ANNUAL FINANCIAL STATEMENTS 2021 www.eskom.co.za ANNUAL FINANCIAL STATEMENTS 31 March 2021 TOWARDS A NEW ENERGY FUTURE CONTENTS Directors’ report 2 19 Trade and other receivables 83 Nature of the business 2 20 Inventories 84 Overview of the year 2 21 Cash and cash equivalents 84 Operational performance 3 22 Assets and liabilities held-for-sale 84 Financial performance 5 23 Service concession arrangements 85 Governance and compliance 10 24 Share capital 85 Human resources 12 25 Debt securities and borrowings 86 Shareholder compact performance 12 26 Embedded derivatives 88 Reportable irregularities 15 27 Payments received in advance and contract liabilities 88 and deferred income Events after the reporting date 15 28 Employee benefit obligations 89 Approval 15 29 Provisions 91 Report of the audit and risk committee 16 30 Lease liabilities 92 Statement by company secretary 18 31 Trade and other payables 93 Independent auditor’s report to Parliament and 19 the shareholder – Minister of Public Enterprises on 32 Revenue 93 Eskom Holdings SOC Ltd and its subsidiaries 33 Other income 94 Statements of financial position 26 34 Primary energy 94 Income statements 27 35 Employee benefit expense 94 Statements of comprehensive income 27 36 Impairment and writedown of assets 94 Statements of changes in equity 28 37 Other expenses 95 Statements of cash flows 29 38 Depreciation and amortisation expense 95 Notes to the financial statements: 30 39 Net fair value and foreign exchange gain/(loss) 95 1 General information 30 40 Finance income 96 2 Summary of significant accounting policies 30 41 Finance cost 96 3 Capital management and going concern 41 42 Income tax 96 4 Critical accounting estimates and assumptions 43 43 Cash generated from operations 97 5 Financial risk management 49 44 Net debt reconciliation 98 6 Accounting classification and fair value 65 45 Guarantees and contingent liabilities 99 7 Segment information 69 46 Commitments 100 8 Property, plant and equipment 72 47 Related-party transactions and balances 101 9 Intangible assets 74 48 Events after the reporting date 102 10 Future fuel supplies 75 49 Restatement of comparatives 103 11 Investment in equity-accounted investees 75 50 Directors’ remuneration 104 12 Investment in subsidiaries 76 51 New standards and interpretations 106 13 Deferred tax 77 52 Information required by the Public Finance Management 109 14 Investments and financial trading instruments 77 Act 15 Loans receivable 78 53 Reportable irregularities and matters under investigation 117 16 Derivatives held for risk management 79 Appendix – Abbreviations, acronyms and definitions 121 17 Finance lease receivables 82 Contact details 123 18 Payments made in advance 82 The annual financial statements were prepared under the supervision of the chief financial officer (CFO), C Cassim CA(SA). The financial statements have been audited in compliance with section 30 of the Companies Act and approved by the board of directors (board) on 23 August 2021. The audited financial statements of the group and Eskom as at and for the year ended 31 March 2021 are available for inspection at the company’s registered office and were published on 31 August 2021. The full suite of the group’s externally published reports, including the financial statements and integrated report, are available at www.eskom.co.za. ESKOM HOLDINGS SOC LTD | 1 DIRECTORS’ REPORT for the year ended 31 March 2021 The directors are pleased to present their report for the year ended 31 March 2021. Eskom’s poor financial and operational performance contributes to the country’s challenges and remains a major risk to the South African economy. Simultaneously, Eskom has been struggling to obtain cost-reflective tariff increases and this is unlikely to change in the immediate Nature of the business future. However, the taxpayer cannot continue to subsidise the electricity consumer through equity injections by government. The immediate Eskom Holdings SOC Ltd (Eskom) is South Africa’s primary electricity supplier that generates, transmits and distributes electricity to priority is to address financial and operational issues to stabilise the business to create a sound platform to leverage capabilities and to pursue local industrial, mining, commercial, agricultural, redistributor (metropolitan and other municipalities) and residential customers and to a growth trajectory that supports national strategic imperatives such as the economic reconstruction and recovery plan and the just energy international customers in southern Africa. Eskom also purchases electricity from independent power producers (IPPs) and international transition. suppliers in southern Africa. The board concluded, based on the understanding by the shareholder of Eskom’s situation and the undertaking of additional support, that Eskom is a state-owned enterprise, with the minister of the Department of Public Enterprises (DPE) as the shareholder representative. The Eskom is a going concern. The details considered by the board when assessing Eskom’s ability to continue as a going concern are included state is the only shareholder in Eskom. in note 3.2 in the annual financial statements. It is important that strategies materialise as envisaged subsequent to the going-concern assessment period for Eskom to be sustainable into the future. Eskom’s head office is in Johannesburg. The nature of the business of the significant operating subsidiaries is set out in note 12 in the annual financial statements. The business objective of these subsidiaries is mainly for the sole benefit of Eskom. Irregular expenditure of R11.7 billion was reported in the current year for the group as Eskom continues with its governance clean up. Transgressions can only be closed once condoned by National Treasury and towards the latter part of the year condonations to the value of Overview of the year R9.5 billion were obtained. Fruitless and wasteful expenditure of R1.3 billion and losses due to criminal conduct of R2.5 billion were reported The information in this report covers the group performance of Eskom Holdings SOC Ltd and its major operating subsidiaries, unless during the year for the group. Enhancements to improve the Public Finance Management Act (PFMA) reporting process were implemented. otherwise stated. A high-level summary of the pertinent issues that characterised the year under review is presented below. Additional There is unfortunately still work to be done to ensure an unmodified audit opinion as it is a lengthy process to address issues and embed information, where relevant, is contained in relevant sections of the directors’ report, annual financial statements and integrated report. improvements. The performance for the year was marked by the following key factors that had a negative impact on the business: Operational performance • system constraints that lead to loadshedding Security of supply remains a key concern, with focus on improving the generation plant health and reducing loadshedding while containing • COVID-19 pandemic and the downgrade by credit rating agencies costs. • lack of cost-reflective tariffs continues to hinder long-term financial sustainability • liquidity constraints and unsustainable debt levels Loadshedding was required during the year with 42 days at stage two, three days at stage three and two days at stage four. The longest • declining sales and an increase in overdue debt continuous loadshedding of nine days was implemented in March 2021. Loadshedding was required on 47 (2020: 46) days during the year mainly due to high levels of unplanned load losses and planned maintenance Eskom is committed to a just energy transition which aims to accelerate the repurposing and repowering of power stations, actively pursue a combined with the need to conserve and replenish emergency reserves. Loadshedding remains the last resort to maintain the supply/demand share of renewable energy allocation and implement an integrated socio-economic strategy. It is a transition towards a low-carbon, climate- balance and to avoid a catastrophic event. resilient economy and society in a manner that does not impede socio-economic development, but results in an increase in sustainable jobs. The just energy transition office has been established to drive this vision. Eskom’s Emergency Response Command Centre remains activated to coordinate Eskom’s response to the COVID-19 pandemic and the related national lockdown. The lockdown badly affected electricity sales with a reduction of 13.8TWh during the year. Eskom’s operations The transmission sustainability improvement plan was negatively affected by financial constraints which increased the risk relating to asset were less affected by the lockdown as an essential service and were allowed to operate at full capacity at all levels of lockdown. health condition impacting operational sustainability and system expansion delays. The sovereign’s credit rating remains at sub-investment grade level across all three internationally recognised credit rating agencies. Moody’s The budget allocation for the distribution network development plan was insufficient to address all the requirements. Customer connections and Fitch downgraded the sovereign further in November 2020 due to South Africa’s negative economic outlook and limited capacity to were prioritised over the strengthening and refurbishment of the network. The focus will be on improving the asset management lifecycle in mitigate the fiscal impact of COVID-19. support of network sustainability. Liquidity and solvency risks continue to threaten Eskom’s ability to achieve financial and operational sustainability and to continue as a going Load reduction was implemented in several areas in the distribution business to protect the network infrastructure from overloading, concern. The lack of cost-reflective tariffs granted by the National Energy Regulator of South Africa (NERSA) as well as escalating municipal equipment failures and explosions. Eskom engaged with communities on the need for load reduction and the merits of protecting the arrear debt contribute to the liquidity constraints. Eskom has restricted organisational cash requirements to improve liquidity through network. Eskom highlighted the dangers of illegal connections, meter tampering and non-payment for electricity during these engagements. targeted savings on operating and capital expenditure. Liquidity reserves declined to R4.0 billion (2020: R23.0 billion) in 2021. Key focus Certain communities responded positively by taking a leading role in advocating for the legal use of electricity and paying for services. areas for liquidity include maintenance of an appropriate liquidity buffer, timing of the execution of the borrowing programme and successful execution of the turnaround plan. Generation recovery plan The generation recovery plan, which aims to fast-track improvement in generation performance and plant availability, is delivering results. Access to funding in domestic and foreign markets has been restricted due to decreased investor confidence driven by poor financial Progress on the implementation of the plan includes: performance, saturated borrowing capacity, credit rating downgrades and uncertainty around Eskom’s unbundling. The borrowing programme for 2022 to 2026 envisages Eskom raising debt of R105.3 billion. • Address major design and construction defects at new stations Modifications to correct design defects were successfully implemented during the outage of Medupi unit 3. The unit was a pilot to Government continues to support Eskom to operate as a going concern and improve liquidity through support of R56.0 billion received in implement the major plant defect resolutions and establish root causes. The optimisation process, official performance verification tests 2021 and a further commitment of R31.7 billion for 2022. Although the government support addresses short-term liquidity requirements, it and mill inspections were completed. The test report confirmed that the reheater spray flow was reduced, but the low-load boiler stability does not support long-term financial sustainability. The only way to achieve that remains through cost-reflective tariff or a take-over of debt. issues persist. Agreement was reached with the contractor to develop a solution for the low-load and transient operation in lieu of the Further government support will be required to alleviate the debt burden unless Eskom’s tariff challenges are resolved. reheater modification. The tariffs awarded by NERSA in recent years resulted in a substantial revenue shortfall. Eskom is following due process to seek rectification Boiler plant modifications have been implemented on all six Medupi units. The gas air heater, pulse jet fabric filter and some of the mill with regard to the unsustainable tariff determinations awarded, but it is a drawn-out process with no guaranteed relief. Eskom received modifications were implemented on all six Medupi units. favourable judgements from the High Court on NERSA revenue and regulatory control account (RCA) decisions during the year. The rollout of the modifications to the three operational units at Kusile commenced in June 2021, while the work on the remaining units Revenue increased by 2.4% to R204.3 billion in the current year despite a decrease of 6.7% in sales volume. The pandemic and national will be rolled-out during construction. lockdown led to a deterioration in sales volumes with demand not expected to recover to pre-COVID-19 levels in the medium to short term. Eskom is working with government on solutions to stimulate sales and assist vulnerable sectors in a sustainable manner and in support It is expected that the major defects correction of the Medupi and Kusile units by the contractor will be completed in 2023. of industrial policy. Collection of the revenue owed to Eskom and the recovery of arrear debt remain a priority to improve liquidity and strengthen the balance sheet. • Reduce the incidence of trips and full load losses to improve reliability of coal-fired power stations The coal fleet unit trips improved in the current year with 511 (2020: 568) unplanned automatic grid separation trips. Tutuka, Medupi, Kriel Overall there was a deterioration in the financial performance from the previous year with earnings before interest, tax, depreciation and and Duvha accounted for approximately 51% of the unplanned automatic grid separation trips. amortisation (EBITDA) decreasing by R4.0 billion in 2021. The decrease is mainly due to a contraction in sales volumes, more expensive primary energy sources despite a reduction in overall production, increase maintenance as well as growth in other operating expenditure. The lockdown provided for the opportunity for more maintenance and for some units to be placed in cold reserve resulting in a reduction The targets in the shareholder compact were achieved for the majority of financial ratios. High levels of debt continue to lead to greater debt in full load losses to 4 753MW (2020: 5 339MW) per month in the current year. servicing requirements. Most notably, the cash interest cover and debt service cover ratios reduced to 0.8 (2020: 0.9) and 0.3 (2020: 0.5) • Accelerate the return to service of units on long-term forced outages respectively when compared to the previous year. While the performance of these measures was higher than target, they remain below Kendal unit 5 (640MW) was taken out of service in January 2020 due to high emissions and returned to service in June 2021. acceptable norms, indicating that cash generated from operating activities is insufficient to cover the cost of servicing debt, thereby prompting the need for government support. Savings of R14.4 billion were achieved during the year against a target of R14.1 billion. The main savings were in primary energy, employee benefit and other expenses. 2 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 3 DIRECTORS’ REPORT (continued) for the year ended 31 March 2021 Operational performance (continued) The graph below reflects the inter-relationship of unplanned, planned and other capability loss factors with the energy availability factor and Generation recovery plan (continued) coal EUF. • Decrease partial load losses and boiler tube leaks that prevent units from operating at full capacity % % Plans to improve permanent partial load losses are dependent on outages. Frequent but sporadic partial load losses across the fleet 40 100 continue to offset advances in some areas. Tutuka, Kendal, Medupi, Duvha and Arnot recorded over 60% of the total partial load losses. Major cooling tower refurbishments are to be implemented at Tutuka, Kriel, Arnot, Duvha and Matla. 80 The boiler tube failure rate for commercial units deteriorated to 2.3 (2020: 2.1) boiler tube failures per unit per year which is more than 30 double the aspiration level of 1. Failures are mainly due to the maintenance backlog caused by the deferral of planned philosophy outages as a result of system constraints. 60 • Reduce maintenance outage due date slips and duration Eskom implemented the reliability maintenance recovery programme to provide intensified support to power stations. The reliability 20 maintenance recovery implementation committees are gaining momentum at power station level. Central reliability maintenance recovery 40 resources have been allocated to support outages at 11 stations with scope, planning, execution, recovery and continuous improvement. Older power stations that were previously not included in the programme are now included. The ability to prepare for outages in 2022 and to order spares with a long lead for outages in 2023 is impacted by a lack of available funding. 10 20 Unplanned capability loss factor (%) – left axis Post-outage unplanned capability loss factor (UCLF) is a key measure to track outage effectiveness and is measured up to 60 days after Planned capability loss factor (%) – left axis a unit synchronises to the grid after maintenance. The reliability maintenance recovery programme focuses on improving the quality and Other capability loss factor (%) – left axis accuracy of outage scope by developing a holistic approach that focuses on units that undergo interim repairs, general and mini overhauls. Coal energy utilisation factor (%) – right axis 0 0 Energy availability factor (%) – right axis Post-outage UCLF has shown significant improvement compared to the previous year, contributing 1% to overall UCLF for the year 2017 2018 2019 2020 2021 (2020: 1.3%). The due date performance is calculated for units that were on outage for more than 21 days and for reliability outages longer than 14 days. System minutes lost <1 minute performance improved significantly to 3.5 minutes compared to 4.4 minutes in 2020. However, two major Only 40.4% (2020: 35.9%) of outages met their due date during the year, which is significantly below the target of 80%. incidents occurred in July 2020 due to failure of ageing assets. Two large interruptions caused by protection failures at substations negatively affected system minutes performance. • Fill critical staff vacancies and enable the training of key staff The group executive: generation was appointed effectively from 1 April 2021. The three cluster manager positions have also been filled The combination of maintenance, network improvement projects and micromanagement of restoration times have yielded results as both and 125 new learners were appointed during the year. the duration and frequency of interruptions on the distribution network improved compared to the prior year. • Maintain sufficient diesel stocks to enable the open-cycle gas turbines (OCGT) to perform for extended periods The total technical and non-technical distribution line losses increased to 10.1% (2020: 8.8%) largely due to an increase in electricity theft Diesel tank capacity levels remain healthy and were maintained well above the target of 50%. Storage and supply capacity for OCGT diesel during the lockdown, despite a decline in demand. The estimated non-technical revenue losses were R2.3 billion (2020: R2.0 billion), mainly fuel has been increased to compensate for the high demand. 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. Eskom initiated a technology-based security programme to mitigate equipment theft and vandalism. • Maintain coal stockpiles at power stations All power stations were above the minimum stockholding levels at year end. Coal stock levels remained stable at 50 days (2020: 50 days) Despite its commitment to safety and focus on Zero Harm, Eskom recorded two (2020: zero) employee, eight (2020: nine) contractor and for the current year, excluding Medupi and Kusile power stations. 20 (2020: 17) public fatalities in the current year. A further concern is a noticeable increase in physical threats to employees, security staff and contractors working in high-density areas, particularly due to community unrest when removing illegal connections and implementing Coal quality issues at Kriel and Matla power stations accounted for almost 80% of coal-related other capability loss factor. Eskom is load reduction. working with mines on initiatives to improve the coal quality. Capacity expansion programme • Improve emissions performance The capacity expansion programme started in 2005 to build new power stations and reinstate mothballed power stations to increase installed Relative particulate emission performance has improved since the previous financial year due to a relative improvement in the Kendal generation capacity by 17 384MW, as well as increase high-voltage transmission power lines by 9 756km and transmission substation capacity power station performance and opportunity maintenance undertaken during level 5 of the lockdown. Poor performing units were placed by 42 470MVA. Since the programme started installed generation capacity has increased by 13 936MW (2020: 12 338MW), transmission on outage and investigations and repairs are under way. lines by 8 042km (2020: 7 976km) and substation capacity by 38 440MVA (2020: 37 690MVA). The programme is expected to be completed An emission recovery plan has been implemented across all units at Kendal power station since 2019, which led to a significant reduction by 2025. in emissions and units operating in compliance with regulations. Commercial operation was successfully achieved for Kusile units 2 and 3 on 29 October 2020 and 29 March 2021 respectively, contributing There were five (2020: 11) coal-fired units that were operating in non-compliance with average monthly emissions and this placed to installed capacity of 1 598MW to the national grid. The final unit of Medupi power station achieved commercial operation on 31 July 2021. 2 949MW (2020: 6 858MW) of electricity generated at risk of censure or closure by authorities. Kusile power station is expected to be completed by 2025. Transmission line construction was negatively affected by the lockdown restrictions, non-placement of major contracts and capital budget Technical performance constraints. High-voltage transmission lines of 65.6 km and substation capacity of 750MVA were installed and commissioned during the year. The energy availability factor of the generating plant decreased to 64.2% (2020: 66.6%) in the current year which is largely due to an increase in losses outside of the power stations’ control and more planned maintenance compared to the previous year. Progress was made on the electrification programme during the year with 106 669 (2020: 163 613) households connected. The energy utilisation factor (EUF) improved to 76.3% (2020: 79.0%) in the current year. Persistent high EUF levels continue to place stress Refer to page 78 of the integrated report for more information. on units, ultimately affecting their reliability and leading to high levels of unplanned capability loss factor. The high EUF was largely due to coal-fired stations running at an average EUF of 90.4% (2020: 93.3%) for the year, which is well above the international norm of approximately Financial performance 75% over the long term. This is of particular concern taking into account the age of the fleet. Turnaround plan Improving Eskom’s profitability and solvency ratios in a sustainable manner requires successful implementation of the turnaround objectives. The progress against the five key areas of the updated turnaround plan includes: • Operational recovery There is some cause for concern as fixing new build defects as well as addressing partial and full load losses are taking longer than expected. Progress on environmental performance, particularly at Kendal power station, is also not satisfactory. Another concern is the high utilisation of the older coal-fired power stations significantly above international norms thereby exacerbating the challenges. 4 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 5 DIRECTORS’ REPORT (continued) for the year ended 31 March 2021 Financial performance (continued) • Driving business separation Turnaround plan (continued) The roadmap from DPE sets timelines for the restructuring of Eskom from a vertically integrated utility to an unbundled state with three • Improving the income statement wholly owned separate legal entities in the form of transmission, generation and distribution as follows: One of the focus areas of improving the income statement is receiving an adequate tariff. Revenue is determined through the Multi-Year – divisionalisation by March 2020 Price Determination (MYPD) methodology regulatory process with NERSA. The successful review outcomes received from the High – functional separation by March 2021 Court led to a tariff increase of 15.06% for customers directly supplied by Eskom from 1 April 2021 and 17.80% for municipal distributors – legal separation of the transmission entity by December 2021 from 1 July 2021. The tariff adjustment will contribute towards improving sustainability even though the tariff is still not cost-reflective. – legal separation of the generation and distribution entities by December 2022 The tariff adjustment comprised of the following: Divisionalisation was achieved by March 2020. Major milestones towards the completion of functional separation were completed, with – MYPD 4 allowable revenue decision only service level agreements and IT changes still to be finalised at 31 March 2021. Functional separation of the three line divisions was – RCA decisions approved by NERSA completed by 7 June 2021. – three court outcomes related to the review of NERSA’s RCA decisions for the 2015 to 2017 financial years – the supplementary tariff application in respect of NERSA’s 2019 revenue decision Delays are being encountered in preparation for the legal separation of transmission. A number of dependencies are lagging with legal and – the execution order related to the review of the MYPD 4 decision with regards to the incorrectly deducted shareholder equity regulatory amendments, approval of the optimal corporate structure and set up of the new company behind schedule. Guidance is awaited from the Department of Mineral Resources and Energy (DMRE) regarding licensing and internal market operations of the transmission The status of the court proceedings that Eskom lodged against NERSA is as follows: entity. The projection currently is that separation will be partially achieved by 31 December 2021. – Revenue decision for 2020 to 2022 (MYPD 4): The judgement required Eskom to recover the incorrectly deducted R69 billion in a phased manner over a three-year period, The process of legal separation has many internal and external dependencies. These areas include licence applications, policy and commencing in the 2022 financial year. NERSA was granted leave to appeal to the Supreme Court of Appeal on the timing of the regulatory reforms, as well as legal and financial dependencies. Therefore, the achievement of legal separation is dependent to a large recovery. Eskom successfully applied for execution of the order to uphold the existing judgement while awaiting the appeal process. extent on government playing a proactive and supportive role. The High Court issued a judgement allowing R10 billion to be added to Eskom’s allowable revenue to be recovered in the 2022 financial year, pending finalisation of the appeal. The appeal process to address the remaining R59 billion is underway. Eskom commissioned a due diligence exercise to review the legislative framework and landscape to provide guidance on relevant issues so that informed decisions can be made on the separation of the transmission business. This included consideration of the impact on – RCA decision for 2019 together with the supplementary revenue decision: the generation and distribution divisions after the legal separation of transmission as well as the efficient functioning of the transmission The basis of this review is similar to the review of the previous years’ RCA decisions. NERSA communicated that it will oppose this business after legal separation. review application. An affidavit is yet to be filed. – RCA decision for 2018: Several external interdependencies were identified following from the due diligence exercise. An intergovernmental steering committee The basis of this review is similar to the review of the previous years’ RCA decisions. NERSA opposed this application. Eskom is awaiting comprising DPE, DMRE, National Treasury and Eskom has been established to focus on the financial, legal and energy policy dependencies a court date. to aid in the timely legal separation of the three entities. – RCA decision for 2015 to 2017: • Transforming Eskom’s people and culture After the review of the initial RCA decisions, the High Court issued an order and judgement for NERSA to make a remitted decision. People and culture, external stakeholder relations and communication with employees performed well during the year, despite constraints This decision is being reviewed again since Eskom takes the view that the remitted RCA decisions were unlawful, irrational and imposed by COVID-19. unreasonable where NERSA disregards the judgement in respect of the initial decisions. NERSA has not opposed this review application. The successful execution of the turnaround plan, and the business separation project in particular, will result in an Eskom that is agile and The status of revenue and RCA applications is as follows: well positioned to deliver value within the broader national efforts to drive reform in the electricity supply industry. – Revenue application for 2021 to 2025 (MYPD 5): Eskom submitted the MYPD 5 revenue application to NERSA on 2 June 2021. It is envisaged that NERSA will make this revenue decision Performance Eskom group’s financial health has been deteriorating over the past few years and is not at an acceptable level. The financial performance for by December 2021 to timeously allow for the municipal budgeting processes, as required by National Treasury in terms of the Municipal the year improved slightly with some of the financial ratios better than in 2020, but still far below acceptable norms. Finance Management Act. – RCA application for 2021: The net loss after tax for 2021 was R18.9 billion, reflecting an improvement of R1.9 billion from the previous year whilst EBITDA decreased The RCA balance application will be submitted to NERSA after the publication of the 2021 annual financial statements in accordance by R4.0 billion to R32.8 billion. with the MYPD methodology and associated rules. Revenue increased by R4.8 billion to R204.3 billion in the current year mainly due to the tariff increase of 8.8% allowed by NERSA which was – RCA application for 2020: offset by the declining sales volume. There has been a declining sales volume trend in the last few years, with an approximate 1% reduction Eskom submitted to NERSA a RCA application of R8.4 billion on 11 December 2020. NERSA is in the process of analysing and consulting per annum. However, the slowdown of the economy amid the COVID-19 pandemic has led to an unprecedented decline in sales volume in on the application. NERSA communicated that its approval will be made by 26 August 2021. 2021 with sales of 191 852GWh (2020: 205 635GWh). Sales volumes declined across every sector with the rail, international and industrial – Restructuring of tariffs: sectors most severely affected. Revenue was also negatively impacted by revenue not recognised of R12.1 billion (2020: R10.2 billion) as the Eskom submitted proposals for the restructuring of tariffs to NERSA in August 2020. NERSA decided to undertake a second round of collectability criteria was not met, with R5.9 billion (2020: R4.1 billion) of revenue recognised from customers on the cash basis. Eskom’s consultations. The proposed timing for the approval is August 2021 for implementation from 1 April 2023. Further tariff restructuring average electricity price amounted to 111.04c/kWh (2020: 101.86c/kWh) in the current year. proposals will be made once NERSA approves these changes. The graph below reflects declining sales volume over the last few years in comparison to the electricity revenue. Eskom aims to reduce the cost base by R61.8 billion by 2023 and achieved combined savings of R30.7 billion for 2020 and 2021, Rbn TWh exceeding the cumulative target of R20.3 billion. Savings of R14.4 billion were achieved during the year against a target of R14.1 billion 250 250 mainly as a result of a reduction in primary energy expense complemented by a reduction in employee benefit costs and other sundry expenditure. Some initiatives are under way to achieve the required savings and there is an increased focus on procurement, working capital, capital expenditure and revenue recovery. Procurement is an ongoing area of focus to ensure that Eskom derives optimal value 200 200 from its suppliers. Another round of voluntary separation packages for managerial staff was announced in November 2020 to reduce the headcount. A total of 188 applications were received with 94 approved and only 74 accepting the offer, at a cost of R112 million. This was in addition 150 150 to the 185 exits as part of the first round in 2020 at a cost of R286 million. • Strengthening the balance sheet Some areas are lagging behind expectations, such as management of obsolete stock, disposal of non-core assets and optimisation of capital 100 100 expenditure. The sale of Eskom Finance Company (EFC) to the preferred bidder was not approved by DPE. National Treasury provided R56 billion (2020: R49 billion) in equity support to Eskom in 2021. The funds may only be used to settle debt 50 50 and interest payments in terms of the equity conditions attached to the support. The government committed R31.7 billion for the 2022 financial year which was received in full by July 2021. Government expressed its commitment to providing a further R21.9 billion and Electricity revenue (Rbn) R21.0 billion in support for 2023 and 2024. 0 0 Sales volume (TWh) 2017 2018 2019 2020 2021 6 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 7 DIRECTORS’ REPORT (continued) for the year ended 31 March 2021 Financial performance (continued) The graph below shows the movement in cash from operations and the decrease in cash interest cover and net debt service cover over the Performance (continued) last few years. Primary energy expenses increased by R3.8 billion to R115.9 billion in the current year, with costs mostly contained due to a 8.7TWh Rbn Ratio reduction in production (excluding pre-commissioning production) and sourcing of coal from cheaper short- and medium-term contracts. 50 2.0 Eskom managed to contain growth in its own generation costs with a modest 1.7% increase to R72.9 billion (2020: R71.7 billion), excluding the environmental levy. Expenditure on OCGTs decreased by 4.7% to R4.1 billion in the current year, despite an increase in supply to 1 457GWh (2020: 1 328GWh), mainly due to favourable diesel prices during the year. IPP expenditure increased by 9.6% to R30.8 billion in the current 40 year due to more extensive use of self-dispatchable renewable IPPs. 1.5 Employee benefit expenses decreased by R0.3 billion to R32.9 billion in the current year. The decrease is mainly attributable to a reduction in headcount of 4.5% to 42 749 in 2020 as well as no managerial salary increases. 30 The impairment and writedown of other assets increased by R0.6 billion mainly due to a major inventory clean-up exercise conducted in 2021 1.0 which resulted in a writedown of R1.5 billion. This was offset by the impairment of Wilge flats in the prior year of R0.9 billion. 20 Other expenses increased by R5.3 billion to R24.0 billion in 2021 mainly due to higher decommissioning provision costs as a result of a decrease in the discount rate, increased maintenance to address plant performance challenges and a writeoff in the current year in respect of Duvha unit 3 due to the cancellation of the recovery project. 0.5 10 Depreciation decreased by R0.8 billion to R27.0 billion in the current year mainly due to the impact of the accelerated depreciation for units Cash from operations (Rbn) at the Komati power station in the prior year. Cash interest cover (Ratio) Net debt service cover (Ratio) The group achieved a net fair value gain on financial instruments of R0.9 billion (2020: R4.6 billion net fair value loss). The swing from a fair 0 0.0 2017 2018 2019 2020 2021 value loss to gain is mainly due to the strengthening of the rand. The total gross overdue debt increased by R1.9 billion to R45.4 billion of which municipalities represent 77.8% and Soweto 16.3%. The total gross The financial health ratios relating to the statement of financial position improved, with the net debt-to-equity ratio at 1.8 in the current municipal overdue debt was R35.3 billion (2020: R28.0 billion) in 2021 of which the Free State owed 38.5%, Mpumalanga 29.2% and Gauteng 11.3%. year compared to 2.2 in the prior year. The net debt decreased by R17.0 billion during the year to R398.2 billion and equity increased by R29.7 billion to R215.8 billion, mainly resulting from the equity support of R56 billion received from government which was offset by the net Eskom continues to execute its municipal debt management strategy by enhancing existing revenue and debt management processes, enforcing loss for the year. Eskom’s rights through legal action and expediting government interventions. Eskom is focusing on the top 20 defaulting municipalities, as they constitute 81% of total gross municipal overdue debt, as a priority to ensure interventions are in place by various stakeholders and to The graph below reflects the movement in net debt as well as the improvement in the debt-to-equity ratio and the decline in the net debt improve the payment levels. cash service cover ratio over the last few years. A total of 43 active payment agreements were in place with defaulting municipalities at year end with only 10 agreements being honoured. Eskom continues to explore all avenues to collect debt and the interruption of supply remains the last resort. Eskom has been interdicted Rbn Ratio 500 4 from interrupting supply to various defaulting municipalities. Eskom lost two appeals to interrupt supply to two municipalities as the Supreme Court of Appeal concluded that the dire situation faced by these municipalities obliged the national and provincial governments to intervene, in terms of the Constitution of South Africa. Eskom’s debt collection 400 process has been revised to align with the Intergovernmental Relations Framework Act process, in compliance with the Supreme Court of 3 Appeal judgement. This affects the time to collect, and in some instances, municipalities are frivolously declaring disputes to delay the collection process. Eskom has approached the Constitutional Court to appeal the ruling of the Supreme Court of Appeal and is awaiting a court date. 300 Eskom has set the groundwork for an active partnering model to assist defaulting municipalities in their revenue collection efforts whereby Eskom will act as an agent for supply of electricity, maintenance services and collection of revenue on behalf of municipalities. 2 Eskom continues to work with the Eskom Political Task Team and its Multi-disciplinary Revenue Committee, but improvements from these 200 initiatives are however yet to be seen. In addition, Eskom developed a proposal for National Treasury to take over the municipal arrear debt, with the intention of reinforcing National Treasury’s financial oversight of the affected municipalities. Discussions with National Treasury are ongoing on how to leverage their authority to ensure municipalities prioritise the settlement of the arrear debts. 