unit 6 Nuclear Power Station, 180.5km Transmission lines installed 404 818km Power lines and cables hydroelectric and wind Africa’s first and only ery Financial capital Distribution  1 065MVA Transmission transformer Six Capitals heet ement Natural capital Manufactured capital energy on Human capital nuclear power station capacity installed ery Financial capital Provide reliable energy Environment R30.2 billion Capital expenditure and related services to ement Manufactured capital Six Capitals on heet 110.3Mt Coal burnt Human capital Natural capital Generate electricity from our customers, enhance re 283 610Mℓ Net raw water used Social and relationship capital Environment ement ery Manufactured capital Financial capital coal, optimally manage Primary energy the customer experience 65 Environmental legal contraventions asset performance heet Natural capital re on Social and relationship Human capital capital and collect revenue 0.34kg/MWhSO Relative particulate emissions and leverage core Identify, source, procure and 1.45ℓ/kWhSO Specific water consumption People Intellectual capital heet ement Natural capital Manufactured capital competencies to expand deliver primary energy (coal, Products on 42 749 Employees (at 31 March 2021) Human capital the revenue base. Utilise water and limestone) of the People re R855 million Training spend SocialIntellectual capitalcapital and relationship Waste and gas-fired stations owned right quality, at the right time 198 281GWh 40 421 Employees at year end on heet Human capital Natural capital by Eskom and independent Electricity sales to by-products 0.24 Lost-time injury rate re Social and relationship capital and at optimal cost to our power producers (IPPs) as power stations distributors and 32.90Mt Ash produced 6 Employee and contractor fatalities Society and relationships Intellectual capital peaking capacity industrial, commercial, 66.65kt Particulate R33 billion Employee benefit expense re on R75.1 million CSI committed spend Social and relationship Human capital capital international, emissions R2.1 billion DMRE electrification Intellectual capital Fossil Society and relationships funding residential and other fuel-based 207.2Mt CO2 emitted 785 085 CSI beneficiaries customers re SocialIntellectual capitalcapital and relationship generation 97 947 Electrification connections 65 days Loadshedding Know-how Institutional knowledge Intellectual capital 12 research Grand Challenges Values Z I I S C E Know-how Tacit knowledge lost due to VSPs Zero Harm Integrity Innovation Sinobuntu Customer Excellence Note that a selection of significant inputs and satisfaction outcomes are shown in the business model Positive outcome Negative outcome MAIN HEADING MAIN AT 31 MARCHEADING MAIN AT 31 MARCHEADING MAIN 2020 AT 31 MARCHEADING 2020 Turnaround objectives MAIN AT 31 MARCHEADING 2020 2020 Turnaround objectives Six Capitals AT 31 MARCHobjectives Turnaround 2020 Six Capitals Turnaround objectives Six Capitals Turnaround objectives Six Capitals Operations recovery Turnaround objectives Six Capitals Operations recovery Financial capital Operations recovery Financial capital Operations recovery Financial capital Supply of electricity Electricity demand Operations recovery Financial capital Operations recovery Financial capital Improve income statement 205 688GWh Generated by Eskom power stations 184 983GWh sales to 6 969 153 local customers Improve income statement Manufactured capital Improve income statement Manufactured capital Improve income statement Manufactured capital Improve income statement Manufactured capital Improve income statement Manufactured capital 13 298GWh sales to 11 international customers = Improve balance sheet Natural capital 15 973GWh supplied by IPPs Strengthen balance sheet Improve balance sheet Natural capital Improve balance sheet Improve balance sheet Improve balance sheet Natural capital Natural capital Natural capital 8 500GWh imports from neighbouring countries 24 811GWh technical losses, electricity theft and errors Business separation Business separation Human capital Human capital Energy available for distribution 226 226GWh Energy demand 226 226GWh Business separation Business separation Human capital Business separation Human capital Business separation Human capital People and culture Social and relationship capital People and culture Social and relationship capital People and culture Social and relationship capital Not all elements of supply and demand are shown. People and culture People and culture Social and relationship capital People and culture Social and relationship capital Intellectual capital Intellectual capital Intellectual capital Intellectual capital Intellectual capital 4 | | 5 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information UNDERSTANDING OUR BUSINESS Our operations to maintain the frequency of the power system at 50Hz to Supply and demand of electricity How we define the six capitals Eskom’s business balance electricity supply and demand in real time. Electricity is supplied by Eskom’s power stations, IPPs and Resources comprising all six capitals set out in the The foundation of our business is the generation, cross-border suppliers to local and export customers International Framework are used as inputs in our Our new build programme caters for South Africa’s transmission, distribution and sale of electricity, supported through our transmission and distribution networks. business. The creation of value in one area frequently leads future energy demand by building new power stations and by the construction of new power stations and network strengthening our transmission grid. However, additional Eskom generated 205 688GWh for the year, from the to the erosion of value in another, given the inevitable infrastructure. Our core divisions – Generation, base-load generation capacity of 4 000MW–6 000MW is following primary energy sources: trade-offs. We have to ensure that our business remains Transmission and Distribution – rely on corporate support required urgently, to ensure sufficient capacity to support sustainable across all the capitals. functions to operate effectively. Our subsidiary Eskom South Africa’s power system, and Eskom’s efforts to Source, GWh 2022 2021 2020 Rotek Industries performs turbine and transformer repairs maintain our existing power stations. How we interpret each of the capitals is explained below, Coal-fired stations 184 568 183 553 194 357 with detail provided in the sections dealing with each of and provides specialised construction and transport Nuclear power 12 355 9 903 13 252 The final unit of Medupi Power Station achieved the capitals. MAIN HEADING services, in support of the electricity business, while other Pumped storage stations 4 743 4 795 5 060 AT 31 MARCH 2020 commercial operation on 31 July 2021, while a further unit subsidiaries also provide strategic support services. Turnaround objectives Six Capitals at Kusile Power Station was synchronised to the grid on Hydro stations 1 943 1 387 688 Financial capital is fundamental to our sustainability as a Open-cycle gas turbines (OCGTs) 1 826 1 457 1 328 Operations recovery Financial c Eskom is one of the few remaining vertically integrated 23 December 2021. Defects on new units at Medupi and business. It comprises retained earnings, equity from our Wind 253 305 283 shareholder and debt funding provided by lenders, a large utilities. We are connected to the Southern African Power Kusile are being addressed, to improve the reliability and Improve income statement Manufacture Pool through an interconnected grid, which supports grid availability of the units. Eskom generation 205 688 201 400 214 968 portion of which is Government guaranteed. Lenders and MAIN HEADING AT 31 MARCH 2020 stability. We rely on neighbouring countries to maintain Pumping by pumped storage stations (6 434) (6 625) (6 629) bondholders earn a return in the form of interest. Our Turnaround objectives Six Capitals Detailed information on our power stations, power lines and Improve balance sheet Natural c sufficient and reliable transmission grids in their countries. shareholder does not receive any dividends at this time. substation capacities is available on page 150 to 151 Operations recovery Financial ca Net sent out by Eskom 199 254 194 775 208 339 to facilitate the transmission of electricity throughout the Independent power producers 15 973 13 526 11 958 Manufactured capital consists of our power stations and our Business separation Human ca Southern African Development Community (SADC) region. We play a significant developmental role in support of the Imports 8 500 8 812 8 568 Improve income statement Manufactured transmission and distribution networks. Our manufactured National Development Plan 2030 (NDP), by supporting Wheeling 2 499 2 310 2 491 Using inputs from the natural environment – coal, nuclear capital base is enhanced by the commissioning ofMAINnew power HEADING People and culture Social and relatio job creation, economic and skills development, B-BBEE, AT 31 MARCH 2020 Improve balance sheet Natural cap fuel and diesel, as well as water and wind – we generate more Energy available for distribution 226 226 219 423 231 356 station units and power lines, as well as through maintenance transformation and other national initiatives. We also Turnaround objectives Six Capitals and capital refurbishment of existing plant. The process of Intellectual than 90% of the energy supplied to a wide range of customers support several of the United Nations’ Sustainable Operations recovery Business separation Financial c Human cap in South Africa and the region. Our System Operator has The following diagram indicates the countries from which generating, transmitting and distributing electricity erodes Development Goals (SDGs). we import and those to which we export, with Mozambique that base. Improve income statement People and culture Manufactured Social and relation being by far the most significant trading partner. Natural capital in the form of non-renewable or scarce 05 | INTEGRATED REPORT | 31 MARCH 2020 primary energy sources such as coal, water, nuclear fuel and Improve balance sheet Natural ca Intellectual c GENERATION CAPACITY diesel is consumed to generate electricity. The generation 30 47 145MW process produces waste in the form of ash, gaseous and Business separation Human ca Mozambique Imports from particulate emissions, contaminated water andMAINnuclear HEADING AT 31 MARCH 2020 People and culture Social and relatio Zambia waste, also eroding natural capital. Through the increased 05 | INTEGRATED REPORT | 31 MARCH 2020 Power stations Total nominal capacity Turnaround objectives Six Capitals Exports to use of renewable energy, we aim to transition to a cleaner Operations recovery Financial c Intellectual energy mix to reduce our impact on the environment. Zimbabwe Although we strive to mitigate our impact on the natural Base-load stations Mid-merit and peaking stations Self-dispatching energy Namibia environment, our transmission and distribution networks Improve income statement Manufacture 39 456MW 2 724MW 100MW also have a negative impact on bird life in some cases. Improve balance sheet Natural c Botswana 05 | INTEGRATED REPORT | 31 MARCH 2020 Human capital covers our employees and contractors, and their competencies, capabilities and experience. Business separation Human ca Coal-fired stations Pumped storage Sere Wind Farm We continue to focus on improving the racial,MAINgender HEADING Eswatini AT 31 MARCH 2020 People and culture Social and relatio and disability equity of our employee base. Given theTurnaround objectives Six Capitals 1 854MW 602MW South Lesotho significance of employee benefit costs to our cost base, we continue to pursue a reduction in our headcount, mainly through natural attrition, while still maintaining Operations recovery Financial c Intellectual Nuclear power Hydro stations Africa the productivity of the workforce and preserving our Improve income statement Manufacture knowledge base. Human capital is enhanced through Improve balance sheet Natural c training and skills development, although these efforts 2 409MW 05 | INTEGRATED REPORT | 31 MARCH 2020 Total energy of 184 983GWh was supplied to 6 969 153 remain constrained by our financial situation. Business separation Human ca local customers (2021: 178 355GWh), with 13 298GWh Social and relationship capital considers interactions OCGTs supplied to 11 international customers (2021: 13 497GWh). with customers, suppliers, communities and the public in People and culture Social and relatio Technical energy losses incurred during the transmission and general. We contribute to society by enabling economic distribution process, together with losses due to electricity growth through the supply of electricity; electrifying new Intellectual NETWORK CAPACITY theft and errors consumed 24 802GWh (2021: 25 078GWh). households in our licensed areas of supply; supporting 404 818km 301 381MVA Loadshedding and load curtailment of large customers over Government’s priorities of job creation, skills development, the past year reduced supply by an estimated 1 605GWh, supplier transformation and broad-based black economic equating to just over 0.7% of total energy demand for the empowerment (B-BBEE); as well as improving the lives of transformer capacity 05 | INTEGRATED REPORT | 31 MARCH 2020 of high-, medium- and low-voltage lines year (2021: 1 034GWh). of many South Africans through our corporate social and underground cables The number of customers, electricity sales volumes and investment (CSI) and socio-economic development revenue by customer segment are set out on page 152 activities. We acknowledge that our power stations and 6 | | 7 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information Six Capitals UNDERSTANDING OUR BUSINESS continued recovery Financial capital e statement Manufactured capital nce sheet to some extent, our networks, have a negative impact on Natural capital Our structure and regulation • National Environmental Management Act, 1998 Eskom Finance Company SOC Ltd (EFC) provides housing the health of the communities in which we operate, and a Electricity supply industry • National Energy Regulator Act, 2004 and other loans to employees. The disposal of EFC, as paration pilot project is under way to consider how to mitigate the Human capital The electricity supply industry in South Africa consists • National Nuclear Regulator Act, 1999 mandated by the shareholder, resumed in the 2023 financial impact on air quality. Strong stakeholder relationships are of the generation, transmission, distribution and sale of year, since the offer received towards the end of the 2021 • Occupational Health and Safety Act, 1993 critical to our ability to create value. electricity, together with the import and export thereof. financial year was not accepted by DPE. • Basic Conditions of Employment Act, 1997 culture Social and relationship capital Intellectual capital includes technology, which comprises Most of the base-load and peaking capacity is owned and The Eskom Development Foundation NPC (the Foundation) • Labour Relations Act, 1995 telecommunications, information and operational Intellectual capital operated by Eskom, with IPPs supplementing capacity, is a non-profit company under section 21 of the Companies largely in the form of wind and solar PV power, as well as • Broad-Based Black Economic Empowerment Act, 2003 technology; organisational knowledge, systems, policies Act, 2008. It is responsible for implementing CSI peaking capacity supplied by gas turbines. • Preferential Procurement Policy Framework Act, 2000 and procedures; as well as research and innovation to programmes on behalf of Eskom, thereby improving the industrialise future technologies and improve current • Promotion of Access to Information Act, 2000 quality of life of communities where we operate. Capacity added and energy supplied by IPPs are discussed operations. from page 98 Group overview Full details of Eskom’s equity-accounted investees and Selected inputs and outputs to the value creation process are Eskom Holdings SOC Ltd houses our electricity business subsidiaries at 31 March 2022 are set out in notes 12 and 13 highlighted in the model from page 4 and holds investments in subsidiaries. The Eskom group of the consolidated annual financial statements comprises the operating company with its subsidiaries and joint ventures. Under our business separation Subsidiaries of Eskom Enterprises OVERSIGHT AND REGULATION MAIN SUBSIDIARIES project, as mandated by DPE’s Roadmap for Eskom in a Eskom Rotek Industries SOC Ltd (ERI) provides lifecycle, Reformed Electricity Supply Industry released in 2019, plant maintenance and technical support to Eskom’s Shareholder ministry Eskom Enterprises SOC Ltd a new subsidiary to house the Transmission business was electricity business. Department of Public Enterprises established during the year – the National Transmission Escap SOC Ltd Eskom Uganda Limited, a subsidiary of EE, operates and Policy ministry Company South Africa SOC Ltd (NTCSA). However, the maintains Nalubaale and Kiira hydroelectric power stations Department of Mineral Eskom Holdings SOC Ltd Eskom Finance Company company is not yet operational, given policy and regulatory in Uganda under a 20-year concession arrangement that Resources and Energy SOC Ltd dependencies that are lagging behind schedule. Under the ends in March 2023, followed by a handover period. The process, the Generation and Distribution businesses will stations have a combined capacity of close to 380MW. Oversight ministries Strategic functions Eskom Development also be separated in the coming years. National Treasury Foundation NPC Pebble Bed Modular Reactor SOC Ltd (PBMR) is wholly Progress on the business separation project is discussed in Department of Forestry, owned by EE. It remains in a state of care and maintenance Line divisions “Our strategic context – Our strategy and turnaround plan” Fisheries and the Environment to preserve the intellectual property created during from page 40 FUTURE SUBSIDIARIES operation. The EE Board is considering the way forward on Regulators Support functions the future of PBMR. Our head office is based in Johannesburg, with operations NERSA and NNR Transmission company across South Africa and administrative offices in most Assurance EE holds an effective interest of 69% in South Dunes Coal Generation company major centres. Our local subsidiaries provide strategic Terminal Company SOC Ltd (SDCT), both directly and Auditor-General services to Eskom and our employees, and we have a Distribution company indirectly through Golang Coal SOC Ltd. SDCT owns rights subsidiary based in Uganda. to export coal through its participation in the Phase V Only major subsidiaries are shown. Significant subsidiaries are discussed below. expansion of the Richards Bay Coal Terminal (RBCT). The National Energy Regulator of South Africa (NERSA) Under the PFMA, 1999 we have to submit a strategic Subsidiaries of Eskom Other dormant subsidiaries of EE are in the process of regulates the industry under the National Energy Corporate Plan on an annual basis, which sets out our Eskom Enterprises SOC Ltd (EE) is an investment holding being wound up or liquidated. Regulatory Act, 2004 and the Electricity Regulation Act, strategic objectives, with plans and targets to achieve those. company. An overview of its subsidiaries is set out below. Contribution to financial performance 2006 by providing licences, regulatory rules, codes and We agree on an annual shareholder compact with DPE, Escap SOC Ltd is a wholly-owned insurance captive The contribution by the main group companies to guidelines. NERSA also determines our revenue allocation which tracks the KPIs that support our mandate and the company, which manages and insures the business risk performance and financial position is shown below. in accordance with the Electricity Pricing Policy (EPP). strategic objectives under the Strategic Intent Statement of Eskom and its subsidiaries. As part of its long-term The Eskom business remains by far the most significant. set out by DPE. Our latest annual Corporate Plan covers The National Nuclear Regulator (NNR) provides oversight diversification strategy, Escap has also started insuring the five-year period to 2027. of our nuclear power station, Koeberg, by ensuring that other public entities to generate additional income and it complies with nuclear safety standards to protect Performance against the 2022 shareholder compact is dealt with reduce policyholder concentration risk. individuals, society and the environment against radiological comprehensively in the directors’ report in the consolidated hazards linked to the use of nuclear technology. annual financial statements. Throughout tables in the report, shareholder compact KPIs are denoted using SC. Where relevant, Eskom EE Eliminations Eskom How we are regulated these KPIs are included in the statistical tables, available as a fact R million company group Escap EFC Foundation and other group Eskom Holdings SOC Ltd is a state-owned company (SOC) sheet at the back of this report, from page 142 Revenue 246 520 10 656 4 188 566 – (15 410) 246 520 as defined in the Companies Act, 2008 and is wholly owned EBITDA1 50 598 449 475 180 – 672 52 374 by the South African Government. Numerous laws and regulations govern our operations, Net (loss)/profit after tax (14 312) 57 1 032 138 – 755 (12 330) including conditions relating to tariffs, environmental The Department of Public Enterprises is our shareholder compliance, procurement and human resources. Our Total assets 784 568 7 289 24 067 8 252 59 (22 650) 801 585 ministry and sets our mandate, which is to provide a stable licensing conditions place strict limits on plant emissions Total liabilities 569 377 2 637 12 898 6 728 62 (25 431) 566 271 electricity supply in a sustainable and efficient manner, to to limit our environmental impact. Relevant laws and Capital expenditure2 28 512 261 – – – (245) 28 528 assist in lowering the cost of doing business in South Africa regulations include, among others: and enabling economic growth. • Electricity Regulation Act, 2006 1. EBITDA excludes fair value adjustments on financial instruments and embedded derivatives. • Companies Act, 2008 2. The company and group figures include DMRE funded capital expenditure of R2.1 billion, but exclude capitalised borrowing costs. We are also subject to oversight or regulation by several other Government departments, Parliamentary • PFMA, 1999 Segment disclosure for Generation, Transmission, Distribution and other segments is provided in note 7 of the consolidated annual committees and regulators. • National Treasury regulations financial statements 8 | | 9 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information BOARD RESTRUCTURING The Board comprised of eight directors at year end, Eskom. Dr Rod Crompton, Mr André de Ruyter and BOARD OF DIRECTORS AT 1 OCTOBER 2022 including six independent non-executive directors and Mr Calib Cassim remained from the previous Board. two executive directors. This was well below the full The new Board is now fully constituted with 15 directors, composition of 15 directors allowed in terms of Eskom’s including 13 independent non-executive directors and two Mr Mpho Makwana (52) c Mr Leslie Mkhabela (50) Memorandum of Incorporation (MOI). The Board had executive directors, thereby enhancing oversight of and Chairman Independent non-executive director concluded, through its independent board evaluation, that strategic direction to Eskom. Former non-executive director of Eskom from Legal professional with experience in restructuring of it was insufficiently constituted and lacked critical skills and 2002 to 2011, including acting as Chairman and CEO state-owned assets, commercial and administrative law, experience based on the size and nature of Eskom, as well The new Board commenced its tenure on 1 October 2022. and dispute resolution as the complexity of the operational and financial challenges The Board has reviewed its structure and recommended that the organisation is facing. the establishment of a Business Operations Performance Committee to provide oversight of Eskom’s technical Mr André de Ruyter (54) Dr Tsakani Mthombeni (42) The Board had requested the shareholder to appoint performance, operational challenges and risks relating to Group Chief Executive Independent non-executive director additional independent non-executive directors on the production of electricity, in particular performance Served as Group Chief Executive since January 2020 Engineer with experience in sustainable development, several occasions, in line with the skills, experience and against shareholder compact targets such as the energy energy management and climate change strategy diversity needs identified by its People and Governance availability factor. The Board Strategy Committee’s mandate Committee. In particular, the Board had identified that its has been expanded to include governance matters and has Audit and Risk Committee lacked appropriate finance and been renamed to the Governance and Strategy Committee. c Mr Calib Cassim (50) Mr Bheki Ntshalintshali (68) assurance skills and experience and that its Investment The People and Governance Committee has changed to the Chief Financial Officer Independent non-executive director and Finance Committee (IFC) was not adequately Human Capital and Remuneration Committee. Served as Chief Financial Officer since July 2017 Former trade unionist; previously served as general capacitated. Furthermore, the chairperson of IFC The composition of the previous Board at 31 March 2022 as secretary of the Congress of South African Trade Unions resigned in August 2021. well as the new Board at 1 October 2022 are shown below. (COSATU) The shareholder conducted a review of the Board and Governance information included in this report, covering announced a reconstituted and restructured Board the Board’s independent evaluation, King IV TM assessment, c Dr Rod Crompton (69) Mr Mteto Nyati (57) on 30 September 2022. The shareholder appointed as well as the key activities and future focus areas of the Independent non-executive director Independent non-executive director 12 new independent non-executive directors with a Board and its committees are reported on behalf of the Served on the Board since January 2018. Experience Engineer with experience in information and broad range of experience and the necessary expertise previous Board for the year ended 31 March 2022. in energy, chemicals, economic regulation and communication technology (ICT); previously and skills to provide stability and strategic direction to industrial policy served as CEO of MTN SA and Altron BOARD OF DIRECTORS AT 31 MARCH 2022 Ms Fathima Gany (47) c Ms Tryphosa Ramano (50) c Independent non-executive director Independent non-executive director Prof. Malegapuru Makgoba (69) Dr Banothile Makhubela (37) c Finance professional, registered as a Chartered Finance professional, registered as a Chartered Interim Chairman Independent non-executive director Accountant (SA) Accountant (SA) Mr André de Ruyter (54) Ms Busisiwe Mavuso (43) c Mr Lwazi Goqwana (47) Dr Busisiwe Vilakazi (39) Group Chief Executive Independent non-executive director Independent non-executive director Independent non-executive director Engineer with experience in manufacturing, construction, Engineer with experience in ICT research and Mr Calib Cassim (50) c financial services, logistics, energy and government innovation, data science and analytics, strategy Dr Pulane Molokwane (45) services and digital transformation Chief Financial Officer Independent non-executive director Mr Clive le Roux (70) Dr Claudelle von Eck (51) c Dr Rod Crompton (69) c Prof. Tshepo Mongalo (48) c Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director Engineer; previously served as Chief Nuclear Officer and Organisational development and change management power station manager at Matimba and Koeberg professional; previously served as the CEO of the Institute of Internal Auditors of South Africa Ms Busisiwe Mavuso resigned on 27 September 2022. The terms of Prof. Malegapuru Makgoba, Prof. Tshepo Mongalo, Dr Banothile Makhubela and Dr Pulane Molokwane ended on 30 September 2022. Ms Ayanda Mafuleka (42) Refer to page 138 to 141 for full details of the Board and meeting attendance for the year ended 31 March 2022. Independent non-executive director Finance professional, registered as a Chartered Accountant (SA) Membership of Board committees c Denotes chairmanship of a committee Racial diversity Gender diversity Audit and Risk Committee Social, Ethics and Sustainability Committee 12 3 5 10 Board Strategy Committee Investment and Finance Committee (now Governance and Strategy Committee) People and Governance Committee Business Operations Performance Committee (now Human Capital and Remuneration Committee) (new Board committee) ACI White Female Male 10 | | 11 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information EXECUTIVE MANAGEMENT COMMITTEE AT 31 MARCH 2022 Mr André de Ruyter (54) Ms Nthato Minyuku (43) Group Chief Executive Group Executive: Government and Appointed to Exco in January 2020 Regulatory Affairs 2 years in Eskom Appointed to Exco in October 2020 LLB (Unisa) 1. 6. 1 year in Eskom MBA (Nyenrode University) B Architectural Studies (University of Witwatersrand) Master of City Planning and Urban Design (University of Cape Town) André Mr Calib Cassim (50) Ms Elsie Pule (54) de Ruyter Chief Financial Officer Group Executive: Human Resources Appointed to Exco in July 2017 Appointed to Exco in November 2014 Vuyolwethu Calib 20 years in Eskom 2. 7. 24 years in Eskom Tuku Cassim Chartered Accountant (SA) BA (Hons) Psychology (University of Pretoria) Master of Business Leadership (Unisa) M Sc Business Engineering (Warwick University) Mr Jan Oberholzer (63) Ms Jainthree Sankar (50) Jainthree Jan Sankar Oberholzer Group Chief Operating Officer Chief Procurement Officer Ages are shown at Appointed to Exco in July 2018 Appointed to Exco in March 2021 31 March 2022 29 years in Eskom (including from 1983 to 2008) 28 years in Eskom B Sc Electrical Engineering (University of Pretoria) 3. 8. B Com (Hons) Business (Unisa) Master of Business Leadership (Unisa) MBA Sustainable Business Elsie Faith Executive Program (University of Michigan) (University of Southern Queensland) Pule Burn Master of Project Management (University of Southern Queensland) Ms Faith Burn (53) Mr Vuyolwethu Tuku (46) Nthato Mel Minyuku Govender Chief Information Officer Group Executive: Transformation Appointed to Exco in May 2020 Management Office 1 year in Eskom 4. 9. Appointed to Exco in July 2020 M Sc Mathematics (University of Johannesburg) 1 year in Eskom Master of Business Leadership (Unisa) B Sc Electrical Engineering (University of Cape Town) MBA (University of Witwatersrand) Ms Mel Govender (40) Group Executive: Legal and Compliance Qualifications listed are not exhaustive. Refer to pages 139 Appointed to Exco in October 2021 5. and 140 for full details of Exco members’ qualifications and <1 year in Eskom active directorships LLB (University of KwaZulu-Natal) Science, engineering <10 and technology 40–49 56% Commerce and industry 33% 11–20 Male Female ACI White 4 5 7 2 Legal, governance and risk management 11% Finance, accounting and 50–59 60–69 economics 56% 11% 21–30 Social and human 33% sciences Skills Age diversity Years in service Gender diversity Racial diversity 12 | | 13 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information MESSAGE FROM THE CHAIRMAN is the debilitating and ravaging legacy that State Capture left The shareholder has tasked us with repositioning Eskom to levels well above those being achieved, although at higher at Eskom. The high levels of loadshedding and the negative play a key role in the evolving energy landscape and further, levels of demand than being experienced; it did not cater impact on livelihoods and the economy, together with the to deal with Eskom’s immediate loadshedding issues, adequately for the risk of deteriorating plant availability highly challenged control environment reflected in the procurement challenges, the elimination of corruption nor the delay in adding capacity from independent power annual financial statements, must all be understood against and, most importantly, delivering on Eskom’s mandate producers (IPPs) to the grid. the backdrop of a bewildering VUCA-BANI permacrisis of ensuring reliable electricity supply in the medium to operating climate. long term. In short, our job is to focus on the technical, The electricity crisis is hugely damaging: the inadequate, commercial and financial aspects of the business, to get unreliable and unpredictable electricity supply has affected South Africa continues to face the triple threat of the organisation back on its feet and restore its reputation. the South African economy’s ability to grow. In the wake of unemployment, inequality and poverty. These factors all Staff morale and the skills shortage will also require the COVID-19 pandemic, it is imperative that the electricity have a ripple effect on socio-economic conditions and attention. supply industry supports and even creates opportunities will likely lead to even higher levels of poverty, inequality for economic recovery. While the procurement of new and household unaffordability, all of which have a direct As a Board, we assumed office in the middle of the financial capacity by the Department of Mineral Resources and impact on Eskom; equally, an Eskom that is not ameliorating year. At the end of the year, we will agree on what has been Energy has begun, current interventions will not address loadshedding speedily has a direct systemic impact on achieved and what has not, and set new targets for the 2024 short- to medium-term system constraints. the pollical economy of South Africa and the country’s financial year. Given our pressing mandate, we will proceed ability to achieve economic recovery. An entrenched with a sense of urgency, while using this initial period to In July 2022 President Cyril Ramaphosa announced culture of theft, vandalism of network equipment, illegal deepen and strengthen our understanding of Eskom, to measures to address the country’s long-running electricity connections, a culture of non-payment, and an escalation improve our ability to achieve our mandate. crisis, including the formation of a National Energy Crisis in fraud and corruption all have a huge disruptive and Committee. In collaboration with the relevant government debilitating effect on the smooth operation, management To lay a solid foundation, we reviewed the structure of the departments, agencies and other stakeholders, Eskom and leadership of Eskom. board committees. We proposed establishing a Business has made some progress on the implementation of these Operations Performance Committee (BOPC) to provide measures, with interventions under way to procure Eskom’s generation performance continues to deteriorate, oversight of Eskom’s operations, in particular, performance additional capacity. Discussions addressing legal and with daily loadshedding set to continue at least in the against energy availability factor (EAF) targets. Its job is to regulatory constraints to allow capacity to come online in The Collins dictionary’s word of the year for 2022 is short to medium term. Financial performance is similarly engage with the operations, to unpack and unchallenged an integrated manner are advancing quite well. permacrisis, signifying an extended period of instability and constrained, with profitability negatively affected by a lack a whole host of the technical assumptions in the business. of cost-reflective tariffs, the high cost associated with the The committee will go into the belly of the organisation, The BOPC has tabled a Generation recovery plan to the insecurity. As we present the results for the 2022 financial Board to restore EAF to 70% by 31 March 2025. Embedded year to the market, the state of affairs that we found at use of diesel turbines to supplement electricity supply as it were, to drive the turnaround plan. Together, each of during times of generation constraints, the continued the six board committees will undertake a thorough review in this recovery plan is ensuring that loadshedding is Eskom seem to resonate with a state of permacrisis. ameliorated in the short term, with EAF stabilising at 60% escalation in arrear municipal debt, and unsustainably of its area to get a handle on the state of the business. The integrated report and annual financial statements high levels of debt servicing costs. by 31 March 2023 and 65% by 31 March 2024. This complex are presented by a new Board of Directors 85 days after One of our top priorities is to reduce Eskom’s drain on plan is being reviewed in consultation with key stakeholders the public purse, together with dealing with irregular in our country; a sense of urgency is central to this plan as assuming their term. As one of its first tasks, the Board The Board’s mandate had to consider the delayed publication of the 2022 annual expenditure and Eskom’s unsustainably high debt. we marshal key players on whom success depends. A public It is against this backdrop that the shareholder Furthermore, we are mindful of the need to have robust announcement on the Generation recovery plan will be financial statements. Delays were experienced in appointing announced the appointment of 12 new Board members the external auditors and the extensive work on opening consequence management in Eskom, and to improve made in January 2023, as soon as all key players have signed from 1 October 2022. The Board, which is now fully operations so that Eskom finds a way out of being a drain off and committed to it. balances required at the commencement of a new audit constituted with 15 directors, assumed its mandate and engagement. This was further exacerbated by the time on the fiscus and on the economy, both through its need chose to create a step change in how Eskom is led, injecting for Government support and the impact of unprecedented As Eskom moves away from its reliance on coal, it will taken to resolve several matters that were raised during a new ethos of corporate governance by an engaged shift its focus to the implementation of the Just Energy the audit and required restatement of prior year figures. levels of loadshedding. board that will seek to provide active strategic, technical Transition. It intends to continue playing a leading role by The Board is confident that the results fairly reflect Eskom’s and financial leadership towards the ultimate stability As I’ve said before, we strive to be an engaged board facilitating the connection of renewable energy through performance for the 2022 year, and that the organisation and world-class performance of Eskom. We embrace that will seek to perpetuate a high-performance ethical an expanded and strengthened grid, and by participating remains a going concern. the mantra introduced by our Group Chief Executive culture at Eskom within the purview of sound corporate in building renewable energy, as the country transitions We wish at the outset to start off by giving thanks to Mr André de Ruyter of MEGA: Make Eskom Great Again! governance that doesn’t blur the lines between executive towards a low-carbon future. Professor Malegapuru Makgoba and the preceding Board management and board oversight, we intend to be actively The new Board members and I welcome this challenge engaged in supporting the executive team in resolving The Group Chief Executive will expand on these matters of Directors for the gallant leadership provided to Eskom as an opportunity to put shoulder to wheel, as a in his report. under very trying circumstances. The tail end of the 2022 whatever challenges exist. call to all of us to make our fair-share contribution financial year concluded amid a once-in-a-century event – to MEGA, and in turn, the recovery and stability of Eskom’s financial challenges the global COVID-19 pandemic. The electricity crisis our country. The new non-executive directors are As I alluded to earlier, financial performance is constrained Ms Fathima Gany, Mr Lwazi Goqwana, Mr Clive le Roux, Eskom has insufficient reliable generation capacity to power Until the advent of this global pandemic, leadership across a post-COVID-19 economic recovery in the medium term. by various factors, such as a lack of cost-reflective tariffs, the world occurred in a volatile, uncertain, complex and Ms Ayanda Mafuleka, Mr Leslie Mkhabela, Dr Tsakani the high cost associated with the use of diesel turbines, Mthombeni, Mr Bheki Ntshalintshali, Mr Mteto Nyati, Availability of the generation fleet continues to deteriorate, ambiguous (VUCA) strategic context. The pandemic with the coal fleet being highly unreliable after years of escalating arrear municipal debt and unsustainably high taught us that this challenging leadership context was Ms Tryphosa Ramano, Dr Busisiwe Vilakazi and levels of debt servicing costs. Dr Claudelle von Eck. Dr Rod Crompton, Mr André de inadequate maintenance and refurbishment, compounded further complicated by an added challenging state of affairs, by running the plant at levels significantly above the Ruyter and Mr Calib Cassim remained from the previous The market has been calling for detail on Government’s where leaders and those who look to them for leadership international norm considering the age of the fleet. The new Board. We are confident that this new Board has a broad solution to Eskom’s unsustainably high debt. Eskom notes find themselves operating in a brittle, anxious, nonlinear power stations, Medupi and Kusile, have not delivered on range of experience as well as the necessary skills and with gratitude the support announced by the Honourable and incomprehensible (BANI) strategic context. Our expectations due to critical shortcomings in project planning, expertise to provide stability and strategic direction Minister of Finance in the Medium-Term Budget Policy human logic is generally linear, seeking to process one design and execution, a direct consequence of the delay in to Eskom. Statement in October 2022. We understand that the thing at a time – the VUCA-BANI context and the added the decision to commence building. The 2019 Integrated market requires further certainty on National Treasury’s permacrisis leaves the Eskom boardroom and many others Resource Plan identified a supply gap over the next three proposal to address Eskom’s debt. The Minister indicated discombobulated to say the least! Added to this complexity years, based on assumptions regarding plant availability at that the specifics will be communicated in the National 14 | | 15 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information MESSAGE FROM THE CHAIRMAN continued Budget Speech in February 2023, together with the Eskom continues to work with DPE, other state-owned CHIEF EXECUTIVE’S REVIEW conditions attached to the support, which are expected to companies and law enforcement agencies to ensure that deal with cost management, arrear municipal and household the Zondo Commission’s recommendations are adequately As I keep pointing out, we are dealing with an unpredictable debt, and tariff pricing. We are encouraged by Moody’s addressed. Where the recommendations are outside and unreliable system, but we are fully cognisant of the fact affirmation of Eskom’s credit rating on 31 October 2022 Eskom’s control, the organisation will continue providing that the lack of capacity is inhibiting economic growth and and the revision of its outlook from negative to positive on the necessary support to law enforcement authorities to employment opportunities. The GCOO discusses the poor the back of the Minister’s announcement. ensure the successful prosecution of implicated suppliers, plant performance and the reasons for it in his report. former employees and former directors, and associated Regarding liquidity, the use of open-cycle gas turbines perpetrators. You often speak of the electricity crisis. What is (OCGTs) is a particular cause for concern. For the 2023 financial year, Eskom budgeted to spend R10.1 billion on Eskom doing to end it? Final words Let me start by touching on the reasons for the electricity its own OCGTs. An additional R3.5 billion for OCGTs was approved, which must be funded from savings elsewhere I would like to join the Honourable Minister of Public crisis. The underlying cause of the deterioration in the in the business. To the end of October 2022, Eskom Enterprises in thanking the previous Board members for performance of the generation fleet is the lack of a already spent R13.3 billion on its own OCGTs, largely to their service to Eskom. I also extend my condolences to sufficient reserve margin, aggravated by the onset of age- cover the gap left by renewable IPP capacity not coming the loved ones of Ms Nelisiwe Magubane, a past member related equipment failures and, to some extent, the need online as expected, coupled with deteriorating generating of the previous Board who passed away recently. I worked for better planning and execution of the very complicated plant performance. Consequently, to preserve Eskom’s closely with Ms Magubane in my previous term as Chairman major maintenance work. The seven-year delay from 1998 liquidity, management placed a cap on the diesel use for the of Eskom from 2009 to 2011, when she was then Director- in the decision to build new capacity coincides with the remainder of the year. This cap translates to Eskom having General of the Department of Energy. start of the deterioration in the existing fleet’s reliability. to implement at least stage 2 loadshedding on a constant I further wish to thank the Minister for the opportunity to be The lack of capacity requires existing power stations to basis for the remainder of the financial year. If no cap was in a part of shaping South Africa’s future. My mandate is to lead operate at very high load factors, which constrains the place, Eskom would need to spend about R34 billion in total capable men and women as a Board of Directors; working ability to perform the requisite major maintenance work. on its own OCGTs for the 2023 financial year. in partnership with our shareholder ministry, we know that Excessively high load factors also lead to deteriorating plant in Minister Gordhan and the Public Enterprises team we reliability over time. Other factors that have contributed Eskom is not in a financial position to carry the burden to the crisis are unrealistic timelines on the delivery of of extensive use of OCGTs to ensure security of supply have a champion for the utility regarding our relationship with the broader government and political spheres. We are megaprojects such as Medupi and Kusile; deteriorating coal to the country. Although the additional dispatchable How would you describe the past year? quality; deferring maintenance to keep the lights on; delays capacity of 1 996MW to be added by 11 bidders under the further heartened by the faith that the Honourable Minister of Mineral Resources and Energy expressed in the Board’s in adding IPP capacity against DMRE’s Integrated Resource Risk Mitigation IPP Procurement Programme will assist First off, I have to acknowledge that 2022 was a capacity to address Eskom’s challenges. Plan 2019; and funding constraints on major equipment in alleviating the pressure, that capacity is not expected tremendously difficult year for Eskom. Our generation replacement and outages. to come online for some time to come and will not plant performance reached record-low levels, and we saw The GCE and his executive team have our support to see solve the problem being faced in the 2023 financial year. the worst loadshedding in Eskom’s history. On the financial While we will do all we can to improve the performance of Eskom through these challenging times. We are giving them Consequently, Eskom requires further financial support side, the challenges continued – lower-than-required tariffs our coal-fired generation fleet, the deep maintenance needed our unwavering support as we immerse ourselves in their from the shareholder, given that capacity constraints are and vast amounts of money spent on burning diesel to requires lengthy planned outages. Many power stations are existing strategy to keep the lights on, while we fine-tune expected to persist due to our poor generating plant keep the lights on, meant that funds available to maintain also reaching the end of their lives and performance will it towards making Eskom future-proof. performance coupled with the lower-than-expected our generation plant were constrained. And of course, if continue to deteriorate as they approach their shutdown IPP capacity. Eskom is grateful for the financial support Looking forward, we are moving ahead with Eskom’s you can’t produce the megawatts, you can’t sell them, so dates. We cannot resolve the energy constraint challenges of R31.7 billion provided by the shareholder during the separation into three legal entities in a transformed loadshedding also has a knock-on effect on our revenue. without the support of all key stakeholders. 2022 financial year, and for the recent commitment by energy market. We are preparing to deal with the ensuing The CFO covers our financial performance for the year in complexities, especially the financial ones that will impact his report. Another factor in the crisis is the risk of shutdown of Government to assist with the funding of diesel, to limit the Eskom’s lenders, and will focus on improving operational several of our power stations due to environmental loadshedding Eskom has been forced to implement since As he points out, we have to maintain a delicate balance sustainability and strengthening Eskom’s financial position compliance issues. Instead of spending R330 billion on November 2022, when it ran it out funds to buy diesel. between sufficient levels of liquidity and spend on while pursuing Eskom’s commitment to a Just Energy retrofitting old power stations to meet Minimum Emission The CFO will go into more detail about ways to address operations recovery to turn around generation plant Standards, we propose that emissions reduction could Transition. Eskom’s financial challenges, particularly our efforts to have performance, as well as utilising diesel turbines to limit better be achieved by closing down old coal-fired power the tariff corrected to be more cost reflective. I understand that South Africans are frustrated by the the level of loadshedding given the poor generation plant stations and spending the capital on adding urgently needed ongoing electricity crisis – I am also affected, as are some of performance. On top of that, we must invest in our plant to new capacity through renewables, low-carbon technology Response to state capture my businesses. I don’t want to make premature statements ensure environmental compliance, and also to add capacity and strengthening the national grid to allow for the growth about when loadshedding will be a thing of the past, but I to the system – both in terms of megawatts on the grid and of renewable energy and IPPs. The Zondo Commission acknowledged the proactive am confident that, with the draft turnaround plan on the our transmission and distribution networks, that get those steps Eskom had taken to eradicate state capture within We’re in the present situation because of past decisions, table, we can improve Eskom’s performance, although it will megawatts to the customer. Using our limited resources the organisation; significant matters addressed by Eskom but we need to spend more time talking about the future. take discipline to find a sustainable way of keeping the lights effectively really is a balancing act. and the Special Investigating Unit (SIU) have resulted in The electricity sector should function as an enabler, rather more than R2 billion being recovered to date. Eskom has on and getting the economy going. That said, we have seen some recovery in sales volume than an inhibitor, of economic growth. Opportunities established a dedicated task team to review the reports of As our President said recently, “The crisis that we are from the low base in 2021 following the COVID-19 have to be unlocked for the electricity sector to create the Zondo Commission, address the recommendations and facing requires that we should take bold, courageous and pandemic, and there were many areas of the business that sustainable jobs, both by powering the economy and ensure appropriate legal remedies are pursued. The latest decisive action to close the electricity gap.” As a Board, performed well – construction at Medupi Power Station, through investment in locally manufactured and assembled version of Eskom’s implementation plan was submitted we are up to the challenge – the only question is how long which commenced in May 2007, was completed when the generation and grid infrastructure. A programme of to the Presidency in October 2022. Key focus areas it will take to get to 75% energy availability. last unit achieved commercial operation on 31 July 2021. sustainable electricity infrastructure development is include civil recoveries; consequence management related Unfortunately, that achievement was marred by the urgently needed. We have long since been campaigning on to suppliers, former employees and former directors; generator explosion at Medupi Unit 4 mere days later, on a number of areas where interventions are required to conducting an in-depth risk assessment; and the review of 8 August 2021. Losing a unit like that puts us well on the unlock opportunities to bring new capacity online. policies and procedures, specifically related to procurement way to one stage of loadshedding. and human resources, to support the eradication of fraud Mpho Makwana and corruption. Chairman 16 | | 17 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information CHIEF EXECUTIVE’S REVIEW continued That is why I was so excited by the announcement by Tell us about progress against the turnaround plan Despite those successes, the legal separation of Transmission operations due to high levels of staff absenteeism, and President Cyril Ramaphosa in July this year of measures I’ve explained before that our turnaround plan focuses on experienced delays in several critical external decisions eventually culminated in the need to implement stage 6 to address the long-running electricity crisis. We’ve got to operations recovery, improving the income statement, and key dependencies. These include delays in NTCSA loadshedding due to unheard-of levels of unplanned losses, give credit to the President for the extraordinary move to strengthening the balance sheet, driving business separation obtaining a transmission licence and a protracted lender caused by both deliberate sabotage or just neglect of plant liberalise the energy sector by lifting the generation cap. and transforming our people and culture. The aim is to consent process. We continue to work with Government – due to employees staying away, coupled with disruption As a result, there are projects totalling around 6 600MW position Eskom to deliver value within the broader national DPE, DMRE and National Treasury – and NERSA to put in of coal handling operations. It is deeply regrettable that a in the pipeline; it will take two years or so to see the new efforts to drive reform in the electricity supply industry, place transitional arrangements for the operationalisation dispute over wages compromised the national interest and capacity on the grid. However, new capacity depends on through the execution of DPE’s Roadmap. of NTCSA and the implementation of the asset transfer held the country to ransom. I extend my heartfelt gratitude grid access, and that’s why a strong transmission grid is so agreement, towards commencement of trade around to those Guardians who chose not to participate in the important in enabling economic growth – expropriation to Regarding operations recovery, we are making progress, April 2023, subject to the dependencies I mentioned. unprotected industrial action and worked hard to keep speed up the acquisition of servitudes would be a quick fix but we still have a long way to go. The correction of new the lights on – we cannot thank them enough for going to deal with cynical landowners who hamper expansion of build defects is showing good results, but the focus on Both Distribution and Generation have now started their far above and beyond the call of duty under extremely the grid. addressing load losses – both full and partial – are not yet journey towards legal separation, with project management challenging conditions to avoid a total collapse of our yielding the results we had hoped for. On the environmental offices being established, roadmaps developed and legal power system. If we do not respond adequately in the short term, the side, emissions performance has improved, but water due diligence in progress. However, the way forward for electricity crisis will severely constrain economic recovery performance is still well outside our tolerance levels. One of a preferred corporate structure depends on changes to Clearly, we have work to do in this area: we need to over the next decade, affecting the trajectory of our recovery the biggest causes for concern is the high utilisation of older existing legislation or new founding legislation – this affects work with organised labour to ensure that such criminal in the medium to long term. As Albert Einstein said, “We coal-fired power stations, which is one of the root causes of the legal separation of the Generation business. As with behaviour is never seen again. As I’ve said before, we cannot solve problems with the kind of thinking we employed the poor plant availability performance we are seeing now. Transmission, the separation of the Distribution and cannot overemphasise the value of a productive partnership when we came up with them.” That perfectly sums up our Lastly, adding additional external capacity is also lagging. Generation businesses depend on lender consent, as well as between Eskom, our people and our trade unions. We need thinking around the Just Energy Transition as a solution to numerous other legislative, regulatory and policy changes. to bring back pride, passion and a sense of belonging and the electricity crisis: I can see no other opportunity to drive As the CFO notes, liquidity is one of our biggest short-term connectedness to the business. economic growth, to solve for energy security, to solve our challenges, which threatens both financial and operational Our revised plans target readiness for Distribution environmental problems, to create employment, than by stability. It is critical that we deliver on the turnaround plan operationalisation by December 2023 and commencement We have achieved a notable reduction of 5.4% in our embarking on the Just Energy Transition. If we don’t do this, to ensure that we address the myriad challenges we face. of trade by April 2024. Legal separation of Generation is headcount over the past year, mainly through natural what else? We cannot lose this opportunity. targeted in 2025. We have to accept that these dates are attrition and, to a lesser extent, voluntary separation One of the issues that affect both liquidity and profit is the subject to external dependencies, which may negatively packages. We are, however, prioritising the retention of Our efforts to source financing for climate projects escalating arrear municipal debt, which grew by R9.5 billion affect the timelines even further. The decentralised critical workforce segments to address the skills shortage culminated in the South African Just Transition financing year-on-year – that’s almost as much as we spent on operating model has also not been properly embedded as being felt by some areas of the business. The impact of facility of $8.5 billion which was approved at COP26 last diesel for the year. If we could see that money coming in, intended. It is important for the legal separation that the that runs deep: we cannot focus on getting the basics year. This unprecedented partnership between the South it would make a remarkable difference to our financial functional leader model must work, with controllership at right if we don’t have adequate staff to do so. To this end, African and five other governments has at its heart the position. Unfortunately, there are many role players, and the right level. we are conducting a skills audit, to determine our skills Eskom Just Energy Transition (JET) plan. The financing our multipronged strategy is not yet delivering results. requirements and highlight any gaps. will be used to fund new clean energy generation projects Another big issue is the tariff. It’s deeply disappointing that Tell us more about the people and culture area of as well as transmission and distribution infrastructure, we must contend with a regulator that doesn’t apply its the turnaround plan Despite our commitment to Zero Harm, we recorded four together with green hydrogen and electric vehicle projects. own methodology. We keep going to court to challenge employee and two contractor fatalities during the 2022 The aim of this aspect of the turnaround plan is to drive Other lenders are also showing interest in funding NERSA’s decisions, and we keep winning, with the courts financial year. Every life lost in service to Eskom is one too change and support the overarching goal of three legally various Eskom JET projects, supporting our net zero referring to several irrational decisions made over the last many, and I extend my sincere condolences to the families separated subsidiaries under Eskom Holdings, in line emission aspirations. Furthermore, we will be exploring few years. Unfortunately, it takes years for these decisions of those Guardians. with DPE’s Roadmap. We are working towards fit-for- opportunities to deliver on South Africa’s Just Energy to be implemented, and in the meantime, Eskom has to carry purpose organisational structures to ensure optimal What does Eskom intend focusing on over the Transition Investment Plan, which the President recently the cost of NERSA’s incorrect decisions. This ultimately business models that are responsive to the changing coming year? shared ahead of COP27. However, we need to remember impacts the country through the cost of loadshedding, and energy landscape. that debt is debt, even if it comes at a low cost. the financial burden of Government support. So, while Well, if we thought the 2022 financial year was bad, the management has implemented appropriate actions to deal To this end, we have established our 1:1:6:10 culture 2023 year has turned out to be worse. September 2022 saw Komati Power Station shut down in October 2022. The with these challenges, these have so far proven ineffective transformation programme, which is a key enabler of the highest plant unavailability and the highest unplanned station will serve as the flagship site for our repowering because of factors outside the control of management. delivering a high-performance culture – thereby driving our unavailability, the longest continuous loadshedding with the and purposing programme to demonstrate our JET turnaround plan and powering growth sustainably through highest stage of loadshedding, as well as the highest OCGT commitment to shift from coal dependency to producing On the balance sheet side, we’re working on initiatives to our legally separated businesses. This cultural aspiration is usage we’ve ever experienced. Interestingly enough, we also power through renewable energy on existing Eskom deal with inventory management and capital optimisation. supported by six cornerstones which should be reflected had the highest renewable generation by IPPs. Since then, land using existing infrastructure. The Komati mitigation We’re also prioritising the disposal of non-core assets, with in everything we do: accountability, operational excellence, we reached a point in November where we had exhausted plan outlines potential projects that can be undertaken the EFC disposal having resumed since year end, after having prioritising people, financial prudency, a values-driven our budget for diesel – this was after having spent regionally, locally and at the power station to mitigate been put on hold on instruction of the shareholder due to culture and customer-centricity. We need to get the basics R13.3 billion on diesel to the end of October – and had against indirect and induced effects of the shutdown. unfavourable market conditions. Of course, the elephant in right, to ensure that our people drive the change we need to implement continuous loadshedding at higher levels to the room is Eskom’s unsustainably high debt burden. We are to get our business back on track. preserve emergency reserves. Thankfully, Government has We have begun installation of a 500kWp agrivoltaic working with National Treasury to find a solution, and we stepped in response to our requests, and has committed to demonstration plant. In total, 370MW of renewable energy are tremendously grateful for their support in developing a In light of this, I was deeply disappointed by the behaviour making funds available to enable us to purchase more diesel – including wind and solar – and battery storage, is planned way to make Eskom more financially sustainable. of some of our employees in June and July of this year, to limit the loadshedding required. to be deployed. A microgrid assembly and fabrication when they embarked on unprotected and unlawful strike factory is being set up in the disused Komati workshops. How about the legal separation? action when wage negotiations deadlocked. With Eskom So operationally, our immediate priority is to improve the The Komati Training Facility, for which we received being an essential service, its employees are prohibited reliability and predictability of the generation fleet, to get We completed divisionalisation of the three line divisions R48 million in grant funding from the Global Energy Alliance from engaging in any industrial action. That period was more operational megawatts on the grid so that we can – Generation, Transmission and Distribution – in the for People and Planet, is being established in partnership characterised by disruptive and destructive behaviour, reduce the need for loadshedding. It is unfortunate that we 2020 financial year, with functional separation achieved with the South African Renewable Energy Technology mostly at our power stations, as well as intimidation of recently lost three units at Kusile due to a collapsed flue in April 2021. We also set up the National Transmission Centre (SARETEC) to facilitate the skilling of Eskom employees and their families; this is simply unacceptable. duct – it means that capacity of over 2 100MW will be out of Company South Africa (NTCSA) during the past year. workers and the local community in the Komati area. The strike action caused widespread disruption of our service for around six months. Additionally, as a collective, 18 | | 19 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information CHIEF EXECUTIVE’S REVIEW continued CHIEF FINANCIAL OFFICER’S we need to do as much as we can as quickly as we can to get However, with the improvement of internal controls and REPORT more capacity on the grid, to help ease supply constraints. investigations into fraud, we are seeing resistance from We’ve long since said that Eskom improving its performance within and outside Eskom, with little support from law Refer to note 48 in the consolidated annual financial statements is not enough to solve the problem we’re facing – we need enforcement agencies. Although we are heartened by the for further detail additional capacity of around 4 000MW to 6 000MW on the increasingly frequent successes in bringing perpetrators to grid, and this cannot be provided by Eskom. book through the criminal justice system, prosecutions are Operationally, we continue to navigate a very challenging not yet proving effective. environment, with growth hindered by capacity shortages Notably, Eskom has recently signed land leases for around and depressed economic conditions. Financial and 6 000ha for the purpose of generating electricity from As I keep saying, we need to focus on consequence operational sustainability are intrinsically linked, and there renewable technologies either for Eskom’s consumption management, firstly to root out corruption, but also any is a delicate balance between maintaining sufficient liquidity or for sale to third parties. This will enable an estimated unacceptable behaviour. Despite years of focusing on while also supporting spend on operations recovery and 2 000MW of additional private sector investment. Through cleaning up corruption, it is still rife within Eskom: this utilising OCGTs to minimise loadshedding. Despite the the Standard Offer programme, Eskom is in the process scourge has the potential to compromise our sustainability prohibitive cost, we utilise OCGTs within our financial of securing 1 000MW of excess energy from existing as an organisation. We have also put in place overt constraints, given the debilitating cost of loadshedding to generators, which will be purchased under these contracts. and covert surveillance of key installations and critical the country. The Emergency Generation programme of 600MW electricity infrastructure to manage and mitigate the has received conditional PFMA approval from National actions of these criminal elements, but this is hampered Liquidity remains one of our biggest short-term challenges, Treasury, with other approvals pending. So we are making by four known criminal syndicates operating at plant level, threatening both financial and operational stability and progress on adding capacity to the grid. involving employees and suppliers. However, we’re also Eskom’s status as a going concern. Delivering on the seeing more frequent acts of sabotage, and such deplorable, turnaround plan is critical to addressing these challenges. On the finance side, we are essentially faced with four main abusive and dishonourable behaviour simply must stop challenges: the lack of cost-reflective tariffs constrains What were the main reasons for the year-on-year – it is unconscionable that individuals would commit our revenue, which then limits our ability to spend on deliberate acts of sabotage, or negligence, against Eskom’s improvement in the net loss? improving plant performance. The poor plant performance operations for their own gain or with malicious intent, To start, it is important to acknowledge that much of again drives the excessive use of expensive diesel turbines, given the grave consequences, not only for Eskom’s critical the improvement relates to us beginning the year on which cripples our income statement. Together with that, electricity infrastructure, but ultimately, for hard-working an abnormally low base, as financial performance in escalating arrear municipal debt is severely limiting our South Africans. There are a multitude of incidents linked the previous financial year was significantly hampered liquidity, as is the unsustainably high levels of debt servicing to the sabotage of Eskom on one level or another, and we by COVID-19: the unprecedented reduction in energy costs. If we can fix those four areas – tariffs, diesel use, What were some of the challenges over the hope to see more arrests. demand we experienced during the stricter levels of the arrear debt and debt levels – Eskom could be on a sound past year? national lockdown negatively affected sales volumes and financial footing again. We are thankful for the support and understanding of our First and foremost, I need to address the delayed publication revenue. As I mentioned, the prior year restatements also shareholder. Minister Pravin Gordhan said recently, “the of the annual financial statements for the 2022 financial contributed to the low base. In the medium term, we need to find a solution to the facts have been put to the nation in a very transparent year. We experienced delays in appointing the external challenge of compliance with Minimum Emission Standards. way, that Eskom is in a perilous state, that state capture auditors, and extensive audit procedures were required Year-on-year, revenue grew by 20.7% due to a 15.06% tariff We are gratified that the DFFE Minister has started did do immense damage, that we do have a shortage of to evaluate significant areas of judgement and estimates increase, together with a 3.4% recovery in sales volumes. a consultative process in response to our appeal, and electricity to the extent of 4 000MW, and until we provide in the prior period. This was exacerbated by the time Almost every sector saw an improvement, with the we’ve had an opportunity to share an introduction to the that source of megawatts through renewables and possibly taken to resolve several key audit matters, some of which industrial, mining and rail sectors in particular benefitting air emission reduction technology with the panel. We through other mechanisms provided for in the IRP, we are required the use of external experts; we require expert from the recovery of global commodity markets. sincerely hope that we can reach an outcome that is in the going to continue to be in difficulty as a nation and our technical skills and improved finance business partnering best interest of South Africa. And of course, we cannot The recovery in demand necessitated higher electricity plan is in the next 18 months or so, we must get out of this to address these matters more timeously in future. The forget our networks – with the focus on Generation, we production. Primary energy costs increased by 14.7% crisis." Because we’re all on the same page, we can work auditors also identified numerous findings and control sometimes lose sight of the fact that our networks require largely due to increased production from IPPs, coal and together to get Eskom out of the deep hole that it’s in. deficiencies emanating from the lack of compliance with well- investment. The transmission grid alone requires about Eskom-owned OCGTs, coupled with price escalations on documented policies and procedures and general financial R178 billion to 2031 to enable new generation capacity, If you had to leave us with one thought, what diesel and fuel oil. Poor generating plant performance led record-keeping and reporting controls. Despite these network reliability investments, load growth, refurbishment would it be? to increased reliance on Eskom- and IPP-owned OCGTs shortcomings, the system of internal financial controls and of existing infrastructure and more. to alleviate supply constraints and minimise loadshedding. As the American president Calvin Coolidge once said, compensating measures provide a reasonable basis for the Furthermore, SARS has disallowed certain rebates relating In the long term, we need to address the electricity crisis, “Nothing in the world can take the place of persistence. preparation of Eskom’s financial statements. to Eskom’s diesel use over several years. Our appeal to and I’ll say it again: JET is the only way forward. We also The slogan ‘Press On’ has solved and always will solve SARS has been denied and the receivable of R3.6 billion at Eskom once again received a qualified audit opinion relating need to remove some obstacles – we need enabling the problems of the human race.” As we enter Eskom’s year end has been written off due to uncertainty around its to information disclosed under the PFMA, with a material policy, with policy alignment and consistency to execute centenary year, we need every single Eskom Guardian recovery, with a corresponding increase in primary energy uncertainty regarding Eskom’s status as a going concern. the necessary measures to address the electricity crisis. to get up every single day, determined to press on under costs. We’re pursuing the necessary legal processes to Except for the qualification, the financial statements are fairly One example is prohibitive import duties and local content strenuous and demanding conditions to make Eskom address this dispute. presented in terms of IFRS. requirements. We’ve got to weigh up the greater good and great again, so that we can serve our great nation and its rapidly remove obstacles that will enable us to solve the 61 million people by delivering on our mandate. We must The financial results for the year ended 31 March 2021 Employee benefit costs have remained stable due to bigger problem, which is energy security. remember that we are stronger together. We can succeed, were subject to various restatements arising from the further headcount reduction and by containing salary and if we press on together, we will! external audit. The most significant adjustment affecting increases to affordable levels. Other operating expenditure Our internal controls have proven to be not as effective profitability related to net fair value losses recognised on increased by 18.9% due to the extensive planned and as we’d like. Although management has started to improve hedging instruments. Altogether, the loss before tax for 2021 unplanned maintenance required to address generation internal controls – such as through verifying coal quality increased by R8.3 billion due to these restatements. The plant performance challenges, as well as other once-off and dealing with the fuel oil challenges at Tutuka – it will statement of financial position was mostly affected by the items such as asset write-offs due to plant incidents and take a while for these to filter down. We have also initiated reclassification of a portion of coal inventory from current to provisions raised for compensation event claims. André de Ruyter a programme to deal with non-technical energy losses. non-current assets. This impacted the current ratio, which Group Chief Executive was revised downwards from 1.27 to 0.95 in 2021. 20 | | 21 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information CHIEF FINANCIAL OFFICER’S REPORT continued Altogether, EBITDA improved to R52.4 billion support received, although these ratios remain well below coal purchase cost per ton to a modest 2.1%, although this is expected to continue until South Africa’s generation (2021: R32.6 billion) and the EBITDA margin strengthened acceptable levels. As an example, the net debt/EBITDA does not necessarily lead to an immediate improvement capacity shortages are alleviated. We’ve placed a cap on to 21.25% (2021: 15.96%), with the biggest contributor ratio stood at 7.43 times at year end (2021: 12.29), but in profitability. Regrettably, our savings efforts are being diesel use for the remainder of the 2023 financial year, being the growth in revenue. Regrettably, the EBITDA we need to reduce this to less than 4 times to improve hindered by overspend on fuel oil and diesel. to preserve Eskom’s liquidity and ensure we can meet margin remains below the aspirational level of 35% due financial sustainability. The reality is that cash generated operating, capital and debt servicing commitments. to a lack of cost-reflective tariffs as well as the financial from operations is simply inadequate to support our highly We’re still in the early stages of addressing the disposal of pressures arising from poor operational performance. leveraged capital structure. This shortfall can only be non-core assets, with the sale of Eskom Finance Company The lack of a clear, cost-reflective tariff path and corrected through a combination of deleveraging the balance SOC Ltd being one of the key initiatives in this area. uncertainty around application of the regulatory Net finance costs grew by 6.2% largely due to lower sheet and obtaining cost-reflective tariffs. methodology pose a risk to Eskom’s financial sustainability capitalisation of interest to the asset base as the new What are the key issues being raised by investors and hinder development of financial strategies over the build programme nears completion. We also experienced In this regard, we welcome the announcement of a and rating agencies? medium term. The 9.61% tariff increase awarded by NERSA a higher average cost of borrowing given the prevailing prospective debt relief solution by the Minister of Finance With respect to funding, we intended to raise R25.5 billion for 2023 falls far below the 20.5% we had applied for. We’ve risk-averse market sentiment. Depreciation increased by in the recent Medium-Term Budget Policy Statement. in borrowings in 2022, but this was later revised to challenged NERSA’s incorrect treatment of the regulatory 20.4% mainly due to additional Medupi and Kusile units Government is considering relief of between one-third and R42.9 billion to accommodate funding initiatives postponed asset base; we were successful in having this decision achieving commercial operation. two-thirds of our debt balance, or around R130 billion to from the previous year. By year end, we had secured set aside by the High Court, although no retrospective R260 billion, which will lead to a direct improvement in funding of R35.8 billion despite a difficult economic climate. adjustment has been granted for 2023. A number of NERSA Even though we recorded a loss before tax of R15.8 billion, Eskom’s liquidity by reducing debt servicing requirements. determinations and court review applications are still we managed to achieve a year-on-year improvement Our credit ratings have been affirmed by all three rating pending, most notably, NERSA’s decision for 2024 and 2025 of R17.3 billion against restated results. Unfortunately, We’re also working towards migration to a cost-reflective agencies, but concerns around operational and financial of our MYPD 5 revenue application. a return to profitability remains hindered by poor tariff path through regulatory revenue applications. If the sustainability drove a mostly negative outlook at year end. operational performance, lack of cost-reflective tariffs, high tariff challenge is not resolved, further Government support Overall, Eskom’s credit ratings remain at sub-investment Government has committed R21.9 billion of equity support debt service costs and non-payment by some customers. will be required to bridge the gap between costs and the grade level, thereby limiting access to unguaranteed funding for 2023, a portion of which has been received to date. revenue allowed by NERSA. While I am confident about and increasing the cost of borrowing. The conditions attached to the support for the 2023 year To further illustrate the enormity of these challenges, net the outcomes of our court review applications, with many were finalised in October 2022 – we remain compliant with revenue not recognised due to non-collectability from favourable judgments received so far, these legal processes On a positive note, the continued support from Government these to ensure that the necessary funds are made available municipalities and residential customers amounted to do take time. Similarly, these amounts can only be recovered goes a long way towards allaying market concerns. In when required. R7.7 billion for the year. Additionally, Eskom- and IPP-owned through future decisions, meaning that Eskom has to carry December 2021, Fitch revised its outlook from negative to OCGTs were used extensively to minimise loadshedding the cost of NERSA’s incorrect decisions for the time being. stable, in line with its improved outlook for the Sovereign. Government is finalising details of the prospective debt relief in the interests of the country, exceeding the budget by One notable highlight is that we’ve received further clarity Moody’s revised its outlook from negative to positive in solution, including the quantum thereof, the relevant debt R12.8 billion. Had Eskom been able to recover the net from the High Court on the timing of the recovery of the October 2022, for the first time since 2007, and Standard instruments, and the method for effecting the transaction. revenue not recognised and contain OCGTs to budgeted remaining R59 billion owed to us from the incorrect MYPD 4 & Poor’s revised its outlook from negative to stable in Further detail will be communicated by the Minister of levels, we would’ve been able to record a profit for the year. determination, with an additional R15 billion in allowable November 2022 on the back of the announcement of a Finance in the National Budget Speech in February 2023, revenue per year in 2024 to 2026, and R14 billion in 2027. prospective debt relief solution for Eskom. together with the conditions attached to the relief, which Tell us more about the financial areas of the are expected to deal with cost management, municipal and turnaround plan Regrettably, we’ve achieved limited success in managing arrear Despite this positive sentiment, investors and rating household arrear debt, and tariff pricing. We look forward The turnaround plan aims to place us on a more financially municipal debt, which continues to escalate to unacceptable agencies remain concerned about Eskom’s poor operational to collaborating closely with Government to develop the sustainable footing by improving the income statement and levels, increasing by 26.6% to R44.8 billion at year end. We’ve performance, as well as the stability of our workforce, given specifics of the strategic reorganisation and strengthening of strengthening the balance sheet. We’re focusing on several pursued a multipronged strategy aimed at recovering the the unlawful and unprotected strike action experienced the balance sheet, and will engage with investors and other areas in this regard. amounts owed, although progress has been slow on key during the wage negotiations in June and July 2022. They’re stakeholders at the appropriate time. intergovernmental interventions. Various strategies are being also concerned about the regulatory uncertainty associated We continue to receive the necessary equity support from considered in collaboration with National Treasury. Eskom’s with the lack of a clear, cost-reflective tariff path, as well as Non-payment of municipal debt remains a systemic challenge Government, with R31.7 billion received during the 2022 legal right to receive payment from municipalities was affirmed inadequate progress in addressing arrear municipal debt. to the entire electricity sector. We will continue to deliver financial year, and a further R88 billion committed until 2026. by the Supreme Court of Appeal, which sets a positive on our municipal debt management strategy and work These funds are restricted for debt servicing, and therefore, We’re conducting bilateral engagements with various lenders closely with the Eskom Political Task Team to arrest the precedent for revenue collection efforts. only assist us in addressing short-term liquidity requirements. for the funding of critical Just Energy Transition projects and growth in arrear debt, although further political intervention We’re pursuing various initiatives to reduce our annual cost are engaging with lenders on the legal separation process, is required to address the culture of non-payment. As I The gross debt and securities balance stood at R396.3 billion base by a cumulative R61.8 billion by 2023. We’ve achieved including the associated timelines. The transfer of the mentioned, it is anticipated that further measures will be at year end (2021: R401.8 billion), while total debt servicing combined savings and other income of R50.7 billion so far, Transmission Division to the National Transmission Company announced by Government in the 2023 Budget Speech. requirements resulted in a cash outflow of R71.4 billion exceeding the cumulative target of R40.4 billion. Most of South Africa SOC Ltd is subject to certain suspensive for the year. Key gearing and solvency ratios improved due the savings during the year came from optimising primary conditions being met, including obtaining applicable lender We will continue to engage transparently with lenders to favourable EBITDA performance and the Government energy working capital, by containing the increase in the consents. André covers progress on the Just Energy Transition as the legal separation process unfolds. Furthermore, we as well as Eskom’s legal separation in his report. look forward to exploring further funding opportunities to deliver on South Africa’s Just Energy Transition Investment R billion % Talk to us about the outlook for the coming year Plan, which was shared by the President ahead of COP27. R billion Ratio R billion Ratio 60 30 600 3.5 60 2.0 Depressed economic conditions and generation supply It is critical that Eskom is placed on a more sustainable 50 25 500 3.0 50 constraints will continue to adversely impact financial footing going forward, not only financially, but also 40 30 2.5 1.5 performance. The Russian invasion of Ukraine has operationally. Key to our success will be partnering with 20 400 40 20 2.0 threatened the sustainability of the global energy sector, Government, investors and other key stakeholders to 10 15 300 1.5 30 1.0 in terms of both the cost and availability of fuel oil and deliver on the turnaround plan. 0 -10 10 200 20 diesel. We ring-fenced additional funds for the management 1.0 -20 5 100 10 0.5 of fuel price fluctuations to minimise operational and 56 0.5 -30 49 31.7 31.7 financial risks in the 2023 financial year. Regrettably, -40 0 0 0.0 0 0.0 2018 2019 2020 2021 2022 2022 2018 2019 2020 2021 2022 2022 2018 2019 2020 2021 2022 2022 halfway through the year, we’ve already fully utilised Actual Target Actual Target Actual Target these funds as we’ve had to place increased reliance on Calib Cassim Net loss before tax EBITDA Debt securities and borrowings Debt/equity ratio Cash from operations Debt service cover ratio OCGTs to avoid or minimise loadshedding; this situation Chief Financial Officer EBITDA margin Government support Cash interest cover ratio 22 | | 23 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information CHIEF OPERATING OFFICER’S COMMENTARY Of concern is the continued high levels of energy losses grid on 23 December 2021, delivering 800MW, and from theft and illegal connections, putting additional strain achieved commercial operation on 31 May 2022. on an already constrained system. We have found that when people don’t pay for electricity, they tend to waste Kusile Unit 5 was making good progress towards first it. We’re also seeing persistent high levels of network synchronisation scheduled for June 2023, but the gas air We continue to execute our Generation recovery plan, heater caught fire on 17 September 2022, resulting in all asset vandalism, equipment theft and overloaded networks with a focus on reliability maintenance. More effort has commissioning activities being discontinued. Early indications due to illegal connections, all of which lead to increased been applied to ensure that key funding and enabling are that this incident may delay the schedule by up to a year. breakdowns, higher maintenance cost and higher levels contracts are in place to support the objectives of this of safety risk to employees and the general public. As the On the correction of new build defects, we are making critical programme within the maintenance space to ensure CFO pointed out, the unsustainably high levels of arrear good progress, with performance at Medupi improving by 80% outage readiness. Despite this, we’ve seen an increase municipal debt remain a tremendous cause for concern, as an average of 145MW per unit due to the interventions, in partial load losses and boiler tube failures, and unit trips does the negative effect thereof on the availability of cash. and all units now capable of reaching full load. We have also increased substantially year-on-year. Losses on units returning from outage have also deteriorated, although due successfully completed the rollout of the major boiler What is behind the generation challenges? date performance on outages has improved slightly. plant defects solutions agreed in 2020 with the contractor I believe that the respect you show your plant is the same for Medupi and Kusile units that required outages. The Koeberg Nuclear Power Station continues to operate respect your plant shows you. We are now seeing the rollout to the Medupi mills during normal mill rebuilds safely, although the benchmarked performance has consequences of many years of mistreating our plant, in an is projected to be completed by October 2023. Also at deteriorated somewhat, due to the late return to service of effort to keep the lights on at all costs. We must remember Medupi, the gas air heater, pulse jet fabric filter and boiler Unit 1 after its refuelling outage, coupled with two trips on that, excluding our two new stations, our coal-fired fleet is plant modifications by the boiler contractor have been Unit 1. As we’ve explained before, we had to postpone the on average 43 years old. Furthermore, since about 2002, implemented on all six units, except for the long-lead replacement of the steam generators on Unit 2 to the next we’ve been running our plant above design parameters at an milling modifications on all units and the Unit 6 duct outage in 2023, as our benchmarking against other nuclear energy utilisation factor at unheard of levels – above 80% for erosion modifications. At Kusile, boiler plant modifications utilities highlighted that the envisaged timelines were not our coal-fired fleet – to create “virtual” capacity. When you have been completed on Units 1 to 4, while modifications achievable: the replacement would result in a longer outage expect old, poorly maintained plant to perform continuously on Units 5 and 6 will be rolled out during construction than originally planned, thereby affecting capacity available at exceptionally high levels, eventually something’s got to before commercial operation. to the grid during the high demand winter period. Although give, and that’s what we’ve been seeing since about 2012/13. later than initially planned, the unit has since returned to Our battery energy storage project is progressing well. There are several root causes to the capacity shortage we’re Contracts for the first phase of 800MWh were awarded service after successful completion of the refuelling and experiencing. One is the delay in adding new capacity to the for the first three packages, situated at Skaapvlei, maintenance outage, which included replacement of the system, due to delays in both investment approvals from Pongola, Elandskop, Paleisheuwel, Graafwater and Hex. How would you characterise performance in the reactor pressure vessel head, but suffered two trips after Government, and in bringing new capacity online due to Construction on Pongola and Elandskop began in September 2022 financial year? returning to service. Following extensive troubleshooting build challenges. The other is the fact that we had to keep and October 2022. The procurement plan for the fourth with the OEM, the unit was safely returned to service and As in the previous financial year, our operating divisions deferring scheduled maintenance and much-needed midlife package (Melkhout and Rietfontein) has been submitted for is operating at full load. delivered varied performance. We experienced record- refurbishment to keep the lights on, leading to a further World Bank approval. The latest forecast for construction low levels of generation plant availability, which resulted The long-term operation activities, to extend Koeberg’s deterioration in the state of existing plant. The only way completion of Phase 1 is June 2023. Phase 2 of 640MWh is in in capacity constraints that led to unprecedented levels of life by another 20 years beyond 2024, continue according to fix this is to have adequate space or system capacity to development. loadshedding, with 65 days of loadshedding during the 2022 to plan, at an expected cost of around R20 billion. The perform maintenance, and of course you need the funds to financial year. To avoid or minimise loadshedding, we’ve had National Nuclear Regulator has accepted our application to do that. Because of the lack of cost-reflective tariffs for many Tell us about the environmental performance to continue utilising expensive gas turbines, at a combined modify Koeberg’s operating licence accordingly. years, funding remains a tremendous challenge. Until new Particulate emissions performance has improved due cost of R14.7 billion for Eskom and IPP-owned OCGTs. capacity of at least 4 000MW to 6 000MW is brought online, to focused maintenance of generating plant under the Although the year-on-year coal purchase cost increase and we have sufficient funds to properly plan maintenance In contrast, our networks business continued to deliver Generation recovery plan. Our coal-fired stations operate was contained below inflation, we are experiencing high and procure long-lead spares two years in advance as strong sustainable performance, and the new build in general compliance to emission limits set in terms coal demand from more expensive power stations due to we need to do to execute maintenance effectively, plant programme delivered some successes. of their atmospheric emission licences, however, when generation performance challenges. Coal quality also remains performance cannot be expected to improve. there is production pressure and plant failures, units a problem, with poor coal quality contributing to partial load Are you satisfied with the plant performance? have to operate above the limit. We also saw a decline in losses and ultimately, the need to implement loadshedding. How is the new build programme progressing? Plant availability across the generation fleet declined for particulate emission performance from June to August 2022 Where we encounter instances of coal tampering, such as As we’ve reported before, the final unit at Medupi Power the fourth consecutive year to 62.02% for the year under primarily due to the unlawful strike action, which led contractors mixing lower quality coal with higher quality coal Station was placed in commercial operation on 31 July 2021, review. The performance of the coal-fired plant in particular to damage of electrostatic precipitators used to reduce to meet volume targets, we investigate and act accordingly. thereby completing construction activities on the 4 764MW is deeply disappointing and really concerning. The decline emissions. Since September, there has been a recovery and Overall coal stock days remained healthy, even though two project. At Kusile, Unit 4 was synchronised to the national in plant availability is driven by a significant increase in particulate emissions performance has improved. stations had stock levels below minimum at year end. Rain unplanned losses, due to both breakdowns and partial load readiness plans have generally held up well against high losses. Planned maintenance was slightly lower than the summer rainfall, and actions continue to improve the plans previous year, to compensate for the high levels of unplanned for the coming rainy season. % % Events/hours Minutes kg/MWh sent out ℓ/kWh sent out losses and hampered by the late release of funding. 100 30 40 5 0.5 1.50 The reliability of the transmission system improved, with Contributing to the low generation plant availability is system minutes <1 performing significantly better year-on- 80 25 4 0.4 1.45 30 the fact that Medupi Unit 4 is out of service until at least year. On the distribution side, customers are experiencing 60 20 3 August 2024, following the explosion of the generator in fewer supply interruptions, improved outage duration 20 0.3 1.40 August 2021. More positively, the Camden ash dam facility and faster restoration of supply (excluding the impact 40 15 2 0.2 1.35 was completed, with the station now able to run all units. of loadshedding). Through Transmission sustainability 10 Our hydro stations contributed about 550MW more improvement initiatives and Distribution’s network 20 10 1 0.1 1.30 than the previous year, which helped us to limit the use of development plan, we have plans in place to invest in our 0 5 0 0 0.0 1.25 2018 2019 2020 2021 2022 2022 2018 2019 2020 2021 2022 2022 expensive diesel turbines to avoid or minimise loadshedding networks, to ensure that they continue to sustainably Actual Target Actual Target 2018 2019 2020 2021 2022 Actual 2022 Target during periods of generation constraints. deliver at expected levels. SAIFI SAIDI System minutes lost for events <1 minute EAF PCLF UCLF Relative particulate emissions Water consumption 24 | | 25 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information CHIEF OPERATING OFFICER’S COMMENTARY continued OUR GROUP PERFORMANCE MAIN HEADING AT 31 MARCH 2020 Turnaround objectives Six Capitals MAIN HEADING We applied for postponement against the Minimum Generation leadership is focusing on 10 key areas to drive Our shareholder outlines the strategic objectives for Eskom in the Strategic Intent Statement. KPIs are aligned to these strategic AT 31 MARCH 2020 Operations recovery Financial capital Emission Standards (MES) to the Department of Forestry, a holistic improvement of generation performance. These objectives and the key focus areas of our turnaround plan, with performance across our top 10 KPIs for 2022 set out below. Turnaround objectives Six Capitals MAIN HEADING Fisheries and the Environment (DFFE) during August 2020. include dealing with skills and experience gaps; addressing Operations recovery Improve income statement Financial capital Manufactured capital AT 31 MARCH 2020 In November 2021, DFFE returned their decision – the fraud and corruption; ensuring compliance with policies Turnaround objectives seven stations to be shut down by 2030 received approval, and procedures; and ensuring adequate funding to execute Financial performance Generation operations Improve our income statement and Improve reliability of the Generation fleet and Operations recovery Improve income statement Improve balance sheet Manufactured capital Natural capital while another five stations had their requests refused; four reliability maintenance, partly through aggressive cost stations received partial approval. Full compliance with the cutting. We are increasing planned maintenance within strengthen our balance sheet reduce loadshedding Improve income statement MES would necessitate expenditure of about R330 billion the restrictions we’re facing and working on improving Improve balance sheet Business separation Natural capital Human capital EBITDA Improve our EAF, % Improve the energy 21.25% 62.02% or the loss of around 30 000MW by April 2025. This coal quality. Maintenance is being prioritised at our top is simply unaffordable to Eskom and the South African six stations – Duvha, Kendal, Kusile, Majuba, Matla and margin, % margins on EBITDA 2022 19.02% 62.02 availability factor (EAF), which is the 2022 74.00% Improve balance sheet 21.25 through revenue Business separation People and culture Human capital Social and relationship capital 15.96% (2021: 64.19) 2021 64.19% economy, both financially and in terms of generation Tutuka – both philosophy and reliability-based maintenance, certainty, cost 2021 ratio of available 73.00% (2021: 15.96) 11.67% capacity. While we are committed to improvement and the together with catching up on backlog outages. However, optimisation and energy over 66.64% Business separation 2020 People and culture Social and relationship capital Intellectual capital 18.46% nominal energy 71.50% reduction of Eskom’s impact on the environment, it is clear sufficient attention and focus is required at those stations efficiency 2020 16.58% that an affordable path to a greener future is critical. We performing well to ensure sustained performance. Intellectual capital People and culture submitted an appeal for those stations with unfavourable UCLF, % Reduce the We are preparing for an almost seven-month outage on Debt service Improve our ability 25.35% decisions in December 2021, asking the Minister of DFFE to consider our motivation for a balanced and sustainable Koeberg Unit 1 starting in December 2022, which includes cover ratio to meet our debt 2022 0.76 0.74 25.35 incidence of unplanned outages 2022 14.00% 0.76 obligations through 05 | INTEGRATED REPORT | 31 MARCH 2020 (2021: 20.04) 20.04% way forward. The Minister has indicated that she would the replacement of the steam generators. Furthermore, 2021 0.30 to improve system 2021 15.50% sufficient cash from 0.11 undertake a consultative process on the MES appeals and we have to address the collapse of the flue duct of Kusile (2021: 0.30) availability 22.86% operations 0.52 2020 Unit 1, which has also affected Units 2 and 3, thereby 05 | INTEGRATED REPORT | 31 MARCH 2020 2020 17.50% would establish a participative panel. While the consultative 0.29 process is under way, the appeal process is on hold. removing around 2 400MW from the grid and worsening capacity constraints. Indications are that it could take up to 05 | INTEGRATED REPORT | 31 MARCH 2020 MAIN HEADING Kendal’s emissions have reduced significantly since the six months to repair the duct, with all three units expected Debt equity Strengthen our AT 31 MARCH 2020 1.82 2022 to be out for the entire duration. Turnaround objectives implementation of an emission recovery plan late in 2019. ratio balance sheet and 1.97 Network performance Our action plan to return Kendal’s units to compliance was approved by DFFE in August 2020 – we report on progress One of our biggest challenges is skills – we are working 1.82 limit growth in debt securities 2021 2.04 2.31 Refurbish our Transmission and Operations recovery on appointing plant managers, ramping up training and (2021: 2.04) and borrowings 2.44 Distribution networks to the authorities on a monthly basis. The criminal case 2020 Improve income statement against Eskom relating to Kendal’s particulate emissions, development, and engaging experienced external experts. 2.68 System Reduce system 2.88 opened in 2019, has been postponed on several occasions; We also need adequate and appropriate coaching and minutes lost minutes lost due to 2022 3.53 mentoring for our power station general managers and 2.88 interruptions Improve balance sheet the next court date is February 2023. MAIN HEADING 2021 3.48 station leadership. The skills audit will highlight those gaps AT 31 MARCH 2020 (2021: 3.48) 3.53 Water performance remains very disappointing, with we need to work on. We developed a crowdsourcing Turnaround objectives Six Capitals Environmental impact 4.36 Business separation 2020 3.53 specific water usage in the generation of electricity digital platform to attract a talent pool of highly skilled Address poor environmental performance Operations recovery Financial capital deteriorating year-on-year. Previous poor water and experienced candidates. Twenty-five individuals have and climate change People and culture management practices together with ageing plant, and poor been selected as part of the first intake. In total, we have Improve income statement SAIDI, hours Manufactured capital Reduce the average 35.5 technical performance of coal-fired stations remain a risk and continue to lead to the unlawful release of water at shortlisted 153 candidates of the 238 in the database. Our 1:1:6:10 culture transformation programme is another key Particulate emissions, Reduce the ash (particulates) 2022 0.34 0.31 35.5 interruption duration 2022 38.0 (2021: 35.4) 2021 35.4 kg/MWhSO emitted from experienced by Improve balance sheet Natural capital several power stations. We have plans in place to resolve enabler for delivering a high-performance ethical culture. 2021 0.38 38.0 coal-fired power customers this across the fleet of coal-fired power stations. The skills challenge is not limited to Generation; other 0.34 stations, per unit of 0.32 0.47 MAIN HEADING Business separation Human capital 2020 36.9 38.0 (2021: 0.38) energy sent out 2020 0.33AT 31 MARCH 2020 What are your key focus areas for the coming year? areas have similar competence and proficiency challenges, and we must address those effectively. Our people are our Turnaround objectives Six Capitals 05 | INTEGRATED REPORT | 31 MARCH 2020 Let me start by acknowledging that generation performance People and culture Social and relationship capital most important asset, and we must provide the necessary Specific Reduce the amount Operations recovery Financial capital has continued to deteriorate in the 2023 financial year, with 2022 1.45 and required investment. water usage, of water consumed 1.33 plant availability falling to below 60%. Combined with the Intellectual capital shortfall in capacity from renewable IPPs when compared We deeply regret the disastrous impact we have on ℓ/kWhSO by all power stations, per unit of 2021 1.42 Improve income statement MAIN HEADING MAIN AT 31 MARCHEADING AT 31 MARCHEADING MAIN 2020 Turnaround objectives Manufactured capital 1.45 AT 31 MARCHEADING 1.34 MAIN 2020 AT 31 MARCHEADING MAIN 2020 to the 2019 Integrated Resource Plan, this has resulted 2020 the economy and the lives of South Africans when we Turnaround objectives Six Capitals energy sent out 1.42 AT 31 MARCHobjectives Turnaround 2020 Turnaround objectives Six Capitals Six Capitals (2021: 1.42) 2020 Turnaround objectives Six Capitals in 175 days of loadshedding, the worst ever in a single implement loadshedding, but it’s unavoidable until more 1.35 Improve balance sheet Turnaround objectives Operations recovery Natural capital Operations recovery Operations recovery Six Capitals Financial capital Financial capital financial year. Delays in concluding the Risk Mitigation IPP Operations recovery Financial capital capacity comes online. However, our teams are doing their Operations recovery Operations recovery Financial capital Financial capital Procurement Programme will continue contributing to best to return plant to service. We need to shift from 05 | INTEGRATED REPORT | 31 MARCH 2020 Improve income statement Business separation Human capital Improve income statement Manufactured capital future capacity constraints. Improve income statement Manufactured capital firefighting to substantive fixing of underlying problems, to Improve income statement Manufactured capital Improve income statement Manufactured capital Improve income statement Manufactured capital Other than the capacity shortfall from renewable IPPs and ensure that we drive a sustainable improvement in plant Health and safety People and culture Social and relationship capital Improve balance sheet Natural capital performance. Strengthen balance sheet Improve balance sheet Natural capital our own poor generation performance, we have exhausted Support a culture of Zero Harm Improve balance sheet Improve balance sheet Improve balance sheet Natural capital Natural capital Natural capital the funds for diesel, with R13.3 billion spent on Eskom- I want to thank all those Guardians doing their best on a LTIR Reduce employee Intellectual capital Business separation Human capital 0.24 Business separation Human capital owned OCGTs alone to the end of October 2022. Let me 0.24 lost-time injury rate 2022 Business separation Business separation Human capital daily basis to keep the lights on for South Africa – your 0.30 Business separation Business separation Human capital Human capital be very clear: we do not have any more money to spend on sacrifice does not go unnoticed. Eskom was once a world- (LTIR) for the group (2021: 0.22) 2021 0.22 People and culture Social and relationship capital diesel. As a result, loadshedding is required at never-before- class utility – with grit and determination, we can turn (including 0.32 People and culture People and culture Social and relationship capital Social and relationship capital People and culture People and culture Social and relationship capital occupational People and culture Social and relationship capital seen levels to protect the integrity of the system. This is not around this ship if we work together to improve the lives of 2020 0.30 diseases) 0.34 a policy decision, but a financial reality because of decisions Intellectual capital 61 million South Africans every single day. 05 | INTEGRATED REPORT | 31 MARCH 2020 Intellectual capital Intellectual capital Intellectual capital of the past that we must deal with now. We were even Intellectual capital forced to implement stage 6 loadshedding since year end – on several days in July 2022 during unlawful and unprotected Other metrics Graph legend Year-on-year performance strike action which crippled Eskom’s operations, and again Above are some of the KPIs used to measure our overall Jan Oberholzer 05 | INTEGRATED REPORT | 31 MARCH 2020 Target Performance improved during September 2022 during periods of exceptionally high performance. We also make use a number of other metrics 05 | INTEGRATED REPORT | 31 MARCH 2020 05 | INTEGRATED REPORT | 31 MARCH 2020 Group Chief Operating Officer 05 | INTEGRATED REPORT | 31 MARCH 2020 levels of unplanned load losses. 05 | INTEGRATED REPORT | 31 MARCH 2020 to monitor performance across our business, which are Actual (target met) Performance stable highlighted throughout the report and in the supplementary Actual (target not met) Performance declined information from page 142. 26 | | 27 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR STRATEGIC OUR STRATEGY AND CONTEXT TURNAROUND PLAN approval of the first new base-load capacity investment in Mandate, vision and mission December 2005, resulting in the new capacity not being In terms of the mandate set by DPE, our key role available when required. The delay in the decision also is to assist in lowering the cost of doing business in resulted in limited up-front planning and development work South Africa, enabling economic growth and providing for the construction of Medupi and Kusile, resulting in build stability of electricity supply through providing timelines being compressed. electricity in an efficient and sustainable manner. 2 WHAT YOU Our financial constraints also have their origins in the build Our vision is “Sustainable power for a better future”, programme. We raised debt with the primary purpose of WILL FIND IN meaning that we aim to promote sustainability in supporting the new build programme, which commenced THIS SECTION the electricity supply industry from a technological, in the 2006 financial year to address impending generation environmental, social and cost perspective. and transmission capacity constraints. At the time, the determination of borrowing requirements assumed cost- Our strategy and turnaround plan 29 Our mission is threefold: reflective tariffs in the future (including a reasonable and Stakeholder engagement 42 • Turn around the existing business and resuscitate market-related return on assets), limited delays in the Material matters 44 our operational and financial sustainability new build programme, prudent financial oversight, as well • Create a sustainable Eskom that drives economic as sufficient economic growth to stimulate the desired Integrating risk and resilience 45 demand for electricity. Those assumptions have either not growth through the provision of reliable and efficient electricity and ancillary services in a materialised or have greatly underperformed (for example manner that adds value for all South Africans through significant build delays or procurement processes • Create a positive social impact in South Africa seeing inflated costs), leading to a significant shortfall by driving shared growth through sustainable between Eskom’s revenue and expenditure, requiring higher electricity solutions levels of debt than previously envisaged to fund the annual revenue shortfall and the new build programme, ultimately leading to a deteriorating financial position. Eskom’s role in supporting the sustainability of the On the operations side, lack of sufficient capacity requires future electricity supply industry (ESI) remains pivotal. existing power stations to operate at very high load factors, Notwithstanding policy reforms that are reshaping the which constrains our ability to perform the requisite major industry, our historical role and the magnitude of our maintenance, refurbishment and retrofits work, aggravated vertically integrated operations require the organisation by the onset of age-related equipment failures. Excessively to leverage electricity assets to navigate the path to high load factors further lead to increased unplanned adequate capacity that will enable an effective and efficient breakdowns and deteriorating plant reliability. future ESI. Regrettably, our contribution in supporting the journey to a sustainable future ESI is not unfolding as Other factors that have contributed to the current envisaged. The Eskom fleet is not performing as planned, situation are a deterioration in the quality of coal; the resulting in an energy capacity deficit, with loadshedding reality of “keeping the lights on” constrained the space and load curtailment being required to protect the system. available for maintenance, causing a deferral of plant and Remedying the need for debilitating loadshedding remains a equipment maintenance and the use of expensive diesel to top priority, and the Generation Division remains resolute ensure security of supply; poor performance of contractors to improve plant performance and reliability. during the build programme and outages leading to rework; and funding constraints to execute major equipment The nature of the electricity crisis replacements. We also acknowledge the need for better The performance of our power stations should be viewed planning and execution of the very complicated major in the context of our mandate, the supply capacity shortage maintenance, refurbishment and retrofit work. leading to a constrained power system, the age of our plant, We have insufficient reliable generation capacity to power as well as funding and space available for maintenance. a post-COVID-19 economic recovery in the medium The decision to build Medupi, Kusile and the Ingula pumped term. Availability of our generation fleet has continued storage scheme had to be made by not later than 1999 to to deteriorate, with the coal fleet being highly unreliable meet increased demand by 2007. However, Eskom did not after years of inadequate maintenance and refurbishment obtain approval to embark on the process to establish the and running the plant at levels significantly above the next new base-load capacity, as Government’s strategy international norm given the age of the fleet. Consequently, at the time was to restructure the electricity supply generation capacity availability changes by more than industry, which included encouraging competition and 4 000MW week-on-week. Medupi and Kusile, themselves the introduction of independent power producers. We a response to the looming electricity crisis in 2004, have only received Government’s decision allowing Eskom not delivered on expectations due to critical shortcomings to embark on the build programme late in 2004, with in project planning, design and execution, a direct 28 | | 29 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR STRATEGY AND TURNAROUND PLAN continued consequence of the delay in the decision to commence Pivoting towards a sustainable electricity Enablers While we will endeavour to address everything within our building. In 2019, the updated Integrated Resource Plan supply industry Eskom alone cannot solve the problem. While we will do control, such as improving the reliability and predictability (IRP 2019) identified a supply gap over the next three years, We cannot keep “kicking the can down the road”; we need all we can to improve the performance of our coal-fired of our coal-fired fleet, deploying technologies to minimise based on assumptions regarding plant availability at levels to pivot to a sustainable future. Over the past two decades, generation fleet, the deep maintenance needed requires both technical and non-technical energy losses, as well well above those being achieved, although at higher levels various decisions to address constraints have reflected lengthy planned outages. Many power stations are also as strategically leveraging the Just Energy Transition, we of demand than being experienced. However, capacity short-term crisis thinking. Interventions included deferring reaching the end of their useful lives and performance will cannot resolve the energy constraint challenges without planning in the IRP 2019 did not cater adequately for the maintenance to keep the lights on, extending the life of old continue to deteriorate as they approach their shutdown the support of all key stakeholders. risk of deteriorating plant availability. power stations, and imposing unrealistic timelines on the dates between now and 2035. As the primary energy supplier in South Africa, challenges that affect Eskom have Action is required in key areas such as funding new capacity, The electricity crisis is hugely damaging for the economy: delivery of new megaprojects such as Kusile and Medupi. minimum emission standards, acquisition of land rights, the an impact on the electricity supply industry. However, the inadequate, unreliable and unpredictable electricity On the other hand, other decisions have spoken to a more there are certain aspects that adversely affect Eskom alone market structure which influences the bid window processes, supply has had an impact on the ability of the country’s sustainable future. Notably, DMRE’s IPP Office has concluded and which require external support and enablement. IPP prices, tariff structure and trajectory, and unlocking the economy to grow. Loadshedding and load curtailment of the procurement of around 7 000MW of renewable energy municipal debt conundrum. The areas which require urgent large customers over the past year resulted in energy not from independent power producers, of which 6 831MW was action are briefly described below. supplied estimated at 1 605GWh, or just over 0.7% of total in commercial operation by March 2022. This programme is energy demand for the year. In the wake of the COVID-19 aligned with a fundamental transition that is happening in the pandemic, it is imperative that we do all that we can as the electricity supply industry to support economic recovery. Refer to “Managing supply and demand – Loadshedding and load electricity sector globally. The transition is towards a green economy powered by least-cost renewable energy, combined with flexible resources and procurement from competitive 1 Avoid the potential crisis caused by the shutdown due to existing minimum emission standards of 16GW capacity immediately, and 30GW by 2025, by agreeing on a pathway for decarbonisation and reduction in all emissions, with significant savings curtailment over the past four years” on page 92 for additional independent producers. These build programmes do not in water usage information about the impact of loadshedding rely on large build projects, but deliver capacity in a flexible, incremental manner. A reduction in emissions through a retrofit programme of around R330 billion would take approximately 15 years to While the procurement of new capacity has begun, implement at coal-fired power stations. We propose that emissions reduction could better be achieved in that time current interventions will not address short- to medium- The electricity sector should function as an enabler, rather by closing down old coal-fired power stations and spending the capital on adding urgently needed additional capacity term system constraints. DMRE’s IPP Office initiated the than an inhibitor, of economic growth. Opportunities through renewables, low-carbon technology and strengthening the national electricity grid to allow for the growth of procurement of 2 000MW of new, dispatchable generation have to be unlocked for the electricity sector to renewable energy and IPPs. This would create additional capacity to support our reliability maintenance programme. capacity in August 2020. This capacity, identified as a risk create sustainable jobs by powering the economy and 2 mitigation requirement in the IRP 2019, was expected industrialisation in locally manufactured and assembled Improve the reliability and predictability of the coal-fired generation fleet to meet the to come online by June 2022, but legal challenges will generation and grid infrastructure. This includes opening new avenues to trade and finance opportunities, which are growing electricity needs of the country delay the date by which the capacity will be online. The procurement of a further 11 813MW of capacity (per the fundamental to the transition to a zero-carbon economy. To support the maintenance programme, funding has to be released timeously to ensure that contracts can be second determination of 2020) began in 2021 with around A programme of sustainable electricity infrastructure placed and spares ordered in advance, and this requires certainty on the tariff path. For there to be adequate space 2 600MW under bid window 5 of the RE-IPP Programme. development is urgently needed. to conduct maintenance, additional capacity of 4 000MW to 6 000MW is required urgently, and this cannot be Nevertheless, the procurement of this capacity is unlikely provided by Eskom. Increased capacity would reduce the need for loadshedding and create the opportunity for The move to a decarbonised energy sector will require a to deliver significantly within the next two years. This much-needed maintenance. fundamentally transformed transmission grid to transport capacity is insufficient, uncertain and too late to address energy from the south to the north of the country. Based The funding challenge requires either continued support from the fiscus or cost-reflective tariffs, or both. the expected gap adequately. on the 2022 Transmission Development Plan (TDP), 3 As a result, the short- to medium-term outlook remains investment in the transmission grid of about R178 billion Leverage existing electricity assets to partner with the private sector and accelerate uncertain and indicates a significant gap between supply and over the next 10 years to 2031 is required to enable new the connection of new generating capacity demand. There is considerable uncertainty regarding the generation capacity, network reliability investments, load anticipated generation performance, the demand forecast growth, refurbishment of existing infrastructure and Innovative ways must be considered to add new generation capacity to the system, including leveraging Eskom and the delivery of new utility-scale generation capacity, more. The distribution grid requires capital investment of assets to incentivise IPPs to expedite establishment of generation capacity. This includes access to land and giving rise to a potential capacity gap of between 4 000MW R42.6 billion over the next five years to support around proximity to grid connection points, enabling the development of renewable plants up to 100MW. Leasing Eskom and 6 000MW by 2026, with a resultant energy gap of up 250 major customers that will be added to the grid over the land to IPPs supports faster deployment of additional capacity to support the system and mitigate loadshedding, to 1.7TWh. five-year horizon, including renewable generators. and provides us with an additional revenue stream from the leasing of land and wheeling of power. Most importantly, it mitigates the impact of the constrained electricity system, while benefitting from the continued use In the longer term, the IRP also envisaged that 11 000MW Funding remains a significant risk as essential projects of existing grid infrastructure. of old coal-fired power stations would be retired by 2030, in this space are deferred as we are forced to reallocate 4 given an assumption of plant availability (EAF) of 75%. constrained capital to completing the new build Leverage the Just Energy Transition (JET) strategy and the recent commitment to an Failure to meet legislated national air quality standards is programme and stabilising the generation fleet. Execution international climate deal to enable the development of new generation, transmission creating further pressure to close non-compliant power of the transmission and distribution expansion programmes stations, given the significant cost implications of meeting will offer significant localisation opportunities. Given the and distribution capacity, through a pipeline of projects in these areas these requirements. limited investment in the past, local manufacturing capacity Repowering of older power stations in Mpumalanga with low-carbon-emitting technologies, such as renewables of particularly transformers may not be adequate to meet and gas with battery storage, while capitalising on existing grid infrastructure is key to continuing economic activity The underlying uncertainty presents a risk of frequent demand. loadshedding that will manifest if not addressed proactively. in the local areas. Furthermore, a system that embraces an increased uptake Declaring Mpumalanga a special economic zone to ensure a favourable business environment for investors and of variable renewable energy will require an increase in entrepreneurs will catalyse the creation of new businesses for component manufacturing, asset creation and ancillary services, synchronous condensers and storage maintenance in renewable technologies. technologies to address the expected change in the dynamic system response due to the change in energy mix. 30 | | 31 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR STRATEGY AND TURNAROUND PLAN continued 5 Transition from the bid window process to a competitive market as soon as possible Previous delays in rolling out bid windows have not created the certainty and predictability required to enable 9 Political intervention is needed to arrest the rising arrear municipal debt and culture of non-payment investors to invest in manufacturing capacity and stimulate localisation in the long term. A competitive market Non-payment of municipal debt is a systemic challenge to the energy industry as a whole. Eskom’s multipronged outside the single buyer programme is considered complementary to the bid window procurement process, and strategy aimed at recovering arrear municipal debt has had little effect to date, and we require more aggressive would enhance the attractiveness for investors of the manufacturing of renewable energy components. This would political intervention to change the municipal non-payment culture, to assist municipalities in building skills and increase sectoral investment and ultimately, reduce the burden on the state of providing guarantees to IPPs. capabilities, and to hold them accountable for servicing their accounts. Furthermore, we are collaborating with National Treasury on structuring solutions to assist with the collection of arrear municipal debt and managing Migrating to a multiple-buyer platform may allow for more appropriate risk allocation and reduce, if not eliminate, payment of municipalities’ current accounts. the requirement for a government guarantee*, just as would be the case for any other investor in any other industry. This would result in greater innovation in financing and construction, as investors would seek to devise This would enable us to arrest the growth in arrear municipal debt of around R8 billion per year to become other risk-mitigation strategies that are currently transferred to the National Treasury. Furthermore, IPPs could financially sustainable. Arrear municipal debt amounted to R44.8 billion by 31 March 2022. find alternative customers through wheeling, which would significantly diminish the perceived market risk. * The remaining guarantees for bid windows 1 to 4 amount to R165 billion for installed capacity of 8 000MW. 10 Arrest energy losses to protect Eskom’s revenue Energy theft arising from meter tampering and illegal connections as well as vending fraud are the primary sources 6 Mitigate the risks associated with the development of a two-tier market and the Transmission System Operator (TSO) being saddled with long-term expensive power purchase agreements of losses and remain a perennial problem. The scourge of energy theft and infrastructure vandalism is not abating. Socio-economic conditions and societal challenges require political and economic intervention to address the culture of non-payment. Continuing with the single-buyer approach, with the future TSO required to act as the single buyer for future Nevertheless, levers to protect the most vulnerable people in society against increasing costs, for example by bid windows, without adequate governance of projects below 100MW would likely lead to a two-tier market – reviewing the free basic electricity model, may reduce the number of illegal connections. A more robust vending efficient IPPs could seek to conclude power purchase agreements (PPAs) with solvent buyers, such as metros, system along with smart meters are being implemented to improve revenue protection. large industrial users and commercial customers. The TSO would be saddled with long-term PPA contracts with IPPs under existing bid windows, subject to annual tariff increases and take-or-pay commitments. Undoubtedly, creditworthy customers would defect to suppliers with more supply options and competitive pricing, while the TSO would be left with expensive suppliers and non-creditworthy buyers, such as defaulting municipalities. 11 Achieve cost-reflectivity in electricity tariffs with the appropriate structure For Eskom and the electricity supply industry to be financially sustainable, to operate and maintain assets in a reliable state, and to meet the financial obligations related to existing and new infrastructure capacity, the tariffs Consequently, the TSO would likely be compelled to approach National Treasury within a five-year period to cover must migrate to being cost-reflective. This would ensure a fair return on assets, and would lead to a self-reliant and its revenue shortfall, thereby both perpetuating and exacerbating the current need for taxpayers to bail out Eskom. sustainable ESI that is not dependent on Government support. However, this requires an immediate upward tariff adjustment of 20% or more. 7 Achieve more optimal pricing through a liberalised, appropriately governed electricity market Furthermore, to recover the costs of the imminent imposition of carbon taxes and the Risk Mitigation IPP Procurement bid window programme, a further 10% increase in the electricity price (above inflationary increases) Further bid windows are likely to perpetuate inflated prices due to the need for Government to deliver on its would be required. social mandate requirements for local community participation, local content and supplier development, with It should be noted that in a low electricity tariff environment, the customer will suffer the double burden of contractually determined annual price increases adding to the burden. The same restrictions do not apply to incurring its own much higher cost of backup and/or self-generation as well as higher tax rates and/or lack of embedded generators with capacity less than 100MW, who would also be subject to market pricing, which would government expenditure on those items for which tax revenue is normally used. create an even greater cost disparity between best-in-class embedded generators and successful tenderers under 12 IPP Office bid windows. Restructure tariffs in anticipation of changing markets Migrating from the IPP bid window process to an appropriately governed electricity market in line with the Current tariff rates do not correctly reflect the separate divisional costs associated with energy, network and developments in the industry would be critical to manage the associated risks and shortcomings. Such an approach, retail costs, although costs linked to allowed revenue are recovered on the whole. facilitated by non-discriminatory access to the national grid, would lead to the required sectoral investments and economic developments, while reducing the burden on the state of providing guarantees to IPPs. Tariffs need to be updated and modernised to reflect this changing environment and, in doing so, protect both customers and the electricity supply industry. 8 Accelerate the acquisition of servitudes, which is critical for rapid transmission network development If we do not respond adequately in the short term, the transition deal struck at COP26 is testament to this, with The acquisition of land and servitude rights over approximately 5 000km of land registered to private landowners and state-owned land is critical to implementing the TDP and Distribution’s expansion plan. A more effective electricity crisis will severely constrain economic recovery Eskom’s Just Energy Transition plan at the heart of this expropriation process is crucial to accelerating successful delivery of grid projects. over the next five to 10 years, affecting the trajectory of ground-breaking transaction. It is premised on the fact our recovery in the medium to long term. If we are to that our country is endowed with abundant renewable regain our credibility as a sector and as an investor-friendly resources, providing an opportunity to create the emerging economy, we must cater for the whole range of conditions under which a credible, green, reindustrialised uncertainties. What is certain is that our current trajectory electricity sector can help power our economic recovery. will continue to result in loadshedding, similar or worse We are also presented with opportunities to unlock related than we have seen over the last few years. priorities such as job creation and reindustrialisation. In addition, we can repurpose and repower end-of-life Nevertheless, we have the opportunity to harness technical stations to contribute to the capacity solutions, given the and funding solutions that have become available in the existing transmission infrastructure already in place. context of the global climate crisis. South Africa’s just 32 | | 33 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR STRATEGY AND TURNAROUND PLAN continued Furthermore, operational performance remains a major National Treasury decision-making and NERSA’s tariff At the end of July 2022, President Cyril Ramaphosa will expand and grow the electricity generation industry challenge, with loadshedding set to continue at least in the determination, remain fundamental. announced further reforms to address the long- in South Africa through structural changes. short to medium term. This is largely due to the unreliable running electricity crisis, including the formation of and ageing generation plant, older stations reaching the end Our financial and operational challenges have been a National Energy Crisis Committee. We welcome We look forward to playing our part in the rapid and of their life, a decrease in the capital expenditure budget, exacerbated by volatile global and local economic the announcement by the President, and we are in full effective implementation of the President’s plan, and will environmental non-compliance and the loss of core, critical conditions, affected over the past two years by the support of these measures, as they will go a long way partner with Government, regulators, labour and the and scarce skills. COVID-19 pandemic and the associated lockdowns, towards easing the power generation constraints the private sector to bring an end to loadshedding. Although travel restrictions and a decline in tourism. Most recently, country has been grappling with for some 14 years. this will not happen overnight, the measures announced A number of external factors also have an impact on our the Russian-Ukraine conflict continues to impact the The reforms will accelerate the end of loadshedding and by the President will enable us to intensify maintenance sustainability and therefore, shareholder and political sustainability of the global energy sector. We are already efforts to drive improvements in plant availability. support is critical. Policy shifts to enable Eskom to operate affected by rising fuel prices and declining fuel availability, efficiently given the evolution of the industry, specifically which may pose significant challenges for Eskom and the around issues such as Eskom’s debt, arrear municipal debt, country. Strategic context • The “4Ds” namely decarbonisation, decentralisation, digitisation and democratisation are Strategic risk Shaping our future global trends influencing businesses Scanning our • Increased commitment to address environmental footprint towards climate neutrality goals appetite and risk of through strategy environment • Global trends show a shift away from large scale coal assets towards cleaner, decentralised strategy options development systems underpinned by the advancements in renewable technology, data-driven businesses models and increased customer choice • A constrained fiscus with growth further inhibited by COVID-19 may affect Government support and investment as funds are diverted to health and welfare Global Risk of strategy • High unemployment and poverty place greater limitations on Government’s support for Emerging risk and Integrated and misalignment and RSA increased tariffs strategic risk profile proactive strategy • Increased focus on addressing climate and environmental issues limiting the continued development and critical assumptions ESI impact of the coal fleet on CO2 emissions and unacceptable particulate emissions execution • Given the dynamics in the local context, and a series of previous decisions, the industry Eskom evolution needs to align with the shifts in a way that will avert crisis • A number of policy and regulatory decisions are at varying levels of implementation (e.g. NDP, IRP 2019, DPE’s Roadmap, amendment of acts applicable to Eskom) which further Monitoring and Planning strategy define Eskom’s parameters adjusting our Risk of execution execution • Eskom’s mandate and available resources define the scope of our possible solutions direction which should translate into key actions to navigate out of the current crisis towards a sustainable entity • Financial challenges are driven by under-recovery of costs, inadequate tariffs, declining sales, escalating municipal debt and high level of borrowings Globally and locally, the energy sector is transforming, We operate in a financially constrained environment driven by fundamental shifts in policy, technology, as well and have posted significant financial losses over the past • Operating challenges such as maintenance constraints, unplanned outages, excessive diesel as economic and environmental demands. The industry is few years. Our financial sustainability continues to be cost and loadshedding evolving from a predictive, vertically integrated model that threatened by a lack of cost-reflective tariffs. NERSA • Environmental legal contraventions and the cost of addressing emissions compliance leverages economies of scale with centralised generation awarded a tariff increase of 9.61% for the 2023 financial (around R330 billion) flowing in a single direction towards a decentralised, year, which is significantly lower than the 20.5% for which modular model based on bidirectional flow of power. we applied. We are still grappling with non-payment of This shift introduces new players to the industry and arrear debt by delinquent municipalities, an unsustainable an unfolding series of demand-centric, value-adding debt burden and high debt servicing costs. In addition, applications. The most significant of these is the shift high levels of fraud and corruption remain a concern, and towards greener, cleaner technology, which aims to reduce we are still recovering from the scourge of state capture. overall emissions in line with South Africa’s commitment to Continued Government support will be required to the Paris Agreement. bolster liquidity if the challenges threatening our financial sustainability go unresolved. A number of developments and considerations inform our strategic context and thereby influence our long-term strategy – global trends and influences, factors at a national level, developments relating to the electricity supply industry and Eskom’s financial and operational challenges. 