1 100 The total gross overdue debt for Soweto decreased by R5.3 billion to R7.4 billion. The decrease is mainly due to the writeoff of R8.6 billion Net debt (Rbn) debt, consisting of prescribed debt of R5.3 billion and in duplum interest of R3.3 billion. The average payment levels for Soweto remain low Net debt service cover (Ratio) at 20.6% for the year. 0 0 Net debt-to-equity (Ratio) The graph below reflects the increase in the overdue municipal debt per province and the breakdown between the net impairment and 2017 2018 2019 2020 2021 finance income and revenue not meeting collectability criteria since 2017. Rbn 40 The gross debt securities and borrowings decreased by R81.9 billion to R401.8 billion in the current year. Eskom repaid R65.6 billion and raised R15.8 billion of debt during the year. In addition, foreign borrowings were impacted by the recent strengthening of the rand against major currencies leading to a further reduction in gross debt. 35 The net cash from operations of R30.7 billion (2020: R36.2 billion) remain inadequate to meet the debt servicing requirements and fund 30 general capital expenditure. The investment activities decreased by R0.7 billion to R26.3 billion in 2021. 25 20 Finance income and revenue not meeting collectability criteria (Rbn) 15 Net impairment (Rbn) 10 Free State (Rbn) Mpumalanga (Rbn) 5 Gauteng (Rbn) 0 Other (Rbn) 2017 2018 2019 2020 2021 8 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 9 DIRECTORS’ REPORT (continued) for the year ended 31 March 2021 Financial performance (continued) Eskom focused on the development and implementation of a procurement roadmap to improve procurement processes and contract Funding management by: Eskom only secured R18.9 billion (2020: R50.9 billion) in terms of its borrowing programme for the current year. Delays in receiving government • reducing the number of cancellations of published tenders guarantees and limitation of foreign borrowing limit resulted in planned funding being postponed to 2022. Despite the postponement of • improving compliance with implementation of procurement plans funding, Eskom was able to navigate liquidity requirements through effective cost management and deferral of capital expenditure. • enhancing contract performance and project budget monitoring • reducing the number of contract modifications exceeding thresholds The committed and drawn-down funding against the government guarantee of R350 billion for 2021 was R304.5 billion (2020: R324.2 billion), with R45.5 billion available for further use. The overall implementation of the King IV TM principles remains partially effective based on the most recent assessment. Although many of the required practices have been in place for many years, the board acknowledges that not all of the King IV TM principles have been The debt repayment profile of existing debt is pressured over the short and medium term, with debt repayments of R152 billion and interest implemented effectively. repayments of R125 billion over the next five years. PFMA compliance The primary focus of the borrowing programme over the next five years is to secure cost-effective funding and reduce Eskom’s debt burden. Irregular expenditure The new five-year borrowing programme has decreased by R16.6 billion to R105.3 billion when compared to the previous five-year period, New instances of irregularities have been detected as Eskom continues with its governance clean-up exercise, which are then investigated and reflecting Eskom’s intention to limit growth in debt securities and borrowings as well as related debt service costs. appropriately addressed. Approximately 18.8% of the irregular expenditure of R11.7 billion reported in 2021 related to new transgressions Mr R Vaughan, the group treasurer, was appointed as Eskom’s debt officer and has the relevant experience and expertise for this role. due to the contravention of various national legislative requirements. Progress in obtaining condonations from National Treasury has been slow for a number of years. Eskom received notice of condonation of 296 transactions valued at R9.5 billion with further condonations Refer to page 65 of the integrated report for more information. expected in the coming financial year. Governance and compliance The loss control department has been established and PFMA reporting procedures have been revised to ensure that all assessments and The board expressed its commitment to rooting out corruption and addressing issues related to past corporate governance breaches. In investigations of irregular expenditure and fruitless and wasteful expenditure are to be performed by this department Training and awareness order to restore Eskom’s reputation as a trusted corporate citizen and improve the organisation’s financial and operational sustainability, on the revised PFMA reporting procedures and guidelines are being implemented and are mandatory for all managerial and executive various actions have been taken to address corporate governance related breaches, including: employees. • Lifestyle audits and conflicts of interest Several initiatives were implemented during the year to reduce the occurrence of irregular expenditure, including: In phase 1 of the lifestyle audits on executive and senior managers 34 high-risk cases were handed over to the Special Investigating Unit for • establishment of a weekly functional leadership steering committee, chaired by the chief procurement officer (CPO), to monitor progress further investigation. Of these cases seven cases resulted in no adverse findings, seven employees resigned, one employee was dismissed, and challenges on PFMA-related matters and procurement plans eight cases were referred back to Eskom for disciplinary action, a further six cases are in the process of being referred back to Eskom and • appointment of procurement heads in generation, transmission and distribution to establish contract management offices and improve the five cases are still under investigation. quality, accuracy and completeness of PFMA reporting • continuous review and monitoring of purchase orders and procurement plans in accordance with revised procurement procedures, to Data analytics were conducted in November 2020 on all employees below executive and senior management level, revealing that limit the abuse of low-value procurement mechanisms and to identify potential contracting opportunities approximately 8.6% of the target group had not declared business-related interests or applied for permission to perform private work, • collaboration with assurance and forensic and the loss control department to investigate procurement and PFMA-related issues identified despite being active shareholders and directors according to records from various databases. Disciplinary processes have been conducted through reviews, complaints and whistle-blowing mechanisms with approximately 88% of matters concluded by year end. In response to these findings, Eskom has upgraded the conflict of interest • monitoring of internal condonation processes as well as condonations submitted to National Treasury declaration system to link directly to various databases to proactively identify unethical conduct. In addition, Eskom reviewed all contract modification applications that were not approved by National Treasury to identify any potential Data analytics testing was conducted on 73 corporate specialist and corporate professional employees at executive level. Seven high-risk deviations and irregularities that might occur, and to introduce interventions to prevent recurrence. Consequence management and cases were identified and detailed lifestyle audits will commence once an independent service provider has been appointed. Lifestyle audits condonations relating to procurement transactions form part of the PFMA reporting. will also be extended to include all newly appointed executives. Fruitless and wasteful expenditure and criminal conduct • Ethics, fraud and consequence management Fruitless and wasteful expenditure of R1.3 billion (2020: R2.3 billion) was reported during the year. Losses due to criminal conduct of Good progress has been made with the implementation of a fraud risk management plan which aims to maximise fraud prevention and R2.5 billion (2020: R2.2 billion) were reported during the year of which an estimated R2.3 billion (2020: R2.0 billion) related to non-technical enhance good corporate governance practices. The Anti-fraud and Corruption Integration Committee monitors the implementation of energy losses including energy theft. the plan, with regular progress reported to the Executive Committee (Exco) and Audit and Risk Committee (ARC). Consequence management and disciplinary processes are being improved with regular feedback on the status of disciplinary cases to Board and executive committee changes executive management. Disciplinary action is monitored, particularly where line managers and supervisors have decided not to take action The board should consist of a minimum of three and maximum of 15 directors, with the majority being non-executive directors, in terms of against an employee despite findings from an investigation. the memorandum of incorporation. A request to appoint additional non-executive directors to strengthen the board has been submitted to the shareholder for consideration. • Investigations and disciplinary action A total of 105 (2020: 118) new cases involving employees and suppliers were reported through whistle-blowing channels during the year. The only changes to the non-executive directors were the resignations of Mr RSN Dabengwa on 21 July 2020 and Ms NVB Magubane Eskom concluded 46 (2020: 202) investigations during the year of which 10 were fraud, 17 corruption and 19 related to irregularities. A in August 2021. further 77 cases were closed following a comprehensive review of all active cases. Disciplinary action was recommended for 80 cases and The following changes to Exco occurred during the year and subsequent to year end: 238 cases were under investigation at year end. Executive committee members Comment The forensic investigations revealed similar themes to previous years, with instances of undeclared conflicts of interest, failure to obtain permission to perform private work, leaking of confidential information as well as general procurement irregularities. Non-compliance F Burn Appointed as chief information officer on 15 May 2020 with Eskom’s policies and procedures remains the most prevalent root cause. ND Harris Appointed as acting chief information officer on 19 May 2019 and acted until 14 May 2020 NB Hewu Suspended and then subsequently terminated as acting GE: legal and compliance on 31 January 2021 There are 176 disciplinary cases with 155 cases that have been completed. As a result of fraud and corruption 28 employees have been N Minyuku Appointed as GE: government and regulatory affairs on 15 October 2020 dismissed and 74 employees resigned during the disciplinary process. There have been 72 cases registered with the South African Police N Otto Appointed as acting GE: legal and compliance in December 2020 Service and a further 14 are in the process of criminal prosecution. J Sankar Appointed as acting CPO on 22 February 2021 Eskom is pursuing civil action against seven former Eskom executives and directors, as well as third parties, for approximately R3.8 billion MS Tshitangano Suspended and then subsequently dismissed as CPO on 28 May 2021 relating to a prepayment to Tegeta Exploration and Resources (Pty) Ltd. Two former senior employees were arrested and appeared in V Tuku Appointed as GE: transformation management office on 1 July 2020 court on corruption-related charges in December 2019 and assets of the defendants to the value of R1.4 billion have been frozen. Eskom re-established the Supplier Review Committee to ensure appropriate disciplinary action is taken against suppliers where non- The divisional group executives did not form part of Exco in 2021. compliance with procurement and supply chain management procedures has been identified. However, progress remains slow due to the Refer to page 14 of the integrated report for more information. backlog of cases. Eskom continues to support government and law enforcement agencies with investigations into violations of law and recovery of monies lost using criminal and civil processes. Criminal convictions and the recovery of financial losses are dependent on the successful prosecution by law enforcement agencies and the justice system which is a lengthy process. 10 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 11 DIRECTORS’ REPORT (continued) for the year ended 31 March 2021 Human resources Actual performance against the year-end target is indicated as follows: Employee engagement, employee value proposition as well as organisational culture and change management are integrated areas intended Actual performance for the year met or exceeded the target to drive a desired culture of performance. Actual performance for the year did not meet the target Employee engagement initiatives are in place to create a harmonious workplace and increase employee engagement levels thereby rebuilding Key performance indicator Ref Unit Target Actual Actual employee morale and creating a common vision to drive a high-performance culture. Associated initiatives were adapted by leveraging digital 2021 2021 2020 and virtual technology to accommodate the new normal due to the lockdown. Focus on safety The ‘Advice for André’ engagement platform and mobile application was designed and the responses have been overwhelmingly positive, with Lost time injury rate (employee)1 rate 0.32 0.22 0.30 employees engaging with the group chief executive (GCE) and sharing their innovative ideas on how to improve Eskom. Improve plant operations Eskom embarked on one of its most ambitious and possibly most challenging transformation journeys. The Eskom change management Energy availability factor (a) % 73.00 64.19 66.64 strategy and customised initiatives have been implemented across all key Eskom-wide strategic projects to support the Eskom turnaround Planned capability loss factor % 10.00 12.26 8.92 plan. An organisational culture and change management programme was designed to capacitate employees and empower leaders with Unplanned partial load losses (b) average MW 3 150 4 109 4 651 knowledge, change management skills and practical tools to drive the desired culture. Unplanned automatic grid separations trips (c) number of trips 448 527 594 Post philosophy outage unplanned capability loss factor (d) % 16.00 21.23 29.91 Eskom continues to institute appropriate measures to protect critical staff and minimise the number of employees on site wherever possible to combat the effects of COVID-19, and as a result, a large part of the support staff are still working from home. System minutes lost minutes 3.53 3.48 4.36 Payment levels excluding Soweto interest % 95.70 96.82 96.24 Eskom recorded 6 980 positive cases at 17 August 2021, consisting of 5 775 employees and 1 205 contractors, with 6 140 recoveries. Sadly, Distribution total energy losses (e) % 9.71 10.11 8.79 128 employees and 17 contractors have succumbed to the disease. There have been 43 employees re-infected. Total electrification connections number 85 428 106 669 163 6132 Workforce System average interruption duration index (SAIDI) hours 38.00 35.36 36.90 The headcount reduced by 2 023 (2020: 1 893) to 42 749 (2020: 44 772) in the current year mainly due to natural attrition and voluntary Primary energy optimisation separation packages at managerial level. Eskom’s ability to fill vacancies is limited by financial constraints and headcount targets. Migration of coal delivery volume from road to rail (f) Mt 10.50 3.60 7.50 Coal purchase rand/ton % increase 11.00 3.2 16.30 Building and retaining strong skills Eskom is focused on managing talent in a sustainable manner and ensuring that the existing workforce is adequately supported in their Deliver capital expansion developmental needs, thereby retaining critical skills using a targeted employee value proposition. Commitment to skills development is Generation capacity installed and commissioned MW 1 594 1 598 1 588 essential to ensure that the required skills for the organisation’s needs are retained, especially considering the continuing financial constraints. (commercial operation) Transmission lines installed (g) km 92.50 65.60 127.90 Internal talent boards are used to identify high-performing individuals and staff developmental needs, perform succession planning for the Transmission transformers capacity installed and commissioned MVA 500 750 250 critical workforce and actively manage talent pools in line with the workforce plan and transformation objectives. This seeks to reduce the need for external recruitment. Legal separation Business separation key milestones – the annual progress made organisational design, Yes Yes n/a The learner pipeline represented 4.1% of the permanent workforce with 1 465 learners and learner artisans making up almost 60% of the towards the separation of the three line divisions implementation and total learner pipeline. internal trading The training spend of R0.8 billion (2020: R1.1 billion) in 2021 is 2.6% (2020: 3.7%) of gross manpower costs. Training expenditure was Business separation key milestones – transmission, distribution and (h) date 31 March No n/a curtailed due to the current financial challenges and the effects of the lockdown. generation are functionally separated (functional unbundled) 2021 Ensure financial sustainability3 Eskom supported further study programmes where employees seek to obtain qualifications related to their line of work or benefit the EBITDA R million 23 522 32 813 36 816 organisation. A total of 303 (2020: 182) employees were enrolled at various academic institutions to obtain qualifications related to Eskom’s line of work. Cash interest cover ratio 0.31 0.85 0.94 Debt service cover ratio 0.11 0.30 0.52 Improving internal transformation Disposal of the EFC (i) R million 5 820 – – Employment equity remains one of the key initiatives through which meaningful transformation can be realised. Eskom continues to make Savings from turnaround initiatives R million 14 142 14 352 16 287 progress in ensuring equitable representation of the workforce at all levels to reflect the demographics of the country. Socio-economic impact: human capital Racial equity at senior management and middle and professional management levels showed significant improvement during the current Learner intake: artisans (work integrated learning (WIL)) (j) number 100 – 91 year. Gender equity at senior management and middle and professional management levels showed some improvement since the prior year. Learner intake: engineers (WIL) (k) number 50 – 16 Vacancies that arise due to natural attrition are targeted and reserved for women and employment equity purposes. Learner intake: technicians (WIL) (l) number 50 – 11 The disability target for the year was not achieved. Proportional representation of persons living with disabilities remains a concern as they Learner intake: plant operators number – 89 – are well represented at lower occupational levels but not across all levels. It is also of concern that the number of employees living with Training spend as % of gross manpower costs % 2.56 2.58 3.67 disabilities is reducing. Bursaries engineers and technicians number 27 72 n/a Refer to page 106 of the integrated report for more information. Reduce environmental footprint in existing fleet Relative particulate emissions (m) kg/MWh sent out 0.32 0.38 0.47 Shareholder compact performance Specific water usage (n) ℓ/kWh sent out 1.34 1.42 1.42 The table sets out Eskom’s performance measured against the shareholder compact that was reviewed by the external auditors. The external audit opinion relating to this review is detailed on page 21. All the key performance indicators in the compact refer to the Eskom company, Corporate social investment (CSI) with the exception of the lost-time injury rate and the finance measures which reflects the group. CSI committed/spend (o) R million 153.80 67.40 123.80 Industrialisation and localisation Preferential procurement (p) % of TMPS 75.00 62.34 61.57 Local content (q) % 80.00 65.99 n/a Competitive supplier development programme (r) % of total capital 30.00 – 0.03 procurement spend B-BBEE score (s) number 7 8 7 Enterprise and supplier development R million 5.00 6 764.00 4.59 Research and development (t) % of NERSA-allocated 80.00 52.10 84.94 spend 1. Includes occupational disease. 2. Includes 45 292 rollover connections. 3. Prior year information has been restated. Refer to note 49 in the annual financial statements. 12 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 13 DIRECTORS’ REPORT (continued) for the year ended 31 March 2021 Shareholder compact performance (continued) The reasons for non-achievement of targets are discussed below: Ref Key performance indicator Target Actual Reason Ref Key performance indicator Target Actual Reason 2021 2021 2021 2021 Improve plant operations Corporate social investment (CSI) (a) Energy availability factor 73.00 64.19 Low availability of generating units because of unplanned maintenance (o) CSI committed/spend 153.80 67.40 The CSI budget was reduced due to financial constraints, which were to address high levels of both full and partial unplanned load losses exacerbated by the impact of COVID-19. The strengthening of coupled with an increase in planned maintenance through the systems and controls around processing of donations increased the Generation recovery plan caused a low energy availability factor. turnaround times to implementing CSI initiatives. (b) Unplanned partial load losses 3 150 4 109 Factors that lead to unplanned partial load losses included steam and water Industrialisation and localisation chemistry control issues, poor maintenance practices, lack of outage readiness and plant not being maintained due to spares and refurbishment (p) Preferential procurement 75.00 62.34 The procurement target was negatively impacted by increased contracts that were not in place because of procurement delays. spending with non-compliant suppliers due to expired B-BBEE certificates. The calculation of total measurable procurement spend (c) Unplanned automatic grid 448 527 The main causes of trips were as a result of boiler, turbine, generator (TMPS) also includes spending on IPP contracts that are not B-BBEE separations trips and feedwater mechanical reliability. Performance was impacted by compliant and which Eskom has no control over as these contracts critical vacancies in technical departments, combined with a lack of were concluded in terms of DMRE’s RE-IPP programme. The overall training opportunities as well as a backlog of capability testing at some performance would have improved to approximately 77% of TMPS had power stations due to unit load restrictions and trip risk assessments IPP expenditure been excluded. conducted prior to planned tests. (q) Local content 80.00 65.99 Local content was impacted by a reduction in the number of contracts (d) Post philosophy outage 16.00 21.23 The main contributors to the post-outage unplanned losses that with local content obligations. Local content contracted is measured unplanned capability loss factor occurred within 60 days after a unit returned from an outage were as a percentage of total measured procurement spend. A new boiler, turbine, electrical and draught plant related losses. definition where local content is measured as a percentage of the total (e) Distribution total energy losses 9.71 10.11 The non-technical component of losses increased predominantly on contracts awarded for all Eskom company procurement will be used prepaid feeders as a result of electricity theft. Technical losses arose going forward. If the new definition was applied the actual for 2021 due to ageing distribution networks which are often constrained and would have been 2.17%. overloaded. (r) Competitive supplier 30.00 – Competitive supplier development programme performance is largely Primary energy optimisation development programme dependent on contracted expenditure on major capital projects. The ramping down of the capital expansion projects (Medupi, Kusile and (f) Migration of coal delivery 10.50 3.60 Less coal was transported by rail mainly due to unavailability of the Ingula) within the new build programme has significantly reduced volume from road to rail rail offloading facility at Majuba power station due to a fire in opportunities to contribute towards industrial development. December 2019. Commercial and safety approval delays have also restricted rail operations at Tutuka and Arnot power stations. (s) B-BBEE score 7 8 Eskom’s B-BBEE recognition level is 10%, resulting in a B-BBEE status of level 8. Eskom’s renewed B-BBEE certificate was reissued in Deliver capital expansion December 2020, following a request for the review of a non-compliant (g) Transmission lines installed 92.50 65.60 Line construction was negatively impacted by the lockdown, capital version that was issued in October 2020. The certificate will expire budget constraints, poor contractor performance as well as in October 2021 and Eskom will be implementing plans to improve its construction and contractual challenges. score from level 8 to level 4. Legal separation (t) Research and development 80.00 52.10 Research and development was negatively affected by the lockdown which has limited access to Eskom laboratories, services and sites to (h) Business separation key Yes No Major milestones towards the completion of functional separation execute research activities, delaying the progress on numerous milestones – transmission, were completed, with only service level agreements and IT changes projects. distribution and generation are to be finalised at 31 March 2021. Functional separation of the three functionally separated line divisions was completed by 7 June 2021 with all the necessary documentation completed and signed off. Reportable irregularities Progress has been made in clearing some of the reportable irregularities reported by the external auditors in the prior year, although some Ensure financial sustainability items will remain open until all related aspects are concluded. Three new reportable irregularities were reported in the current financial year. (i) Disposal of the EFC 5 820 – The sale of EFC to the preferred bidder was not approved by DPE Detailed progress on reportable irregularities can be found in note 53 of the annual financial statements. and was deferred until market conditions improve. Events after the reporting date Socio-economic impact: human capital Events after the reporting date are discussed in note 48 of the annual financial statements. (j) Learner intake: artisans (WIL) 100 – No new workplace integrated learners were appointed during the Approval (k) Learner intake: engineers (WIL) 50 – The group annual financial statements for the year ended 31 March 2021 were prepared under the supervision of the CFO, C Cassim CA(SA), year due to financial constraints and the lockdown. (l) Learner intake: technicians (WIL) 50 – and approved by the board and signed on its behalf by: Reduce environmental footprint in existing fleet (m) Relative particulate emissions 0.32 0.38 Relative particulate emission performance has improved since the previous financial year due to an improvement in the Kendal power station performance. However, emissions remain high due to poor MW Makgoba AM de Ruyter C Cassim coal quality, poor performance of electrostatic precipitators and Interim chairman Group chief executive Chief financial officer issues with dust handling and SO3 plant. 23 August 2021 23 August 2021 23 August 2021 (n) Specific water usage 1.34 1.42 Water consumption was negatively impacted by higher production from wet-cooled as opposed to dry-cooled and nuclear power stations during the year. Despite the high rainfall during the year, operational inefficiencies and inadequate water management practices at power stations further contributed to poor performance due to low load factors, dam overflows and spills. 14 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 15 REPORT OF THE AUDIT AND RISK COMMITTEE Mandate and terms of reference Significant matter Committee review and conclusion The audit and risk committee (the committee) presents its report in terms of the requirements of the PFMA, the Companies Act (section 94(7)(f)) and other applicable regulatory requirements as well as in accordance with the King IV TM Report on Corporate Information required The committee continued to place significant focus on addressing the shortcomings in the completeness of Governance for South Africa for the financial year ended 31 March 2021. by the PFMA and the information required by the PFMA. A loss control department has been established and PFMA reporting impact thereof on procedures have been revised to ensure that the department perform all assessments and investigations of PFMA The role of the committee is defined in its mandate. It covers, among others, its statutory duties and assistance to the board with the the audit opinion incidents. Refer to the directors’ report for further information on addressing the PFMA reporting challenges. oversight of financial and non-financial reporting and disclosure, internal control systems, risk management, internal and external audit functions and combined assurance, including technology and information governance. The committee also performs the functions required Recovery of overdue The committee considered the actions taken by Eskom to address municipal, Soweto and international arrear by the Companies Act on behalf of the wholly-owned subsidiaries of the group, with the exception of Escap SOC Ltd (Escap). Information trade receivables debt, including continued roll out of split metering on a prepaid basis as well as promoting and implementing an about the mandate, membership composition and attendance of meetings of the committee is set out in the 2021 integrated report under (arrear debt) active partnering solution for municipalities. the governance, leadership and ethics as well as supplementary information sections. The committee, however, recognises that the challenges regarding the recovery of outstanding receivables cannot The committee has adopted appropriate formal terms of reference as its audit and risk committee charter, has regulated its affairs in be solved by Eskom alone. The continued support and cooperation from government and other stakeholders are compliance with this charter and has discharged all its responsibilities contained therein. crucial to address the root causes of the problem. It is critical that these challenges are addressed through the political task team. The group is applying a combined assurance model to ensure coordinated assurance activities. The committee oversees the assurance activities and the establishment of effective systems of internal control to provide reasonable assurance that the group's financial and non- Valuation of The committee considered the nature and quantum of costs capitalised to property, plant and equipment and are financial objectives are achieved and that the preparation of the group's suite of externally published reports (as detailed in the integrated property, plant and satisfied that the costs were necessary in bringing the asset to the condition to operate in the manner intended report) are in accordance with the frameworks and standards set out within those reports. equipment and by management. assessment for Execution of functions possible impairment The committee considered the methodology used by Eskom to determine the useful lives of assets and is satisfied that it is based on Eskom’s experience of the performance of the assets taking into account Eskom’s operating Oversight of financial and non-financial reporting and disclosure and maintenance regimes as well as the physical conditions and circumstances in which the assets operate. In the conduct of its duties the committee has, inter alia: • considered whether the annual financial statements met the fair presentation requirements of the PFMA, Companies Act and International The committee assessed the appropriateness of the cash generating units (CGU) for the group. The committee Financial Reporting Standards (IFRS) also considered that impairment indicators such as damaged plant and the impact of lower than expected • considered the appropriateness of key judgements, estimates and the accounting treatment applied to significant transactions in the annual electricity tariffs on future cash flows have been appropriately taken into account in the impairment assessment. financial statements The committee interrogated the underlying assumptions and estimates used in the calculation of the recoverable • sought the input and views of the external auditors and encouraged rigorous challenging of control, accounting and disclosure matters amount of the CGUs and confirm that there is no impairment required on property, plant and equipment. • considered matters relating to cost savings, budgeting and forecasting, future funding and taxation Valuation and The committee considered the briefings on the decommissioning and rehabilitation provisions, including the • overseen the risk management function, including the process of identifying significant risks and opportunities and the resulting mitigation adequacy of governance framework applied, the movement in provisions over time and the key assumptions and discount rates strategies long-term used. Detailed annual reviews are done by external experts on a rotation basis to re-assess the relevant decommissioning decommissioning and rehabilitation liabilities against the latest international practices and benchmarks as well as The following significant matters were considered: provisions compliance to legislation. Significant matter Committee review and conclusion The committee interrogated the underlying assumptions used in determining the decommissioning provisions to Going-concern The committee continued to monitor the group’s liquidity and solvency closely because of the financial position assess the adequacy thereof. assessment and related challenges and concluded that it was not trading recklessly at any time during the year. The committee Valuation and The committee considered the briefings and reports on the employee benefit obligations, including the key acknowledged that Eskom cannot solve its problems alone, but needs support from the shareholder. adequacy of assumptions and discount rates used in the annual actuarial valuations. The committee interrogated the accounting The committee recognised the continued support from government. employee benefit interpretations and considered expert advice in this regard including from legal counsel. The committee accepted obligations the judgement made regarding the accounting treatment of the Eskom Pension and Provident Fund in terms of The committee considered the key aspects taken into account in the going-concern assessment as discussed in note 3.2 as well as scenarios that might impact the going-concern assessment. The committee critically assessed IAS 19 Employee benefits as discussed in note 2.17 that resulted in the prior year adjustment. the liquidity of Eskom using the latest cash flow forecasts, including servicing of debt in the next 12 months and Internal control over The committee monitored the effectiveness of the control environment through feedback on the results of the stress-tested the forecasts using lower electricity prices, changes to capital activities and reducing costs. financial reporting, combined assurance activities from management, assurance and forensics (internal audit) and the external The committee considered Eskom’s financial ratios that reflect an overall negative trend. including information auditors. The committee scrutinised the significant risk areas and their associated remediation plans and mitigating technology general controls implemented, including those relating to segregation of duties, access management, security of The committee concluded, after examining the forecast and stress-tested scenarios and considering Eskom’s controls confidential data, cyber risk, information technology infrastructure, application issues and third-party supplier ability to raise funding in the current market conditions, that the going-concern basis of accounting was appropriate only with support from government. The committee recommended the adoption of the going- management. The committee focused on specific control issues, in particular, the controls relating to PFMA concern basis of preparation by the group to the board based on the critical factors as disclosed in note 3.2. reporting and investigations into fraudulent activities. The committee concluded that the internal control environment is satisfactory, even though improvement is necessary in certain areas including PFMA reporting and Governance The committee acknowledged that improvement is required in respect of compliance with applicable laws and contract management. regulations. Steps are being taken to sufficiently strengthen Eskom’s leadership. Additional permanent appointments were The matters listed above are considered to be key focus areas for the committee in the next financial year and will be monitored and reported made in certain key executive positions during the year. The board requested the shareholder to fill the board on in future. The committee will also monitor the relevant aspects of the legal unbundling that impacts on the role of the committee. vacancies to ensure that all committees are adequately capacitated to fulfil their mandates. This is particularly Internal control, management of risks and compliance with legal and regulatory requirements relevant for the audit and risk committee where the current membership of only three members is not adequate The committee considered the following: for the size and risks associated with Eskom as well as the planned separation of the committee into separate • effectiveness of internal control systems and governance processes audit and risk committees. • legal matters that could have a material impact on the group The current leadership’s priority remains turning Eskom around. Progress has been made towards restoring • effectiveness of the system and process of risk management including the following specific risks: Eskom’s ethical culture and governance practices. The committee continued its focus on monitoring the status – financial reporting and action taken on addressing key matters arising from investigations, reportable irregularities and past – internal financial controls corporate governance breaches, including: – fraud risks relating to financial reporting • conducting lifestyle data analytics of all employees below senior management level – information technology risks relating to financial reporting and internal control • enhancing commercial governance processes to ensure robust scrutiny and strengthening the delegation of – the effectiveness of the entity’s compliance with legal and regulatory requirements authority framework • strengthening ethics and fraud frameworks and enhancing the focus on consequence management • instituting disciplinary charges against employees and suppliers, and taking legal action, where appropriate • investigating and terminating supplier contracts implicated in irregularities, fraud and corruption 16 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 17 REPORT OF THE AUDIT AND RISK COMMITTEE (continued) INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT AND THE SHAREHOLDER – MINISTER OF PUBLIC ENTERPRISES ON ESKOM HOLDINGS SOC LTD AND Execution of functions (continued) ITS SUBSIDIARIES Oversight of financial and non-financial reporting and disclosure (continued) Internal and external audit Report on the audit of the consolidated and separate financial statements The committee considered the following: Qualified opinion • audit charter, annual audit plan, independence, effectiveness, coordination with external auditors and performance of the assurance and We have audited the consolidated and separate financial statements of Eskom Holdings SOC Ltd and its subsidiaries (the group) set out on forensic department pages 26 to 119, which comprise the consolidated and separate statement of financial position as at 31 March 2021, the consolidated and • appointment of the external auditors in terms of the Companies Act, Johannesburg Stock Exchange Listings' Requirements and all other separate statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the applicable legal and regulatory requirements year then ended, as well as notes to the consolidated and separate financial statements, including a summary of significant accounting policies. • decision letters, findings report and remedial explanations issued by IRBA as well as any summaries and explanations as made available by In our opinion, except for the possible effects of the matters described in the basis for qualified opinion section of our report, the consolidated the external auditors to the committee and separate financial statements present fairly, in all material respects, the financial position of the group as at 31 March 2021, and their • the quality of the external audit as well as the independence and objectivity of the external auditors including the tenure of the audit firm financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS), the and the rotation of the engagement partner requirements of the Companies Act of South Africa (the Companies Act) and the Public Finance Management Act of South Africa (PFMA). • external audit plan, audit budget, actual fee and terms of engagement of the external auditors including adherence to the policy of not allowing the external auditors to provide any non-audit services Basis for qualified opinion • accounting, sustainability and auditing concerns identified as a result of the internal and external audits, including reportable irregularities Irregular expenditure Opinion The public entity did not fully and accurately record irregular expenditure in the notes to the financial statements, as required by section The committee is of the opinion, based on the information and explanations provided by management and the assurance and forensic 55(2)(b)(i) of the PFMA. This was due to inadequate systems to detect, record and appropriately disclose this expenditure in the financial department during the year and at year end and discussions with the independent external auditors, that: statements. We were unable to determine the full extent of the misstatement of the irregular expenditure disclosed in terms of section 55(2)(b)(i) of the PFMA stated at R37 214 million (2020: R36 259 million) and R34 141 million (2020: R26 633 million) in the consolidated and • the expertise, resources and experience of the finance function under the leadership of the chief financial officer are adequate separate financial statements respectively, as it was impractical to do so. • the system and process of risk management is adequate even though the effectiveness thereof needs to be improved • the compliance framework is adequate and there is continued focus on the application thereof, especially in terms of PFMA requirements Context for the opinion and contract management We conducted our audit in accordance with the International Standards on Auditing (ISAs). Our responsibilities under those standards are • the internal accounting controls are adequate to ensure that the financial records may be relied upon for preparing the financial statements further described in the auditor’s responsibilities for the audit of the consolidated and separate financial statements section of our report. and accountability for assets and liabilities is maintained • the internal audit charter approved by the committee was adhered to We are independent of the group in accordance with Independent Regulatory Board for Auditors’ Code of professional conduct for auditors • the expertise, resources and experience of the assurance and forensic department are adequate (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. • the assurance and forensic department, under the leadership of a general manager, is operating effectively We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements • the combined assurance model is adequate applicable to performing audits in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics • the information contained in the integrated report is reliable and does not contradict the information in the annual financial statements Standards Board for Accountants’ International Code of ethics for professional accountants (including international independence standards). • Eskom and the group have access to adequate resources, facilities and support from government to be able to continue their operations for the foreseeable future, supporting the going-concern assumption We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. • it is satisfied with the audit quality of the external audit as well as the independence and objectivity of the external auditors having considered the matters set out in section 94(8) of the Companies Act. SizweNtsalubaGobodo Grant Thornton has been appointed as Key audit matters external auditors since 2015. The lead engagement partner for 2021 was S Vilakazi Key audit matters are those matters which, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and The committee is satisfied, notwithstanding the aspects considered in relation to the annual financial statements including the PFMA reporting separate financial statements as a whole and in forming our opinion, and we do not provide a separate opinion on these matters. challenges, that nothing significant has come to the attention of the committee to indicate any material breakdown in the functioning of the controls, procedures and systems during the year under review and that the controls are still appropriate to ensure compliance with the Key audit matter How the matter was addressed in the audit requirements of the Companies Act, the PFMA and IFRS. Post-employment benefit plan Recommendation of the annual financial statements The Eskom Pension and Provident Fund (EPPF) was initially Our audit work included the following: The committee has evaluated the annual financial statements of Eskom and the group for the year ended 31 March 2021 and, based on the accounted for as a defined contribution fund. Based on our • obtained the EPPF rules and assessed the accounting treatment of the information provided to it, considers that they comply, in all material respects, with the requirements of the Companies Act, the PFMA audit procedures’ outcomes and our recommendation, it was fund in terms of IAS 19 and IFRS. The committee concurs that the adoption of the going-concern premise in the preparation of the annual financial statements is reclassified and accounted for as a defined benefit fund. • we considered the following: appropriate. – the defined benefit formula As disclosed in note 2.17 and note 28 to the consolidated – the nature of the scheme and the participating employers The committee has therefore, at its meeting held on 19 August 2021, recommended the adoption of the financial statements by the board. and separate financial statements, the post-employment benefit plan managed by the EPPF has been accounted for as – the requirements of the rules relating to funding of the shortfall when a defined benefit fund. it arises • obtained a legal opinion on whether or not Eskom is liable to make good The EPPF is registered as defined benefit fund, however the a shortfall or have any entitlement towards a surplus in the fund PE Molokwane rule that relates to the funding of deficits refers to the • reviewed the information from the financial statements of the EPPF to Chairman amendment of the rules so that the benefits may be reduced confirm that the members are paid out in terms of the benefit formula as or the contributions increased at the occurrence of that per the rules 23 August 2021 event at a future date. This created the uncertainty of • re-performed the actuarial calculations using our actuarial specialists existence of the liability for Eskom to fund the deficit. • assessed that there was no uncertainty on the existence of the liability In all the previous financial years, the directors performed that arose through the members rendering of services entitling the an assessment of the accounting treatment for the EPPF and members to the benefits as defined in the rules STATEMENT BY THE COMPANY SECRETARY based on the critical judgement and estimates determined • assessed that there was no measurement uncertainty as to the that the EPPF should be accounted for as a defined measurement of the net asset or net liability. The actuarial valuation was In terms of section 88(2)(e) of the Companies Act of South Africa, I certify that the company has filed with the Companies and Intellectual contribution plan. performed using a projected unit credit method Property Commission all such returns and notices in terms of this Act, and all such returns appear to be true, correct and up to date. • assessed that the outcome uncertainty existed as the rules provided that The accounting for the EPPF was considered a key audit the contributions may be increased with consent of the employer when matter due to critical judgement and estimates made by the the shortfall arises directors. Based on the results of our work performed, we concluded that: M Manjingolo • EPPF met the criteria for a defined benefit fund in terms of IAS 19 and, based Company secretary on our recommendation, it was reclassified and accounted for as such 23 August 2021 18 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 19 INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT AND THE SHAREHOLDER – MINISTER OF PUBLIC ENTERPRISES ON ESKOM HOLDINGS SOC LTD AND ITS SUBSIDIARIES (continued) Report on the audit of the consolidated and separate financial statements (continued) Emphasis of matter Key audit matters (continued) We draw attention to the matters below. Our opinion is not modified in respect of these matters. Restatement of corresponding figures Key audit matter How the matter was addressed in the audit As disclosed in note 49 to the consolidated and separate financial statements, the corresponding figures for 31 March 2019 and 31 March 2020 Costs incurred during construction of assets - property, plant and equipment were restated as a result of errors in the financial statements at, and for the year ended, 31 March 2021. As disclosed in note 8 to the consolidated and separate Our audit work included the following: Medupi power station explosion financial statements, the group’s property, plant and • obtained an understanding of the accounting policy applied by the We draw attention to note 48 in the financial statements, which deals with subsequent events and specifically the explosion that occurred equipment (PPE) includes assets under construction. The directors in the capitalisation of compensation events claims assets under construction are accounted for in accordance at Medupi power station. • challenged the directors’ rationale for the capitalisation of the with IAS 16 Property, plant and equipment. compensation events claims considered to be directly attributable to the Estimated non-technical revenue losses There is significant judgement applied by the directors in development of the PPE As disclosed in note 52.3(b) to the consolidated and separate financial statements, estimated non-technical revenue losses of R2 319 million deciding which compensation events claims should be • assessed the experience and capabilities of the auditor’s experts (2020: R1 977 million) were incurred mainly due to meter tampering and bypasses, illegal connections to the electricity network and illegal capitalised in terms of IAS 16. who assessed the reasons behind the capitalisation of compensation vending of electricity. events claims The significant judgement on the nature as well as the • obtained an auditor’s experts’ opinion on whether or not the capitalised Responsibilities of the accounting authority for the consolidated and separate financial statements quantum of the capitalised costs makes the valuation of PPE compensation events claims were unforeseeable and unavoidable The board of directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of the consolidated a key audit matter. and separate financial statements in accordance with IFRS and the requirements of the Companies Act and PFMA, and for such internal Based on the results of our work performed, we are satisfied that control as the accounting authority determines is necessary to enable the preparation of consolidated and separate financial statements that compensation events claims capitalised were directly attributable to are free from material misstatement, whether due to fraud or error. bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. In preparing the consolidated and separate financial statements, the accounting authority is responsible for assessing the group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless Determination of assets useful lives and residual values – property, plant and equipment the accounting authority either intends to liquidate the group or to cease operations, or has no realistic alternative but to do so. As disclosed in note 2.4 to the consolidated and separate Our audit work included the following: financial statements, the group’s PPE useful lives and • obtained an understanding of the accounting policy applied by the Auditor’s responsibilities for the audit of the consolidated and separate financial statements residual values have been reviewed in terms of IAS 16 directors in the determination of assets’ useful lives and residual values Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from paragraph 51. The determination of useful lives and residual • challenged the directors’ rationale for the determination of useful lives material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a values of PPE requires significant judgement by the directors and residual values for different asset classes high level of assurance, but is not a guarantee that an audit conducted in accordance with the ISAs will always detect a material misstatement based on their experience with similar assets as well as the • appointed auditor’s experts to assess the reasonability and supportability when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably determination of key assumptions taking into account be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. of management judgement historical performance, the circumstances and operating • assessed the experience and capabilities of the auditor’s experts who environment in which the assets operate, alignment to A further description of our responsibilities for the audit of the consolidated and separate financial statements is included in the annexure industry benchmarks as well as expectations about the assessed the reasonability and supportability of management judgement to this auditor’s report. future. • obtained auditor’s experts’ opinion on whether or not the useful lives of different asset classes were within the acceptable range Report on other legal and regulatory requirements Furthermore, as disclosed in note 8 to the consolidated and Based on the results of our work performed, we are satisfied that: In accordance with our responsibilities in terms of sections 44(2) and 44(3) of the Auditing Profession Act, we report that we have identified separate financial statements, the entity has fully depreciated • generally, the assets’ useful lives are within the ranges of benchmark data reportable irregularities in terms of the Auditing Profession Act. We have reported such matters to the Independent Regulatory Board for property, plant and equipment that are still in use. This is because of the circumstances and operating environment for equivalent assets, albeit on the low side of those ranges Auditors. The matters pertaining to the reportable irregularities have been described in note 53 to the consolidated and separate financial which require the use of these assets in some instances to • differences in useful lives relative to the typical average benchmark values statements. extend their economic life. IAS 16 recommends the can be ascribed to the adverse operating environment or conditions disclosure of such assets. causing certain assets to be operated at or beyond the extremities of Report on the audit of the annual performance report their design parameters which appears to reduce the useful lives of these Introduction and scope Therefore, the determination of assets useful lives and assets when compared to the benchmark data In accordance with the Public Audit Act of South Africa (PAA) and the general notice issued in terms thereof, we have a responsibility to residual values is considered a key audit matter. • the impact of residual value changes was found to be immaterial in the report on the usefulness and reliability of the reported performance information against predetermined key performance areas for selected calculation of the depreciable amount key performance areas presented in the shareholder compact performance section of the directors’ report. We performed procedures to • we have reviewed the assumptions and estimates regarding fully identify material findings but not to gather evidence to express assurance. depreciated assets still in use and found no evidence of incorrect or Our procedures address the usefulness and reliability of the reported performance information, which must be based on the group’s inappropriate assumptions in determining those useful lives and that the approved performance planning documents. We have not evaluated the completeness and appropriateness of the performance indicators use of the assets in excess of the predetermined useful life is acceptable. included in the planning documents. Our procedures do not examine whether the actions taken by the group enabled service delivery. Our We have also considered whether the fully depreciated assets are procedures do not extend to any disclosures or assertions relating to the extent of achievements in the current year or planned performance appropriately recorded, maintained and reported on in accordance with strategies and information in respect of future periods that may be included as part of the reported performance information. Accordingly, Eskom’s policies and procedures our findings do not extend to these matters. Material uncertainty relating to going concern We evaluated the usefulness and reliability of the reported performance information in accordance with the criteria developed from the We draw attention to the matter below. Our opinion is not modified in respect of this matter. performance management and reporting framework, as defined in the general notice, for the deliver capital expansion key performance area (page 12) presented in the shareholder compact performance section of the directors’ report of the group for the year ended We draw attention to note 3.2 in the consolidated and separate financial statements which indicates that for the year ended 31 March 2021 31 March 2021. the group incurred a loss of R18 934 million (2020: R20 769 million). The group’s current liabilities exceed its current assets by R19 430 million (2020: R16 515 million). As stated in note 3.2, the current and prior year losses, deterioration of most of the group’s financial indicators, the We performed procedures to determine whether the reported performance information was consistent with the approved performance impact of reduced generation performance along with other matters as set forth in note 3.2, indicate that a material uncertainty exists that planning documents. We performed further procedures to determine whether the indicators and related targets were measurable and may cast significant doubt on the group’s ability to continue as a going concern. relevant and assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete. We did not identify any material findings on the usefulness and reliability of the reported performance information for the deliver capital expansion key performance area. 20 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 21 INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT AND THE SHAREHOLDER – MINISTER OF PUBLIC ENTERPRISES ON ESKOM HOLDINGS SOC LTD AND ITS SUBSIDIARIES (continued) Report on the audit of the annual performance report (continued) Consequence management Other matter We were unable to obtain sufficient appropriate audit evidence that appropriate disciplinary steps were taken against officials who had We draw attention to the matter below. incurred irregular and fruitless and wasteful expenditure as required by section 51(1)(e)(iii) of the PFMA. This was because investigations into some instances of irregular and fruitless and wasteful expenditure were not performed. Achievement of planned targets Refer to the shareholder compact performance section of the directors’ report on pages 12 to 15 for information on the achievement of We were unable to obtain sufficient appropriate audit evidence that allegations of financial misconduct against persons in service of the planned targets for the year. entity were investigated, as required by treasury regulation 33.1.3 and 33.1.1 respectively. This was due to proper and complete records that were not maintained as evidence to support the investigations into allegations of financial misconduct committed by persons in service of the Report on the audit of compliance with legislation entity. A similar limitation was also reported in the prior year. Introduction and scope We were unable to obtain sufficient appropriate audit evidence that allegations of theft, fraud, extortion, forgery or uttering a forged In accordance with the PAA and the general notice issued in terms thereof, we have a responsibility to report material findings on the public document which exceeded R100 000 were reported to the South African Police Service, as required by section 34(1) of the Prevention and entity’s compliance with specific matters in key legislation. We performed procedures to identify findings but not to gather evidence to Combating of Corrupt Activities Act of South Africa. A similar limitation was also reported in prior year. express assurance. The material findings on compliance with specific matters in key legislation are as follows: Other information The accounting authority is responsible for the other information. The other information comprises the information included in the directors’ Annual financial statements report, the report of the audit and risk committee and statement by the company secretary as required by the Companies Act. The other The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework as information does not include the consolidated and separate financial statements, the auditor’s report and those selected key performance required by section 55(1)(b) of the PFMA. The uncorrected material misstatements related to irregular expenditure disclosure note resulted areas presented in the shareholder compact performance section of the directors’ report that have been specifically reported on in this in the financial statements receiving a qualified opinion. The material misstatements related to inventory and the related writeoff identified auditor’s report. were corrected. Our opinion on the financial statements and findings on the compliance with legislation do not cover the other information and we do not Expenditure management express an audit opinion or any form of assurance conclusion on it. Effective and appropriate steps were not taken to prevent irregular expenditure, as required by section 51(1)(b)(ii) of the PFMA. As reported in the basis for the qualified opinion the full extent of the irregular expenditure could not be quantified. The majority of the irregular In connection with our audit, our responsibility is to read the other information and, in doing so, consider whether the other information expenditure disclosed in the financial statements was caused by non-compliance to section 51(1)(a)(iii) of the PFMA. is materially inconsistent with the consolidated and separate financial statements and the selected key performance areas presented in the shareholder compact performance section of the directors’ report, or our knowledge obtained in the audit, or otherwise appears to be Effective steps were not taken to prevent fruitless and wasteful expenditure amounting to R4 474 million, as disclosed in note 52.2 to the materially misstated. financial statements, as required by section 51(1)(b)(ii) of the PFMA. The majority of the fruitless and wasteful expenditure was caused by poor procurement and contract management. Fruitless and wasteful expenditure amounting to R1 280 million was incurred on overpayments If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to relating to a fuel oil contract. report that fact. We have nothing to report in this regard. Revenue management Internal control deficiencies Effective and appropriate steps were not taken to collect all revenue due, as required by section 51(1)(b)(i) of the PFMA. We considered internal control relevant to our audit of the consolidated and separate financial statements, reported performance information and compliance with applicable legislation however our objective was not to express any form of assurance on it. The matters Procurement and contract management reported below are limited to the significant internal control deficiencies that resulted in the basis for the qualified opinion and the findings We were unable to obtain sufficient appropriate audit evidence that awards to suppliers on established panels were in accordance with legislative on compliance with legislation included in this report. requirements as proper record keeping of such awards were not maintained. Similar limitations were also reported in the prior year. As part of exercising its oversight responsibility regarding compliance with applicable legislation and related internal controls, the accounting We were unable to obtain sufficient appropriate audit evidence that goods, works and services were procured through a procurement authority is in the process of developing action plans to address the internal control deficiencies. As the action plans have not yet been process which is fair, equitable, transparent, competitive and cost-effective as required by section 51(1)(a)(iii) of the PFMA. A non-compliance implemented fully, we identified instances of non-compliance with applicable legislation and related internal controls that resulted in the lack paragraph was reported in the prior year. of proper procurement and contract management processes as well as effective consequence management practices. We were unable to obtain sufficient appropriate audit evidence that contracts and quotations were awarded in accordance with the Management is in the process of establishing and communicating adequate policies and procedures to enable and support the understanding Preferential Procurement Policy Framework Act and the Preferential Procurement Regulations. Non-compliance paragraphs were also and execution of internal control objectives, processes and responsibilities pertaining to the electronic documentation management system. reported in the prior year. While there is some progress made, we identified instances where adequate policies and procedures in this regard were not yet established and communicated. We were unable to obtain sufficient appropriate audit evidence that construction contracts were awarded to contractors that were registered with the Construction Industry Development Board in accordance with section 18(1) of the CIDB Act and CIDB Regulations 17 Management is in the process of implementing proper record keeping in a timely manner to ensure that complete, relevant and accurate and 25(7A). A similar limitation was also reported in the prior year. information is accessible and available to support the reporting of irregular expenditure. While there is some progress made, we identified instances where proper record keeping to ensure complete, relevant and accurate information to support reporting on irregular expenditure We were unable to obtain sufficient appropriate audit evidence that commodities designated by the Department of Trade and Industry was not yet implemented. for local content and production were only procured from suppliers who met the prescribed minimum threshold for local production and content, in accordance with the requirements of the 2017 Preferential Procurement Regulation 8(2) and 8(5). A similar limitation was also The executive authority did not fill vacant board positions. Some of the vacancies had to be filled with individuals who have requisite financial reported in the prior year. skills. As a result, the audit and risk committee vacancy for an individual with financial skills remains vacant. We were unable to obtain sufficient appropriate audit evidence that some of the awards made, for the supply of COVID-19 related personal protective equipment, were in accordance with the requirements of the applicable National Treasury Instruction note, as proper record keeping of such awards were not maintained. 22 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 23 INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT AND THE SHAREHOLDER – MINISTER OF PUBLIC ENTERPRISES ON ESKOM HOLDINGS SOC LTD AND ITS SUBSIDIARIES (continued) Other reports Annexure – Auditor’s responsibility for the audit We draw attention to the following engagements conducted by various parties which had, or could have, an impact on the matters reported As part of an audit in accordance with the ISAs, we exercise professional judgement and maintain professional scepticism throughout our in the consolitated and separate financial statements, reported performance information, compliance with applicable legislation and other audit of the consolidated and separate financial statements and the procedures performed on the reported performance information for related matters. These reports did not form part of our opinion on the financial statements or our findings on the reported performance selected key performance areas and on the group’s compliance with respect to the selected subject matters. information or compliance with legislation. Financial statements Matters under investigation In addition to our responsibility for the audit of the consolidated and separate financial statements as described in this auditor’s report, we also: During the financial year under review the regulatory authorities and the accounting authority conducted investigations into alleged • identify and assess the risks of material misstatement of the consolidated and separate financial statements whether due to fraud or error, irregularities, fraud and corruption within the procurement environment and other areas of the entity. As at the reporting date, some of design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a these investigations were still ongoing and we could not determine the extent of the impact of the outcomes of these investigations to the basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as consolidated and separate financial statements. As disclosed in note 53.2 to the financial statements, various matters are reported to be fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal controls under investigation. • obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the group’s internal controls Agreed-upon procedures engagements • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by At the date of this report we had commenced performing agreed-upon procedure engagements on the following: the board of directors, which constitutes the accounting authority • National Treasury consolidation template that covered the period from 1 April 2020 to 31 March 2021 • conclude on the appropriateness of the accounting authority’s use of the going concern basis of accounting in the preparation of the • Eskom’s generation, transmission and distribution activities regulatory financial report. This agreed-upon procedure is performed on financial statements. We also conclude, based on the audit evidence obtained, whether a material uncertainty exists relating to events or behalf of NERSA conditions that may cast significant doubt on the ability of Eskom Holdings SOC Ltd and its subsidiaries to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures Auditor tenure in the financial statements about the material uncertainty or, if such disclosures are inadequate, to modify our opinion on the financial In terms of the IRBA rule published in Government gazette number 39475 dated 4 December 2015, we report that SizweNtsalubaGobodo statements. Our conclusions are based on the information available to us at the date of this auditor’s report. However, future events or Grant Thornton has been the auditor of Eskom Holdings SOC Ltd and its subsidiaries for seven years. conditions may cause a public entity to cease operating as a going concern • evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and determine whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation • obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion Siyakhula Vilakazi Communication with those charged with governance SizweNtsalubaGobodo Grant Thornton We communicate with the accounting authority regarding, among other matters, the planned scope and timing of the audit and significant Director audit findings, including any significant deficiencies in internal control that we identify during our audit. Registered auditor We also provide the accounting authority with a statement that we have complied with relevant ethical requirements regarding independence, 26 August 2021 and to communicate to them all relationships and other matters that may reasonably be thought to have a bearing on our independence and, where applicable, actions taken to eliminate threats or safeguards applied. 20 Morris East Street, Woodmead, 2191 From the matters communicated to those charged with governance, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore key audit matters. We describe these matters in this auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in this auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest of such communication. 24 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 25 STATEMENTS OF FINANCIAL POSITION INCOME STATEMENTS at 31 March 2021 for the year ended 31 March 2021 Group Company Group Company Restated1 Restated1 Restated1 Restated1 Restated1 Restated1 2021 2020 2019 2021 2020 2019 2021 2020 2021 2020 Note Rm Rm Rm Rm Rm Rm Note Rm Rm Rm Rm Assets Revenue 32 204 326 199 468 204 326 199 468 Non-current 697 723 698 177 684 274 691 194 698 880 684 699 Other income 33 2 662 1 238 4 331 1 819 Primary energy 34 (115 903) (112 119) (115 903) (112 119) Property, plant and equipment 8 662 569 653 359 650 440 663 840 654 395 651 036 Employee benefit expense 35 (32 887) (33 158) (27 319) (27 772) Intangible assets 9 3 656 3 830 3 925 3 358 3 558 3 706 Impairment of financial assets 36 119 936 146 929 Future fuel supplies 10 4 414 4 295 6 471 4 414 4 295 6 471 Impairment and writedown of other assets 36 (1 486) (875) (1 490) (875) Investment in equity-accounted investees 11 420 397 373 95 95 95 Other expenses 37 (24 018) (18 674) (32 255) (26 251) Investment in subsidiaries 12 – – – 380 384 384 Deferred tax 13 6 459 115 17 6 920 – – Profit before depreciation and amortisation expense and net fair Loans receivable 15 8 017 27 40 – – – value and foreign exchange gain/(loss) (EBITDA) 32 813 36 816 31 836 35 199 Derivatives held for risk management 16 9 968 33 918 20 582 9 968 33 918 20 582 Depreciation and amortisation expense 38 (27 016) (27 779) (26 983) (27 693) Finance lease receivables 17 292 338 374 292 338 374 Net fair value and foreign exchange gain/(loss) 39 883 (4 626) 284 (4 261) Payments made in advance 18 1 928 1 898 2 052 1 927 1 897 2 051 Profit before net finance cost 6 680 4 411 5 137 3 245 Current 83 925 116 404 62 877 75 496 110 947 59 592 Net finance cost (31 509) (31 407) (32 619) (32 696) Inventories 20 37 527 33 573 26 482 37 275 33 330 26 251 Finance income 40 2 400 2 610 1 409 1 468 Taxation 120 140 102 – – – Finance cost 41 (33 909) (34 017) (34 028) (34 164) Loans receivable 15 310 27 26 5 758 5 937 6 071 Share of profit of equity-accounted investees after tax 11 71 63 – – Derivatives held for risk management 16 1 411 23 718 2 080 1 413 23 718 2 080 Finance lease receivables 17 35 34 31 35 34 31 Loss before tax (24 758) (26 933) (27 482) (29 451) Payments made in advance 18 1 667 1 398 1 541 1 641 1 395 1 460 Income tax 42 5 824 6 164 6 880 6 844 Trade and other receivables 19 24 413 22 391 20 859 26 871 24 067 22 020 Loss for the year 2 (18 934) (20 769) (20 602) (22 607) Insurance investments 14 14 401 11 981 9 563 – – – Financial trading assets 14 – 152 162 – 152 162 Cash and cash equivalents 21 4 041 22 990 2 031 2 503 22 314 1 517 Assets held-for-sale 22 – 8 642 8 871 – – – Total assets 781 648 823 223 756 022 766 690 809 827 744 291 Equity Capital and reserves 215 836 186 068 150 207 197 716 169 626 135 628 STATEMENTS OF COMPREHENSIVE INCOME Liabilities for the year ended 31 March 2020 Non-current 462 457 502 763 496 085 460 787 501 443 495 135 Group Company Debt securities and borrowings 25 356 852 408 151 387 208 355 927 408 107 387 161 Note 2021 2020 2021 2020 Embedded derivatives 26 208 5 1 365 208 5 1 365 Rm Rm Rm Rm Derivatives held for risk management 16 3 562 1 802 5 643 3 562 1 802 5 643 Loss for the year2 (18 934) (20 769) (20 602) (22 607) Deferred tax 13 347 3 757 7 227 – 2 803 6 690 Other comprehensive (loss)/income (7 298) 7 630 (7 308) 7 605 Employee benefit obligations 28 15 414 13 530 15 560 15 089 13 232 15 224 Provisions 29 50 150 41 300 45 588 50 079 41 278 45 558 Items that may be reclassified subsequently to profit or loss (6 658) 4 836 (6 670) 4 858 Lease liabilities 30 8 447 8 875 9 130 8 445 8 873 9 130 Cash flow hedges Trade and other payables 31 667 411 1 031 667 411 1 031 Changes in fair value 16 (9 249) 7 557 (9 249) 7 557 Payments received in advance 27 2 867 2 355 2 038 2 867 2 355 2 038 Net amount transferred to profit or loss 385 (444) 385 (444) Contract liabilities and deferred income 27 23 943 22 577 21 295 23 943 22 577 21 295 Amortisation of effective portion of terminated cash flow hedges 39 (276) (325) (276) (325) Current 103 355 132 919 108 051 108 187 138 758 113 528 Ineffective portion of cash flow hedges 39 661 (119) 661 (119) Debt securities and borrowings 25 44 974 75 531 53 402 48 115 80 107 57 886 Net amount transferred to initial carrying amount of hedged items (400) (366) (400) (366) Embedded derivatives 26 1 283 1 131 2 069 1 283 1 131 2 069 Foreign currency translation differences on foreign operations 12 (22) – – Derivatives held for risk management 16 4 808 1 139 1 397 4 808 1 143 1 397 Income tax thereon 42 2 594 (1 889) 2 594 (1 889) Employee benefit obligations 28 3 732 3 293 3 244 3 403 3 018 2 976 Provisions 29 6 395 5 991 5 662 6 322 5 933 5 556 Items that may not be reclassified subsequently to profit or loss (640) 2 794 (638) 2 747 Lease liabilities 30 522 475 332 522 474 332 Re-measurement of benefits 28 (890) 3 883 (887) 3 815 Trade and other payables 31 37 114 40 175 36 849 39 194 41 761 38 208 Income tax thereon 42 250 (1 089) 249 (1 068) Payments received in advance 27 2 796 3 430 3 359 2 809 3 437 3 367 Contract liabilities and deferred income 27 1 729 1 540 1 499 1 729 1 540 1 499 Total comprehensive loss for the year2 (26 232) (13 139) (27 910) (15 002) Financial trading liabilities 14 2 214 238 2 214 238 Liabilities held-for-sale 22 – 1 473 1 679 – – – Total liabilities 565 812 637 155 605 815 568 974 640 201 608 663 Total equity and liabilities 781 648 823 223 756 022 766 690 809 827 744 291 1. Refer to note 49. 2. A nominal amount is attributable to the non-controlling interest in the group. The remainder is attributable to the owner of the company. 1. Refer to note 49. 