34 | | 35 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR STRATEGY AND TURNAROUND PLAN continued Strategic direction is on executing the turnaround plan and legal separation, Industry trends Pursue financial and operational sustainability – Our desired end state is an organisation that is able to while positioning the organisation for the transition. Our long-term strategy responds to major industry fix the current business contribute to providing electricity to meet growing demand trends that are shaping the future of the electricity Our turnaround plan was refined in 2020 to address the The turnaround plan is aimed at addressing immediate sector, which can be summarised around four key themes, challenges threatening structural, financial and operational and demonstrates positive environmental and socio- operational and financial challenges to set the organisation economic impacts, with a significantly reduced financial namely decarbonisation, decentralisation, digitisation and sustainability. It focuses on five key areas that are the on a sustainable path, by achieving the following: democratisation. primary focus over the short to medium term: dependence on the South African Government. • Reshaping Eskom’s business and operating models and • Operations recovery to ensure that we recover generation The introduction of renewable and other cleaner establish an agile organisation to respond to rapid changes Decarbonisation capacity and availability to enable system adequacy in the technologies, as well as the expected shutdown of around without disrupting daily services The industry is experiencing huge shifts towards more medium term in line with the Generation recovery plan. 20GW of nominal capacity at coal-fired power stations that • Committing to greater efficiencies across the organisation, carbon-efficient energy sources, resulting in global climate It includes strengthening transmission and distribution reach their end of life between now and 2035, will require reduce wasteful expenditure and optimise revenue neutrality goals. This shift is driven by the continued networks to support system reliability and the policy significant strengthening and expansion of transmission reduction in renewable energy technology costs and • Improving corporate governance and act against direction for the electricity industry infrastructure, in line with the requirements of the more stringent environmental policies aligned to the corruption and mismanagement • Improve the income statement to ensure that we realise Transmission Development Plan. Eskom needs to further Paris Agreement. • Ensuring greater transparency in the governance of Eskom sustainable revenue through cost-reflective tariffs, as well position itself to respond to the changing environment and its subsidiaries Decentralisation as ensuring that the operating cost base is reduced to through the introduction of technology for better Distributed energy gives rise to new roles and participants in sustainable levels. This will be achieved through reductions efficiencies, the establishment of a Distribution System While our focus is on delivering the outcomes of the the power market. The uptake of residential and commercial in primary energy and procurement costs, and driving Operator to manage and coordinate distributed generation turnaround plan, we will continue to drive the Just Energy rooftop PV has increased significantly in South Africa, operational efficiencies as a neutral facilitator of open markets, and active Transition to serve as a pivotal point in Eskom’s future, particularly in light of new regulations permitting consumers • Strengthen the balance sheet by improving profitability and partnering to solve incapacity and non-payment challenges enabling us to address many of our challenges in the short to generate their own electricity for self-consumption. optimising capital spend and, at the same time, reducing at municipalities. term, while ensuring long-term growth and sustainability. Decentralisation will require utility operations to be debt to acceptable levels The JET will also assist in supporting national goals to decentralised for local area control. While our longer term aspirations are driving towards decrease greenhouse gas emissions, promote job creation • People and culture transformation entails ensuring that our new and improved infrastructure, operations and financial through reskilling and stimulate economic growth. Digitisation people are sufficiently enabled and supported to transform sustainability, the focus for the next two to three years Digitisation and digitalisation have become more prevalent for Eskom to achieve a high-performance culture to incorporate and coordinate distributed generation • Functional and legal separation to support the restructuring efficiently and to improve the overall efficiency of the of Eskom into three legally separated entities wholly grid and operations across value chains. The industry is owned by Eskom, in terms of DPE’s Roadmap for Eskom in a experiencing an increase in digital electricity infrastructure Reformed Electricity Supply Industry Turnaround investment and decreasing costs for grid technologies. Progress on the key areas of the turnaround plan is discussed objectives New data, generated globally, will lead to new ideas and has huge value creation potential. from page 40 Facilitate a competitive future energy industry – Democratisation prepare for competition Future energy systems will incorporate many customer Eskom will seek to deliver an Integrated Transmission technologies through decentralised generation and System and Market Operator in line with DPE’s Roadmap, decentralised ownership. Consumer choice of electricity while pursuing new generation capacity based on the IRP source and supply will broaden. Artificial intelligence, Long-term blockchain, the Internet of Things and advanced analytics 2019 and its revisions to enable the transition towards renewable energy. We strive to implement profitable objectives start-ups are also disrupting the status quo and driving business models underpinned by sound business principles Industry innovation in this space. for Generation, Transmission and Distribution to respond Pursue financial and trends operational sustainability Long-term objectives to the anticipated increase in competition. To achieve our desired end state, we have developed a The Transmission business will establish the appropriate Decarbonisation set of core strategic objectives in response to the latest market platforms to enable a liberalised electricity market. Facilitate a future competitive developments in our internal and external environment. Decentralisation energy industry This will require strong alignment and facilitation of These objectives are fundamentally tied to the overarching enabling policy and a regulatory framework for this future Digitisation Just Energy Modernise the power system phases of “stabilise, separate, and grow” which form the market, together with the establishment of smart and Democratisation Transition foundation of our strategy. flexible tariff models. Strive for net zero Our long-term strategy positions Eskom as an enabler Accelerate the repurposing The Distribution business will establish a Distribution emissions by 2050 of the Just Energy Transition and a key role player in System Operator and Energy Trader to support the and repowering of stations executing the IRP 2019. We intend to remain a critical Transmission System Operator to enable grid access to player in the electricity sector and make a vital contribution distributed energy resources; balance and manage the Actively pursue a share of to economic growth, job creation, socio-economic power system; and aggregate and coordinate prosumers renewable energy allocation development and the creation of a stable, equitable and onto the power system. cohesive South Africa. Implement an integrated socio-economic strategy 36 | | 37 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR STRATEGY AND TURNAROUND PLAN continued Just Energy Transition as a thrust to our strategy The JET strategy will focus on several key areas over the next five years, as shown below. Eskom’s long-term strategy positions it as an enabler of a Just Energy Transition (JET) and a key role player Job in executing the IRP 2019. JET is about leveraging the creation Local opportunities presented by the transition to a cleaner and Social impact manufacture industrialisation JUST studies Doing better for people and the planet, growing greener energy future, while creating new job opportunities localisation and industrialisation for those displaced by the replacement of coal by cleaner Cooperation Repowering technologies. It means a transition towards a low-carbon, agreements Repurposing climate-resilient economy and society in a manner that JUST Accelerated does not impede socio-economic development, but results renewables ENERGY in an increase in sustainable jobs. It is not a sudden shift in Storage Cleaner, sustainable electricity provision options economic activity but occurs in a phased manner over time. Policy alignment ENABLERS ESKOM JET ENERGY STRATEGY Dual fuel/ Eskom has committed itself to addressing the strategic midlife gas TRANSITION objectives of the National Development Plan and other Microgrid, Transformational change of business models, attracting related policies through its turnaround plan and Just Change TRANSITION SSEG, EVs green financing management Energy Transition Strategy, in accordance with which Grid upgrades, Eskom has a social compact with communities. The smart grids aim of the social compact is to ensure a fair and “Just” Funding ENABLERS and financing JET transition when repurposing generation assets, to options transaction Collaboration across constituencies partner with local stakeholders when introducing greener Partnership options energy technologies, and to deal with the challenges of unemployment, poverty, and inequality, including contributing towards inclusive growth and development, all towards a greener footprint in the country. The first five years of the transition are deemed to be the will retain competitiveness. Renewables will be enabled most critical to enable the sustainable success of the just through own build, partnerships, and PPAs. Potential for In support of Eskom’s 2035 Roadmap for a Just Energy transition of both Eskom and the country and to make local manufacture, optimisation regarding established Transition, the Generation business is positioning itself a vital contribution to economic growth, job creation, special economic zones (SEZs), and renewable energy to become a profitable and sustainable business and a socio-economic development, and the creation of a stable, development zones (REDZs) will be leveraged. Modernise the power system – leverage technology key player in the green energy market, with a focus on equitable, and cohesive South Africa. Key focus areas in Significant investment is required in the expansion and renewable energy production. We intend pursuing the Implement an integrated socio-economic strategy the immediate and short term include the repurposing modernisation of grid infrastructure to support the Just Energy Transition and participating in the IRP 2019 Some of the additional benefits of moving towards and repowering of stations, ensuring alignment with evolution of the electricity supply industry and the for renewable and nuclear energy as well as gas, while lower-carbon technologies are the potential to create government’s Just Energy Transition plans, actively pursuing connection of additional large-scale and distributed focusing on a structured approach to the shutdown of new and exciting jobs and a greater preservation of renewable energy allocations, and implementing an generators, to derive value for all stakeholders. This is the coal fleet. biodiversity in South Africa. The increase in investment integrated socio-economic strategy as discussed below. facilitated by interventions such as the development of in cleaner technologies will open the door for social Approximately 22GW of installed capacity of coal-fired Accelerate the repurposing and repowering of stations upliftment through job creation, the creation of demand smart grids and installation of smart meters to enable power will be retired in the next 15 years in line with bidirectional metering. This initiative is aimed at repurposing and repowering along the supply chain, and the development of previously our focus on pursuing a Just Energy Transition. This will the power stations that will be shut down. To enable and disadvantaged groups, including black- and women-owned We must embark on a digital transformation journey to result in additional strain on the system and the need optimise the just transition from coal to more carbon- companies, as well as promoting community-based improve our ability to respond to technological disruption for new generating capacity. Based on a 50-year design efficient generation, solar PV, wind, battery storage, and ownership. The initial focus on reindustrialisation in the and transition the business to utilising digital technology to life of coal-fired stations and our initiative to extend gas are immediate technologies prioritised for repowering Mpumalanga region will contribute to this. enhance operations, improve business efficiency and drive Koeberg’s life to 60 years, only six coal-fired and one initiatives, with investigation of other technologies to be customer-centricity. This objective will also deliver on nuclear power station will continue to run beyond Refer to “Our interaction with the environment – Just Energy considered in the medium to longer term. 2035. Another four coal-fired power stations will be Transition” from page 117 for further information the required transmission grid expansion and the increase in regional distribution grids and distributed generation, shut down by 2050. Two coal-fired stations may be shut Align with national Just Energy Transition plans while rolling out new technology options to support the down prior to the 50-year design life being realised. In driving initiatives within Eskom, alignment with national Progress against the turnaround plan future business. Just Energy Transition plans is critical. Collaboration and The success of our turnaround plan relies on the Minimum Emission Standards require stations operating integration with the various government ministries, as well commitment of the Board, senior management and Strive for net zero emissions by 2050, with an increase until 2030 to comply immediately with “existing plant” as the Presidential Climate Commission, will be driven all Eskom employees, together with support from in sustainable jobs – transition responsibly limits for NO x, SO2 and particulate emissions. Plant on all matters involving the transition, including targets, the shareholder. Government and Eskom will align on Given the rapid development in renewable technology, shutting down after 2030 must comply with new funding mechanisms, localisation, industrialisation and injections of Government support and debt transfers and more stringent environmental legislation and our ageing plant standards by 2025, and therefore, all plant must socio-economic impacts. the timing thereof, and will also continue engaging on the fleet, we will prioritise repurposing and repowering coal continue with required emission improvement retrofit implementation of Eskom’s legal separation to create three power stations as they are shut down in line with our projects. As discussed earlier, these requirements Actively pursue a share of renewable energy allocation Accelerating the transition to renewable energy will separate entities. We will collaborate with Government commitment to achieving net zero emissions by 2050. This present significant financial and operational challenges. to create a future industry structure and clarify the role of will be done while driving key enablers to expedite future improve the carbon profile of South African industries and Eskom and its subsidiaries. utility-scale procurement programmes, mitigate negative To mitigate the impact associated with the shutdown of the socio-economic impacts by delivering on social and skills coal-fired plant reaching end of life, and in response to the plans, promote local industrialisation and job creation, changes of the electricity supply industry towards a lower- and focus on enhancements to improve environmental carbon future, Generation will focus on priority JET-related performance. capacity projects. 38 | | 39 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR STRATEGY AND TURNAROUND PLAN continued Progress on key areas We have set up a capital efficiency programme to make To complete the structural reform and legal separation, Where critical decisions are pending or delayed, Operations recovery optimal use of scarce capital to ensure delivery against we require support from Government and regulators in we continue to work with Government – DPE, DMRE and Generation initiatives encompassed in the Generation our mandate despite significant financial constraints. Key the form of policy, legislative and regulatory amendments, National Treasury – and NERSA to put in place transitional recovery plan aim to improve predictability and reliability optimisation levers have been defined and divisions are such as: arrangements for the operationalisation of NTCSA and the of generation plant while fixing new build defects at Ingula, developing and implementing capital efficiency roadmaps. • Dealing with implications to lenders and loan covenants implementation of the asset transfer agreement. Medupi and Kusile. However, the initiatives are not bearing given our debt challenges fruit yet, with deteriorating generation plant performance The cash release expected from the sale of non-core Given these delays, revised plans indicate NTCSA property has been delayed as the Eskom Real Estate • Staff transfers and consultations with organised labour commencement of trade around April 2023, subject to the creating insufficient available capacity to meet the country’s strategy is under review. In the interim, no-regret • The need for unbundled tariffs prior to separation, as well dependencies mentioned above. electricity demand, resulting in the need to implement interventions such as optimising office space and disposal of as policy and Government-approved market rules loadshedding to protect the system. Distribution and Generation progress underutilised buildings is being undertaken. The sale of EFC • A legal framework for the restructuring process, and a Transmission infrastructure has deteriorated to an Both divisions have started their journey towards legal was put on hold on the instruction of the shareholder as regulatory framework and licensing requirements extent that may pose a risk to energy availability, with separation, with the establishment of project management market conditions were not considered favourable, but has • Solving Eskom’s financial viability high energy losses being a key concern. The Transmission offices, development of roadmaps and the commencement resumed in the 2023 financial year. network development plan is critical to strengthening and Transmission progress of a legal due diligence. extending the network and reducing energy losses. Financial We continue to work with the shareholder and National We have established the National Transmission Company The PFMA application for the establishment of a new constraints are hampering Distribution from executing its Treasury to find solutions to address Eskom’s unsustainable South Africa SOC Ltd (NTCSA) to house the transmission distribution entity has been approved by DPE and National mandate of building and maintaining distribution assets and debt levels. business. It is key to electricity market reform in South Treasury. The way forward for a preferred corporate servicing the customer. Distribution has identified initiatives Africa, playing the roles of system operator (balancing People and culture structure depends on changes to existing legislation or new to optimise distribution asset management and asset service, supply and demand) and market operator. NTCSA is in The people and culture portfolio was established to drive founding legislation – this affects the legal separation of the reduce non-technical losses and sustain revenue. a good position to operationalise legal separation, given change and support the overarching goal of three legally Generation business. stable operational performance with activities supporting Improve the income statement separated subsidiaries under Eskom Holdings, in line legal separation. Similar to the separation of the Transmission business, the Several initiatives have been put in place to address tariff with DPE’s Roadmap. The programme aims to achieve fit-for-purpose organisational structures to ensure optimal separation of the Distribution and Generation businesses recovery. A tariff increase of 15.06% was granted for the DMRE has started the process to amend both the business models that are responsive to the changing depend on lender consent, as well as numerous other 2022 financial year, which had a significant positive impact Electricity Regulation Act, 2006 and the Electricity Pricing energy landscape. Mechanisms to drive a high-performance legislative, regulatory and policy changes. It has become on Eskom’s profitability and liquidity. However, future Policy. Current timelines suggest that the amended culture and improved productivity are fundamental to the apparent that given these dependencies, the timelines revenue recovery is at risk given NERSA’s decision to legislation will come into effect in 2023. Until then, DPE programme. proposed in the Roadmap were optimistic. allow a tariff increase of only 9.61% for the coming year, is leading discussions on the possibility of introducing compared to 20% for which we applied. We are evaluating transitional arrangements to facilitate an earlier separation Our revised plans target readiness for Distribution Progress on business separation our options in this regard. of the Transmission Division. operationalisation by December 2023 and commencement The need to restructure Eskom is driven by an evolving South African energy market and policy landscape. The of trade by April 2024. Legal separation of Generation To improve revenue collection, the Distribution business The legal separation of Transmission experienced delays implementation of DPE’s Roadmap will result in the is targeted in 2025. However, these dates are subject to developed a debt management strategy, with one of the in several critical external decisions and key dependencies, formation of new Transmission, Generation and Distribution external dependencies which may affect the timelines. key interventions being active partnering with municipal including protracted lender consent processes and delays in customers. Regrettably, only two municipalities have entered subsidiaries wholly owned by Eskom. The Roadmap originally obtaining a transmission licence for NTCSA. into active partnering agreements to date. We continue set out timelines for the restructuring of Eskom, from a to apply a multi-stakeholder engagement approach using vertically integrated utility to an unbundled state as follows: various intergovernmental platforms while implementing • Divisionalisation by March 2020 the other levers of the strategy, such as credit management, • Functional separation by March 2021 legal action and limiting of service. Furthermore, the City of • Legal separation of the Transmission entity by Johannesburg Metro has expressed an interest in taking over December 2021 the supply of electricity to Soweto and Sandton within its • Legal separation of the Generation and Distribution areas of jurisdiction; a memorandum of understanding has entities by December 2022 been signed. We will consult with all key stakeholders once the viability of the business case has been assessed. Similarly, We are applying a phased approach to the separation, to discussions are ongoing with the City of Cape Town for the allow us to implement and optimise governance, operations transfer of certain Eskom distribution areas to the metro. and processes before final legal separation. Divisionalisation was completed in the 2020 financial year, with functional We have achieved combined cost savings of R50.7 billion over separation achieved in April 2021. the last three years, exceeding the target of R40.4 billion. Strengthen the balance sheet Several inventory optimisation interventions have been put in place to manage stock levels. In the medium to long term, we are implementing a warehouse modernisation project. The supplier payment cycle was identified as another lever to improve working capital. 40 | | 41 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information STAKEHOLDER ENGAGEMENT A poor corporate reputation undermines investor We believe that transparent reporting to the shareholder, The Board is satisfied that it has identified all key not only of our employees, but of all stakeholders as we confidence, challenges profitability and liquidity, erodes our stakeholders and the broader public (our direct and stakeholders, their significance and role. The relationship transition towards a more desirable future for Eskom and business value and threatens commercial viability. Eskom indirect customers) is key to restoring trust in Eskom. with Parliamentary committees has been identified as the country. Improving the quality of our relationships with has the responsibility to navigate both a shifting political Advocacy and stakeholder engagement remain key enablers an area for improvement. GRAD is enhancing processes stakeholders will support that process. economy and a complex government and regulatory of our strategy and turnaround plan and, as such, our to ensure Eskom maintains strong relationships with all environment in which our ability to influence decisions, engagements with stakeholders are carefully planned in key stakeholders, in accordance with our stakeholder Issues raised by stakeholders impacts our business. terms of the approach, scope and intended outcome. engagement strategy. Those issues that matter to our stakeholders often directly The ongoing electricity supply crisis has to be addressed Our stakeholder engagement plans are developed to We must rebuild trust and strengthen confidence in Eskom affect our ability to create value and to execute our in a manner that supports the growth and development address the challenges facing Eskom’s structural, financial by implementing our turnaround plan to ensure that we can strategic objectives. As such, we consider these matters of the economy and our society, by ensuring a sustainable and operational sustainability. Several strategic platforms deliver on our mandate and DPE’s Roadmap. As part of that in our strategic planning, as well as in the determination of organisation while limiting the detrimental impact on were created during the year to engage on issues of process, we need the continued support and commitment, material matters. the economy. To do so, we depend on the support of Eskom’s legal separation, Just Energy Transition and stakeholders and the broader public, which constitutes repurposing of power stations. These meetings were used Issues raised by different groups include the following: our direct and indirect customers, to achieve success – to clarify Eskom’s security of supply and decarbonisation Material matters Issues raised Stakeholder groups stakeholder trust is a key factor in our future success. value proposition, as well as the socio-economic Therefore, we continue to explore ways to improve how contribution and trade-offs we have to balance. The Government support and debt Government support and guarantees; debt management; foreign Government; investors we engage with stakeholders, thereby promoting energy success of our turnaround programme will rely both on structure borrowing limits; management of loan agreements; credit ratings; funding plans and debt levels security in the long term, by effectively responding to our commitment and the support of our stakeholders to stakeholder needs. achieve a sustainable energy future for South Africa. Liquidity (short to medium Cost-reflective tariffs and electricity pricing; affordable electricity and Government; Parliamentary committees; term) and going concern tariff certainty; revenue management; municipal debt; cost containment regulators; investors; customers; business The Board provides oversight of the effectiveness of Stakeholder landscape Financial sustainability initiatives; cash projections and liquidity; financial sustainability and industry; employees and organised stakeholder engagement through SES, and has delegated We operate in a broad and extensive stakeholder landscape (long term) labour; suppliers; civil society the management of stakeholder relationships to Exco. with divergent and occasionally competing stakeholder Operational stability Operational sustainability; availability of supply; quality and reliability Government; Parliamentary committees; Under Exco’s oversight, various functions within Eskom are needs and concerns. We have classified key stakeholder of supply; impact of loadshedding; nuclear programme; customer regulators; investors; customers; business responsible for engaging with different stakeholder groups. groups as authorisers, influencers, partners or enforcers. connections; illegal connections; electrification and job creation; new and industry; employees and organised The Government and Regulatory Affairs Division (GRAD) Stakeholder groups have been categorised based on their build programme; workforce demobilisation; grid expansion into labour; suppliers; civil society; is responsible for managing relationships with Government, perceived influence on Eskom, and our impact on them. Africa; public-private partnerships; health and safety; skills international groups development; supplier development, localisation and industrialisation; various regulators, as well as domestic and international job creation; community development stakeholders. As a state-owned entity, the requirements of the South African Government are vital to what we do. DPE acts Environmental performance Environmental compliance; renewable energy; new sources of energy; Government; investors; business and as our shareholder, setting the mandate on which we and compliance cleaner technology adoption; Just Energy Transition; IRP 2019; industry; civil society; international groups Our interaction with stakeholders responding to climate change must deliver, while other departments create policy Climate change and Just Energy Strong and productive relationships with all stakeholders within legislative frameworks or provide oversight of Transition – Government, the financial sector, business, labour and our operations. Alignment with DPE, DMRE and other Governance, compliance and Performance against the shareholder compact; accountability; legal Government; Parliamentary committees; customers – are needed to deliver value. Despite a marked government departments is key to ensuring that we create ethics compliance; governance issues; corruption and consequence regulators; investors; business and improvement over the past two years, public sentiment a sustainable electricity supply industry through DPE’s management; irregular expenditure; licence to operate industry; employees and organised labour; towards Eskom remains poor. Roadmap. suppliers; civil society Refer to “Our role in communities – Our reputation” on Adequate skills and high- Job security; employee benefits; leadership stability; strategic direction Government; employees and organised performance culture labour; suppliers page 131 for additional information Business separation progress Business separation progress, particularly relating to the Transmission Government; regulators; investors; business business and industry; employees and organised labour; international groups High Our response to issues raised Just Energy Transition Stakeholders’ influence on Eskom Investors Parliamentary Regulators committees Employees Government Eskom will engage consistently and collaboratively Achieving Eskom’s Just Energy Transition objectives to address all the above stakeholder concerns. Most requires profound changes in market outcomes and importantly, we strive to be responsible corporate citizens, social and political relationships. We conducted various Medium ethically and socially. community roadshows, stakeholder forums and workshops Business and Civil society Customers to engage with displaced workers and empower affected suppliers Loadshedding and electricity supply citizens. COP26 was used to position the country as a In recognition of the devastating impact of loadshedding on preferred investment destination and secure funding for the economy and the country, the Group Chief Executive Eskom’s Just Transition to cleaner energy. and Group Chief Operating Officer held frequent media Low International Media briefings to update the media and the public on the system Eskom’s legal separation groups status. We have resurrected the Power Alert campaign Various workstreams enable collaboration with requesting voluntary residential demand reduction when the stakeholders to support legal separation. We have Low Medium High system is most constrained during evening peaks. In response responded to policymaker concerns through advisory to the electricity shortage, we rolled out the “Use electricity committees to address decision-making challenges. Trade Eskom’s impact on stakeholders smartly” campaign, while a public safety campaign warned union concerns are dealt with at the Eskom Restructuring Partners Enforcers Authorisers Influencers electricity users against the impact of illegal connections. We Consultative Forum. further hosted the media and other key stakeholder groups at power stations to explain the source of the electricity supply crisis and our initiatives to address the issue. 42 | | 43 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information MATERIAL MATTERS INTEGRATING RISK AND Material matters are those high-likelihood, high-consequence matters that affect our ability to create, preserve or erode RESILIENCE enterprise value in the short, medium and long term. We consider both positive and negative matters, in the context of the six capitals and our turnaround objectives. Enterprise risk management process Risk appetite refers to the amount and type of risk We have an established, integrated approach to managing an organisation is prepared to pursue or accept in MATERIALITY DETERMINATION CONSIDER ALL MATTERS MATERIAL MATTERS risk and resilience across Eskom and its subsidiaries. The achieving its objectives, while risk tolerance refers to PROCESS Board is responsible for the governance and oversight of an organisation’s readiness to bear the risk after risk risk in line with King IV TM, approving the risk appetite and treatment. This risk appetite and tolerance process Financial sustainability (long term) tolerance levels of the organisation as well as the Enterprise serves as an early warning mechanism when adverse Risk and Resilience Management Policy and Plan. risk trends reach unacceptable limits. Start with Government support and debt Likelihood of structure As management is considered the first line of defence Prior year material matters occurrence when treating risk, the responsibility to implement and We employ one integrated risk management information Liquidity (short to medium term) execute effective risk and resilience management has been system for all organisational risk management information, + + and going concern Operational stability delegated to Exco by the Board. Exco and its Risk and Sustainability Committee, together with ARC, review the with accountable owners assigned to each risk. Key risk indicators are in place for all risks, to ensure that they key priorities and deliverables of our Risk and Resilience are managed proactively and to understand the rate and Consider Magnitude of Environmental performance Management Plan annually and monitor the organisation’s direction in which they are moving. Our integrated risk consequence and compliance risk management performance quarterly, in line with the management process is outlined below. Changes in operating Risk Appetite and Tolerance Framework. environment Topics discussed at Board level = Climate change and Just Energy Transition Governance, compliance and ethics COMMUNICATE AND CONSULT WITH STAKEHOLDERS Issues raised by stakeholders Filter all matters based on relative importance Adequate skills and Risk management process high-performance culture Business separation progress Establish Identify Analyse Evaluate Treat context risks risks risks risks The financial matters cover our financial results; equity and The impact of the COVID-19 pandemic is no longer treated debt funding raised; liquidity; the revenue outlook given as a separate material matter, as it has become part of the trajectory towards cost-reflective tariffs and stagnant business as usual. MONITOR AND REVIEW or declining sales volumes; cost curtailment initiatives; and escalating arrear municipal debt. Operational stability, The material matters are relevant over the short, medium which requires sufficient liquidity, covers both generation and long term, and if not managed properly, will have a In November 2020, DPE published its Risk and Integrity plant and network performance as well as ensuring negative impact on our ability to create value. National blackout Management Framework (RIMF), which is aimed at sufficient generation capacity through the new build programme and IPPs. It further considers coal and water Our strategic risks, which are aligned to our turnaround objectives and indirectly, to the material matters, are discussed strengthening practices by SOCs in the areas of risk management, sustainability reporting, conflict of interest Severe supply constraint Nuclear incident ! security, as well as safety performance. from page 46 management, vetting of employees and general ethics Economic or financial collapse management. We have begun implementing our plan to Cyber-attack or critical systems failure address the requirements of the RIMF and thereby enhance National industrial action governance, risk monitoring and risk reporting. Drought and water-related disaster Enterprise resilience Environment or climate disaster We ensure compliance with the Disaster Management Solar or geomagnetic storm Act, 2002 and manage our response to major threats and Pandemic disruptions through our Enterprise Resilience Programme. Terrorism or political instability Technical and non-technical vulnerabilities are continuously reviewed, with simulation exercises conducted regularly to The worldwide COVID-19 pandemic, as well as severe ensure that the organisation can continue to operate and is generation supply constraints, continued to affect able to recover within a reasonably short time in the event our operations during the year under review. Eskom’s of serious incidents or disasters. Emergency Response Command Centre (ERCC) has Disaster risks are classified as those inherent to our handed over the response to the COVID-19 pandemic operations that, while having a relatively low likelihood to the Human Resources Tactical Command Centre to of materialising and adequate controls, would have a be integrated into Eskom’s normal business operations. significant consequence should they materialise. The However, we remain ready to activate the ERCC to following national disaster risks are managed through our respond to any of the national disaster risks should the Enterprise Resilience Programme, which caters for disaster need arise. management and emergency preparedness. Accountability for risk monitoring and response planning for each has been assigned to individual Exco members. 44 | | 45 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information INTEGRATING RISK AND RESILIENCE continued Political instability materialised in July 2021 through Given the violent nature of the unrest, the safety and Risk appetite statement Related material per risk category Risk summary matters High-level treatment options waves of social unrest following the incarceration of security of our people and assets were considered former President Jacob Zuma. Infrastructure and service paramount. Non-essential work was deferred and Finance Eskom’s liquidity in the short term and financial Financial • Review of standard tariff plans, delivery were impacted, predominantly in the KwaZulu- employees and contractors were not dispatched High appetite to reduce sustainability in the medium to long term are at risk sustainability structures and rates, as well as legal Eskom’s loss to less than due to a declining customer base, escalating arrear (long term) review of NERSA decisions Natal Province. Eskom’s disaster management plans to volatile areas without an integrated route risk R5 billion by the end of municipal debt, high levels of borrowings and debt • Government support to bolster were implemented and working groups conducted risk assessment to prevent hijacking and other crime the 2024 financial year by servicing, unacceptable levels of fraud and corruption, Government liquidity assessments and monitored risks relating to each area of while responding to faults. At the height of the violent increasing revenue, operating as well as regulatory uncertainty and the lack of cost- support & debt structure • The Eskom Compact signed by our operations. Thankfully, no incidents were reported unrest, Eskom was in constant communication with the at an efficient cost base, reflective tariffs. These challenges may lead to labour, business and Government improving debt collection and compromised operations, an inability to maintain at Eskom sites. Nevertheless, prolonged periods of National Joint Operational Centre to address security stabilising the balance sheet. Eskom’s status as a going concern and failure to meet Liquidity (short to at NEDLAC unrest could have created generation supply constraints requirements, including the safe transportation of fuel. medium term) & • Eskom’s turnaround plan, including This will require support from our mandate going concern cost curtailment initiatives due to the unreliability of generating plant. Contracted private security, SAPS and the South African Government and possible policy changes, where • Weekly meetings with DPE and National Defence Force were deployed to provide Operational National Treasury, focusing on necessary support at various Eskom sites in affected areas. stability liquidity management • Engagement with DPE and National Treasury on ways to address the debt burden Assessment of risk • Failure to transform and transition from a coal-based • Municipal debt management Integrating and effectively managing risk and resilience power system to a low-carbon and climate-resilient strategy and escalation of arrear ensures that we are able to formulate and execute our company at an adequate rate, while complying with policies municipal debt challenges to and regulations Government strategy, operate our business with minimal disruption, proactively leverage opportunities as they arise, and • Legal separation delays caused by a lack of alignment with Operations The deterioration in operational performance is Liquidity (short to • Generation recovery plan respond to and recover from disruptions should they external stakeholders, leading to reputational damage and a High appetite to meet the linked to Eskom’s constrained financial position. This medium term) & • Koeberg long-term operation country’s electricity demand is exacerbated by ageing plant, lack of adequate going concern project to avoid shutdown in 2024 materialise. It is therefore important that risks that affect decline in investor confidence and prevent a national blackout maintenance over many years, running ageing plant at • Eskom’s turnaround plan, focused our strategic objectives are identified, managed effectively and protect the national unacceptably high utilisation levels, coal quality Operational Our risk landscape is monitored, tracked and reported stability on improving reliability, reducing and monitored continuously. grid using load reduction challenges at some stations, the loss of core, critical loadshedding and addressing design across seven risk categories which address these long-term and loadshedding as control and scarce skills, procurement and National Treasury Adequate skills & defects Strategic risks risks. These include finance, operations, environment and measures. This will be achieved delays, as well as low staff morale. In addition, new high-performance • Transmission sustainability Treating the following long-term risks are paramount for climate change, people culture and safety, information by operating plant efficiently plant not achieving desired levels of performance, culture improvement plan and safely through a skilled and due to a combination of plant design deficiencies and Eskom’s future success: technology, stakeholder management as well as governance competent workforce, while operational and maintenance inefficiencies, • Distribution energy losses initiatives • The financial sustainability of Eskom being compromised and compliance. limiting environmental harm contribute to supply constraints. The ageing national programme due to declining sales volumes, lack of cost-reflective tariffs, and obtaining support from grid is also plagued with intolerable levels of theft • Plans are being revised to respond In addition to these, we are committed to executing Government where required and vandalism of network equipment. Delays in to increasing network equipment poor operational performance necessitating increased the legal separation of Transmission, Generation and connecting IPPs to the grid adds to the unreliability crime reliance on expensive OCGTs to avoid or minimise Distribution in a phased manner, in line with DPE’s of power supply. These factors pose a fundamental • Improving consequence loadshedding, escalating arrear debt from non-paying Roadmap, and to ensuring Eskom’s Just Energy Transition. risk of loadshedding to protect the national grid from management to address poor customers and high levels of borrowings a national blackout, leading to a further decline in performance These are critical for delivering on our long-term strategy, stakeholder confidence • Deterioration in generating plant performance, loss of • Engagements to address National transforming the electricity supply industry and ensuring Treasury delays in procurement and inability to attract critical skills, capacity constraints, the sustainability of Eskom into the future. processes and inability to sustain and maintain transmission network reliability, leading to potential system constraints, the Refer to “Just Energy Transition as a thrust to our strategy” Environment and climate Poor environmental performance and non-compliance Environmental • Extensive integrated work on a from page 38 and “Progress on business separation” from change with environmental regulations and legislation could performance & response that considers emissions, risk of a national blackout and a decline in stakeholder High appetite to comply with lead to the loss of Eskom’s licence to operate and compliance cost, tariff, net present value, confidence page 40 for further information environmental regulations plant shutdown. Contributing to this risk is the lack practicality, alternate technology and legislation, to prevent of disciplined execution of operations as well as a Climate change options and energy provision • Loss of licence to operate due to poor environmental & Just Energy harm or damage to the lack of adequate project management and funding to • Securing funding for emission performance, leading to plant shutdown and/or litigation environment and people implement initiatives aimed at ensuring environmental Transition projects and Eskom’s Just Energy • Critical applications and various IT platforms being living in communities close compliance and the reduction of our environmental Transition Adequate skills & compromised due to attacks against network to Eskom’s plant footprint • Establishment of a Clean Energy high-performance infrastructure and business systems, cyber-security High appetite to transition Eskom’s failure to transform and transition from culture Department in Generation to shortfalls or instability leading to severe business to a low-carbon and climate- a coal-based power system to a low-carbon and oversee the development, design, resilient company, while climate-resilient company could lead to penalties construction and execution of clean disruptions energy projects addressing socio-economic from authorities and/or potential loss of Eskom’s imperatives and complying social licence to operate. This is driven by a lack of with policies and regulations alignment on the net zero pathway, coupled with no allocation by DMRE of low-carbon technology to Eskom, which may lead to failure to determine an optimal combination of clean technologies to achieve emission reductions 46 | | 47 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information INTEGRATING RISK AND RESILIENCE continued Risk appetite statement Related material Organisational risks At 31 March 2022, we had 33 Priority I risks (2021: 49), per risk category Risk summary matters High-level treatment options Organisational risks are classified from Priority I risks at which include strategic risks and those affecting the highest level to Priority IV risks at the lowest, based achievement of the shareholder compact, with their People culture and safety The loss and lack of skills is a root cause to many risks Operational • COVID-19 protocols and rollout of High appetite for a skilled and will continue to impact Eskom’s sustainability. In stability the employee vaccine programme on the magnitude of the consequence and likelihood of the corresponding positions on the risk matrix shown below in workforce and a high- addition, a breakdown in relationship with labour and • Safety awareness and education occurrence. All Priority 1 and emerging risks are reported terms of our Risk Appetite and Tolerance Framework. performance ethical culture management affects productivity and creates a harmful Adequate skills & programmes quarterly to Exco and the Board, which provide oversight working environment, and in extreme cases, could high-performance High appetite for Zero culture • Staff engagements as recommended by King IV TM. affect our ability to supply electricity to customers. Harm among employees, The health and safety of people are compromised by • HR strategy implementation, contractors and members a failure to effectively implement occupational health including a skills audit Priority 1 level risks at March 2022 Priority 1 level risks at March 2021 of the public by eliminating and safety improvement initiatives • Implementation of a hybrid fatalities and reducing injuries. work model 6 6 4 2 6 6 4 9 12 Furthermore, there is no • Development of Eskom’s culture appetite to negatively affect 5 6 5 8 5 transformation programme Consequences Consequences human health, both physical to deliver a high-performance and mental 4 4 3 4 10 ethical culture Information technology The evolving IT environment requires continuous Operational • Continual enforcement of security 3 2 3 1 High appetite to proactively investment to prevent cyber-security intrusions stability compliance on all applications, improve Eskom’s information affecting information and operational technology. as well as collaboration between 2 2 technology direction, while This is exacerbated by cyber-security shortfalls and Adequate skills & Group IT and application vendors high-performance 1 1 enabling, empowering and co- the loss of core, scarce and critical IT skills, which • Addressing critical supplier disputes creating innovative technology pose a risk to Eskom’s IT infrastructure, network culture • Development of new key risk A B C D E A B C D E solutions for Eskom’s and business systems, and may lead to compromised indicators to enhance risk customers confidentiality and integrity of business information monitoring Likelihood Likelihood • Megawatt Park data centre replacement project Stakeholder management Failure to sufficiently assess and proactively respond Government • Implementation of the stakeholder High appetite to enhance to external stakeholder expectations impacts our support & debt engagement plan, including Eskom’s relationship with financial and operational sustainability. In addition, structure continuous internal and external We have achieved an improvement in the number of Priority 1 risks as a result of several risk management The Russian invasion of Ukraine in February 2022 poses stakeholders, including the the decline in socio-economic conditions exacerbates stakeholder engagements communities in which we associated community-related risks such as theft and Governance, interventions implemented during the year. An “attacking a significant emerging risk to Eskom and the broader • Various engagements with DPE and operate, Government and vandalism of our infrastructure and potential harm compliance & ethics National Treasury the causes” initiative was introduced to address root energy sector. Eskom is likely to continue to be affected the shareholder, to achieve to members of the public exposed to our products • Implementation of Eskom’s causes and ensure alignment to risk controls. Furthermore, by supply chain disruptions, rising fuel prices and common value. This is and infrastructure, leading to legal, reputational and reputation strategy declining fuel availability, which will lead to increased underpinned by an effective, financial risks information captured in the risk management system was efficient, timeous and reviewed by divisional risk managers and independently costs amid an already constrained financial position integrated communication plan reviewed by the Enterprise Risk Management Department. and further generation supply constraints, thereby and by managing external risk A number of findings were identified and shared with risk increasing the risk of loadshedding. factors that have an impact on Eskom’s sustainability owners to address the shortcomings. Risk inquiries were To mitigate this risk, our financial plan for the 2023 also conducted on long outstanding Priority 1 risks to financial year has been adjusted to accommodate Governance and Non-compliance with sections 50 and 51 of the PFMA, Operational • Addressing vacancies on the Board compliance 1999, has proven an ongoing challenge and has led to stability improve management accountability. potential fuel price fluctuations. We will collaborate • Implementation of the Fraud No appetite for any non- qualified audit opinions for the past few years. This Prevention Plan Regrettably, financial sustainability and liquidity risks with suppliers and Government to ensure continued compliance with obligations has been caused by a lack of specialised oversight Environmental performance & • Establishment of a dedicated continue to remain at the highest level of risk, namely 6E, availability of critical resources. which may cause harm to on key PFMA-related processes, which could lead task team to address the the organisation, including to reputational damage, financial loss, fruitless and compliance and are a contributing factor to many other risks in the recommendations of the Judicial non-compliance with wasteful expenditure and criminal prosecution of Commission of Inquiry into business. Treatment plans are monitored to ensure that Refer to “Our finances – Fuel price sensitivity” on page 78 for Governance, compulsory regulations directors further information on the risk to fuel prices and legislation, as well as compliance & ethics Allegations of State Capture they are achievable within specified timelines and to identify This is exacerbated by fraud, corruption, unethical (Zondo Commission) where escalation is required for risks that are outside of voluntary commitments. In behaviour, employees not complying with policies • System improvements to enhance addition, there is no appetite Eskom’s control. for unethical conduct, fraud, and procedures, as well as regulatory and litigation controls, management of conflicts challenges facing Eskom of interest and consequence corruption or criminal management Emerging risks behaviour in general Emerging risks are assessed on a regular basis through • Reviews and investigations by the Assurance and Forensic scanning our environment and identifying changes in Department our operating environment due to global and local • Establishment of the PFMA Loss developments, as well as changes reported in the business. Control Department to execute The identification of emerging risks is critical to ensure and report on PFMA compliance that these risks are managed proactively. As with existing • Implementation of the procurement roadmap to improve commercial organisational risks, emerging risks are tracked and governance processes reported quarterly to Exco and the Board. • Ethics risk assessment, as well as compulsory training on ethics, fraud awareness and PFMA requirements 48 | | 49 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information GOVERNANCE, OUR GOVERNANCE LEADERSHIP AND ETHICS FRAMEWORK AT 31 MARCH 2022 Department of Public Enterprises Eskom’s mandate is based on the shareholder’s Strategic Intent Statement. Our annual performance is measured against the shareholder compact 3 WHAT YOU Eskom Holdings SOC Ltd WILL FIND IN THIS SECTION King IV TM and our Code of Ethics, “The Way”, guide the way we do business Our governance framework 51 Board of Directors Executive Management Committee Progress on governance clean-up 52 Board and its committees 56 King IV TM application 68 Audit and Risk Capital (oversight of internal and Executive management 70 Information and Technology Divisional boards external audit) Nuclear Management Generation Investment and Finance Operating People and Governance Transmission Regulation, Policy and Economics Social, Ethics and Sustainability Distribution Risk and Sustainability Strategy Tender Turnaround For information on the Board and its Eskom’s functional and legal separation committees, refer to “Board and its For information on Exco and its subcommittees, refer is discussed under “Our strategic committees” from page 56 to “Executive management” on page 70 context” from page 28 An essential component of our governance framework Refer to page 10 to 13 for the composition of the Board and is ensuring clarity of roles between the shareholder, the Exco, including information on skills as well as racial, gender Board and management of the Eskom group, to achieve and age diversity our strategic priorities within the legislative, regulatory and policy environment in which we operate. Clear accountability for decision-making is assigned through Divisional boards for Generation, Transmission and our Delegation of Authority (DoA) and Significance and Distribution were established to drive separate Materiality Frameworks (SMF), which guide the referral of accountability for each division, as a transitional matters from management to the Board, and from there to structure and a first step towards Eskom’s legal DPE and National Treasury, where required. separation. The divisional boards do not constitute a board of directors in accordance with the The Board, supported by several committees, is the focal Companies Act, 2008, but function as operational point of our governance framework and promotes good boards until the legal separation is concluded. corporate citizenship. The Board is also accountable Although the divisional boards function relatively to the shareholder for performance against financial, independently, they report to Exco on a regular operational and other business expectations, and to the basis to ensure that decision-making is aligned with organisation for providing strategic direction and ensuring Eskom’s overall strategy. its sustainability and prosperity. The powers of the Board and the shareholder are defined in Eskom’s Memorandum of Eskom’s legal separation will ultimately result Incorporation (MOI). Apart from the Group Chief Executive in the formation of wholly-owned subsidiaries (GCE) and the Chief Financial Officer (CFO), the Board is with independent boards for Transmission, composed entirely of independent non-executive directors. Generation and Distribution, starting with National Transmission Company South Africa SOC Ltd. The Executive Management Committee (Exco) is The boards of the wholly-owned subsidiaries will accountable for exercising executive control over day-to-day still be accountable to the Board of Eskom Holdings operations to deliver on the strategy set out by the Board. SOC Ltd, in line with good governance practices. 50 | | 51 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information PROGRESS ON GOVERNANCE CLEAN-UP Eskom has experienced corporate governance breaches in one official was dismissed on unrelated charges, 17 cases Investigations and disciplinary action cases. The number of long outstanding disciplinary the past, particularly relating to allegations of state capture were closed as a result of no adverse findings identified All of our stakeholders are encouraged to report suspected actions are being monitored at executive and Board level. surrounding state-owned companies (SOCs) in South or resignations during the process, and five cases are still incidents of unlawful or irregular conduct involving A disciplinary tribunal consisting of internal and external Africa. These matters have been reported on widely in the under investigation by the SIU. The remaining 11 cases Eskom’s directors, employees or suppliers through our experts has been established to expedite disciplinary action media and have been the subject of numerous investigations were referred to Eskom for disciplinary action, with seven whistle-blowing channels. These channels are managed by and policies and procedures are also being reviewed to and inquiries, as discussed in previous integrated reports. employees found guilty and subject to sanctions ranging an independent service provider to ensure the integrity ensure consistent application of sanctions. from written warnings to suspensions. and confidentiality of the process. All incidents are Most notably, the Judicial Commission of Inquiry into Compliance with the Prevention and Combating of Corrupt Allegations of State Capture, led by Deputy Chief Justice Disciplinary processes continue to be conducted on the acknowledged within 24 hours and cases are registered for Activities Act, 2004 requires referral to law enforcement Raymond Zondo, commenced in August 2018. The Zondo approximately 3 800 employees below executive and senior forensic investigation after conducting an initial assessment agencies in instances where amounts involved are R100 000 Commission published the first parts of its report in early management level mentioned in last year’s report, who had of the incident. and more. However, Eskom has adopted a zero-tolerance 2022 and concluded its work in June 2022. Part IV Volumes not declared business-related interests or had performed Refer to the inside back cover for the contact details of our approach to fraud and corruption, in which every matter 3 and 4 were dedicated to allegations of state capture at private work without prior approval. Around 94% of these whistle-blowing channels where evidence of criminality exists are referred to law Eskom, while Part I Volume 2 contained a limited number matters were resolved by year end. enforcement agencies for criminal investigation, even if of recommendations related to Eskom. The Commission FORENSIC INVESTIGATIONS implicated individuals have resigned from Eskom. We also found serious cases of fraud and corruption perpetrated by In response to these findings, we have enhanced our facilitate workshops on our procurement processes with former executives, former Board members, suppliers and conflict of interest declaration system by linking directly 1 669 law enforcement agencies to improve the turnaround time their associates. to the Companies and Intellectual Property Commission reports to A&F through whistle-blowing channels and quality of investigations into Eskom cases. Where (CIPC) database. The upgrade was implemented from appropriate, civil proceedings are instituted to recover Recommendations to address these findings include 1 April 2021 to verify declarations made during the 128 113 losses suffered by Eskom. During the year, A&F introduced instituting criminal charges; ensuring appropriate 2022 financial year. Exceptions that raise potential non- new cases registered for forensic investigations a process of non-litigation recovery in which financial losses consequence management against employees and suppliers; compliance with our conflict of interest policy are referred investigation concluded are recovered during the course of a forensic investigation. pursuing director delinquency proceedings and civil to the Assurance and Forensic Department (A&F), our 253 recovery of financial losses suffered by Eskom; among internal audit and forensics function, for investigation. An Executive Security Steering Committee, chaired cases under investigation at year end, relating to others. by the Group Chief Operating Officer (GCOO), has current and prior years Ethics, fraud and consequence management been established to address security risks relating to These recommendations are consistent with the Board’s criminal acts, including the theft of copper, vandalism of plan to root out fraud and corruption, promote an ethical The implementation of our Fraud Risk Prevention Plan is progressing well, with the aim of maximising fraud SANCTIONS infrastructure and sabotage incidents. Improved security culture and address issues related to past corporate measures are being implemented to manage these risks governance breaches, with the aim of restoring Eskom’s prevention and enhancing good corporate governance 192 practices. The Anti-Fraud and Corruption Integration and reduce the number of incidents and associated losses reputation as a trusted corporate citizen and improving its employees recommended for disciplinary action Committee (AFCIC) is monitoring implementation of through appropriate use of technology and the deployment financial and operational sustainability. of additional security. the plan and ensuring integration between forensic, legal, 69 Our response to these governance challenges centres on ethics, industrial relations and supplier review functions. suppliers recommended for review to the Supplier Initiatives to improve the prevention of coal, diesel and the following key areas: Progress is reported to Exco and the Audit and Risk Review Committee fuel oil theft at Eskom’s power stations are also under • Conducting proactive lifestyle audits and reviews of Committee (ARC) on a regular basis. way. These are critical commodities for Eskom and are 104 conflicts of interest frequently targeted by known criminal syndicates. In As part of this plan, executive management has tasked confirmed cases of fraud and corruption registered • Enhancing ethics and anti-fraud frameworks, as well as A&F with visiting each power station to identify possible with the South African Police Services (SAPS) particular, coal deliveries by road are at risk of theft consequence management fraud risks and opportunities for improved fraud detection and coal-swapping for inferior quality coal. We have • Instituting disciplinary proceedings against employees and response activities. By 30 September 2022, visits 5 implemented operational control mechanisms, such as and suppliers, as well as pursuing criminal and civil legal have been conducted at 16 power stations. Four forensic cases on trial before the criminal courts tamper proof seals, and phased out free carrier agreement action where appropriate cases relating to findings at Kendal and Tutuka Power transporter contracts since December 2021. All coal • Establishing a dedicated task team to address the Stations have been registered following these visits and the We are employing data analysis to aid in forensic supply agreements require suppliers to retain responsibility recommendations of the Zondo Commission investigations are ongoing. investigations and identify suspicious transactions. for and ownership of the coal until it is weighed at the Unfortunately, our investigations have revealed similar power station. Coal supplies are also pre-certified by • Strengthening PFMA and commercial governance In addition, the AFCIC is assessing our alignment to the themes to previous years, with instances of undeclared laboratories to ensure they adhere to contractual quality processes goals and purpose of the Organisation for Economic Co- conflicts of interest, failure to obtain permission to before being delivered. These actions are part of a collective effort to improve operation and Development’s (OECD) recommendations perform private work, improper contract management, on anti-corruption, which will be used to identify further as well as general procurement irregularities continuing. Despite these interventions, investigations have discovered trust and restore investor confidence. We continue areas for improvement in the Fraud Risk Prevention Plan. Non-compliance with Eskom’s policies and procedures that in some cases these processes are deliberately to affirm a zero tolerance to fraud, corruption and remains the most prevalent root cause of these issues. bypassed through collusion by criminal elements. Our focus other forms of economic crime or dishonest activity. The Human Resources Division (HR) has revised its is on gathering intelligence on key role players within and Developments are discussed in further detail below; A&F has recommended control enhancements in affected reference flagging procedures to include employees who external to Eskom, as well as the syndicated operations however, due to the sensitive nature of these matters, areas to prevent recurrence; management actions to rectify resigned before disciplinary processes or investigations of the criminal networks. We are collaborating with not all information can be disclosed in this report. identified control deficiencies are being monitored. could be concluded. Previously, only employees who were law enforcement and other criminal justice agencies to dismissed were flagged. Individuals who have been flagged Regrettably, instituting appropriate disciplinary proceedings address possible shortcomings which prevent successful Lifestyle audits and conflicts of interest cannot be employed in Eskom for 10 years and cannot against employees and suppliers remains slow, resulting investigations and prosecutions on these matters. In last year’s report, we noted that the lifestyle audits of serve as an employee of a contractor on Eskom sites. in a backlog of cases. A&F, HR, the PFMA Loss Control 383 executives and senior managers had been concluded, The withholding of pension benefits and the recovery of Department and the Supplier Review Committee are Major investigations with 34 high-risk cases handed over to the Special losses or damages to Eskom from flagged employees are collaborating to improve the effectiveness of consequence External investigations into major cases of suspected fraud Investigating Unit (SIU) for investigation. Of these, also outlined in the revised procedure. management processes, including reporting of outstanding and corruption involving former employees, directors and 52 | | 53 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information PROGRESS ON GOVERNANCE CLEAN-UP continued suppliers continue. In most cases, criminal convictions crimes stemming from the Zondo Commission report. Crime landscape risk assessment We have established a centralised Loss Control and civil judgments are dependent on the justice system, The NPA and its Investigating Directorate will work with We are conducting a full assessment of Eskom’s crime risk Department as required in terms of National Treasury together with successful investigation and prosecution by Eskom’s forensic investigators and legal experts to support management landscape together with an independent service Instructions No. 02 and 03 of 2019/2020. From law enforcement agencies. This remains a lengthy process its efforts to ensure successful prosecution of alleged provider, which will consider risks related to bribery and 1 April 2021, all assessments and determinations relating and, regrettably, there have been no substantial outcomes perpetrators of complex and high-profile cases. corruption, financial crime, physical asset crime, cybercrime to the PFMA are performed by this department. Training in the cases covered in last year’s report, as investigations and money laundering. Once this assessment is concluded, and awareness on revised PFMA reporting procedures and and legal proceedings remain under way. The NPA has also committed to increasing its collaboration a crime risk management programme will be embedded as guidelines have been implemented and are mandatory for with law enforcement authorities to focus on major crimes, part of Eskom’s standard operating procedures. all managerial and executive employees. Refer to page 19 of our 2021 integrated report for detail on the such as cable theft and damage to essential infrastructure, criminal and civil cases being pursued which seriously threaten the operational sustainability of Review of policies and procedures In addition, Eskom has embarked on an audit recovery Eskom and other SOCs. The task team has reviewed and considered improvements programme to address its challenges with PFMA Most notably, we are pursuing civil recovery of to key procurement and HR policies and procedures to reporting, which includes assessing the effectiveness of approximately R3.8 billion relating to a prepayment to A summary of some of the key focus areas of our improve the implementation of consequence management. the procurement compliance monitoring systems and Tegeta Exploration and Resources (Pty) Ltd. While limited implementation plan are discussed below. These policies and procedures will be amended within other internal controls. A detailed audit recovery plan progress has been achieved to date, we are encouraged Consequence management of delinquent employees the parameters of the law. We are also in the process of was developed in February 2022 and will be enhanced to by the arrests of Rajesh and Atul Gupta in June 2022. Employees implicated in state capture were dismissed implementing automated systems, including price check address findings arising from the external audit. Mr Brian Molefe and Mr Anoj Singh were arrested in or resigned in early 2018. There are currently no tools, digitalisation of stock control and e-auction systems, to proactively address fraud- and corruption-related risks Our Procurement and Supply Chain Management August 2022 on fraud, corruption and money laundering outstanding disciplinary actions against individuals in the procurement of goods and services. Department (P&SCM) has implemented several initiatives charges relating to Transnet. Mr Matshela Koko was highlighted in the Zondo Commission report and no to reduce the occurrence of irregular expenditure and arrested in October 2022 on similar charges relating implicated individuals are currently employed by Eskom. improve commercial governance processes through its to ABB and Impulse International. The three former We are reviewing our disciplinary procedures to ensure Improvements to address PFMA and procurement roadmap. In line with the conditions of executives are also defendants in the Tegeta matter. consequence management is dealt with more timeously commercial governance processes the Special Appropriation Act, 2019, progress on the Legal processes are ongoing in these matters. and appropriately. Eskom has once again received a qualified opinion relating procurement roadmap is reported to National Treasury We continue to provide the necessary support to law to PFMA information disclosed in the annual financial and DPE on a regular basis. The procurement roadmap Criminal proceedings enforcement authorities, including the SIU, the National statements, as associated financial records were not aims to: We are monitoring all criminal matters arising from the Prosecuting Authority (NPA), the Directorate of Priority complete or accurately maintained in line with legislative Zondo Commission report and have engaged with the • Reduce the number of cancellations of published tenders Crime Investigations (the Hawks) and SAPS in these and requirements. NPA regarding progress on these matters. As mentioned, • Improve compliance with procurement plans other matters. we are working with law enforcement agencies to bring The Board is not satisfied that prior year qualification • Reduce the number of contract modifications, expansions these matters to court as soon as possible. issues have been adequately addressed and considers this a and deviations Eskom’s response to the report of the Zondo significant focus area. Systems, controls, resources, policies • Enhance contract management and performance Civil recoveries Commission and procedures as well as reporting structures will need to monitoring Several civil recovery proceedings have been launched Eskom has established a dedicated task team to review be enhanced to address this challenge. by Eskom and the SIU. The SIU has sought to extend Continuous reviews and monitoring are under way to limit the Zondo Commission report in order to address its mandate to include all matters raised in the Zondo Disclosure of information required in terms of the PFMA is set the use of low-value procurement mechanisms and identify the recommendations of the Commission and ensure Commission report. Our task team is monitoring civil out in note 51 in the consolidated annual financial statements, appropriate legal remedies are pursued. contracting opportunities in accordance with revised recovery proceedings where legal progress remains slow. while the basis on which the audit opinion was qualified is procurement procedures. explained in the independent audit report The Commission acknowledged the proactive steps Director delinquency proceedings taken by Eskom to eradicate state capture within the From a legal perspective, the most effective avenue to At 31 March 2022, the closing balance of irregular Reportable irregularities raised by the organisation, with significant matters dealt with by both charge former directors and officials is through delinquency expenditure amounted to R67.1 billion, the vast external auditors Eskom and the SIU to date, which have resulted in the proceedings under the Companies Act, 2008. DPE is majority of which relates to prior year transgressions. In terms of section 45 of the Auditing Profession Act, 2005, recovery of more than R2 billion. coordinating this process across all SOCs. Eskom has The opening balance has been restated from R37.2 billion the external auditors are required to report any reportable Eskom’s task team has developed an implementation plan, compiled detailed evidence relating to all implicated former to R59.2 billion. The process of collecting information irregularities (RIs) to the Independent Regulatory Board the latest version of which was submitted to the Presidency directors to aid in the delinquency proceedings. and reporting on irregular expenditure continues to be a for Auditors, and only then report the matter to Eskom, in October 2022. Key focus areas include civil recoveries; focus area to reduce the occurrence of restatements in affording management an opportunity to respond to and/or Reporting of former delinquent directors and the future. consequence management for implicated suppliers, rectify the matter. officials to the relevant professional body former employees and former directors; an in-depth risk The South African Institute of Chartered Accountants Regrettably, the process of obtaining condonations from A number of RIs were reported during previous financial assessment; and the review of policies and procedures, instituted disciplinary proceedings against Eskom’s former National Treasury has shown little progress for a number years; despite good progress on closing out those matters specifically related to procurement and HR, to support the Chief Financial Officer, Mr Anoj Singh, and revoked of years. Notice of condonation of 18 transactions valued at within Eskom’s control, certain RIs cannot be closed out eradication of fraud and corruption. his professional membership in August 2020. Similar R527 million was received during the year. We are working until external investigations and court cases are finalised. We are working with DPE, other SOCs and law proceedings are being considered for other implicated with DPE and National Treasury to ring-fence historical individuals and we are working with DPE and the irregular expenditure to minimise the continued impact Several RIs have been raised in respect of the audit of the enforcement agencies to ensure that the recommendations Department of Justice on these matters. on our annual financial statements. 