26 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 27 STATEMENTS OF CHANGES IN EQUITY STATEMENTS OF CASH FLOWS for the year ended 31 March 2021 for the year ended 31 March 2021 Share Cash flow Unrealised Foreign Accumulated Total Group Company capital hedge fair value currency profit equity 2021 2020 2021 2020 reserve reserve translation Note Rm Rm Rm Rm reserve Cash flows from operating activities Rm Rm Rm Rm Rm Rm Cash generated from operations 43 30 070 36 338 27 654 34 474 Group Net cash from/(used in) derivatives held for risk management 1 399 (81) 1 395 (78) Balance at 31 March 2019 83 000 1 967 (13 641) 19 78 862 150 207 Finance income received 278 377 278 377 Finance cost paid (42) (60) (42) (59) Previously reported 83 000 1 967 (13 641) 19 78 633 149 978 Income taxes paid (1 047) (367) – – Prior year restatements, net of tax1 – – – – 229 229 30 658 36 207 29 285 34 714 Loss for the year – – – – (20 769) (20 769) Cash flows used in investing activities Other comprehensive income, net of tax – 4 858 – (22) 2 794 7 630 Disposals of property, plant and equipment 182 508 183 498 Share capital issued 49 000 – – – – 49 000 Disposals of intangible assets 26 – 26 – Transfers between reserves – – (3 971) – 3 971 – Acquisitions of property, plant and equipment (22 540) (24 009) (22 827) (24 479) Acquisitions of intangible assets (166) (260) (55) (153) Balance at 31 March 2020 132 000 6 825 (17 612) (3) 64 858 186 068 Acquisitions of future fuel supplies (1 559) (1 261) (1 559) (1 261) Loss for the year – – – – (18 934) (18 934) Disposals of insurance investments 12 966 9 188 – – Other comprehensive loss, net of tax – (6 670) – 12 (640) (7 298) Acquisitions of insurance investments (14 955) (11 930) – – Share capital issued 56 000 – – – – 56 000 Payments made in advance (139) (2) (139) (2) Transfers between reserves – – 5 626 – (5 626) – Cash used in provisions (885) (846) (885) (846) Balance at 31 March 2021 188 000 155 (11 986) 9 39 658 215 836 Net cash used in derivatives held for risk management (1 049) (120) (1 049) (120) Net cash from loans receivable 264 12 94 150 Company Cash from finance lease receivables 35 54 35 54 Balance at 31 March 2019 83 000 1 967 (13 641) – 64 302 135 628 Dividends received 47 66 1 086 46 Dividends received – investment in equity-accounted investees 11 48 39 – – Previously reported 83 000 1 967 (13 641) – 64 073 135 399 Finance income received 1 400 1 550 398 511 Prior year restatements, net of tax1 – – – – 229 229 (26 325) (27 011) (24 692) (25 602) Loss for the year – – – – (22 607) (22 607) Other comprehensive income, net of tax – 4 858 – – 2 747 7 605 Cash flows (used in)/from financing activities Share capital issued 49 000 – – – – 49 000 Debt securities and borrowings raised 44 15 756 32 036 16 285 32 124 Payments made in advance 44 (329) (642) (329) (642) Transfers between reserves – – (3 971) – 3 971 – Debt securities and borrowings repaid 44 (65 586) (31 511) (67 016) (31 599) Balance at 31 March 2020 132 000 6 825 (17 612) – 48 413 169 626 Share capital issued 24 56 000 49 000 56 000 49 000 Loss for the year – – – – (20 602) (20 602) Net cash from derivatives held for risk management 44 7 859 1 843 7 859 1 843 Other comprehensive loss, net of tax – (6 670) – – (638) (7 308) Cash used in lease liabilities 44 (497) (423) (496) (422) Share capital issued 56 000 – – – – 56 000 Net cash from financial trading assets 44 152 9 152 9 Transfers between reserves – – 5 626 – (5 626) – Net cash used in financial trading liabilities 44 (213) (33) (213) (33) Finance income received 791 597 775 558 Balance at 31 March 2021 188 000 155 (11 986) – 21 547 197 716 Finance cost paid (37 070) (39 111) (37 184) (39 205) Taxes paid (78) (84) (78) (84) Share capital (23 215) 11 681 (24 245) 11 549 Refer to note 24 for details regarding share capital. Net (decrease)/increase in cash and cash equivalents (18 882) 20 877 (19 652) 20 661 Cash flow hedge reserve Cash and cash equivalents at beginning of the year 22 990 2 031 22 314 1 517 The cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments Foreign currency translation 12 (22) – – (forward exchange contracts and cross-currency swaps) related to hedged transactions that have not yet occurred. The cross-currency Effect of movements in exchange rates on cash held (159) 136 (159) 136 swap hedges foreign exchange rate and interest rate risk of the future interest payments and the principal repayment on bonds and loans Assets and liabilities held-for-sale 80 (32) – – (denominated in US dollar, euro and yen). The reserve includes an unamortised gain of R130 million (2020: R406 million) relating to the Cash and cash equivalents at end of the year 21 4 041 22 990 2 503 22 314 effective portion of terminated hedges that is amortised to the income statement over the remaining life of the underlying hedged item. Unrealised fair value reserve Cash flow allocation The cumulative net change in the fair value of financial instruments that have not been designated as cash flow hedging instruments is Cash flows that form part of the changes in the line items of the statement of financial position are classified into operating, investing and recognised in profit or loss. The unrealised portion of the net change in fair value is not distributable and has been reallocated from a financing activities in a manner that is most appropriate to the group. As a result, the cash flows associated with some line items in the distributable reserve (accumulated profit) to a non-distributable reserve. statement of financial position may be split into multiple cash flow activities in the statement of cash flows. These line items are: Foreign currency translation reserve Derivatives held for risk management The foreign currency translation reserve comprises exchange differences resulting from the translation of the results and financial position Derivatives held for risk management are classified as operating, investing or financing activities based on the allocation of the cash flows of of foreign operations. the underlying hedged item. Refer to note 16. Accumulated profit Payments made in advance Accumulated profit is the amount of cumulative profit retained in the business after tax. No dividend has been proposed in the current or Payments made in advance that relate to the raising of debt securities and borrowings are classified as financing activities. Payments related to the acquisition of property, plant and equipment and intangible assets are allocated to investing activities. All other payments made in advance prior year. There are no restrictions on the distribution of dividends. are deemed operational in nature and are therefore included within operating activities. Refer to note 18. Non-controlling interest Provisions The non-controlling interest in the group is a nominal amount. Cash flows related to provisions for environmental restoration and mine-related closure, pollution control and rehabilitation, where the cost of property, plant and equipment as well as future fuel supplies includes environmental rehabilitation costs, are classified as investing activities. All other provisions are operational in nature and are classified as operating activities. Refer to note 29. Finance income and costs 1. Refer to note 49. Finance income and costs are allocated in line with the allocation of the related balances on which the income or cost arose. 28 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 29 NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 March 2021 1. General information Foreign operations Eskom Holdings SOC Ltd (Eskom), a state-owned company and holding company of the group, is incorporated and domiciled in The assets and liabilities of foreign operations (including fair value adjustments arising on acquisition) are translated to rand at the the Republic of South Africa. Eskom is a vertically integrated operation that generates, transmits and distributes electricity to local prevailing exchange rates at the reporting date. The income and expenses of foreign operations are translated to rand at the average industrial, mining, commercial, agricultural, redistributor (metropolitan and other municipalities) and residential customers, and to exchange rate. Foreign currency differences arising as a result of these transactions are recognised in other comprehensive income international customers in southern Africa. Eskom also purchases electricity from IPPs and international suppliers in southern Africa. within the foreign currency translation reserve. These represent the significant activities of the group. The business focus of the subsidiaries is primarily to support the electricity business. The nature of the businesses of the significant operating subsidiaries is set out in note 12. 2.4 Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost includes environmental rehabilitation costs, borrowing costs and transfers from equity of any gains or losses on qualifying cash flow hedges of foreign 2. Summary of significant accounting policies currency transactions. Work under construction includes the cost of materials and direct labour and any other directly attributable The principal accounting policies applied in the preparation of these separate and consolidated financial statements are set out below. costs incurred in bringing an item of property, plant and equipment to its present location and condition. Significant parts of an item of property, plant and equipment that have different useful lives are accounted for as separate items (major components). Spare 2.1 Basis of preparation and measurement parts classified as strategic and critical spares are recognised as property, plant and equipment and are only capable of operating in Statement of compliance the manner intended by management when they are installed. Items of property, plant and equipment transferred from customers The consolidated financial statements of Eskom Holdings SOC Ltd at and for the year ended 31 March 2021 comprise the company are initially recognised at fair value in accordance with IAS 16 Property, plant and equipment and any related revenue is recognised in (Eskom), its subsidiaries, joint ventures, associates and structured entities (together the group). The separate and consolidated accordance with IFRS 15 Revenue from contracts with customers, within revenue. financial statements have been prepared in accordance with IFRS and in the manner required by the PFMA and the Companies Act. The financial statements have been prepared on the going-concern basis and were approved for issue by the board on 23 August 2021. Subsequent costs are capitalised only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. When part of an asset is being replaced, the carrying amount of the replaced part Basis of measurement is derecognised. Repairs and maintenance are charged to profit or loss during the financial period incurred. The separate and consolidated financial statements are prepared on the historical-cost basis except for the following items which are measured at fair value: Owned land and spare parts are not depreciated. Depreciation on other owned assets is calculated using the straight-line method to • derivatives held for risk management allocate cost over the estimated useful lives (limited to residual values). Right-of-use assets are depreciated on a straight-line basis • embedded derivatives over the shorter of the lease term and the estimated useful life of the assets. The useful lives of owned and right-of-use assets are • certain investments and financial trading assets and liabilities as follows: Functional and presentation currency Owned Right-of-use The consolidated financial statements are presented in South African Rand (rounded to the nearest million unless otherwise stated), Years Years which is the company’s functional currency and the presentation currency of the group. Buildings and facilities 10 to 40 2 to 5 Changes in accounting policies Plant The group has consistently applied the accounting policies to all periods presented in these consolidated financial statements. • Generating 2 to 80 2 to 15 • Transmitting 5 to 40 n/a 2.2 Consolidation • Distributing 5 to 35 n/a Subsidiaries • Other 3 to 40 40 Subsidiaries are consolidated from the date on which control is transferred to the group until the date that control ceases. Equipment and vehicles 2 to 15 2 to 5 Investments in subsidiaries are accounted for at cost less impairment losses in the separate financial statements of the company. When the group ceases to have control of an entity, it derecognises the assets and liabilities of the subsidiary and any components of The depreciation method, residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date. equity. Any resulting gain or loss is recognised in profit or loss. The estimation of the useful lives and residual values of property, plant and equipment is an area of judgement. The estimation is The accounting policies of the subsidiaries have been adjusted, where necessary, to ensure consistency with the policies adopted by based on independent expert opinion where available and professional judgement taking into account historical performance, the the group. circumstances and operating environment in which the assets operate, alignment to industry benchmarks as well as expectations about the future. Investment in equity-accounted investees Investments in equity-accounted investees (associates and joint ventures) are accounted for at cost less impairment losses in the Gains or losses on the disposal or writeoff of an item of property, plant and equipment are recognised in profit or loss within other income separate financial statements of the company and on the equity method of accounting in the financial statements of the group. The or other expenses. Projects in works under construction that have been discontinued are written off and included in other expenses. group’s share of post-acquisition profits or losses of these investments is recognised in profit or loss within share of profit of equity- accounted investees, and its share of post-acquisition movements in other comprehensive income is recognised directly in other 2.5 Intangible assets comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Research and development Research expenditure is recognised as an expense as incurred. Accounting policies of associates and joint ventures have been adjusted where necessary to ensure consistency with the policies adopted by the group. If the financial statements of the associate or joint venture were prepared as of a different date to that of the Development expenditure (relating to the design and testing of new or improved products) is capitalised only if the expenditure can group (maximum of three months difference), adjustments were made to the group financial statements for significant transactions be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the and events that occurred between the date of the financial statements of the associate or joint venture and the date of the financial group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in statements of the group. profit or loss within other expenses. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. 2.3 Foreign currency translation Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs Transactions and balances previously capitalised that have been discontinued are written off and included in other expenses. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year Capitalised development costs are amortised from the point at which the asset is ready for use on a straight-line basis over its useful end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when life. Subsequent to initial recognition, the capitalised development costs are measured at cost less accumulated amortisation and recognised in other comprehensive income for qualifying cash flow hedges. impairment losses. Translation differences relating to changes in the amortised cost are recognised in profit or loss and other changes in the carrying Rights amount are recognised within fair value through other comprehensive income. Rights consist mainly of servitudes and rights of way under power lines. A servitude right is granted to Eskom for an indefinite period (useful life) and is therefore not amortised. Non-monetary items are measured at historical cost. Computer software Foreign loans are initially recognised at the exchange rate prevailing at transaction date and are translated at spot rate at every Computer software and licences acquired have a finite useful life and are measured at cost less accumulated amortisation and reporting date. Foreign exchange gains and losses that relate to financial assets and liabilities at amortised cost are presented in profit any accumulated impairment losses. If software is integral to the functionality of related equipment, it is capitalised as part of the or loss within net fair value and foreign exchange gain/loss. equipment. Costs associated with maintaining computer software programs are recognised as an expense as incurred. Amortisation is calculated using the straight-line method to allocate costs over the estimated useful lives of software of between 3 and 10 years. Amortisation methods and useful lives of assets are reviewed at each reporting date and adjusted if appropriate. 30 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 31 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 2. Summary of significant accounting policies (continued) Lessor accounting 2.5 Intangible assets (continued) Finance leases Concession assets Finance lease receivables mainly comprise premium power supply equipment contracts. Concession assets consist of the right to charge for the usage of the infrastructure under service concession arrangements. The capital The present value of the lease payments is recognised as a receivable when property, plant and equipment are leased out under a expenditure incurred in respect of the service concession arrangements (fair value at initial recognition), including borrowing costs on finance lease. The difference between the gross receivable and the present value of the receivable is disclosed as unearned finance qualifying capital expenditures, is capitalised (refer to note 2.7) and amortised over the estimated useful life of the concession asset, income within finance lease receivables. Lease income is recognised over the term of the lease using the net investment method, which which is the concession period during which it is available for use (refer to note 23). Subsequent to initial recognition, the concession reflects a constant periodic rate of return. Finance lease receivables are assessed for impairment and derecognised in accordance with assets are measured at cost less accumulated amortisation and impairment losses. the requirements for financial assets. 2.6 Impairment of non-financial assets Operating leases The carrying amounts of non-financial assets within the scope of IAS 36 Impairment of assets are assessed at each reporting date to Leases where substantially all of the risks and rewards of ownership are not transferred are classified as operating leases. Payments determine whether there is any indication of impairment. These assets are reviewed for impairment whenever events or changes in received under operating leases are recognised in profit or loss within other income on a straight-line basis over the period of the lease. circumstances indicate that the carrying amount may not be recoverable or if there are indicators of impairment. Assets that have an indefinite useful life (rights) are tested annually for impairment. 2.9 Payments made in advance The group’s assets are grouped at the smallest identifiable group of assets (cash-generating units (CGUs)), that generate cash inflows Securing debt raised that are largely independent of the cash inflows from other assets or groups of assets. The identification of CGUs involves some Payments are made in advance to lenders for the commitment and issuing fees incurred in raising debt. judgement. Eskom (company) has been identified as a single CGU as it is a vertically integrated regulated business, and the segments Environmental rehabilitation trust fund do not generate largely independent cash flows. Eskom’s core operating assets (generation, transmission, and distribution) function Contributions were made by Eskom to environmental rehabilitation trust funds that were established to fund the financial obligation together to deliver and earn revenue from the sale of electricity to customers in South Africa. The end product is the sale of in respect of the rehabilitation of certain coal mines from which Eskom sources its coal for the generation of electricity. The trust electricity generated, transmitted, and distributed through the vertically integrated value chain at a single price as determined by funds are controlled by third parties and will be used solely for the environmental rehabilitation of the relevant coal mines. The NERSA. Some of the excess capacity in the grid is sold by the transmission segment to international customers. contributions made to the trust funds are recognised separately from the environmental rehabilitation provision in accordance with The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Value in use is based on the estimated the requirements of IFRIC 5 Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds. Fair value future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the adjustments on the trust funds are recognised in profit or loss within net fair value and foreign exchange gain/loss. time value of money and the risks specific to the asset or CGU. An impairment loss is recognised for the amount by which the asset’s Other carrying amount exceeds its recoverable amount. Non-financial assets that were subject to impairment are reviewed for possible Other payments made in advance comprise mainly of payments made to suppliers to reserve manufacturing capacity and resources reversal of the impairment at each reporting date. Impairment losses or reversals are recognised in profit or loss within impairment for the future construction of assets as well as for support and maintenance of IT infrastructure. These amounts will be used as and writedown of other assets. partial settlement towards the future amounts payable to the suppliers. In the event of default or non-performance, there are various 2.7 Capitalisation of borrowing costs remedies in place, including performance bonds, early cancellation penalties and guarantees that can be used to recover outstanding Borrowing costs attributable to the construction of qualifying assets are capitalised as part of the cost of these assets over the period payments in advance. of construction, until the asset is substantially ready for its intended use. All other borrowing costs are expensed in the period in 2.10 Financial instruments which they occur. 2.10.1 Financial assets (excluding derivatives) Borrowing costs for qualifying assets financed by specific borrowings are capitalised using the actual interest expense incurred. Classification Borrowing costs for qualifying assets not financed by specific borrowings are capitalised at the weighted average of the borrowing The appropriate classification of a financial asset is determined on acquisition of the financial asset and is based on: costs (capitalisation rate) using the borrowings applicable to the entity in the group. • whether the contractual terms of the financial asset give rise to contractual cash flows that are solely payments of principal and interest 2.8 Leases • the objective of the business model in which the financial asset is held at a portfolio level that best reflects the way the business The group assesses at contract inception whether a contract is or contains a lease if the contract conveys the right to control the use is managed of an identified asset for a period of time in exchange for consideration. Financial assets are not reclassified subsequent to their initial recognition unless the group changes its business model for managing Lessee accounting financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the The group recognises right-of-use assets relating to the right to use the underlying assets and lease liabilities for the lease payments change in the business model. except for short-term leases and leases of low-value assets, where the recognition exemption is applied. The group may irrevocably designate a financial asset on initial recognition that otherwise meets the requirements to be measured Right-of-use assets at amortised cost or at fair value through other comprehensive income as at fair value through profit or loss if doing so eliminates or The group recognises a right-of-use asset at lease commencement (the date the underlying asset is available for use). Right-of-use significantly reduces an accounting mismatch that would otherwise arise. The group may also irrevocably elect on initial recognition of assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease an equity investment that is not held for trading to present subsequent changes in the investment’s fair value in other comprehensive liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred and lease income. This election is made on an investment-by-investment basis. payments made at or before the commencement date. Refer to note 2.4 for details regarding the depreciation of right-of-use assets and to note 2.6 regarding assessment for impairment of right-of-use assets. The group did not designate any financial assets at fair value through profit or loss and has not elected to present equity investments at fair value through other comprehensive income. Lease liabilities The group recognises a lease liability at the commencement of a lease at the present value of the lease payments that have to be Financial assets are classified into the following categories: made over the lease term. The lease payments include fixed payments. There were no variable lease payments that impacted the Amortised cost determination of the lease payments. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at fair value through The group uses the incremental borrowing rate at lease commencement to calculate the present value of lease payments if the profit or loss: interest rate implicit in the lease is not readily determinable. The incremental borrowing rate requires a degree of judgement • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal regarding the determination of an appropriate discount rate for the lease term and is based on borrowings of a similar term which amount outstanding takes into account current market conditions. • it is held within a business model whose objective is to hold assets to collect contractual cash flows After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for lease Fair value through other comprehensive income payments made. The carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term or a change A financial asset is measured at fair value through other comprehensive income if it meets both of the following conditions and is not of the in-substance fixed lease payments. designated as at fair value through profit or loss: • its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal Short-term leases and leases of low-value assets amount outstanding The group applies the short-term lease recognition exemption to leases with a term of less than 12 months. The group also applies • it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets the lease of low-value assets recognition exception to leases with a value of less than R75 000. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term. Fair value through profit or loss All financial assets not classified as measured at amortised cost or fair value through other comprehensive income are measured at fair value through profit or loss. 32 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 33 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 2. Summary of significant accounting policies (continued) Expected credit loss models and methods 2.10 Financial instruments (continued) Instrument Criteria used for assessment of expected credit loss measurement 2.10.1 Financial assets (excluding derivatives) (continued) 12-month expected credit loss Lifetime expected credit loss Measurement Stage 1 Stage 2 Stage 3 Initial recognition Low credit risk Not credit-impaired or significant Credit-impaired or Financial assets are initially measured at fair value on the date of commitment to purchase (trade date). The transaction price is increase in credit risk default generally the best indicator of fair value. If a contract with a customer has a significant financing component, the related financial asset is initially measured at the transaction price excluding the time value of money. Trade and other Not applicable (simplified approach Elected to measure loss allowances at Financial asset more receivables applied and therefore use lifetime an amount equal to the lifetime than 90 days past due Where the fair value of a financial asset is different to the transaction price, a day-one gain or loss may arise. If the fair value has been expected credit loss) expected credit losses determined based on market-observable data the whole day-one gain or loss is recognised immediately in profit or loss. If the fair value has not been based on market-observable data the day-one gain or loss is deferred in the statement of financial position and Finance leases, loans Credit risk is assessed as low (where Financial asset more than 30 days past Financial asset more amortised over the term of the instrument in profit or loss. receivable (other than the credit risk rating assigned is due than 90 days past due home loans) and financial equivalent to the globally understood Any directly attributable transaction costs are included in the initial measurement of financial assets except for financial assets at fair guarantees definition of investment grade) value through profit or loss where directly attributable transaction costs are recognised in profit or loss. Loans receivable Financial asset less than 30 days Financial asset more than 30 days past Financial asset more After initial recognition (home loans) past due due than 90 days past due Amortised cost Investments and financial Credit risk is assessed as low (where Significant increase in credit risk since There is objective Financial assets at amortised cost are measured at amortised cost after initial recognition using the effective interest rate method trading assets and cash the credit risk rating assigned is initial recognition but there is no evidence that the less any accumulated impairment losses. Interest income, foreign exchange gains and losses and impairments are recognised in profit and cash equivalents equivalent to the globally understood objective evidence of loss (ie the counterpar t y is or loss. definition of investment grade) counterparty is still considered likely unlikely to pay its Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. to pay its obligations) obligations Fair value through other comprehensive income Derecognition Financial assets at fair value through other comprehensive income are measured at fair value after initial recognition. Interest income Financial assets are derecognised when the right to receive cash flows from the assets has expired or substantially all the risks and calculated using the effective interest method, foreign exchange gains and losses and impairments are recognised in profit or loss. rewards of ownership have transferred from the group. Realised gains or losses on derecognition are determined using the last-in-first- Other net gains and losses are recognised in other comprehensive income. out method. Gains and losses, including those accumulated in other comprehensive income, are recognised in profit or loss. Fair value through profit or loss The gross carrying amount of a financial asset is written off when the group has no reasonable expectation of recovering a financial asset. Financial assets at fair value through profit or loss are measured at fair value after initial recognition. Changes in the fair value after initial recognition (including any interest or dividend income) are recognised in profit or loss. 2.10.2 Financial liabilities (excluding derivatives) Classification Impairment Financial liability balances have been classified as either amortised cost or other liabilities. Loss allowances are recognised for expected credit losses on financial assets measured at amortised cost or fair value through other comprehensive income. Loss allowances are calculated using the general or simplified approach. Measurement Initial recognition The general approach requires impairment to be measured using a 12-month or lifetime expected credit loss. The lifetime expected Financial liabilities are measured at fair value on the date of commitment (trade date). Where financial liabilities are carried at credit loss method will be used if, after initial recognition, there is a significant increase in the credit risk of a financial asset or if amortised cost, transaction costs are included in the value of the financial liability. Where financial liabilities are carried at fair value it becomes credit-impaired. The simplified approach requires impairment to be measured using a lifetime expected credit loss. through profit or loss, transaction costs are recognised in profit or loss. Fees paid on the establishment of loan facilities are recorded The simplified approach is applied to trade and other receivables. as a payment made in advance where it is probable that some or all of the facility will be drawn down. Refer to note 2.9. The fees paid The maximum period considered when estimating expected credit losses is the maximum contractual period over which the group is are recognised as transaction costs upon drawdown and then amortised to profit or loss within finance costs from the date of first exposed to credit risk. 12-month expected credit losses are the portion of the expected credit loss resulting from default events that drawdown to final maturity of each facility. are possible within 12 months after reporting date (or a shorter period if the expected life of the instrument is less than 12 months). After initial recognition Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected life of Financial liabilities at amortised cost are measured at amortised cost using the effective interest method. Financial liabilities classified the financial instrument. as at fair value through profit or loss are measured at fair value. The group did not designate any financial liabilities at fair value through Expected credit losses are probability-weighted estimates of credit losses. Credit losses are measured as the difference between the profit or loss. cash flows due in accordance with the contract and the cash flows expected to be received, discounted at the effective interest rate Derecognition of the financial asset. Financial liabilities are derecognised when the obligation expires, is discharged or cancelled, or there is a substantial modification to All financial assets subject to impairment are monitored to assess whether they have been subject to a significant increase in credit the terms of the liability. Realised gains and losses are determined using the last-in-first-out method. risk after initial recognition. There will be a significant increase in credit risk when: 2.10.3 Derivatives held for risk management • payments are more than 30 days past due Classification and measurement • a significant qualitative event has occurred Derivatives held for risk management are not managed on a held-to-collect and/or for sale business model and the default classification and Where it is assessed that a counterparty’s credit risk has increased significantly from its initial low risk designation, the related asset measurement is therefore at fair value through profit or loss unless they meet the criteria for and have been designated as cash flow hedges. is moved from stage 1 to stage 2. Economic hedges An assessment is performed at each reporting date to determine whether financial assets subject to impairment are credit-impaired. Certain derivative instruments do not qualify for cash flow hedge accounting but are used for economic hedging. Changes in the fair A financial asset is credit-impaired when there is observable evidence that one or more event has occurred that has had a detrimental value of these derivative instruments (realised and unrealised gains or losses) are recognised in profit or loss within net fair value and impact on the estimated future cash flows expected to flow from the asset such as: foreign exchange gain/loss. • significant financial difficulty of the borrower, issuer or customer Cash flow hedges • a breach of contract such as a default (where the counterparty is unlikely to pay its obligations) or being more than 90 days The relationship between hedging instruments and hedged items as well as risk management objectives and the strategy for past due undertaking various hedging transactions are documented at the inception of a transaction. The group also documents its assessment, • restructuring of a loan or advance on terms that the group would not otherwise consider both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective • it is probable that the borrower or customer will enter bankruptcy or other financial reorganisation in offsetting changes in fair values or cash flows of hedged items. • the disappearance of an active market for a security because of financial difficulties It is expected that the values of the hedging instrument and hedged item will move in opposite directions as a result of the hedged Where the counterparty is assessed to be credit-impaired, the related asset is disclosed in stage 3. risks (foreign exchange and interest rate risks). The hedge ratio is based on a hedging instrument with the same notional amount in currency terms as the hedged item or portion thereof designated for hedge accounting. This results in a hedge ratio of 1:1 or 100%. 34 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 35 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 2. Summary of significant accounting policies (continued) Nuclear 2.10 Financial instruments (continued) Expenditure incurred to obtain, convert, enrich and fabricate fuel assemblies is stated at cost in future fuel supplies. The fuel 2.10.3 Derivatives held for risk management (continued) assemblies are transferred to inventory when they are received. Costs include the transfer from equity of any gains or losses on Classification and measurement (continued) qualifying cash flow hedges relating to purchases of raw materials, fabrication and enrichment. Cash flow hedges (continued) 2.12 Inventories Significant day-one gains and losses are deferred in the statement of financial position (in derivatives held for risk management) and Coal, liquid fuel, maintenance spares and consumables amortised on a straight-line basis over the term of the hedging instrument to profit or loss. Unamortised day-one gains and losses Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and includes are written off to profit or loss if the related financial instrument is derecognised (extinguished) before maturity date. Day-one gains expenditure incurred in acquiring inventories and other costs in bringing inventory to its present location and condition as well as the and losses on hedging instruments are predominantly a function of the inclusion of credit, liquidity and other risks in the terms of cost of ongoing programmes to rehabilitate the environment and other closure costs for active mines that are charged to profit or the trading instrument. These risks are not included in the determination of a hypothetical derivative used to measure fair value loss within primary energy as the coal is consumed. movements in a hedged item and are therefore excluded from any hedge accounting relationships. Nuclear fuel The effective realised and unrealised portion of changes in the fair value of derivatives that are designated and qualify as cash flow Nuclear fuel consists of enriched and fabricated fuel assemblies and fuel in reactors. Nuclear fuel is stated at the lower of cost and hedges is recognised in other comprehensive income within the cash flow hedge reserve. The gain or loss relating to the ineffective net realisable value. Cost is determined on the first-in-first-out basis and includes cost for the management of fuel assemblies that portion is recognised immediately in profit or loss within net fair value and foreign exchange gain/loss. are written off on a straight-line basis to profit or loss within primary energy over the estimated useful life of the fuel in the reactor. Cumulative gains or losses existing in other comprehensive income where the hedged item is a non-financial asset are included in the initial carrying amount of the asset when the forecast transaction results in the recognition of a non-financial asset. Gains and losses 2.13 Share capital recognised in the cash flow hedge reserve in other comprehensive income will affect profit or loss in the periods during which the Ordinary shares are classified as equity. relevant non-financial assets are expensed to profit or loss. 2.14 Income tax Cumulative gains or losses existing in other comprehensive income where the hedged item is a financial liability are taken to profit Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive or loss within finance cost or net fair value and foreign exchange gain/loss when the cash flows occur on the hedged financial liability. income or equity, in which case it is recognised on that basis. When a hedging instrument expires, is sold or a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss 2.15 Deferred tax existing in equity at that time remains in other comprehensive income until the forecast transaction occurs. If a forecast transaction Deferred tax is recognised on temporary differences arising between the carrying amounts of assets and liabilities for financial is still expected to occur, the cumulative gains or losses in other comprehensive income are reclassified from equity to profit or loss reporting purposes and the amounts used for tax purposes. Deferred tax is determined using tax rates (and laws) enacted or in the same periods during which the hedged forecast cash flows affect profit or loss. If a forecast transaction is no longer expected substantively enacted at the reporting date and that are expected to apply when the related deferred tax asset is realised or the to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to profit or loss deferred tax liability is settled. Deferred tax assets are reviewed at each reporting date and derecognised if it is no longer probable within net fair value and foreign exchange gain/loss. that the related tax benefits will be realised. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Sources of ineffectiveness include the following: • period mismatches between the hedging instrument and hedged item Deferred tax is not recognised for: • the fair value of the hedging instrument at the hedge relationship designation date (if not zero) • temporary differences on the initial recognition of assets or liabilities in a transaction other than a business combination that, at • the fair value or cash flow of the hedged item and hedging instrument are dependent on different variables the time of the transaction, affects neither accounting nor taxable profit or loss • temporary differences relating to investments in subsidiaries and associates to the extent that the group is able to control the 2.10.4 Embedded derivatives timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future Eskom entered into a number of agreements to supply electricity to electricity-intensive businesses where the revenue from these contracts is linked to commodity prices and foreign currency rates or foreign producer price indices that give rise to embedded Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent derivatives. that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is also recognised in respect of temporary differences arising on the assets and provisions created in respect of decommissioning and Embedded derivatives that are not separated from the host contract are effectively accounted for as part of the hybrid instrument. nuclear waste management and closure, pollution control and rehabilitation. Future taxable profits are determined based on business Non-option based derivatives are separated on terms that result in a fair value of zero at the date of inception. Option-based plans for legal entities in the group. derivatives are separated on the terms stated in the contracts and will not necessarily have a fair value equal to zero at the initial recognition of the embedded derivative resulting in day-one gains or losses. These day-one gains or losses are recognised over the 2.16 Payments received in advance, contract liabilities and deferred income period of the agreement. The fair value will depend on the strike price at inception. Customer connections Customer connections arise when customers make a contribution to Eskom to construct regular distribution and transmission assets The determination of the host contract of an electricity contract (which includes an embedded derivative) is based on the standard or when the constructed assets are transferred to Eskom to connect customers to the electricity network. Contributions are made electricity tariff specified in the contract and, where no standard tariff is specified, the tariff that would best fit the profile of such a in advance in terms of a financing agreement or the completed assets are transferred to Eskom. customer. Customer connections received in advance are initially recognised as payments received in advance. The changes in fair value of embedded derivatives are recognised in profit or loss within net fair value and foreign exchange gain/loss. The impact of the fair value gains or losses is taken into account in the calculation of current and deferred tax. The related customer connections that arise when customers transferred distribution and transmission assets to Eskom to connect to the electricity network are accounted for when the customer hands over the completed assets to Eskom. 2.10.5 Repurchase and resale agreements Repurchase agreements are included in financial trading liabilities or financial trading assets dependent on whether securities are Connections for electricity customers that were connected after 1 April 2018 (transition date to IFRS 15) bought or sold. Agreements to resell securities are recorded as repurchase agreements and included in financial trading assets when When the connection provides the customer with a material right, the connection is allocated to deferred income (contract liabilities) the securities are bought for market-making activities. The difference between the sale and repurchase price or purchase and resale when the customer is connected to the electricity network. The deferred income is recognised in profit or loss within revenue on a price is treated as interest accrued over the life of the repurchase or resale agreement using the effective-yield method. straight-line basis over the estimated customer relationship period as the connection provides the customer with a material right of renewal that extends the revenue recognition period beyond the initial contractual period. 2.10.6 Financial guarantees Financial guarantees are contracts that require the group to make specified payments to reimburse the holder for a loss that it incurs When the connection does not provide the electricity customer with a material right, the connection is recognised in full in profit or because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. loss within revenue when the customer is connected to the electricity network. Financial guarantees issued are initially measured at fair value and subsequently at the loss allowance calculated in accordance with Connections for electricity customers that were connected after 30 June 2009 but before 1 April 2018 IFRS 9 Financial instruments. Connections were recognised in profit or loss when the customer was connected to the electricity network in terms of IFRIC 18 Transfers of assets from customers. 2.11 Future fuel supplies Coal Connections for electricity customers that were connected before 30 June 2009 The right to future coal supplies from coal mines is measured at cost. Cost includes payments made to coal suppliers for mine Connections were allocated to deferred income when the customer was connected to the electricity network. The deferred income establishment and related equipment in terms of cost-plus agreements. The cost also includes the initial estimate of environmental is recognised in profit or loss within revenue on a straight-line basis over the expected useful lives of the related assets. rehabilitation of the mine as well as changes in the estimated timing or amount of outflow of resources or changes in the discount rate. The cost is amortised to coal inventory over the lesser of the life of the agreement or the underlying assets. Refer to note 2.19 for revenue recognition of connections. 36 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 37 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 2. Summary of significant accounting policies (continued) Occasional and service leave 2.16 Payments received in advance, contract liabilities and deferred income (continued) The liability for occasional and service leave is of a long-term nature in terms of IAS 19 as it is not expected to be settled wholly within Grants 12 months after the reporting period but there is no unconditional right to defer settlement for at least 12 months after the reporting Government grants for electrification are initially recognised in payments received in advance and allocated to deferred income period. The full provision is therefore presented as current in the statement of financial position. when the related asset has been connected to the electricity network. The deferred income is recognised in profit or loss within An actuarial valuation of the occasional and service leave liability is performed at the reporting date. All actuarial gains or losses and depreciation and amortisation expense on a straight-line basis over the expected useful lives of the related assets. past service costs are recognised in profit or loss within employee benefit expense. The present value of the benefit is determined by using government bonds which have maturities similar to the liability. 2.17 Employee benefit obligations Post-employment medical benefits Bonus All permanent employees qualify for post-employment medical benefits, except for new employees appointed on or after 1 June 2003 Annual and production bonuses are short-term employee benefits which are expensed as the related services are provided. A liability at a managerial level. The entitlement to post-employment medical benefits is conditional on the employee remaining in service up for annual bonuses is accrued on a proportionate basis as services are rendered. A liability for production bonus is raised on the to retirement when the employee qualifies for the full benefit. Retirement includes any early retirement from age 55 up to normal estimated amount payable in terms of the scheme. retirement at age 65. 2.18 Provisions The group accounts for its post-employment medical benefits obligation as a defined benefit plan in line with IAS 19. The post- Provisions are recognised when the group has a present legal or constructive obligation as a result of a past event, when it is probable employment medical benefits plan is unfunded. The cost to the employer, in the form of employer contributions, is actuarially that an outflow of resources will be required to settle the obligation and when the amount can be reliably estimated. Provisions are determined. Provision is made for the estimated cost over the period until the date of early retirement at age 55 when further service not recognised for future operating losses. by the employee will lead to no material amount of further benefits to the employee. Actuarial gains or losses are recognised in other comprehensive income within re-measurement of benefits. Interest and other expenses related to these benefits are recognised in The valuation of long-term provisions requires a degree of judgement regarding the future cash flows and the timing thereof. profit or loss. Provisions are determined by discounting the expected future cash flows using a pre-tax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The increase in the provision due to Pension benefits the passage of time is recognised as finance costs. All permanent employees of the group are members of the Eskom Pension and Provident Fund (EPPF) in terms of its rules and conditions. The initial cost of a provision is capitalised against the cost of the related asset if it meets the requirements for capitalisation. Changes in the liability for capitalised provisions are added to, or deducted from, the cost of the related asset. Any amount exceeding the cost The EPPF is registered as a defined benefit fund in terms of the requirements of the Pension Funds Act. of the related asset is allocated to profit or loss. The assets and pension benefits are administered by the EPPF which is a separate legal entity to the group. The board of trustees of The main categories of provisions include the following: the EPPF consists of an equal number of employer (includes appointing of a non-executive chair and an expert) and member (includes managerial, labour and pensioners) representatives. The board of trustees is required by law to act in the best interest of the plan Power station-related environmental restoration – nuclear plant and other generating plant participants in terms of the rules of the fund and the provisions of the Pension Funds Act and are responsible for setting policies The provision includes the estimated decommissioning cost of nuclear and other generating plant. The estimated cost of including those governing investments and ensuring that there are sufficient assets to meet the plan obligations as they become due. decommissioning at the end of the productive life of plant is based on engineering and technical estimates and reports from independent experts. The initial cost of the provision is capitalised against property, plant and equipment. The board of trustees generally targets to have a portfolio mix of a combined 70% in equity and property and 30% in debt instruments. The board of trustees aims to keep fund assets at a level such that no plan deficits (based on actuarial valuations performed) will arise. A provision is also raised for the management of fuel assemblies and radioactive waste, which is recognised and measured based on the latest available cost information and spent fuel management methodologies. The costing and methodologies are revised on Eskom Holdings SOC Ltd, Eskom Rotek Industries SOC Ltd and the EPPF itself are the employers in the EPPF. The fund is measured a regular basis to ensure alignment with the requirements of the National Nuclear Regulator of South Africa. The cost for the fuel as a whole and there is no policy in place for proportionate allocation of net assets to individual entities of the group. assemblies is included in the cost of inventory while the fuel is in the reactor. The cost relating to radioactive waste is charged to The rules of the EPPF have the effect that the fund is not a normal defined benefit fund in terms of IAS 19 as the employer is not profit or loss within primary energy. required to automatically make good any deficit should it arises. The EPPF has been accounted for as a defined benefit fund in terms Mine-related closure, pollution control and rehabilitation of IAS 19. The provision includes the estimated cost of physical, biophysical and social closure and environmental rehabilitation of the mine The contributions to the EPPF comprise 19.55% of pensionable emoluments of which 12.25% is contributed by the employer and where a legal or constructive obligation exists. The initial cost of the provision is capitalised against future fuel. The cost of ongoing 7.30% by members. Contributions are made by each employer in the fund. closure and rehabilitation programmes for active mines is charged to inventory and subsequently to profit or loss within primary energy as the coal is consumed, while the cost relating to defunct mines is charged directly to profit or loss. Pension benefits are provided by the EPPF to all pensioners of the fund in terms of the rules of the fund. The annual pension benefit on retirement is based on a defined formula of 1.085/600 of the final average emoluments over the last year of service multiplied Coal-related obligations by the pensionable service period in months. The formula does not limit the benefits payable to the assets and contributions made A provision is raised for coal-related obligations which arise out of contractual obligations as a result of delays in commissioning of to the fund. However, the rules of the fund state that any deficit on the valuation of the fund will be funded by increases in future the related power stations, which is recognised and measured based on the best estimate of the expenditure that would be required contributions (if consented to by the employer) or reductions in member benefits (as agreed by the members). The obligation on to settle the present obligation at the end of the reporting period and is charged to profit or loss within primary energy. Eskom as the employer to contribute towards the deficit is an area of judgement. Other Despite an independent legal opinion that cited that there was no legal obligation on Eskom to make good any deficit, management Other provisions include provisions made for contractual obligations relating to compensation events, onerous contracts, litigation noted when applying the requirements in IAS 19 that the benefit formula does not limit the payments to the assets in existence in the matters, guarantees, and maintenance and restoration of the infrastructure under service concession arrangements. These provisions fund at the payment date. As a result, management concluded that the actuarial and investment risk fall on Eskom when considering are recognised based on contractual obligations and measured based on the best estimate of the expenditure that would be required the requirements of IAS 19 and therefore followed a conservative approach to classify the fund as a defined benefit fund. to settle the present obligation at the end of the reporting period and are charged to profit or loss within other expenses. If there is a substantial surplus on the valuation of the fund, future contributions may be decreased or pensioner benefits may be The amount of the provisions is based on management’s assessment of the most likely amounts due based on the current information improved as determined and appropriated by the trustees of the fund. The surplus is not controlled by Eskom, but by the trustees available. The group expects to settle the majority of these provisions within 12 months. The finalisation of an obligation depends on of the fund in terms of the Pension Fund Act and rules of the EPPF. An asset ceiling is therefore applied in the case of a surplus that factors outside the control of the group, for example, arbitration and dispute resolution processes, which could impact the timing. limits the net benefit asset to zero. It is not expected that any additional liability in excess of the amounts provided would have a material adverse effect on the group’s financial position, liquidity or cash flow. The pension benefits plan is funded. The cost to the employer, in the form of employer contributions, is actuarially determined. 2.19 Revenue from contracts with customers Return on plan assets in excess of interest, adjustments to the asset ceiling and actuarial gains or losses on the obligation are Eskom’s main revenue activity is the sale of electricity which is recognised when electricity is consumed by the user. The subsidiaries recognised in other comprehensive income within re-measurement of benefits. The expense or income recognised in profit or loss support this main activity but are not considered to be part of the main revenue activity as their operations include providing home includes the current service cost, interest income on plan assets and interest expense on the defined benefit obligation and the loans, insurance, maintenance and construction services. irrecoverable surplus (effect of asset ceiling). Revenue is recognised when a customer obtains control of the goods or services supplied. The amount of revenue recognised is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Eskom has a statutory obligation to charge value added tax (VAT), payable to the South African Revenue Service (SARS), when an invoice is created. The VAT is contractually recoverable from the customer and is included in trade and other receivables. Refer to note 19. 38 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 39 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 2. Summary of significant accounting policies (continued) 2.23 Net debt 2.19 Revenue from contracts with customers (continued) Gross debt is the aggregate of debt securities and borrowings and lease liabilities. Customers that fail the collectability criterion are accounted for on a cash basis and revenue is only recognised when cash is received. Net debt is calculated by adjusting gross debt for related payments made in advance, derivatives held for risk management, financial Refer to note 4.6. An invoice is still raised for sales to these customers which gives rise to a related VAT entry that is allocated to trading instruments and cash and cash equivalents. trade and other receivables, even though the transaction price is not recognised in terms of IFRS 15. When cash is received from the customer, the transaction price is recognised in profit or loss within revenue, and the related payment for VAT is allocated against the trade and other receivables balance. 3. Capital management and going concern 3.1 Capital management The group’s principal revenue-generating activities are as follows: The objective of capital management is to ensure that the group is sustainable over the long term. The government, as the sole Revenue Nature and timing of satisfaction of Revenue recognition shareholder, and the board have the responsibility to ensure that the group is adequately capitalised and that the business is attractive activity performance obligation, including to investors and lendors. significant payment terms The group’s funding consists of equity investments by the shareholder, funds generated from operations and funds borrowed on local Electricity Performance obligation is settled Revenue is recognised over time as electricity is consumed by the customer and foreign debt markets with strong government support. There were no changes to the group’s approach to capital management sales when electricity is supplied to the (ie when control is transferred) and is billed for on a monthly basis. Revenue during the financial year. The following capital reserves are managed by the group: customer. Most customers pay for is measured based on the consideration specified in a contract with a electricity after consumption and have customer and excludes amounts collected on behalf of third parties. Group Company between 15 and 45 days to pay. Some 2021 2020 2021 2020 customers prepay for electricity. Note Rm Rm Rm Rm Connections Connections arise when customers Connections that were completed before 30 June 2009 were allocated to Share capital 24 188 000 132 000 188 000 132 000 make a contribution to Eskom to deferred income when the customer was connected to the electricity Accumulated profit 39 658 64 858 21 547 48 413 construct regular distribution and network. The deferred income is recognised in profit or loss within revenue Net debt 44 398 210 415 190 401 962 420 395 transmission assets or when the on a straight-line basis over the expected useful life of the related assets. 625 868 612 048 611 509 600 808 constructed assets are transferred to Eskom to connect customers to the Connections that were completed after 30 June 2009 were recognised as Facilities available – debt securities and borrowings1 39 112 61 373 39 112 61 373 electricity network. revenue when the customer was connected to the electricity network in terms of IFRIC 18. Connections arise from contracts with 3.1.1 Share capital customers who will also become Connections that were completed from 1 April 2018 are recognised as follows: An additional R56 billion (2020: R49 billion) of shares was issued during the year. electricity purchasing customers once • connections relating to electricity purchasing customers where there is a material right are allocated to deferred income when the customer is 3.1.2 Accumulated profit they are connected and those who will connected to the electricity network. The deferred income is recognised Revenue not purchase electricity (eg property in profit or loss within revenue on a straight-line basis over the estimated Eskom analyses the Integrated Resource Plan (which forecasts the growth in long-term electricity demand) and evaluates the developers). customer relationship period of 25 years. Refer to note 27 for the contract alternative options to meet and manage forecast demand. This information impacts the planning process and informs the revenue liabilities of connections recognised on a straight-line basis applications made to NERSA for tariff increases that will allow Eskom to be financially sustainable. • connections relating to electricity purchasing customers where there is not Refer to the turnaround plan section in the directors’ report for more information on electricity tariffs. a material right are recognised as revenue over the initial contract term • connections relating to non-electricity purchasing customers are recognised Operating cost as revenue at a point in time when the customer is connected to the The group continues to pursue cost-saving opportunities to assist in ensuring financial sustainability. electricity network The following income statement measures are monitored by management: Other Ad hoc requests for electricity-related Revenue is recognised at a point in time when the service is completed. services that are distinct from the Group Company sale of electricity or the connection 2021 2020 2021 2020 of customers to the grid. % % % % EBITDA margin 16.06 18.46 15.58 17.65 The assessment to defer revenue for connection charges from electricity customers required judgement because of divergent Net profit margin (9.27) (10.41) (10.08) (11.33) international treatments based on contract and operational differences. Changes to the recognition of customer connections is not expected based on the current information available. 3.1.3 Net debt The assessment of whether or not a connection charge is a material right or not in terms of IFRS 15 requires judgement of what Group Company constitutes a material right from the perspective of the customer and results in different accounting treatments as discussed above. 2021 2020 2021 2020 2.20 Finance income Rm Rm Rm Rm Finance income comprises interest receivable on loans, trade receivables, finance lease receivables and income from financial market Funding spent 128 190 97 036 128 117 95 848 investments. Debt repayment and net finance costs 101 865 70 025 103 425 70 246 Finance income is calculated by applying the effective interest rate method to the gross carrying amount of non-credit impaired Investment funding requirements 26 325 27 011 24 692 25 602 financial assets (ie at the amortised cost of the financial asset before adjusting for any expected credit loss allowance). Finance income on credit-impaired financial assets is calculated by applying the effective interest rate to the amortised cost of the credit-impaired Funding raised 128 190 97 036 128 117 95 848 financial assets (ie the gross carrying amount less the allowance for expected credit losses). Interest income is recognised in profit Cash from operations 30 658 36 207 29 285 34 714 or loss. Financing activities 78 650 81 706 79 180 81 795 2.21 Finance cost Utilisation of cash 18 882 (20 877) 19 652 (20 661) Finance cost comprises interest and fees payable on debt securities and borrowings and lease liabilities, interest resulting from derivatives held for risk management and interest from the unwinding of discount on liabilities. Borrowing costs which are not capitalised are recognised in profit or loss. Refer to note 2.7. 2.22 Assets and liabilities held-for-sale Assets and liabilities (or disposal groups) which meet the definition of held-for-sale under IFRS 5 Non-current assets held-for-sale and discontinued operations are stated at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction. 1. Facilities in foreign currency are converted to rand at mid-spot rate at reporting date. Refer to note 5.2.1. 40 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 41 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 3. Capital management and going concern (continued) The challenges that the group is facing are being addressed by the following mitigation strategies and actions: 3.1 Capital management (continued) • continuous engagement is taking place with the shareholder and National Treasury to ensure that the challenges that impact the 3.1.3 Net debt (continued) group’s going-concern status are addressed satisfactorily within a reasonable timeframe • government continues to support Eskom to operate as a going concern given the strategic role that Eskom plays in pursuit of The following ratios play an important role in the credit ratings given to Eskom, which in turn influences the cost of funding. Eskom’s government objectives, with support of R31.7 billion in 2022 and R21.9 billion in 2023, which is aligned to the budget announcement credit rating is affected by its own financial position as well as the credit rating of the sovereign: made by the Minister of Finance in February 2021. The board is managing and regularly reporting on the conditions relating to the support that was allocated through the Special Appropriation Act in November 2019 Group Company • the special paper on Eskom released by the Department of Public Enterprises on 20 October 2019 provides a degree of clarity on Unit 2021 2020 2021 2020 the role that Eskom will play in the unfolding future of the country’s electricity supply industry Net debt: equity Ratio 1.84 2.23 2.03 2.48 • the board finalised the process to separate the business into the main line divisions (functional unbundling of Eskom) in line with Net debt: EBITDA Ratio 12.14 11.28 12.63 11.94 the special paper. Progress has been made to prepare the business for the legal unbundling. The implications and requirements of Net debt service cover Ratio 0.30 0.52 0.28 0.49 the implementation including legislative and regulatory changes, legal structure and ownership, ultimate industry structure as well Free funds from operations: net debt % 10.96 9.90 6.85 10.49 as addressing Eskom’s financial viability including the debt challenge are being address and followed up with government • court proceedings were lodged against NERSA regarding tarriff and RCA decisions. Refer to the turnaround plan section of the Eskom’s credit ratings at 31 March were as follows: directors report for progress on the court proceedings • the group’s cost structures and capital programme are continuously being reviewed to extract cost savings and improve cash flows Rating Outlook • the group’s generation capacity is being managed as a key focus area to ensure appropriate steps are being taken to manage the 2021 2020 2021 2020 performance challenges Standard & Poor’s • there is continued focus on implementing relevant strategies in an effort to recover overdue trade receivables through the political Foreign currency CCC+ CCC+ Negative Negative task team Local currency CCC+ CCC+ Negative Negative • the group is aware of the impact of large capital projects on its statement of financial position and will only engage on such projects Moody’s with full disclosure and with the support of the shareholder • funding options, with the support of National Treasury, are being pursued to implement the group’s borrowing programme Foreign currency Caa1 B2 Negative Negative • there is continued focus to address the shortcomings relating to the completeness of the irregular expenditure reporting process Local currency Caa1 B2 Negative Negative in terms of the PFMA (resulted in the qualified audit opinion in recent years) and the clean-up of the related challenges in the Fitch Ratings commercial environment Foreign currency – – Negative Negative Local currency B BB– Negative Negative The board considered the risks relating to the group’s going-concern status and is satisfied that the risks will be satisfactorily addressed with the mitigation strategies in place. The board continues to manage these strategies as a priority as it is important that Net debt is sourced globally to ensure the lowest cost of funding. Where funds are received and have not yet been spent, they are they materialise as envisaged. The board therefore concluded that it is satisfied that the group has access to adequate resources and invested to provide the maximum possible return while ensuring minimal capital risk and matching the maturity term requirements facilities to be able to continue its operations for the foreseeable future as a going concern. of the spending of the amount. Net debt is managed via the continuous monitoring of current and potential debt funding arrangements to achieve the most favourable 4. Critical accounting estimates and assumptions The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and terms possible. These terms and costs are heavily dependent on Eskom’s credit rating. Eskom is focusing on alleviating the rating liabilities within the next financial year are discussed in this note. agencies’ concerns regarding the high leveraged financial profile, inadequate electricity price path and funding requirements of Eskom. The methods and types of assumptions used in preparing the sensitivity analyses did not change compared to the previous period. Refer to note 44 for a reconciliation of the movements and analysis of the composition of net debt. Sensitivity analyses are calculated based on a change in a single key assumption keeping all other assumptions constant. In practice it 3.2 Going concern is unlikely that changes in assumptions would occur in isolation from one another. The board made an assessment of the ability of the group to continue as a going concern in the foreseeable future. The board: 4.1 Embedded derivatives • recognised that Eskom continues to face various challenges that resulted from mismanagement and corruption. Significant progress Eskom entered into a number of agreements to supply electricity to electricity-intensive businesses where the revenue from these has been made in cleaning-up irregularities and improving processes, but it is taking time to identify all issues and take appropriate contracts is linked to commodity prices and foreign currency rates or foreign producer price indices that give rise to embedded corrective action and consequence management derivatives. • noted that there is a need to secure funding of R42 billion in 2022 (39% of the funding for 2022 had been secured by July 2021) • considered the impact of the current economic climate and the sovereign’s credit ratings on Eskom’s ability to raise funds, including The embedded derivatives consist of the following categories: that the rating agencies have a cautious outlook on Eskom • commodity and/or foreign currency • reviewed the performance of the group for the period ended 31 March 2021 including the net loss after tax of R18 934 million and • United States producer price and foreign currency the net current liabilities of R19 430 million • considered that Eskom is in a debt reliant liquidity situation that resulted from low tariffs, stagnant and contracting sales volumes, Valuation above inflation cost increases and the capital programme to increase and replace generating and transmitting capacity Valuation techniques are used to determine the fair value as there is no active market for embedded derivatives. The fair value is • noted the deterioration of some of the group’s financial indicators determined by fair valuing the whole agreement and deducting from it the fair value of the host agreement. The valuation methods • considered the impact of the cash flow forecast for the 24 months ending 31 March 2023 and the projected net loss before tax for include the use of swaps (where the electricity tariff is swapped for a commodity in a foreign currency) and options (where the 2022, estimated at R13 476 million per the latest projections electricity tariff or other revenue is based on an embedded derivative floor or cap on foreign consumer or producer price indices or • considered the impact of generation plant performance and the continuous increase in overdue electricity receivables (including interest rates and a closed form analytic solution is used to produce various cap and floor strike prices). the impact of non-recoverability of long outstanding electricity receivables) • considered the possible impact if key risks materialise and acknowledged that the group is dependent on the positive outcome of A forward electricity price curve is used to value the host agreement and the derivative agreement is valued by using market forecasts undecided court proceedings lodged against NERSA and the liquidation of the RCA balances of future commodity prices, foreign currency rand exchange rates, interest rate differentials, forecast sales volumes and production price and liquidity. The forward curves used are based on Eskom’s financial years. The forecast cash flow is determined and then discounted at the relevant interest rate curve. The net present value of the cash flows is then converted at the rand/foreign currency spot rate to the reporting currency. The fair value of the embedded derivative is adjusted, where applicable, to take into account the inherent uncertainty relating to the future cash flows of embedded derivatives such as liquidity, model risk and other economic factors. The important assumptions are obtained either with reference to the contractual provisions of the relevant agreements or from independent market sources where appropriate. The only significant unobservable input is the United States producer price index (PPI). 42 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 43 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 4. Critical accounting estimates and assumptions (continued) Valuation assumptions 4.1 Embedded derivatives (continued) The principal actuarial assumptions used were: Valuation (continued) Group Company Valuation assumptions Unit 2021 2020 2021 2020 Forecast sales volumes are based on the most likely future sales volumes based on past trends and taking into account future production plans in consultation with industry-specific experts and key customer executives. Discount rate % 13.8 13.5 13.8 13.5 Medical aid inflation % 10.2 9.2 10.2 9.2 The following valuation assumptions were used for the valuation of embedded derivatives and are regarded as the best estimates by Male longevity years 14.42 14.42 14.42 14.42 the board: Female longevity years 20.82 20.82 20.82 20.82 2021 Year ended 31 March Weighted average duration years 18.10 17.70 18.20 17.80 Input Unit 2021 2022 2023 2024 2025 2026 Assumptions regarding future mortality have been based on published mortality tables and statistics derived from experience. Aluminium price USD per ton 2 206 2 252 n/a1 n/a1 n/a1 n/a1 Volatility Year-on-year (ratio) 0.16 0.16 0.16 0.16 0.16 0.16 Sensitivity analysis Rand interest rates Continuous actual/365 days (%) 3.53 4.52 4.32 4.88 5.43 5.97 The effect of an increase or decrease in the assumptions is: Dollar interest rates Annual actual/365 days (%) 0.18 0.28 0.29 0.51 0.78 1.04 South African PPI Year-on-year (%) 6.18 6.06 5.15 7.00 5.32 6.33 Group Company United States PPI Year-on-year (%) 7.31 1.85 2.44 1.61 1.25 2.23 Change in 2021 2020 2021 2020 Rand/USD Rand per USD 14.75 15.38 15.98 16.81 17.76 18.86 assumption increase decrease increase decrease increase decrease increase decrease Electricity price increase Year-on-year (%) 8.76 15.06 n/a1 n/a1 n/a1 n/a1 Rm Rm Rm Rm Rm Rm Rm Rm Effect on aggregate current service cost 2020 Year ended 31 March and finance cost Input Unit 2020 2021 2022 2023 2024 2025 Discount rate 1% (203) 249 (154) 189 (201) 247 (153) 187 Aluminium price USD per ton 1 499 1 595 n/a1 n/a1 n/a1 n/a1 Medical aid inflation 1% 439 (351) 356 (286) 433 (346) 350 (282) Volatility Year-on-year (ratio) 0.17 0.17 0.17 0.17 0.17 0.17 Future mortality 1 year 60 (61) 48 (48) 60 (59) 47 (47) Rand interest rates Continuous actual/365 days (%) 6.40 6.09 5.20 5.63 6.01 6.80 Effect on post- Dollar interest rates Annual actual/365 days (%) 0.33 0.92 0.48 0.46 0.48 0.51 employment medical South African PPI Year-on-year (%) 3.00 5.26 6.15 6.37 4.41 7.31 benefits obligation United States PPI Year-on-year (%) (1.97) (0.14) 1.66 2.05 1.85 1.44 Discount rate 1% (1 904) 2 365 (1 593) 1 962 (1 870) 2 324 (1 562) 1 925 Rand/USD Rand per USD 17.82 18.76 19.58 20.81 22.24 24.41 Medical aid inflation 1% 2 379 (1 939) 1 985 (1 630) 2 339 (1 905) 1 948 (1 598) Electricity price increase Year-on-year (%) 13.87 8.76 n/a1 n/a1 n/a1 n/a1 Future mortality 1 year 380 (383) 313 (317) 372 (375) 306 (310) Sensitivity analysis 4.3 Pension benefits The effect on profit/loss before tax of an increase or decrease in the assumptions is: Valuation The estimated present value of the anticipated expenditure for both in-service and retired members is calculated by independent Group and company actuaries using the projected unit credit method annually. This method accounts for the accrued service liability separately from the Input Unit Change in 2021 2020 current cost. The accrued service liability is based on the completed years service to the valuation date in respect of current in- assumption increase decrease increase decrease service members and the full liability in respect of pensioners. The current cost liability is the cost of providing the benefit over the Rm Rm Rm Rm next year. The present value of the obligation is determined by using government bonds which have maturities similar to the liability. Aluminium price USD per ton 1% 9 (9) 8 (8) The liability is compared to the fair value of the plan assets to determine a resultant deficit or surplus (which would be subject to an Rand interest rates Continuous actual/365 days (%) 100 basis points 61 (72) 123 (141) asset ceiling). The fair value of the plan assets represents the market value of the assets. Dollar interest rates Annual actual/365 days (%) 100 basis points (56) 51 (101) 97 The fund is exposed to inflation, interest rate risks, changes in the life expectancy for pensioners, changes in the age profile of South African PPI Index 1% (58) 50 (50) 47 members, equity and debt market risk, and foreign exchange risk. United States PPI Index 1% 44 (49) 53 (51) Rand/USD Rand per USD 1% 25 (19) 19 (17) Valuation assumptions The principal actuarial assumptions used were: 4.2 Post-employment medical benefits Group and company Valuation Unit 2021 2020 The estimated present value of the anticipated expenditure for both in-service and retired members is calculated by independent actuaries using the projected unit credit method annually. This method accounts for the accrued service liability separately from the Discount rate % 13.8 13.5 current cost liability. The accrued service liability is based on the completed service to the valuation date for the in-service members Long-term price inflation rate % 8.2 7.2 and the full liability in respect of retired members. The current cost liability is the cost of providing the benefit over the next year. Future salary inflation % 9.7 8.7 The present value of the obligation is determined by using government bonds which have maturities similar to the liability. Future pension increases % 8.2 7.2 The fund is exposed to inflation risk, interest rate risks and changes in the life expectancy for beneficiaries. Male longevity years 13.5 13.5 Female longevity years 19.7 19.7 Weighted average duration years 16.3 14.9 Assumptions regarding future mortality have been based on published mortality tables and statistics derived from experience. 