2022 financial year, some of which are a continuation of are adequately addressed. Where the recommendations matters from previous financial years. are not within Eskom’s control, as in the case of criminal Blacklisting of suppliers The closing balance of fruitless and wasteful expenditure prosecution, we will continue to support law enforcement We are investigating the option of placing a provisional amounted to R5 billion at year end, of which only Details of the reportable irregularities, as well as the action authorities to ensure the successful prosecution of block on new contracts for all implicated suppliers while R26 million relates to the year under review. The 2021 taken and status of the respective matters, are discussed in implicated suppliers, former employees, former directors closing balance was restated from R4.5 billion to note 52 in the consolidated annual financial statements awaiting the conclusion of governance processes to and associated perpetrators. blacklist these suppliers. We are also reviewing our supplier R5 billion. Losses due to criminal conduct of R2.8 billion The executive leadership of the NPA and Eskom have disciplinary procedures and processes to allow supplier (2021: R2.5 billion) were reported during the year, committed to collaborating in their response to the serious sanctions to take place more effectively going forward. of which the majority related to non-technical energy losses including electricity theft. 54 | | 55 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information BOARD AND ITS COMMITTEES Governance of the group and responsibility for promoting Refer to “Board restructuring” on pages 10 and 11 for the which needed to be addressed, particularly in the areas The Board concluded that the appointment of additional good corporate citizenship is vested in the Board, supported Board composition at year end and at 1 October 2022 of accounting, assurance, corporate finance, electrical non-executive directors was urgently required for its by its committees and the Group Company Secretary. engineering and large project management. Requests to committees to be adequately constituted, in particular IFC Mr André de Ruyter announced his resignation as Group appoint additional non-executive directors were submitted following the resignation of its chairperson in August 2021. Chief Executive on 14 December 2022. He will continue Board composition and appointments to serve in the position until 31 March 2023 to ensure to the shareholder, to strengthen the Board and address Furthermore, the Board acknowledged that ARC needed to The shareholder approves the appointment of all directors its diversity needs. A fully constituted Board was appointed be strengthened with appropriate skills and experience in continuity while a successor is recruited. in accordance with our MOI and nomination requirements from 1 October 2022. finance and assurance. outlined in Government’s Handbook For the Appointment of Board committees Board responsibilities As mentioned, the mandate of IFC has been revised Persons to Boards of State and State-Controlled Institutions. The Board’s involvement in operational matters limited its to remove the Board’s involvement in the approval of The Board is supported by various committees, to The shareholder is responsible for filling Board vacancies focus on oversight, strategic planning and emerging issues. procurement transactions and, instead, emphasise oversight which it delegates authority without diluting its own and for managing targets for racial, gender, age and The terms of reference and agendas for the Board and through the approval of procurement strategies. Data accountability. These committees exercise their authority disability diversity, as well as succession planning for the its committees are being structured to address strategic analytics are being explored to strengthen monitoring and in accordance with terms of reference approved by the Board. The People and Governance Committee (PGC) oversight matters more clearly. oversight of capital projects by IFC. Board, and which define their composition, mandate, assists the shareholder by identifying and highlighting roles and responsibilities. The terms of reference of each skills, experience and diversity needs of the Board, The most recent review of the DoA focused on the Sustainability committee are aligned to the DoA. where required. mandate of IFC, to withdraw the Board’s involvement in the The Board was satisfied with its oversight of safety, health, All Board committees are comprised of and chaired by approval of procurement transactions. Work is under way quality, environmental, social and financial sustainability In terms of our MOI, the Board may consist of a maximum to review the DoA and the SMF to adequately address the through its Social, Ethics and Sustainability Committee independent non-executive directors. When required, the of 15 directors. The majority of the Board must be Board’s involvement in, and management’s responsibility (SES). The committee reports to the Board on these GCE, CFO, GCOO and senior management from various independent non-executive directors, and there must be for, other operational matters. matters on a quarterly basis . Management is considering functional areas attend committee meetings as officials. at least two executive directors. Non-executive directors improvements in reporting investors’ environmental and are appointed for a period of three years, reviewable at the Vacancies in the Office of the Company Secretary are social sustainability requirements to IFC, to enhance annual general meeting, and may not serve more than three Board evaluation being filled to address capacity constraints. The Office of Although King IV TM recommends that board evaluations be decision-making. consecutive terms. the Company Secretary is revising the Board’s continuing performed every second year, we conduct one annually in education programme to address its training needs; Relationship with management Ms Nelisiwe Magubane resigned as an independent non- line with DPE’s SOC Board Evaluation Framework. the Board attended a number of site visits and training The Board understood its responsibility for oversight executive director and chairperson of the Investment and interventions facilitated by the Institute of Directors in and to hold executive management accountable for Finance Committee (IFC) with effect from 15 August 2021. In July 2021, an external service provider conducted an independent board evaluation for the 2021 financial year. South Africa NPC during the year. performance. The performance of the GCE is required to Ms Busisiwe Mavuso was subsequently appointed as acting be assessed and approved at PGC annually. chairperson of the committee. Based on the findings, a feedback report was submitted Ethical leadership to the shareholder and the Board improvement plan was Although the Board affirmed a zero tolerance towards Succession planning for executive management is an area Consequently, the Board comprised only eight directors at updated to monitor progress in addressing areas of concern. unethical behaviour, the lack of assurance regarding of focus, with the process managed through an executive year end, including six independent non-executive directors Eskom’s ethical culture and the inconsistent application of talent board and overseen by PGC. All vacant Exco and two executive directors. The Board requested the The board evaluation covered the same themes as the Board’s self-assessment for the 2020 financial year, with each consequence management were highlighted by the Board as positions have been filled, in line with PGC’s approval shareholder to appoint additional non-executive directors, areas for improvement. authority. in line with the skills and diversity needs identified by PGC. area discussed in further detail below. The average scores (out of 5) achieved across each area are shown below. An ethics risk assessment was conducted by The Ethics Stakeholder engagement After year end, Ms Busisiwe Mavuso resigned as an Institute to enhance Eskom’s ethics strategies and policies. The Board was satisfied that it had identified all key independent non-executive director with effect from A follow-up board evaluation was conducted by an independent service provider in July 2022 to measure Furthermore, Eskom’s culture transformation programme has stakeholders, their significance and role. The Board was 27 September 2022. been developed to deliver a high-performance ethical culture. further satisfied that it sets the direction for reporting progress against the Board improvement plan during the On 30 September 2022, the shareholder announced the 2022 financial year. The evaluation concluded that close to Feedback on consequence management has been improved to stakeholders, to enable informed decision-making. appointment of 12 new Board members with effect from 60% of the recommendations in the Board improvement with the implementation of the Fraud Risk Prevention Plan and The relationship with Parliamentary committees was 1 October 2022. The terms of Prof. Malegapuru Makgoba, plan had been adequately addressed. The report was regular reporting to relevant Board committees. identified as an area for improvement. The Government Prof. Tshepo Mongalo, Dr Banothile Makhubela and approved by the previous Board in September 2022 for and Regulatory Affairs Division is enhancing processes to Actions taken to address unethical behaviour are discussed in Dr Pulane Molokwane ended on 30 September 2022 and consideration by the shareholder. ensure Eskom maintains strong relationships with all key “Progress on governance clean-up” from page 52. The ethics were not renewed, while Dr Rod Crompton, the GCE stakeholders, in accordance with Eskom’s stakeholder risk assessment is discussed in more detail in “Ethics based on and the CFO remained from the previous Board. The new Board composition, skills and experience our values” on page 65 engagement strategy. Board is now fully constituted with 15 directors. The Board was dissatisfied with its size. The lack of a For further information on stakeholder engagement, refer fully constituted Board led to skills and experience gaps Board meetings to “Our strategic context – Stakeholder engagement” from The quality and lateness of submissions to the Board and its page 42 committees, as well as the inordinate number of meetings, were highlighted as a concern. Board committee calendars 2.25 4.63 4.35 3.42 Board Chairman have been reviewed to ensure meetings are scheduled The Board was satisfied that the Interim Chairman annually in advance with an agenda plan to provide direction provided overall leadership without limiting the principle Board Board Ethical Board on matters to be covered at each meeting, although special of collective responsibility for Board decisions, was composition responsibilities leadership meetings meetings may be convened to address pressing issues. effective in executing his duties, and ensured that the Board maintained a strong relationship with the shareholder. Board committees 3.84 3.72 4.25 3.81 The Board appoints members to its committees by considering the required skills, experience and diversity needs. The one exception is ARC, where the shareholder The Board had requested the shareholder to finalise the permanent appointment of the Chairman. The term of the Sustainability Relationship with Stakeholder Board Chairman Interim Chairman, Prof. Malegapuru Makgoba, ended on management engagement is responsible for appointing members in terms of our MOI 30 September 2022 and Mr Mpho Makwana was appointed and the Companies Act, 2008. as Chairman with effect from 1 October 2022. 56 | | 57 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information REPORT BY THE BOARD REPORT BY THE AUDIT AND RISK FOR THE YEAR ENDED 31 MARCH 2022 COMMITTEE FOR THE YEAR ENDED 31 MARCH 2022 Number of meetings • Approved adoption of bid window 6 of DMRE’s RE-IPP Number of meetings Future focus areas Ten meetings were held during the year. Programme and the Risk Mitigation IPP Procurement Ten meetings were held during the year. Focus areas for the coming year include: Programme • Considering liquidity risks, sustainability risks relating to Membership Membership (at year end) • Approved the Corporate Plan for the 2023 to 2027 financial reporting, Eskom’s status as a going concern, Refer to the Board composition at 31 March 2022 on page 10 Three independent non-executive directors: financial years, including the financial budget and key as well as efforts to improve the income statement and Purpose assumptions, such as Generation’s shutdown plan for Dr Pulane Molokwane (chairperson), Dr Rod Crompton strengthen the balance sheet The Board fulfils the primary roles and responsibilities of a coal-fired power stations, which support the 2035 and Prof. Tshepo Mongalo • Reviewing the effectiveness of risk and compliance governing body outlined in King IV™ by: Corporate Strategy management and the internal control environment, Collectively, members’ qualifications or experience • Setting the strategic direction of the organisation, and • Agreed the shareholder compact for the 2023 financial together with consequence management, to ensure that included commerce and industry, economics, public sector, treating strategy, risk, performance and sustainability as year with the Minister of Public Enterprises contraventions are appropriately addressed law, governance, risk management, nuclear science and inseparable • Exercising ongoing oversight of information and technology In addition, the Board considered and approved numerous environmental engineering. • Providing oversight through effective governance management recommendations from its committees, detailed under the frameworks, and approving policies and plans that Purpose • Monitoring of combined assurance, including overseeing key activities of the respective Board committee reports enable strategy The committee’s roles and responsibilities include: the internal audit function and the external audit process that follow. • Monitoring management’s performance and • The statutory functions of an audit committee set out in • Overseeing the preparation of the annual financial implementation of the strategy, ensuring accountability and Conclusion the Companies Act, 2008 and the PFMA, 1999, including statements of Eskom and its subsidiaries promoting integrity of reporting The Board adopted an appropriate Board Charter, oversight of internal and external audit functions, financial regulated its affairs in compliance with this charter and was reporting, internal control systems, as well as risk and Conclusion • Ensuring identification and management of compliance The committee adopted an appropriate formal terms satisfied that it had discharged its responsibilities contained compliance management requirements and risks through effective internal controls, of reference, regulated its affairs in compliance with its therein. • Oversight of risks and opportunities and governance of supported by a risk-based internal audit function terms of reference and was satisfied that it had discharged information and technology • Promoting a high-performance ethical culture aligned to The Board requested that the shareholder appoint its responsibilities contained therein. Furthermore, the additional non-executive directors to ensure that all • Serving as the statutory audit committee for Eskom’s Eskom’s values and operating as a responsible corporate committee fulfilled all its statutory duties in terms of the committees are adequately capacitated to fulfil their wholly-owned subsidiaries, with the exception of Escap, citizen – ethically, socially and environmentally Public Finance Management Act, 1999, and section 94(7)(f) mandates. which has its own audit committee in terms of the Insurance Act, 2017 of the Companies Act, 2008. Key activities and decisions • Undertook an independent Board evaluation for the Subsequent to year end The Board acknowledged that the committee needed to be As mentioned previously, a new Board was appointed Key activities during the year 2021 financial year and identified matters to be addressed strengthened with appropriate financial skills. with effect from 1 October 2022. The new Board has The committee considered the following and, where required, through the Board improvement plan reviewed its structure and resolved to revise the mandate recommended matters for approval or noting by the Board: Subsequent to year end • Considered management’s performance and progress on of certain committees. The new Board has recommended • Group annual financial statements, the integrated report Following the appointment of the new Board, the Eskom’s turnaround plan the establishment of a Business Operations Performance and related documents for the 2021 financial year, as well as committee has been appropriately constituted to address • Approved the proposed corporate structure of Eskom interim group financial statements for the 2022 financial year Committee to provide oversight of Eskom’s technical the financial skills and experience needs identified by the Holdings SOC Ltd and its subsidiaries, and approved • Escalating arrear municipal debt and progress on initiatives performance, operational challenges and risks relating to previous Board and consists of six independent non- submission of the PFMA application to establish a new under the municipal debt management strategy the production of electricity, in particular performance executive directors: holding company against shareholder compact targets such as the energy • Progress on digitalisation initiatives, IT licensing risks, as well • Approved submission of the necessary PFMA applications as the withdrawal of software support services by Oracle Ms Fathima Gany (chairperson), Dr Rod Crompton, availability factor (EAF). The Board Strategy Committee’s in preparation for the legal separation of Transmission, Ms Ayanda Mafuleka, Mr Leslie Mkhabela, mandate has been expanded to include governance matters • The A&F Charter and PFMA compliance risk as well as the share subscription in the newly formed Dr Busisiwe Vilakazi and Dr Claudelle von Eck and has been renamed to the Governance and Strategy management plan National Transmission Company South Africa SOC Ltd Committee. The People and Governance Committee • The three-year rolling strategic audit plan, as well as The committee considered the delayed publication of • Approved submission of the PFMA application for the has changed to the Human Capital and Remuneration progress on and amendments to the 2022 audit plan Eskom’s annual financial statements, the reportable legal separation of Distribution, as well as the proposed Committee. irregularities raised by the external auditors and several • The insurance plan and budget for the 2023 financial year name and mandate of the Distribution company to be key audit matters, including the restatement of prior period incorporated Refer to the Board composition at 1 October 2022 on page 11 In addition, the committee monitored and considered errors as well as findings and control deficiencies emanating • Approved submission of the PFMA application to close reports on the following areas: from the lack of compliance with well-documented policies or dispose of Eskom Uganda Ltd at the end of its 20-year • Quarterly shareholder reports to the shareholder, covering and procedures. concession arrangement Eskom’s financial, operational, environmental, social and • Approved revisions to the MOI and the Risk Appetite and governance performance as well as risks and opportunities Refer to the report of the Audit and Risk Committee in the annual financial statements for further information Tolerance Framework • Financial performance and liquidity; IT governance and • Approved the revised Significance and Materiality performance; PFMA compliance; enterprise risk and The committee also assessed the ability of Eskom to Framework, agreed between the Board and the Minister of resilience, including black-start capability and readiness; continue to operate as a going concern in the foreseeable Public Enterprises forensic and technical investigations; and feedback on new future and acknowledged that there are various • Recommended the appointment of Deloitte & Touche to legislation, litigation and other significant matters dependencies and material uncertainties that might the Minister of Public Enterprises to provide statutory impact the going-concern assessment. The committee To address the prior year’s focus areas, the committee: audit services to Eskom for a period of five years recommended to the Board that the adoption of the • Considered risks relating to financial reporting, the going-concern basis of accounting was appropriate with the potential impairment of assets and Eskom’s status as a commitment of support by Government. going concern for the 2021 annual financial statements • Recommended the appointment of the external auditors Refer to note 3.2 in the annual financial statements and associated fees for the going concern assessment 58 | | 59 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information ASSURANCE AND CONTROLS REPORT BY THE INVESTMENT AND FINANCE COMMITTEE FOR THE YEAR ENDED 31 MARCH 2022 The Board, through ARC, is responsible for setting the The responsibility for combined assurance is delegated Number of meetings In addition, the committee considered and approved direction for assurance, risk management, controls, to A&F, which facilitates and coordinates the execution Ten meetings were held during the year. matters within its approval mandate, and considered and compliance and the governance of technology and information. of combined assurance activities. ARC receives regular recommended those above its approval limits to Board. ARC provides independent oversight of these functions. reports on the status of governance, risk management, Membership (at year end) These matters included various procurement strategies, compliance and the adequacy and effectiveness of Two independent non-executive directors: capital investment approvals or revisions, as well as other A&F, our internal audit and forensics function, reports preventative and corrective controls. commercial decisions. directly to ARC to maintain its independence from Ms Busisiwe Mavuso (acting chairperson) and executive management. ARC approves A&F’s Charter, as Dr Banothile Makhubela Future focus areas Governance, risk management well as an annual risk-based audit plan and a resource plan and internal controls Collectively, members’ qualifications or experience included Focus areas for the coming year include: to address the complexity of risks facing Eskom. commerce and industry, accounting, chemistry and the • Monitoring the funding available for refurbishment and Based on the results of the audits completed during the 2022 financial year, including key observations and relevant public sector. maintenance plans for the 2023 financial year Combined assurance control and governance information, A&F has concluded • Considering standard tariff plans, structures and rates, We apply a combined assurance model that includes a Purpose the following: as well as regulatory applications and NERSA decisions combination of supervision, management and assurance The committee’s responsibilities include: • Executing ongoing supervision of financial plans and across various functions, culminating in oversight by ARC GOVERNANCE RISK MANAGEMENT • Oversight of financial budgets, capital and borrowing business cases, as well as setting criteria and guidelines and the Board. Collectively, these enable an effective programmes, and procurement strategies Governance requires The design of the system of for capital investments control environment, provide reasonable assurance and • Approval of business cases for new ventures, capital improvement in respect of risk management is adequate, support the integrity of information for decision-making investments, projects and other commercial matters Conclusion compliance with applicable although the system of and reporting to stakeholders. The committee adopted an appropriate formal terms of laws and regulations controls relating to compliance • Monitoring the concept, design and execution phases of is partially effective major capital projects reference, regulated its affairs in compliance with its terms SUPERVISION of reference and was satisfied that it had discharged its • Oversight of Eskom’s treasury function Operations and supervisory oversight INTERNAL FINANCIAL responsibilities contained therein. Implementation of internal controls and risk management CONTROLS CONTROLS Key activities during the year processes to ensure a high-performing and sustainable The committee considered the following and, where Subsequent to year end operating environment The design of internal The system of internal Following the appointment of the new Board, the required, recommended matters for approval or noting controls is adequate, financial controls is adequate Investment and Finance Committee consists of five although application is and provides a reasonable by the Board: independent non-executive directors: partially effective. Control basis for the preparation of • Submission to NERSA of the regulatory clearing account OPERATIONAL MANAGEMENT deficiencies were identified Eskom’s financial statements (RCA) balance application for the 2021 financial year and Ms Tryphosa Ramano (chairperson), Mr Lwazi Goqwana, Management and review functions relating to compliance with the MYPD 5 revenue application for the 2023 to 2025 Mr Clive le Roux, Dr Tsakani Mthombeni and Assurance over the adequacy of operational risk contract management, supply financial years Mr Mteto Nyati management, effective adherence to internal control chain management, plant • The funding solution for Eskom Finance Company processes and delivery against objectives management and operational SOC Ltd given that the disposal has been placed on hold technology procedures, among others • The strategic direction of the Medupi flue gas FUNCTIONAL MANAGEMENT desulphurisation (FGD) project to complete selection of the technology solution and resolve funding Specialised control functions ARC has concluded that the combined assurance model is adequate; however, monitoring and assessment of the constraints before proceeding Development and maintenance of internal control execution of controls needs to be enhanced internally, • Progress on the Koeberg long-term operation (LTO) frameworks and policies, reviewing and monitoring to proactively address control deficiencies and prevent project Risk, resilience and compliance recurrence of findings. The compliance framework • The Transmission Development Plan for the 2022 to Assurance over risk and resilience as well as compliance requires continued focus in its application, especially in 2031 financial years management practices and processes terms of PFMA requirements and contract management. • Treasury reports and progress on the borrowing Consequence management needs to be improved to programme address non-compliance with well-documented policies, process control manuals and procedures. Furthermore, • Investment monitoring reports and the status of the ASSURANCE the need for additional resources and skills in the finance capital investment plan and associated risks External audit function and A&F were noted. Despite these shortcomings, Independent reasonable assurance of the annual financial To address the prior year’s focus areas, the committee: the system of internal financial controls and compensating statements and integrated report measures provide a reasonable basis for the preparation of • Approved a short-term cross-border pricing strategy for Internal audit Eskom’s financial statements. negotiating power supply agreements with cross-border Assurance over the adequacy and effectiveness of customers risk management, internal control and governance The consolidated annual financial statements have • Evaluated power purchase agreements with preferred been audited by the independent auditors, Deloitte bidders through the Risk Mitigation IPP Procurement & Touche, who issued a qualified opinion relating to Programme OVERSIGHT information disclosed in terms of the PFMA. Except for Board and ARC this qualification, the annual financial statements are Consider control deficiencies and risk affecting the fairly presented in terms of IFRS. organisation, and provide guidance Refer to the report of the Audit and Risk Committee and the independent auditor’s report in the annual financial statements for further informationn 60 | | 61 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information REPORT BY THE PEOPLE AND REMUNERATION AND BENEFITS GOVERNANCE COMMITTEE FOR THE YEAR ENDED 31 MARCH 2022 Number of meetings Future focus areas Our approach to remuneration TOTAL REMUNERATION Four meetings were held during the year. Focus areas for the coming year include: PGC is mandated by the Board to provide oversight = • Overseeing the implementation of interventions aimed at of key human resources policies in Eskom, including Membership (at year end) a remuneration philosophy which is fair, transparent, Guaranteed remuneration and benefits improving leadership quality and stability Three independent non-executive directors: responsible and equitable. Our approach to remuneration • Monitoring leadership continuity Ensures that talented individuals are attracted, Prof. Tshepo Mongalo (chairperson), is intended to support Eskom’s strategic objectives, retained and receive support to perform their • Revising performance management principles for Prof. Malegapuru Makgoba and Ms Busisiwe Mavuso encourage value creation and advance long-term roles efficiently executives and senior management sustainability through: Collectively, members’ qualifications or experience • Overseeing the development of a fit-for-purpose future + • Adoption of the King IVTM principles for the remuneration included commerce and industry, accounting, law and skills strategy, taking into consideration the outcome of Short-term incentives of directors and executives governance, public sector and medicine. Eskom’s skills audit Manages and facilitates performance through • Implementation of DPE’s guidelines on remuneration • Monitoring the implementation of Eskom’s culture a results-driven approach that is collaborative, Purpose and incentives for executives, prescribed officers and transformation programme transparent and fair The committee’s responsibilities include: non-executive directors of SOCs • Finalising Eskom’s executive remuneration policy in line + • Succession planning and nomination of executives • Alignment with the shareholder compact, which sets with DPE’s latest guidelines, subject to DPE’s feedback Long-term incentives • Ensuring fair, transparent, responsible and equitable clear targets and drives individual and organisational • Monitoring the human capital impact and change performance remuneration Ensures the long-term sustainability management processes relating to Eskom’s turnaround of the organisation • Overseeing human resources strategies, policies and plan and digitalisation initiatives We are engaging with DPE to ensure alignment of our performance, including relationships with organised labour remuneration policy for executives and non-executive and employees Conclusion directors with their 2022 guidelines. The policy will be The committee adopted an appropriate formal terms Guaranteed remuneration • Setting the direction for and monitoring corporate updated and finalised in the coming year, based on DPE’s Guaranteed remuneration is fixed and includes compulsory governance of reference, regulated its affairs in compliance with its review of our proposal. terms of reference and was satisfied that it had discharged benefits such as medical aid, pension, group life and death its responsibilities contained therein. The committee Remuneration of managerial and bargaining unit employees is benefits, as well as allowances for motor vehicle expenses Key activities during the year ensured compliance with all relevant legal and regulatory discussed under “Our people – Remuneration and benefits” and personal security. The committee considered the following and, where required, recommended matters for approval or noting by requirements pertaining to remuneration of employees from page 125 Variable remuneration the Board: across the organisation, and further noted that no Variable remuneration is linked to the achievement of • The appointment of vacant Exco positions, as discussed in deviations from Eskom’s remuneration philosophy were Remuneration practices for directors and individual and organisational performance objectives, “Executive management” on page 70 observed during the year. executives subject to defined gatekeepers. Short-term incentives • The annual review of remuneration and employment Non-executive directors relate to a single financial year, whereas long-term Subsequent to year end conditions, including updates on the negotiations with Non-executive directors receive a fixed monthly fee, incentives cover a three-year period. The new Board has resolved to revise the committee’s organised labour at the Central Bargaining Forum guided by DPE, and are reimbursed for expenses incurred mandate to transfer governance-related matters to the Total remuneration for directors and group executives • Quarterly human resources performance reports, including in fulfilling their duties. Where applicable, PGC submits Board Strategy Committee Board and change the name of Category, R 000 2022 2021 Eskom’s response to COVID-19, learner management, proposals on non-executive remuneration to the Board, this committee to the Human Capital and Remuneration employment equity, industrial relations and employee which considers and makes recommendations to the Non-executive directors 5 274 5 945 Committee. engagement shareholder for approval, in line with DPE’s guidelines. Executive directors 12 162 12 151 • The implementation of a hybrid work model and the The Human Capital and Remuneration Committee Other group executives 24 191 23 002 Executives impact of remote work on productivity comprises six independent non-executive directors: 41 627 We aim to attract and retain executive management in a Total remuneration 41 098 • The improvement of governance processes, following the Dr Claudelle von Eck (chairperson), Ms Fathima competitive market on a fair and equitable basis, and reward inconsistency in the resolution between IFC and the Board Gany, Mr Clive le Roux, Mr Leslie Mkhabela, performance that supports the achievement of organisational Refer to note 49 in the consolidated annual financial statements relating to Econ Oil and Energy (Pty) Ltd Mr Bheki Ntshalintshali and Mr Mteto Nyati objectives and exceeds expectations. PGC is responsible for detailed remuneration information as required by King IV TM • Quarterly corporate governance as well as forensic and for determining executive remuneration, in line with DPE’s Housing loans to executive directors and other group anti-corruption reports guidelines, and conducts an annual review of executive executives are disclosed in the consolidated annual financial packages, based on external benchmarking. Executives are To address the prior year’s focus areas, the committee: statements. No loans have been made to non-executive not involved in the approval process, and PGC maintains the directors. • Reviewed Eskom’s people relations management approach right to adjust, withhold or veto any remuneration. and disciplinary processes, to reduce delays and improve consequence management Executive remuneration is designed to demonstrate a clear relationship between performance and remuneration and • Considered progress on the people and culture focus area is based on the principles below. The conditions of the of the turnaround plan, including the implementation of the Special Appropriation Act, 2019 have prohibited incentive skills audit and Eskom’s culture transformation programme payments to executives since the 2020 financial year as well as increases in executive guaranteed remuneration since the 2021 financial year. Given Eskom’s financial constraints, no incentives have been paid and no increases have been awarded to executives since the 2018 financial year. 62 | | 63 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information REPORT BY THE SOCIAL, ETHICS AND ETHICS BASED ON OUR VALUES SUSTAINABILITY COMMITTEE FOR THE YEAR ENDED 31 MARCH 2022 Number of meetings To address the prior year’s focus areas, the committee: The Board, through its Social, Ethics and Sustainability circumstances that may affect their declaration change. Five meetings were held during the year. • Monitored Eskom’s transformation and progress on the Committee, is responsible for the governance of ethics Where a conflict exists, it must be declared and managed. turnaround plan in Eskom, by establishing an ethical culture and providing Any interests declared by directors and Exco members Membership (at year end) oversight of ethics strategies and policies in accordance in meetings are minuted for the record. A&F reviews Three independent non-executive directors: • Reflected on compliance with the principles of the UN Global Compact and the OECD recommendations with King IV TM. directors’ declarations on an annual basis. Dr Banothile Makhubela (chairperson), on anti-corruption Adherence to our Code of Ethics, known as the Prof. Malegapuru Makgoba and Dr Pulane Molokwane • Considered environmental performance, including “The Way”, is not optional. It is the way we do business in All members of the Board and Exco completed their contraventions and non-compliance notices, as well as risks Eskom, guiding the way in which the Board and employees declarations for the 2022 financial year and any Collectively, members’ qualifications or experience relating to ash disposal facilities interact with one another as well as with our shareholder, identified conflicts are managed appropriately. included industry, public sector, nuclear science, environmental engineering, chemistry and medicine. customers, suppliers, the public, other stakeholders and No Eskom official or employee is allowed to do Future focus areas the environment. business with Eskom while being employed by Eskom Focus areas for the coming year include: Purpose or its subsidiaries. To our knowledge, there are no The committee’s responsibilities include: • Executing ongoing supervision of stakeholder management “The Way” is defined by six core values, which form the conflicts of interest due to any director doing business and environmental sustainability matters foundation of our values-driven organisation and reflect with Eskom. • The statutory functions of a social and ethics committee • Overseeing Eskom’s ethics review to improve the ethics our commitment to the highest standards of governance set out in the Companies Act, 2008 management strategy and related policies and procedures and ethical behaviour. • Oversight of socio-economic development; good corporate A&F facilitates proactive compliance reviews and probity citizenship; environmental, climate change, health and safety • Driving improved financial and operational sustainability checks for procurement transactions over R500 million programmes; and the assurance of select key performance through Eskom’s transformation Zero Harm means protecting the Eskom Way tabled for approval at relevant Exco, divisional and indicators through the sustainability audit Conclusion Board committees. Where these reviews find that the • Supervision of nuclear strategies and policies, as well as The committee adopted an appropriate formal terms Integrity means acting the Eskom Way requirements of Eskom’s P&SCM procedures and the nuclear safety in terms of regulatory requirements and of reference, regulated its affairs in compliance with its Preferential Procurement Policy Framework Act, 2000 have international best practice terms of reference and was satisfied that it had discharged not been adhered to then the non-compliance is rectified. Innovation means thinking the Eskom Way Any director, employee or supplier who is found to have • Serving as the statutory social and ethics committee for its responsibilities contained therein. Furthermore, the Eskom’s wholly-owned subsidiaries committee fulfilled all its statutory duties as set out in contravened ethics policies and procedures or the DoA will Regulation 43 of the Companies Act, 2008. Sinobuntu means caring the Eskom Way be subject to disciplinary processes. Key activities during the year The committee considered the following and, where Subsequent to year end Customer satisfaction means serving the As mentioned in last year’s report, we commissioned required, recommended matters for approval or noting by Following the appointment of the new Board, the Social, Eskom Way The Ethics Institute to perform an independent ethics risk the Board: Ethics and Sustainability Committee consists of eight assessment to determine potential ethics opportunities, independent non-executive directors: Excellence means working the Eskom Way as well as unethical behaviours and practices that place • Operational and environmental sustainability performance, Eskom at risk. Management interviews and a company-wide including challenges and mitigating measures Mr Bheki Ntshalintshali (chairperson), Dr Rod Crompton, survey were conducted to assess the current state of ethics • Human resources sustainability and compliance with labour Ms Fathima Gany, Mr Clive le Roux, Mr Leslie Mkhabela, We believe so strongly in the importance of these values in the organisation, as perceived by our employees. The and employment regulations, as well as occupational health Dr Tsakani Mthombeni, Dr Busisiwe Vilakazi and that a values-driven culture is one of the cornerstones of assessment highlighted the maturity of ethics awareness in and safety performance Dr Claudelle von Eck the aspirational high-performance ethical culture outlined Eskom, although improvement is required in accountability, • Progress on the capacity expansion programme in Eskom’s culture transformation programme. The transparency and addressing the lack of trust. The results • Initiatives to improve Eskom’s B-BBEE rating and socio- programme is a key enabler of our turnaround plan. will be used to better manage ethics-related risks through economic transformation, including supplier development, For further information on Eskom’s culture transformation an ethics risk register, and inform the review of our ethics localisation and industrialisation programme, refer to “Our people – Organisational management strategy. High-risk areas will be subject • Corporate social investment, stakeholder engagement and effectiveness” on page 125 to greater focus for ethics training and consequence customer relations management. A dedicated Ethics Office is responsible for developing • Nuclear oversight, nuclear waste management and We are committed to the fight against fraud, corruption, ethics policies and procedures and monitoring the associated risks irregularities and other forms of economic crime. As a effectiveness of their implementation. The Ethics Office • Ethics report and progress on forensic and anti-corruption also facilitates annual ethics training, which is mandatory signatory to the United Nations Global Compact and the initiatives for all employees, and provides guidance on ethical issues World Economic Forum’s Partnership Against Corruption in the workplace. Any potential breaches of ethics that initiative, we adopt a zero-tolerance approach to fraud, may involve fraud and corruption are referred to A&F for corruption and irregularities. We also subscribe to the further investigation. OECD recommendations on anti-corruption. Our conflict of interest policy and declaration of interest We encourage all stakeholders to report unlawful or procedure complement our Code of Ethics by setting irregular conduct involving Eskom’s directors, employees out the obligations of directors and employees in dealing or suppliers through an independent, confidential whistle- with ethical issues, such as potential conflicts of interest, blowing hotline. performing private work, relationships with suppliers as Refer to the inside back cover for the contact details of our well as receiving or offering business courtesies. toll-free whistle-blowing hotline Directors and employees across all occupational levels are required to complete an annual declaration of interest, irrespective of whether a conflict exists, or as soon as 64 | | 65 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information REPORT BY THE BOARD BUSINESS OPERATIONS STRATEGY COMMITTEE PERFORMANCE COMMITTEE FOR THE YEAR ENDED 31 MARCH 2022 Number of meetings To address the prior year’s focus areas, the committee: In October 2022, the new Board recommended the • Reviewing: Five meetings were held during the year. • Monitored development of Eskom’s Integrated Long- establishment of a Business Operations Performance o Progress achieved through production and operational Term Plan, 2035 Corporate Strategy and Corporate Plan Committee to provide oversight of Eskom’s operational strategic initiatives Membership (at year end) performance, including the assessment of performance for the 2023 to 2027 financial years o Proposed changes to measures reported in the Two independent non-executive directors: against key targets. The establishment of the committee is • Requested feedback on the turnaround plan, in particular Operational Health Dashboard and operational Dr Rod Crompton (chairperson) and the legal separation of Transmission, Generation and subject to shareholder approval. reports, including relevant operational metrics Prof. Malegapuru Makgoba Distribution as well as initiatives to address financial The committee was established subsequent to year end, o Outcomes from major technical investigations and sustainability therefore, no key activities or decisions are reported in technical audits conducted by A&F Collectively, members’ qualifications or experience • Considered Eskom’s culture transformation programme respect of the year ended 31 March 2022. • Providing guidance on: included commerce and industry, economics, energy, and policy to address the future world of work medicine and the public sector. The committee consists of eight independent non- o Production and operational risks, as well as the Future focus areas executive directors: appropriateness of mitigation plans Purpose Focus areas for the coming year include: o Stakeholder feedback and public communication plans, The committee’s responsibilities include: Mr Mteto Nyati (chairperson), Dr Rod Crompton, • Shaping Eskom’s long-term strategy and the Just Energy where applicable • Oversight of Eskom’s response to and implementation of Mr Lwazi Goqwana, Mr Clive le Roux, Ms Ayanda Mafuleka, Transition Government directives, roadmaps and policy documents Dr Tsakani Mthombeni, Ms Tryphosa Ramano, relating to the restructuring of Eskom and the electricity • Overseeing turnaround plan initiatives, in particular Dr Busisiwe Vilakazi supply industry Eskom’s legal separation and efforts to improve the income statement and strengthen the balance sheet Purpose and future focus areas • Making recommendations to the Board on Eskom’s long-term strategy, including the Just Energy Transition, • Overseeing interactions with Government on the legal The committee’s responsibilities and focus areas include: legal separation and the transfer of assets, liabilities and separation of Eskom, as well as the implementation of • Providing oversight of: resources associated directives, roadmaps and policies o Eskom’s technical performance and operational • Interacting with Government and associated offices on • Providing direction and recommendations on the new issues, including production, customer services and these matters market structure, including amendments to legislation, related policies and procedures, as well as safety, regulations, licences, methodologies and Grid Codes security, health, environmental and insurance matters Key activities during the year • Monitoring the organisational culture transformation which are not dealt with by the Social, Ethics and The committee considered the following and, where Sustainability Committee • Determining appropriate separation of Eskom’s required, recommended matters for approval or noting by o Coal, nuclear and renewable primary energy carriers commercial and non-commercial activities the Board: o The adequacy of electricity supply • Progress on the establishment of an Independent Conclusion o Progress against agreed shareholder compact and key Transmission System and Market Operator, as well as The committee adopted an appropriate formal terms of reference, regulated its affairs in compliance with its terms Corporate Plan targets relating to the production of Distribution’s role in the future distribution industry of reference and was satisfied that it had discharged its electricity, such as the energy availability factor • Eskom’s JET strategy and roadmap, and the international funding announced during COP26 responsibilities contained therein. • Progress on Generation’s strategic repurposing and Subsequent to year end repowering of ageing coal-fired power stations and The new Board has resolved to revise the committee’s Transmission’s infrastructure expansion and grid planning mandate to include governance-related matters and projects, and associated funding change the name of this committee to the Governance and • Electricity tariff optimisation and feedback on revised Strategy Committee. tariff structures submitted to NERSA based on an updated cost-to-serve model The Governance and Strategy Committee comprises six independent non-executive directors: • Initiatives and levers to address the debt burden, together with the classification of debt, core assets and Mr Mpho Makwana (chairperson), Ms Fathima Gany, non-core assets amid Eskom’s legal separation Mr Bheki Ntshalintshali, Mr Mteto Nyati, • Progress on digitalisation and leveraging of data to enable Ms Tryphosa Ramano and Dr Claudelle von Eck Eskom’s strategy and digital business transition 66 | | 67 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information KING IVTM APPLICATION King IV TM assessment and focus areas Principle 9 The Board should ensure that the The conditions of the Special Appropriation Act, 2019, Compliance maturity is based on an assessment of the Based on an assessment for the year ended 31 March 2022, evaluation of its own performance and have, to some extent, limited the autonomy of the extent of identification and understanding of compliance our overall implementation of the King IV TM principles and that of its committees, its chair and its organisation in respect of decisions relating to annual obligations, development of related controls, and routine practices remains partially effective. Although many of the individual members, support continued increases and incentive bonuses. monitoring of adherence to those controls. Given the required practices are in place and have been for many improvements in its performance and complex legal and regulatory obligations affecting our years, the Board acknowledged that not all of the King IV TM effectiveness Governance functional areas operations, the overall risk of non-compliance in the principles have been effectively adhered to. The Board sets the policy and direction for governance organisation remains high. The Board undertook an independent evaluation of its functional areas to support the organisation in achieving its Non-compliance may result in reportable matters through Eskom’s King IV TM application register for the year ended performance for the 2021 financial year and identified strategic objectives. the PFMA, 1999. Transgressions are managed through 31 March 2022 is available online areas of concern to be addressed through the Board The Board has delegated responsibility for the oversight of disciplinary processes, and may extend to civil and criminal This summary focuses on key governance developments improvement plan. A follow-up board evaluation was risk, technology and information, compliance and assurance legal action where appropriate. during the year, as well as initiatives to address the conducted in July 2022 to measure progress against to ARC. The governance of technology and information as the Board improvement plan during the year ended Quantifiable penalties, fines or sanctions levied against the King IV TM focus areas. Principles considered to be well as compliance are discussed in further detail below. organisation due to non-compliance, including environmental implemented effectively in previous reports continue to 31 March 2022. Key risks and opportunities facing the organisation are sanctions, are disclosed in note 51 of the consolidated annual remain effective and are not highlighted below. financial statements Refer to “Board and its committees – Board evaluation” from discussed in “Our strategic context – Integrating risk and Principle 1 The Board should lead ethically and page 56 for further information resilience” from page 45. Our approach to combined assurance In order to improve the management of compliance risks, effectively is discussed in “Assurance and controls” on page 60 Exco is monitoring compliance-related key risk indicators Principle 10 The Board should ensure that the through its risk workshops. We have also conducted a Principle 2 The Board should govern the ethics appointment of, and delegation to, Governance of technology and information of Eskom in a way that supports the The responsibility for managing technology and information review of our approach to compliance, which has informed management contribute to role clarity establishment of an ethical culture has been delegated to Exco, with Exco’s Information the development of a corporate compliance structure and and the effective exercise of authority and responsibilities and Technology Committee ensuring alignment operating model to better monitor and address compliance Various initiatives are under way to improve the between operational technology (OT) and information risks. Implementation will commence following the governance of ethics, particularly in respect of the technology (IT). necessary governance processes. The Board delegates certain powers to management implementation of ethics policies as well as consequence through the DoA and outlines levels of materiality through ARC considers quarterly reports that provide assurance on management. Ethics and PFMA training interventions to the SMF. The DoA was revised in January 2022 to improve the security and availability of Eskom’s OT and IT systems promote ethical behaviour are now mandatory for all role clarity between the Board, Exco and the divisional of control, as well as assessments of the adequacy and employees on an annual basis. Furthermore, the Ethics boards in respect of procurement transactions. effectiveness of governance, risk management, compliance Office has been capacitated through the appointment of and controls relating to technology and information. additional resources. Succession planning for key executive positions is guided by Eskom’s talent management policy and managed by the Information technology Refer to “Progress on governance clean-up” from page 52 and executive talent board. Through ARC, the Board has adopted an IT Charter and “Ethics based on our values” on page 65 for further information policies to provide direction on how information technology on these initiatives Principle 11 The Board should govern risk in a way that is managed in the organisation to ensure the confidentiality, supports Eskom in setting and achieving its security, integrity and availability of information. Group IT Principle 7 The Board should comprise the strategic objectives has established strategic forums to oversee IT governance, appropriate balance of knowledge, skills, compliance, assurance, risk and resilience, cloud and data experience, diversity and independence As previously reported, Exco has implemented a quarterly management, IT investments, as well as cyber-security. for it to discharge its governance role and risk workshop to review the risk landscape and improve responsibilities objectively and effectively A roadmap has been developed to improve cyber-security accountability for treatment plans. Principle 8 The Board should ensure that its for operational technology and information technology arrangements for delegation within its own In accordance with set timelines, we have begun over the next five years. Furthermore, we are investigating structures promote independent judgment, implementing the requirements of DPE’s Risk and Integrity the utilisation of data analytics and conducting research on and assist with balance of power and the Management Framework (RIMF) for SOCs to enhance risk blockchain and artificial intelligence technologies, in line effective discharge of its duties governance, policies, monitoring and reporting. with the shareholder’s expectations. Principle 14 The Board should ensure that Eskom Operational technology The Board recognised the need to strengthen its remunerates fairly, responsibly and The Technical Governance Committee reports to Exco’s membership with additional non-executive directors to transparently so as to promote the Operating Committee and is responsible for development ensure that its committees are adequately constituted. achievement of strategic objectives and of technical processes and standards, as well as effective In particular, the Board recognised that ARC required positive outcomes in the short-, medium- management of operational technology throughout Eskom. members with appropriate skills and experience in finance and long-term and assurance and that IFC was not adequately capacitated. Compliance The Board is accountable for compliance and governs this On 30 September 2022, the shareholder announced the Eskom has separate remuneration policies in place due to through the Compliance Charter and, with the assistance appointment of 12 new Board members, with effect from different remuneration practices across bargaining unit, of ARC, oversees compliance throughout Eskom. 1 October 2022. The Board is now fully constituted with managerial, executive and non-executive categories. Work 15 directors in terms of the MOI. is under way to align the remuneration policy for executives and non-executive directors with DPE’s 2022 guidelines. Refer to “Remuneration and benefits” on page 63 for further information on executive and non-executive remuneration 68 | | 69 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information EXECUTIVE MANAGEMENT FINANCIAL REVIEW Exco is established by the GCE and is supported by several After year end, Mr Phillip Dukashe resigned with subcommittees in the execution of its duties. effect from 31 May 2022 and Mr Rhulani Mathebula was appointed to act as Group Executive: Generation. Refer to “Our governance framework” on page 51 for the Exco Mr Rhulani Mathebula subsequently resigned with effect subcommittees from 30 November 2022. Mr Thomas Conradie is acting in Membership of Exco includes the GCE, CFO, GCOO and the position while the recruitment process is under way. group executives responsible for various functional areas Mr Bheki Nxumalo, previously Group Executive: Group of the business. Both the GCE and CFO are appointed on Capital, was appointed as the Chief Executive Officer five-year contracts; their terms end in January 2025 and of Eskom Rotek Industries SOC Ltd with effect from December 2023 respectively, with an option to renew. 1 June 2022; the Group Capital Division now reports All other executives are full-time employees, unless directly to the GCOO. otherwise noted. Mr Riedewaan Bakardien resigned as Chief Nuclear Officer Refer to pages 12 and 13 for the Exco composition, with information on skills and years in service, as well as racial, with effect from 31 July 2022. Mr Keith Featherstone was gender and age diversity appointed to act in the position. 4 WHAT YOU The group executives for Generation, Transmission and Ms Mandy Rambharos, General Manager: Office of the Group Chief Executive, responsible for managing Eskom’s WILL FIND IN Distribution serve as the divisional managing directors of their respective divisional boards and report directly to JET Office and driving our JET strategy, resigned with effect THIS SECTION the GCOO. from 31 October 2022. Mr Vikesh Rajpaul was appointed in the position. Condensed annual financial Changes in executive leadership Mr André de Ruyter announced his resignation as Group statements 72 The following changes took place during the year: Chief Executive on 14 December 2022. He will continue Our finances 75 • Mr Phillip Dukashe was appointed as Group Executive: to serve in the position until 31 March 2023 to ensure Generation from 1 April 2021, after acting in the position continuity while a successor is recruited. since 1 February 2021 • Ms Mel Govender was appointed as Group Executive: Legal and Compliance from 1 October 2021. Ms Nerina Otto previously acted in the position • Ms Jainthree Sankar was appointed as Chief Procurement Officer from 1 March 2022, after acting in the position since 4 March 2021 70 | | 71 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information CONDENSED ANNUAL FINANCIAL STATEMENTS Condensed group statements of financial position at 31 March 2022 The group and company financial results set out in the in their report, including a material uncertainty relating to Restated condensed financial statements that follow have been Eskom’s ability to continue as a going concern. However, this 2022 2021 extracted from the consolidated annual financial statements of does not affect their opinion. Rm Rm % Eskom Holdings SOC Ltd for the year ended 31 March 2022, The consolidated annual financial statements, which detail the Assets which have been prepared in accordance with International Capital expenditure and other capitalised costs financial performance of the group and company, are available Non-current assets 718 412 710 419 1 Financial Reporting Standards (IFRS) and in the manner largely offset by depreciation online required by the Companies Act, 2008 and the PFMA, 1999. Property, plant and equipment and intangible The statements of financial position for the 2020 and 668 694 665 350 1 assets The consolidated annual financial statements have been 2021 financial years as well as the income statements and Future fuel supplies 6 304 4 390 44 Additions to coal and nuclear fuel supplies prepared under the supervision of the Chief Financial statements of comprehensive income for the 2021 financial Investment in equity-accounted investees and 418 420 Officer, Mr Calib Cassim CA(SA), and were duly approved year have been restated as a result of prior period errors subsidiaries Prior year restatement resulted in a portion of by the Board of Directors on 16 December 2022. coal inventory being reclassified from current to identified during the external audit. All financial information Inventories 11 516 11 001 5 non-current based on a review of the quantity and The consolidated annual financial statements have been presented in this report reflects the restated results where Deferred tax 9 971 6 280 usage of coal at power stations audited by the group’s independent auditors, Deloitte & applicable. Embedded derivatives 822 – Touche, in accordance with the Public Audit Act of South Derivatives held for risk management 8 046 11 185 28 Refer to note 48 in the consolidated annual financial statements Net derivatives used in hedging activities declined Africa, 2008, the General Notice issued in terms thereof Other non-current assets 12 641 11 793 due to credit risk adjustments and strengthening for more information on the prior period restatements and International Standards on Auditing. The independent of the Rand auditors issued a qualified opinion relating to information Neither the future performance plans nor strategies Current assets 83 173 66 839 24 disclosed in note 51 in terms of the PFMA. Except for this referred to in the integrated report have been reviewed or Inventories 23 086 22 481 qualification, the consolidated annual financial statements reported on by the group’s independent auditors. are fairly presented in terms of IFRS. Furthermore, the Loans receivable 319 310 independent auditors have emphasised a number of matters Embedded derivatives 117 – Net derivatives used in hedging activities declined Derivatives held for risk management 463 1 358 66 due to credit risk adjustments and strengthening Condensed group income statements for the year ended 31 March 2022 Trade and other receivables 25 163 22 716 11 of the Rand Insurance investments 17 318 14 401 15.06% tariff increase for the year, coupled with a 3.4% Increase largely attributable to growth in Restated Other current assets 822 1 532 recovery in sales volumes, due to the phased easing of municipal and metro debtors, offset by write 2022 2021 COVID-19 lockdown restrictions and many sectors returning Cash and cash equivalents 15 885 4 041 293 off of diesel rebates Rm Rm % to operation Continuing operations Total assets 801 585 777 258 3 Refer to the condensed group statement of cash Revenue 246 520 204 326 21 Price escalations, particularly in diesel costs, and write off of flows on the next page diesel rebates. Higher overall production to meet increased Equity Other income 1 494 2 662 demand, in particular OCGT usage to alleviate supply Capital and reserves 235 314 215 304 9 Primary energy (132 439) (115 492) 15 constraints Employee benefit expense (32 985) (32 887) – Liabilities Share capital of R31.7 billion issued in exchange Net impairment loss (1 436) (1 795) Salary increase for the bargaining unit, offset by headcount Non-current liabilities 453 876 460 416 1 for Government support, reduced by the loss Other expenses (28 780) 24 206 19 reduction and no managerial salary increases for the year Debt securities and borrowings 345 490 357 411 3 Profit before depreciation and 52 374 32 608 61 Increased maintenance to address plant performance Embedded derivatives – 208 Debt of R38.9 billion repaid, offset by R33 billion amortisation expense and net fair challenges, combined with other once-off items Derivatives held for risk management 5 415 3 736 45 debt raised. Portion of non-current debt value and foreign exchange reclassified as current as maturities fall due loss (EBITDA) Deferred tax 348 388 The biggest contributor to the improved performance is the Depreciation and amortisation (32 009) (26 585) 20 impact on revenue of the higher tariff and sales volumes Contract liabilities and deferred income 25 525 23 943 expense Net derivatives used in hedging activities Employee benefit obligations 16 404 15 414 declined due to credit risk adjustments and Operating profit (EBIT) 20 365 6 023 238 Mainly due to additional Medupi and Kusile units achieving Provisions 49 257 47 335 strengthening of the Rand commercial operation Net fair value and foreign exchange (4 748) (7 694) 38 Lease liabilities 8 032 8 447 loss on financial instruments, Other non-current liabilities 3 405 3 534 Mainly due to fair value movements on hedging instruments excluding embedded derivatives arising from credit risk adjustments and strengthening of Net fair value and foreign exchange 1 622 (355) 557 Current liabilities 112 395 101 538 11 the Rand. Prior year restatement due to hedge effectiveness gain/(loss) on embedded derivatives criteria no longer being met as a result of a correction to the Debt securities and borrowings 50 804 44 415 14 valuation curve methodology Profit/(loss) before net finance cost 17 239 (2 026) Embedded derivatives – 1 283 Net derivatives used in hedging activities Net finance cost (33 063) (31 142) 6 declined due to credit risk adjustments and Mainly due to fair value movements arising from an increase in Derivatives held for risk management 4 563 4 538 1 aluminium prices. A new pricing agreement became effective Payments received in advance 3 880 2 796 strengthening of the Rand Finance income 2 364 2 400 from 1 August 2021 Finance cost (35 427) (33 542) Employee benefit obligations 3 450 3 732 Provisions 8 944 5 307 69 Increase largely due to provisions raised for Share of profit of equity-accounted 52 71 Higher average cost of borrowings and lower interest compensation event claims investees after tax capitalised to projects, offset by a slight reduction in gross debt Trade and other payables 37 994 37 082 Other current liabilities 2 760 2 385 Loss before tax (15 772) (33 097) Despite the loss, we recorded an improvement of Income tax 3 442 8 081 R12.7 billion, with the biggest contributor being the growth Total liabilities 566 271 561 954 1 in revenue. A return to profitability remains hindered by the Loss for the year (12 330) (25 016) 51 poor operational performance, lack of cost-reflective tariffs, Total equity and liabilities 801 585 777 258 3 high debt service costs and non-payment by some customers Income/gain increased Income/gain decreased Expense/loss decreased Expense/loss increased Asset increased Asset decreased Liability decreased Liability increased The statements of comprehensive income and statements of changes in equity are available in the consolidated annual financial statements 72 | | 73 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information CONDENSED ANNUAL FINANCIAL STATEMENTS continued Condensed group statements of cash flows for the year ended 31 March 2022 2022 Rm Restated 2021 Rm % OUR Cash flows from operating activities Loss before tax Adjustment for non-cash items (15 772) 79 688 (33 097) 75 477 52 FINANCES Changes in working capital (9 771) (11 963) 18 Operating cash flows of R53.4 billion remain inadequate to meet total debt servicing Cash generated from operations 54 145 30 417 requirements of R71.4 billion, comprising interest Net cash (used in)/from derivatives held for risk (899) 1 402 of R32.5 billion and capital of R38.9 billion, management emphasising the lack of cost-reflective tariffs and Finance income received 441 278 the need for Government support Finance cost paid (25) (42) Income taxes paid (218) (1 046) Net cash from operating activities 53 444 31 009 72 Cash flows used in investing activities Proceeds from disposal of property, plant and 331 208 equipment and intangibles Acquisitions of property, plant and equipment (28 436) (23 057) 23 and intangibles Acquisitions of future fuel supplies (2 468) (1 559) 58 Net acquisitions of insurance investments (2 601) (1 989) Payments made in advance – (139) Cash used in provisions (318) (885) Investing activities relate mainly to capital Net cash from/(used in) derivatives held for risk 178 (1 049) expenditure on the new build programme, management Generation outage and technical plan requirements Net cash from loans receivable and finance lease 212 299 as well as network infrastructure receivables Dividends received 129 95 Finance income received 1 150 1 400 18 Net cash used in investing activities (31 823) (26 676) 19 Cash flows used in financing activities Highlights Improvements Debt securities and borrowings raised 33 036 15 756 110 Payments made in advance (471) (132) • Government support of R31.7 billion to strengthen the • Sales volumes recovered by 3.4% as a result of higher Debt securities and borrowings repaid (38 854) (65 586) 41 balance sheet and support going concern status, with electricity demand from many sectors Share capital issued 31 693 56 000 43 R21.9 billion committed for the 2023 financial year • Revenue improved by 20.7% and EBITDA margin grew Financing activities resulted in a net outflow, Net cash (used in)/from derivatives held for risk (2 769) 7 859 with total debt servicing of R71.4 billion, offset • Tariff increase of 15.06% for the 2022 financial year to 21.25% (2021: 15.96%), driven by favourable tariff management by debt raised of R33 billion, net of commercial and clarity on the recovery of the remaining R59 billion increase and recovery in sales volumes Net cash from financial trading assets – 152 paper. This is in line with plans to deleverage the disallowed by NERSA, as a result of favourable court balance sheet, by repaying more debt than is raised • Cash and cash equivalents increased to R15.9 billion at Net cash used in lease liabilities and financial (417) (710) judgments trading liabilities annually. Debt raised increased due to the private year end (2021: R4 billion) placement and syndicated loan being postponed • Eskom’s legal right to payment for services rendered • Solvency ratios improved due to favourable EBITDA Finance income received 656 791 from 2021. Government support of R31.7 billion to municipalities affirmed by Supreme Court of Appeal; performance and Government support, but remain Finance cost paid (32 547) (37 267) 13 was received a positive step towards arrear debt collection efforts below acceptable levels Taxes paid (66) (78) • Credit ratings affirmed by all three rating agencies, but Net cash used in financing activities (9 739) (23 215) 58 Challenges concerns around operational and financial sustainability Net increase/(decrease) in cash and cash 11 882 (18 882) led to a mostly negative outlook at year end • Total primary energy cost up 14.7% due to increased use of equivalents more expensive OCGTs, write off of diesel rebates as well Cash and cash equivalents at the beginning of 4 041 22 990 as higher production volumes from other generating sources Lowlights the year Foreign currency translation 5 12 • Operating cash flows remain insufficient to address high debt • Net loss after tax of R12.3 billion for the year, despite Despite the improvement for the year, liquidity Effect of movements in exchange rates on cash (43) (159) servicing requirements achieving an operating profit of R20.4 billion, largely remains constrained due to the lack of cost- held reflective tariffs and high debt servicing and working • Despite gross debt reduction of R5.5 billion, net finance due to unsustainable net finance costs Assets and liabilities held-for-sale – 80 capital requirements. Eskom remains reliant on costs increased due to higher cost of borrowing and lower • Continued escalation in arrear municipal debt to Cash and cash equivalents at the end of 15 885 4 041 293 Government support to service debt capitalisation of finance costs R44.8 billion (2021: R35.3 billion), coupled with poor the year • Lack of a cost-reflective tariff path hinders long-term payment levels and limited progress from Government financial sustainability, with the 9.61% tariff increase for the interventions Inflow increased Inflow decreased Outflow decreased Outflow increased 2023 financial year falling far below the 20.5% required. Awaiting NERSA’s decisions for 2024 and 2025 • Debt management with EDM of Mozambique remains a challenge, with R350 million in dispute 74 | | 75 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR FINANCES continued We make use of financial capital in the form of debt tariff increase of 15.06% for customers supplied directly Growth in sales volumes was achieved across almost The following graphs set out the breakdown of primary or equity to fund our operations. Debt includes both by Eskom and an increase of 17.80% for municipal and every customer category, with the industrial, mining and energy costs, net of pre-commissioning expenditure guaranteed and unguaranteed borrowings from external metropolitan distributors. Further contributing to rail sectors in particular benefiting from the recovery of capitalised and lease accounting adjustments. lenders. Equity should be created through sustainable improved EBITDA performance was a recovery in sales global commodity markets. This led to improved profit The contribution of the particular source to primary profits generated from sufficient revenue to cover our volumes, resulting from higher electricity demand from margins, driving higher production by large mines and energy costs and total TWh energy produced is costs, or through support received from our shareholder. many sectors due to the phased easing of COVID-19 smelters as well as increased freight demand. Regrettably, provided in brackets. lockdown restrictions and higher commodity prices. the rail industry continues to experience cable theft and Primary energy breakdown Financial results of operations The improvement in revenue was offset by the use of more infrastructure vandalism, thereby hampering further expensive primary energy sources, to alleviate generation growth. Residential prepayment was affected by lower R7.5 billion (6%) The group recorded a net loss after tax of R12.3 billion for n/a the year (2021: R25 billion), and EBITDA of R52.4 billion supply constraints and avoid or minimise loadshedding, consumption due to depressed economic conditions as well (2021: R32.6 billion). The EBITDA margin increased to coupled with growth in other operating expenditure. as theft through illegal connections and meter tampering. R35.2 billion (27%) 21.25% (2021: 15.96%), driven largely by a regulatory Due to the long-lasting impact of the economic recession, 16TWh (7%) Profitability and working capital as well as shifts to self-generation technology, demand is not expected to recover to pre-COVID-19 levels in the Target Target Target Target Actual Actual Actual short to medium term. Our Corporate Plan reflects a 2022 Measure and unit 2025 2023 2022 met? 2022 2021 2020 gradual decline in sales volumes from around 194TWh to R73.6 billion (56%) Company 190TWh over the next five years. R5.3 billion (4%) 191.5TWh (83%) 8.5TWh (4%) Electricity revenue per kWh (including environmental levy), 171.30 138.44 124.99 127.32 111.04 101.86 We are engaging with customers on the market dynamics R10.0 billion (8%) c/kWh of their sectors and collaborating with Government to 1.8TWh (1%) R0.8 billion (1%) Electricity operating costs, R/MWh 1 256.11 1 121.44 1 008.17 990.31 906.36 803.01 12.4TWh (5%) assist vulnerable sectors in a sustainable manner. A number Group of applications have been received for short- and long-term R7.2 billionElectricity Coal and other (6%) imports negotiated pricing agreements (NPAs); these are being Nuclear fuel n/a IPPs EBITDA, R million SC 82 805 51 929 45 113 52 374 32 608 36 816 adjudicated by NERSA in terms of the requirements of OCGT fuel Environmental levy EBITDA margin, % 26.89 19.70 19.02 21.25 15.96 18.46 DMRE’s NPA framework. Current ratio1 1.80 1.54 1.30 0.90 0.95 0.82 R30.8 billion (27%) Operating costs 13.5TWh (6%) Free funds from operations (FFO), R million 94 573 59 600 52 992 63 215 42 972 41 120 Operating expenses, R billion FFO after net interest paid, R million 58 890 25 429 19 752 31 324 6 496 2 606 225 9.7% 2021 200 R67.7 billion (59%) 1. The current ratio was impacted by the reclassification of a portion of coal inventory from current assets to non-current assets based on operational needs. 