1. The embedded derivative that is linked to commodity and/or foreign currency rates expires on 31 July 2021. Inputs beyond this date are therefore not relevant. 44 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 45 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 4. Critical accounting estimates and assumptions (continued) Sensitivity analysis 4.3 Pension benefits (continued) The carrying amount of the power station-related environmental restoration and mine closure, pollution control and rehabilitation Valuation (continued) provisions would be an estimated R6 616 million (2020: R4 536 million) lower had the real discount rate used in the calculation of the Sensitivity analysis provision increased by 1% and R8 984 million (2020: R5 845 million) higher had the real discount rate decreased by 1%. The effect on fund obligations of an increase or decrease in the assumptions is: 4.6 Revenue from contracts with customers Group and company Customer connections 2021 2020 Connection charges are charged to customers in exchange for connection to Eskom’s electricity network. This connection enables increase decrease increase decrease Eskom to sell electricity to these customers over the estimated customer relationship period. The customer relationship period refers to the period the customer remains a purchaser of electricity from Eskom at a given point of supply. A period of 25 years was Rm Rm Rm Rm determined after considering, inter alia, assumptions about the life-cycle of the distribution network used to supply electricity to 1% change in discount rate (6 760) 7 873 (5 276) 6 670 customers. 1% change in inflation rate 8 232 (7 144) 6 923 (5 612) Collectability of amounts receivable 1 year change in post-employment mortality (1 543) 1 506 (1 166) 1 134 Revenue may only be recognised if it is believed at the time of sale that the revenue is likely to be recovered from the customer. This recoverability requirement is not considered to have been met in contracts with customers who have a poor payments history 4.4 Occasional and service leave and for which Eskom does not have the ability to manage the credit risk due to external facts and circumstances (for example Valuation socio-economic or political reasons). Eskom accounts for revenue from these contracts on a cash (rather than accrual) basis. An actuarial valuation is done on an annual basis for occasional and service leave. The accrued liability is determined by valuing all future leave expected to be taken and payments to be made in respect of benefits up to the valuation date. Allowance is made for the Where the recoverability requirement is met, revenue is recognised on an accrual basis. The risk of non-collection is reflected in the assumed benefit options employees will exercise and salary increases up to the date the benefit is estimated to be paid. The present expected credit loss as an impairment expense rather than an adjustment to the revenue recognised. value of the obligation is determined by using government bonds which have maturities similar to the liability. 4.7 Expected credit loss on financial assets Valuation assumptions The expected credit loss on financial assets is calculated using the following formula: The principal actuarial assumptions used were: Expected credit loss = Exposure x Probability of default x Loss given default Group and company The exposure is the amount outstanding less any collateral. The probability of default measures the likelihood that the amount 2021 2020 outstanding will become more than 90 days past due. The loss given default measures the expected credit loss in the event that the % % outstanding amount becomes more than 90 days past due. Cash flows are discounted at the original effective interest rate over the Discount rate 13.8 13.5 expected recovery period. Where the last cash flow relates to a recovery from SARS through a writeoff, the recovery period is General price inflation 8.2 7.2 determined based on current information and past experience limited to a maximum recovery period of five years. Salary increases 9.7 8.7 The financial assets that are subject to IFRS 9 impairment are stratified using factors such as the balance type, credit risk rating, Leave usage 8.0 8.0 existence and type of collateral, remaining term to maturity, delinquency status and geographical location. The potential adverse impact of COVID-19 restrictions on the economy has been factored into the expected credit loss calculations at Assumptions regarding future mortality have been based on published mortality tables and statistics derived from experience. 31 March 2021 in a manner consistent with that applied in the comparative financial year. The group applied judgement in determining For details regarding current longevities underlying the values of the occasional and service leave obligation at the reporting date whether a significant increase in credit risk had occurred as a result of COVID-19 and no indicators of a significant increase were refer to note 4.2. identified at the reporting date. Sensitivity analysis The impact of COVID-19 on expected credit losses at 31 March 2021 was calculated based on the group’s best estimates using Based on current experience, 8% (2020: 8%) of the leave is utilised. If the rate at which leave is taken is 16% (2020: 16%), then the information available at the time of preparation of the financial statements and includes forward-looking assumptions. The probability liability will increase by R108 million (2020: R101 million). If the rate at which leave is taken is 4% (2020: 4%), then the liability will of default for all models (except small power user trade receivables) was increased to reflect the forward-looking stress scenario decrease by R61 million (2020: R57 million). impact of COVID-19 in a manner similar to that observed by Standard & Poor’s during the 2008 financial crisis as this was determined The carrying amount of the occasional and service leave liability for the group is R1 426 million (2020: R1 302 million) and R1 311 million to be the most appropriate stress scenario. (2020: R1 212 million) for the company. The probability of default of the expected credit loss models was adjusted despite the acyclical probability of default behaviour 4.5 Power station-related environmental restoration and mine-related closure, pollution control and observed historically due to the severity of the COVID-19 impact and the global point-in-time probability of default reported by external rating agencies. Additionally, the base scenario considered the most appropriate for the municipality models (scorecard rehabilitation approach) assumes a “V” shaped recovery where there is a significant economic disruption while social distancing measures are in Valuation place followed by a sharp recovery when the restrictions are lifted. An alternative methodology was applied to small power users These provisions are determined by discounting the current estimated future decommissioning and rehabilitation costs. The present given the trend of increased probability of default observed. The increase in the probability of default for small power users was based value of the obligation is determined by using government bonds which have maturities similar to the liability. on the largest observed historical quarterly increase. Valuation assumptions The real discount rate used for these provisions was 3.9% (2020: 4.8%) for the group and company. Estimated payment dates The estimated payment dates of the costs are: Group and company 2021 2020 Nuclear plant 2026 – 2041 2026 – 2041 Coal and pumped storage plants 2023 – 2099 2024 – 2098 Spent nuclear fuel 2022 – 2125 2021 – 2125 Mine-related closure, pollution control and rehabilitation 2022 – 2150 2021 – 2077 The estimated payment dates of the mine-related closure, pollution control and rehabilitation provision changed in line with the latest water studies where water treatment processes are expected to commence later than previously anticipated, as well as a result of impending legislation changes that will increase the duration of water treatment from 20 to 50 years. 46 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 47 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 4. Critical accounting estimates and assumptions (continued) 5. Financial risk management 4.7 Expected credit loss on financial assets (continued) The group’s integrated risk and resilience management process enables management to assess and respond to all material risks that The following details are applicable to the models used for the various financial asset balances: may affect the achievement of organisational objectives. Financial asset Model details The group maintains an integrated risk and resilience management framework comprising governance structures, management policies and guidance standards with a focus on risk and resilience assessments, treatment plans, monitoring and reporting. The management International Expected credit losses were calculated using a benchmark approach that assigns a probability of default to a client of financial risks, as defined by IFRS 7 Financial instruments: disclosures, falls within these overarching structures, policies and standards. electricity based on the size and country in which the client operates. The benchmark levels are based on a study performed receivables by the Bank of International Settlements and external agency benchmark data. Credit ratings were assigned to The management of financial risks is delegated by the board to the audit and risk committee. Day-to-day management of financial these categories which were then used to determine the probability of default. These probabilities of default are risks is carried out in the area in which the risks arise. Risk assessments, treatment plans and monitoring measures are reported to considered to represent a long-run average over an economic cycle. The through-the-cycle probability of default the audit and risk committee on a quarterly basis. was used to estimate the expected credit loss due to the lack of data showing a relationship between the The group’s exposure to risk, its objectives, policies and processes for managing the risk and the methods used to measure it have probability of default and macro-economic factors across the various jurisdictions. It is expected that international been consistently applied in the years presented. electricity receivables will behave in an a-cyclical manner similar to local electricity receivables and therefore no forward-looking adjustments were made. The loss given default was aligned to the corporate loss given default The group has exposure to the following risks as a result of its financial instruments: based on the South African Reserve Bank (SARB) requirements. • credit risk – the risk of financial loss to the group if a customer or other counterparty to a financial instrument fails to meet its Local large and Expected credit losses were calculated using a provision matrix which utilises a transition approach. The probability contractual obligations small power of default relevant to balances with similar characteristics was determined by analysing their most recent historical • market risk – the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in foreign user electricity loss rates. Default probabilities are not thought to be sensitive to changes in South African macro-economic factors exchange rates, commodity prices, interest rates or equity prices receivables such as gross domestic product (GDP) and unemployment rates due to their short-term nature and therefore no • liquidity risk – the risk that the group will not have sufficient financial resources to meet its obligations when they fall due, or will (excluding forward-looking adjustment was made. The loss given default was calculated using the long-run average recovery have to do so at excessive cost municipalities) rates. 5.1 Credit risk Municipal Expected credit losses were calculated using a scorecard approach. Key financial ratios were calculated based on The carrying amounts of financial assets represent the maximum credit exposure. The group’s maximum exposure as a result of electricity the latest signed municipality annual financial statements. Default probabilities are not believed to be sensitive to financial guarantees issued is disclosed in note 45.1. receivables changes in South African macro-economic factors such as GDP and unemployment rates due to their short-term nature and therefore no forward-looking adjustment was made. The loss given defaults are based on the long-run 5.1.1 Trade and other receivables average recovery rates. Impairment analysis Intercompany The expected credit losses were calculated using a dual rating approach, which relies on key financial ratios to 2021 loans determine a through-the-cycle probability of default. The through-the-cycle probability of default was updated Stage 2 Stage 3 Total receivable with economic information to produce a point-in-time probability of default, which is consistent with the current Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying and future forecasted economic conditions. The loss given default was aligned to the corporate loss given default for impair- value for impair- value for impair- value based on the SARB requirements. ment ment ment Rm Rm Rm Rm Rm Rm Rm Rm Rm Intercompany The estimates of the probability of default were based on the external rating of Eskom mapped to an internal trade and rating scale. These probabilities of default are considered to represent a long-run average over an economic cycle. Trade receivables other Probability of default data for listed corporates shows that default rates are sensitive to changes in South African Group and receivables GDP and therefore a forward-looking adjustment factor was calculated using a macro-economic forecast. company The probability of default was not adjusted as the forward-looking adjustment factor was not material. The loss International 1 196 (28) 1 168 350 (315) 35 1 546 (343) 1 203 given default was aligned to the corporate loss given default based on the SARB requirements. B– to BB+ 1 057 (18) 1 039 350 (315) 35 1 407 (333) 1 074 Other Expected credit losses were calculated using a benchmark approach that assigns a probability of default to a client Below B- 139 (10) 129 – – – 139 (10) 129 receivables, based on the size and country in which the client operates. The benchmark levels are based on a study performed finance lease by the Bank of International Settlements and external agency benchmark data. Credit ratings were assigned to Local large power receivables and these categories which were then used to determine the probability of default. These probabilities of default are users – loans considered to represent a long-run average over an economic cycle. Probability of default data for listed corporates municipalities 7 736 (354) 7 382 5 375 (2 797) 2 578 13 111 (3 151) 9 960 receivable shows that default rates are sensitive to changes in South African GDP and therefore a forward-looking adjustment BBB– to AAA 5 800 (9) 5 791 – – – 5 800 (9) 5 791 (excluding factor was calculated using a macro-economic forecast. The probability of default was not adjusted as the forward- B– to BB+ 966 (14) 952 2 – 2 968 (14) 954 home loans) looking adjustment factor was not material. The loss given default was aligned to the corporate loss given default Below B- 970 (331) 639 5 373 (2 797) 2 576 6 343 (3 128) 3 215 based on the SARB requirements. Local large power Loans The estimates of the probability of default are influenced by factors including whether a client is still employed by users – other 7 935 (54) 7 881 499 (392) 107 8 434 (446) 7 988 receivable Eskom and whether they are in arrears. Performing loans are assigned a medium risk rating, under-performing (home loans) loans a medium-high risk rating and non-performing loans a high risk rating. There is a reduced risk of default 0 – 30 days 7 773 (13) 7 760 – – – 7 773 (13) 7 760 relating to clients still employed by Eskom as payments are received via payroll deductions. The probability of 30 – 90 days 162 (41) 121 – – – 162 (41) 121 default is determined based on the likelihood that current employees become ex-employees and default on their More than 90 days – – – 499 (392) 107 499 (392) 107 loans. Forward looking information is based on reasonable and supportable forecasts of future economic conditions, including experience judgement. The loss in the event of default is determined as the difference Local small power between the outstanding loan amount and the amount that can be recovered through the legal collection process users – Soweto (ie the sales price of the property less the costs of disposal). The historical loss experience is adjusted for current More than 90 days – – – 765 (229) 536 765 (229) 536 observable data to determine the loss given default. Local small power Investments, The estimates of the probability of default were based on the external credit ratings of the counterparts using an users – other 2 075 (139) 1 936 1 285 (956) 329 3 360 (1 095) 2 265 financial trading external rating scale mapped to an internal rating scale. These probabilities of default are considered to represent 0 – 30 days 1 753 (59) 1 694 – – – 1 753 (59) 1 694 assets and a long-run average over an economic cycle. Probability of default data for listed corporates shows that default 30 – 90 days 322 (80) 242 – – – 322 (80) 242 financial rates are sensitive to changes in South African GDP and therefore a forward-looking adjustment factor was More than 90 days – – – 1 285 (956) 329 1 285 (956) 329 guarantees calculated using a macro-economic forecast. The probability of default was not adjusted as the forward-looking adjustment factor was not material. The loss given default was aligned to the corporate loss given default based 18 942 (575) 18 367 8 274 (4 689) 3 585 27 216 (5 264) 21 952 on the SARB requirements. 48 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 49 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 5. Financial risk management (continued) ECL percentages used 5.1 Credit risk (continued) 2021 2020 5.1.1 Trade and other receivables (continued) Stage 2 Stage 3 Total Stage 2 Stage 3 Total Impairment analysis (continued) % % % % % % 2021 Trade receivables Stage 2 Stage 3 Total Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying Group and company for impair- value for impair- value for impair- value International 2 90 22 1 45 14 ment ment ment Rm Rm Rm Rm Rm Rm Rm Rm Rm B– to BB+ 2 90 24 1 45 14 Below B- 7 – 7 5 – 5 Trade and other receivables Local large power users – municipalities 5 52 24 7 58 27 Group 19 744 (619) 19 125 8 585 (4 982) 3 603 28 329 (5 601) 22 728 B– to BB+ 1 – 1 1 – 1 Trade receivables 18 942 (575) 18 367 8 274 (4 689) 3 585 27 216 (5 264) 21 952 Below B- 34 52 49 41 58 54 Other receivables (B– to BB+) 802 (44) 758 311 (293) 18 1 113 (337) 776 Local large power users – other 1 79 5 1 80 5 Company 22 359 (728) 21 631 8 531 (4 946) 3 585 30 890 (5 674) 25 216 30–90 days 25 – 25 15 – 15 Trade receivables 18 942 (575) 18 367 8 274 (4 689) 3 585 27 216 (5 264) 21 952 More than 90 days – 79 79 – 80 80 Other receivables Local small power users – Soweto (B– to BB+) 3 417 (153) 3 264 257 (257) – 3 674 (410) 3 264 More than 90 days – 30 30 – 77 77 Local small power users – other 7 74 33 8 79 32 2020 Stage 2 Stage 3 Total 0–30 days 3 – 3 3 – 3 Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying 30–90 days 25 – 25 30 – 30 for impair- value for impair- value for impair- value ment ment ment More than 90 days – 74 74 – 79 79 Rm Rm Rm Rm Rm Rm Rm Rm Rm 3 57 19 4 66 26 Trade receivables Group and company Age analysis of trade receivables balances International 1 144 (13) 1 131 456 (205) 251 1 600 (218) 1 382 2021 2020 B– to BB+ 1 064 (9) 1 055 456 (205) 251 1 520 (214) 1 306 <1 year >1 year >2 years >3 years <1 year >1 year >2 years >3 years Below B- 80 (4) 76 – – – 80 (4) 76 % % % % % % % % Local large power International 86 14 – – 99 1 – – users – Local large power users – municipalities 7 803 (543) 7 260 4 910 (2 829) 2 081 12 713 (3 372) 9 341 municipalities 76 9 7 8 81 7 5 7 BBB– to AAA 5 374 (5) 5 369 – – – 5 374 (5) 5 369 Local large power users – B– to BB+ 1 126 (10) 1 116 2 – 2 1 128 (10) 1 118 other 99 1 – – 100 – – – Below B- 1 303 (528) 775 4 908 (2 829) 2 079 6 211 (3 357) 2 854 Local small power users – Local large power Soweto 18 20 20 42 18 6 4 72 users – other 7 259 (45) 7 214 387 (310) 77 7 646 (355) 7 291 Local small power users – other 76 10 6 8 80 8 6 6 0–30 days 7 097 (20) 7 077 – – – 7 097 (20) 7 077 30–90 days 162 (25) 137 – – – 162 (25) 137 More than 90 days – – – 387 (310) 77 387 (310) 77 Local small power users – Soweto More than 90 days – – – 2 913 (2 242) 671 2 913 (2 242) 671 Local small power users – other 2 029 (154) 1 875 1 057 (837) 220 3 086 (991) 2 095 0–30 days 1 717 (59) 1 658 – – – 1 717 (59) 1 658 30–90 days 312 (95) 217 – – – 312 (95) 217 More than 90 days – – – 1 057 (837) 220 1 057 (837) 220 18 235 (755) 17 480 9 723 (6 423) 3 300 27 958 (7 178) 20 780 Trade and other receivables Group 18 990 (784) 18 206 10 111 (6 728) 3 383 29 101 (7 512) 21 589 Trade receivables 18 235 (755) 17 480 9 723 (6 423) 3 300 27 958 (7 178) 20 780 Other receivables (B– to BB+) 755 (29) 726 388 (305) 83 1 143 (334) 809 Company 20 751 (858) 19 893 10 080 (6 705) 3 375 30 831 (7 563) 23 268 Trade receivables 18 235 (755) 17 480 9 723 (6 423) 3 300 27 958 (7 178) 20 780 Other receivables (B– to BB+) 2 516 (103) 2 413 357 (282) 75 2 873 (385) 2 488 50 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 51 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 5. Financial risk management (continued) A large number of residential customers are on a prepaid basis thereby eliminating credit risk relating to these customers. Eskom has 5.1 Credit risk (continued) well-established credit control measures for conventional customers that include: 5.1.1 Trade and other receivables (continued) • increased security deposits and guarantees Reconciliation of movements in allowance for impairment • conversion of customers to prepayment • early identification of and engagement with non-paying customers 2021 2020 • negotiation of mutually acceptable payment arrangements Stage 2 Stage 3 Total Total • disconnection of supply Note Rm Rm Rm Rm • use of debt collectors • taking legal measures such as issuing letters of demand and pursuing adverse listing of defaulting customers Group Balance at beginning of the year 784 6 728 7 512 9 495 All billed customers must provide security and this requirement can only be waived or deviated from based on sound business Raised/(reversed) to the income statement 36 307 (478) (171) (943) decisions. The granting of exemptions or deviations for a customer must be approved according to the revenue security policy. Reversed on payment of opening balance (453) (2 045) (2 498) (3 974) Progress on the collection process is regularly reviewed. Strict procedures are in place governing the writeoff of trade receivables. Remeasurement of opening balances held at year end 12 (111) (99) 203 Where balances are assessed to not be collectable (for example deceased customers and businesses in liquidation after completion Raised on new balances 748 1 678 2 426 2 828 of business rescue), writeoffs are considered. Amounts are written off after taking into account the value of security held once the relevant governance and legal collection processes have been followed. The process of recovery continues unless it is confirmed that Transfer of balances between stage 2 and 3 (467) 467 – – there is no prospect of recovery or the costs of such action will exceed the benefits to be derived. Finance income on stage 3 balances – 133 133 190 Writeoffs (5) (1 868) (1 873) (1 230) The main classes of trade receivables are: Balance at end of the year 19 619 4 982 5 601 7 512 International customers Electricity supply agreements are entered into with key international customers who comprise utility companies, governments of Company neighbouring countries and sundry large power users. Their payment terms are between 10 and 45 days. Impairment is assessed Balance at beginning of the year 858 6 705 7 563 9 500 based on the country-specific risk. Raised/(reversed) to the income statement 36 339 (487) (148) (898) International customers are not required to provide upfront security. If they default, new payment arrangements are negotiated, Reversed on payment of opening balance (453) (2 045) (2 498) (4 043) or supply is curtailed. Certain international customers may be required to pay upfront when their credit risk profile has changed. Remeasurement of opening balances held at year end 12 (111) (99) 200 Raised on new balances 780 1 669 2 449 2 945 The expected credit loss percentage for balances in stage 3 increased year-on-year because of challenges faced with an amount charged to a customer in the previous financial year. The amount is still regarded as being recoverable and management are engaged Transfer of balances between stage 2 and 3 (467) 467 – – in discussions with the customer regarding the late payment thereof. Finance income on stage 3 balances – 133 133 190 Writeoffs (2) (1 872) (1 874) (1 229) Local large power users Local large power users comprise South African redistributors (metropolitan and municipal) and commercial, industrial and mining Balance at end of the year 19 728 4 946 5 674 7 563 customers usually with supplies above 100kVA. Payment terms are individually negotiated and are normally a maximum of 15 days, except for certain bulk redistributing municipalities which are a maximum of 30 days. Security held for trade receivables (guarantees and deposits) Municipalities are required to provide security for all new supplies or where they request an upgrade of existing supply points. Group and company Where a large power user has an acceptable credit rating from an approved rating agency, the provision of security is amended based 2021 2020 on the type of risk as defined in the revenue security policy. Fair value of security held Security Rene- Fair value of security held Security Rene- Eskom continues to execute its municipal debt management strategy to ensure maximum collections from non-paying municipalities. Credit Not Total called gotiated Credit Not Total called gotiated Unfortunately, Eskom’s attempts to enforce contractual credit control is hampered by drawn out litigation and interdicts granted by impaired credit upon balances impaired credit upon balances the courts in the interest of municipal end-consumers. Due to a judgement handed down by the Supreme Court of Appeal, Eskom’s recei- impaired recei- impaired collection process has been revised to align with the Intergovernmental Relations Framework Act, which impacts on the time to vables recei- vables recei- collect. Eskom is advocating an active partnering solution whereby Eskom supports municipalities with distribution, reticulation and vables vables revenue collection services. Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Interventions include: International – 6 6 – – – 6 6 – – • entering into special payment arrangements Local large • promoting and implementing an active partnering solution for municipalities power users 361 11 996 12 357 52 3 215 182 10 771 10 953 19 2 938 • following the Promotion of Administrative Justice Act processes to restrict, interrupt or terminate supply Municipalities 247 530 777 3 3 174 146 531 677 2 2 924 • restricting electricity supply if the set maximum demand levels are exceeded Other 114 11 466 11 580 49 41 36 10 240 10 276 17 14 • interrupting electricity supply where no recovery plan can be presented and agreed upon between Eskom and the municipality • terminating supply where no other option is available Local small • issuing of summonses power users 165 2 316 2 481 92 50 126 2 268 2 394 43 52 • pursuing the attachment of assets Soweto 13 – 13 2 2 13 – 13 – 1 Eskom continues to work closely with the Department of Co-operative Governance and Traditional Affairs, National Treasury and Other 152 2 316 2 468 90 48 113 2 268 2 381 43 51 other government departments as well as relevant stakeholders to resolve the systemic challenges which have given rise to municipal arrear debt. 526 14 318 14 844 144 3 265 308 13 045 13 353 62 2 990 A large portion of the gross carrying amount owed by municipalities that was over 90 days past due at 31 March 2020 has still not Additional information been paid at 31 March 2021 because the ongoing challenges with defaulting municipalities. Trade receivables The proportion of the balance made up of VAT recoverable from municipal customers accounted for on the cash basis (refer to Credit risk attributable to trade receivables is assessed taking into account the following counterparty characteristics: note 2.19) has increased from 2020 to 2021. These balances carry a lower impairment percentage as they are recoverable from SARS • geographic location of the customer (both internationally and within South Africa) through a writeoff and, as a result, the overall expected credit loss has reduced. • size of demand (large or small power user) • receivable ageing profile Local small power users • security held (deposits and guarantees) Local small power users comprise local customers that have a supply of 100kVA or less in size. Payment terms for small power • payment history customers is 30 days. 52 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 53 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 5. Financial risk management (continued) The committee’s terms of reference are maintained and approved by the chief financial officer. They are aligned to the Exco credit 5.1 Credit risk (continued) risk governance standards and are supplemented by appropriate policies and procedures. 5.1.1 Trade and other receivables (continued) Specific activities undertaken by the Alco include the following: Additional information (continued) • assessing the credit quality of counterparties and approving credit limits based on this assessment Trade receivables (continued) • monitoring the adherence to credit limits Local small power users (continued) • approving methodologies for the management of counterparty exposure New customers are required to provide security equivalent to between one and three months’ consumption at the commencement • ensuring that, where applicable, transactions with counterparties are supported by trading agreements of the supply agreement. The level of security is reviewed if a customer defaults on their payment obligation or requires additional • facilitating and managing the issuing of financial guarantees by the group electricity supply capacity. In these instances, additional security is required to cover between one and three months of recent consumption before supply will commence. All new customers will preferably be on prepayment terms. To assist the Alco to discharge its mandate, the portfolio assessment section within the treasury function provides it with regular feedback on all treasury credit risk-related matters. The residential revenue management strategy, which includes Soweto, continues to be implemented. Soweto receivables are an identified high credit risk area subject to specific credit risk management as the collection of revenue from customers in Soweto remains The management of credit risk is governed by the following policies: a challenge. The payment levels expressed as a percentage of billed revenue (excluding interest) for the year were 21% (2020: 21%). • trading in financial instruments is only conducted with selected counterparties after credit limits have been authorised • only financial institutions and/or counterparties with an independent minimum rating of A1 are accepted for investments. If there A large portion of the gross carrying amount owed by Soweto that was over 90 days past due at 31 March 2020 has still not been paid are no independent ratings, the credit quality of the counterparty is assessed, taking into account its financial position, past at 31 March 2021. There was a writeoff in 2021, mainly to balances older than 3 years, which resulted in the reduction of the expected experience and other factors credit loss percentage for Soweto receivables. The remaining Soweto receivable balance comprises mainly of VAT recoverable from • all exposures are based on mark-to-market values. Transaction or close-out netting takes place in accordance with the terms and Soweto customers accounted for on the cash basis (refer to note 2.19). As these balances are ultimately recoverable from SARS conditions of the underlying trading agreements through a writeoff, the impairment percentages are effectively lower. • minimum credit-rating requirements for financial institutions are maintained to assess the risk categories by rating class and to The expected credit loss percentage for small power users (other than Soweto) in the stage 3 category reduced year-on-year due to ascertain the probability of default inherent in each rating class an improvement in the recovery of balances that were over 90 days past due. • approved concentration risk parameters and collateral management procedures are in place. Concentration of credit risk is managed by setting credit risk limits at a counterparty-specific level. Concentration credit risk limits are used as second tier limits Other receivables in relation to counterparty credit limits. Counterparty-specific exposure is monitored against a set concentration of credit risk Other receivables comprise of various sundry receivables. There are no significant balances with specific repayment terms. limits in relation to the total credit risk exposure to all counterparties No security is held in respect of these balances and no interest has been charged on overdue balances. Risk is measured by determining a default probability per counterparty using default probabilities assessed by rating agencies for There were no material changes to the expected credit loss percentages compared to the prior year. various types of credit ratings. These default probabilities are then applied to the market value of the investment placed to determine the capital at risk. 5.1.2 Derivatives held for risk management, financial trading assets and cash and cash equivalents Impairment analysis The treasury department’s policies and practices are designed to preserve the independence and integrity of decision-making and ensure credit risks are accurately assessed, properly approved, continually monitored and actively managed. 2021 2020 Not Subject to Total Not Subject to Total The following are monitored and reported on: subject to impairment subject to impairment • aggregate credit risk exposure impairment impairment • limits utilisation including any breaches Stage 1 Stage 1 • hold-limit exceptions Rm Rm Rm Rm Rm Rm • risk profile changes • risk concentrations Group Derivatives held for risk management 11 379 – 11 379 57 636 – 57 636 Where the credit risk of a particular counterparty has increased, a reassessment of the valuation of the instrument is made. In making this assessment, the counterparty is assessed for the following factors: BBB– to AAA 5 465 – 5 465 19 125 – 19 125 • significance of financial difficulty B– to BB+ 5 914 – 5 914 38 511 – 38 511 • probability of bankruptcy Financial trading assets • probability of breach of contract B– to BB+ – – – – 152 152 Cash and cash equivalents – 4 041 4 041 – 22 990 22 990 5.1.3 Insurance investments Impairment analysis BBB– to AAA – 138 138 – 2 516 2 516 B– to BB+ – 3 901 3 901 – 20 472 20 472 Group Unrated – 2 2 – 2 2 Not Subject to impairment Total subject to Stage 1 Company impairment Derivatives held for risk management 11 381 – 11 381 57 636 – 57 636 Gross Gross Allowance Carrying Gross Allowance Carrying for value for value BBB– to AAA 5 467 – 5 467 19 125 – 19 125 impairment impairment B– to BB+ 5 914 – 5 914 38 511 – 38 511 Rm Rm Rm Rm Rm Rm Rm Financial trading assets 2021 B– to BB+ – – – – 152 152 B– to BB+ – 12 546 (79) 12 467 12 546 (79) 12 467 Cash and cash equivalents – 2 503 2 503 – 22 314 22 314 Not subject to credit risk 1 934 – – – 1 934 – 1 934 BBB– to AAA – 75 75 – 2 516 2 516 1 934 12 546 (79) 12 467 14 480 (79) 14 401 B– to BB+ – 2 426 2 426 – 19 796 19 796 Unrated – 2 2 – 2 2 2020 B– to BB+ – 10 694 (12) 10 682 10 694 (12) 10 682 Not subject to credit risk 1 299 – – – 1 299 – 1 299 The gross values for financial trading assets and cash and cash equivalents approximate their carrying values as the impairments calculated are immaterial. 1 299 10 694 (12) 10 682 11 993 (12) 11 981 The asset and liability committee (Alco) manages credit risk arising from the treasury department’s activities in the financial markets There were no material changes to the expected credit loss percentages compared to the prior year. with the objective of maximising the rate of return on investments while not exceeding approved levels of credit risk exposure. It is chaired by the chief financial officer and reports on a quarterly basis to Exco and the audit and risk committee. Escap invests in listed shares and negotiable certificates of deposit to satisfy its capital adequacy requirements in line with insurance regulations in South Africa. The listed shares do not expose the group to credit risk. Investments in negotiable certificates of deposit are made with banks with an investment-grade credit rating. 54 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 55 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 5. Financial risk management (continued) Home loans 5.1 Credit risk (continued) EFC provides loan facilities to the group’s employees, usually to finance the purchase of immoveable property. Credit risk policies are 5.1.4 Finance lease receivables in place requiring staff to meet various criteria on valuation, affordability and credit history in compliance with the National Credit Impairment analysis Act before they are granted home loans. Group and company Home loans are extended up to a maximum of 112% of the market value of the property being purchased to cater for bond and Stage 1 Stage 3 Total transfer costs. Credit risk exposure is mitigated by having: Gross Allowance Carrying Gross Allowance Carrying Gross Allowance Carrying • recourse to the value of the underlying properties through mortgage contracts for value for value for value • monthly instalments deducted from the salaries of employees impairment impairment impairment Credit risk is re-assessed when an employee leaves the service of the group. Ex-employees may make arrangements for a monthly Rm Rm Rm Rm Rm Rm Rm Rm Rm debit order or over-the-counter deposits to settle monthly instalments. 2021 EFC closely monitors properties held as collateral where the related loans are considered to be credit-impaired in order to mitigate B– to BB+ 336 (10) 326 2 (1) 1 338 (11) 327 potential credit losses. 2020 Group B– to BB+ 376 (6) 370 3 (1) 2 379 (7) 372 Unit 2021 There were no material changes to the expected credit loss percentages compared to the prior year. Carrying value of credit-impaired balances Rm 193 Fair value of properties held as security for credit-impaired loans Rm 129 The supply of electricity to customers may be in the form of either a standard or premium power supply. A standard power supply Weighted average loan to value ratio % 87.29 is the least life-cycle cost technically acceptable solution as defined in the South African Grid Code and the Distribution Network Average repayment period years 28 Code whereas with a premium supply the customer’s connection requirement exceeds the specifications of a standard supply. This is achieved through the installation of premium supply equipment for which the customer is required to pay a connection charge. Connection charges for premium supply contracts were repayable on a monthly basis over a maximum period of 25 years. The repayment to EFC of the portion of home loans exceeding 80% of the property’s market value is guaranteed by Eskom. This payment option is no longer available for new premium supplies as the connection charges are payable upfront. Refer to note 45 for details regarding this guarantee. The standard payment terms for trade receivables are also applied to the premium supply equipment connection charge customers. Other loans The credit risk exposure resulting from premium supply contracts is managed by monitoring payment levels of the customer’s trade The Alco manages credit risk arising from loans to subsidiaries with the objective of reducing the costs on the group’s consolidated receivable balance. There were no significant overdue or distressed balances relating to finance lease receivables in the current or liability. Credit risk on loans by Eskom to EFC are mitigated through the same means that EFC mitigates its loans to employees. prior financial year. Security in the form of bank guarantees is required from customers before the asset is constructed and is in place There were no material changes to the expected credit loss percentages compared to the prior year. for a maximum period of 14 years to cover irrecoverable costs in the event of early termination of the supply contract. In addition, the premium supply equipment serves as security for the outstanding finance lease receivable balance. 5.2 Market risk A significant part of market risk encountered by the group arises from financial instruments that are managed centrally within the 5.1.5 Loans receivable group’s treasury department or from contracts containing embedded derivatives. Impairment analysis The objective of the group’s market risk management framework is to protect and enhance the statement of financial position and Stage 1 Stage 2 Stage 3 Total profit or loss by managing and controlling market risk exposures and to optimise the funding of business operations and facilitate Gross Allow- Carrying Gross Allow- Carrying Gross Allow- Carrying Gross Allow- Carrying capital expansion. ance value ance value ance value ance value for for for for The basis for calculating risk and sensitivity measures are consistent with the prior year. Sensitivity analyses assume that only the impair- impair- impair- impair- ment ment ment ment input being analysed changes with all other variables remaining constant. Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Financial instruments mainly managed by the treasury department Group The treasury department is responsible for managing market risk within the risk management framework approved by Exco and the 2021 board. The overall authority for the management of market risks within the treasury department is vested in the Alco. Measurement Home loans 7 640 (4) 7 636 248 (4) 244 230 (37) 193 8 118 (45) 8 073 and reporting occurs on a daily and/or monthly basis and is performed by an independent section within the treasury department. Financial derivatives are used to manage market risk. B– to BB+ 7 640 (4) 7 636 248 (4) 244 – – – 7 888 (8) 7 880 Below B- – – – – – – 230 (37) 193 230 (37) 193 Financial instruments managed by various divisions and subsidiaries Market risk arises mainly from changes in foreign exchange rates and, to a limited extent, commodity and equity prices. The divisions Other loans 256 (4) 252 2 – 2 2 (2) – 260 (6) 254 and subsidiaries are responsible for identifying the exposure arising from these risks. They liaise with the centralised treasury B– to BB+ 256 (4) 252 2 – 2 – – – 258 (4) 254 department to hedge (economic and cash flow hedges) these exposures appropriately on their behalf. Below B- – – – – – – 2 (2) – 2 (2) – Embedded derivatives Eskom entered into a number of agreements to supply electricity to electricity-intensive industries where the revenue from these 7 896 (8) 7 888 250 (4) 246 232 (39) 193 8 378 (51) 8 327 contracts is based on commodity prices and foreign currency rates or foreign production price indices. This gives rise to embedded 2020 derivatives that require separation as a result of the different characteristics of the embedded derivative and the host contract. Other loans Subsequent to year end, these contracts were replaced from 1 August 2021 with terms that no longer contain embedded derivatives. B– to BB+ 56 (2) 54 – – – – – – 56 (2) 54 The valuation methods and inputs are discussed in the accounting policies (refer to note 2.10.4) and the valuation assumptions and Company sensitivities are disclosed under critical accounting estimates and assumptions (refer to note 4.1). Risks arising from these contracts 2021 are discussed under the relevant risk areas as follows: Other loans • currency risk (refer to note 5.2.1) B– to BB+ 5 779 (21) 5 758 – – – – – – 5 779 (21) 5 758 • commodity risk (refer to note 5.2.2) • interest rate risk (refer to note 5.2.3) 2020 • other price risk (refer to note 5.2.5) Other loans B– to BB+ 5 948 (11) 5 937 – – – – – – 5 948 (11) 5 937 Electricity contracts that contain embedded derivatives are considered for economic hedging. Hedging in respect of commodity risk and foreign currency exposure resulting from these embedded derivatives takes place on a short-term basis in terms of the SARB regulations. 56 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 57 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 5. Financial risk management (continued) Sensitivity analysis 5.2 Market risk (continued) Group and company 5.2.1 Currency risk 2021 2020 Currency risk arises primarily from purchasing imported goods and services directly from overseas or indirectly via local suppliers, 1% 1% 1% 1% foreign sales and foreign borrowings. The group is exposed to foreign exchange risk arising from future commercial transactions and increase decrease increase decrease recognised assets and liabilities that are denominated in a currency other than the functional currency of the group. All transactions Rm Rm Rm Rm in excess of R150 000 are hedged (ie economic or cash flow hedges). Currency exposure is identified by the business and hedged and managed by the central treasury department. Hedging instruments consist of cross-currency swaps and forward exchange contracts. Profit/(loss) before tax Most of the forward exchange contracts have a maturity of less than one year from the reporting date and are rolled over at maturity Rand/EUR exposure 36 (36) 48 (48) when necessary. Hedging instruments are entered into once the exposure is firm and ascertainable. Rand/USD exposure 35 (29) 32 (30) EUR USD GBP JPY SEK Rand/other currency 2 (2) (4) 4 2021 Equity Foreign currency exposure (notional amounts in millions per currency) Rand/EUR exposure 45 (45) 67 (67) Group Rand/USD exposure 189 (189) 302 (302) Liabilities Rand/other currency – – 2 (2) Debt securities and borrowings (1 896) (8 550) – (693) – Trade and other payables (52) (3) (1) – (10) 5.2.2 Commodity risk Gross statement of financial position exposure (1 948) (8 553) (1) (693) (10) The group is exposed to commodity risk where commodities are either used directly (liquid fuels) or indirectly as a component of Estimated forecast purchases1 (338) (185) (9) (140) (2) plant, equipment or inventory (eg aluminium, copper or steel). The revenue from certain negotiated pricing arrangements is linked to commodity prices. Gross exposure (2 286) (8 738) (10) (833) (12) Derivatives held for risk management 2 2 286 8 736 10 833 12 The exposures are hedged economically by means of futures and/or options. Economic hedging is applied where it is practical (a relevant hedging instrument exists) based on the optimal economic solution and in compliance with the SARB requirements. Net exposure – (2) – – – The periods of the hedging instrument and that of the hedged item are not the same because of SARB regulations that limit the Company number of years which can be hedged. Liabilities The underlying exposure to commodity price risk could result in embedded derivatives. Where the embedded derivatives are Debt securities and borrowings (1 896) (8 550) – (693) – closely related to the host contracts, the embedded derivatives are not accounted for separately. Where the embedded derivatives Trade and other payables (52) (3) (1) – (10) are not closely related to the host contracts, the contracts have been valued and accounted for separately. The negotiated pricing Gross statement of financial position exposure (1 948) (8 553) (1) (693) (10) arrangements gave rise to commodity-linked (aluminium) embedded derivatives. Refer to note 4.1. Estimated forecast purchases1 (338) (185) (9) (140) (2) 5.2.3 Interest rate risk Gross exposure (2 286) (8 738) (10) (833) (12) Interest rate risk is the risk that the group’s financial position may be adversely affected as a result of changes in interest rate levels, Derivatives held for risk management 2 2 286 8 736 10 833 12 yield curves and spreads. Net exposure – (2) – – – Debt securities and borrowings and derivatives held for risk management at variable rates expose the group to cash flow risk and Mid-spot rate for one unit of the currency to the rand 17.32 14.75 20.34 0.13 1.69 those at fixed rates expose the group to fair value risk. The group’s policy is to restrict the maximum effective portion of the external debt (excluding the trading portfolio which is managed within the constraints of the risk management framework) exposed to an 2020 interest rate reset within the next 12-month period to 40%. Foreign currency exposure (notional amounts in millions per currency) Group The group’s quantitative exposure to interest rate risk is disclosed in note 25. Assets Cash and cash equivalents – 200 – – – Sensitivity analysis Liabilities The group analyses its interest rate exposure on a dynamic basis by conducting a sensitivity analysis. This involves determining the Debt securities and borrowings (2 198) (9 877) – (2 483) – impact on profit or loss of defined interest rate shifts. The same interest rate shift is used for each simulation for all currencies. Trade and other payables (36) (4) (1) – (18) The sensitivity analysis for interest rate risk excludes finance costs capitalised. Gross statement of financial position exposure (2 234) (9 681) (1) (2 483) (18) The simulation is performed on a monthly basis to verify that the maximum loss potential is within the limit set by management. Estimated forecast purchases1 (450) (225) (7) (169) (86) The results of the simulation are included in the table below: Gross exposure (2 684) (9 906) (8) (2 652) (104) Derivatives held for risk management 2 2 684 9 904 8 2 652 104 Group Company 2021 2020 2021 2020 Net exposure – (2) – – – +100 -100 +100 -100 +100 -100 +100 -100 Company basis basis basis basis basis basis basis basis Assets points points points points points points points points Cash and cash equivalents – 200 – – – Rm Rm Rm Rm Rm Rm Rm Rm Liabilities Profit/(loss) before tax Debt securities and borrowings (2 198) (9 877) – (2 483) – Rand interest rates 204 (222) 283 (311) 179 (197) 262 (290) Trade and other payables (36) (4) (1) – (18) EUR interest rates (85) 44 (137) 80 (85) 44 (137) 80 Gross statement of financial position exposure (2 234) (9 681) (1) (2 483) (18) USD interest rates (330) 331 (468) 472 (330) 331 (468) 472 Estimated forecast purchases1 (450) (225) (7) (169) (86) Other currency interest rates (1) 1 (1) 1 (1) 1 (1) 1 Gross exposure (2 684) (9 906) (8) (2 652) (104) Equity Derivatives held for risk management 2 2 683 9 904 8 2 652 104 Rand interest rates 3 909 (4 110) 4 622 (4 868) 3 909 (4 110) 4 622 (4 868) Net exposure (1) (2) – – – EUR interest rates (760) 812 (1 103) 1 184 (760) 812 (1 103) 1 184 USD interest rates (4 217) 4 514 (6 475) 6 960 (4 217) 4 514 (6 475) 6 960 Mid-spot rate for one unit of the currency to the rand 19.55 17.82 22.17 0.16 1.78 Other currency interest rates (1) 1 (4) 4 (1) 1 (4) 4 1. Represents future purchases contracted for. 2. Includes notional value and accrued interest. 58 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 59 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 5. Financial risk management (continued) The management of group liquidity and funding risk is centralised in the treasury department in accordance with practices and limits 5.2 Market risk (continued) set by the Exco and the board. The group’s liquidity and funding management process includes: 5.2.3 Interest rate risk (continued) • projecting cash flows and considering the cash required by the group and optimising the short-term liquidity as well as the Fixed and floating rate debt long-term funding • monitoring financial position liquidity ratios Group and company • maintaining a diverse range of funding sources with adequate back-up facilities 2021 2020 • managing the concentration and profile of debt maturities fixed floating fixed floating • actively managing the funding risk by evaluating optimal entry points into the various markets per the official borrowing programme • maintaining liquidity and funding contingency plans % % % % Proportion of fixed versus floating rate debt at 31 March 73 27 72 28 Eskom has an established corporate governance structure and process for managing the risks regarding guarantees and contingent liabilities. All significant guarantees issued by Eskom are approved by the board and are managed on an ongoing basis by the treasury department and by Exco and ARC. Refer to note 45. 5.2.4 Equity price risk Equity price risk arises from investments listed on the Johannesburg Stock Exchange. Changes in the fair value of equity securities The guarantees are administratively managed by the treasury department. Updated guarantee schedules are compiled every month, held by the group will fluctuate because of changes in market prices caused by factors specific to the individual equity issuer or factors taking cognisance of any changed risk factors and are submitted to each of the committees for consideration and action. Risk factors affecting all similar equity securities traded on the market. and assumptions affecting probability calculations are reassessed twice a year and presented to the above committees. The investment policy is approved by the Escap board and monitored by the Escap audit and risk committees. Exposure to market Eskom’s guarantees are diverse and unlinked, such that a trigger event for any one guarantee is unlikely to precipitate a trigger event risk is limited through diversification and by applying strict investment criteria. in respect of other guarantees. Given that there would be forewarning of payments required in terms of the other guarantees, and considering the amounts of the Carrying values of investments per sector guarantees, it is expected that Eskom will be able to raise the required liquidity to effect any required payments. Group 5.3.1 Key liquidity indicators 2021 2020 portfolio portfolio Group Company Rm % Rm % Unit 2021 2020 2021 2020 Banks, financial services and insurance 433 22 337 26 Weighted average term to maturity of debt securities and borrowings years 6.65 6.64 6.65 6.64 Basic materials and resources 492 25 198 15 Working capital ratio 1.27 1.09 1.27 1.09 Consumer goods and services 887 46 645 50 Cash interest cover ratio 0.85 0.94 0.80 0.90 Other 122 7 119 9 Net debt service cover ratio 0.30 0.52 0.28 0.49 1 934 100 1 299 100 Liquid assets Rm 4 041 22 990 2 503 22 314 A 1% increase or decrease in share prices would have increased/decreased profit or loss before tax by R19 million (2020: R13 million) Management has set a minimum weighted average term to maturity for debt securities and borrowings of five years. The term and there would have been no impact on equity. limits are independently monitored and reported to the Alco on a monthly basis and to Exco and the audit and risk committee on a quarterly basis. 5.2.5 Other price risk Inflation price risk arises from embedded derivatives as discussed under note 4.1. The risk arises from movements in South African The cash interest cover and debt service cover ratios measure the ability to fund debt costs via cash from operations. Management and United States PPI. Refer to note 26 for the group’s quantitative exposure to other price risk. has targeted 3.5 for cash interest cover and 1.5 for net debt service cover. Sensitivity analysis Liquid assets are investments identified as having the potential to be quickly converted into cash. These consist of cash and cash equivalents. Group and company 5.3.2 Primary sources of funding and unused facilities 2021 2020 The primary sources to meet Eskom’s liquidity requirements are cash generated from operations, cash inflows from maturing financial 1% 1% 1% 1% assets purchased, funds committed by government, signed and committed export credit agencies and development funding institution increase decrease increase decrease facilities, as well as local and foreign debt issued in the market. To supplement these liquidity sources under stress conditions, undrawn Rm Rm Rm Rm loans, commercial paper facilities and unutilised government guarantees are in place. All figures are quoted in notional amounts. Profit/(loss) before tax South African PPI (58) 50 (50) 47 United States PPI 44 (49) 53 (51) 5.3 Liquidity risk Liquidity risk can arise from mismatches in the timing of cash flows from revenue with capital and operational outflows. Funding risk arises when the necessary liquidity to fund illiquid asset positions, such as building new electricity capacity, cannot be obtained at the expected terms and when required. The objective of the group’s liquidity and funding management is to ensure that all foreseeable operational, capital expansion and loan commitment expenditure can be met under both normal and stressed conditions. The group has adopted an overall statement of financial position approach, which consolidates all sources and uses of liquidity, while aiming to maintain a balance between liquidity, profitability and interest rate considerations. 60 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 61 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 5. Financial risk management (continued) 5.3.3 Contractual cash flows 5.3 Liquidity risk (continued) The contractual undiscounted cash flows of the group’s financial assets and liabilities are indicated on the basis of their earliest 5.3.2 Primary sources of funding and unused facilities (continued) possible contractual maturity. ZAR EUR USD The cash flows for derivatives held for risk management are presented on a net basis in line with the classification in the statement of 2021 2020 2021 2020 2021 2020 financial position. Contractual cash flows are a function of forward exchange rates and forward interest rates and are a point-in-time m m m m m m calculation that are impacted by market conditions at that time. Group and company The contractual cash flows of financial trading assets and liabilities are disclosed based on their contractual maturities. Some of these Facilities available instruments are held for trading and may be sold or settled prior to contractual maturity. Export credit agencies – – 332 338 1 1 Only cash flows relating to financial instruments and financial guarantees have been presented and do not include future cash flows Crédit Agricole Corporate and Investment Bank – expected from the normal course of business and related commodity-linked pricing agreements. Coface – – 44 44 – – Cash flows Banque Nationale de Paris Paribas – Coface – – 201 201 – – Nominal 0–3 4–12 1–5 >5 Kreditanstalt für Wiederaufbau – Hermes – – 87 93 – – inflow/ months months years years Export-Import Bank of the United States – – – – 1 1 outflow Development financing institutions 4 072 4 327 73 76 1 899 2 746 Rm Rm Rm Rm Rm World Bank – – – – 289 667 2021 African Development Bank 2 631 2 886 73 76 25 25 Group Clean technology fund – African Development Bank – – – – 58 58 Financial assets Clean technology fund – World Bank – – – – 215 215 Loans receivable 15 072 215 644 3 258 10 955 New Development Bank – – – – 155 169 Derivatives held for risk management 19 025 4 672 3 938 14 411 Kreditanstalt für Wiederaufbau – – – – 100 100 Finance lease receivables 504 19 56 248 181 Agence Française de Développement 1 441 1 441 – – – – Trade and other receivables 66 120 64 071 2 049 – – China Development Bank – – – – 1 057 1 512 Insurance investments 17 749 5 859 11 890 – – Cash and cash equivalents 4 041 4 041 – – – 4 072 4 327 405 414 1 900 2 747 122 511 74 209 15 311 7 444 25 547 Funds received during the year Financial liabilities Export credit agencies – – 6 15 – 8 Debt securities and borrowings 715 011 12 349 60 886 208 658 433 1181 Derivatives held for risk management 8 807 3 270 6 003 5 825 (6 291) Kreditanstalt für Wiederaufbau – Hermes – – 6 15 – – Lease liabilities 16 911 455 1 365 6 999 8 092 Export-Import Bank of the United States – – – – – 8 Trade and other payables 37 698 29 577 8 121 – – Development financing institutions 255 129 3 36 527 975 Financial trading liabilities 2 2 – – – World Bank1 – – – – 58 26 778 429 45 653 76 375 221 482 434 919 African Development Bank 2 255 129 3 36 – – Company New Development Bank 3 – – – – 14 11 Financial assets China Development Bank4 – – – – 455 938 Loans receivable 5 837 2 654 3 183 – – 255 129 9 51 527 983 Derivatives held for risk management 19 025 4 672 3 938 14 411 Finance lease receivables 504 19 56 248 181 Government guarantees available Trade and other receivables 68 694 64 569 4 125 – – Cash and cash equivalents 2 503 2 503 – – – 2021 2020 Domestic General Total Domestic General Total 96 563 69 749 8 036 4 186 14 592 multi-term multi-term Financial liabilities note note Debt securities and borrowings 707 764 9 696 57 319 207 631 433 1181 programme programme Derivatives held for risk management 8 805 3 270 6 001 5 825 (6 291) Rm Rm Rm Rm Rm Rm Lease liabilities 16 909 456 1 364 6 997 8 092 Group and company Trade and other payables 39 858 31 772 8 086 – – Opening balance 2 936 22 860 25 796 9 694 31 685 41 379 Financial trading liabilities 2 2 – – – Guarantee granted 145 000 205 000 350 000 135 000 215 000 350 000 Financial guarantees 19 19 – – – Accumulated amounts used (142 064) (182 140) (324 204) (125 306) (183 315) (308 621) 773 357 45 215 72 770 220 453 434 919 Facilities withdrawn – 2 384 2 384 – 2 164 2 164 Facilities repaid 7 625 15 000 22 625 – 6 813 6 813 Facilities raised (5 336) – (5 336) (16 758) (7 802) (24 560) Guarantee swap – – – 10 000 (10 000) – Closing balance 5 225 40 244 45 469 2 936 22 860 25 796 Guarantee granted 145 000 205 000 350 000 145 000 205 000 350 000 Accumulated amounts used (139 775) (164 756) (304 531) (142 064) (182 140) (324 204) 1. Funds received were reimbursements on payments made by Eskom to various suppliers for goods and services related to the Medupi power station and Majuba rail projects. 2. Funds received were reimbursements on payments made by Eskom to various suppliers for goods and services supplied for the Medupi power station boilers and turbines as well as transmission projects. 3. Funds received were for the renewable energy integration and transmission augmentation project. 1. The maturity profile of undiscounted contractual payments of debt securities and borrowings due after 5 years comprise of R252 billion (2020: R284 billion) between years 5 and 4. Funds received were for the Medupi and Kusile power stations. 10 and R181 billion (2020: R231 billion) beyond year 10. 62 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 63 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 5. Financial risk management (continued) 6. Accounting classification and fair value 5.3 Liquidity risk (continued) 6.1 Accounting classification 5.3.3 Contractual cash flows (continued) 2021 2020 Cash flows Fair value Amortised Other Total Fair value Amortised Other Total Nominal 0–3 4–12 1–5 >5 through cost assets and through cost assets and inflow/ months months years years profit liabilities profit liabilities outflow or loss or loss Rm Rm Rm Rm Rm Note Rm Rm Rm Rm Rm Rm Rm Rm 2020 Group Group Financial assets Loans receivable 15 – 8 327 – 8 327 – 54 – 54 Financial assets Loans receivable 56 7 21 28 – Home loans – 8 073 – 8 073 – – – – Derivatives held for risk management 100 716 4 344 19 987 21 582 54 803 Other loans – 254 – 254 – 54 – 54 Finance lease receivables 593 20 58 271 244 Derivatives held for risk Trade and other receivables 63 519 62 050 1 469 – – management 16 179 – 11 200 11 379 8 851 – 48 785 57 636 Insurance investments 11 993 3 928 8 065 – – Foreign exchange Financial trading assets 152 152 – – – contracts 24 – 8 32 8 508 – 847 9 355 Cash and cash equivalents 22 990 22 990 – – – Cross-currency swaps – – 11 192 11 192 241 – 47 938 48 179 200 019 93 491 29 600 21 881 55 047 Commodity forwards – – – – 2 – – 2 Credit default swaps 5 – – 5 9 – – 9 Financial liabilities Inflation-linked swaps 150 – – 150 91 – – 91 Debt securities and borrowings 885 309 8 860 93 491 267 531 515 4271 Derivatives held for risk management 3 709 113 4 727 (115) (1 016) Finance lease receivables 17 – – 327 327 – – 372 372 Lease liabilities 18 639 459 1 375 7 002 9 803 Trade and other receivables 19 – 22 728 – 22 728 – 21 589 – 21 589 Trade and other payables 38 704 30 249 8 036 419 – Insurance investments 14 1 934 12 467 – 14 401 1 299 10 682 – 11 981 Financial trading liabilities 213 213 – – – Negotiable certificates of 946 574 39 894 107 629 274 837 524 214 deposit – 12 467 – 12 467 – 10 682 – 10 682 Company Listed shares 1 934 – – 1 934 1 299 – – 1 299 Financial assets Financial trading assets 14 – – – – – 152 – 152 Loans receivable 6 067 2 514 3 553 – – Derivatives held for risk management 100 716 4 344 19 987 21 582 54 803 Cash and cash equivalents 21 – 4 041 – 4 041 – 22 990 – 22 990 Finance lease receivables 593 20 58 271 244 Bank balances – 4 041 – 4 041 – 9 897 – 9 897 Trade and other receivables 65 023 63 713 1 310 – – Unsettled deals – – – – – 25 – 25 Financial trading assets 152 152 – – – Fixed deposits – – – – – 13 068 – 13 068 Cash and cash equivalents 22 314 22 314 – – – 2 113 47 563 11 527 61 203 10 150 55 467 49 157 114 774 194 865 93 057 24 908 21 853 55 047 Financial liabilities Financial liabilities Debt securities and Debt securities and borrowings 889 956 11 067 95 975 267 487 515 4271 borrowings 25 – 401 826 – 401 826 – 483 682 – 483 682 Derivatives held for risk management 3 712 114 4 729 (115) (1 016) Eskom bonds – 161 171 – 161 171 – 157 037 – 157 037 Lease liabilities 18 636 459 1 375 6 999 9 803 Commercial paper – 1 251 – 1 251 – 5 444 – 5 444 Trade and other payables 40 426 33 610 6 397 419 – Eurorand zero coupon Financial trading liabilities 213 213 – – – bonds – 5 600 – 5 600 – 4 964 – 4 964 Financial guarantees 4 4 – – – Foreign bonds – 55 553 – 55 553 – 98 563 – 98 563 952 947 45 467 108 476 274 790 524 214 Development financing institutions – 143 174 – 143 174 – 154 489 – 154 489 Export credit facilities – 23 343 – 23 343 – 32 746 – 32 746 Floating rate notes – 2 027 – 2 027 – 4 046 – 4 046 Other loans – 9 707 – 9 707 – 26 393 – 26 393 Embedded derivatives 26 – – 1 491 1 491 – – 1 136 1 136 Derivatives held for risk management 16 4 148 – 4 222 8 370 868 – 2 073 2 941 Foreign exchange contracts 3 827 – 398 4 225 58 – 29 87 Cross-currency swaps 219 – 3 824 4 043 4 – 2 044 2 048 Commodity forwards – – – – 6 – – 6 Credit default swaps 102 – – 102 710 – – 710 Inflation-linked swaps – – – – 90 – – 90 Lease liabilities 30 – – 8 969 8 969 – – 9 350 9 350 Trade and other payables 31 – 35 924 – 35 924 – 38 700 – 38 700 Financial trading liabilities 14 2 – – 2 214 – – 214 1. The maturity profile of undiscounted contractual payments of debt securities and borrowings due after 5 years comprise of R252 billion (2020: R284 billion) between years 5 and 10 and R181 billion (2020: R231 billion) beyond year 10. 4 150 437 750 14 682 456 582 1 082 522 382 12 559 536 023 64 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 65 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 6. Accounting classification and fair value (continued) 6.2 Fair value 6.1 Accounting classification (continued) Valuation processes The group has a control framework in place for the measurement of fair values. It includes a valuation team that ultimately reports 2021 2020 to the chief financial officer and has overall responsibility for all significant fair value measurements. Fair value Amortised Other Total Fair value Amortised Other Total through cost assets and through cost assets and The valuation team regularly reviews significant unobservable inputs and valuation adjustments. Where third-party information, such profit liabilities profit liabilities as broker quotes or pricing services, is used to measure fair value, this information is assessed as to whether it provides adequate or loss or loss support for the accounting treatment applied including the level of the fair value hierarchy assigned to it. Note Rm Rm Rm Rm Rm Rm Rm Rm Principal markets Company The group is involved in various principal markets because of the unique funding activities undertaken where the fair value is Financial assets determined by each participant in the different principal markets. The principal markets include: Loans receivable • capital and money markets Loans to subsidiaries 15 – 5 758 – 5 758 – 5 937 – 5 937 • development financing institutions Derivatives held for risk • export credit agencies management 16 181 – 11 200 11 381 8 851 – 48 785 57 636 Fair value hierarchy Foreign exchange Fair value measurements are categorised into the different levels in the fair value hierarchy based on the inputs to the valuation contracts 26 – 8 34 8 508 – 847 9 355 techniques used. There were no changes in the valuation techniques applied. The hierarchy levels are defined as follows: Cross-currency swaps – – 11 192 11 192 241 – 47 938 48 179 Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities Commodity forwards – – – – 2 – – 2 Credit default swaps 5 – – 5 9 – – 9 Level 2: Inputs other than quoted prices included within level 1 that are observable, either directly (ie as prices) or indirectly Inflation-linked swaps 150 – – 150 91 – – 91 (ie derived from prices) Level 3: Unobservable inputs Finance lease receivables 17 – – 327 327 – – 372 372 Trade and other receivables 19 – 25 216 – 25 216 – 23 268 – 23 268 There were no transfers between level 1, 2 or 3 of the fair value hierarchy during the year. The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the transfers have occurred. The group’s policy for Financial trading assets 14 – – – – – 152 – 152 determining when transfers between levels in the hierarchy have occurred includes monitoring of the following factors: Cash and cash equivalents 21 – 2 503 – 2 503 – 22 314 – 22 314 • changes in market and trading activity (eg significant increases/decreases in activity) • changes in inputs used in valuation techniques (eg inputs becoming/ceasing to be observable in the market) Bank balances – 2 503 – 2 503 – 9 221 – 9 221 Unsettled deals – – – – – 25 – 25 Valuation techniques Fixed deposits – – – – – 13 068 – 13 068 Financial instrument Valuation technique 181 33 477 11 527 45 185 8 851 51 671 49 157 109 679 Level 1: Quoted prices (unadjusted) in active markets Financial liabilities Financial trading assets (government bonds) and Quoted bid price in active markets. A market is regarded as active when it Debt securities and insurance investments (listed shares) is a market in which transactions for the asset or liability take place with borrowings 25 – 404 042 – 404 042 – 488 214 – 488 214 sufficient frequency and volume to provide pricing information on an Eskom bonds – 161 171 – 161 171 – 157 037 – 157 037 ongoing basis. Commercial paper – 3 184 – 3 184 – 8 114 – 8 114 Financial trading liabilities (short-sold government Quoted bid price in active markets. A market is regarded as active when it Eurorand zero coupon bonds) is a market in which transactions for the asset or liability take place with bonds – 5 600 – 5 600 – 4 964 – 4 964 sufficient frequency and volume to provide pricing information on an Foreign bonds – 55 553 – 55 553 – 98 563 – 98 563 ongoing basis. Development financing institutions – 143 174 – 143 174 – 154 489 – 154 489 Level 2: Inputs other than quoted prices included Export credit facilities – 23 343 – 23 343 – 32 746 – 32 746 within level 1 that are observable Floating rate notes – 2 027 – 2 027 – 4 046 – 4 046 Other loans – 9 990 – 9 990 – 28 255 – 28 255 Loans receivable, insurance investments (negotiable A discounted cash flow technique is used which uses expected cash flows certificates of deposit), debt securities and and a market-related discount rate. Embedded derivatives 26 – – 1 491 1 491 – – 1 136 1 136 borrowings and financial trading assets and liabilities (repurchase agreement assets and liabilities) Derivatives held for risk management 16 4 148 – 4 222 8 370 872 – 2 073 2 945 Derivatives held for risk management Valuation determined with reference to broker quotes as well as use of discounted cash flow and option pricing models. Broker quotes are tested Foreign exchange for reasonableness by discounting expected future cash flows using a contracts 3 827 – 398 4 225 62 – 29 91 market interest rate for a similar instrument at the measurement date. Cross-currency swaps 219 – 3 824 4 043 4 – 2 044 2 048 Commodity forwards – – – – 6 – – 6 Valuations of cross-currency swaps include the credit risk of Eskom (known Credit default swaps 102 – – 102 710 – – 710 as debit value adjustment) and counterparties (known as credit value Inflation-linked swaps – – – – 90 – – 90 adjustment) where appropriate. A stochastic modelling approach is followed where the expected future exposure to credit risk for Eskom and Lease liabilities 30 – – 8 967 8 967 – – 9 347 9 347 its counterparties (considering default probabilities and recovery rates Trade and other payables 31 – 38 086 – 38 086 – 40 420 – 40 420 derived from market data) is modelled. Financial trading liabilities 14 2 – – 2 214 – – 214 Trade and other receivables and payables and cash Fair values have not been disclosed for financial instruments where the and cash equivalents carrying amounts are a reasonable approximation of fair value. 4 150 442 128 14 680 460 958 1 086 528 634 12 556 542 276 Level 3: Unobservable inputs Embedded derivative liabilities Fair valued using unobservable inputs. Refer to note 26 for a movement reconciliation and to note 4.1 for information regarding the valuation techniques and assumptions used. 66 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 67 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 6. Accounting classification and fair value (continued) Measured 2021 2020 6.2 Fair value (continued) at Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Fair value hierarchy (continued) fair value Rm Rm Rm Rm Rm Rm The fair value hierarchy of financial instruments is as follows: Company Measured 2021 2020 Financial assets at fair Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Loans receivable value Rm Rm Rm Rm Rm Rm Loans to subsidiaries No – 5 777 – – 5 935 – Derivatives held for risk management – 11 381 – – 57 636 – Group Financial assets Foreign exchange contracts Yes – 34 – – 9 355 – Loans receivable – 7 388 – – 56 – Cross-currency swaps Yes – 11 192 – – 48 179 – Commodity forwards Yes – – – – 2 – Home loans No – 7 263 – – – – Credit default swaps Yes – 5 – – 9 – Other loans No – 125 – – 56 – Inflation-linked swaps Yes – 150 – – 91 – Derivatives held for risk management – 11 379 – – 57 636 – Financial trading assets Foreign exchange contracts Yes – 32 – – 9 355 – Repurchase agreements No – – – – 152 – Cross-currency swaps Yes – 11 192 – – 48 179 – Financial liabilities Commodity forwards Yes – – – – 2 – Debt securities and borrowings – 377 435 – – 410 205 – Credit default swaps Yes – 5 – – 9 – Inflation-linked swaps Yes – 150 – – 91 – Eskom bonds No – 148 291 – – 134 690 – Commercial paper No – 3 192 – – 8 124 – Insurance investments 1 934 12 795 – 1 299 11 112 – Eurorand zero coupon bonds No – 4 557 – – 3 256 – Negotiable certificates of deposit No – 12 795 – – 11 112 – Foreign bonds No – 58 588 – – 79 100 – Listed shares Yes 1 934 – – 1 299 – – Development financing institutions No – 126 004 – – 121 287 – Financial trading assets Export credit facilities No – 24 404 – – 32 051 – Repurchase agreements No – – – – 152 – Floating rate notes No – 2 028 – – 3 971 – Other loans No – 10 371 – – 27 726 – Financial liabilities Debt securities and borrowings – 375 082 – – 405 651 – Embedded derivatives Yes – – 1 491 – – 1 136 Derivatives held for risk management – 8 370 – – 2 945 – Eskom bonds No – 148 291 – – 134 690 – Commercial paper No – 1 123 – – 5 431 – Foreign exchange contracts Yes – 4 225 – – 91 – Eurorand zero coupon bonds No – 4 557 – – 3 256 – Cross-currency swaps Yes – 4 043 – – 2 048 – Foreign bonds No – 58 588 – – 79 100 – Commodity forwards Yes – – – – 6 – Development financing institutions No – 126 004 – – 121 287 – Credit default swaps Yes – 102 – – 710 – Export credit facilities No – 24 404 – – 32 051 – Inflation-linked swaps Yes – – – – 90 – Floating rate notes No – 2 028 – – 3 971 – Financial trading liabilities Other loans No – 10 087 – – 25 865 – Repurchase agreements Yes – 2 – – 214 – Embedded derivatives Yes – – 1 491 – – 1 136 Derivatives held for risk management – 8 370 – – 2 941 – 7. Segment information Management has determined the reportable segments based on the reports regularly provided, reviewed and used by Exco to make Foreign exchange contracts Yes – 4 225 – – 87 – strategic decisions and assess performance of the segments. Exco assesses the performance of the operating segments based on a Cross-currency swaps Yes – 4 043 – – 2 048 – measure of profit or loss consistent with that of the financial statements. The amounts provided to Exco with respect to total assets Commodity forwards Yes – – – – 6 – and liabilities are measured in terms of IFRS. These assets and liabilities are allocated based on the operation of the segment and the Credit default swaps Yes – 102 – – 710 – physical location of the assets. Inflation-linked swaps Yes – – – – 90 – The operations in each of the group’s reportable segments are as follows: Financial trading liabilities Repurchase agreements Yes – 2 – – 214 – Segment Operations Generation Consists of the following components: • primary energy procurement • electricity generation • planning, development, execution and monitoring of generation-related capital projects Transmission Consists of the following components: • transmission grids and the integrated demand management area. These functions operate and maintain the transmission network for transmitting electricity and also sell bulk electricity to international customers • the southern African energy and energy planning and market development areas. Their activities include systems operations, purchase or sale of electricity from or to southern African countries, purchase of electricity from IPPs and wholesale energy for the purposes of energy trading Distribution Consists of nine provincial operating units who provide, operate and maintain the distribution network for distributing electricity as well as a retail function that sells electricity to local large and small power users. All other Relates to operating segments which are below the quantitative thresholds for determining a reportable segments segment in terms of IFRS 8 Operating segments which includes the group’s subsidiaries as well as all service and strategic functions which do not qualify as a reportable segment in terms of IFRS 8. 