190TWh (85%) 175 2. Future targets assume a tariff path with annual increases of 9.61%, 13% and 10% over the next three financial years, based on our Corporate Plan. R5 billion (4%) 150 8.8TWh (4%) 125 R4.1 billion (4%) Although most financial ratios performed better than Over the past decade, Eskom has been experiencing a 1.5TWh (1%) R0.7 billion (1%) 100 9.9TWh (4%) target and mostly improved compared to the previous declining sales trajectory, averaging around a 1% reduction 75 year, Eskom’s standalone long-term financial sustainability in sales volumes per year. The 2021 financial year saw an 50 Coal and other generation Electricity imports remains dependent on the migration towards cost- unprecedented 6.7% decline in sales volumes due to the 25 Nuclear generation IPPs OCGT generation Environmental levy reflective tariffs, a solution to Eskom’s debt burden and slowdown of the economy amid the COVID-19 lockdown. 0 recovery of arrear debt from delinquent municipalities. Sales volumes have partially recovered in the 2022 financial 2018 2019 2020 2021 2022 2022 Target Resolving these challenges and strengthening Eskom’s year, increasing by 3.4% to 198.3TWh (2021: 191.9TWh). Our own generation costs increased by 16.5% to Primary energy costs Employee benefit expense financial position will take time. Depreciation and amortisation Other operating expenses R84.4 billion (2021: R72.5 billion), excluding the Year-on-year recovery in sales volumes CAGR environmental levy. Total coal-fired generation costs, Sales and revenue TWh % excluding the environmental levy, increased by 8.7% to Net electricity revenue for the group amounted to Primary energy R73.6 billion (2021: R67.7 billion). Production volumes R243.4 billion (2021: R202.6 billion), an increase of 20.1% Distributors 1.5 1.8 Primary energy costs (including coal, diesel and water) from commissioned coal-fired stations increased by 3%, compared to the prior year. Excluded from this amount is Residential 0.4 3.9 increased by 14.7% to R132.4 billion (2021: R115.5 billion), while the increase in the average coal purchase cost pre-commissioning revenue of R1.1 billion relating to Medupi Commercial 0.2 1.8 accounting for the majority of the growth in operating per ton was contained to just 2.1%. and Kusile capitalised during the year (2021: R4 billion). Industrial 4.2 10.4 costs during the year. Growth in IPPs, coal and Eskom- Expenditure on Eskom-owned OCGTs increased by R billion TWh Mining 1.0 3.8 owned OCGT costs were the major contributing factors 146.2% to R10 billion largely due to the write off of the 300 Revenue +20.1% 215 Agricultural 0.1 1.4 as a result of increased production from these sources, diesel rebate receivable, coupled with higher diesel prices Sales volumes +3.4% 210 Rail 0.2 10.2 combined with price escalations, particularly in diesel and a 25.3% increase in production to 1 826GWh (2021: 250 and fuel oil. Altogether, production volumes increased by R4.1 billion to produce 1 457GWh). The OCGT load factor 205 International 0.2 1.5 200 6.4TWh to meet the higher electricity demand experienced increased to 8.7% (2021: 6.9%) to ensure system stability 200 Total 6.4 3.4 during the 2022 financial year. In addition, SARS has during periods of supply constraints. 150 disallowed certain rebates relating to Eskom’s diesel use 195 IPP expenditure grew by 14.2% due to more extensive use 100 Refer to page 152 for the number of customers by customer over several years and denied our appeal on the matter in 190 of IPP OCGTs and higher production from renewable IPPs, segment, as well as electricity sales by customer category, October 2022. Due to uncertainty around the recovery coupled with higher diesel prices. The total expenditure 50 185 both volumes and revenue of the rebates, the receivable of R3.6 billion at year end on IPP OCGTs (after the lease accounting adjustment of 0 180 has been written off, with a corresponding increase in R1.5 billion) amounted to R4.6 billion to produce 899GWh 2018 2019 2020 2021 2022 primary energy costs. We are pursuing the necessary legal (2021: R2.9 billion to produce 704GWh), while R30.6 billion processes to address this dispute. was spent on renewable IPPs to produce 15 073GWh Electricity revenue Sales volumes (2021: R27.9 billion to produce 12 821GWh). 76 | | 77 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR FINANCES continued A comparison of the primary energy unit cost of the The group’s expenditure on repairs and maintenance Fuel price sensitivity NERSA approved a new 10-year NPA for the various generation categories is shown below: (before intergroup eliminations and excluding associated Poor generating plant performance has led to South32 Hillside aluminium smelter, effective from labour costs and capitalised maintenance) increased to % increased reliance on Eskom-owned and IPP OCGTs 1 August 2021, with a Rand-denominated tariff Unit cost, R/MWh 2022 2021 change R19.1 billion (2021: R17.4 billion). to alleviate supply constraints and avoid or minimise and escalation linked to the South African Producer Coal1 440 419 5.0 loadshedding. However, OCGTs are an expensive Price Index. source of generation and particularly susceptible to MAINTENANCE SPEND Nuclear 99 105 5.3 fuel price fluctuations. The wholesale diesel purchase Generating plant R14.7 billion 9.6% Eskom-owned OCGTs2 4 708 3 951 19.2 Net finance cost and debt price, before rebates, reached a high of R18.87/ℓ for (2021: R13.4 billion) IPPs 3 2 204 2 280 3.3 R billion 2022 2021 the financial year in March 2022 and averaged R15.70/ℓ Transmission network R0.8 billion 16.5% IPP OCGTs4 4 574 3 578 27.8 over the course of the financial year (2021: average of (2021: R0.7 billion) Debt securities and borrowings 29.1 31.4 Renewable IPPs 2 027 2 178 6.9 10.3 R12.12/ℓ), leading to above-inflation growth in primary Distribution network R3.6 billion 7.7% Derivatives held for risk management 6.7 6.6 International purchases3 625 567 energy costs. (2021: R3.4 billion) Other 7.8 7.2 1. Excludes pre-commissioning production of 1 369GWh from certain Medupi and Kusile units (2021: 5 735GWh). The Russian invasion of Ukraine in February 2022 has Gross finance cost 43.6 45.3 2. The average cost is calculated on fuel and start-up costs only, excluding had a detrimental impact on the sustainability of the Extensive planned maintenance was required on generating Finance income (2.4) (2.4) storage and demurrage costs. For comparability, the calculation is shown global energy sector. We have been affected by rising fuel plant to address performance challenges and defects in gross of rebates as a result of the write-off of the R3.6 billion diesel prices and declining fuel availability, leading to increased line with the Generation recovery plan, while significantly Cost of borrowings capitalised to assets (8.2) (11.7) rebate receivable in 2022. higher levels of unplanned maintenance was needed costs. Diesel and fuel oil, required to ensure security of Net finance cost 33.1 31.1 3. Note that the unit costs of IPPs and international purchases are based supply and to return units to service after maintenance, to address several critical plant issues. In addition, the on the full cost of operation, whereas the unit cost of Eskom-owned generation is based only on the primary energy cost. Given that IPP are expected to rise to unsustainable levels. availability of resources to conduct maintenance improved Gross finance costs have declined slightly due to an overall and international purchases are treated as a variable cost in Eskom’s due to the easing of lockdown restrictions. reduction in debt, partially offset by a higher average accounts, this treatment is considered appropriate. Our financial plan for the 2023 financial year assumed an increase in diesel prices to around R21.57/ℓ, before The impairment of financial assets amounted to cost of borrowings. Net finance costs have increased to 4. The average cost is calculated on the net amount spent on energy, excluding capacity charges, and after the lease accounting adjustment. rebates, with the impact on our primary energy costs R589 million (2021: R91 million reversal) relating mainly R33.1 billion largely as a result of lower capitalisation of shown below. We have considered the knock-on effect to trade and other receivables. The impairment of other interest. As the new build programme nears completion The increase in coal and international purchases unit costs to the coal value chain, including the transport of coal assets amounted to R0.8 billion (2021: R1.9 billion) due and new units are transferred to commercial operation, was largely due to inflationary and periodic contractual to power stations by road, as well as fuel oil start-up to the continuation of an inventory clean-up exercise to lower borrowing costs are capitalised to the related asset increases. Renewable IPP unit costs continue to decline costs for coal-fired power stations. address shortcomings in the internal controls relating base, negatively affecting profitability. as suppliers in the latter RE-IPP bid windows, with to consumables management. lower contracted rates, are connected to the grid and Impact on budget costs, R million COST OF DEBT AND INVESTMENT RETURN contribute an increasingly higher proportion of production. Depreciation and amortisation 862 Average cost of debt 10.02% (2021: 9.66%) Nuclear unit costs declined due to higher production at Depreciation and amortisation expense increased by Average investment return 3.92% (2021: 3.87%) Koeberg Power Station. The unsustainable increases in 20.4% to R32 billion (2021: R26.6 billion), largely due Eskom-owned and IPP OCGT unit costs were driven by to the commissioning of additional generating units 1 030 through the new build programme. Kusile Units 2 and 3 The average cost of debt is based on a blend of fixed and unfavourable diesel price movements during the year. floating rates, with the majority of our borrowings on fixed 2 785 achieved commercial operation on 29 October 2020 Other operating costs and 29 March 2021 respectively. Medupi Unit 1 achieved rates to hedge against interest rate exposures. The number of employees (including fixed-term commercial operation on 31 July 2021. contractors) declined by 5.4% to 40 421 at year end R billion 2022 2021 (2021: 42 749) due to natural attrition. Net employee Net fair value movements on financial instruments Debt securities and borrowings 396.3 401.8 benefit costs for the year amounted to R33 billion, after and embedded derivatives 2 152 The group recorded a net fair value loss on financial Cash and cash equivalents (15.9) (4.0) capitalising costs to qualifying assets (2021: R32.9 billion). instruments, excluding embedded derivatives, of R4.7 billion Net derivatives held for risk management 1.5 (4.3) Despite the reduction in headcount, employee costs (2021: R7.7 billion), mainly due to fair value movements Coal usage IPP OCGTs Total net interest-bearing debt 381.9 393.5 have remained relatively stable. This is largely a result of Eskom OCGTs Fuel oil on derivative hedging instruments arising from credit risk lower capitalisation of costs, containing salary increases adjustments and the strengthening of the Rand against 1. In the table above, assets are reflected as negative amounts. to affordable levels and an adjustment to pension benefits major currencies. This was partially offset by a gain on Therefore, budgeted primary energy costs for the 2023 Our gross debt securities and borrowings have decreased based on classification as a defined benefit fund. Overtime translation of foreign borrowings due to the strengthening financial year were increased by a further R6.8 billion, by R5.5 billion to R396.3 billion (2021: R401.8 billion). costs remained stable at R2.1 billion (2021: R2.1 billion) of the Rand. or 4.8%, from the original budget as a direct result of We repaid debt of R38.9 billion and raised R33 billion due to exceptionally high levels of unplanned maintenance fuel price increases. This amount was ring-fenced for during the year, net of commercial paper. Furthermore, required during the year. Contract labour costs and other YEAR-END EXCHANGE RATES the management of fuel price fluctuations to minimise foreign borrowings were affected by exchange rate staff-related costs, such as training and travel, were well EUR/ZAR 16.19 (2021: 17.32) operational and financial risks; it has been consumed by movements. Altogether, we reduced net interest-bearing contained. USD/ZAR 14.59 (2021: 14.75) the fuel price adjustments experienced during the 2023 debt by R11.6 billion, or 3%, after accounting for growth Other operating expenditure increased by 18.9% to financial year so far. in cash as well as exchange rate movements on net R28.8 billion (2021: R24.2 billion), largely due to a 9.5% A net fair value gain of R1.6 billion was recorded on derivatives. increase in repairs and maintenance, coupled with certain embedded derivatives (2021: R0.4 billion net fair value loss), once-off items. These include R1.1 billion relating to the linked mostly to the increase in aluminium prices during write-off of assets damaged in the explosion at Medupi the year. Unit 4 and R2.7 billion relating to a provision raised for a compensation event claim at Koeberg Power Station. 78 | | 79 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR FINANCES continued Credit ratings and funding The primary focus of our borrowing programme over the next five years is to continue to secure cost-effective Demand for Eskom’s unguaranteed debt remains Solvency ratios funding, while not exceeding a gross debt balance of limited as investor mandates typically restrict access Target Target Target Target Actual Actual Actual R400 billion, by borrowing less than we repay annually. to sub-investment grade arrangements unless they Measure and unit 2025 2023 2022 met? 2022 2021 2020 This remains the only approach within our control to are guaranteed. At 31 March 2022, we had utilised Group deleverage our balance sheet. Continued Government R322 billion, or 92%, of the guarantees available under support is necessary to provide debt relief and liquidity Government’s R350 billion Guarantee Framework FFO as % of gross debt, % 19.10 11.97 10.60 13.98 9.42 7.74 Agreement (GFA) (2021: R305 billion). After previously support while awaiting implementation of Government’s FFO (after net interest) as % of gross debt, % 11.90 5.11 3.95 6.93 1.42 0.49 guaranteed debt is repaid, the guarantees become debt relief solution. Cash interest cover, ratioSC 2.04 1.33 1.79 1.68 0.85 0.94 available once again. Debt service cover, ratioSC 0.91 0.55 0.74 0.76 0.30 0.52 Annual borrowing programme R billion The availability period of the GFA expires on Gross debt/EBITDA, ratio 5.63 9.59 11.12 8.63 13.98 14.43 2023 44.5 31 March 2023, after which we will not be able to Debt/equity (including long-term provisions), ratio 1.52 1.83 1.97 1.82 2.04 2.44 2024 29.8 apply for new guarantees. Discussions are under way 2025 21.7 Gearing, % 60 65 66 65 67 71 with DPE and National Treasury to obtain support 2026 17.3 for further guarantees and to establish a new GFA to 2027 10.2 All solvency ratios, except cash interest cover, performed Our ratings remain at sub-investment grade level, which address any potential risks. This will be considered Total 123.5 together with Government’s debt relief solution, better than target and improved significantly year-on-year, affects our ability to access unguaranteed funding. although they remain well below investment-grade levels. Successful implementation of our turnaround plan and further details of which will be communicated in the We had planned to secure borrowings of R44.5 billion National Budget Speech in February 2023. The positive performance is largely attributable to improved maintaining a positive outlook for the South African during the 2023 financial year; however, due to increased EBITDA performance, together with Government equity economy remain critical for improving our credit ratings. operational challenges and capital requirements, the We intend to raise a significant portion of funding from support which helped us to reduce our debt balance during Funding activities and risks adjusted borrowing programme includes raising around the domestic bond market through opportunities for the year. Despite this improvement, operating cash flows Funding progress against the 2022 borrowing R58 billion in 2023. The borrowing programme for switching maturing bonds into longer term bonds. Our remain inadequate to fund our debt servicing requirements. programme the coming financial year includes the issuance of a Domestic Medium-Term Note (DMTN) programme has Credit ratings private international bond. In addition to Government been increased from R160 billion to R167 billion to facilitate Aspirational Committed Summary of Eskom’s credit ratings Potential sources, R billion funding by year end guarantees, the market has indicated that a commitment to further domestic funding. sustainability targets may be required for any new issuance. Standard & Fitch: local Development finance institutions (DFIs) 7.9 6.3 Rating Poor’s Moody’s currency Export credit agencies (ECAs) 0.7 0.4 Anticipated capital and interest cash flows (net of swaps) of the existing debt portfolio at 31 March 2022, R billion Foreign currency CCC+ caa1 n/a Domestic bonds and notes 8.5 7.1 80 Local currency CCC+ caa1 B Commercial paper 0.5 0.6 Private placement1 7.0 7.0 70 Standalone ccc- caa3 ccc- Syndicated loan1 10.3 14.4 60 Outlook Stable Positive Stable International bond 7.0 – 50 Last rating action Affirmed Affirmed Affirmed Derivative loans 1.0 – 40 Last action date 25 Nov 2022 31 Oct 2022 27 Sep 2022 Total 42.9 35.8 30 During the year, Standard & Poor’s and Fitch affirmed our 1. Planned funding, originally targeted for 2021, postponed to 2022. 20 previous credit ratings in November and December 2021 2. The table above includes the rolling of commercial paper, whereas the 10 respectively. Standard & Poor’s maintained their negative debt raised figure in the statement of cash flows does not. 0 3. Committed sources include funding raised or signed facilities with 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044+ outlook, while Fitch revised its outlook from negative to milestone drawdowns. stable, in line with its improved outlook for the Sovereign. Capital Interest Subsequent to year end, Moody’s affirmed our previous Our borrowing programme for 2022 was revised from a credit ratings with a negative outlook in April 2022, target of R25.5 billion to an aspirational funding level of expressing its concern about Eskom’s debt burden, arrear R42.9 billion to accommodate the postponement of the municipal debt, operational challenges and loadshedding, private placement and syndicated loan from the previous as well as long-term uncertainty around electricity tariffs. financial year. We exceeded the target for the year by In September 2022, Fitch once again affirmed our credit securing funding of R35.8 billion (2021: R18.9 billion). ratings with a stable outlook. A $500 million Euro bond was issued through a private Moody’s revised its outlook from negative to positive in placement during the second quarter of the year. October 2022 and Standard & Poor’s revised its outlook The syndicated loan was executed in two phases, from negative to stable in November 2022 on the back of with disbursement in October 2021 and March 2022. the announcement of a prospective debt relief solution Refinancing of the syndicated loan was concluded in for Eskom by the Minister of Finance in the Medium-Term the 2023 financial year. The planned issuance of a public Budget Policy Statement (MTBPS). The debt relief is international bond in November 2021 was cancelled expected to address between one-third and two-thirds due to delays in the Government bond programme. We of Eskom’s debt balance. considered a private placement in the international bond market as a substitute, but did not proceed due to the negative interest rate environment at the time. 80 | | 81 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR FINANCES continued Our debt repayment profile remains pressured over Government’s continued support to our balance sheet and As reported previously, we have lodged several review The High Court ordered NERSA to process the revenue both the short and long term, with debt repayments of restructuring was confirmed in the 2022 National Budget, applications with the courts to challenge recent NERSA application for the 2023 financial year. Public hearings were R176.9 billion and interest payments of R118.9 billion over with R21.9 billion committed for the coming financial determinations. The legal processes related to the recovery held in January 2022 and NERSA announced its decision the next five years to 31 March 2027. Total debt service year. The Minister of Finance announced a total of around of an estimated R103 billion still need to be finalised by the in February 2022, resulting in a standard tariff increase costs for 2023 are expected to amount to R79.5 billion R88 billion support to be made available until 2026, which courts; developments since last year’s report are discussed (including the RCA) of 9.61% for the 2023 financial year, (2022: R71.4 billion). was later confirmed in the MTBPS on 26 October 2022. below. significantly lower than the 20.5% for which we applied. We will rely on these equity injections to meet future The reasons for decision was published in June 2022. Refer to page 72 of our 2021 integrated report for further Managing liquidity liquidity requirements. information on the background to these review applications Eskom analysed the decision and submitted a court review Liquidity remains a key challenge, limiting our ability application in July 2022, based on NERSA’s incorrect to achieve financial and operational sustainability. High Government support R billion Court review applications treatment of the regulatory asset base (RAB). debt servicing costs, lack of cost-reflective tariffs, 2023 21.9 RCA decisions for the 2015 to 2017 financial years (MYPD 3) On 24 October 2022, the High Court set aside NERSA’s escalating arrear municipal debt and poor generating plant 2024 21.0 – R20 billion decision in respect of the valuation of the RAB, although performance contribute to our liquidity constraints and 2025 22.0 In January 2021, NERSA awarded R4.7 billion in response to no retrospective adjustment to the 9.61% tariff increase for threaten Eskom’s ability to continue as a going concern. 2026 23.0 the court judgment to reconsider its original RCA decision. 2023 was granted. NERSA has been ordered to apply its Total 87.9 We submitted a review application for the remitted MYPD methodology for redetermination of the valuation of To improve liquidity, we restricted organisational cash decision in May 2021. During February 2022, the Court requirements by limiting capital expenditure and achieving the RAB, which will form the basis for NERSA’s decision for The conditions of the Special Appropriation Act, 2019 granted NERSA an opportunity to provide further records the 2024 and 2025 financial years. targeted savings on operating expenditure. Improving our of its decision. The legal process is still under way. profitability and solvency ratios in a sustainable manner attached to the support for 2023 were finalised in October 2022 and relate to various financial, operational, In July 2022, the High Court issued an order requiring requires successful implementation of our financial RCA decision for the 2018 financial year (MYPD 3) – NERSA to assess the revenue application for the 2024 turnaround objectives, each of which is discussed in more governance and restructuring matters. We remain R14 billion compliant with the conditions to ensure that Government financial year by 24 December 2022, based on the existing detail below. We submitted a review application in April 2020, which MYPD methodology. NERSA published our revenue support is made available when required. NERSA opposed in October 2020. A court date is still application for both the 2024 and 2025 financial years IMPROVE THE INCOME STATEMENT Reducing reliance on debt awaited. for stakeholder consultation, with public hearings held in Pursue cost-reflective tariffs Addressing our high debt burden is a key component of September 2022. The revenue application equates to an Revenue and RCA decisions for the 2019 financial year – Achieve sustainable cost curtailment measures our turnaround plan, to ensure the long-term financial average tariff increase of 32.02% for 2024 and 9.74% for R10 billion sustainability of Eskom. The Minister of Finance announced 2025. We await NERSA’s decision, which will be dependent In January 2021, NERSA awarded Eskom R1.3 billion STRENGTHEN THE BALANCE SHEET a prospective debt relief solution in the MTBPS on on the RAB valuation mentioned above. out of the R5.4 billion supplementary tariff application. Obtain Government support 26 October 2022. While the selection of the relevant debt In response to NERSA’s 2019 RCA decision, a review Reduce reliance on debt instruments and the method of effecting the relief is still In August 2020, we submitted proposals for the application was lodged in April 2021, which also covers Manage arrear debt to be determined, the quantum is expected to be between restructuring of tariffs to NERSA – existing tariff NERSA’s decision on the supplementary application. Dispose of non-core assets one-third and two-thirds of Eskom’s debt balance. Further structures no longer accurately reflect the component NERSA has opposed this review and the legal process is detail, including the conditions to be attached to the relief, costs for energy, network and retail requirements, under way. Cash and cash equivalents improved considerably during will be communicated by the Minister of Finance in the and need to be modernised to address prevailing the year, with an available balance of R15.9 billion at year National Budget Speech in February 2023. Revenue decision for financial years 2020 to 2022 (MYPD 4) circumstances and Eskom’s planned legal separation. end (2021: R4 billion). We relied heavily on Government – R59 billion Price applications to support revenue requirements NERSA’s decision was expected during the 2022 support to maintain a positive cash balance, with In February 2021, the High Court delivered a judgment Improving our income statement through revenue growth financial year, for implementation in the 2023 financial R31.7 billion received during the year (2021: R56 billion). relating to the R69 billion Government support incorrectly remains a key priority by migrating towards cost-reflective year. However, NERSA did not consider these proposals Liquidity was further bolstered by improved cash from deducted by NERSA in its revenue decision for MYPD 4, tariffs from NERSA. Despite applying for revenue based on the basis that a revised pricing methodology is being operations, largely due to the recovery in revenue, as well allowing Eskom to recover R10 billion during the 2022 on prudent and efficient costs in accordance with the developed. We have submitted additional proposals to as the success of the borrowing programme, by raising debt financial year. NERSA lodged its appeal with the Supreme MYPD methodology, the revenue and RCA determinations address other shortfalls of the existing tariff structure facilities postponed from the prior year. Court of Appeal (SCA) in June 2021. made by NERSA over recent years have not enabled the amid the planned restructuring of Eskom and the Government support migration towards cost-reflectivity. In June 2022, the SCA issued an order on the timing of electricity supply industry. Key among these is the Government support remains a key enabler to servicing the recovery of the remaining R59 billion which requires introduction of a generation capacity charge to address our debt balance and strengthening our balance sheet. NERSA to include an additional R15 billion in allowable the recovery of fixed generation costs. NERSA is revenue per year in the 2024 to 2026 financial years, required to process the application for implementation A total of 31.7 billion ordinary shares with a par value of and R14 billion in the 2027 financial year. in the 2024 financial year. R1 were issued in return for the equity received during the year. Revenue decision for financial years 2023 to 2025 (MYPD 5) Other pending decisions We submitted our MYPD 5 revenue application to NERSA RCA decision for the 2020 financial year (MYPD 4) Eskom has received a cumulative R136.7 billion in in June 2021. In September 2021, NERSA rejected the In December 2020, we submitted an RCA application of Government support over the last three years. application on the basis that the MYPD methodology was R8.4 billion for the 2020 financial year. In December 2021, no longer valid and that it intended to develop a revised NERSA approved R3.5 billion to be recovered from pricing methodology. We submitted an urgent High Court standard tariff customers, local special pricing arrangement review, requiring NERSA to urgently process the revenue customers and international customers. The reasons for application for at least one year, as required by law. decision was published in February 2022. A decision on the timing of the implementation of the RCA is awaited. 82 | | 83 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR FINANCES continued RCA decision for the 2021 financial year (MYPD 4) RCA decision for the 2022 financial year (MYPD 4) Controlling expenditure to improve liquidity To ensure that savings are both achievable and sustainable, Based on the 2021 audited annual financial statements, we The RCA for 2022 will be calculated in accordance with the Another focus area of our turnaround plan is improving our divisions have developed strategies to reduce costs, with submitted an RCA application of R10.7 billion to NERSA in existing MYPD methodology, based on the audited financial income statement through sustainable cost curtailment and roadmaps in place. The Turnaround Management Office is November 2021. NERSA has not yet issued its decision. results for the year. It is imperative that decisions are made improving efficiency of capital expenditure. We are targeting monitoring the implementation of initiatives. Procurement timeously to allow the recovery of efficient and prudent a reduction of R61.8 billion in our cost base by 2023. We is an ongoing area of improvement and interventions have costs, on our path towards financial sustainability. have already achieved combined savings and other income of been put in place to ensure that we derive optimal value R50.7 billion over the last three years, thereby exceeding the from suppliers – these include price check tools, checklists cumulative target of R40.4 billion so far. and standardised rates. Recovering the costs of generating, transmitting and Had cost-reflective tariffs applied for the 2022 distributing electricity financial year, this would have translated to a tariff of For the 2022 financial year, we achieved savings of Managing arrear debt Our three main activities are the generation, transmission 152.60c/kWh, or US 9.54c/kWh (assuming an exchange R20 billion against a target of R20.1 billion, with the Systemic challenges in South Africa, such as crime, social and distribution of electricity, which are separately rate of R16.00), which would still qualify as one of the majority attributable to primary energy cost optimisation, inequality and economic pressures, have led to persistent licensed by NERSA and subject to their economic lowest non-subsidised average prices in the world based and, to a lesser extent, a reduction in targeted employee revenue recovery challenges and a continued culture regulation. The component costs of these activities are on global benchmarks included in our MYPD 5 revenue benefit costs and other sundry expenses. Initiatives for of non-payment in some sectors. Collection of the recovered through allowable revenue determined by application. other income and capital expenditure optimisation further revenue owed to us and the recovery of arrear debt from NERSA. These include both controllable costs, such as contributed to performance. Primary energy savings relate delinquent municipalities remain priorities to improve primary energy, maintenance and employee benefit costs IPP contracts, which are negotiated by DMRE, remain our mostly to working capital, and do not necessarily lead liquidity and strengthen our balance sheet. associated with our power stations and network, as well largest uncontrollable cost, as well as the cost with the to an immediate improvement in the income statement. as uncontrollable costs, such as electricity purchased largest year-on-year increase. Given the planned growth Regrettably, savings have been partially offset by an from IPPs and environmental levies due. The revenue of the RE-IPP Programme and the impact of the RMIPPP overspend in fuel oil and OCGTs. determination is also intended to address capital servicing Programme, IPP costs are expected to constitute a larger percentage of our total costs for the foreseeable future. Key debt management indicators at 31 March 2022 costs, including depreciation on assets and the cost of debt and equity. However, this is subject to the commissioning of new IPP Target Target Target Target Actual Actual Actual capacity as planned. In the 2022 financial year, IPP costs Measure and unit 2025 2023 2022 met? 2022 2021 2020 The graph below provides a breakdown of these costs accounted for 27% of primary energy costs but only 7% of Arrear debt as % of revenue, % 2.65 3.54 3.74 3.91 3.24 3.69 and the average price per unit of electricity sold for the total electricity produced. past two years, as well as the coming financial year. Average debtors days (including Soweto and international), n/a 86.16 89.18 88.44 101.92 90.01 We were awarded a standard tariff increase of 9.61% days Cost breakdown and average price per year, c/kWh for the 2023 financial year. The estimated costs in our Debtors days – municipalities, average debtors days n/a 157.23 143.18 149.63 140.65 116.05 200 revenue application are approximately 20% higher than Debtors days – large power top customers excluding n/a 15.04 15.84 14.63 15.01 14.60 the revenue allowed by NERSA, which may lead to a disputes, average debtors days 165.3 revenue shortfall of around R55 billion for the coming Other large power user debtors days (<100GWh p.a.), 143.0 152.6 n/a 17.47 17.46 17.54 17.50 16.98 150 138.0 average debtors days 127.9 year. The tariff increase, excluding the RCA, amounts Debtors days – small power users excluding Soweto, 111.0 to only 3.49%, which is well below inflation and will be n/a 47.50 52.45 47.70 50.07 44.09 average debtors days 100 consumed by the expected increase in IPP costs, leaving insufficient revenue to address our controllable costs and Payment levels excluding Soweto interest, % SC 95.70 95.70 95.70 95.97 96.82 96.24 50 provide a fair return on capital. 1. Debtors days are based on amounts processed on our billing system, and are shown before accounting adjustments relating to non-collectability. Therefore, the amounts may not agree with those disclosed in the annual financial statements. No targets have been approved for the 2025 financial year and are The lack of cost-reflective tariffs has been an ongoing therefore shown as not applicable. 0 2021 2021 2022 2022 2023 2023 challenge since 2006 and one of the main reasons for cost price cost price cost tariff our financial challenges, requiring increased reliance on Average debtors days have worsened across municipal and Invoiced municipal debt (including interest) and (estimated) (NERSA decision) debt to fund the annual revenue shortfall. This, together large power user customers compared to the prior year. percentage of total debt in arrears at 31 March 2022, with our new build programme, has led to our gross In particular, arrear municipal debt has seen a significant R billion Operating and maintenance costs Primary energy costs Arrear debt adjustment Environmental levy debt securities and borrowings balance escalating from increase and declining payment levels. Average municipal 70 Employee benefit costs IPP costs R29 billion in 2005 to R396.3 billion by 2022. 29% debtors days are unacceptably high at nearly 150 days. 60 Capital servicing costs (depreciation, interest and cost of equity) 81% We have achieved some progress in closing the gap For details of debtors by category, including impairment and 50 80% In order to be financially sustainable, we require cost- towards cost-reflective tariffs in recent years by carrying values, refer to notes 5.1.1 and 20 in the consolidated 40 76% challenging NERSA’s decisions through judicial review. annual financial statements reflective tariffs, where the revenue determined by 72% NERSA is sufficient to cover the prudent and efficient However, court processes remain slow and even 30 Arrear municipal debt 68% costs that we incur. To achieve this, the average tariff favourable judgments take some time to lead to higher 20 Total arrear municipal debt has continued to escalate for the 2022 financial year would have had to increase tariff levels. We continue our efforts to ensure a to unsustainably high levels, amounting to R44.8 billion 10 by approximately 19%; instead, the increase awarded migration to cost-reflective tariffs through our revenue (including interest) at year end (2021: R35.3 billion). 0 resulted in a revenue shortfall of around R48 billion for applications, as well as court review applications where 2018 2019 2020 2021 2022 The top 20 delinquent municipalities accounted for 80% the year. required. Our three-year MYPD 5 application proposed of total arrear municipal debt, with over 35% of the total gradual corrections to the tariff towards cost-reflectivity, Current amounts CAGR owed by Free State municipalities. At year end, there as opposed to a single large adjustment, to lessen the Arrear municipal debt (including interest) were 53 municipalities with total arrear debt of more than impact on consumers. R100 million each (2021: 47), as the problem continues to worsen. 84 | | 85 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR FINANCES continued Arrear municipal debt by province, R million To achieve these, we continue to enhance existing In July 2022, the High Court granted Eskom the right to Disposal of non-core assets 1 996 (4%) revenue and debt management processes, enforce Eskom’s attach the bank accounts of the City of Matlosana Local As reported last year, the sale of Eskom Finance 2 093 (5%) rights through legal action and expedite Government Municipality after the municipality failed to adhere to Company SOC Ltd was not approved by the shareholder. 2 894 (6%) interventions. We employ a multi-stakeholder engagement previous court orders. The municipality is challenging the The disposal was put on hold as market conditions were approach through various intergovernmental platforms. court ruling and we are opposing the matter. not considered favourable at the time. 3 021 (7%) 15 734 (35%) We have established a project management office to drive While we believe that favourable court rulings go a long In July 2022, the shareholder requested Eskom to the implementation of our active partnering model, which way in enforcing Eskom’s legal right to payment, we simply commence with the disposal process once again. aims to assist defaulting municipalities in their revenue cannot solve our municipal debt challenges on our own, The Board’s Investment and Finance Committee approved 5 762 (13%) collection efforts and improve municipal service delivery. given the extent thereof. We continue to participate the disposal strategy in August 2022. A request for Despite efforts to engage with municipalities, only two fully in the work of the Eskom Political Task Team and proposal was issued in September 2022 and expressions of active partnering agreements are in place, with Phumelela its Multi-disciplinary Revenue Committee (MdRC). interest were received from various parties. The bidding and Msunduzi Local Municipalities. An active partnering Unfortunately, progress has been slow; continued support process closed in November 2022 and a preferred bidder 13 254 (30%) agreement with Raymond Mhlaba Local Municipality is from Government is critical to addressing the root causes was approved by the Investment and Finance Committee in being renegotiated after coming to an end. of the problem. December 2022. Eskom will only be able to conclude the Free State North West Eastern Cape Mpumalanga Northern Cape Other disposal process following PFMA approval. Maluti-a-Phofung Local Municipality, our largest defaulter The National Treasury proposal, mentioned in last Gauteng at year end, has resolved to enter into a distribution agency year’s report, to assist municipalities in crisis and deal The disposal of non-core properties regrettably agreement with Eskom. The municipality has submitted a with the arrear debt challenges, is still being reviewed experienced delays while finalising the review of Eskom’s The top 10 defaulting municipalities owed council resolution supporting the agreement; however, the and influenced due to the complexity of the issues. real estate strategy. A disposal programme was launched R29.8 billion in arrear debt at year end agreement is still to be concluded. We continue to engage with National Treasury on during the 2023 financial year for the sale of non-core and (or 67% of total arrear municipal debt). reinforcing financial oversight of affected municipalities underutilised properties. We are also pursuing no-regret PAYMENT AGREEMENTS and ensuring municipalities prioritise the settlement of interventions such as optimising office space. Municipality, R million 2022 2021 the arrear amounts due to Eskom. It is anticipated that AT 31 MARCH 2022 1. Maluti-a-Phofung Local Municipality, 6 499 5 804 further measures will be announced by the Minister of Future focus areas Free State 34 active payment agreements in place, with only Finance in the National Budget Speech in February 2023, • Pursuing a cost-reflective tariff path to recover prudent 2. Emalahleni Local Municipality, 5 978 4 668 10 fully honoured as part of the conditions of Eskom’s prospective debt and efficient costs and earn a fair return on assets, thereby Mpumalanga This includes nine of the top 20 defaulting relief solution. improving long-term financial sustainability 3. Matjhabeng Local Municipality, 4 398 3 719 Free State municipalities, with only one fully honoured Residential arrear debt • Implementing cost curtailment initiatives to achieve 4. Emfuleni Local Municipality, Gauteng 4 240 2 714 Non-adherence to payment agreements continues to Total invoiced Soweto debt has decreased to R4.6 billion combined savings of R61.8 billion by 2023 5. Govan Mbeki Local Municipality, 2 898 2 318 (including interest) at year end (2021: R7.5 billion). • Ensuring effective use of constrained financial resources to Mpumalanga contribute to the increase in arrear municipal debt The reduction in Soweto debt is mainly due to prescribed address poor plant performance, expansion requirements 6. Lekwa Local Municipality, 1 536 1 292 Mpumalanga We are exploring all avenues to collect the revenue due debt written off and reversal of “in duplum” interest. and environmental compliance 7. Ngwathe Local Municipality, 1 467 1 320 to us, with interruption of supply being the last resort. While average payment levels in Soweto remain low at • Strengthening the balance sheet by improving working Free State As previously reported, Eskom lost two appeals at the 25.1%, there has been some improvement since the prior capital management and pursuing a sustainable debt relief 8. Thaba Chweu Local Municipality, 1 047 840 SCA, setting aside our decision to interrupt supply year (2021: 20.6%). solution with Government, which will assist in containing Mpumalanga to Emalahleni and Thaba Chweu Local Municipalities. debt service costs 9. City of Matlosana Local Municipality, 884 582 North West The SCA obliged the national and provincial governments Exploratory engagements are under way for the • Engaging with lenders on the legal separation and 10. Ditsobotla Local Municipality, 815 677 to intervene in terms of the Constitution. In January 2021, proposed transfer of customers to City Power from management of existing debt North West we approached the Constitutional Court to appeal the Eskom’s licensed areas of supply, including Soweto and • Adhering to Government equity conditions to ensure ruling of the SCA; however, the appeal was rejected due to Sandton. A memorandum of understanding has been continued liquidity support lack of reasonable prospects of success. signed with the City of Johannesburg. Once the viability Dealing with delinquent municipalities • Maintaining strong relationships with investors and of the business case has been assessed, we will consult We have continued our efforts to address arrear municipal In March 2022, the SCA ruled that Letsemeng Local pursuing climate funding to deliver Eskom’s Just Energy with all key stakeholders. Similar discussions are under debt through our municipal debt management strategy. Municipality must pay all amounts to Eskom when due and Transition way with the City of Cape Town regarding certain The objectives of our strategy include: payable. The SCA also ordered the municipality to pay its Eskom areas of supply. • Delivering on the municipal debt management strategy portion of the equitable share that relates to electricity and engaging with Government on proposals to improve CURRENT ACCOUNT MANAGEMENT within 24 hours of receipt and to settle all arrear debts payment levels and recover arrear debt from delinquent International arrear debt Stop defaulting and enforce payment of current amounts owing to Eskom. The SCA judgment affirmed Eskom’s legal municipalities Only EDM of Mozambique remains in arrears, with right to payment for services rendered to municipalities R579 million outstanding at year end, of which 88% is ARREAR DEBT MANAGEMENT and made it clear that there is no legal basis for delinquent overdue. In June 2022, we submitted a settlement offer on Reduce and/or eliminate overdue debt municipalities’ failure to pay. The municipality’s appeal the disputed amount of R350 million, which EDM declined. to the Constitutional Court was dismissed in July 2022. The mediation process is still under way. In September 2022, the municipality submitted its payment FUTURE DEBT MANAGEMENT proposal to Eskom. Prevent future defaulting through pre-emptive action 86 | | 87 We only have Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OPERATING one world PERFORMANCE Zero Harm means taking care of the environment - it looks after you every day. Be aware. Take care. 5 WHAT YOU WILL FIND IN THIS SECTION Our infrastructure 90 Our interaction with the 107 environment Our people 122 Our role in communities 130 Zero injuries. Zero fatalities. Powering your world Zero environmental incidents. www.eskom.co.za Eskom Holdings SOC Ltd Reg No 2002/015527/30 Issued88 by |Eskom Risk and Sustainability July 2018 | 89 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information We aim to support security of electricity supply to the country through effective operation of our assets. The Managing peaking capacity and emergency supply and demand of electricity is balanced in real time to reserves ensure stability of the national grid. Our peaking capacity includes three pumped storage power stations with nominal capacity of Our infrastructure constitutes our manufactured capital. 2 724MW and four Eskom and IPP-owned OCGT It consists of our generation fleet and transmission stations with a combined capacity of 3 072MW and distribution networks, supplemented by IPP and connected to the national power system. The cross-border import capacity. It further includes new generators at these power stations can start up and OUR power stations and high-voltage transmission lines being shut down within minutes, as opposed to coal-fired constructed under our new build programme, together power stations that require many hours to days to with projects aimed at delivering customer and IPP start up. These power stations were designed and INFRASTRUCTURE connections, refurbishing existing assets and ensuring built to generate for short periods at peak demand environmental compliance. times and do not have a continuous supply of fuel to power them. Managing supply and demand In the case of pumped storage stations, water is Role of the System Operator pumped from a lower reservoir through turbines to The System Operator has to manage dispatchable an upper reservoir at the top of a mountain during generation capacity to balance electricity supply from low demand periods – overnight and weekends – power stations and demand from customers in real time, and then released through the same turbines to by maintaining the system frequency within a dead band of generate power during times of high demand. The 49.85Hz to 50.15Hz so that generators and other motors cycle of pumping and releasing water is optimised connected to the power system continue to operate within over a one-week cycle where the upper reservoir is design specifications. Furthermore, dispatchable capacity filled by Monday morning, ready to generate for the has to be taken off or placed on load to compensate for week ahead. variations in energy supplied by non-dispatchable capacity in the form of renewable generation. In addition, the In the case of OCGTs, all but one of the stations System Operator can make use of interruptible load to receive their diesel by road tanker. Loading, assist in managing the system frequency – if the frequency transporting and offloading the diesel to power is too low, it could cause a cascading trip of generating these generators is a slow process. When units, with the ultimate risk of national blackout, and if these generators operate at maximum output Highlights Improvements the frequency is too high, it risks damage to any electrical continuously, they consume fuel faster than it can equipment connected to the electricity supply. be delivered. Extremely high diesel consumption • Matimba boiler 5 achieved 3 064 days on 31 March 2022 • Completion of the Camden ash dam solution, with the requires diesel being bought on the international (more than eight years) since the last boiler tube failure, station now able to run all units In South Africa, peak demand periods occur in the early market and shipped to the various depots for setting a new record • Boiler modifications on all six Medupi and two Kusile morning from 6:00 to 9:00 and in the evening from 17:00 further distribution. • Transmission system reliability improved, with system units showing results, with an average recovery of to 21:00, particularly in winter. The high evening peak is As generation capacity from coal-fired power minutes <1 performing well within target 145MW per unit generally driven by consumption by residential consumers. stations has become more constrained, the • Customers experienced higher levels of responsiveness, • The Board approved a short-term cross-border As a last resort, loadshedding is implemented to maintain peaking stations have had to generate for longer fewer supply interruptions, improved outage duration pricing strategy to 2025 the supply/demand balance, or to protect the power periods to supplement the shortfall. Because of and faster restoration of supply • Stable labour relations and stakeholder management in system by ensuring sufficient reserve capacity to respond the constraints around the fuel for these power • Medupi commercialised the last of six generation units the new build megaprojects to significant unplanned breakdowns or disruptions to stations, they are treated as emergency reserves on 31 July 2021 supply. This typically happens during periods of high levels and dispatched sparingly during off-peak periods to • Kusile Unit 4 connected to the national grid for the first contain the stage of loadshedding. The combined time, and achieved full load of 800MW of unplanned generation unavailability, coupled with low diesel fuel levels at OCGT stations and/or low water levels peaking capacity of 5 796MW equates to an at pumped storage stations. additional six stages of loadshedding being required Challenges Lowlights were it not available. To maintain our ability to respond effectively to prevent a • Koeberg Unit 2 steam generator replacement • High generating plant unavailability resulting in capacity major system event, such as a regional or national blackout, project deferred to the next outage in 2023 constraints, leading to 65 days of loadshedding during the various defence systems to protect the network are • Transmission line fault performance deteriorated the year tested regularly. Lessons learnt from past events are slightly, mainly due to adverse environmental factors • Continued high utilisation of expensive gas turbines implemented to improve the resilience of the system to • High levels of network asset vandalism, equipment due to poor plant performance, at a combined unforeseen events. theft and overloaded networks leading to increased cost of energy (Eskom and IPP-owned OCGTs) breakdowns, higher maintenance cost and higher of R14.7 billion (2021: R7 billion) levels of risk to employees • Medupi Unit 4 experienced a generator explosion, • Some Generation coal and emissions control resulting in 720MW not being available to the grid projects experiencing construction and commercial until August 2024 challenges resulting in delays, risking achievement of • Delays in concluding the Risk Mitigation IPP the 2019 Minimum Emission Standards targets Procurement Programme, further contributing to capacity constraints • Energy losses due to a culture of non-payment, illegal connections, theft and fraud remain high 90 | | 91 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INFRASTRUCTURE continued System performance Loadshedding and load curtailment The 2021 Winter Plan covered the period from 1 April During the past year, Eskom’s generation plant Contribution by renewable energy over the past four years to 31 August 2021. Three scenarios of unplanned availability reached the lowest levels ever, largely due During summer, wind generation output aligns 70 1 200 unavailability were considered for the plan, namely to unprecedented levels of unplanned unavailability. well with the country’s demand profile, peaking in 11 000MW, 12 000MW and 13 000 MW (with uncertainty 60 1 000 On average, around 13 000MW was not available for the evening and dropping to low levels overnight. of approximately 4 000MW due to volatility). At unplanned generation at unplanned unavailability of 27.75%, and close In winter, wind generation tends to peak as cold 50 unavailability of 13 000MW, the Winter Plan showed a 800 to 5 000MW unavailable due to planned maintenance, fronts traverse the Western and Eastern Cape, but 40 possible eight days of stage 1 loadshedding. However, leaving around 30 000MW capacity available for generation. drops once the cold front moves northwards and 600 for the entire Winter Plan period, a total of 21 days of 65 30 As a result, we had to make extensive use of both Eskom- demand in Gauteng increases due to the colder 400 loadshedding were required due to higher than anticipated 47 46 temperatures, thereby creating a double blow to 20 and IPP-owned OCGTs to meet demand during periods of levels of unplanned unavailability. 30 poor base-load generation availability. the system. Renewable energy makes a significant 10 200 contribution to both peak demand and annual The 2021/22 Summer Plan commenced on 1 September 2021 Operational, system performance and environmental data can be 0 0 contracted energy demand, increasing to 6.75% in 2019 2020 2021 2022 and ran until 31 March 2022. Again, three scenarios accessed on our Data Portal at www.eskom.co.za/dataportal/ of unplanned unavailability were considered, namely the 2022 financial year. Days Hours 12 000MW, 13 000MW and 14 000MW. The plan indicated Eskom-owned and IPP OCGTs supplied a total of Contribution by renewable energy to annual 40 possible days of stage 2 loadshedding at 13 000MW, with 2 725GWh during the year (2021: 2 161GWh) at a cost of contracted energy demand1, % Percentage of contracted demand not supplied a possible 94 days of stage 3 loadshedding at 14 000MW. R14.7 billion (2021: R7 billion). Given the debilitating cost Unplanned unavailability exceeded 14 000MW for 39.7% of 6.75% 8 due to loadshedding of loadshedding to the country, we utilise these stations 5.99% 7 the time during the summer period, leading to 44 days of within our financial constraints, despite the prohibitive 0.06 1 800 0.8 4.98% 4.73% 0.40 0.70 loadshedding, which, although significant, was lower than cost. If OCGTs were utilised only at targeted levels, 6 1 600 0.76 0.7 anticipated in the Summer Plan, due to higher than targeted Eskom could generate a net profit. 5 0.70 0.51 1 400 0.51 0.67 2.24 use of emergency reserves. 1 200 2.05 To support the stability of the power system, create space 4 0.6 1.41 1.44 1 000 Generation performance for maintenance and reduce the need for loadshedding, 3 800 We operate 30 base-load, mid-merit, peaking and additional dispatchable capacity of 4 000MW–6 000MW is 0.5 2 3.14 3.75 600 renewable power stations, with a total nominal capacity required immediately. At an assumed average load factor of 2.77 2.83 1 400 0.4 of 47 145MW to meet the country’s electricity demand 30%, it would require renewable capacity of 13 000MW– 200 by providing electricity at a reasonable price. The median 20 000MW. The delay in bringing capacity online under 0 2019 2020 2021 2022 0 0.3 age of our coal-fired stations is around 40 years. The last DMRE’s Risk Mitigation IPP Procurement Programme 2019 2020 2021 2022 Wind PV CSP Other unit at Medupi, Unit 1, achieved commercial operation on serves to exacerbate the problem. Estimated energy not supplied, GWh Energy not supplied, % 31 July 2021. No further Kusile units achieved commercial Supply was aided by record levels of hydro generation operation during the financial year. 1. Contracted demand refers to demand supplied by contracted due to the good rains experienced during the summer generators, being Eskom and IPPs Detailed information on the installed and nominal capacity of rainfall season, with hydro generation of 1 943GWh for each of our power stations, as well as IPP capacity, is set out on the year almost 1 000GWh more than the average for the page 150 to 151 preceding nine years (2021: 1 387GWh). To put this into context, the 600MW supplied by hydro generation on an System forecast and loadshedding implemented during almost continuous basis since November 2021 equates to the year Target Target Target Target Actual Actual Actual 60% of a stage of loadshedding. Without it, we would have Loadshedding was required on 65 days during the year Measure and unit 2025 2023 2022 met? 2022 2021 2020 had to implement more loadshedding, or increased the (2021: 47 days) – eight days up to stage 1; 43 days up to Energy availability factor (EAF), % SC 72.00 65.00 74.00 62.02 64.19 66.64 use of OCGTs. stage 2; four days up to stage 3; and 10 days up to stage Planned capability loss factor (PCLF), % SC 10.50 10.50 10.50 10.23 12.26 8.92 4. Loadshedding and load curtailment of large customers Renewable IPP generation continued to support the power Unplanned capability loss factor (UCLF), % 16.00 23.00 14.00 25.35 20.04 22.86 were implemented for 1 011 hours over the past year system throughout the year, with wind generation in (2021: 670 hours), reducing supply by an estimated Other capability loss factor (OCLF), % 1.50 1.50 1.50 2.40 3.51 1.58 particular supporting the evening peaks. The highest wind 1 605GWh, equating to 0.71% of total energy demand Partial load losses, average MW SC 3 147 3 695 3 969 4 851 4 109 4 651 generation supplied over the past year was 2 639MW on for the year (2021: 1 034GWh). 15 December 2021 (2021: 2 114MW). The average load Post-philosophy outage UCLF, % SC 14.00 14.00 15.00 29.74 21.23 29.91 factor for wind generation over the evening peak was 42.6% Unplanned automatic grid separations (UAGS trips), numberSC 356 392 392 697 527 594 for the year (2021: 43.7%), or 1 174MW (2021: 985MW). Wind generation had to be curtailed on 16 occasions over the night minimum period (2021: 15), due to very low Technical performance less planned maintenance (PCLF) due to the late release demand between 1:00 and 4:00. We use EAF (energy availability factor) to measure the of funding and to compensate for higher unplanned availability of our generation fleet, which continues to losses. Together, UCLF and OCLF constitute unplanned perform significantly below expectation. Plant availability unavailability of our fleet. deteriorated even further year-on-year, largely due to a significant increase in unplanned losses due to breakdowns Due to the capacity constraints, EAF is not expected to or partial unavailability of stations (UCLF), offset by lower improve noticeably over the short to medium term, as time levels of losses outside of a station’s control (OCLF) and is needed to execute reliability maintenance. 92 | | 93 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INFRASTRUCTURE continued Kusile Unit 2 reached official status on 1 November Kendal Unit 1 tripped on 11 September 2021 due to Nuclear power plants produce no greenhouse gas Unit 1 will undergo a similar long outage, now scheduled 2021, one year after achieving commercial operation on a failure of the generator transformer. Upon initial emissions during operation, and over the course of its to start in December 2022. However, it will exclude the 29 October 2020, and achieved an EAF of 40.39% for the investigation, it was determined that the generator lifecycle, nuclear produces about the same amount of reactor vessel head replacement, which was completed year. Kusile Unit 3, which achieved commercial operation transformer had caught fire. The fire damaged the carbon dioxide-equivalent emissions per unit of electricity earlier. The outage start has been delayed to accommodate on 29 March 2021, achieved an EAF of 51.80% during its cables to the main cooling water system on the west as wind, and one-third of the emissions per unit of the delivery of the three steam generators to be replaced first year of commercial operation. Medupi Unit 1 achieved side of the power station. Units 3 and 2 experienced electricity when compared to solar. during the outage, as the delivery schedule was impacted commercial operation on 31 July 2021 and achieved 64.47% loss of vacuum and were shut down under controlled by COVID-19 lockdowns at the factory. The three steam EAF for the first eight months of commercial operation. conditions. The units were returned safely on generators are expected on site before the end of the 2022 13 and 14 September 2021 respectively, and Unit 1 returned As part of our internal process, a team of nuclear calendar year. Once removed, the current steam generators At the start of the financial year, 84 planned maintenance professionals from eight countries from the to service on 3 January 2022. The root cause of the will be stored on the Koeberg site, where they will be outages were scheduled for the year. By year end, 47 of those International Atomic Energy Agency (IAEA) carried generator transformer failure was poor workmanship packaged and dismantled for final disposal at a national outages were completed, seven were in execution, one was out a review during March 2022 of the safety during the active part manufacturing process. nuclear waste repository. cancelled and 29 were deferred. Furthermore, an additional aspects of Koeberg’s LTO, including preparedness, 47 outages were completed. When scheduling outages, Camden Unit 8 was shut down on 29 December 2021 organisation, and programmes for safe operation. consideration is given to system capacity constraints, plant due to a failure of the generator transformer. Upon The IAEA expert team reported good progress on risks and availability of spares and resources. initial investigation, it was determined that the generator the work to extend the life of the plant, and provided Feasibility of selling power stations transformer had caught fire. Repairs on the unit have been recommendations and suggestions to further enhance The Government of South Africa is requesting Eskom We cannot continue to defer outages due to the completed, and the unit returned to service. the preparations for LTO safety. The IAEA team also to consider potential options to sell coal-fired plants. constrained system. Outages to address the design defects identified Koeberg good practices and learning points Based on an internal study, it is anticipated that Eskom at Medupi and Kusile as well as outages to implement Koeberg performance that will be shared with the nuclear industry globally. will not be able to dispose coal-fired plants at book mid-life refurbishments at older stations have to be Koeberg Nuclear Power Station continues to operate Koeberg management is committed to implementing value, for three main reasons: accommodated, in addition to the required reliability within the required safety parameters, despite two trips the recommendations and requested the IAEA to • More and more, coal plants are considered as outages at all stations. on Unit 1 during the year, and also has the lowest primary schedule a follow-up mission during 2024. stranded assets by investors. Based on expert energy cost of our base-load stations. It is subject to feedback, the experience is that selling coal plants UCLF has increased year-on-year, driven by increases in bi-annual safety reviews by the Nuclear Safety Review has become hardly feasible, if not impossible both full and partial load losses. The ash dam constraints A formal application to modify Koeberg’s operating Board (NSRB), comprising experienced senior nuclear • Most of Eskom’s coal-fired plants are at risk at Camden Power Station reported last year accounted for licence to enable operations for an additional 20 years executives from various countries. The NSRB conducts an of shutdown unless huge amounts of capital 0.72% OCLF (2021: 2.05%). The station is now ashing on was submitted to the National Nuclear Regulator (NNR) independent review of all aspects of Koeberg’s operations, expenditure are invested to retrofit the plants in the new ash dam, with no load losses attributed to ash dam and accepted for further processing. We submitted the with particular emphasis on those activities which may compliance with the Minimum Emission Standards constraints from December 2021. safety case to the NNR for their evaluation in July 2022. affect the safe operation of the station and the protection regulations. Non-compliant plant for which our As expected, no safety concerns that would preclude In an effort to meet demand, we continue to operate our of the staff, public and the environment. It further provides postponement request has been rejected and that long-term operation have been identified. plant far outside acceptable norms to avoid or minimise recommendations on priorities and areas for improvement is not eligible for major capital investments cannot loadshedding. The energy utilisation factor (EUF) for the based on members’ professional experience. Unit 2 commenced a five-month refuelling and maintenance credibly be considered for disposal at book value entire generation fleet has increased slightly to 79.78% shutdown on 18 January 2022, during which the three • In addition, Eskom’s coal-fired asset base is ageing At the end of March 2022, Koeberg Unit 1 had been online (2021: 76.34%). Persistent high EUF levels continue to place steam generators (SGR) and the reactor pressure vessel and demonstrates poor operational performance, for 155 days since returning to service on 27 October 2021. stress on units, thereby affecting reliability and leading to head (RPVH) were to be replaced. More than a month into deterring potential investors looking for long- The unit tripped from the grid on 30 August 2021 due to a high levels of UCLF. The high average fleet EUF was largely the outage, Eskom and the main contractor performed a term investments and high return to consider reactor scram (emergency shutdown of a nuclear reactor) due to coal-fired stations running at an average EUF of review to ensure that the SGR work would be completed buying these assets at book value that occurred when one of the three primary pump motors 93.98% (2021: 90.42%), with 14 of 15 coal-fired stations at the expected quality levels and in accordance with tripped due to a faulty relay. Prior to that, it had been online In this context, Eskom would have to compromise recording EUF above 90%. Given the age of our fleet, EUF the outage schedule. The review concluded there was for 75 days, after returning to service on 16 June 2021 from significantly on the transaction economics for the levels remain substantially above the international norm of a high likelihood of the unit being returned to the grid its last refuelling and maintenance outage. Troubleshooting disposal to take place, through either (i) a severe around 75% over the long term, which will have negative later than initially planned, which would affect capacity and repairs were completed promptly and safely, and the discount on the book value of assets or (ii) a higher long-term technical consequences. available to the grid during the high demand winter period. unit was returned to service on 3 September 2021. The than cost-reflective power purchase agreement price. Consequently, a decision was taken on 3 March 2022 to Given the unpredictable and unreliable power system, unit also tripped from the grid on 24 October 2021 due to Unless there was a huge increase in tariffs, both defer the SGR from the outage scope to the unit’s next the risk of loadshedding is expected to remain until the the loss of speed on a steam feedwater pump following a options would end up worsening Eskom’s already refuelling and maintenance outage planned for August 2023, shortage of 4 000MW–6 000MW dispatchable generation statutory overspeed test. The cause of the speed loss was distressed financial situation. Furthermore, while selling without affecting the LTO programme or the safe operation capacity is addressed. fully resolved on 3 November 2021. power stations could provide short-term liquidity of Koeberg. relief, it would not resolve Eskom’s financial viability. Major incidents When Koeberg Unit 2 shut down on 18 January 2022 for The RPVH was replaced during the outage and the unit Medupi Unit 4 suffered an explosion of the generator on the start of a scheduled outage, it had been online for returned to service on 7 August 2022, but was manually 8 August 2021 during a short-term outage, which seems 454 days, since returning from the previous outage on shut down on 19 August 2022 due to a slipping control rod to have been caused by procedural non-compliance and 21 October 2020. associated with the RPVH replacement. After returning management failures, which resulted in extensive damage Koeberg long-term operation and steam generator to service six days later, the unit was automatically shut to the generator, adjacent equipment and structures; replacement projects down again on 3 September 2022 when one of the control consequently, assets of R1.1 billion were written off. rods slipped during a further scheduled test, resulting in The long-term operation (LTO) activities, to enable As a result, nine employees have been suspended. an automatic reactor scram and grid separation. Following Koeberg to operate its 1 854MW capacity for another The incident caused a disturbance to Unit 5, resulting in the extensive troubleshooting with the OEM, the unit returned 20 years beyond 2024, continue according to schedule, in unit tripping. Unit 5 was returned to service on 12 August to service on 25 September 2022 with NNR approval. line with the IRP 2019 expectations for continued energy 2021. The incident led to the loss of 720MW (approximately The unit remains stable. security beyond 2024. Extending the station’s operating life 1.60% of official capacity), and has accounted for 0.99% UCLF is an investment into sustainable and low-carbon electricity for the period since the incident, adding to our capacity generation infrastructure. constraints and ultimately contributing to loadshedding. 94 | | 95 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INFRASTRUCTURE continued Reduce maintenance outage due date slips and duration Address major design and construction defects at new stations Unit trips and Partial losses and Outage Forced The Reliability Maintenance Recovery (RMR) Programme Major defects on the new plant at Medupi and Kusile seeks to empower power stations to achieve outage are tracked under the Generation recovery plan. These full load losses boiler tube leaks performance outages excellence (prior to, during and after outages) as the single are defined as system or equipment defects that reduce, greatest opportunity to improve plant performance at the or have the potential to significantly reduce, the EAF of best possible cost. multiple units at the new build stations, and where the available contractual defect resolution remedies have not Continued efforts are directed towards improving outage been effective. readiness, with central RMR team resources providing direction on best practice and being deployed to aid in Progress on correcting design and construction defects for New build Coal Diesel Emissions enhancing outage planning and overall readiness at stations. Medupi and Kusile is set out from page 104 defects stockpiles stocks performance This has resulted in the improvement of most major Maintain coal stockpiles at power stations assessment categories of outage readiness indicators. Some deterioration has however been seen in T–01 reviews At year end, two power stations had stock below their (those performed one month prior to an outage), which individual minimum stockholding level (2021: none). Based comprised scheduling and site preparation challenges. on the budgeted standard daily burn, coal stock days (excluding Medupi) have reduced to 42 days (2021: 50 days), The release of outage funding had a significant impact but remain higher than the target. on the readiness of planned outages, as most outages take 18–24 months to plan, and remains one of the main Coal-related load losses contributed to capacity constraints Generation recovery plan Full load losses for commercial units showed an increase risks for the coming financial year. A funding shortfall of at our coal-fired stations, with coal-related OCLF of 0.64% The Generation recovery plan, which aims to address against the prior year, to an average of 6 718MW per month R2.3 billion has already been reported, although efforts for the year (2021: 0.66%). Matla and Kriel Power Stations critical pain points to allow for fast-tracked improvement (2021: 4 811MW, restated). UCLF on official units remains are directed towards prioritisation of outage and budget remained the biggest contributors, accounting for around in generation performance and plant availability, continues high, with UCLF (full and partial losses) due to outage slips reduction exercises. 90% of coal-related OCLF. We continue to collaborate to deliver results. Progress has been made in many areas, increasing to 3.99% (2021: 2.43%). with the relevant mines to address these issues. as discussed below. Full and partial load losses, as well as A key measure to track outage effectiveness is post- Refer to “Our interaction with the environment – Securing outage performance, are areas of concern. Decrease partial load losses and boiler tube leaks that prevent outage UCLF, which is measured up to 60 days after a unit our coal requirements” from page 108 for more information units from operating at full capacity synchronises to the grid after maintenance. Post-outage on coal performance The Generation leadership team have further identified UCLF related to partial load losses deteriorated UCLF deteriorated to 29.74% (2021: 21.23%), contributing seven strategic initiatives. Senior leaders within Generation significantly, with partial load losses on average 742MW 1.39% to overall UCLF. The RMR will look at improving Maintain sufficient diesel stocks to enable the open-cycle gas have been allocated to drive the execution, with overall higher than the prior year. Partial load losses contributed the quality and accuracy of outage scope by developing a turbines to perform for extended periods feedback and accountability at the Generation Operational approximately 42% to total UCLF for the year, with Kendal, holistic approach, focusing on units that undergo general Diesel tank levels remain healthy overall and were Excellence Steering Committee, chaired by the Group Tutuka, Majuba, Arnot and Kriel the major contributors. overhauls, mini overhauls and interim repairs. maintained well above the target of 60% during the year, Executive: Generation. The focus areas are: although constraints occasionally developed during periods Unplanned partial load losses were a result of delays in Due date performance is calculated for units that were on • People and skills of persistent high demand. However, diesel usage remained procuring critical spares from OEMs, slippage in planned outage for more than 21 days and for reliability outages • Training and competency development longer than 14 days. For the year, only 50.94% of outages far too high given our financial constraints. target dates to clear the maintenance backlog to restore • Technical excellence plant redundancy and post-outage load losses which had to met their due date (2021: 40.38%), significantly below the Improve emissions performance • Station rhythm be gradually cleared over time. Orders for spares placed target of 80%. Despite a noticeable improvement in emissions • Supply chain management during the year are expected to arrive in the 2023 financial performance over the past year, it is not yet at desired Accelerate the return to service of units on long-term • Focus on the future year; this should result in a gradual improvement in UCLF. levels and continues receiving management attention. By forced outages • Contractor management Plans to improve permanent partial load losses remain March 2022, eight units were operating in non-compliance dependent on outages. Following the explosion of the generator in August 2021, Medupi Unit 4 will be out of service for an extended with average monthly emission limits (2021: five units), Reduce the incidence of trips and full load losses to improve placing 4 766MW at risk of being shut down by the reliability of coal-fired power stations The boiler tube failure rate (failure per unit per year) period. The duration of the repairs will depend on the extent of the damage and the long-lead components to authorities (2021: 2 949MW). increased slightly to 2.44 for official units (2021: 2.31), Due to their contribution to poor system performance using a 12-month moving average. Boiler tube failures be replaced. The projected return-to-service date for the Refer to “Our interaction with the environment – Particulate and the associated cost of restarting units to supply load to contributed 2.45% UCLF for the year (2021: 2.29%). The unit is August 2024, and the insurance loss is estimated at and gaseous emissions” from page 111 for more information the grid, improving trips performance remains a key focus Boiler Tube Leak Reduction Forum is focusing on reducing around R3.34 billion, which covers replacement and repair on emissions performance area. The Generation fleet recorded 697 UAGS trips for the rate of boiler tube failures. of the damage. the year, at an average of 58 trips per month, a significant deterioration compared to the previous year (2021: 527). Power stations are aligning outage opportunities to The main contributors to unplanned trips were turbine, execution of the required scope. Gains in partial load loss boiler and feedwater areas of plant. Performance was post-outage are being monitored. Frequent but sporadic affected by a backlog of capability testing at several power partial load losses across the fleet continue to offset stations due to unit load restrictions, maintenance defects advances in some areas. and units operating outside their design envelope. Slow progress on addressing design deficiencies also contributed to the number of trips. 96 | | 97 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INFRASTRUCTURE continued Use of open-cycle gas turbines Energy capacity and purchases Due to the deteriorating performance of the coal-fired generation fleet, Eskom’s open-cycle gas turbines (OCGTs) had to IPP capacity available and the actual energy procured under various IPP programmes for the year to 31 March 2022 is set out be utilised extensively during the year, with production increasing 25% year-on-year. The load factor for the year was 8.7% in the following table. (2021: 6.9%), against a target of 1% or 211GWh. The average unit production cost increased in line with the increase in the Target Target Target Target Actual Actual Actual diesel price. Measure and unit 2025 2023 2022 met? 2022 2021 2020 Target Target Target Target Actual Actual Actual Total capacity, MW 14 978 9 144 8 336 6 831 6 083 5 206 Measure and unit 2025 2023 2022 met? 2022 2021 2020 OCGT production, GWh 3 579 1 466 211 1 826 1 457 1 328 Total energy purchases, GWh 90 050 22 621 20 263 15 972 13 525 11 958 OCGT diesel usage, R million1 18 254 8 388 867 10 033 4 075 4 303 Total spent on energy, R million 188 222 49 221 42 389 36 714 32 470 29 694 Lease accounting adjustment, R million2 (17 155) (2 886) (2 054) n/a (1 511) (1 638) (1 631) 1. The OCGT cost includes diesel storage and demurrage costs of R108 million (2021: R79 million; 2020: R59 million) incurred when not utilising the OCGTs. Total expenditure, R million 171 067 46 336 40 335 35 203 30 832 28 063 2. The 2025 target is the cumulative target over the next three years. Weighted average cost, c/kWh3 209 218 209 230 240 248 Utilisation of the two IPP-owned OCGTs also increased Further procurement under the RE-IPP Programme has during the year, producing 899GWh (2021: 704GWh) progressed, with preferred bidders for bid window 5 1. The 2025 target is the cumulative target over the next three years. at a cost of R6.2 billion to Eskom (2021: R4.5 billion), being announced on 28 October 2021, after bids closed 2. For accounting purposes, the capacity charges for the Avon and Dedisa IPP gas peakers are treated as arrangements that contain a lease in terms of IFRS 16. which includes a fixed capacity charge of R1.5 billion on 4 August 2021. Twenty-five projects totalling 2 583MW Refer to note 2.8 in the annual financial statements for the related accounting policy. For future targets, the assumption is that the RMIPPPP projects will be (2021: R1.6 billion). were identified, comprising 1 608MW wind and 975MW treated on the same basis. 3. The weighted average cost is calculated on the total amount spent on energy, before the IFRS 16 lease adjustment. solar PV. Legal and financial close are expected to be Refer to “Energy supplied by IPPs” below for further staggered during the latter part of 2022 once the projects information on the use of IPP-owned OCGTs achieve financial close. RE-IPP bid window 6, originally As noted earlier, the utilisation of IPP OCGT peakers IPP operational capacities by type at 31 March 2022, MW Benchmarking intended for 2 600MW, was extended to include an was around 28% higher than the prior year, contributing 500 (7%) 51 (1%) Koeberg Nuclear Power Station additional 1 600MW. Bids for the extended bid window to system stability to minimise or avoid loadshedding Eskom remains a member of the World Association of closed on 3 October 2022. during periods of generation capacity constraints. The IPP 1 005 (15%) Nuclear Operators (WANO) and the Institute of Nuclear DMRE’s IPP Office announced 11 preferred bidders from OCGT peakers recorded an annual load factor of 10.2% Power Operations (INPO). South Africa remains a member the Risk Mitigation IPP Procurement (RMIPPP) Programme (2021: 8%) against the contractual minimum obligation of of the International Atomic Energy Agency (IAEA). These for a total of 1 996MW of dispatchable generation capacity. 1%; renewable IPPs recorded an average load factor of affiliations facilitate the definition of standards, sharing The anticipated financial close by 31 March 2022 was not 29.8% (2021: 32.3%). 3 063 (45%) best practice, conducting periodic safety reviews, training met due to the need to close out residual technical issues personnel and benchmarking performance. The most IPP capacity of 748MW of renewable energy was between DMRE, the bidders and Eskom. Power purchase commissioned during the year, against a target of 1 003MW recent routine WANO peer review of Koeberg was carried agreements with three projects were concluded on out from 16 August to 2 September 2021, the outcome of for the RE-IPP Programme and a total target of 2 263MW 2 212 (32%) 2 June 2022. The delays on the various IPP programmes including other expected programmes (2021: 877MW). which was favourable. continue to add pressure on the need to continue running It consisted of 668MW wind, 55MW solar PV and 25MW For the review period, Koeberg’s benchmarked our plant, some beyond their original shutdown dates. biomass-based energy. We expect 580MW of renewable Wind Diesel Biomass, hydro and landfill performance has deteriorated, mainly due to lost capacity to be commissioned during the coming year. Solar PV Concentrating solar power generating hours associated with the forced shutdown of Unit 1 due to an increase in leakage on one of the steam The RE-IPP bid window 6 projects, as well as the generators at the beginning of 2021; the late return to RMIPPPP and non-DMRE projects (the so-called service on the Unit 1 refuelling outage directly thereafter; “100MW reform” projects) are all self-build projects and the time needed to safely return Unit 1 to service as it relates to network connections, with the following the unit trips that occurred in August and bidders being responsible for paying quotation fees October 2021. to Eskom; presenting designs for our approval; the environmental impact assessment, as well as Energy supplied by IPPs procurement and construction; together with Under DMRE’s RE-IPP Programme, we procure renewable commissioning timelines. Although we collaborate energy from IPPs under ministerial determinations. Since with the IPPs, we are not in control of all activities. inception of the RE-IPP Programme in 2011, a total of 91 IPP projects with a capacity of 6 490MW have been connected to the grid, although only 5 826MW is in We applied to purchase energy under short-term IPP operation (2021: 5 078MW). Under existing and expected programmes. However, due to the delay in receiving bid windows, 8 500MW of renewable energy is expected to regulatory approval from NERSA, Board IFC terminated come online before 2025. projects aimed at procuring 300MW during the 2022 financial year. Grid connection of bid window 3.5, 4 and 4B projects are progressing towards scheduled grid connection dates. However, commencement of commercial operation of many of the bid window 4 generators was delayed by the outbreak of the COVID-19 pandemic. As a result, less energy than planned has been purchased. 98 | | 99 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INFRASTRUCTURE continued Network performance Power station land to be made available for renewable energy developments Our transmission and distribution assets make up our network. Transmission infrastructure evacuates energy from our To encourage and enable investment in renewable to wheel electricity through the transmission grid, subject power stations, while our distribution network transmits electricity from the high-voltage transmission network and IPPs to energy generation infrastructure and give impetus to to wheeling charges and connection agreements with the customers, which include redistributors (municipalities and metros) that manage their own distribution networks. collaborative efforts to resolve South Africa’s electricity relevant transmission or distribution licence holders. crisis, we issued a request for proposal in April 2022 to Detail of our transmission and distribution infrastructure is set out on page 151 lease up to 4 000 hectares of Eskom land in Mpumalanga This initiative is intended to allow investors accelerated Province to IPPs for the addition of new renewable access to our existing grid, and to enable investment in Target Target Target Target Actual Actual Actual generation capacity to the grid. The lease will be for renewable energy next to our coal-fired power stations, Measure and unit 2025 2023 2022 met? 2022 2021 2020 a minimum period of 20 years. Eskom will provide to demonstrate our commitment to be part of the Number of system minutes lost <1, minutesSC, 1 3.53 3.53 3.53 2.88 3.48 4.36 connection to the nearest network connection point. Just Energy Transition. Investors will be able to enter into power supply agreements with Eskom or bilateral Number of major incidents >1 minute, number 2 2 2 2 2 3 In terms of the scheme, the land will remain the property of Eskom for the duration of the lease. agreements with customers, on terms that they agree, System average interruption duration index (SAIDI), hours SC 38.0 38.0 38.0 35.5 35.4 36.9 while Eskom will provide the transmission infrastructure System average interruption frequency index (SAIFI), events 17.5 19.0 19.6 12.3 13.2 14.4 The commercial process is based on auctioning suitable to evacuate the electricity. This arrangement is a land at or near power stations for the development precursor of the electricity market that is enabled by the Restoration time, %2 90.0 90.0 91.0 93.4 92.5 93.5 of renewable electricity generation sites, to remove a legally separated transmission company. Distribution energy losses, % SC 9.56 9.44 9.45 9.62 10.11 8.79 significant barrier to investment, given the proximity to existing transmission infrastructure. The evaluation We launched a competitive bidding process for this land 1. One system minute is equivalent to interrupting the whole of South Africa at maximum demand for one minute. process will favour quick delivery of critically needed in April 2022 and received 18 firm bids. This has the 2. Restoration time analyses the time it takes to restore supply during an unplanned outage by measuring the percentage of dispatched work orders restored additional generation capacity to the constrained power potential to add a further 1 800MW in the short term, within 7.5 hours. system as soon as possible, thereby increasing the ability with additional capacity as more land is made available. Lease agreements with four IPP investors for land parcels System minute < 1 performance improved relative to the achieved through a combination of maintenance, network to perform maintenance, as well as reducing loadshedding around Majuba and Tutuka Power Stations were signed in prior year, underpinned by a reduction in interruption of improvement projects and restoration management. and the usage of OCGTs. It is estimated that this October 2022. supply incidents. During the last quarter of the financial However, concerns remain around breakdown of networks programme could add further generation capacity of up year, two large interruptions affected customers in areas in due to overloading caused by illegal connections; theft to 4 000MW to the national grid over the next few years. Given that Eskom is not the buyer of electricity for these KwaZulu-Natal and Gauteng, both of which were caused and vandalism of electrical equipment; and challenges in The maximum amount of electricity generation capacity projects, there is an added benefit in the sense that there by plant failures. Line fault performance was negatively restoring supply to unsafe areas. per project will be capped at 100MW to make use of the is no requirement for National Treasury guarantees affected by veld fires during the winter period, while bird- recently promulgated upper limit for embedded and own to underpin these agreements, therefore they present related line faults increased in the summer period. Our The business has focused on enhancing the restoration generation in terms of the amendment to Schedule 2 of no risk to or potential burden on the South African focus is on enhancing servitude management and addressing of supply process and feedback to customers using the Electricity Regulation Act, 2006 (ERA), gazetted by taxpayers. the root causes relating to poor performing lines. technology. The rollout of upgraded enterprise digital DMRE in August 2021. The amendment allows generators assistant devices to field maintenance teams will improve The increased capital budget allocation for the next scheduling and work order management, ultimately five-year period will advance the implementation of the assisting contact channels to provide seamless feedback Transmission Development Plan and asset renewal under to customers. Furthermore, a cooperative community Cross-border sales and purchases of electricity the Transmission sustainability improvement initiatives. The partnership as a possible solution to reduce energy theft The Southern African Power Pool aims to provide reliable and economical electricity supply to its 12 member countries, emphasis is on project development and expanding supplier and inform customers on the legal use of electricity is in nine of which are interconnected, by coordinating the planning and operation of the electric power system among member capacity to enable the delivery of asset creation objectives. the pilot stage. utilities. Notwithstanding capital constraints, distribution network International sales and purchases technical performance measured by the duration and Target Target Target Target Actual Actual Actual frequency of customer interruptions continue to perform Measure and unit, GWh 2025 2023 2022 met? 2022 2021 2020 well within the target. Restoration time of unplanned International sales 32 454 11 219 12 148 13 298 13 497 15 189 outages, which affects availability and reliability of International purchases 26 057 8 678 8 457 8 500 8 812 8 568 supply to customers, has also improved. This has been Net sales 6 397 2 541 3 691 4 798 4 685 6 621 1. The 2025 target is the cumulative target over the next three years. International sales volumes decreased 1.5% year-on-year, delivered to Eskom. The additional power is now allocated to due to international customers entering into bilateral Electricidade de Mocambique (EDM), the Mozambican utility. agreements with other regional partners to supplement Export growth strategy their requirements, following Eskom’s load curtailment and The Board has approved a short-term cross-border suspension of contracts implemented during loadshedding. pricing strategy effective from 1 April 2022 until Higher sales to ZEDTC of Zimbabwe and NamPower of March 2025 for all agreements to be renewed or Namibia resulted in volumes exceeding the target. renegotiated during this period. The purpose is International purchase volumes for the year were lower to conclude profitable cross-border power supply than target, decreasing 3.5% year-on-year. This was mainly agreements based on our cost to supply. Agreements due to the HCB additional energy contract for 150MW have been concluded with NamPower and ZETDC. expiring in September 2021, reducing the amount of power 100 | | 101 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INFRASTRUCTURE continued Energy losses and equipment theft Medupi Unit 1 achieved commercial operation on The targets for transmission lines installed and transformer Transmission lines experience technical losses only, The Eskom-SAPS Priority Committee is making 31 July 2021, after being synchronised to the national grid capacity installed and commissioned for the year under with energy lost as heat when energy is transmitted. positive strides in investigating and responding to crime on 27 August 2019. The milestone signified the completion review were exceeded. Distribution losses are due to both technical and non- incidents, community protests and business disruptions of construction activities on the 4 764MW project, which that negatively impact on Eskom’s operations. As an technical losses, arising from electricity theft, illegal commenced in May 2007. example, an organised crime task team uncovered a connections, tampering and bypassing of electricity syndicate dealing in stolen Eskom transformers in the meters, as well as the purchase of electricity tokens from Group funded capital expenditure (excluding capitalised borrowing costs) per division Heidelberg area in Gauteng. A ghost vending syndicate unregistered or illegal vendors. Non-technical losses also operating from Gauteng was disrupted; several Target Target Target Actual Actual Actual include meter reading and billing errors. Division, R million 2025 2023 2022 2022 2021 2020 syndicate members were arrested and are now facing Energy losses on our networks have reduced to 11.43% trial. Various other successes in uncovering syndicates Group Capital 52 585 11 934 12 819 14 034 9 323 9 902 overall (2021: 11.78%), with 9.62% relating to the distribution dealing in stolen conductor have also been achieved. Generation 29 372 10 189 6 911 10 394 9 775 8 580 environment (2021: 10.11%) and 2.31% to transmission Transmission 2 260 1 335 803 731 702 800 lines (2021: 2.31%). Distribution energy losses amounted Distribution 8 362 2 636 2 329 2 433 2 388 2 675 to 19.8TWh for the year (2021: 20.2TWh), signifying a Losses due to conductor theft, cabling and related Subtotal 92 579 26 095 22 862 27 592 22 188 21 957 reduction in non-technical losses due to our continued equipment amounted to R316 million for the year Future fuel (coal and nuclear) 7 304 1 685 1 348 2 418 1 495 1 031 interventions. The cost of non-technical losses for the year (2021: R139 million), involving 3 226 incidents Other areas including subsidiaries and intergroup eliminations 4 444 1 517 789 213 263 428 is estimated at R2 291 million (2021: R2 319 million). (2021: 3 765 incidents). To combat these losses, we Total Eskom group funded capital expenditure1 104 327 29 296 24 999 30 223 23 946 23 416 continue to collaborate with other SOCs that are affected To limit non-technical energy losses, we continue to similarly, industry role players, the South African Police 1. Capital expenditure includes additions to property, plant and equipment, intangible assets and future fuel, but excludes strategic spares, construction stock implement interventions, such as performing meter and capitalised borrowing costs. Figures noted above are based on internal reporting, and do not necessarily align to the IFRS movement on property, plant Service and the National Prosecuting Authority. These audits on all customer categories and carrying out meter and equipment as disclosed in the annual financial statements. actions resulted in 244 arrests (2021: 111). refurbishments, as well as rolling out smart meters 2. The 2025 target is the cumulative capital expenditure targeted over the next three years. and replacing the online vending system. We identify areas associated with high energy losses, to investigate Delivering capacity expansion Our capacity expansion programme, which commenced in Capital expenditure for the year was R5 billion higher Following a series of tests and other commissioning and disrupt illegal energy consumption; these actions 2005 and is expected to be completed by the 2028 financial than target and R6 billion higher than the prior year, which activities, the unit achieved commercial operation are expected to improve revenue collection. The load year, aimed to build new power stations and reinstate was funded by cash from additional revenue. Generation on 31 May 2022, earlier than the scheduled date of reduction initiative continues to contribute positively to mothballed stations to increase installed generation expenditure recovered in the latter half of the year, January 2023, and was handed over to Generation to reducing equipment failures due to overloading caused by capacity by 17 384MW, as well as increase high-voltage with additional funding allocated for critical outages form part of the commercial fleet. illegal connections and bypassing of meters. transmission power lines by 9 756km and transformer and project-specific long lead-time items. Furthermore, there was additional capital expenditure in the new build On Unit 5, the draught group run was successfully Our ageing networks, which are often constrained and capacity by 42 470MVA to strengthen the transmission environment, as well as spend on future fuel projects which completed in February 2022, followed by the completion overloaded, contribute to technical losses. To better network. were deferred from the previous financial year. of the chemical clean milestone in June 2022, and the manage technical losses, the impact of voltage and phase Since inception of the programme to 31 March 2022, first fires on oil and first coal fires milestones in August imbalances have been evaluated to determine feeders installed generation capacity has increased by 14 730MW, Medupi and Kusile project performance and September 2022 respectively. However, the gas air where potential reductions in technical losses may be transmission lines by 8 222km and transmission substation At Medupi, the focus is on completion of the remaining heater caught fire on 17 September 2022, resulting in achieved by investigating and correcting imbalances, capacity by 39 505MVA. scope on the balance of plant (outside plant), including a discontinuation of all commissioning activities. Early among other initiatives. but not limited to the ash dump facility, coal stockyards indications are that this incident may delay the schedule Ongoing theft of tower members and substation equipment Excluding capitalised borrowing costs, the Medupi project and building structures with their associated systems. by up to a year. continues to pose risks for asset failures and network has cost R125.4 billion to date (2021: R120.6 billion), while Furthermore, the focus is on resolving the contractual the approved cost to completion is R145 billion. The cost challenges and remaining claims to ensure proper The distributed control system on Unit 6 was energised availability, as well as a significant safety risk to employees of the flue gas desulphurisation (FGD) retrofit at Medupi project close-out. Project completion is targeted for on 12 May 2022. The unit is progressing towards achieving and contractors. External socio-economic conditions is estimated at a further R38.4 billion. The Kusile project November 2023. the back energisation milestone. Installation of lagging and continue to drive theft and vandalism of network has cost R146.1 billion to date (2021: R141.1 billion); the cladding in the various areas of the boiler is under way. equipment, with conductor theft constituting the highest approved cost to completion is R161.4 billion, which At Kusile, the focus remains on commercial operation of number of incidents. The focus remains on proactive Commercial operation of the last unit – Unit 6 – is planned includes the FGD plant being installed during construction. Unit 4, as well as the remaining units under construction. and effective risk management, intelligence gathering, for May 2024, with full project completion by May 2027. We are fitting wet FGD technology to the Kusile plant stakeholder engagements, arrest and successful prosecution as an atmospheric emission abatement technology to as well as the deployment of new technologies to help remove oxides of sulphur, in line with current international combat these incidents. practice, to ensure compliance with air quality standards, making it more environmentally responsible. Target Target Target Target Actual Actual Actual Measure and unit 2025 2023 2022 met? 2022 2021 2020 Kusile Unit 4 was synchronised to the national grid on 23 December 2021. The unit successfully achieved full Generation capacity installed and commissioned 2 400 800 794 794 1 598 1 588 load on 11 January 2022, less than three weeks later. This (commercial operation), MWSC milestone means the unit will be able to contribute its full Transmission lines installed, km SC 826.0 140.0 140.0 180.5 65.6 127.9 capacity of 800MW intermittently to the national grid, based Transmission transformer capacity installed and on the commissioning schedule. The unit’s 72-hour full load 2 815 – 500 1 065 750 250 commissioned, MVA SC test run commenced on 25 March and was successfully 1. The 2025 target is the cumulative capacity to be commissioned and/or installed over the next three years. achieved on 28 March 2022, with an average of 799MW load generated over the 72-hour period. The 30-day reliability run commenced on 28 March and was completed on 28 April 2022. 102 | | 103 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INFRASTRUCTURE continued Correcting major design and construction defects modifications on Unit 6. All available units are however The latest total estimated cost for the defects correction September and October 2022. The procurement plan for at Medupi and Kusile capable of reaching full load. Rollout of the mill long-lead of all Medupi and Kusile units, based on the best available Package 4 (Melkhout and Rietfontein) was submitted for We continue to track the following major defects at both items commenced during standard planned rebuild outages information, ranges from R5.6 billion to R7.2 billion. We World Bank without-objection approval. Medupi and Kusile (unless otherwise indicated): (10 000 hours) in February 2022. have entered into a contractual consultation process with the boiler contractor to determine the liability for the The latest forecast for construction completion of Phase 1 • Pulse jet fabric filter plant poor performance due to A commercial agreement was recently signed for the necessary modifications to correct the defects. At the is June 2023. Phase 2 of the project consists of 640MWh inadequate pulsing system and flue gas flow entry low-load and transient operations solution at Medupi, and conclusion of the process, where Eskom is adjudicated at Distribution substations and is in development. PFMA • Gas air heater mechanical performance, erosion and the detail design and procurement of components are documentation is being prepared for submission to DPE, operational performance in terms of ash carry over and not to be contractually liable, the plant defect correction progressing well. Rollout of the low-load and transient costs will be fully recovered from the relevant contractors. prior to applications for DMRE determination and a NERSA outlet temperature stratification solution will commence during available planned outages licence. We have spent R238 million on the boiler plant defects • Furnace exit gas temperature resulting in excessive after March 2023 to December 2024, depending on outage at Medupi and Kusile, which was funded from operating Medupi FGD retrofit reheater spray water flow and low-load and transient availability. expenditure. Given the risks associated with the chosen strategy of instability At Kusile, boiler plant modifications have been completed being technology agnostic, the market will be approached • Milling plant defects Other projects on Units 1 to 4. Modifications on Units 5 and 6 are Dedicated railway for railing coal to Majuba Power using a single-stage procurement strategy with an option of • Air and flue gas ducting erosion wet FGD. The contracting strategy of a single Engineering, being rolled out during construction before commercial Station Another major defect at Medupi is control and operation. The focus at Kusile is to reduce the flue gas The Majuba Power Station coal tippler facility has been Procurement and Construction (EPC) contract remains instrumentation repeated distributed control system card volume and temperature since the low-load and transient commissioned after the fire incident and is scaling up the same as previously approved. This strategy allows for failures on Units 6, 5 and 4 as well as the balance of plant. instability is not as prevalent as at Medupi and to assist the deliveries, with two trains delivering 8 400 tons each technology and project execution risk allocation or transfer Together with the contractor, we implemented some FGD plant. day (the equivalent of 247 road truckloads), to gradually to the EPC contractor. The revised project strategy and upgrades and hardware modifications of the distributed increase to six trains per day. On the coal tippler, the business case has been completed and will be submitted Modifications implemented have extended the fabric filter to IFC. control system which sufficiently resolved the defect. heating, ventilation and air-conditioning as well as dust bag life at Medupi from 9 to 18 months, and the first fully A further major defect at Kusile is the western fill water suppression system works have been completed. The yard In July 2021, the World Bank approved the extension of modified mill at Medupi has run to 11 500 hours before treatment plant laboratory and demineralised water rail lines as well as civil and rail servitude rehabilitation the FGD implementation deadline from 30 June 2025 rebuilding without any major issues, an indication that storage tanks. works are all complete. to 30 June 2027. The key priorities are to complete the the modifications are successful in reducing the milling The rollout of the major boiler plant defects solutions plant–associated load losses. The modifications have The tender for the rectification of the vandalised overhead technology selection and resolve funding constraints agreed with the contractor in 2020 for Medupi and contributed to improving the availability and reliability of traction equipment was cancelled due to supplier before proceeding with any solution and commencing Kusile units that required outages has been completed. the synchronised units at Medupi and Kusile. unresponsiveness. The scope was revised to include the environmental approval activities. The rollout of the solution to the Medupi mills during repairs of vandalised infrastructure and a revised strategy An existing environmental impact assessment (EIA) and We are also working with the main contractor, original normal mill rebuilds is projected to be completed by compiled to be issued to the market. The contract for water-use licence (WUL) is in place for wet FGD. However, equipment manufacturers and third-party contractors to October 2023. Further corrections are forecast for the yard optimisation work was awarded in April 2022. if a different FGD technology is chosen, a new EIA process further improve the performance of the milling plant, gas completion after December 2027, depending on the type Equipment and materials have been delivered to site and and WUL would be required. A process has been initiated air heater plant and fabric filter plant. The development of of solutions and outage availability of units. excavations for cable trench are in progress. to acquire environmental specialists to perform sensitivity a solution to improve the gas air heater sealing system and At Medupi, the gas air heater, pulse jet fabric filter and performance is well advanced. Technical discussions and Due to delays caused by infrastructure vandalism, the studies on available land that could be used for waste boiler plant modifications by the boiler contractor have development of further enhancements on the milling and commercial operation date of the project has been revised disposal. Our Land Management Department has provided been implemented on all six units, except for the long-lead fabric filter plant have started. to March 2024, pending Board approval, from the original details of available land for consideration for FGD waste milling modifications on all units and the duct erosion target date of December 2022. disposal. Furthermore, the water supply tie-in to ensure the water supply from Thabazimbi to Medupi by the Battery energy storage systems Mokolo Crocodile Water Augmentation Project (MCWAP) The distributed battery storage project is to be situated is being finalised. at remote sites with limited access to our distribution networks, but close to renewable IPP plant. Tender The updated wet FGD technical specification is being evaluations for Phase 1 of 800MWh of the battery developed. Furthermore, the updated contract and storage project were completed in December 2021 and procurement strategies incorporating the main option of bid evaluation reports submitted to the World Bank for wet FGD are in the process of being developed. Eskom evaluation and approval. In December 2021, unconditional Treasury continues to engage with funders to provide without objection approval was received from the World project updates. Bank. A World Bank supervision mission, which included PFMA pre-notification documents have been signed off and a site visit to Komati, was successfully completed during submitted to DPE. Development of the technical tender February 2022. Furthermore, the World Bank loan facility evaluation strategy has been completed and signed off. The was extended to June 2023, due to Eskom demonstrating request for proposal documentation is being developed, commitment and good progress towards project execution. to be issued to the market from November 2022 to The NERSA board approved the concurrence with the March 2023, with contract award being targeted for the Section 34 determination in February 2022, and the 2024 financial year. As such, there is a risk of the 2025 NERSA licences for Phase 1 were obtained at the end of atmospheric emission licence compliance deadline not being September 2022. In May and June 2022, Phase 1 contracts postponed by the authorities. The postponement application were awarded for Package 1 (Skaapvlei), Package 2 (Pongola decision is under appeal. and Elandskop) and Package 3 (Paleisheuwel, Graafwater and Hex). Construction on Pongola and Elandskop began in 104 | | 105 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INFRASTRUCTURE continued RT&D projects Future focus areas During the year, the Research, Testing & Development (RT&D) Department repositioned itself in line with the new Eskom operating model. The revised strategy of RT&D • Executing the business separation programme in Generation, Transmission and Distribution, focusing on legal, regulatory and policy issues OUR focuses on operational recovery of the three line divisions in the short term. In the medium term, the strategy seeks • Pursuing additional dispatchable generation capacity of 4 000MW–6 000MW to support the stability of the power INTERACTION WITH THE to assist the business in the transitioning away from coal, system, create space for reliability maintenance and reduce and in the long term, to assist the business in being a leading the need for loadshedding clean and green energy company to enable competitiveness, • Continuing to drive execution of the Generation recovery ENVIRONMENT sustainability, profitability and new growth areas. plan to improve plant performance over the medium to Progress on some of our high priority projects is set out long term, including addressing the skills shortage below. • Successfully executing the Koeberg steam generator replacement and LTO projects to extend the life of the HVDC test facility station The scope of the work for the high-voltage direct current • Ensuring improved environmental performance, with (HVDC) test facility was revisited to achieve value specific focus on water use, emissions and environmental realisation for the business while considering Eskom’s legal contraventions financial position. Due to a lack of funding, the project • Engaging with DFFE on the MES decision, which puts remains on hold. 16 000MW at immediate risk, although Eskom’s appeal will Smart electricity platform result in a consultative process The project is aimed at developing a smart information • Using generating plant approaching end-of-life to lead the technology and operational technology platform to Just Energy Transition (JET) to position Eskom for a cleaner integrate customer-centric products, including eMobility, future, using repurposing and repowering as an alternative distributed energy resources, energy storage, smart to full decommissioning of power station sites. Thereafter, metering and other emerging technologies. JET will be used as the key enabler to set the course for a Generation of the future Limited availability of resources from the Council for • Connecting RE-IPP bid windows 3.5, 4 and 4B projects, as Scientific and Industrial Research (CSIR) as well as well as finalising the RMIPPP Programme and RE-IPP bid internal IT resources negatively affected project timelines. window 5 procurement However, the functional specification, the first release of the digital platform and a research report was completed • Increasing exports and growing revenue and profitability and approved. by retaining and increasing profitable electricity exports to neighbouring countries Microgrids and embedded generation • Sustaining transmission system reliability and reducing line Highlights Improvements Three containerised microgrids have been delivered at faults, while executing the Transmission Development Plan Komati Power Station and RT&D’s site in Rosherville, and Transmission sustainability improvement initiatives • The year-on-year coal purchase cost increase was well • Particulate emissions performance has improved Gauteng. These are smart rural microgrids with battery, below target and inflation year-on-year • Prioritising capital investment to modernise and strengthen PV and inverter technology for the supply and storage of • No environmental legal contravention incidents • Constraints at ash disposal facilities at Camden the distribution network for the connection of IPPs and electricity. The work is being integrated with the Komati reported in Group Capital and Transmission Divisions resolved, with all units now able to operate set up collector stations for the exchange of power during the year repurposing initiatives to commission a microgrid assembly • Reduction in the number of red data bird mortalities • Installing smart meters for all new customer connections • The phase-out of polychlorinated biphenyls (PCBs) is on on Eskom’s infrastructure, with progress on line on site. and converting existing small power meters to track, for Eskom’s equipment to be PCB-free after the implementing mitigation measures Remotely Piloted Aircraft System (RPAS) smart meters, to enable customers to better manage 2023 calendar year The project aims to roll out the use of RPAS for power consumption, as well as replacing the online vending line inspection. A proof of concept was done to determine system to support the business in reducing energy losses Challenges Lowlights technical and economic feasibility, and the impact on • Effectively correcting all major plant defects at Medupi and transmission line failures and the resilience of transmission Kusile, as part of the Generation recovery plan, to enable • High coal demand from more expensive power stations • Continuing poor environmental performance, with and distribution lines, and a business case was developed technically acceptable new plant performance due to generation performance challenges performance on specific water use, emissions and for Transmission. At the moment, 12 RPAS are able to • Reduction in production from cost-plus mines due to environmental legal contraventions outside tolerance • Completing the Medupi and Kusile projects within the conduct inspections equivalent to that of one helicopter. delays in capital expansion projects levels revised Board-approved completion dates of the 2024 and The units are used for sinkhole monitoring where ground- • Lack of new mining investment and execution of existing • Seven legal contravention incidents as a result of a 2028 financial years, respectively based patrols cannot easily obtain access, as well as for fault mining rights, with minimal funding available for carbon significant failure of business systems, all occurring in • Effectively executing Generation emission-control and technology, signalling disinvestment by multinationals in the Generation Division, with total environmental legal finding and conductor inspection. technical plan projects South African coal industry contraventions at 65, with the majority water-related • Driving completion of the battery storage and Medupi • Poor coal quality not within contracted specification FGD projects affecting plant performance • Criminal charges related to Kendal Power Station’s particulate emissions remain, with preparation ongoing for postponed court proceedings • Maintaining environmental compliance in areas of poor technical and operational performance • Several notices received from DFFE and DWS regarding non-compliances in Generation and Distribution Divisions 106 | | 107 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INTERACTION WITH THE ENVIRONMENT continued Our impact on the environment is largely negative – we rely The volumes and value of coal purchased over the past year Our top 10 coal suppliers are set out below. There are Initiatives such as verification sampling have resulted in on the use of mainly non-renewable or scarce resources such were made up as follows: three new entrants to the list since last year. improved coal quality from short- and medium-term as coal, water, nuclear fuel and diesel to generate electricity. suppliers. We continue to collaborate with suppliers on Coal volumes Supplier Contract type Furthermore, if not managed adequately, emissions from steps to reduce future coal-related load losses, including our power stations and waste generated in the form of Exxaro Coal Mix of cost-plus and fixed-price reducing contamination and working with tied collieries to ash and nuclear waste also have a detrimental impact Seriti Coal Mix of cost-plus and fixed-price address coal quality challenges. Our long-term goal remains 31% Glencore Fixed-price on the environment. It is undeniable that our activities to determine coal quality at the point of delivery. destroy natural capital to deliver electricity to customers, Universal Coal Fixed-price both through the use of non-renewable or scarce natural 41% Mbuyelo Fixed-price Investment in cost-plus mines African Exploration Mining and Fixed-price Most cost-plus mines require significant investment or resources, as well as producing emissions and waste. Finance Corporation (new) recapitalisation to increase production and/or maintain Through our value of Zero Harm, we endeavour to Wescoal Fixed-price existing production. Until then, lower production is to Mwelase Mining Fixed-price limit the impact of our activities on the environment. be expected from these mines. However, we will only Msobo Coal/Northern Coal (new) Fixed-price Environmental compliance is critical to ensure our impact consider recapitalising mines where long-term benefits can HCI Coal (new) Fixed-price on the environment is not harmful to the health and be demonstrated through increased volumes of acceptable wellbeing of society, retain our licence to operate and 28% quality coal, thereby limiting the amount of coal required support the security of electricity supply necessary to Coal quality on expensive short- and medium-term contracts, which is power the economy. Cost-plus Fixed-price Coal-related load losses for the year amounted to 0.64% often also transported by road. We will consider financing Value of coal purchased Short-/medium-term contracts OCLF (2021: 0.71%), and were due to factors such as poor the expansion at cost-plus mines to access remaining We strive to reduce our environmental footprint in quality coal from cost-plus mines or coal contaminated by contracted reserves, to support contract extensions several areas, such as reducing particulate emissions stones, combined with heavy rainfall in the Mpumalanga through increased production. through a number of initiatives, using less water with 28% region during the final quarter of the year. Matla and Kriel less efficient units being taken out of service, and using remained the biggest contributors, accounting for 62% and Negotiations on the extension of existing cost-plus dry-cooled technology in our newer coal-fired stations, 47% 29% of coal-related load losses respectively. agreements for Lethabo, Kendal, Matla and Tutuka namely Matimba, Kendal, half of Majuba, Medupi and continue, while the agreement for Kriel has been extended. Kusile. Both Medupi and Kusile are being commissioned with fabric filter plants to reduce particulates, as well as Technical performance low NO x technology to reduce NO x emissions. Kusile is Target Target Target Target Actual Actual Actual being commissioned with flue gas desulphurisation (FGD) Measure and unit 2025 2023 2022 met? 2022 2021 2020 technology to reduce SO2 and Medupi will be retrofitted. 25% Coal burnt, Mt1 n/a 101.96 104.57 n/a 110.30 104.87 108.61 Koeberg Nuclear Power Station has very low fresh water use, while nuclear constitutes low carbon technology. Coal purchased, Mt n/a 102.60 101.37 n/a 108.70 109.96 119.25 Cost-plus Fixed-price Coal purchase R/ton, % increase SC 11.0 10.0 10.0 2.1 3.0 16.3 Our current investment in renewable generating capacity Short-/medium-term contracts Coal stock days n/a 79 31 76 82 81 remains modest, with one wind facility and six hydroelectric Normalised coal stock days, budgeted standard daily burn2 n/a 31 31 42 50 50 stations. However, we aim to drive the Just Energy Transition The shift from more expensive short- and medium-term to introduce more renewable capacity, mainly through contracts to cost-plus and long-term fixed-price contracts Road-to-rail migration (additional tonnage transported 19.9 4.7 5.5 2.5 3.6 7.5 repowering and repurposing of our end-of-life stations, to continued over the past year, which had a favourable impact on rail), Mt SC, 4 reach our long-term objective of attaining net zero emissions on the cost of coal. This resulted in the year-on-year 1. The current year coal burnt figure excludes 811kt burnt during the commissioning of Medupi Unit 1 and Kusile Unit 4 (2021: 3 390kt for pre-commissioning burn). by 2050, with an increase in sustainable jobs. increase in the average cost per ton of coal being limited 2. Normalised coal stock days exclude coal at Medupi. to 2.1% (2021: 3.0%), which is markedly down from 16.3% 3. Future targets shown as n/a are dependent on system requirements. Securing our resource requirements experienced two years ago. 4. The road-to-rail target indicates the amount of coal to be transported by rail for the year. The 2025 road-to-rail target is the cumulative target over the next We use coal, nuclear fuel, diesel, gas, limestone (used in Under our long-term coal procurement strategy, we issued three years. FGDs) and water as primary energy in the generation of requests for proposal (RFPs) to the market for supply The increase in the average coal purchase price was days remained higher than target due to more coal than electricity. These resources have to be sourced, procured to Arnot, Camden, Kriel, Matla and Tutuka, and in some contained well below the target and inflation, due to needed being delivered to Medupi, Kusile and Lethabo. Coal and delivered to our power stations in the necessary cases, contracts were awarded. Implementation of the the continued move away from supply under short- and requirements at Medupi and Kusile have been affected by amounts, at the required quality, at the right time and at long-term strategy is progressing, with coal requirements medium-term contracts, coupled with our cost savings delays in the commissioning of units, despite receiving coal in optimal cost. largely secured for the next 18 to 24 months. The shortfall, initiatives. Coal stock levels have reduced slightly, but have terms of take-or-pay coal supply contracts. The low quality Securing our coal requirements considering updates to both supply and demand, has been been largely stable over the past year. of coal supplied to Lethabo makes it unsuitable for use by any Investors are pursuing clean energy options, with minimal reduced to 0.65 billion tons of uncontracted coal to cover other station, and there is no financial benefit to reducing Majuba and Grootvlei had stock below their individual production by the cost-plus mine supplying Lethabo. funding available for carbon technology, thereby signalling the life of all coal-fired power stations. station minimum stockholding levels at year end disinvestment by multinationals in the South African coal (2021: none), due to higher coal burn than planned, industry. combined with lower than anticipated rail deliveries, as Coal supply strategy well as the effects of higher than expected rainfall in the Our coal strategy favours long-term dedicated coal region in the last quarter of the year. Overall coal stock contracts with coal delivered by conveyor, to ensure security of supply to our coal-fired stations and minimise coal transport by road. It includes investing in cost-plus mines to support contractual supply, to ensure optimal cost of coal and security of coal supply from dedicated coal resources. 108 | | 109 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INTERACTION WITH THE ENVIRONMENT continued Implementing coal haulage and the road-to-rail The Integrated Vaal River System (IVRS) storage stood at Securing our nuclear fuel requirements Reducing our environmental footprint migration plan 100.8% at 28 March 2022 (23 March 2021: 91.7%). Although Existing contracts for the supply of nuclear fuel fabrication We measure our environmental performance through a Three power stations are partially supplied with coal on rail, the IVRS level has remained high due to good rainfall in services and the delivery of fabricated nuclear fuel are number of KPIs, including relative particulate emissions, namely Grootvlei, Majuba and Tutuka. Rail operations to the catchment areas, the IVRS is likely to remain in deficit sufficient to meet Koeberg’s nuclear fuel demand until specific water consumption and the number of reported Arnot Power Station are planned to start in the first quarter until Phase 2 of the Lesotho Highlands Water Project is 2025. We have entered into contracts until 2028 for the legal contravention incidents. of the coming financial year. Less coal was transported commissioned by 2026. Unofficially, the project is likely to supply of enriched uranium product, which is used in by rail mainly due to the continued unavailability of the be delayed by another two years, with construction delayed nuclear fuel fabrication. Refer to page 153 for information on the environmental rail offloading facility at Majuba Power Station, following a due to COVID-19 travel restrictions. Other initiatives such implications of using or saving electricity fire incident in December 2019. Rail operations at Majuba For further information on nuclear fuel balances, refer to as water conservation and water demand management are note 10 on future fuel supplies and note 13 on inventories in the resumed in October 2021 but remain limited. Furthermore, required to mitigate against future water security risks in consolidated annual financial statements rail operations are negatively affected by cable theft, the IVRS. vandalism of rail infrastructure and availability of operational The Mokolo River System, which supplies raw water to Target Target Target Target Actual Actual Actual resources including locomotives. Eskom Security Services Measure and unit 2025 2023 2022 met? 2022 2021 2020 are engaging with Transnet Freight Rail on opportunities to Matimba and Medupi Power Stations, has also received cooperate to reduce the instances of cable theft. good rainfall, resulting in the Mokolo Dam level increasing Relative particulate emissions, kg/MWh sent out SC 0.28 0.30 0.31 0.34 0.38 0.47 to 100.8% at year end (2021: 100.4%). As a result, the Specific water consumption, ℓ/kWh sent out SC, 1 1.25 1.39 1.33 1.45 1.42 1.42 Regrettably, coal haulage by road resulted in 20 public likelihood of water curtailments to Eskom has reduced Net raw water consumption, Mℓ n/a n/a n/a n/a 283 610 270 736 286 553 fatalities during the year (2021: eight), as well as three significantly, although the risk remains until the Mokolo contractor fatalities (2021: six). Given the impact of our Crocodile Water Augmentation Project Phase 2A is Environmental legal contraventions reported coal haulage operations on road safety and road conditions, commissioned. Matimba and Medupi will continue to as a result of significant failure of business 1 1 1 7 7 5 systems, number2 we continue to promote road safety and participate in minimise their water usage and reuse water where possible. road safety awareness campaigns with the Mpumalanga Carbon dioxide (CO2), Mt 3 n/a n/a n/a n/a 207.2 206.8 213.2 government. For a discussion of our water usage, refer to “Reducing water Sulphur dioxide (SO2), kt 3 n/a n/a n/a n/a 1 671 1 604 1 721 consumption” on page 114 in this section Nitrous oxide (N2O), t4 n/a n/a n/a n/a 1 561 1 527 2 826 Securing our water requirements Nitrogen oxide (NO x as NO2), kt4 n/a n/a n/a n/a 822 804 851 Supplying future water needs Water security risks relating to Eskom’s existing needs Particulate emissions, kt n/a n/a n/a n/a 66.65 71.35 94.92 Eskom’s assurance of water supply is not at risk in the The Mokolo Crocodile Water Augmentation Project short to medium term due to our status as a strategic user. (MCWAP) by the Trans Caledon Tunnel Authority aims to 1. Relative particulate emissions values and specific water consumption include Medupi Units 2, 3, 4, 5 and 6 as well as Kusile Units 1 and 2, but exclude units However, the Department of Water and Sanitation (DWS) augment water supply to Lephalale, as well as to Matimba synchronised but not yet in commercial operation. Units are only included one year after achieving commercial operation, therefore Kusile Unit 3 as well as and Medupi and Exxaro’s Grootegeluk mine. The earliest Medupi Unit 1 are still excluded. continues to experience severe budgetary, financial and 2. These relate to specific cases of environmental legal contravention incidents that are of very high significance in terms of the impact on the environment resource constraints, affecting its ability to manage existing water delivery date from MCWAP Phase 2A has moved out and/or on Eskom in that they have a material business impact and illustrate a significant failure of business systems. operations, maintenance and the implementation of new to October 2028 (from August 2026 reported previously) 3. Emission figures are calculated based on coal characteristics and power station design parameters using coal analysis and coal burnt tonnages. Figures bulk water infrastructure to ensure future water security due to delays in securing project funding and subsequent include coal-fired and gas turbine power stations, as well as oil consumed during power station start-ups. For carbon dioxide emissions, it also includes the to Eskom. Business continuity plans are in place at Eskom procurement delays. Funding is expected to be secured by underground coal gasification plant. facilities and sites to cater for possible water restrictions by 31 March 2023. At this stage, the delay is not expected to 4. N2O and NOx reported as NO2 are calculated using average station-specific emission factors (which are measured intermittently) and tonnages of coal burnt. municipalities and water boards. affect the Medupi FGD project, which is also delayed. 5. No target is set for net raw water consumption or for emission volumes. Therefore, the target for these measures is shown as not applicable. Particulate and gaseous emissions Coal-fired stations operate in general compliance with The production of electricity by burning coal produces emission limits set in terms of their AELs. However, four major pollutants in the form of emissions: particulate occasional non-compliance with these limits occur and are matter (PM), carbon dioxide (CO2), sulphur dioxide (SO2) reported to the authorities as required. Our AELs require and nitrogen oxides (NO x). The National Environmental us to report emergency incidents referred to as NEMA Management: Air Quality Act, 2004 (NEMA) requires the section 30 incidents. A total of 76 section 30 incidents were installation of technology to reduce emissions. We have reported during the year (2021: 47). implemented pollution reduction technology since the early 1980s, thereby reducing particulate matter emissions by It is estimated that all coal-fired units combined have more than 80%. operated in non-compliance with their allowable daily particulate matter emission limits on 174 days during the Further details of particulate and gaseous emissions are year (2021: 524 days). Kendal operated in non-compliance available in the technical statistical table on page 144 to 145 with its daily limit on 148 days in the year as the station was forced to continue operating with damaged equipment Compliance with atmospheric emission licences to compensate for poor performance at other stations. Atmospheric emissions include any emission that results in Since the implementation of repairs to a number of air pollution and include particulate and gaseous emissions. its units, Kendal’s performance has improved. Medupi Atmospheric emission licences (AELs) issued by the recorded 24 days of non-compliance due challenges with authorities allow us to emit atmospheric pollutants within fabric filter bags, while Tutuka was non-compliant on two certain limits. days due to dust handling plant challenges. 110 | | 111 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INTERACTION WITH THE ENVIRONMENT continued We developed a new KPI this year for inclusion in the 2023 Emission reduction projects • High-frequency power supply (HFPS) projects, to further shareholder compact to track AEL compliance in terms The impact of full compliance would necessitate reduce particulate matter emissions, were installed at We continue to drive the implementation of the previously of (i) average emission limit compliance; (ii) NEMA section 30 expenditure of about R330 billion, which Eskom and Kendal Units 1, 5 and 6, Lethabo Units 2 and 3, Matla committed MES projects. Good progress has been made South Africa simply cannot afford, given Eskom’s Unit 2 and Tutuka Unit 4 submissions; (iii) emission monitor status; (iv) gaseous on particulate matter (PM) projects, and it is foreseen that financial position and the difficulty in raising funding monitor reliability; and (v) general AEL compliance. We have all of these projects will be completed by 2025. There is • Contracts have been placed for the ESP refurbishment for coal-based technologies, and the resultant assessed our overall AEL compliance at power stations at a risk that some Tutuka units with PM upgrades may be and SO3 flue gas conditioning at Lethabo, and planning is increase on the tariff. It would also result in 89%. Efforts are under way to significantly improve this in completed after the legal requirement of 31 March 2025, under way upgrading stations which would shut down before or the 2023 financial year. but work to minimise this risk is ongoing, and alternatives • At Kriel, the HFPS upgrade contract was awarded in shortly after upgrades are completed. The impact on installed capacity of immediate compliance with MES are also being considered. December 2021 and engineering design is under way. At year end, eight coal-fired units were operating in non-compliance with average monthly emissions limits would be the immediate loss of around 16 000MW Commercial challenges have delayed the ESP and SO3 We remain at risk of not meeting commitments made in (2021: five units), placing 4 766MW at risk of censure at Kendal, Lethabo, Tutuka, Duvha, Matla, Kriel upgrades, and the planning is being revised previous minimum emission postponement applications due or closure by the authorities (2021: 2 949MW). and Medupi. A loss of around 30 000MW would to project delays and constraints on available funding. The • Work on the NOx projects at Majuba, Matla and be seen by April 2025. This lack of capacity cannot Tutuka remain on hold pending a reassessment of the Minimum Emission Standards consequences of non-compliance could be the withdrawal practically be provided for and would result in requirements for these projects in light of engagements Minimum Emission Standards (MES) for South Africa were of licences to operate, DFFE not granting further legal stage 8 loadshedding being required immediately, with the authorities regarding the MES applications published in 2013, and amended in 2018. They stipulate indulgences, or not meeting specific loan agreement with stage 15 loadshedding by 2025. • Elements of the technology approach for the particulate emission limits, which require Eskom to reduce gaseous conditions, such as the World Bank’s Medupi FGD loan A reduction in emissions through a retrofit conditions. matter reduction at Tutuka has been reassessed given emissions of sulphur dioxide and nitrogen oxides, as well as programme would take approximately 15 years to funding constraints. Revised commercial documentation is particulate matter. These aim to protect the environment Various emission abatement technologies have been implement at coal-fired power stations. However, being prepared by providing reasonable measures for the prevention installed at our stations. These include: of pollution and ecological degradation and to secure such a reduction in emissions could be better • The World Bank has approved an extension of the loan achieved over the same period by closing old • Electrostatic precipitators (ESPs) at Duvha, Kendal, Komati, agreement for the Medupi SO2 reduction FGD project ecologically sustainable development while promoting Kriel, Lethabo, Matimba, Matla and Tutuka justifiable economic and social development. coal-fired power stations. The capital would be until June 2027. A revised procurement strategy has more easily (and even more cheaply) raised and • SO3 flue gas conditioning plants to improve the efficacy of been developed, and planning to meet the revised date In 2014 and again in 2019, we committed to retrofitting could instead be spent on adding urgently needed ESPs at the stations mentioned before, except at Tutuka is under way several power stations to reduce emissions under additional capacity through renewables, low • Fabric filter plant at Arnot, Camden, Duvha, Grootvlei, carbon technology and strengthening the national Relative particulate emissions postponement applications granted by the then Department Hendrina, Kusile, Majuba and Medupi electricity grid. This would allow for the growth of Relative particulate emission performance has improved of Environmental Affairs. Full compliance with the new plant • Boilers with low NOx design at Kendal and Matimba renewable energy production facilities and provide since the previous financial year due to focused standards requires all coal-fired power stations to implement • Low NOx burners at Camden, Kusile and Medupi opportunities to potential future independent maintenance of generating plant under the Generation emission reduction technologies, such as fabric filter plant power producers. • Flue gas desulphurisation at Kusile recovery plan, particularly an improvement in the (FFP), low NOx burners and/or FGD. performance at Kendal Power Station. Nonetheless, the Eskom’s proposal is to reduce emissions by shutting In line with our commitments, we are undertaking year-end target was not achieved. The most significant We submitted postponement applications in terms of down old coal-fired power stations and to focus on additional emission reduction projects to reduce particulate contribution to the poor performance came from Duvha, the MES to DFFE during August 2020, with additional retrofitting projects to reduce particulate emissions matter emissions, as well as sulphur and nitrogen oxides. Kendal, Lethabo, Matimba, Matla and Tutuka, due to ash information submitted early in January 2021. We received a and NO x through Eskom’s Road to 2035 strategy. Progress during the year includes: plant challenges, electrostatic precipitator performance and decision on our application from DFFE in November 2021. A positive postponement decision was issued for power This is anticipated to achieve a 38% reduction in • ESP refurbishments were completed at Kendal Units 5 SO3 plant failures. stations shutting down by 2030, namely Grootvlei, Arnot, carbon emissions, with reductions of approximately and 6, and the refurbishment on the remaining four units Hendrina, Camden, Komati, Acacia and Port Rex. However, 77% in relative particulate matter emissions, have been scheduled our request for postponements at Matla, Duvha, Matimba, approximately 45% in sulphur dioxide emissions and Medupi and Lethabo were all refused in their entirety by approximately 55% in nitrogen dioxide. the National Air Quality Officer (NAQO). Postponement applications for Majuba, Tutuka, Kendal and Kriel were During September 2022, Eskom had the opportunity partially approved. to share an introduction to the air emission reduction We submitted an appeal to the authorities in December 2021 technology with the panel. The Minister requested a for those stations with unfavourable decisions, requesting recommendation from the panel by February 2023, the Minister of DFFE to consider our motivation for a including a public participation process. A decision on the balanced and sustainable way forward. MES and the issuing of the station AELs will follow after the MES process is complete. In March 2022, the Minister indicated she would undertake a consultative process on the MES appeals in terms of Our strategy is to facilitate the development of a future section 3A of the National Environmental Management Act, electricity sector that is competitive and enabled by 1998 and would establish a participative panel consisting modern power system technologies as South Africa strives of all appellants, stakeholders and interested and affected to achieve net zero emissions by 2050. Our proposed parties. Timeframes for the process have not been Just Energy Transition (JET) is a pathway that would make communicated. The appeal process will be held in abeyance it possible to simultaneously spur economic growth, while the consultative process is under way. create sustainable jobs and put emissions into structural decline, thereby ensuring electricity supply that does not compromise economic growth. 112 | | 113 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INTERACTION WITH THE ENVIRONMENT continued Kendal emission challenges NOx emission limits More focus is still required at power stations to address • Decommissioning of other generating plant and The station implemented an emission recovery plan Non-compliances with allowed daily NO x emissions were the root causes of high inflows into dams and prevent rehabilitation of the associated land across all units since late 2019, which has led to a recorded at coal-fired power stations on 66 days in total contamination of surface water to improve water recovery • Estimated cost of closure at the end of the life of cost-plus significant reduction in emissions and units operating in during the year (2021: 75). Of those, 38 were recorded at and water management practices. Regrettably, focused mines, together with pollution control and rehabilitation compliance, although emissions remain worse than target. Lethabo due to combustion process issues which occur at monitoring of the effective implementation of water of the land, where a contractual or constructive obligation In August 2020, DFFE approved our action plan to return the station at times, with the remainder recorded at Matla management action plans, both at power station level and exists to reimburse the coal suppliers Kendal’s units to compliance. The station reports on and Tutuka. by the Generation Environmental Compliance Steering progress monthly to the authorities as required. Committee, has not yet led to a significant decrease in such We have raised the following provisions relating to Ashing facilities and ash utilisation events when compared to the previous financial year. environmental rehabilitation and restoration: A criminal case was opened in September 2019, relating to Ash produced from the combustion of coal by our power Reducing environmental legal contraventions Actual Actual Actual non-compliance with Kendal’s atmospheric emission licence stations is the largest source of physical waste from our R million 2022 2021 2020 (AEL) between April 2015 and April 2019. If found guilty, operations. Our power stations produced 32.90Mt of ash A total of 65 environmental legal contravention incidents Eskom could be issued a fine of up to R25 million. The key (2021: 30.84Mt), with Lethabo and Matimba the biggest were recorded against a tolerance level of 18 (2021: 81, Power station-related restated), with the reasons indicated below. Generation environmental restoration – 18 269 17 317 14 818 charges are: contributors. Ash sold from six stations in terms of our nuclear plant • Emission of air pollutants at concentrations above ash utilisation strategy reduced slightly to 2.8Mt for the was responsible for 58 of the incidents (2021: 78). Power station-related emissions limits specified in the atmospheric emission year (2021: 3.1Mt), and is used in the manufacture of bricks, 5 environmental restoration – 16 293 14 811 11 806 licence (AEL) cement, soil amelioration, road construction and mine other generating plant backfilling. 5 Mine-related closure, pollution • Failure to comply with the conditions or requirements of control and rehabilitation 15 303 15 259 14 164 the AEL As noted earlier, the ash dam solution at Camden Power Total environmental provisions 49 865 47 387 40 788 • Committing an act likely to cause significant pollution of Station has been completed, with the station now ashing on 7 the environment the new ash dam. There have been no load losses due to 2022 Refer to note 28 in the consolidated annual financial statements ash dam constraints since December 2021. Eskom appeared in the Witbank Magistrates Court for more information on these provisions in June 2021, but the hearing was postponed again to Reducing water consumption August 2021 at the request of the National Prosecuting As a strategic water user, we are assured of water supply Investing in renewable energy Authority (NPA). Eskom again appeared in court in in the short to medium term. Nevertheless, given the 48 Eskom’s Sere Wind Farm contributed 253GWh to the August 2021, after which the matter was postponed vast amounts of water we consume, we continue to national grid during the year (2021: 305GWh), with an to January 2022 to allow time for Eskom to prepare implement comprehensive strategic water implementation average load factor of 27.54% and an average availability representations to the NPA. The matter was presented 2 1 and management plans at all coal-fired power stations to Water Waste factor of 77.84% (2021: 33.25% and 94.48% respectively). in January 2022 and was postponed to March 2022 for a reduce water use and ensure compliance. Disappointingly, Air quality 10 Environmental impact assessments pre-trail hearing and setting a trial date. At that point, the implementation of the water strategy has not yet resulted We continue to purchase renewable energy from IPPs – magistrate postponed the matter to July 2022. Although in a reduction in water usage at coal-fired power stations. sources include wind, solar power, biomass, landfill gas and Eskom appeared in court in July, the case was postponed small hydro technologies. again to October 2022. At that point, the case was Specific water usage postponed to February 2023. Water performance remains very disappointing. Specific 2021 For capacity and energy supplied by renewable IPPs, refer to water usage in the generation of electricity deteriorated page 99 Offset programmes compared to the prior year and performed worse than The air quality offset programme aims to reduce particulate target. The deterioration is attributed to poor water Responding to climate change matter emissions and thereby improve ambient air management practices at power stations, including leaks Climate change is one of the greatest challenges facing quality in communities adjacent to our power stations, by 68 humanity, and a measurable global reality. The world is and overflows at units; less recovery from on-site dams for insulating homes with ceilings, switching households from reuse due to poor water quality, due to contamination with already experiencing increased temperatures and observing coal to electricity and liquid petroleum gas, and addressing ash and oil; ashing with cooling water to control cooling Water Waste more frequent and severe weather events. If nothing is the burning of waste. The programme, which is targeting water chemistry; as well as losses through discharge of Air quality Environmental impact assessments done, climate change will endanger the livelihoods of KwaZamokuhle, Ezamokuhle and Sharpeville, is behind polluted water into the environment, as the pollution hundreds of millions of people around the world and on commitments made to the authorities, mainly due to control dams on these sites have more water flowing into Of the environmental legal contravention incidents, seven impose increasing costs on society. commercial delays and the lasting effects of the COVID-19 the dams than can be contained. were escalated as being a result of significant failure of Meeting the goals set out in the Paris Agreement is a race pandemic. business systems (2021: seven), all of which were water- Kendal and Tutuka released water into the environment for against time. Whether we succeed or fail depends on Phase 1 for the physical implementation of the stove swap related and recorded in Generation Division. the speed with which we phase out coal-fired electricity the entire financial year, resulting in increased raw water and house thermal retrofits in KwaZamokuhle (close to usage. Plans are in place to improve water performance Information on the disposal of ash, asbestos, PCB-containing production worldwide. According to the 2018 IPCC Hendrina and Arnot Power Stations) is complete. A total across the power stations and stop continuous discharge material, as well as nuclear waste and used nuclear fuel is set Report, coal-fired generation needs to be reduced by of 250 houses have been retrofitted. The rollout of the at both Kendal and Tutuka. However, there has been slow out in the technical statistical table on page 144 to 145 78% by 2030 to keep the goal of limiting average global programme in Ezamokuhle has commenced. progress in the implementation of the plans addressing the temperatures to within 1.5°C above pre-industrial levels root causes of poor water performance. The release of Provisions for environmental restoration and within reach. However, the speed at which coal-fired Gaseous emissions rehabilitation production can be phased out in South Africa depends water into the environment goes against Eskom’s intent to SO2 emission limits We continue to provide for the following obligations: on the rate at which replacement generation capacity achieve zero liquid effluent discharge and to be compliant Other than Medupi and Matimba, all stations have daily SO2 with legislation. • Decommissioning of nuclear plant, which includes (renewable generation with battery storage) can be rolled limits. No non-compliances with daily limits were recorded. rehabilitation of the associated land, as well as managing out and on the financial, skills, regulatory and logistical Medupi is operating under an average monthly AEL limit, Apart from poor water management practices, the poor spent nuclear fuel assemblies and radioactive waste support required to enable that. Otherwise, the country which was exceeded in April and May 2021 due to the high technical performance of coal-fired stations is another faces dire socio-economic consequences. sulphur content of regional Waterberg coal and combustion contributory factor, together with ageing plant. The processes. increase in energy sent out across the fleet also affected the specific water usage. 114 | | 115 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INTERACTION WITH THE ENVIRONMENT continued The Paris Agreement requires governments to put forward According to section 6(2) of the CTA, generators of Climate funding but rather increasing sustainable jobs. Grid strengthening in 2030 pledges and targets to cut carbon emissions to limit electricity from fossil fuel are allowed a deduction equal Over the last year, an Eskom team, led by the GCE, has the Northern and Eastern Cape Provinces is a key enabler warming. All countries who are signatories to the Paris to the renewable energy premium incurred through actively engaged with foreign governments such as the for the rollout of new renewable capacity in these areas. Agreement, South Africa included, have submitted their RE-IPP purchases in the same tax period. It is an United Kingdom, United States, Germany and France, as In addition, repurposing and repowering will allow for the own nationally determined contributions (NDCs) to unintended consequence of the imminent legal separation well as their lending institutions and multilateral banks who optimisation of grid capacity in the Mpumalanga Province. the United Nations Framework Convention on Climate of Transmission – the counterparty to RE-IPP purchases – are keen on funding Eskom’s JET plans. Consequently, we To this end, Generation has established a Clean Energy Change (UNFCCC). that the remaining Generation business may no longer be developed the concept of a financing facility, referred to as Department, to oversee the development, design, building able to claim that deduction. The potential financial risk is the Eskom JET Financing Facility. The GCE presented the and execution of clean energy projects. This department South Africa’s response to climate change being monitored. Eskom facility to the Presidential Climate Commission and will also be responsible for setting up and managing South Africa is particularly vulnerable to climate change, received support. investment in clean energy-related ventures or initiatives. given that local warming is approximately twice the global rate due to the country’s geographical location It is essential to ensure that those who are invested socially and socioeconomic state. South Africa is committed to There is further risk in that the carbon tax in Rand and economically in the coal value chain are not adversely achieving the goals of the Paris Agreement, keeping global per ton will move from being linked to inflation, to The concept is to enable and accelerate the Just affected. Consequently, we are collaborating with the warming well below 2°C above pre-industrial levels by 2050 achieving an effective rate of $20/ton by Energy Transition from coal to other forms of Department of Trade, Industry and Competition (the and to pursue efforts to limit the temperature increase December 2025 and “at least” $30/ton by electricity generation through a multi-tranche, multi- dtic) and others to capitalise on the expected 30GW of December 2030, as expressed in the February 2022 year facility, funded by a multi-lender syndicate, renewable construction required in South Africa over the to 1.5°C. As part of Eskom’s Just Energy Transition (JET) National Budget Speech. This increases the price which would provide concessional funding to JET strategy, Eskom has further committed to reach net zero next decade by ensuring that appropriate industrial policy escalation from an average of 4%–5% per year projects in South Africa on a “pay for performance” emissions by 2050, while promoting net job creation. is in place to enable local manufacturing of renewable to just under 28% per year from January 2022 to basis. The funds would be advanced as progress components. Policy and demand certainty will be crucial South Africa’s first NDC included a target range between December 2025 (assuming a Rand/Dollar exchange payments for different stages of various projects. to attract investors to set up factories in South Africa, 398–614Mt CO2e in both 2025 and 2030, as part of a “peak, rate of R15). Thereafter, the annual growth is Should project objectives not be achieved as agreed, preferably in the coal heartland of Mpumalanga. Eskom’s plateau and decline” trajectory to 2050. In September 2021, expected to settle at around 8.5% per year. Based or should agreed-upon milestones not be met, future key requirement to investors is that the investment in South Africa submitted its updated NDC to the UNFCCC, on the existing MYPD methodology, this cost is releases of funding tranches may be withheld, and/or manufacturing capacity in South Africa forms part of a indicating an updated target range between 398–510Mt CO2e treated as a pass-through to the consumer, implying concessional interest rates may be increased. decarbonisation-funding package. in 2025, and between 350–420Mt CO2e in 2030. This that the expected liability in the 2027 financial year conveys a significantly more ambitious mitigation target that will require a tariff adjustment of 8.5%–9%. We are conducting socio-economic impact assessment allows South Africa to remain on a pathway well below 2°C, Our efforts to source financing for climate projects studies at 10 power stations. The aim is to identify impacts, and to continue to strive for a 1.5°C pathway. culminated in the South African Just Transition financing risks and opportunities to mitigate the economic and Eskom’s response to climate change facility of $8.5 billion that was approved at COP26, societal impacts from station shutdown, and create a basis Climate change legislation and carbon budgets Our climate change policy is intended to support South coordinated by the Climate Investment Funds. This for continued, sustainable livelihoods for the affected South Africa’s proposed Climate Change Bill aims to Africa to meet its nationally determined contribution. The unprecedented partnership between the SA Government communities and local and district municipalities through a mount an effective climate change response and ensure Climate Change and Sustainable Development (CCSD) and the UK, US, EU, French and German governments Just Energy Transition. the long-term, just transition to a climate resilient and Department has recently revised Eskom’s climate change has at its heart the Eskom Just Energy Transition plan. lower carbon economy and society, within the context of policy to address the development and implementation The financing will be used to fund new clean energy The socio-economic impact assessment studies for the sustainable development. Cabinet approved the Climate of adaptation plans by the electricity value chain. It generation projects as well as transmission and distribution shutdown of Komati, Grootvlei and Hendrina Power Change Bill to be passed through Parliament. As part of the incorporates Eskom’s vulnerability to the negative impacts infrastructure, together with green hydrogen and electric Stations have been completed. The key findings and first phase, it is expected to prescribe mandatory carbon of climate change, including extreme events, climate vehicle projects. Other lenders are also showing interest recommendations of these studies have been evaluated budgets from 1 January 2023 to 31 December 2027, as well variability and long-term climate change in divisional in funding various Eskom JET projects, supporting our net and are being incorporated into socio-economic impact as the methodology for allocating budgets. In the interim, adaptation plans and the integrated risk and resilience zero emission aspirations. mitigation implementation plans for each of the three companies are required to develop and implement Pollution management processes. power stations. Studies for seven more power stations have Prevention Plans that cover a five-year period (from 2021 A technical team, under the auspices of the Presidency, has commenced, namely Camden, Arnot, Matla, Kriel, Duvha, to 2026) and to report on their progress annually. Generation Division and Eskom Rotek Industries (ERI) been set up to coordinate the South African funding deal. Tutuka and Kendal. It is anticipated that the studies will have already developed adaptation plans, which are being We are participating in the task team, which will work on take about two years to complete. Through the JET Office DFFE gazetted their intention to extend voluntary carbon implemented. Transmission has incorporated climate the conditions of the loan, tenure, payback, interest rates, and DFFE, we secured a grant of $2.1 million for these budgets for 2021 and 2022, and we have requested an change risks into their business operations, and the among other factors. A key enabler is the “Just” element seven studies from the National Determined Contribution allocation from DFFE. Distribution adaptation plan is being developed. We also as the socio-economic commitments are key to the deal Partnership (NCD-P) that is supporting national priorities provide quarterly feedback to DPE on our climate change being successful. To enable Government’s goals for the JET identified by DFFE. Carbon tax adaptation progress and participate in the Climate Change transaction, we have developed a prioritised list of projects The Carbon Tax Act, 2019 (CTA) levies a carbon tax on Adaptation Technical Working Group. and will advocate for the timeous release of COP26 In 2021, the World Bank commissioned technical studies on greenhouse gas (GHG) emissions, to encourage the market funding, based on our readiness to execute JET projects retiring and repurposing four power stations, being Komati, to reduce consumption of carbon-intensive products We have developed a comprehensive Just Energy Transition across Generation, Transmission and Distribution. Hendrina, Grootvlei and Camden. The studies will inform and to shift the country onto a low carbon pathway. (JET) strategy which provides a consolidated view of the the types of technologies that could be deployed at sites. National Treasury initially confirmed that the gazetted approach that we will take to transition away from coal- In the meantime, we are proceeding with bilateral Selected technologies will be taken through multicriteria renewable energy premium applies to 31 December 2022. fired power to more sustainable, lower emitting energy engagements with various lenders for the funding of evaluation to indicate the preferred technology options. Subsequently, the National Budget Speech in February 2022 sources. We have set targets for different time horizons, Eskom JET projects, which began prior to the COP26 This will support Eskom’s mitigation plan by identifying jobs, proposed that this be extended until 31 December 2025. from 2020 as the base year to 2050. The target for 2030 announcement, and continue to cultivate projects that will economic opportunities and localisation potential from It would lead to the first carbon tax liability to is approximately 130–180Mt CO2e; the 2040 target is qualify for funding under these agreements. the repowering and repurposing programme, in line with Eskom arising in the 2026 financial year, with the first approximately 15–100Mt CO2e and the 2050 target is Just Energy Transition Eskom’s Just Energy Transition strategy. cash payment expected the following year. approximately 7–50Mt CO2e. As indicated before, we are committed to transitioning from coal to lower carbon technologies such as renewables, and will ensure that the transition occurs in a “just” manner, by not impeding socio-economic development, 116 | | 117 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INTERACTION WITH THE ENVIRONMENT continued Overview of Task Force on Climate-Related Strategy Financial Disclosures Climate-related risks and opportunities with high levels of Governance uncertainty regarding their nature, timing, development The Board is the focal point for corporate governance, and deployment were identified for different time horizons. responsible for Eskom’s performance and for meeting We have prioritised three key climate-related risks and financial, operational and other business expectations. four opportunities, with the highest likelihood of impacting The Board is supported by three board-level committees Eskom’s business, strategy and financial planning. These in governing climate-related matters. These committees climate-related risks and opportunities are crucial to are regularly informed of climate-related risks and our sustainability and receive consideration at Exco and opportunities. Board level. We have defined the risks according to the short term (1–3 years) from 2021 to 2023; medium term SES is responsible for providing oversight of social and (3–7 years) to 2030; and long term (7–30 years) to 2050. economic development; good corporate citizenship; environmental, climate change as well as health and safety Risks Opportunities programmes; and the sustainability audit. SES reviews key All time horizons: Short term: sustainability strategies and debates how best to integrate 1 to 30 years (2021–2050) 1 to 3 years (2021–2023) sustainable development into business strategy. 1. Inability to safeguard Eskom’s 1. Pursuit of partnerships and assets and operations against funding solutions ARC is responsible for setting the direction for risk climate change 2. Large-scale rollout of cleaner management and internal controls, governance of and greener energy technology and information, compliance, and combined Medium-term: Medium-term: assurance. The Priority I JET risk is monitored and tracked 3 to 7 years (2023–2030) 3 to 7 years (2023–2030) at Exco and Board level and is reported to ARC quarterly. 2. Failure to meet the 2030 JET 3. Repowering and repurposing Discussions are under way for different envelopes of Skills requirements are being established for each of the A future focus area is to consider sustainability risks targets existing coal sites grant funding for feasibility studies of various JET projects. interventions, with skills mapping in progress to facilitate 3. Evolving climate change 4. Re-energising the relating to financial reporting. legislation manufacturing sector Concessional financing discussions and project parades have internal and external training of local labour to actively been conducted with DFIs. The Industrial Development participate. The Board Strategy Committee is responsible for providing Corporation and Development Bank of Southern Africa oversight of Eskom’s response and implementation of Previously, two scenarios were considered, namely the are busy reviewing the project pipeline; appraisal missions The Komati Training Facility is being established in Government directives, roadmaps and policy documents “soft decarbonisation” scenario and the “ambitious are under way with the World Bank and Agence Française partnership with the South African Renewable Energy related to the restructuring of Eskom and the electricity decarbonisation” scenario. These were based on domestic de Développement. In November 2022, the World Bank Technology Centre (SARETEC) to facilitate the skilling supply industry. The committee considers the Just Energy policy considerations such as South Africa’s NDC under the approved a concessional loan facility of $497 million for the of Eskom workers as well as the local community in the Transition transaction, as well as proposals for power plant Paris Agreement as well as DMRE’s IRP 2019, and what was repurposing of Komati Power Station. Komati area, to replace jobs lost in related industries repurposing and repowering of ageing coal-fired power envisaged beyond that to 2050. such as coal mining.. It is also envisaged to provide stations. Pilot at Komati Power Station upstream skilling of workers at other power stations. Ash In 2021, our Energy Planning and Market Development Komati Power Station, located in Middelburg, Mpumalanga, geopolymer manufacturing is to be established to produce The GCE and Exco are responsible for approving, Department modelled an energy pathway to 2050 within was initially commissioned between November 1961 concrete products, such as bricks and pavers, from ash that implementing and executing effective risk and resilience a set of technical constraints. This pathway considers and March 1966. The station was mothballed by 1990, is in abundance in the area. management of climate change risks and the JET strategy. the optimal coal shutdown plan as part of emission and subsequently returned to service by October 2013. The Exco Risk & Sustainability Committee informs the GCE reduction efforts for both GHG and local air pollutants. Komati had an installed capacity of 990MW, and the last and Exco on the progress made in addressing the climate- The preferred pathway has been presented to Board for coal-fired unit of 114MW was shut down in October 2022. Eskom HR has developed a draft 15-year Eskom JET related issues. consideration. The station will serve as the flagship site to demonstrate skills plan to address the internal “just” element, The pathways and scenarios will be benchmarked against Eskom’s JET commitment to shift from coal dependency by ensuring that employees have the required skills We established the JET Office to drive Eskom’s JET activities, to meet our long-term JET vision of net zero four World Energy Outlook scenarios developed by the to producing power through renewable energy on existing to support and implement various technologies. emissions by 2050 with an increase in sustainable jobs. International Energy Agency, namely the Announced Eskom land using existing infrastructure. The final skills plan will incorporate inputs from all The JET Office is responsible for identifying and assessing Pledges Scenario (APS); the Stated Policies Scenario divisions. Various initiatives are to be explored, such as The Komati mitigation plan outlines potential projects JET-related risks and opportunities, controls and treatment (STEPS); the Sustainable Development Scenario (SDS) and partnerships with external experts, funders and training that can be undertaken regionally, locally and at the power plans. These risks and opportunities are directly linked the Net Zero Emissions by 2050 Scenario (NTZ). service providers in preparation for upskilling and station to mitigate against indirect and induced effects training in new industries, such as microgrid assembly. to Eskom’s climate change imperatives. The JET risks of the shutdown. The focus is on job creation, economic Preparations are under way to engage organised labour and progress made on treatment plans and challenges development, diversifying the local economic base and on this plan. are reported monthly to the GCE and the JET Steering strengthening human and social capital, manufactured Committee, which consists of Exco members. capital as well as political capital in the local area. The following principles will be applied to mitigate the We have begun installation of a 500kWp agrivoltaic impact of power station shutdown on Komati’s workforce: (aquaponics and raised bed agricultural solutions) • Transfers to other power stations demonstration plant. An environmental impact assessment • Reskilling and upskilling for deployment to repowered or for a solar PV plant supported by battery storage is in repurposed units progress. In total, 370MW of renewable energy, including • Secondments to other critical projects or operations wind, solar and battery storage, is planned to be deployed. • Other levers such as voluntary separation packages A microgrid assembly and fabrication factory is being set up in the disused Komati workshops. The targeted production capacity is 45 containerised microgrids per year. 118 | | 119 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR INTERACTION WITH THE ENVIRONMENT continued Risk management The results of the carbon footprint study for the 2021 Fugitive emissions, which relate to the incidental release Future focus areas The Enterprise Risk and Resilience Department has calendar year, compared to the 2020 results, are presented or leak of SF6 gas due to the failure or malfunctioning of • Continuing to implement the long-term coal strategy to established risk structures within each division, consisting in the table below: gas-insulated switchgear (GIS) and circuit breakers used in ensure security of coal supply, at an optimal cost of risk owners, risk coordinators and risk and resilience Transmission and Distribution, reduced compared to the GHG emissions by source, 2021 2020 • Pursuing the following high priority levers to support the practitioners. Risk owners are accountable for the prior year. tCO2e calendar year calendar year objectives of the long-term coal strategy: identification, assessment and management of risk, which Scope 1 CDP disclosure o Extending cost-plus contracts to match power is integrated in management processes and evident in decision-making processes and outcomes. Risks are Since 2009, we have voluntarily disclosed our climate stations’ lifespan and utilising the dedicated coal Stationary combustion 207 230 321 201 260 329 classified from Priority I to Priority IV. All Priority I and change performance on the Carbon Disclosure Project reserve for supply to other power station. It includes Eskom fleet 78 138 37 810 emerging risks are reported to Exco and the Board, which (CDP), a global platform for investors, companies, cities, reinvestment in cost-plus mines to enable contractual Fugitive emissions 52 841 73 904 provides oversight as recommended by King IV TM. Waste disposal 3 366 3 820 states and regions to manage their environmental impacts. supply and more, thereby ensuring optimal cost Non-combustion product use 3 12 As in prior years, we submitted a response in 2021 as well of coal and security of coal supply from dedicated For further detail on risk management, refer to “Our strategic as in 2022. sources context – Integrating risk and resilience” from page 45 Scope 2 o Extending existing long-term fixed-price contracts for Electricity and heat purchased1 n/a n/a CDP provides the global financial sector with the most designated power stations, with the option to supply Metrics and targets complete source of self-reported corporate environmental other power stations Eskom’s performance metrics include GHG emissions data Scope 3 data from more than 7 000 of the world’s largest and compliance with legislation. Additional metrics include o Sourcing uncontracted coal for the remaining life of Coal delivery to site 252 743 238 338 companies, in a uniform and comparable manner that is Eskom Factor 1 (total energy sold) and Eskom factor 2 power stations through open tender Use of employee vehicles 6 003 6 669 fully aligned with the TCFD. It considers the impact on (total energy generated). o Striving to move coal as economically as possible, Air travel 937 1 008 and management of climate change, water security and Vehicle rental 1 216 2 225 deforestation related issues. The information is scrutinised leaning towards a tied colliery model delivering coal Refer to “Information on the environmental implications of by investors, corporations and regulators in making by conveyor, with rail and road transportation as less using or saving electricity” on page 153 Total2 207 625 568 201 624 115 informed decisions on investing in particular industries, preferred alternatives Internal carbon dioxide reviews 1. As electricity generation is Eskom’s main activity, scope 2 indirect sectors and countries. • Engaging with DFFE on the MES decision, which has We conduct annual carbon dioxide reviews at all power emissions are in principle accounted for as scope 1 direct emissions significant implications for available capacity, putting under the GHG Protocol. Carbon-based market mechanisms 16 000MW at immediate risk, although Eskom’s stations. Due to COVID-19 lockdown restrictions, the last 2. For coal, an Eskom-specific annual weighted average net calorific value two reviews have been conducted on 30% of the coal-fired There are several carbon-based market mechanisms that subsequent appeal will result in a consultative process of 0.01901TJ/ton fuel was used based on the actual measured value fleet. The purpose of these reviews is to improve the for 2021. operate globally to promote the scale-up of emissions • Driving a combination of interventions, such as integrity of data which is used to calculate annual emissions. 3. Due to different scopes and input assumptions, the results are not reductions. This includes the Clean Development increased training and assurance reviews both at directly comparable with our CO2 emissions reported in the table on Mechanism (CDM), the Gold Standard Foundation, the divisional and corporate level, focused on implementing The reviews involve assessing the processes, systems and page 144. Voluntary Carbon Standard, Joint Implementation and requirements related to atmospheric emissions, incident documentation (such as policies and procedures) and the several others. The CDM is a carbon-offsetting mechanism management, water, waste and biodiversity to assist ISO compliance self-assessment to ensure the value chain The total GHG emissions for 2021 were 207 625 568tCO2e, which is higher than 2020 due to the relaxation of various that is well established nationally and internationally. Its divisions in turning around the negative environmental of data flow has the integrity to yield calculations with a objectives are firstly, to assist developing countries to meet performances, to achieve Zero Harm and to maintain high degree of accuracy. lockdown measures implemented in response to the COVID-19 pandemic, and the consequent increase in their sustainable development agenda; and secondly, to Eskom’s licence to operate GHG emissions electricity generated to meet the higher demand. The assist developed countries to achieve their Kyoto Protocol • Addressing instances of non-compliance and majority of these emissions were caused by the burning emissions targets through a less costly approach by shortcomings to ensure full compliance with licences We submit an annual GHG report to DFFE based on their of fossil fuels at our power stations for the generation developing projects in the developing world. and permits technical guidelines for scope 1 emissions. These are based on the 2006 Intergovernmental Panel on Climate Change of electricity. Coal, diesel and kerosene consumption Eskom has a programme and three registered projects • Leading the Just Energy Transition by using generating (IPCC) GHG Guidelines and 2019 IPCC Refinements. contributed over 99.8% of our GHG emissions. under the CDM to implement the national energy efficient plant approaching the end-of-life, through repurposing lighting programme, known as the compact fluorescent and repowering as alternatives to full decommissioning Our carbon footprint Coal delivery to site is the second biggest source of GHG lamp (CFL) national rollout programme. The Sere wind of power station sites. The priorities are to fast-track A carbon footprint estimates the total GHG emissions emissions. This mainly relates to the transportation of energy facility in the Western Cape is also a registered the repowering project implementation at Komati (including scope 2 and 3) caused by an organisation coal to power stations by third-party trucks. The third CDM project. We continue to explore opportunities of Power Station, and to work with the Presidential Task expressed in tons of carbon dioxide equivalent (tCO2e). This highest source of GHG emissions was Eskom’s fleet – this registering more eligible projects under the CDM. Team to finalise the COP26 financing deal provides insights into the sources and magnitude of GHG relates to fuel consumed by the corporate fleet and heavy emissions and allows us to improve the management thereof. trucks owned by Eskom, as well as Eskom’s helicopters used for power line maintenance and inspections. There We calculated our annual carbon footprint for the 2021 was an increase in travel due to the lifting of the national calendar year, using the same methodology as the carbon COVID-19 travel restrictions. footprint study conducted for 2020. The footprint was calculated in line with the globally recognised GHG Protocol: A Corporate Accounting and Reporting Standard. Since the calculation of our carbon footprint covers a different scope and may utilise different assumptions to the regulated reporting requirements, the results are not directly comparable. 120 | | 121 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information Our people are critical to successfully achieving our mandate and strategic objectives. A high-performance We have completed two rounds of voluntary ethical culture is seen as a key enabler for driving our separation packages (VSPs) for managerial staff, with turnaround plan and our vision of powering growth 259 managerial employees exiting the organisation in sustainably. To deliver on this, effective employee the 2021 financial year. Following engagements with our recognised trade unions (NUM, NUMSA and engagement and performance management, as well as Solidarity) in November 2021, Eskom implemented a enhancing our employee value proposition, are necessary third round of VSPs, which was limited to bargaining OUR to improve employee productivity and morale. unit employees. The process excluded positions We seek to recruit and retain a skilled workforce, as well classified as core, critical or scarce skills to minimise the impact on operations. PEOPLE as develop and source leadership and other critical and scarce skills, by identifying skills gaps, training our people, A total of 252 applications were received, of which maintaining a diversified learner pipeline and enabling talent 161 were approved. Of those, 143 offers were development opportunities. accepted, at a cost of R107 million. The separations We are committed to our value of Zero Harm by are not reflected in the headcount movement promoting safety excellence in all areas. We collaborate below, as employees were required to exit Eskom with organised labour, employees and contractors on on 30 April 2022. To enhance their skills, exiting initiatives that create a safe working environment and employees were offered training in basic welding mitigates safety risks. or workshop management within six months of the date of exit. Our workforce Group headcount stood at 40 421 at year end (2021: 42 749), Our gross staff turnover rate during the past year was including permanent staff and fixed-term contractors. approximately 7.9% (2021: 4.8%). This is higher than the We have achieved a notable reduction in our headcount norm of 4% due to the exit of ERI contractors mentioned over recent years, mainly through natural attrition and, above. The movement in our headcount for the year is to a lesser extent, voluntary separation packages, while shown below. prioritising the retention of critical workforce segments. Number of employees 2022 2021 2020 Contributing most to the decline in the past year is a net reduction of 1 103 fixed-term contractors in Eskom Rotek Headcount at 1 April 42 749 44 772 46 665 Add: Appointments 1 064 157 524 Industries (ERI) due to contracts coming to an end. Less: Resignations1 (2 223) (670) (1 188) Headcount is expected to remain mostly stable over Retirements (755) (824) (960) the next five years, with a target of 40 381 by the 2027 Deaths in service (281) (318) (161) financial year, as we aim to replenish skills lost through Dismissals (129) (96) (127) Absconded (4) (10) (10) natural attrition. Separation packages – (259) – Change in group headcount Other – (3) 29 Highlights Improvements 50 000 Headcount at 31 March 40 421 42 749 44 772 -16.9% • Launched the Eskom Rising campaign to engage 47 500 • Employee benefits costs were successfully contained, 1. The substantial increase in this category is due to a net reduction of 7 312 employees on our turnaround plan -5.4% driven by a reduction in headcount and no or limited 45 000 1 103 fixed-term contractors in ERI during the 2022 financial year. 7 373 • Adopted a hybrid work model to take advantage of the salary increases 42 500 7 007 benefits of remote working • Learner intake targets were achieved, supporting Employee benefit costs amounted to R33 billion 40 000 6 625 • Initiated Eskom’s culture transformation programme to Eskom’s skills pipeline (2021: R32.9 billion) and constitute about 15% 5 731 37 500 of operating costs, remaining the second largest 41 316 drive a shift to a high-performance ethical culture • Commenced with a skills audit to develop a fit-for- 39 292 40 381 35 000 component of operating costs after primary energy 37 765 purpose skills strategy, although the project has 36 124 34 690 experienced delays 32 500 (both coal and IPP expenditure). 30 000 2018 2019 2020 2021 2022 2022 For a discussion of employee benefit costs, refer to Challenges Lowlights Target “Our finances – Other operating costs” on page 78 Eskom ERI • Ensuring an adequately skilled workforce while meeting • Six fatalities recorded among employees and We continue to explore opportunities to contain employee racial, gender and disability transformation targets, given contractors benefit costs and build a more sustainable organisation by financial constraints and headcount targets • No agreement with organised labour on the 2021 controlling headcount and managing overtime. We ensure • Loss of institutional knowledge and risk to succession salary negotiations, requiring arbitration by the CCMA that any decisions around remuneration and benefits are planning due to staff turnover made within the context of our financial challenges. • Low employee morale caused by a lack of incentive While headcount targets are on track and salary increases bonuses in recent years and no or limited salary have been contained, overtime remains a challenge due to the adjustments increasing levels of unplanned maintenance over the past year. • Containing overtime costs given continued poor generating plant performance The composition of our employee benefit costs is set out in • Reducing the number of lost-time incidents, given our note 34 of the consolidated annual financial statements value of Zero Harm 122 | | 123 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR PEOPLE continued The age and divisional breakdown of our workforce at year For information on the racial and gender breakdown of our Regrettably, external training opportunities remain Bargaining unit employees receive a basic salary, which end is shown below. workforce, refer to “Improving internal transformation” limited due to our financial challenges. In response to the includes a thirteenth cheque (referred to as an annual from page 127 COVID-19 pandemic, many training interventions have bonus) as well as other benefits, such as pension, medical % 50 transitioned to online platforms which has also led to some aid, death benefits, as well as housing, cell phone and car Building and retaining strong skills cost savings. There has been increased uptake in further allowances, subject to qualifying criteria. Around 83% 40 Our skills development programme supports the study programmes, with employees obtaining qualifications of our workforce are covered by collective bargaining national objectives of poverty reduction, economic related to their line of work, thereby building skills and agreements with trade unions. 30 transformation and job creation in terms of the National expanding the leadership potential within our workforce. Skills Development Plan 2030. The recruitment of learners Regrettably, we could not come to an agreement with 20 and the management of our learner pipeline aims to Remuneration and benefits organised labour during the 2021 Central Bargaining Forum address the critical skills requirements of Eskom and the Our aim is to attract and retain skilled, high-performing (CBF) negotiations and the matter was referred to the 10 Government. employees and provide market-related remuneration, Commission for Conciliation, Mediation and Arbitration benefits and conditions of service, within the guidelines set (CCMA) for arbitration. While awaiting the outcome of the 0 20–29 30–39 40–49 50–59 60+ Retention and development of skills through a targeted by the shareholder. arbitration, we implemented our final offer of a 1.5% basic employee value proposition is essential to ensure that we increase for bargaining unit employees from 1 July 2021. 2020 2021 2022 have the required skills to meet the organisation’s needs, Managerial employees receive a guaranteed package, In September 2022, the CCMA issued its arbitration award, especially in light of operational challenges and financial including benefits such as medical aid, pension, dread ordering Eskom to provide an additional 1.5% increase, 5 731 (14%) constraints. disease cover, group life and death benefits. In line with backdated to 1 July 2021. This amounts to a total increase the conditions attached to the Government support, no of 3% for the period 1 July 2021 to 30 June 2022. The changing world of work, Just Energy Transition and increases were awarded to managerial employees during 12 049 (30%) 2 429 (6%) evolving energy industry require the reskilling and upskilling the year. of our workforce. In July 2021, we commenced with a skills 987 (3%) audit to determine skills requirements, assess our current skills base, and identify future training and development needs. The skills audit covers all technical roles across 2022 CBF negotiations As such, Eskom employees are prohibited from At the outset of negotiations, many of the trade participating in industrial action. On 24 June 2022, Generation, Transmission and Distribution. Unfortunately, 2 928 (7%) unions’ initial demands were similar to those from we obtained an urgent interdict from the Labour Court. progress has been slow due to low participation by employees; the audit has been extended into the 2023 the 2021 CBF. Regrettably, the unlawful and unprotected industrial 16 297 (40%) financial year and is ongoing. The results of the skills audit action continued, manifesting in acts of harassment, In the first round, Eskom offered a 1.5% increase in basic will aid the development of a fit-for-purpose skills strategy intimidation, sabotage, arson and violence, despite calls salary, effective from 1 July 2022, which was rejected. In that drives the development of future-fit career paths, from both Eskom and trade union leadership to desist Generation Transmission Distribution the second round, Eskom offered 2.7%, 3.7% and 4.7% Group Capital Support functions Subsidiaries redeployment strategies and training interventions. salary adjustments based on an employee’s position from such behaviour and return to work. This action within the overall bargaining unit salary scales. This offer resulted in severe generation supply constraints and Learner pipeline led to implementation of stage 6 loadshedding from Over three-quarters of employees (including direct support Our learner pipeline constituted 1 238 learners at year end was also rejected, with NUMSA and NUM tabling a new demand of 12% – lower than their initial demand of 15% 28 June 2022. staff) are involved in the generation, transmission and (2021: 1 465), including 1 219 technical and 19 non-technical distribution of electricity to customers, with the remainder learners. The learner pipeline represented 3.6% of company – while Solidarity’s demand was CPI plus 2.5%. Engagements were held between Eskom and trade union employed in the new build programme, corporate support headcount, with artisans making up the majority. leadership, and an agreement was reached to return to In the final round of negotiations, Eskom revised its offer functions and our subsidiary ERI, which supports the the CBF negotiations on 1 July 2022. Eskom proposed a to 4%, 4.5% and 5.3% across the various salary scales. electricity business. This was also rejected and a deadlock was reached. final settlement offer, with a 7% increase in basic salary, Eskom declared a dispute with the CCMA on 22 June along with reinstatement of previous conditions of Target Target Target Target Actual Actual Actual 2022 to expedite the resolution of the wage dispute. service. The trade unions accepted the offer on 5 July Measure and unit 2025 2023 2022 met? 2022 2021 2020 2022, bringing an end to the damaging, disruptive and Learner intake: Artisans, number SC 300 100 105 106 – 91 Following the deadlock, we experienced unprotected costly wage dispute. protests at many power stations. The Labour Relations Learner intake: Engineers, number SC 150 50 50 58 – 16 Act, 1995, classifies the generation, distribution, Learner intake: Technicians, number SC 150 50 45 51 – 11 and transmission of electricity as an essential service. Learner intake: Plant operators, number2 n/a n/a 90 120 – n/a Training spend as % of gross employee benefit costs SC 3.75 3.75 3.75 2.70 2.58 3.67 Executive remuneration is discussed under “Governance, Organisational effectiveness leadership and ethics – Remuneration and benefits” on page 63 We aim to drive organisational effectiveness and a sense of 1. The 2025 target for learner intake is the cumulative figure targeted over the next three years. belonging and connectedness to our business by offering 2. No targets are set for plant operators over the next three years. Therefore, targets are shown as not applicable. Given Eskom’s financial results, no performance bonuses a rich employee value proposition (EVP), engaging with have been paid to employees since 2018. Furthermore, Learners on a “workplace integrated learning” programme employees and fostering a high-performance ethical culture. TRAINING SPEND it is a condition of the Government support that no will be exiting Eskom once they have obtained their trade incentive bonus be paid to managerial employees in the In response to the national lockdown, we expanded our test certificates, in line with the agreement to provide R855 million (2021: R820 million) 4% 2022 financial year. EVP to include psychosocial resources and activities to them with the necessary skills and qualifications to be job FURTHER STUDIES help employees and their families adapt to new ways of market ready. 843 employees enrolled (2021: 303), of which 57% Production bonuses of R172 million were awarded to work. Based on feedback from employees, we developed are women qualifying bargaining unit employees during the year. The self- Learning and development a business case to design new working models and take funded production bonus scheme was implemented from Learning and development includes internal and external advantage of the benefits brought about by remote 1 May 2020 to reward qualifying employees, in areas with a training interventions, further studies as well as on-the-job working. A hybrid work model was implemented in direct impact on production, for improved productivity that training for our people. January 2022. results in a financial benefit for Eskom. 124 || | 125 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR PEOPLE continued Health and wellness Improving internal transformation Hybrid work cost and waste reduction, information security and an The health and wellbeing of our people are important to improved user experience We continue to make progress in building a more diverse Our approach to developing a hybrid work model was us, with improved work attendance and productivity as and inclusive workforce that reflects the demographics focused on four key areas: • Real estate and facilities: Optimise our property added benefits. We seek to ensure the early detection of the country. In the medium term, we plan to develop a • Strategy: Design a world of work that aligns to and portfolio and prepare the workplace for hybrid work and prevention of occupational and lifestyle diseases and diversity and inclusivity policy to expand our diversity goals enables our strategic objectives injuries through periodic medical surveillance, fitness-for- beyond race, gender and disability to cultural, generational The adoption of a hybrid work model means that duty assessments and other wellness programmes. and other diversity needs. • People practices: Evolve people practices to enable qualifying employees may apply to work remotely, flexibility and agility; improve safety, health and wellness; with approval subject to operational requirements and Our group and company employment equity performance SICK ABSENTEEISM FREQUENCY RATE encourage innovation; and ultimately, contribute to a the type of work performed. Hybrid workers are still at senior management level, as well as at professional and (SAFR) high-performing workforce required to work from an Eskom site periodically, as middle management levels, is set out in the statistical tables 1.46% against a tolerance of 2.04% (2021: 0.94%) • Digital working environment: Empower the workforce determined by their division. The hybrid work model on page 146 to 149 by maturing digital workplace capabilities leading to aims to contribute to creating a high-performing GROSS SICK ABSENTEEISM RATE (GSAR) workforce by enabling agility, innovation and efficiency. 2.32% against a tolerance of 3.50% (2021: 1.63%) Racial and gender equity at senior management and middle management/professionally qualified levels have shown improvement over the past year, although gender equity Two new talent development programmes are being In February 2022, we launched Eskom’s culture While levels of sick leave have increased with employees requires more focus to meet our targets. The racial and implemented to enhance our EVP, build and retain transformation programme as we embark on one of our returning to the workplace, they remain well within our gender equity breakdown of our workforce is shown below. leadership skills and improve succession planning for most ambitious and challenging transformation journeys yet. tolerance levels. All employees with high SAFR and GSAR general manager and group executive positions as well as rates are referred to Eskom clinics for fitness-for-duty Racial equity by level of employment, % middle and senior management positions. A total of 39 Our 1:1:6:10 culture transformation programme is a key assessments. 100 participants were selected, based on nominations from enabler for delivering a high-performance ethical culture to 90 drive our turnaround plan and power growth sustainably Our employee assistance programme (EAP) offers 80 divisional talent boards; these inaugural talent programmes counselling and various other psychosocial support will run from October 2022 to March 2024, whereafter the through our legally separated businesses. Our cultural 70 aspiration is supported by six cornerstones which should programmes. Mental health and stress-related problems, 60 next cohort will be selected. which have increased during the COVID-19 pandemic, be reflected in everything we do, including how employees 50 93.34 93.58 86.27 86.01 81.82 81.68 are receiving attention through awareness and education 80.96 75.00 Employee engagement initiatives continue to be delivered interact with one another, and with our customers, 40 76.67 75.02 through various platforms, including leadership site visits, suppliers, business partners, key stakeholders and the public. programmes. 30 20 live events, interviews with executives, strategic forums, digital publications and surveys. These all play a key role Effective performance management practices are seen as 10 in rebuilding morale by improving the sense of employees’ increasingly important to enable our aspirational culture 0 Top Senior Middle Skilled Semi-skilled Since the start of the COVID-19 pandemic to connection to the business and one another. We launched and improve employee morale. We are developing an management management management 21 June 2022, Eskom has recorded 11 626 positive and professionals the Eskom Rising campaign, a series of webinars where integrated system of incentives and disincentives, linked cases, comprising 9 535 employees and 2 091 Target Actual Actual almost target executives share details and progress on Eskom’s turnaround to key performance indicators, to deliver on our high- met target (within 5% threshold) contractors, with 11 435 recoveries. Sadly, 161 plan to improve employee understanding and awareness. performance ethical culture. employees and 24 contractors have succumbed to the disease. All affected employees and their families Gender equity by level of employment, % are offered psychosocial support. 50 1:1:6:10 To support the national strategies put in place to curb the spread of COVID-19, we empowered employees with accurate information and made 40 30 accredited vaccination facilities available at major 43.89 43.33 40.27 39.91 Eskom sites. With the relaxation of South Africa’s 36.99 36.10 20 28.08 27.27 lockdown measures in June 2022, our response to 26.28 22.00 the COVID-19 pandemic has been integrated into 10 normal business operations. 0 Top Senior Middle Skilled Semi-skilled management management management Industrial relations and professionals Eskom culture We promote sound and fair labour practices and aim to Target Met target Actual did not meet target transformation programme deal with grievances, suspensions, disciplinary action and Actual almost target (within 5% threshhold) disputes appropriately, to ensure a productive partnership 1 1 6 10 between Eskom, our people and our trade unions. GRIEVANCES Unfortunately, the achievement of transformation targets in some areas are hindered by attrition, limited recruitment Purpose Aspirational Culture Key levers of opportunities and ongoing financial challenges. 268 lodged, with 173 resolved culture cornerstones organisational culture DISCIPLINARY ACTION Powering growth High-performance Accountability Empowerment Technology 964 disciplinary cases, with 175 employees found sustainably culture Operational excellence Governance and ethics Change agility not guilty People prioritisation Teamwork Celebration CCMA DISPUTES Financial prudency Engagement Leadership 52 cases completed, with 37 decided in Eskom’s favour Values-driven culture Wellness Strategy Customer-centricity 126 | | 127 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR PEOPLE continued Proportional representation of persons living with Focus on safety Future focus areas disabilities remains a concern, as they are well represented Our operations are subject to legal, regulatory and IN MEMORIAM • Driving a high-performance ethical culture through Eskom’s at lower occupational levels, but not across all levels. Group licence conditions surrounding occupational health, safety culture transformation programme We offer our sincere condolences to disability equity amounted to 2.94% against a target of 3.3% and environmental compliance. In addition to ensuring • Containing employee benefit costs, in particular overtime the families, friends and colleagues of the (based on the target in the White Paper on the Rights of compliance with statutory requirements, we continue to following people who lost their lives in • Implementing new talent development programmes to Persons with Disabilities). pursue safety initiatives, such as training and awareness, service to Eskom and our customers: build and retain leadership skills and improve succession The overall gender ratio has improved to 66% male and 34% safety assessments and contractor workshops, to address planning safety risks. Employees female employees (2021: 67% and 33%), although our aim • Concluding the skills audit and workforce planning Pieter Willem Coetzer is to achieve 50:50 representation by 2030. Gender equity We use the lost-time injury rate (LTIR) to assess our safety to address operational skills shortages, particularly in Mogaswi Juliet Mokoena in Exco has improved significantly, with five out of the nine performance, together with the number of fatalities among Generation Lazarus Lefa Nyamane Exco members being female. Learning and development employees and contractors. Although our true target is • Reskilling and upskilling staff to enable the Just Energy Alwyn Herculaas Scholtz programmes, ring-fencing of vacancies and initiatives under zero in line with our value of Zero Harm, the LTIR target Transition the Eskom Women Advancement Programme are key to reflected in the table below indicates our tolerance level. Contractors • Developing Eskom’s diversity and inclusivity policy to improving our employment equity performance further. Asenu Marnet Siliya Phiri expand our diversity goals beyond race, gender and Jan Boetijie Sefako disability Target Target Target Target Actual Actual Actual Measure and unit 2025 2023 2022 met? 2022 2021 2020 • Achieving racial, gender and disability equity targets and The main causes of lost-time incidents are falls from the extending the reasonable accommodation of persons living Fatalities (employees and contractors), number – – – 6 11 9 same level, vehicle accidents, and incidents related to being with disabilities Fatalities (public), number – – – 21 20 17 struck by or caught between objects. • Continuing to safeguard the lives of employees and Lost-time injury rate, index (including occupational diseases) A total of 15 occupational disease incidents have been contractors as they perform their duties 0.30 0.30 0.30 0.24 0.22 0.30 – groupSC confirmed for the year (2021: 11). As in the past, these • Adopting data analytics and digitisation to enhance relate mainly to noise-induced hearing loss incidents, employee productivity, reduce costs and improve Sadly, we recorded four employee fatalities (2021: three, restated) and two contractor fatalities (2021: eight) during the year, which account for more than 60% of cases. decision-making despite our commitment to safety. The causes of all fatalities are shown below. Physical threats to our employees and contractors remain a 1 concern, particularly due to community unrest during removal 1 1 of illegal connections and when implementing load reduction. 1 3 We condemn all violent behaviour against our people. Public fatalities are discussed under “Our role in communities – Public safety” on page 133 1 2022 2021 2 2 2 3 Electrical contact Struck by/caught between objects Vehicle accidents Inhalation of fumes Electrical contact Crime-related Falls from heights Vehicle accidents Chemical contact Occupational disease 128 | | 129 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR Social and relationship capital considers our impact on the communities in which we operate as well as our relationships with customers, suppliers, beneficiaries of Eskom’s Reputation Pulse score 100 ROLE IN our electrification and CSI programmes, and the public in general. 50 47.4 46.2 38.0 COMMUNITIES 28.4 29.1 26.9 We understand the significant impact that communities 24.1 20.8 and stakeholder relationships have on our business, and acknowledge that the level of trust in our organisation 0 2014 2015 2016 2017 2018 2019 2020 2022 has dwindled over the past decade. We are striving to improve transparency and enhance our engagement with Weak (40–59) Poor (0–39) stakeholders as we transition to a Just Energy future. No study was undertaken during the 2021 calendar year. The latest study Eskom adds value to the lives of ordinary South Africans was performed in May 2022. through our commercial mandate to supply electricity as well as our developmental responsibilities, by delivering on A company’s reputation affects its social licence to operate, South Africa’s economic empowerment, skills development its ability to attract and retain skills, its access to customers and transformation efforts. We strive to be a customer- and the support it receives from stakeholders. Therefore, centric organisation that delivers world-class customer rebuilding and strengthening the public’s confidence and service, and we are committed to protecting members of trust in Eskom remains one of our key priorities through the public from exposure to the hazards of our operations effective communication and inclusive relationship and infrastructure through education on the safe use of management. electricity. To improve transparency, we have begun hosting regular media briefings on Eskom’s system challenges during Our reputation periods of loadshedding, which have been well received. We participate in an independent Reputation Pulse study We continue to publish current operational, system which scores reputation along seven key drivers, including performance and environmental data through the Eskom products and services, innovation, workplace, governance, Data Portal on our website. Where applicable, historic and citizenship, leadership as well as performance. forecast data are also made available. The latest study shows that our efforts in restoring trust The Eskom Data Portal can be accessed at are starting to bear fruit, leading to an improvement in our www.eskom.co.za/dataportal/ reputation since 2020. All reputation drivers are showing an upward trajectory, with Eskom’s leadership achieving the largest increase, followed by performance, governance and innovation. Highlights Improvements • Regular media briefings on system challenges during • Eskom’s B-BBEE score improved significantly, from periods of loadshedding to enhance transparency level 8 to level 4 • Launched Eskom’s customer chatbot, Alfred, to facilitate • Customer satisfaction improved, although unreliability 24/7 customer service of supply remains a concern for key customers • Commenced a pilot project for repowering and repurposing at Komati Power Station to deliver on the Just Energy Transition • Supplier development and National Industrial Participation Programme targets achieved Challenges Lowlights • Procurement spend with most supplier categories • Eskom’s reputation remains poor, based on the results remains below target, mainly due to the classification of a recent study of IPP procurement spend • Public fatalities remain unacceptably high, with • CSI and electrification programme targets not electrical contact incidents the primary cause achieved 130 | | 131 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information OUR ROLE IN COMMUNITIES continued Customer service performance Electrification With Komati Power Station’s last coal-fired unit having Customer satisfaction is measured using a range of independent perception- and interaction-based customer surveys. These Our most direct socio-economic contribution is the shut down in October 2022, the station offers a unique allow us to better understand and respond to the needs of our customers, which is critical for stimulating sales and improving connection of previously disadvantaged households and opportunity to pilot the repowering and repurposing of a revenue collection. farm dweller houses in our licensed areas of supply through power station on Eskom land using existing infrastructure. DMRE’s electrification programme. Reductions in allocated We have begun the installation of a microgrid assembly Target Target Target Target Actual Actual Actual funding, together with challenges during the national plant as well as an agrivoltaic plant, to demonstrate Measure and unit 2025 2023 2022 met? 2022 2021 2020 lockdown, have led to a decline in new connections over the simultaneous use of land for power generation and Key Customer Delight, % 80.0 80.0 80.0 85.0 86.2 81.5 the past two years. Since 1991, we have connected around agriculture. An environmental impact assessment for a CustomerCare, index 8.5 8.4 8.2 8.9 8.4 8.5 5.9 million households. solar PV plant supported by battery storage is in progress. In total, 370MW of renewable energy – including wind and Corporate social investment solar – and battery storage, is planned to be deployed. Key Customer Delight, which measures the satisfaction Targets for enterprise and supplier development and the The Eskom Development Foundation NPC (the of large industrial customers, continues to perform above National Industrial Participation Programme were achieved Foundation), our wholly-owned subsidiary, is responsible Public safety target. Regrettably, poor generating plant performance is for the year. for delivering CSI initiatives in communities in which we operate. Initiatives focus on improving quality of life We are strongly committed to Zero Harm, which includes impacting reliability of supply, which remains a concern for safety of the public. Sadly, we recorded 21 public fatalities, key customers. Eskom’s latest B-BBEE certificate was issued in October 2021, through enterprise and rural infrastructure development, improving our B-BBEE recognition level to 100% and our skills development, education, social upliftment, health, excluding coal haulage incidents, during the year (2021: 20), CustomerCare measures satisfaction following interaction B-BBEE status from level 8 to level 4 at year end. philanthropy and welfare programmes. with 17 due to electrical contact. with our contact centres. We have exceeded our target Various media platforms are used to educate the public on service levels and are pleased by the positive trend in ESKOM-WIDE During the year, we approved 112 projects, grants and donations to the value of R75.1 million, assisting 785 085 how to use electricity safely and correctly. We conduct customer perception and satisfaction. In 2022, we awarded 1 971 contracts worth R77.6 billion nationwide public safety campaigns, raising awareness about beneficiaries. Unfortunately, COVID-19 restrictions During the year, we launched Alfred, our customer chatbot, Local content of R67.4 billion and financial constraints continued to prevent us from the hazards of illegal connections, overloading electrical and upgraded our telephony system to an interactive voice executing all our planned initiatives. plugs and purchasing prepaid electricity from ghost response system, to facilitate 24/7 service, minimise queues NEW BUILD vendors. Our safety campaigns also encourage the public and reduce waiting times for customers. In 2022, we awarded 129 contracts worth R7.6 billion The Foundation is focusing its efforts on optimising the to report low-hanging power lines, meter tampering and Local content of R4.4 billion value, impact and sustainability of its programmes given vandalism to electrical infrastructure in their communities. prevailing funding constraints. The group and company procurement equity performance is set Future focus areas Alfred makes interactions seamless, fast, socially A selection of our flagship CSI projects is highlighted in Eskom’s out in the non-technical statistical tables on page 146 to 149 sustainability report, which is available online • Restoring our reputation and the public’s confidence and distanced and safe. Alfred allows customers to trust in Eskom log a power interruption in real time and provides Total measured procurement spend (TMPS) for the group on Just Energy Transition feedback on previously reported faults. • Enhancing stakeholder engagement to bring visibility to all active contracts amounted to R176.8 billion for the year, We define our Just Energy Transition as a transition towards strategic issues and thereby influence policy, legislative and Chat to Alfred at of which 75.89% was spent with B-BBEE compliant suppliers a low carbon, climate resilient economy and society in a regulatory reforms to enable Eskom’s strategic intent https://alfred.eskom.co.za/chatroom/ (2021: R155.6 billion, and 64.51%). Procurement spend with manner that results in an increase in sustainable jobs. black-owned and black youth-owned suppliers improved • Enhancing the customer experience further by adapting to Eskom remains committed to customer excellence to 47.08% (2021: 34.60%) and 5.40% (2021: 3.46%) of TMPS Refer to “Strategic direction – Just Energy Transition as a customer needs and continues to seek innovative ways to improve respectively, exceeding their targets of 40% and 2%. thrust to our strategy” from page 38 for additional information • Improving delivery against our electrification and CSI the customer experience. We have great plans for programmes Regrettably, procurement spend targets in the remaining The potential benefits of Eskom’s repowering and Alfred, including additional services for customers. • Increasing procurement spend and supplier development categories were not met due to previously compliant repurposing programme in the Mpumalanga Province are encouraging. The Just Energy Transition will support programmes with designated groups suppliers not renewing their B-BBEE certificates, as well as Our contribution to supplier development workers, communities and the region, while scaling • Engaging with communities, investors and Government on IPP contracts negotiated by DMRE. If IPP expenditure were South Africa’s renewable energy and alternative green Eskom’s Just Energy Transition We aim to support sustainable supplier development, excluded from TMPS, preferential procurement would localisation and industrialisation by leveraging our have improved to approximately 92%, against a target of industries. Our primary focus is to ensure reskilling • Continuing to raise awareness and educate the public on procurement spend to deliver on Government’s policies 75%. We are seeking to resolve the classification of IPP of workers and minimise job losses in communities electricity safety and the hazards of illegal activities and transformation objectives. expenditure with DMRE and the Department of Trade, surrounding these projects. Industry and Competition given the planned growth of the Our contribution to nation building includes supplier RE-IPP Programme. development programmes agreed with the shareholder. Maximising our socio-economic contribution Target Target Target Target Actual Actual Actual Measure and unit 2025 2023 2022 met? 2022 2021 2020 Total electrification connections, number SC 312 835 101 899 99 724 97 947 106 669 163 613 Corporate social investment committed spend, R million SC 400.2 131.0 125.3 75.1 67.4 123.8 Corporate social investment, number of beneficiaries 2 325 000 750 000 700 000 785 085 802 635 1 479 395 1. The 2025 target is the cumulative target over the next three years. 132 | | 133 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information SUPPLEMENTARY ABBREVIATIONS INFORMATION AEL Atmospheric emissions licence LTIR Lost-time injury rate (see glossary) ARC Audit and Risk Committee MES Minimum Emission Standards B-BBEE Broad-based black economic empowerment Mℓ Megalitre = 1 million litres CAGR Compound annual growth rate MOI Memorandum of Incorporation CCMA Council for Conciliation, Mediation and Arbitration mSv Millisievert CFO Chief Financial Officer Mt Million tons COGTA Department of Cooperative Governance and MVA Megavolt-ampere Traditional Affairs MW Megawatt = 1 million watts CSA Coal supply agreement MWh Megawatt-hour = 1 000kWh CSI Corporate social investment MWhSO Megawatt-hour sent out DFFE Department of Forestry, Fisheries and the Environment MYPD Multi-year price determination DFI Development finance institution NDP National Development Plan 2030 DWS Department of Water and Sanitation NERSA National Energy Regulator of South Africa DMRE Department of Mineral Resources and Energy NNR National Nuclear Regulator DoA Delegation of authority OCGT Open-cycle gas turbine (see glossary) DPE Department of Public Enterprises OCLF Other capability loss factor EAF Energy availability factor (see glossary) OEM Original equipment manufacturer EBITDA Earnings before interest, taxation, depreciation and amortisation and fair value adjustments OHS Occupational health and safety ECA Export credit agency PAIA Promotion of Access to Information Act, 2000 ERI Eskom Rotek Industries SOC Ltd PAJA Promotion of Administrative Justice Act, 2000 ESP Electrostatic precipitator PCLF Planned capability loss factor EUF Energy utilisation factor (see glossary) PFMA Public Finance Management Act, 1999 Exco Executive Management Committee PGC People and Governance Committee PPA Power purchase agreement 6 FFP Fabric filter plant WHAT YOU PV (Solar) photovoltaic FGD Flue gas desulphurisation WILL FIND IN RCA Regulatory clearing account GCE Group Chief Executive THIS SECTION RE-IPP Renewable energy independent power producer GCOO Group Chief Operating Officer GDP Gross domestic product RMIPPPP Risk Management Independent Power Producer Abbreviations 135 Customer information, such as Procurement Programme GE Group executive Glossary of terms 136 number of customers, electricity SADC Southern African Development Community 152 sales and revenue per customer GW Gigawatt = 1 000 megawatts Leadership qualifications and SAIDI System average interruption duration index 138 category GWh Gigawatt-hour = 1 000MWh directorships SAIFI System average interruption frequency index Environmental implications of Board and Exco meeting 153 IEA International Energy Agency 141 using or saving electricity SALGA South African Local Government Association attendance IFC Investment and Finance Committee Independent sustainability SAPP Southern African Power Pool Statistical tables: technical and 154 IFRS International Financial Reporting Standards 142 assurance report SARS South African Revenue Service non-technical information Contact details IBC IPP Independent power producer (see glossary) Plant information SCOA Standing Committee on Appropriations • Power station capacities 150 IRP Integrated Resource Plan SCOPA Standing Committee on Public Accounts • Power lines and substations King IV TM King IV Report on Corporate Governance for South 151 SES Social, Ethics and Sustainability Committee in service Africa, 2016 kℓ Kilolitre = 1 000 litres SIU Special Investigating Unit KPI Key performance indicator SOC State-owned company kt Kiloton = 1 000 tons SPU Small power user kV Kilovolt = 1 000 volts TMPS Total measured procurement spend kWh Kilowatt-hour = 1 000 watt-hours (see glossary) UAGS Unplanned automatic grid separations kWhSO Kilowatt-hour sent out UCLF Unplanned capability loss factor (see glossary) LPU Large power user WANO World Association of Nuclear Operators 134 | | 135 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information GLOSSARY OF TERMS Arrear debt as percentage of revenue Gross arrear debt written off (relating to electricity receivables only) divided by gross electricity revenue Independent power producer (IPP) Any entity, other than Eskom, that owns or operates, in whole or in part, one or more independent power multiplied by 100 generation facilities Base-load plant Largely coal-fired and nuclear power stations, designed to operate continuously Kilowatt-hour (kWh) Basic unit of electric energy equal to one kilowatt of power supplied to or taken from an electric circuit steadily for one hour Cash interest cover (ratio) Provides a view of the company’s ability to satisfy the interest burden on its borrowings by utilising cash generated from operating activities. It is calculated as net cash from operating activities divided by net interest Load Amount of electric power delivered or required on a system at any specific point paid (interest paid on financing activities less interest received from financing activities) Load curtailment Typically, larger industrial customers reduce their demand by a specified percentage for the duration of a Current ratio (Inventory plus the current portion of payments made in advance, trade and other receivables and taxation power system emergency. Due to the nature of their business, these customers require two hours’ notification assets) divided by (the current portion of trade and other payables, payments received in advance, provisions, before they can reduce demand employee benefit obligations and taxation liabilities) Load management Activities to influence the level and shape of demand for electricity so that demand conforms to the present Daily peak Maximum amount of energy demanded by consumers in one day supply situation, long-term objectives and constraints Debt/equity including long-term Net financial assets and liabilities plus non-current retirement benefit obligations and non-current provisions Loadshedding Scheduled and controlled power cuts that rotate available capacity between all customers when demand is provisions divided by total equity greater than supply in order to avoid blackouts. Distribution or municipal control rooms open breakers and interrupt load according to predefined schedules Debt service cover (ratio) Cash generated from operations divided by (net interest paid from financing activities plus debt securities and borrowings repaid) Lost-time injury (LTI) A work injury which arises out of and in the course of employment and which renders the injured employee or contractor unable to perform his/her regular/normal work on one or more full calendar days or shifts other Decommission To remove a facility (e.g. reactor) from service and either store it safely or dismantle it than the day or shift on which the injury occurred. It includes occupational diseases and fatalities Demand side management Planning, implementing and monitoring activities to encourage consumers to use electricity more efficiently, Lost-time injury rate (LTIR) Proportional representation of the occurrence of lost-time injuries over 12 months per 200 000 working hours including both the timing and level of demand Major incident An interruption with a severity ≥1 system minute EBITDA margin EBITDA as a percentage of revenue (excluding revenue not recognised due to uncollectability) Maximum demand Highest demand of load within a specified period Electricity operating costs per MWh Electricity-related costs (primary energy costs, employee benefit costs plus net impairment loss and other operating expenses, less other income) divided by total electricity sales in GWh multiplied by 1 000 Non-technical losses Energy losses due to electricity theft through illegal connections, tampering and bypassing of electricity meters as well as the purchase of electricity tokens from unregistered or illegal vendors. It includes meter reading and Electricity revenue per kWh Electricity revenue (including electricity revenue not recognised due to uncollectability) divided by total kWh billing errors sales multiplied by 100 Occupational disease/illness Any confirmed disease/illness arising out of, and in the course of, an employee’s employment, that is listed in Embedded derivative Financial instrument that causes cash flows that would otherwise be required by modifying a contract according Schedule 3 of the Compensation for Occupational Injuries and Diseases (COID) Act, 1993, or any other to a specified variable such as currency condition as determined by an occupational medical practitioner Energy availability factor (EAF) Measure of power station availability, taking account of energy losses not under the control of plant Off-peak Period of relatively low system demand management and internal non-engineering constraints Open-cycle gas turbine (OCGT) Liquid fuel turbine power station that forms part of peak-load plant and runs on kerosene or diesel. Energy efficiency Programmes to reduce energy used by specific end-use devices and systems, typically without affecting services Designed to operate in periods of peak demand provided Outage Period in which a generating unit, transmission line, or other facility is out of service Energy utilisation factor (EUF) Ratio of actual electrical energy produced during a period of time divided by the total available energy capacity. It is a measure of the degree to which the available energy capacity of an electricity supply network is utilised. Peak demand Maximum power used in a given period, traditionally between 7:00 and 10:00 as well as 18:00 to 20:00 in Available energy capacity refers to the capacity after all unavailable energy (planned and unplanned energy summer; and 6:00 to 9:00 as well as 17:00 to 19:00 in winter losses) has been taken into account, and represents the net energy capacity made available to the System Operator or national grid Peaking capacity Generating equipment normally operated only during hours of highest daily, weekly or seasonal loads Fatality A fatality is an incident occurring at work, or arising out of or in connection with the activities of persons at Peak-load plant Gas turbines, hydroelectric or a pumped storage scheme used during periods of peak demand work, or in connection with the use of plant or machinery, in which or in consequence of which, any person Primary energy Energy in natural resources, e.g. coal, diesel, uranium, sunlight, wind and water (an employee, contractor, or member of the public) dies, regardless of the time intervening between the injury and/or exposure to the cause and death. The date of the incident will reflect the date on which the incident Pumped storage scheme A lower and an upper reservoir with a power station/pumping plant between the two. During off-peak periods occurred, irrespective of the date of death the reversible pumps/turbines use electricity to pump water from the lower to the upper reservoir. During periods of peak demand, water runs back into the lower reservoir through the turbines, generating electricity Forced outage Shutdown of a generating unit, transmission line or other facility for emergency reasons or a condition in which generating equipment is unavailable for load due to unanticipated breakdown Reserve margin Difference between net system capability and the system’s maximum load requirements (peak load or peak demand) Free basic electricity Amount of electricity deemed sufficient to provide basic electricity services to a poor household (50kWh per month) Return on assets EBIT divided by the regulated asset base, which is the sum of property, plant and equipment, trade and other receivables, inventory and future fuel, less trade and other payables and deferred income Free funds from operations Cash generated from operations adjusted for working capital System minutes Global benchmark for measuring the severity of interruptions to customers. One system minute is equivalent Gross debt Debt securities and borrowings plus finance lease liabilities plus the after-tax effect of provisions and employee to the loss of the entire system for one minute at annual peak. A major incident is an interruption with a benefit obligations severity ≥1 system minute Gross debt/EBITDA ratio Gross debt divided by earnings before interest, taxation, depreciation, amortisation and fair value adjustments Technical losses Naturally occurring losses that depend on the power systems used Independent non-executive director A director who: Unit capability factor (UCF) Measure of availability of a generating unit, indicating how well it is operated and maintained • Is not a full-time salaried employee of the company or its subsidiary • Is not a shareholder representative Unplanned capability loss factor (UCLF) Energy losses due to outages are considered unplanned when a power station unit has to be taken out of • Has not been employed by the company and is not a member of the immediate family of an individual who is or has service and it is not scheduled at least four weeks in advance been, in any of the past three financial years, employed by the company in any executive capacity Used nuclear fuel Nuclear fuel irradiated in and permanently removed from a nuclear reactor. Used nuclear fuel is stored on site • Is not a professional advisor to the company in used fuel pools or storage casks • Is not a significant supplier or customer of the company • Is not receiving remuneration contingent on the performance of the company Watt The watt is the International System of Units’ (SI) standard unit of power. It specifies the rate at which electrical energy is dissipated (energy per unit of time) 136 | | 137 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information LEADERSHIP QUALIFICATIONS AND DIRECTORSHIPS Board of Directors Board of Directors continued Executive Management Committee at 31 March 2022 at 31 March 2022 at 31 March 2022 Prof. Malegapuru (MW) Makgoba (69) Dr Rod (RdeB) Crompton (69) Dr Pulane (PE) Molokwane (45) Mr André (AM) de Ruyter (54) Interim Chairman Independent non-executive director Independent non-executive director Group Chief Executive Independent non-executive director Appointed to Board in January 2018 Appointed to Board in June 2017 Appointed to Exco in January 2020 Appointed to Board in December 2017 Qualifications Qualifications 2 years in Eskom Qualifications BA (University of Natal) B Sc Physics and Chemistry (University of North-West) Qualifications MB ChB (University of Natal) Diploma in Higher Education (University of Natal) Postgraduate Diploma in Applied Radiation Science and BA (Hons) (University of Natal) BA English and Psychology (University of Pretoria) D Phil (University of Oxford) Technology (University of North-West) Ph D Humanities (University of Natal) B Civil Law (University of Pretoria) Fellowship of the Royal College of Physicians of London M Sc Applied Radiation Science and Technology LLB (Unisa) Fellow of the College of Physicians of South Africa (ad eundem) Skills (University of North-West) MBA (Nyenrode University) Fellow of the Royal Society of South Africa Ph D Chemical Technology – Environmental Engineering Commerce and industry Skills Member of the Academy of Science of South Africa (University of Pretoria) Finance, accounting and economics Advanced Management Program (INSEAD) Pr Sci Nat (South African Council of Natural Scientific Professions) Commerce and industry Order of Mapungubwe in Silver Directorships Legal, governance and risk management Skills Skills South African National Energy Association (SANEA) Finance, accounting and economics Science, engineering and technology Council Member of the South Africa Association for Science, engineering and technology Directorships Directorships Energy Economics (SAAEE) Legal, governance and risk management National Transmission Company South Africa SOC Ltd Social and human sciences Endulo Resources (Pty) Ltd Litestone Mzansi (Pty) Ltd Directorships Dr Banothile (BCE) Makhubela (37) Nzuri Resources (Pty) Ltd Independent non-executive director Mr Calib (C) Cassim (50) None Oloenviron (Pty) Ltd Appointed to Board in June 2017 Chief Financial Officer Pulane Murimba Trust Qualifications Priority Performance Projects (Pty) Ltd Appointed to Exco in July 2017 Mr André (AM) de Ruyter (54) B Sc (University of Zululand) Tinungu (Pty) Ltd 20 years in Eskom Group Chief Executive B Sc (Hons) Chemistry (University of Cape Town) Qualifications Executive director M Sc Chemistry (University of Cape Town) Appointed to Board in January 2020 Prof. Tshepo (TH) Mongalo (48) B Com (University of Natal) Ph D Chemistry (University of Cape Town) Qualifications Independent non-executive director B Accounting Sciences (Unisa) Skills Appointed to Board in December 2017 Chartered Accountant (SA) BA English and Psychology (University of Pretoria) Science, engineering and technology Qualifications Master of Business Leadership (Unisa) B Civil Law (University of Pretoria) LLB (Unisa) Directorships B Proc (University of Natal) Skills MBA (Nyenrode University) Chemical Industry Education and Training Authority (CHIETA) LLB (University of Natal) Commerce and industry Skills MJW Construction (Pty) Ltd LLM Commercial Law (University of Cambridge) Finance, accounting and economics Plero (Pty) Ltd Ph D Commercial Law (University of Cape Town) Commerce and industry Directorships Ukhulile Khubela General Trading (Pty) Ltd Postgraduate Diploma in Higher Education (University of Witwatersrand) Legal, governance and risk management Escap SOC Ltd Finance, accounting and economics Skills Eskom Enterprises SOC Ltd Directorships Ms Busiswe (B) Mavuso (43) Commerce and industry Eskom Finance Company SOC Ltd Independent non-executive director Legal, governance and risk management National Transmission Company South Africa SOC Ltd National Transmission Company South Africa SOC Ltd Social and human sciences Appointed to Board in January 2018 Qualifications Directorships Mr Calib (C) Cassim (50) Mr Jan (JA) Oberholzer (63) B Compt (Unisa) Bolemo Kgango Enterprises (Pty) Ltd Group Chief Operating Officer Chief Financial Officer Postgraduate Diploma in Management (GIBS) Effective Drafting Solutions (Pty) Ltd Executive director Appointed to Exco in July 2018 Master of Business Leadership (Unisa) Hope City Investment (Pty) Ltd Appointed to Board in July 2017 29 years in Eskom (including from 1983 to 2008) Association of Chartered Certified Accountants (ACCA) Men of Truth NPC Qualifications Novalex Holdings Ltd Qualifications Skills B Com (University of Natal) Pholo Mohau Property Investment Trust B Sc Electrical Engineering (University of Pretoria) Finance, accounting and economics Tong-Mongalo Corporate Services cc B Accounting Sciences (Unisa) Master of Business Leadership (Unisa) Chartered Accountant (SA) Directorships Executive Program (University of Michigan) Master of Business Leadership (Unisa) Business Leadership of South Africa NPC (BLSA) Skills Skills Business Unity South Africa NPC (BUSA) Nsilingwane Investments (Pty) Ltd Science, engineering and technology Commerce and industry Commerce and industry Resultant Finance (Pty) Ltd Finance, accounting and economics Directorships Directorships Eskom Enterprises SOC Ltd Escap SOC Ltd Eskom Rotek Industries SOC Ltd Eskom Enterprises SOC Ltd Jafram Projects (Pty) Ltd Eskom Finance Company SOC Ltd Wild Senna Investments (Pty) Ltd National Transmission Company South Africa SOC Ltd Ages are shown at 31 March 2022. Only active directorships are reflected. 138 | | 139 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information LEADERSHIP QUALIFICATIONS AND DIRECTORSHIPS continued BOARD AND EXCO MEETING ATTENDANCE Ms Faith (FS) Burn (53) Ms Elsie (EM) Pule (54) Attendance at Board and committee meetings Chief Information Officer Group Executive: Human Resources for the year ended 31 March 2022 Appointed to Exco in May 2020 Appointed to Exco in November 2014 1 year in Eskom 24 years in Eskom Investment Social, Ethics Board Qualifications Qualifications Audit and People and and Strategy Members Board and Risk Finance Governance Sustainability Committee B Sc Mathematics and Computer Science BA Social Work (University of the North) (University of Johannesburg) BA (Hons) Psychology (University of Pretoria) Total number of meetings 10 10 10 4 5 5 B Sc (Hons) Mathematics (University of Johannesburg) M Sc Business Engineering (Warwick University) M Sc Mathematics (University of Johannesburg) Current directors Skills Master of Business Leadership (Unisa) Certified Internal Auditor (CIA) Social and human sciences Non-executive directors Skills Directorships Prof. Malegapuru Makgoba (Interim Chairman) 10/10* 2/4 4/5 5/5 Science, engineering and technology Eskom Finance Company SOC Ltd Legal, governance and risk management Eskom Rotek Industries SOC Ltd Dr Rod Crompton 9/10 9/10 5/5* Directorships Dr Banothile Makhubela 8/10 9/10 4/5* Hlahlamelisa International Ministry NPC Ms Jainthree (J) Sankar (50) Kingdom Consultant Center NPC Chief Procurement Officer Ms Busisiwe Mavuso 8/10 9/10* 4/4 South African National Blood Services NPC (SANBS) Appointed to Exco in March 2021 Dr Pulane Molokwane 10/10 10/10* 4/5 28 years in Eskom Prof. Tshepo Mongalo 10/10 7/10 4/4* Ms Mel (M) Govender (40) Qualifications Group Executive: Legal and Compliance B Com (Unisa) Executive directors Appointed to Exco in October 2021 B Com (Hons) Business (Unisa) National Diploma in Electrical Engineering (Durban University of Mr André de Ruyter 10/10 <7/10> <7/10> <3/4> <3/5> <2/5> <1 year in Eskom Technology) Qualifications MBA Sustainable Business (University of Southern Queensland) Mr Calib Cassim 10/10 <10/10> <9/10> <3/4> <4/5> LLB (University of KwaZulu-Natal) Master of Project Management (University of Southern Queensland) Previous directors Skills Skills Ms Nelisiwe Magubane 4/5 5/5 2/3 Legal, governance and risk management Science, engineering and technology Directorships Commerce and industry Social and human sciences Attendance as reflected above refers to directors who were members of that committee during the year to 31 March 2022 and reflects changes in committee None composition during the year. Directorships * denotes the chairmanship of the Board or committee at 31 March 2022. None Ms Nthato (N) Minyuku (43) <> denotes meetings attended as an official. Group Executive: Government and Regulatory Affairs Mr Vuyolwethu (V) Tuku (46) Attendance at Exco meetings Appointed to Exco in October 2020 Group Executive: for the year ended 31 March 2022 Transformation Management Office 1 year in Eskom Appointed to Exco in July 2020 Number of Qualifications 1 year in Eskom meetings B Architectural Studies (University of Witwatersrand) Members Divisional responsibility attended Master of City Planning and Urban Design (University of Cape Town) Qualifications Leadership in Context (GIBS) B Sc Electrical Engineering (University of Cape Town) Total number of meetings 16 Skills MBA (University of Witwatersrand) Current executives Science, engineering and technology Skills Commerce and industry Science, engineering and technology Mr André de Ruyter Group Chief Executive 14/16 Legal, governance and risk management Commerce and industry Social and human sciences Finance, accounting and economics Mr Calib Cassim Chief Financial Officer 16/16 Directorships Directorships Mr Jan Oberholzer Group Chief Operating Officer 13/16 South African Maritime Safety Authority Genesis Strategy Partners Ms Faith Burn Chief Information Officer 16/16 Ms Mel Govender Group Executive: Legal and Compliance 7/9 Ms Nthato Minyuku Group Executive: Government and Regulatory Affairs 14/16 Ms Elsie Pule Group Executive: Human Resources 15/16 Ms Jainthree Sankar Chief Procurement Officer 15/16 Ages are shown at 31 March 2022. Only active directorships are reflected. Mr Vuyolwethu Tuku Group Executive: Transformation Management Office 14/16 Previous executives Ms Nerina Otto Acting Group Executive: Legal and Compliance 7/7 140 | | 141 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information TECHNICAL STATISTICS Measure and unit 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Customer statistics Arrear debt as % of revenue, % 3.91 3.24 3.69 4.30 RA 2.73RA 2.42 1.14 2.17 1.10 0.82 Debtors days – municipalities, average debtors days 149.6 140.7 116.1 94.3RA 76.6RA 53.3RA 42.9 47.6 32.7 22.4 Debtors days – large power top customers excluding disputes, average debtors days 14.6 15.0 14.6 13.5RA 13.9 RA 15.3RA 15.5 16.8 14.5 12.3 Debtors days – other large power users (<100 GWh p.a.), average debtors days 17.5 17.5 17.0 17.2RA 16.6RA 16.8 RA 16.2 17.0 16.9 18.3 Debtors days – small power users (excluding Soweto), average debtors days 47.7 50.1 44.1 42.6RA 43.4 RA 48.8 RA 48.2 49.1 50.2 48.2 Key Customer Delight, %1 85.0 86.2 81.5 81.7 79.5 107.0 104.3RA 108.7 108.7 105.8 CustomerCare, index 8.9 8.4 8.5 8.5 9.9 9.8 8.4 8.0 8.3 8.4 Sales and revenue Total sales, GWh2 198 281 191 852 205 635 208 319 212 190 214 121 214 487 216 274 217 903 216 561 (Reduction)/growth in GWh sales, % 3.4 (6.7) (1.3) (1.8) (0.9) (0.2) (0.8) (0.7) 0.6 (3.7) Electricity revenue, R million 243 387 202 644 197 307 177 312 174 905 175 094 161 688 146 268 136 869 126 663 Growth in revenue, % 20.1 2.7 11.3 1.4 (0.1) 8.3 10.5 6.9 8.1 12.1 Electricity output Power sent out by Eskom stations, GWh (net) 205 688 201 400 214 968 218 939 221 936 220 166 219 979 226 300 231 129 232 749 Coal-fired stations, GWh (net) 184 568 183 553 194 357 200 210 202 106 200 893 199 888 204 838 209 483 214 807 Hydroelectric stations, GWh (net) 1 943 1 387 688 1 029 709 579 688 851 1 036 1 077 Pumped storage stations, GWh (net) 4 743 4 795 5 060 4 590 4 479 3 294 2 919 3 107 2 881 3 006 Gas turbine stations, GWh (net) 1 826 1 457 1 328 1 202 118 29 3 936 3 709 3 621 1 904 Wind energy, GWh (net) 253 305 283 328 331 345 311 1 2 1 Nuclear power station, GWh (net) 12 355 9 903 13 252 11 580 14 193 15 026 12 237 13 794 14 106 11 954 IPP purchases, GWh 15 973 13 526 11 958 11 344 9 584 11 529 9 033 6 022 3 671 3 516 Wheeling, GWh3 2 499 2 310 2 491 2 750 2 266 2 910 3 930 3 623 3 353 2 948 Energy imports from SADC countries, GWh3 8 500 8 812 8 568 7 355 7 731 7 418 9 703 10 731 9 425 7 698 Total electricity available (generated by Eskom and purchased), GWh2 232 660 226 048 237 985 240 388 241 517 242 023 242 645 246 676 247 578 246 911 Consumed by pumped storage stations, GWh4 (6 434) (6 625) (6 629) (5 981) (6 031) (4 808) (4 046) (4 114) (3 862) (4 037) Total available for distribution, GWh 226 226 219 423 231 356 234 407 235 486 237 215 238 599 242 562 243 716 242 874 Supply and demand Total Eskom power station capacity – installed, MW 51 866 51 115 49 517 48 029 48 039 46 407 45 075 44 281 44 189 44 206 Total Eskom power station capacity – nominal, MW 47 145 46 466 45 117 44 172 45 561 44 134 42 810 42 090 41 995 41 919 Total IPP power station capacity – nominal, MW 6 831 6 083 5 206 4 981 4 779 5 027 3 392 2 606 1 677 1 135 Peak demand on integrated Eskom system, MW 31 953 31 470 32 948 34 256 35 301 34 122 33 345 34 768 34 977 35 525 Peak demand on integrated Eskom system, including load reductions and non-Eskom generation, MW 35 005 34 155 34 510 35 345 35 613 34 913 34 481 36 170 36 002 36 345 National rotational loadshedding Yes Yes Yes Yes No No Yes Yes Yes RA NoRA Asset creation Generation capacity installed and commissioned, MW 794 RA 1 598 RA 1 588 RA 0 RA 2 387RA 1 332RA 794 RA 100 RA 120 RA 261RA Transmission lines installed, km 180.5RA 65.6RA 127.9 RA 378.7RA 722.3RA 585.4 RA 345.8 RA 318.6RA 810.9 RA 787.1RA Substation capacity installed and commissioned, MVA 1 065RA 750 RA 250 RA 540 RA 2 510 RA 2 300 RA 2 435RA 2 090 RA 3 790 RA 3 580 RA Total capital expenditure – group (excluding capitalised borrowing costs), R billion 30.2 23.9 23.4 RA 33.9 48.0 60.0 57.4 53.1RA 59.8 RA 60.1 Safety Employee lost-time injury rate (LTIR) – group, index6, 7 0.24 RA 0.22RA 0.30 RA 0.31RA 0.24 0.39 0.30 0.33 0.31 – Fatalities (employees and contractors), number 8 6 11 9 7 14 10 17 10 23RA 19 RA Employee fatalities, number 8 4 3 – 3 3 4 4 3 5RA 3RA Contractor fatalities, number 2 8 9 4 11 6 13 7 18 RA 16RA Plant performance Energy availability factor (EAF), %9 62.02 RA 64.19 RA 66.64 RA 69.95RA 78.00 RA 77.30 RA 71.07RA 73.73RA 75.13RA 77.65RA Planned capability loss factor (PCLF), %9 10.23RA 12.26RA 8.92RA 10.18 RA 10.35RA 12.14 RA 12.99 9.91RA 10.50 RA 9.10 Unplanned capability loss factor (UCLF), %9 25.35 20.04 22.86 18.31 10.18 9.90 14.91RA 15.22RA 12.61RA 12.12RA Other capability loss factor (OCLF), %9 2.40 3.51 1.58 1.56 1.47 0.66 1.03 1.14 1.76 1.13 Unit capability factor (UCF), %9 64.42 67.70 68.22 71.51 79.47 78.00 72.10 74.87 76.90 RA 78.80 RA Generation load factor, %9 49.5 49.0 52.6 54.4 55.9 57.9 58.8 61.5 62.8 63.6 OCGT load factor trend, % 8.7 6.9 6.3 5.7 0.6 0.1 18.6 17.6 19.3RA 10.4 RA Unplanned automatic grid separations (UAGS trips), number 9 697RA 527RA 594 RA 517 333 444 469 575 527 409 Integrated Eskom system load factor (EUF), %9 79.8 76.3 79.0 77.8 71.6 75.0 82.7 83.4 83.6 81.9 1. These measures were introduced in 2020 and are calculated on a 12-month moving average. Prior to 2020, the comparatives are for Eskom KeyCare and 6. The employee LTIR includes occupational diseases and fatalities. Enhanced MaxiCare. 7. Prior to 2014, only company numbers were reported. From 2020, only group numbers are reported. 2. The difference between electricity available for distribution and electricity sold is due to energy losses. 8. A Generation employee was diagnosed with an occupational disease and passed away in the 2021 financial year. Confirmation that the fatality was a result 3. Prior to 2010, wheeling was combined with the total imported for the Eskom system. of an occupational disease was only received in the 2022 financial year. The figures for 2021 have been restated to include this fatality. 4. Used by Eskom for pumped storage facilities and synchronous condenser mode of operation. 9. Medupi Units 2, 3, 4, 5 and 6 as well as Kusile Units 1 and 2, having completed their first year after commissioning, have been included in the calculation 5. The Integrated Demand Management programme is on hold since 2020. of KPIs for 2022. The calculation of KPIs only include units one year after achieving commercial operation and exclude units synchronised but not yet in commercial operation. RA Reasonable assurance provided by the independent assurance provider. Refer to page 154 to 156 of the integrated report. 142 | | 143 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information TECHNICAL STATISTICS continued Measure and unit 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Primary energy Coal stock, days 76RA 82 81 67 68 74 58 51 44 RA 46RA Road-to-rail migration (additional tonnage transported on rail), Mt 2.5RA 3.6RA 7.5RA 8.2RA 11.6Q 13.2Q 13.6RA 12.6RA 11.6RA 10.1RA Coal purchased, Mt 108.7 110.0 119.3 118.3 115.3 120.3 118.7 121.7 122.0 126.4 Coal burnt, Mt 110.3 104.9 108.6 113.8 115.5 113.7 114.8 119.2 122.4 123.0 Average calorific value, MJ/kg 19.64 19.82 19.08 19.24 19.81 20.05 19.57 19.68 19.77 19.76 Average ash content, % 31.39 31.24 29.65 30.98 30.92 28.62 28.19 27.63 28.56 28.69 Average sulphur content, % 0.83 0.82 0.78 0.84 0.87 0.84 1.07 0.80 0.87 0.88 Overall thermal efficiency, %1 30.05 30.61 30.65 30.99 31.22 31.20 31.08 31.44 31.30 32.00 Diesel and kerosene usage for OCGTs, Mℓ 580.4 458.7 426.2 385.0 37.8 10.0 1 247.8 1 178.6 1 148.5RA 609.7RA Network performance Total system minutes lost for events <1, minutes 2.88 RA 3.48 RA 4.36RA 3.16RA 2.09 RA 3.80 2.41RA 2.85RA 3.05RA 3.52RA Major incidents, number 2 2 3 3 0 0 1 2 0 RA 3RA System average interruption frequency index (SAIFI), events2 12.3RA 13.2RA 14.4 RA 14.9 RA 17.5RA 18.9 20.5RA 19.7RA 20.2RA 22.2RA System average interruption duration index (SAIDI), hours2 35.5RA 35.4 RA 36.9 RA 38.0 RA 34.9 RA 38.9 38.6RA 36.2RA 37.0 RA 41.9 RA Total energy losses, % 10.9 11.8 9.9 9.7 9.1 8.9 8.6 8.8 8.9 9.1 Transmission energy losses, % 2.3 2.3 2.2 2.2 2.0 2.2 2.6 2.5 2.3RA 2.8 RA Distribution energy losses, % 9.6RA 10.1RA 8.8 RA 8.5RA 7.7RA 7.6RA 6.4 6.8 7.1RA 7.1RA Environmental statistics Emissions Relative particulate emissions, kg/MWh sent out 3, 4 0.34 RA 0.38 Q 0.47RA 0.47RA 0.27RA 0.30 RA 0.36RA 0.37RA 0.35RA 0.35RA Carbon dioxide (CO2), Mt 3 207.2 RA 206.8 RA 213.2RA 220.9 RA 205.5RA 211.1RA 215.6RA 223.4 233.3RA 227.9 RA Sulphur dioxide (SO2), kt 3 1 671 1 604 1 721 1 853 1 802 1 766 1 699 1 834 1 975RA 1 843RA Nitrous oxide (N2O), t 3 1 561 1 527 2 826 2 844 2 642 2 782 2 757 2 919 2 969 RA 2 980 Nitrogen oxide (NO x) as NO2 , kt 5 822 804 851 890 859 885 893 937 954 RA 965RA Particulate emissions, kt 66.65 71.35 94.92 99.87 57.13 65.13 78.37 82.34 78.92RA 80.68 RA Water Specific water consumption, ℓ/kWh sent out1 1.45RA 1.42RA 1.42RA 1.41RA 1.30 RA 1.42RA 1.44 RA 1.38 RA 1.35RA 1.42RA Net raw water consumption, Mℓ1 283 610 270 736 286 553 292 344 276 335 307 269 314 685 313 078 317 052 334 275 Waste Ash produced, Mt 32.90 30.84 32.04 33.23 31.65 32.61 32.59 34.41 34.97RA 35.30 RA Ash sold, Mt 2.8 3.1 2.9 2.8 2.7 2.8 2.7 2.5 2.4 2.4 Ash (recycled), % 11.0 10.1 9.1 8.4 8.6 8.5 8.3 7.3 7.0 RA 6.8 RA Asbestos disposed, tons 39.5 22 475.8 59.8 464.1 144.9 383.0 274.5 991.0 458.0 374.6 Material containing polychlorinated biphenyls thermally destroyed, tons 46.5 134.3 238.3 43.1 26.3 61.9 59.8 0.0 10.2 0.9 Nuclear Public individual radiation exposure due to effluents, mSv6 0.0010 0.0014 0.0004 0.0026 0.0012 0.0005 0.0006 0.0010 0.0012 0.0019 Low-level radioactive waste generated (steel drum), cubic metres 158.9 147.6 159.3 188.3 164.2 162.9 176.1 164.1 180.7RA 188.2RA Low-level radioactive waste disposed of, cubic metres 98.1 117.0 98.3 99.0 118.8 108.0 213.1 377.6 324.0 RA 54.0 RA Intermediate-level radioactive waste generated (concrete drum), cubic metres 34.2 31.2 22.3 20.8 20.8 11.4 33.4 27.6 28.7RA 35.7RA Intermediate-level radioactive waste disposed of, cubic metres 88 18 38 0 0 0 0 138 178 RA 0 RA Used nuclear fuel, number of elements discharged7 56 116 48 56 116 60 56 112 48 56 Used nuclear fuel, number of elements discharged, cumulative figure 2 681 2 625 2 509 2 461 2 405 2 289 2 229 2 173 2 061 2 013 Legal contraventions Environmental legal contraventions, number 8 65 81 59 24 30 29 20 20 34 RA 48 Environmental legal contraventions reported as a result of significant failure of business systems, 7 7 5 2 2 0 1 1 2RA 2 number 9 1. Only power stations where all units have achieved commercial operation are included in the calculation. Therefore, Medupi and Kusile Power Stations are 7. The gross mass of a nuclear fuel element is approximately 670kg, with Uranium mass typically between 462kg and 464kg. excluded from this KPI. 8. An incident at Tutuka Power Station which occurred in the 2021 financial year was finalised in the current year. The figure for 2021 has been restated. 2. SAIDI and SAIFI are reported after allowing for exclusions defined in the National Regulated Standards adopted from 1 April 2018. 9. Prior to 2022, referred to as “legal contraventions reported in terms of the Operational Health Dashboard”. 3. Calculated figures based on coal characteristics and power station design parameters based on coal analysis and using coal burnt tonnages. Figures include RA Reasonable assurance provided by the independent assurance provider. Refer to page 154 to 156 of the integrated report. coal-fired and gas turbine power stations, as well as oil consumed during power station start-ups and, for carbon dioxide emissions, includes the Q Qualified by the independent assurance provider. underground coal gasification pilot plant. 4. At power stations with unusually high particulate emission levels, such as Kendal Power Station, the monitors often exceed their maximum limits. In instances where these ranges are exceeded, particulate emissions will be reported at the maximum of the monitor range. From February 2019, it is possible that actual emissions exceeded reported emissions based on measurements. 5. NO x reported as NO2 is calculated using average station-specific emission factors (which are measured intermittently) and tonnages of coal burnt. 6. The limit set by the National Nuclear Regulator is ≤ 0.25mSv. 144 | | 145 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information NON-TECHNICAL STATISTICS: GROUP Measure and unit 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Finance 1 Electricity operating costs, R/MWh 979.45 895.05 791.04 712.87 622.41 651.98 617.02 587.97 528.70 495.31 EBITDA margin, % 21.25 15.96 18.46 17.46 25.57 21.19 20.29 16.54 17.23 16.98 EBITDA, R million 52 374 RA 32 608 RA 36 816RA 31 417 45 359 37 532 32 811 24 186 23 586 21 511 Cash interest cover, ratio 1.68 RA 0.85RA 0.94 RA 0.94 1.22 1.73 1.73 1.75 2.15 3.84 Debt service cover, ratio 0.76RA 0.30 RA 0.52RA 0.47 0.87 1.37 1.14 0.91 1.24 1.93 Current ratio 0.90 0.95 0.82 1.00 1.03 0.85 0.83 0.81 0.71 0.68 Gross debt/EBITDA, ratio 8.63 13.98 14.43 15.73 9.74 10.84 10.95 13.60 11.77 10.48 Debt/equity (including long-term provisions), ratio 1.82 2.04 2.44 3.17 2.58 2.11 1.65 2.50 2.00 1.84 Gearing, % 65 67 71 76 72 68 62 71 67 65 Free funds from operations, R million 63 215 42 972 41 120 29 047 40 022 47 571 39 443 36 179 31 158 25 277 Free funds from operations after net interest paid, R million 31 324 6 496 2 606 (5 940) 9 147 21 148 17 927 20 564 20 139 18 074 Free funds from operations as % of gross debt, % 13.98 9.42 7.74 5.88 9.06 11.69 10.98 11.00 11.22 11.22 Building skills Headcount (including fixed-term contractors) 40 421 42 749 44 772 46 665 48 628 47 658 47 978 46 491 46 919 47 295 Transformation Socio-economic contribution Corporate social investment committed spend, R million 75.1RA 67.4 RA 123.8 RA 132.4 Q 192.0 RA 225.3 103.6 115.5 132.9 RA 194.3RA Corporate social investment, number of beneficiaries 785 085 802 635 1 479 395 933 139 1 116 044 841 845 302 736 323 882 357 443RA 652 347RA Procurement equity B-BBEE attributable expenditure, R billion 134.2 100.4 101.7 84.5 102.3 127.7 125.0 116.0 119.4 RA 96.0 RA Black-owned expenditure, R billion 83.2 53.8 46.9 52.1 57.6 53.9 52.9 49.4 45.8 RA – Black women-owned expenditure, R billion 16.4 19.0 15.6 18.8 20.9 19.4 30.8 9.3 9.8 RA 6.0 RA Black youth-owned expenditure, R billion 9.5 5.4 4.1 3.5 3.9 2.0 1.4 0.9 1.3RA – Procurement from B-BBEE compliant suppliers, %2 75.89 64.51 65.97 58.66 80.25 98.25 81.65 89.39 91.80 RA 82.10 RA Procurement from black-owned (BO) suppliers, % 47.08 34.60 30.38 36.17 45.20 41.49 33.61 34.41 35.30 RA – Procurement from black women-owned (BWO) suppliers, % 9.26 12.24 10.10 13.07 16.41 14.92 19.30 6.49 7.50 RA 5.10 RA Procurement from black youth-owned (BYO) suppliers, % 5.40 3.46 2.65 2.41 3.05 1.52 0.94 0.63 1.00 RA – Procurement spend with suppliers owned by black people living with disability (BPwD), % of TMPS 0.16 0.22 0.17 0.22 0.20 0.02 0.01 0.00 0.00 – Procurement spend with qualifying small enterprises (QSE), % of TMPS 4.91 4.29 4.08 5.17 8.86 8.91 4.62 6.75 15.09 – Procurement spend with exempted micro enterprises (EME), % of TMPS 7.88 8.07 9.77 14.01 10.21 11.24 5.89 5.78 – – Employment equity Disabilities, number of employees 1 188 1 252 1 348 1 416 1 441 1 396 1 311 1 325 1 305RA 1 137RA Employment equity – disability, % 2.94 2.93 3.01 3.03 2.96 2.93 2.73 2.89 2.77RA 2.43RA Racial equity in senior management, % black employees 76.67 73.72 71.00 69.80 68.31 65.80 61.06 61.70 59.30 RA 58.40 Racial equity in professionals and middle management, % black employees 81.68 80.10 78.04 76.22 75.27 73.50 71.68 71.77 70.60 RA 69.00 Gender equity in senior management, % female employees 43.33 41.99 41.73 39.85 38.20 36.58 28.13 29.82 28.80 RA 28.50 Gender equity in professionals and middle management, % female employees 39.91 38.95 38.24 37.89 37.47 35.98 35.11 35.29 34.90 RA 34.00 1. Ratios impacted by the restatements in the annual financial statements were restated where possible. 2. This measure was renamed to “Preferential procurement” in the shareholder compact from 2020. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 154 to 156 of the integrated report. Q Qualified by the independent assurance provider. 146 | | 147 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information NON-TECHNICAL STATISTICS: COMPANY Measure and unit 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 Finance 1 Electricity revenue per kWh (including environmental levy), c/kWh 127.32 111.04 101.86 90.01 85.06 83.60 76.24 67.91 62.82 58.49 Electricity operating costs, R/MWh 990.31 906.36 803.01 729.26 634.69 662.98 628.00 600.72 535.08 487.92 EBITDA margin, % 20.52 15.48 17.65 16.21RA 24.48 20.32 19.13 16.28 16.15 17.48 EBITDA, R million 50 598 31 633 35 199 29 168 43 428 35 989 30 932 23 811 22 101 22 147 Cash interest cover, ratio 1.61 0.81 0.90 0.91RA 1.18 RA 1.73 1.64 1.62 2.14 3.97 Debt service cover, ratio 0.70 0.29 0.49 0.46 0.84 1.37 1.09 0.82 1.28 1.98 Current ratio 0.89 0.94 0.82 0.99 1.04 0.86 0.86 0.82 0.70 0.67 Gross debt/EBITDA, ratio 8.97 14.48 15.22 17.08 10.26 11.39 11.71 13.84 12.59 10.09 Debt/equity (including long-term provisions), ratio 2.02 2.26 2.68 3.50 RA 2.77RA 2.22RA 1.71 2.67 2.12 1.96RA Gearing, % 67 69 73 78 73 69 63 73 68 66 Free funds from operations, R million 60 495 41 470 39 465 27 318 39 064 46 336 37 954 36 032 29 528 26 124 Free funds from operations after net interest paid, R million 28 473 4 864 818 (7 897) 8 017 19 776 16 260 20 343 18 455 19 090 Free funds from operations as % of gross debt, % 13.33 9.06 7.37 5.48 RA 8.77RA 11.30 RA 10.48 RA 10.93 10.61 11.69 Building skills Headcount (including fixed-term contractors) 34 690 36 124 37 765 39 292 41 316 41 940 42 767 41 787 42 923 43 402 Training spend as % of gross employee benefit costs, % 2.70 RA 2.58 RA 3.67RA 3.85RA 5.21RA 4.89 RA 4.45RA 6.18 RA 7.87RA – Learner intake – Engineers, number2 58 RA 0 RA 16RA 10 1 241 1 480 895 1 315 1 962RA 2 144 RA Learner intake – Technicians, number2 51RA 0 RA 11RA 3 838 1 209 415 826 815RA 835RA Learner intake – Artisans, number2 106RA 0 RA 91RA 0 1 815 2 155 1 955 1 752 2 383RA 2 847RA Total learner intake (including plant operators)2 335 0 118 21 726Q 3 048 Q 1 370 – – – Transformation Socio-economic contribution Total number of electrification connections, number3 97 947RA 106 669 RA 163 613RA 191 585RA 215 519 207 436 158 312 160 933 202 780 139 881 Procurement equity Local content contracted (Eskom-wide), % 4 86.89 65.99Q 92.84 Q 91.51RA 87.16RA 73.37Q 75.22Q 25.13 40.80 RA – Local content contracted (new build), % 4 57.53 56.94 88.53 81.14 RA 85.59 RA 85.78 Q 84.04 RA 33.62LA 54.60 RA 80.20 RA B-BBEE attributable expenditure, R billion 131.4 98.8 97.1 80.3 97.0 137.3 132.0 120.8 125.4 RA 103.4 RA Black-owned expenditure, R billion 78.6 50.1 43.7 48.8 53.5 50.4 51.0 47.5 43.6RA 26.47RA Black women-owned expenditure, R billion 14.6 17.4 14.6 18.1 19.7 17.3 30.2 8.9 9.6RA 5.7RA Black youth-owned expenditure, R billion 7.9 4.4 3.7 3.1 3.4 1.7 1.3 0.9 1.3RA 1.20 RA Procurement from B-BBEE compliant suppliers, % 5 73.35RA 62.34 RA 61.57RA 54.41Q 74.24 RA 100.75RA 83.08 RA 88.89 RA 93.90 RA 86.30 RA Procurement from black-owned (BO) suppliers, % 43.85 31.62 27.70 33.08 Q 40.93RA 36.98 RA 30.98 RA 34.91 32.70 RA 22.10 Procurement from black women-owned (BWO) suppliers, % 8.13 10.98 9.27 12.28 Q 15.08 RA 12.67RA 17.72RA 6.61 7.20 RA 4.70 RA Procurement from black youth-owned (BYO) suppliers, % 4.43 2.76 2.32 2.10 Q 2.58 RA 1.25RA 0.82RA 0.64 LA 1.00 RA 1.00 Procurement spend with suppliers owned by black people living with disability (BPwD), % of TMPS 0.14 0.15 0.12 0.15Q 0.11RA 0.02RA 0.01RA 0.00 0.00 – Procurement spend with qualifying small enterprises (QSE), % of TMPS 4.01 3.36 3.37 4.47Q 7.80 RA 7.67RA 4.03RA 6.74 11.90 – Procurement spend with exempted micro enterprises (EME), % of TMPS 6.24 6.83 9.12 13.32Q 9.32RA 10.15RA 4.81RA 5.12 – – Employment equity Disabilities, number of employees 1 057 1 113 1 198 1 265 1 292 1 263 1 271 1 294 1 283RA 1 126RA Employment equity – disability, % 3.05RA 3.08 RA 3.16RA 3.22RA 3.13RA 3.01RA 2.97RA 3.12RA 2.99 RA 2.59 RA Racial equity in senior management, % black employees 76.80 RA 73.67RA 70.72RA 69.44 RA 67.97RA 65.77RA 60.90 RA 61.58 RA 59.50 RA 58.30 RA Racial equity in professionals and middle management, % black employees 81.71RA 80.18 RA 78.06RA 76.25RA 75.35RA 73.60 RA 71.98 RA 72.28 RA 71.20 RA 69.60 Gender equity in senior management, % female employees 43.89 RA 42.63RA 41.71RA 39.90 RA 38.25RA 36.69 RA 28.07RA 29.83RA 28.90 RA 28.20 RA Gender equity in professionals and middle management, % female employees 40.59 RA 39.69 RA 38.99 RA 38.63RA 38.06RA 36.65RA 36.01RA 36.10 RA 35.80 RA 34.60 1. Ratios impacted by the restatements in the annual financial statements were restated where possible. 2. The definition of learners was changed from 1 April 2018, to account for learners only once when they sign up, and not continuously for the duration of their contract. 3. Electrification connections includes farmworker connections. 4. Local content contracted is measured as a percentage of TMPS. A new definition for local content is reported in terms of the shareholder compact in the directors’ report, which measures local content from designated sectors as a percentage of the total contracts awarded for all Eskom company procurement. 5. This measure was renamed to “Preferential procurement” in the shareholder compact from 2020. RA Reasonable assurance provided by the independent assurance provider. Refer to pages 154 to 156 of the integrated report. Q Qualified by the independent assurance provider. LA Limited assurance provided by the independent assurance provider. 148 | | 149 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information PLANT INFORMATION Power station capacities Total nominal capacity at 31 March 2022 Name of station MW Nominal capacity of Eskom-owned power stations 47 145 The difference between installed and nominal capacity reflects auxiliary power consumption and reduced capacity caused by Independent power producers (IPP) capacity 6 831 the age of the plant. Biomass 25 Total Total Concentrating solar power 500 Number and installed installed nominal Gas/liquid fuel 1 005 Years commissioned, capacity of generator sets capacity capacity Hydroelectric 18 Name of station Location first to last unit MW MW MW Landfill 8 Base-load stations Solar PV energy 2 212 Coal-fired (15) 44 013 39 456 Wind 3 063 Arnot Middelburg Sep 1971 to Aug 1975 6x370 2 220 2 100 Total nominal capacity available to the grid – Eskom and IPPs 53 976 Camden1, 3 Ermelo Mar 2005 to Jun 2008 3x200; 1x196; 2x195; 1x190; 1x185 1 561 1 481 Duvha 2 Emalahleni Aug 1980 to Feb 1984 5x600 3 000 2 875 1. Former moth-balled power stations that have been returned to service. The original commissioning dates were: Grootvlei1, 3 Balfour Apr 2008 to Mar 2011 4x200; 2x190 1 180 570 • Camden was originally commissioned between August 1967 and September 1969 Hendrina3 Middelburg May 1970 to Dec 1976 5x200; 1x195; 1x191; 1x170; 1x167 1 723 1 098 • Grootvlei was originally commissioned between June 1969 and November 1977 Kendal 4 Emalahleni Oct 1988 to Dec 1992 6x686 4 116 3 840 • Komati was originally commissioned between November 1961 and March 1966 Komati1, 3 Middelburg Mar 2009 to Oct 2013 4x100; 4x125; 1x90 990 114 Due to technical and/or financial constraints, some units at these stations have been derated. Kriel Bethal May 1976 to Mar 1979 6x500 3 000 2 850 2. The Duvha Unit 3 recovery project was cancelled, and the unit removed from the installed base. Kusile 4 Ogies Aug 2017 to Mar 2021 3x799 2 397 2 160 3. Certain units are under extended inoperability and their capacity removed from the nominal base, in line with the Generation 2035 Shutdown Plan. Under construction 3x800 – – 4. Dry-cooled unit specifications based on design back-pressure and ambient air temperature. Lethabo Vereeniging Dec 1985 to Dec 1990 6x618 3 708 3 558 5. Pumped storage facilities are net users of electricity. Water is pumped during off-peak periods so that hydro electricity can be generated during peak periods. Majuba4 Volksrust Apr 1996 to Apr 2001 3x657; 3x713 4 110 3 843 6. Use restricted to periods of peak demand, dependent on the availability of water in the Gariep and Vanderkloof Dams. Matimba4 Lephalale Dec 1987 to Oct 1991 6x665 3 990 3 690 7. Installed and operational, but not included for technical performance KPIs. Matla Bethal Sep 1979 to Jul 1983 6x600 3 600 3 450 Medupi4 Lephalale Aug 2015 to Jul 2021 6x794 4 764 4 317 Tutuka Standerton Jun 1985 to Jun 1990 6x609 3 654 3 510 Power lines and substations in service at 31 March 2022 Nuclear (1) Category 2022 2021 2020 2019 2018 Koeberg Cape Town Jul 1984 to Nov 1985 1x970; 1x964 1 934 1 854 Power lines Peaking stations Transmission power lines, km1 33 193 33 158 33 027 32 698 31 951 Gas/liquid fuel turbine stations (4) 2 426 2 409 765kV 2 784 2 784 2 784 2 784 2 784 Acacia Cape Town May 1976 to Jul 1976 3x57 171 171 533kV DC (monopolar) 1 032 1 032 1 032 1 035 1 035 Ankerlig Atlantis Mar 2007 to Mar 2009 4x149.2; 5x148.3 1 338 1 327 400kV 19 916 19 760 19 743 19 421 18 804 Gourikwa Mossel Bay Jul 2007 to Nov 2008 5x149.2 746 740 275kV 7 342 7 342 7 228 7 218 7 218 Port Rex East London Sep 1976 to Oct 1976 3x57 171 171 220kV 1 352 1 351 1 351 1 351 1 221 Pumped storage schemes (3)5 2 732 2 724 132kV 766 889 889 889 889 Drakensberg Bergville Jun 1981 to Apr 1982 4x250 1 000 1 000 Distribution overhead power lines, km 363 286 358 100 351 023 347 284 341 874 Ingula Ladysmith Jun 2016 to Feb 2017 4x333 1 332 1 324 132kV and higher 27 265 26 441 24 777 24 666 24 646 Palmiet Grabouw Apr 1988 to May 1988 2x200 400 400 44 to 88kV3 22 359 21 367 20 767 20 735 23 904 Hydroelectric stations (2) 6 600 600 33kV3 3 851 3 730 3 563 3 420 – 1 to 22kV 309 811 306 561 301 916 298 463 293 324 Gariep Norvalspont Sep 1971 to Mar 1976 4x90 360 360 Vanderkloof Petrusville Jan 1977 to Feb 1977 2x120 240 240 Distribution underground cables, km 8 339 8 288 7 734 7 651 7 769 132kV and higher 97 97 86 86 79 Total used for capacity management purposes 51 705 47 043 44 to 88kV 2 215 209 190 189 415 Renewable energy 33kV 2 323 323 4 4 – Wind energy (1)7 1 to 22kV 7 704 7 659 7 454 7 372 7 275 Sere Vredendal Mar 2015 46x2.2 100 100 Total all power lines, km 404 818 399 546 391 784 387 633 381 594 Total capacity including renewable energy 51 805 47 143 Total transformer capacity, MVA 301 381 310 123 306 949 297 512 285 737 Other hydroelectric stations (4)7 61 2 Transmission, MVA 3 155 250 154 500 153 135 152 415 151 105 Distribution and reticulation, MVA 146 131 155 623 153 814 145 097 134 632 Mbashe Mbashe River 3x14 42 – First Falls Umtata River 2x3 6 – Total transformers, number 414 568 420 455 391 231 385 085 383 284 Ncora Ncora River 2x0.4; 1x1.6 2 2 Transmission, number 451 449 446 444 442 Second Falls Umtata River 2x5.5 11 – Distribution and reticulation, number 414 117 420 006 390 785 384 641 382 842 Total Eskom power station capacities (30) 51 866 47 145 1. Transmission power line lengths are included as per distances from the Geographic Information System. Available nominal capacity – Eskom-owned 90.90% 2. Under NRS048 part 6, 33kV lines were reclassified in 2019 from high to medium voltage. Prior year figures have not been restated. 3. Base of definition: transformers rated ≥30MVA and primary voltage ≥132kV. 150 | | 151 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information CUSTOMER INFORMATION ENVIRONMENTAL IMPLICATIONS OF USING Category 2022 2021 2020 2019 2018 OR SAVING ELECTRICITY Number of Eskom customers Distributors 799 804 805 800 800 Factor 1 Residential1 6 833 928 6 720 150 6 577 905 6 358 523 6 120 122 Figures are calculated based on total electricity sales by Eskom, which is based on the total available for distribution Commercial 52 736 52 880 52 909 52 556 51 848 (including purchases), after excluding losses through Transmission and Distribution (technical losses), losses through theft Industrial 2 601 2 649 2 684 2 705 2 703 (non-technical losses), our own internal use and wheeling. Thus to calculate CO2 emissions, divide the quantity of CO2 Mining 926 945 961 981 993 emitted by electricity sales: Agricultural 77 692 79 115 80 451 81 303 81 638 Rail 471 475 475 493 501 207.2Mt of CO2 ÷ 198 281GWh sales = 1.04 tons per MWh International 11 11 11 11 11 Factor 2 6 969 164 6 857 029 6 716 201 6 497 372 6 258 616 Figures are calculated based on total electricity generated, which includes coal, nuclear, pumped storage, wind, hydro and gas turbines, but excludes the total consumed by Eskom. Thus the quantity of CO2 emissions, divided by (electricity generated Electricity sales per customer category, GWh less Eskom’s electricity consumption): Distributors 83 931 82 446 85 984 87 236 87 133 Residential1 10 520 10 949 11 293 11 748 12 302 207.2Mt of CO2 ÷ (205 688GWh generated less 6 434GWh own consumption) = 1.04 tons per MWh Commercial 9 872 9 696 10 486 10 558 10 539 Industrial 45 120 40 881 45 610 48 717 47 854 Figures represent the 12-month period from 1 April 2021 to 31 March 2022. Mining 28 030 26 991 28 703 28 972 30 235 Factor 1 Factor 2 If electricity consumption is measured in: Agricultural 5 382 5 461 5 770 5 796 5 711 (total energy (total energy Rail 2 128 1 931 2 600 2 831 3 148 sold) generated) kWh MWh GWh TWh International 13 298 13 497 15 189 12 461 15 268 Coal use 0.56 0.55 kilogram ton thousand tons (kt) million tons (Mt) 198 281 191 852 205 635 208 319 212 190 Water use1 1.43 1.42 litre kilolitre megalitre (Mℓ) thousand megalitres Ash produced 166 165 gram kilogram ton thousand tons (kt) International sales to countries in southern Africa, GWh 13 298 13 497 15 189 12 461 15 268 Particulate emissions 0.34 0.33 gram kilogram ton thousand tons (kt) CO2 emissions2 1.04 1.04 kilogram ton thousand tons (kt) million tons (Mt) Botswana 851 785 1 261 247 147 SO x emissions2 8.43 8.38 gram kilogram ton thousand tons (kt) Eswatini 713 677 1 011 766 839 NO x emissions3 4.14 4.12 gram kilogram ton thousand tons (kt) Lesotho 341 324 426 292 276 Mozambique 8 215 8 263 8 358 8 339 8 326 Namibia 1 653 1 493 2 013 1 518 2 147 1. Volume of water used at all Eskom power stations. Zambia 6 78 238 258 362 2. Calculated figures based on coal characteristics and power station design parameters. Sulphur dioxide and carbon dioxide emissions are based on coal analysis and using coal burnt tonnages. Figures include coal-fired and gas turbine power stations, as well as oil consumed during power station start-ups and, Zimbabwe 1 456 1 791 1 245 456 2 250 for carbon dioxide emissions, the underground coal gasification pilot plant. Short-term energy market 63 86 637 585 921 3. NO x reported as NO2 is calculated using average station-specific emission factors, which have been measured intermittently, and tonnages of coal burnt. Electricity revenue per customer category, R million Distributors 105 369 90 228 85 656 77 231 72 935 Multiply electricity consumption or saving by the relevant factor in the table above to determine the environmental Residential1 18 680 16 924 16 069 14 771 14 585 implication. Commercial 16 723 14 304 14 067 12 385 11 726 Example 1: Water consumption Example 2: CO2 emissions Industrial 47 944 36 805 37 762 36 047 33 798 Mining 36 630 30 708 29 968 26 550 26 277 Using Factor 1 Using Factor 1 Agricultural 11 600 10 262 9 839 8 682 8 154 Used 90MWh of electricity Used 90MWh of electricity Rail 3 477 2 977 3 323 3 119 3 151 90 x 1.43 = 128.7 90 x 1.04 = 94 IPP network charge 260 221 184 121 198 Therefore 128.7 kilolitres of water used Therefore 94 tons CO2 emitted International 11 450 10 383 12 229 8 241 9 530 Using Factor 2 Using Factor 2 Gross electricity revenue 252 133 212 812 209 097 187 147 180 354 Used 90MWh of electricity Used 90MWh of electricity Less: Revenue capitalised2 (1 074) (3 991) (5 683) (3 393) (2 172) 90 x 1.42 = 128.1 90 x 1.04 = 93.6 Less: Revenue not recognised3 (14 215) (12 112) (10 190) (8 914) (3 635) Therefore 128.1 kilolitres of water used Therefore 93.6 tons CO2 emitted Add: Recognised on the cash basis4 6 543 5 935 4 083 2 472 358 Electricity revenue less capitalised revenue per note 31 243 387 202 644 197 307 177 312 174 905 in the annual financial statements 1. Prepaid electricity and public lighting are included under the residential category. 2. Revenue from the sale of production, while testing generating plant not yet commissioned, is capitalised to plant. 3. The principle of only recognising revenue if it is deemed collectable at the date of sale, as opposed to recognising the revenue and then impairing the customer debt when conditions change, has been applied since 2015. External revenue of R14 215 million was thus not recognised at 31 March 2022. 4. Under IFRS 15, certain supplies to distributors were recognised on the cash basis, due to uncertainty around collectability at the time of sale. 152 | | 153 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information INDEPENDENT SUSTAINABILITY ASSURANCE REPORT Independent reasonable assurance report to the directors of Eskom Holdings SOC Ltd No. Key performance indicator Unit of measure Introduction Socio-economic impact: human capital We have performed our reasonable assurance engagement for Eskom Holdings SOC Ltd (Eskom) in respect of selected key performance indicators (KPIs) for the year ended 31 March 2022. 23. Training spend as % of gross manpower costs % Subject matter 24. Learner intake – Engineers in training Number The subject matter comprises the KPIs disclosed in accordance with management’s basis of preparation, as prepared by the 25. Learner intake – Technicians (P1 and P2) Number responsible party, during the year ended 31 March 2022. 26. Learner intake – Plant operators Number The terms of management’s basis of preparation comprise the criteria by which Eskom’s compliance is to be evaluated for 27. Learner intake – Artisans Number purposes of our reasonable assurance engagement. 28. Disability equity in total workforce % The selected KPIs are as follows: 29. Racial equity in senior management % No. Key performance indicator Unit of measure 30. Gender equity in senior management % Focus on safety 31. Racial equity in professionals and middle management % 1. Lost-time injury rate (including occupational diseases, excluding third party at fault incidents and all passengers in Index 32. Gender equity in professionals and middle management % commuting incidents) Reduce environmental footprint in existing fleet Improve operations 33. Relative particulate emissions kg/MWh sent out 2. Planned capability loss factor (PCLF) % 34. Specific water usage ℓ/kWh sent out 3. Energy availability factor (EAF) % 35. Carbon dioxide emissions (CO2) Mt 4. Unplanned partial load losses (UCLF PLL) Average MW 36. Carbon dioxide emissions (from fossil fuel generation) kg/kWh sent out 5. Unplanned automatic grid separations (UAGS) trips Number of trips Socio-economic impact: corporate social investment (CSI) 6. Post-philosophy outage unplanned capability loss factor (UCLF) % 37. CSI committed spend R million 7. EAF and UCLF post-CO and official – Medupi Power Station % Industrialisation and localisation 8. EAF and UCLF post-CO and official – Kusile Power Station % 38. Research and development % 9. System minutes lost <1 Minutes 39. Preferential procurement % 10. Payment levels excluding Soweto interest % 40. Local content % 11. Distribution total energy losses % 41. B-BBEE score level Number 12. Total electrification connections Number 42. Enterprise and supplier development R billion 13. System average interruption duration index (SAIDI) Hours 43. National industrial participation programme % 14. System average interruption frequency index (SAIFI) Number Ensure financial sustainability 15. Restoration time % 44. EBITDA R million Primary energy optimisation 45. Cash interest cover Ratio 16. Migration of coal delivery volume from road to rail Mt 46. Debt service cover Ratio 17. Coal purchases Rand/ton % increase % 47. Savings from turnaround initiatives R million 18. Coal stock days Days Deliver capital expansion 19. Generation capacity installed and commissioned (commercial operation) MW 20. Transmission lines installed km 21. Transmission transformer capacity installed and commissioned MVA Legal separation 22. Transmission, Distribution and Generation are functionally separated (functionally unbundled) Date 154 | | 155 Who we are and how Our strategic Governance, leadership Financial Operating Supplementary ESKOM HOLDINGS SOC LTD INTEGRATED REPORT | 31 MARCH 2022 we create value context and ethics review performance information INDEPENDENT SUSTAINABILITY ASSURANCE REPORT continued CONTACT DETAILS Directors’ responsibility Our evaluation included performing such procedures as we Telephone numbers Websites and email addresses The directors, being the responsible party, and, where considered necessary, which included: appropriate, those charged with governance, are Eskom head office +27 11 800 8111 Eskom website www.eskom.co.za • Interviewing management and senior executives to obtain Contact@eskom.co.za responsible for the KPI information, in accordance with an understanding of the internal control environment, risk management’s basis of preparation. assessment process and information systems relevant to Eskom Media Desk +27 11 800 3343 Eskom Media Desk MediaDesk@eskom.co.za +27 11 800 3378 the sustainability reporting process for the KPIs The responsible party is responsible for: +27 11 800 6103 • Assessing the systems and processes to generate, collate, • Ensuring that the KPI information is properly prepared Investor Relations +27 11 800 2775 Investor Relations InvestorRelations@eskom.co.za aggregate, validate and monitor the source data used to and presented in accordance with management’s basis of prepare the KPIs for disclosure in the reports Eskom whistle-blowing hotline 0800 112 722 Forensic investigations forensic@eskom.co.za preparation • Inspecting supporting documentation and performing DPE whistle-blowing hotline 0801 212 136 DPE whistle-blowing website www.behonest.co.za • Confirming the measurement or evaluation of the analytical review procedures dpe@behonest.co.za underlying KPIs against the applicable criteria, including that all relevant matters are reflected in the KPI information • Evaluating whether the KPI disclosures are consistent with Eskom Development Foundation +27 11 800 8111 Eskom Development Foundation www.eskom.co.za/about-eskom/ our overall knowledge and experience of sustainability corporate-social-investment/ • Designing, establishing and maintaining internal controls processes to ensure that the KPI information is properly prepared National call centre 08600 ESKOM or Promotion of Access to PAIA@eskom.co.za and presented in accordance with management’s basis of Our assurance engagement does not constitute an audit 08600 37566 Information Act requests preparation or review of any of the underlying information conducted Customer SMS line 35328 Customer Service CustomerServices@eskom.co.za in accordance with International Standards on Auditing Assurance practitioner’s responsibility Facebook EskomSouthAfrica YouTube EskomOfficialSite or International Standards on Review Engagements and We conducted our assurance engagement in accordance accordingly, we do not express an audit opinion or review with the International Standard on Assurance Engagements Twitter Eskom_SA MyEskom Customer app conclusion. (ISAE) 3000 (Revised), Assurance Engagements Other Than Audits or Reviews of Historic Financial Information. This We believe that our evidence obtained is sufficient and standard requires us to comply with ethical requirements appropriate to provide a basis for our reasonable assurance Physical address Postal address and to plan and perform our reasonable assurance conclusion. engagement with the aim of obtaining reasonable assurance Eskom Megawatt Park PO Box 1091 regarding the KPIs of the engagement. Conclusion 2 Maxwell Drive Johannesburg In our opinion the KPIs are prepared, in all material Sunninghill 2000 We shall not be responsible for reporting on any KPI Sandton respects, in accordance with management’s basis of 2157 events and transactions beyond the period covered by our preparation. reasonable assurance engagement. Group Company Secretary Company registration number Office of the Company Secretary Eskom Holdings SOC Ltd Independence and other ethical requirements PO Box 1091 2002/015527/30 We have complied with the independence and other Johannesburg ethical requirements of the Code of Professional Conduct for 2000 Registered Auditors issued by the Independent Regulatory Board for Auditors (IRBA Code), which is founded Deloitte & Touche Feedback on or queries relating to our report may be directed to IRfeedback@eskom.co.za on fundamental principles of integrity, objectivity, Registered Auditors Our suite of reports covering our integrated results for 2022 is available at www.eskom.co.za/investors/integrated-results professional competence and due care, confidentiality and professional behaviour. The IRBA Code is consistent with Per Mark Victor CA(SA) the corresponding sections of the International Ethics Partner Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International 16 December 2022 Independence Standards). 5 Magwa Crescent Deloitte & Touche applies the International Standard on Waterfall City, Waterfall Quality Control 1, Quality Control for Firms that Perform Private Bag X6, Gallo Manor, 2052 Audits and Reviews of Financial Statements and Other South Africa Assurance and Related Services Engagements, and accordingly maintains a comprehensive system of quality control, including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. Summary of work performed We have performed our procedures on the KPI events and transactions of Eskom, as prepared by management in accordance with management’s basis of preparation for the year ended 31 March 2022. JOINT VENTURE [0007] 156 |