68 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 69 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 7. Segment information (continued) Gene- Trans- Distri- All other Reallo- Group As a consequence of the group’s evolving structure, the balances and activities of the previously reported group capital division are ration mission bution segments cation and now managed and reported as part of the transmission and distribution segments. The 2020 segment report has been restated in line inter- with the revised reportable segment structure. segment The revenue earned by subsidiaries is presented in the segment note in line with what is reported in the respective subsidiary trans- financial statements. Inter-segment transfer pricing for the flow of electricity from generator to consumer is allocated between the actions generation, transmission and distribution segments based on cost recovery plus a uniform return on assets informed by the regulatory Rm Rm Rm Rm Rm Rm determination. All direct corporate overhead costs are allocated to the relevant segments and a cost driver apportionment is used 2020 to split the remaining overhead costs on an equal basis between segments. Net finance costs, net fair value and foreign exchange External revenue – 11 783 187 685 1 534 (1 534) 199 468 gains/(losses) are allocated to segments based on divisional funding requirements. Inter-segment revenue/recoveries 135 351 28 438 (163 549) 11 189 (11 429) – The segment information provided to Exco for the reportable segments is as follows: Total revenue 135 351 40 221 24 136 12 723 (12 963) 199 468 Gene- Trans- Distri- All other Reallo- Group Other income 863 14 672 779 (1 090) 1 238 ration mission bution segments cation and Primary energy (79 344) (32 763) (12) – – (112 119) inter- Employee benefit expense (10 756) (2 027) (11 454) (8 921) – (33 158) segment Impairment of financial assets (113) 481 542 (67) 93 936 trans- Impairment and writedown of other assets – raised (933) – – – – (933) actions Impairment and writedown of other assets – reversed – – – 58 – 58 Rm Rm Rm Rm Rm Rm Other expenses (18 963) (2 321) (9 814) (2 288) 14 712 (18 674) 2021 Profit/(loss) before depreciation and amortisation External revenue – 10 065 194 261 1 467 (1 467) 204 326 expense and net fair value and foreign exchange Inter-segment revenue/recoveries 136 566 32 910 (169 286) 12 585 (12 775) – (loss)/gain (EBITDA) 26 105 3 605 4 070 2 284 752 36 816 Depreciation and amortisation expense (20 091) (2 843) (3 893) (1 173) 221 (27 779) Total revenue 136 566 42 975 24 975 14 052 (14 242) 204 326 Net fair value and foreign exchange (loss)/gain (6 025) (764) 2 119 45 (1) (4 626) Other income 2 340 277 516 1 609 (2 080) 2 662 Primary energy (80 073) (35 818) (12) – – (115 903) Profit/(loss) before net finance (cost)/income (11) (2) 2 296 1 156 972 4 411 Employee benefit expense (10 942) (2 347) (11 583) (8 015) – (32 887) Net finance (cost)/income (23 332) (5 246) (2 820) (273) 264 (31 407) Impairment of financial assets (44) (133) 333 (197) 160 119 Finance income 403 160 406 1 570 71 2 610 Impairment and writedown of other assets – raised (1 460) (7) (19) (4) 4 (1 486) Finance cost (23 735) (5 406) (3 226) (1 843) 193 (34 017) Other expenses (24 016) (1 824) (9 566) (2 756) 14 144 (24 018) Share of profit of equity-accounted investees – – – 63 – 63 Profit/(loss) before depreciation and amortisation expense and net fair value and foreign exchange (Loss)/profit before tax (23 343) (5 248) (524) 946 1 236 (26 933) (loss)/gain (EBITDA) 22 371 3 123 4 644 4 689 (2 014) 32 813 Income tax – – – 6 524 (360) 6 164 Depreciation and amortisation expense (19 342) (3 063) (3 977) (847) 213 (27 016) (Loss)/profit for the year (23 343) (5 248) (524) 7 470 876 (20 769) Net fair value and foreign exchange gain/(loss) 106 372 (395) 796 4 883 Other information Profit/(loss) before net finance (cost)/income 3 135 432 272 4 638 (1 797) 6 680 Segment assets 527 887 78 644 113 814 115 568 (21 729) 814 184 Net finance (cost)/income (23 350) (5 206) (2 769) (407) 223 (31 509) Investment in equity-accounted investees – – – 397 – 397 Finance income 710 92 326 1 214 58 2 400 Assets held-for-sale – – – 8 642 – 8 642 Finance cost (24 060) (5 298) (3 095) (1 621) 165 (33 909) Total assets 527 887 78 644 113 814 124 607 (21 729) 823 223 Share of profit of equity-accounted investees – – – 71 – 71 Total liabilities 71 887 16 764 45 009 526 587 (23 092) 637 155 (Loss)/profit before tax (20 215) (4 774) (2 497) 4 302 (1 574) (24 758) Additions to property, plant and equipment and Income tax – – – 5 686 138 5 824 intangible assets 18 378 887 5 448 509 (558) 24 664 (Loss)/profit for the year (20 215) (4 774) (2 497) 9 988 (1 436) (18 934) Other information Group Segment assets 542 661 78 969 115 931 66 198 (22 531) 781 228 Revenue Non-current assets Investment in equity-accounted investees – – – 420 – 420 2021 2020 2021 2020 Geographical information Rm Rm Rm Rm Total assets 542 661 78 969 115 931 66 618 (22 531) 781 648 South Africa 193 943 187 239 672 690 663 508 Total liabilities 82 494 19 116 47 458 440 284 (23 540) 565 812 Foreign countries 10 383 12 229 297 271 Additions to property, plant and equipment and 204 326 199 468 672 987 663 779 intangible assets 16 722 3 160 6 249 (2 944) (348) 22 839 The group’s reportable segments operate mainly in South Africa, which is Eskom’s country of domicile. Revenue is allocated based on the country in which the customer is located after eliminating inter-segment transactions. There is no significant revenue derived from a single external customer by any of the reportable segments. Non-current assets disclosed for geographical information comprise non-current assets other than deferred tax assets and financial instruments. 70 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 71 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 8. Property, plant and equipment The total depreciation charge for property, plant and equipment is disclosed in profit or loss in the following categories: 2021 2020 Land, Plant Equip- Work Total Total Group Company buildings Gene- Trans- Distri- Spares ment under 2021 2020 2021 2020 and rating mitting buting and and cons- Note Rm Rm Rm Rm facilities other vehicles truction Note Rm Rm Rm Rm Rm Rm Rm Rm Rm Depreciation and amortisation expense 38 28 145 28 773 28 197 28 741 Primary energy 12 12 12 12 Group Carrying value at beginning of 28 157 28 785 28 209 28 753 the year 8 840 295 220 44 548 75 327 14 524 5 663 209 237 653 359 650 440 Average rates of finance cost capitalised to qualifying assets: Cost 11 070 414 173 64 834 129 487 16 251 17 510 210 156 863 481 838 701 Accumulated depreciation and Group and company impairment losses (2 230) (118 953) (20 286) (54 160) (1 727) (11 847) (919) (210 122) (188 261) 2021 2020 Adoption of IFRS 16 – – – – – – – – 132 % % Additions and transfers 131 182 88 340 (245) 277 21 900 22 673 24 404 General borrowings 9.15 9.84 Transfers of assets from Specific borrowings 8.62 9.09 customers – – 509 1 106 – – – 1 615 1 421 Commissioning of assets Property, plant and equipment includes the following right-of-use asset balances: constructed 200 66 466 2 649 5 752 29 99 (75 195) – – Basis adjustment – cash flow 2021 2020 hedge reserve – – – – – – (32) (32) (132) Land, Plant Equipment Total Total Finance cost capitalised 41 – – – – – – 11 716 11 716 14 584 buildings Generating Spares and Provisions capitalised 29 – 2 367 – – – – 1 012 3 379 (2 664) and facilities and other vehicles Disposals and writeoffs (12) (5) (3) (6) (10) (44) (1 904)1 (1 984) (5 180) Rm Rm Rm Rm Rm Rm Depreciation (227) (19 583) (2 280) (5 072) (87) (908) – (28 157) (28 785) Group Net impairment 36 – – – – – – – – (861) Carrying value at beginning of the year 142 7 080 110 64 7 396 7 841 Carrying value at end of the year 8 932 344 647 45 511 77 447 14 211 5 087 166 734 662 569 653 359 Cost 234 9 768 567 70 10 639 10 335 Accumulated depreciation and Cost 11 392 476 396 68 056 136 448 15 995 17 660 166 734 892 681 863 481 impairment losses (92) (2 688) (457) (6) (3 243) (2 494) Accumulated depreciation and impairment losses (2 460) (131 749) (22 545) (59 001) (1 784) (12 573) – (230 112) (210 122) Adoption of IFRS 16 – – – – – 132 Additions 119 – – – 119 172 Company Disposals and writeoffs (8) – – – (8) – Carrying value at beginning of Depreciation (99) (638) (12) (14) (763) (749) the year 8 620 296 032 44 710 75 549 14 524 4 365 210 595 654 395 651 036 Carrying value at end of the year 154 6 442 98 50 6 744 7 396 Cost 10 769 416 102 65 023 129 803 16 251 14 290 211 514 863 752 838 559 Cost 281 9 768 567 70 10 686 10 639 Accumulated depreciation and impairment losses (2 149) (120 070) (20 313) (54 254) (1 727) (9 925) (919) (209 357) (187 523) Accumulated depreciation and impairment losses (127) (3 326) (469) (20) (3 942) (3 243) Adoption of IFRS 16 – – – – – – – – 132 Additions and transfers 123 182 88 340 (245) 242 22 230 22 960 24 799 Company Transfers of assets from Carrying value at beginning of the year 141 7 080 110 61 7 392 7 841 customers – – 509 1 106 – – – 1 615 1 421 Cost 233 9 768 567 67 10 635 10 335 Commissioning of assets Accumulated depreciation and constructed 20 66 578 2 670 5 781 29 83 (75 161) – – impairment losses (92) (2 688) (457) (6) (3 243) (2 494) Basis adjustment – cash flow hedge reserve – – – – – – (32) (32) (132) Adoption of IFRS 16 – – – – – 132 Finance cost capitalised 41 – – – – – – 11 716 11 716 14 584 Additions 119 – – – 119 168 Provisions capitalised 29 – 2 367 – – – – 1 012 3 379 (2 664) Disposals and writeoffs (8) – – – (8) – Disposals and writeoffs (12) (5) (3) (6) (10) (44) (1 904)1 (1 984) (5 167) Depreciation (98) (638) (12) (13) (761) (749) Depreciation (225) (19 772) (2 288) (5 087) (87) (750) – (28 209) (28 753) Carrying value at end of the year 154 6 442 98 48 6 742 7 392 Net impairment 36 – – – – – – – – (861) Cost 280 9 768 567 67 10 682 10 635 Carrying value at end of the year 8 526 345 382 45 686 77 683 14 211 3 896 168 456 663 840 654 395 Accumulated depreciation and impairment losses (126) (3 326) (469) (19) (3 940) (3 243) Cost 10 902 478 438 68 266 136 793 15 995 14 386 168 456 893 236 863 752 Accumulated depreciation and impairment losses (2 376) (133 056) (22 580) (59 110) (1 784) (10 490) – (229 396) (209 357) 1. Includes R1 274 million relating to a writeoff of work under construction at Duvha power station unit 3 due to the cancellation of the recovery project. 72 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 73 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 9. Intangible assets The price increase used for group and company was: 2021 2020 Year ended 31 March Rights Computer Concession Total Total 2022 2023 2024 2025 2026 2027 software assets % % % % % % Note Rm Rm Rm Rm Rm 2021 Group Price increase 13 15 10 10 10 9 Carrying value at beginning of the year 3 138 421 271 3 830 3 925 Cost 3 358 4 984 465 8 807 10 871 Year ended 31 March Accumulated amortisation and 2021 2022 2023 2024 2025 2026 impairment losses (220) (4 563) (194) (4 977) (6 946) % % % % % % Additions and transfers 39 17 110 166 260 2020 Writeoffs – (26) – (26) – Price increase 11 13 14 10 10 10 Amortisation 38 – (230) (84) (314) (355) A pre-tax nominal discount rate of 12.46% (2020: 12.46%) was used as derived from the NERSA determination. An average long-term Carrying value at end of the year 3 177 182 297 3 656 3 830 growth rate of 2% (2020: 1%) was used to extrapolate cash flow projections after year five. Cost 3 393 1 555 575 5 523 8 807 Accumulated amortisation and 10. Future fuel supplies impairment losses (216) (1 373) (278) (1 867) (4 977) Group and company Company 2021 2020 Carrying value at beginning of the year 3 138 420 – 3 558 3 706 Coal Nuclear Total Total Cost 3 358 4 655 – 8 013 10 177 Note Rm Rm Rm Rm Accumulated amortisation and impairment losses (220) (4 235) – (4 455) (6 471) Carrying value at beginning of the year 4 165 130 4 295 6 471 Net additions 310 1 249 1 559 1 261 Additions and transfers 39 16 – 55 153 Provisions capitalised 29 619 – 619 (1 063) Writeoffs – (26) – (26) – Basis adjustment – cash flow hedge reserve – (368) (368) (234) Amortisation 38 – (229) – (229) (301) Transfer to inventories 20 (721) (970) (1 691) (2 140) Carrying value at end of the year 3 177 181 – 3 358 3 558 Carrying value at end of the year 4 373 41 4 414 4 295 Cost 3 393 1 218 – 4 611 8 013 Accumulated amortisation and impairment losses (216) (1 037) – (1 253) (4 455) 11. Investment in equity-accounted investees Group Company Impairment assessment of indefinite useful life intangible assets 2021 2020 2021 2020 Rights are part of the Eskom CGU and were tested for impairment as part of the CGU. The recoverable amount of the CGU was Rm Rm Rm Rm determined based on its value in use and no impairment loss was recognised on the CGU. Balance at beginning of the year 397 373 95 95 The value-in-use calculation is based on the regulatory electricity pricing methodology where the rate of return on Eskom’s assets Share of profit after tax 71 63 – – should be equal to its weighted average cost of capital (WACC). The return can only be equal to WACC if the price of electricity is Dividends received (48) (39) – – cost-reflective. In reality, the electricity price is not cost-reflective and Eskom earns a return on assets that is much lower than its Balance at end of the year 420 397 95 95 pre-tax WACC. The value-in-use calculation assumed that the electricity price will migrate to cost reflectivity over a period of time in line with the Electricity Pricing Policy. The group’s investments in joint ventures and associates are not individually material. Estimates in the value-in-use calculation include long-term growth rates, electricity sales volumes and prices, available generation capacity and discount rates. Estimates are based on past experience and expectations of future changes in the market, including the The group’s share of the results of its significant joint ventures, all of which are unlisted, is as follows: prevailing economic climate. 2021 2020 The cash flow projections were based on the Eskom Corporate Plan for 2022 to 2026 and an extrapolation of this information Group Company Group Company thereafter until the electricity price breaks even (ie when the electricity price is cost reflective). The projections after the first five Name Main business Country of Interest Share of Investment Share of Investment years were extrapolated based on the estimated long-term average growth rates and inflation. The extrapolation beyond the first incorporation held profit at cost profit at cost five years was deemed appropriate as generating plant have long useful lives and it is estimated that it could take longer than five years after tax after tax to achieve a cost-reflective price. for the year for the year % Rm Rm Rm Rm The price of electricity is a key input in the value-in-use calculation. The price path is based on the NERSA determination (adjusted for the impact of the recent court decisions relating to the treatment of the government equity support and the RCA decisions) and Directly held a gradual migration towards cost reflectivity. It is not expected that a reasonable possible change in any of the key assumptions would Motraco – Mozambique Electricity cause the carrying value of the CGU to exceed the recoverable amount. Transmission Company SARL1 transmission Mozambique 33 71 95 61 95 Indirectly held Trans Africa Projects (Pty) Ltd Engineering services South Africa 50 – 2 71 63 The share capital of the group’s investment in joint ventures comprises ordinary shares. The joint ventures are structured as separate vehicles and the group has a residual interest in the net assets. The relevant activities are jointly controlled in accordance with the agreements under which the entities are established. The joint arrangements have therefore been classified as joint ventures. 1. Year end is 31 December. 74 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 75 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 12. Investment in subsidiaries 13. Deferred tax 2021 2020 Group Company Name Main business Interest Interest Assets Liabilities Assets Liabilities held held 2021 2020 2021 2020 2021 2020 2021 2020 % % Note Rm Rm Rm Rm Rm Rm Rm Rm Directly held Reconciliation of Escap SOC Ltd Insurance 100 100 movements in balances Eskom Development Foundation NPC Corporate social investment 100 100 Balance at beginning Eskom Enterprises SOC Ltd Non-regulated electricity supply industry activities in of the year 115 17 3 757 7 227 – – 2 803 6 690 South Africa and electricity supply and related Recognised in profit services outside South Africa 100 100 or loss 42 6 288 97 (607) (6 448) 6 880 – – (6 844) Eskom Finance Company SOC Ltd1 Finance (employee housing loans) 100 100 Recognised in other PN Energy Services SOC Ltd Not trading 100 100 comprehensive income 42 2 844 – – 2 978 2 843 – – 2 957 Transfer from liabilities Indirectly held to assets (2 803) – (2 803) – (2 803) – (2 803) – Eskom Rotek Industries SOC Ltd Construction and abnormal load transportation 100 100 Assets and liabilities Eskom Uganda Ltd2 Operations management 100 100 held-for-sale 15 1 – – – – – – Golang Coal SOC Ltd Coal exports 67 67 Balance at end of the year 6 459 115 347 3 757 6 920 – – 2 803 Nqaba Finance 1 (RF) Ltd1 Residential backed mortgage securities 100 100 Pebble Bed Modular Reactor SOC Ltd Reactor driven generation project 100 100 Comprising 6 459 115 347 3 757 6 920 – – 2 803 South Dunes Coal Terminal Company SOC Ltd Coal exports 69 69 Property, plant and equipment (90 084) – 517 86 084 (89 719) – – 84 987 2021 2020 Tax losses 62 286 – – (53 441) 62 284 – – (53 441) Investment Accumulated Dividend Investment Accumulated Dividend Trade and other at cost impairment declared at cost impairment declared receivables 12 071 14 (4) (11 660) 12 174 – – (11 693) Rm Rm Rm Rm Rm Rm Payments made in advance (134) – – 79 (134) – – 79 Escap SOC Ltd 380 – – 380 – – Loans receivable 1 – 2 – 6 – – – Eskom Development Foundation NPC – – – – – – Insurance investments – 97 30 – – – – – Eskom Enterprises SOC Ltd –3 – 1 000 –3 – – Derivatives held for Eskom Finance Company SOC Ltd –3 – – –3 – – risk management (62) (2) – 2 702 (62) – – 2 701 PN Energy Services SOC Ltd 4 (4) 37 4 – 7 Embedded derivative 384 (4) 1 037 384 – 7 liabilities 417 – – (318) 417 – – (318) Provisions 13 155 5 (15) (11 668) 13 149 – – (11 651) All subsidiaries continue to be accounted for as previously assessed as there has not been any change in the outcome of the control Employee benefit assessment. The group does not have any subsidiaries with a material non-controlling interest. All subsidiaries were incorporated in obligations 5 178 – (183) (4 710) 5 178 – – (4 550) South Africa with the exception of Eskom Uganda Ltd which was incorporated in Uganda. Payments received in advance 3 631 1 – (3 311) 3 627 – – (3 311) The group has R222 450 million (2020: R190 861 million) and the company has R222 443 million (2020: R190 861 million) of unused tax losses available for offset against future taxable income. 14. Investments and financial trading instruments Portfolio Managed by Purpose Insurance Escap To maintain adequate ring-fenced capital reserves to meet the statutory solvency requirements of the Insurance Act Financial trading Treasury To reduce the funding cost of the company 14.1 Insurance investments Group 2021 2020 Gross Allowance Carrying Total for value impairment Rm Rm Rm Rm Negotiable certificates of deposit 12 546 (79) 12 467 10 682 Listed shares 1 934 – 1 934 1 299 14 480 (79) 14 401 11 981 1. Eskom Finance Company SOC Ltd and its subsidiary Nqaba Finance 1 (RF) Ltd (a securitisation vehicle) ceased to be classified as held-for-sale. Refer to note 22. 2. Year end is 31 December. 3. Nominal. 76 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 77 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 14. Investments and financial trading instruments (continued) 16. Derivatives held for risk management 14.2 Financial trading instruments 2021 2020 Group and company Foreign Cross- Commo- Credit Inflation- Total Total 2021 2020 exchange currency dity default linked Assets Liabilities Net asset/ Assets Liabilities Net asset/ contracts swaps forwards swaps swaps (liability) (liability) Note Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Group Repurchase agreements Net asset/(liability) at beginning Eskom bonds – 2 (2) – 57 (57) of the year 9 268 46 131 (4) (701) 1 54 695 15 622 Government bonds – – – 152 157 (5) Net fair value (loss)/gain (14 302) (30 137) (5) 608 102 (43 734) 40 690 – 2 (2) 152 214 (62) Income statement 39 (13 512) (21 678) (5) 608 102 (34 485) 33 133 Statement of comprehensive income (790) (8 459) – – – (9 249) 7 557 Financial trading assets – collateral held Eskom purchased both Eskom and government bonds from approved counterparties and has committed to resell these back to the Finance cost accrued – 214 – (4) 47 257 25 counterparties in the following financial year. Although Eskom has legal title to the bonds at year end, they have not been recognised Cash paid/(received) 841 (9 059) 9 – – (8 209) (1 642) in the statement of financial position as a result of the commitment to resell. The total receivable is secured by bonds of an equivalent fair value. The difference between the purchase and resale price is treated as interest accrued over the life of the agreement using Net (liability)/asset at end of the year (4 193) 7 149 – (97) 150 3 009 54 695 the effective-yield method. Hedge exposure covered (4 193) 7 149 – (97) 150 3 009 54 695 Financial trading liabilities – encumbered assets Debt securities and borrowings (211) 7 149 – (97) 150 6 991 53 321 Eskom concluded sale and repurchase transactions of both Eskom and government bonds with approved counterparties. The group Other (3 982) – – – – (3 982) 1 374 enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. The transferred assets are not derecognised Assets if all or substantially all risks and rewards are retained. The difference between the sale and repurchase price is treated as interest Economic hedging 24 – – 5 150 179 8 851 accrued over the life of the agreement using the effective-yield method. Cash flow hedging 8 11 192 – – – 11 200 48 785 32 11 192 – 5 150 11 379 57 636 15. Loans receivable Maturity analysis 32 11 192 – 5 150 11 379 57 636 Group Company Non-current – 9 822 – – 146 9 968 33 918 2021 2020 2021 2020 Current 32 1 370 – 5 4 1 411 23 718 Gross Allowance Carrying Carrying Gross Allowance Carrying Carrying for value value for value value Liabilities impairment impairment Economic hedging 3 827 219 – 102 – 4 148 868 Rm Rm Rm Rm Rm Rm Rm Rm Cash flow hedging 398 3 824 – – – 4 222 2 073 Loans to 4 225 4 043 – 102 – 8 370 2 941 subsidiaries – – – – 5 779 (21) 5 758 5 937 Maturity analysis 4 225 4 043 – 102 – 8 370 2 941 Home loans 8 118 (45) 8 073 – – – – – Other 260 (6) 254 54 – – – – Non-current – 3 460 – 102 – 3 562 1 802 Current 4 225 583 – – – 4 808 1 139 8 378 (51) 8 327 54 5 779 (21) 5 758 5 937 Maturity analysis 8 378 (51) 8 327 54 5 779 (21) 5 758 5 937 Notional amount m m m m m m m Non-current 8 066 (49) 8 017 27 – – – – EUR 1 180 1 101 – – – 2 281 2 678 Current 312 (2) 310 27 5 779 (21) 5 758 5 937 USD 2 631 6 063 – – – 8 694 9 842 GBP 10 – – – – 10 8 JPY 140 691 – – – 831 2 638 SEK 12 – – – – 12 104 CHF – – – – – – 1 CAD – – – – – – 2 ZAR – – – 5 088 1 000 6 088 5 533 78 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 79 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 16. Derivatives held for risk management (continued) Hedging relationships directly affected by interbank offered rate reform Eskom created a steering committee to manage the transition from interbank offered rates to alternative risk free rates to assess the 2021 2020 impact on valuations, accounting systems, policies and procedures. Refer to note 51.2 for details on the relief provided in phase 1 of Foreign Cross- Commo- Credit Inflation- Total Total the IFRS interest rate benchmark reform. exchange currency dity default linked contracts swaps forwards swaps swaps Eskom has exposure to USD foreign loans and cross-currency transactions that are linked to the USD London interbank offered rate. Note Rm Rm Rm Rm Rm Rm Rm At 31 March 2021, the nominal value of foreign loans and cross-currency interest rate swaps was USD4.1 billion and USD2.1 billion respectively. All of the foreign loans and USD1.9 billion of the cross-currency interest rate swaps qualify for cash flow hedge accounting. Company It is likely that the uncertainty of the transition to a new rate relating to particular elements of a single hedging relationship (the Net asset/(liability) at beginning of cross-currency interest rate swap and the underlying loan) could end at different times. Eskom will follow the International Swaps and the year 9 264 46 131 (4) (701) 1 54 691 15 622 Derivatives Association’s (ISDA) fall-back protocol for derivatives (hedging instruments) which will probably come into effect before Net fair value (loss)/gain (14 300) (30 137) (5) 608 102 (43 732) 40 689 bilateral negotiations on the new interest protocol has been concluded with loan (hedge item) counterparties. Income statement 39 (13 510) (21 678) (5) 608 102 (34 483) 33 132 Once the ISDA’s fall-back protocol is implemented, the uncertainty around the timing and amount of the risk free rate-based cash flows of Statement of comprehensive the hedging instruments will be eliminated, but the hedged item will by default continue to be measured by reference to changes in interbank income (790) (8 459) – – – (9 249) 7 557 offered rates, even though it is expected that it will be amended in the near term. The consequence of this is that any delay between Finance cost accrued – 214 – (4) 47 257 25 the modification of the hedging instrument and the hedged item in cash flow hedges will potentially introduce a new source of hedge ineffectiveness, specifically any changes in the basis risk between the risk free interest rate on the hedging instrument and the interbank Cash paid/(received) 845 (9 059) 9 – – (8 205) (1 645) offered rates interest on the hedged item. Net (liability)/asset at end of the year (4 191) 7 149 – (97) 150 3 011 54 691 Cash flow hedges Hedge exposure covered (4 191) 7 149 – (97) 150 3 011 54 691 Contractual cash flows are a function of foreign exchange and interest rates and are a point-in-time calculation that are impacted by market conditions at that time. This may result in future contractual cash outflows or inflows even though the fair value of the Debt securities and borrowings (211) 7 149 – (97) 150 6 991 53 321 derivative may be reflected as an asset or liability. Other (3 980) – – – – (3 980) 1 370 Group and company Assets Carrying Undiscounted 0–3 4–12 1–5 >5 Economic hedging 26 – – 5 150 181 8 851 amount cash flows months months years years Cash flow hedging 8 11 192 – – – 11 200 48 785 Rm Rm Rm Rm Rm Rm 34 11 192 – 5 150 11 381 57 636 The periods in which the cash flows of derivatives designated as cash flow hedges are expected to occur are: Maturity analysis 34 11 192 – 5 150 11 381 57 636 2021 Foreign exchange contracts Non-current – 9 822 – – 146 9 968 33 918 Assets 8 8 8 – – – Current 34 1 370 – 5 4 1 413 23 718 Liabilities (398) (394) (133) (261) – – Liabilities Cross-currency swaps Assets 11 192 18 581 (25) 665 4 126 13 815 Economic hedging 3 827 219 – 102 – 4 148 872 Liabilities (3 824) (4 354) (125) (4 914) (5 606) 6 291 Cash flow hedging 398 3 824 – – – 4 222 2 073 6 978 13 841 (275) (4 510) (1 480) 20 106 4 225 4 043 – 102 – 8 370 2 945 2020 Maturity analysis 4 225 4 043 – 102 – 8 370 2 945 Foreign exchange contracts Assets 847 890 200 690 – – Non-current – 3 460 – 102 – 3 562 1 802 Liabilities (29) (29) (21) (8) – – Current 4 225 583 – – – 4 808 1 143 Cross-currency swaps Assets 47 938 87 984 28 14 442 21 797 51 717 Notional amount m m m m m m m Liabilities (2 044) (3 166) (24) (4 494) 336 1 016 EUR 1 179 1 101 – – – 2 280 2 676 46 712 85 679 183 10 630 22 133 52 733 USD 2 631 6 063 – – – 8 694 9 842 The periods in which the cash flows associated with GBP 10 – – – – 10 8 derivatives are expected to impact profit or loss are: JPY 140 691 – – – 831 2 638 2021 SEK 12 – – – – 12 104 Foreign exchange contracts CHF – – – – – – 1 Assets 8 8 825 14 18 251 8 542 CAD – – – – – – 2 Liabilities (398) (394) (133) (261) – – ZAR – – – 5 088 1 000 6 088 5 533 Cross-currency swaps Assets 11 192 18 581 (25) 665 4 126 13 815 Liabilities (3 824) (4 354) (125) (4 914) (5 606) 6 291 The hedging practices and accounting treatment are disclosed in note 2.10.3 in the accounting policies. The derivative instruments used to hedge the various financial risks are set out as follows: 6 978 22 658 (269) (4 492) (1 229) 28 648 2020 Derivative instrument Financial risk hedged Exposure Foreign exchange contracts Foreign exchange contracts Market (currency) Electricity generation, transmission and distribution activity Assets 847 9 679 200 690 212 8 577 purchases and loans denominated in foreign currencies Liabilities (29) (29) (21) (8) – – Cross-currency swaps Cross-currency swaps Market (currency and interest rate) Foreign fixed rate bonds and other foreign fixed or floating Assets 47 938 87 984 28 14 442 21 797 51 717 borrowings Liabilities (2 044) (3 166) (24) (4 494) 336 1 016 Commodity forwards Market (commodity) Electricity sales in terms of agreements where the sales price 46 712 94 468 183 10 630 22 345 61 310 is influenced by the market price for aluminium Ineffective cash flow hedges Credit default swaps Credit Event of default by Eskom on debt securities and borrowings The change in the fair value of the hedging instrument of R42 559 million (2020: R34 933 million) and for the hedged item (represented by a hypothetical derivative) of R43 307 million (2020: R35 423 million) were used to calculate hedge effectiveness. The cash flow Inflation-linked swaps Market (interest rate) Finance cost that are dependent on current interest rates hedge reserve is adjusted to the lower in absolute amounts of the cumulative gain or loss of the hedging instrument and hedged item from inception of each hedge. During the year a loss of R661 million (2020: a gain of R119 million) was recognised in profit or loss as ineffectiveness. Refer to note 39. 80 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 81 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 16. Derivatives held for risk management (continued) Day-one gain/loss 19. Trade and other receivables The group recognises a day-one gain/loss on initial recognition of cross-currency swaps held as hedging instruments where applicable. 2021 2020 Group and company Receivable Amounts Allowance Carrying Receivable Amounts Allowance Carrying Cross- Inflation- Total before not for value before not for value currency linked collect- meeting impair- collect- meeting impair- swaps swaps ability collect- ment ability collect- ment Rm Rm Rm adjust- ability adjust- ability Loss at 31 March 2019 (1 146) (25) (1 171) ments criteria ments criteria Day-one loss recognised (358) – (358) Rm Rm Rm Rm Rm Rm Rm Rm Amortised to profit or loss 184 4 188 Group Loss at 31 March 2020 (1 320) (21) (1 341) Financial instruments Day-one loss recognised (107) – (107) Trade receivables Amortised to profit or loss 194 3 197 International 1 546 – (343) 1 203 1 600 – (218) 1 382 Local large power users 52 591 (31 046) (3 597) 17 948 44 695 (24 336) (3 727) 16 632 Loss at 31 March 2021 (1 233) (18) (1 251) Municipalities 44 157 (31 046) (3 151) 9 960 37 049 (24 336) (3 372) 9 341 Other 8 434 – (446) 7 988 7 646 – (355) 7 291 17. Finance lease receivables Local small power users 10 883 (6 758) (1 324) 2 801 15 860 (9 861) (3 233) 2 766 Group and company Soweto 7 523 (6 758) (229) 536 12 774 (9 861) (2 242) 671 2021 2020 Other 3 360 – (1 095) 2 265 3 086 – (991) 2 095 Gross Unearned Allowance Carrying Gross Unearned Allowance Carrying receivables finance for value receivables finance for value 65 020 (37 804) (5 264) 21 952 62 155 (34 197) (7 178) 20 780 income impairment income impairment Other receivables 1 113 – (337) 776 1 143 – (334) 809 Rm Rm Rm Rm Rm Rm Rm Rm 66 133 (37 804) (5 601) 22 728 63 298 (34 197) (7 512) 21 589 Non-current 429 (127) (10) 292 515 (171) (6) 338 Non-financial Between one and five years 248 (105) (5) 138 271 (126) (2) 143 instruments 1 685 – – 1 685 802 – – 802 After five years 181 (22) (5) 154 244 (45) (4) 195 VAT 30 – – 30 3 – – 3 Current Diesel rebate 1 655 – – 1 655 799 – – 799 Within one year 75 (38) (2) 35 78 (43) (1) 34 67 818 (37 804) (5 601) 24 413 64 100 (34 197) (7 512) 22 391 504 (165) (12) 327 593 (214) (7) 372 Company Financial instruments Trade receivables 18. Payments made in advance International 1 546 – (343) 1 203 1 600 – (218) 1 382 2021 2020 Local large power users 52 591 (31 046) (3 597) 17 948 44 695 (24 336) (3 727) 16 632 Securing Environ- Other Total Total debt mental Municipalities 44 157 (31 046) (3 151) 9 960 37 049 (24 336) (3 372) 9 341 raised rehabi- Other 8 434 – (446) 7 988 7 646 – (355) 7 291 litation trust fund Local small power users 10 883 (6 758) (1 324) 2 801 15 860 (9 861) (3 233) 2 766 Rm Rm Rm Rm Rm Soweto 7 523 (6 758) (229) 536 12 774 (9 861) (2 242) 671 Group Other 3 360 – (1 095) 2 265 3 086 – (991) 2 095 Balance at beginning of the year 1 593 1 166 537 3 296 3 593 65 020 (37 804) (5 264) 21 952 62 155 (34 197) (7 178) 20 780 Payments made 329 – 362 691 884 Other receivables 3 674 – (410) 3 264 2 873 – (385) 2 488 Expense recognised – – (183) (183) (149) Net fair value gain/(loss) – 195 – 195 (34) 68 694 (37 804) (5 674) 25 216 65 028 (34 197) (7 563) 23 268 Transferred to the statement of financial position (367) – (37) (404) (998) Non-financial instruments Balance at end of the year 1 555 1 361 679 3 595 3 296 Diesel rebate 1 655 – – 1 655 799 – – 799 Maturity analysis 1 555 1 361 679 3 595 3 296 70 349 (37 804) (5 674) 26 871 65 827 (34 197) (7 563) 24 067 Non-current 478 1 361 89 1 928 1 898 Current 1 077 – 590 1 667 1 398 Group and company Company 2021 2020 Balance at beginning of the year 1 593 1 166 533 3 292 3 511 Note Rm Rm Payments made 329 – 336 665 871 Reconciliation of movements in amounts not meeting collectability criteria Expense recognised – – (180) (180) (129) Balance at beginning of the year 34 197 25 166 Net fair value gain/(loss) – 195 – 195 (34) Revenue not meeting collectability criteria 32 12 112 10 190 Transferred to the statement of financial position (367) – (37) (404) (927) Finance income not meeting collectability criteria 40 1 120 3 227 Balance at end of the year 1 555 1 361 652 3 568 3 292 Cash basis revenue recognised 32 (5 935) (4 083) Writeoffs (3 690)1 (303) Maturity analysis 1 555 1 361 652 3 568 3 292 Balance at end of the year 37 804 34 197 Non-current 478 1 361 88 1 927 1 897 Current 1 077 – 564 1 641 1 395 Refer to note 5.1.1 for a reconciliation of the movements in allowance for impairment. 1. Most of the writeoff relates to Soweto receivables. Refer to note 5.1. 82 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 83 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 20. Inventories 23. Service concession arrangements The group operates a service concession for the generation and transmission of electricity through its operations in Uganda. 2021 2020 Coal and Nuclear Maintenance Total Total Eskom Uganda Ltd (Eskom Uganda) entered into an operation and maintenance agreement with Uganda Electricity Generation liquid fuel fuel spares and Company Ltd (UEGCL) in 2002, which is linked to a power purchase agreement concluded with Uganda Electricity Transmission consumables Company Ltd (UETCL). In terms of the agreements, Eskom Uganda operates and maintains two hydro-electric power stations in Note Rm Rm Rm Rm Rm Uganda, from which it supplies electricity to UETCL. The dams, powerhouses, related switchyard facilities, high voltage substations, land and movable property together constitute the ‘energy assets’ in terms of the agreement. The concession period is 20 years Group (ending in March 2023). Carrying value at beginning of the year 17 569 2 185 13 819 33 573 26 482 Changes in working capital 2 037 (672) 2 565 3 930 4 918 Eskom Uganda is entitled to receive revenue from UETCL, based on electricity supplied at tariffs regulated by the Electricity Transfer from future fuel supplies 10 721 970 – 1 691 2 140 Regulatory Authority of Uganda. It also receives a fee to cover it for investment in additional energy assets where required. This has Provisions capitalised 29 (273) 92 – (181) 47 been recognised as an intangible asset. Net writedowns and writeoffs 36 – – (1 486) (1 486) (14) The plant remains the property of and will revert to UEGCL at the end of the concession period. At that point Eskom Uganda will 20 054 2 575 14 898 37 527 33 573 have no further obligation in respect of the plant. Company Group Carrying value at beginning of the year 17 569 2 185 13 576 33 330 26 251 2021 2020 Changes in working capital 2 037 (672) 2 556 3 921 4 906 Rm Rm Transfer from future fuel supplies 10 721 970 – 1 691 2 140 Summarised statements of financial position Provisions capitalised 29 (273) 92 – (181) 47 Assets Net writedowns and writeoffs 36 – – (1 486) (1 486) (14) Intangible assets 297 271 20 054 2 575 14 646 37 275 33 330 Taxation 5 17 Inventories 30 28 Payments made in advance 22 1 21. Cash and cash equivalents Trade and other receivables 61 36 Cash and cash equivalents 84 51 Group Company 2021 2020 2021 2020 499 404 Rm Rm Rm Rm Liabilities Bank balances 4 041 9 897 2 503 9 221 Debt securities and borrowings 7 10 Unsettled deals – 25 – 25 Deferred tax 20 30 Fixed deposits – 13 068 – 13 068 Provisions 72 22 Employee benefit obligations 5 5 4 041 22 990 2 503 22 314 Trade and other payables 43 36 147 103 22. Assets and liabilities held-for-sale The process followed in 2020 for the intended disposal of EFC was concluded during the 2021 financial year. The offer received Summarised income statements from the preferred bidder was however not supported by the shareholder in terms of PFMA approval as it did not meet all of the Revenue 320 268 shareholder’s objectives. It was therefore decided that the disposal of EFC will be deferred until such time that the market conditions Profit before tax 58 64 improve so that it can attract increased investor interest and optimum value. Taxation (18) (28) The assets and liabilities of EFC therefore no longer meet the requirements for classification as held-for-sale in terms of IFRS 5 and Profit after tax 40 36 were reported as part of the group results where relevant at 31 March 2021. Group The balances and transactions above are included in the respective line items in the statements of financial position and income 2021 2020 statements. Total Total Rm Rm 24. Share capital Summarised statements of financial position Group and company Assets 2021 2020 Loans receivable – 8 531 Shares Shares Trade and other receivables – 12 Authorised ordinary shares Deferred tax – 15 Balance at beginning of the year 300 000 000 000 100 000 000 000 Taxation – 4 Additional ordinary shares authorised – 200 000 000 000 Cash and cash equivalents – 80 Balance at end of the year 300 000 000 000 300 000 000 000 – 8 642 Issued Liabilities Balance at beginning of the year 132 000 000 001 83 000 000 001 Debt securities and borrowings – 1 462 Share capital issued 56 000 000 000 49 000 000 000 Trade and other payables – 11 Balance at end of the year 188 000 000 001 132 000 000 001 – 1 473 Unissued 111 999 999 999 167 999 999 999 The unissued share capital is under the control of the Government of the Republic of South Africa, represented by the DPE, as the sole shareholder. 84 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 85 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 25. Debt securities and borrowings Group Company Group Company Currency Security Interest rate Nominal Maturity Carrying value Carrying value 2021 2020 2021 2020 number date Rm Rm Rm Rm 2021 2020 2021 2020 2021 2020 2021 2020 % % m m Rm Rm Rm Rm Eskom bonds 161 171 157 037 161 171 157 037 Commercial paper 1 251 5 444 3 184 8 114 Balances Eurorand zero coupon bonds 5 600 4 964 5 600 4 964 carried Foreign bonds 55 553 98 563 55 553 98 563 forward from the previous Development financing institutions 143 174 154 489 143 174 154 489 page 223 575 266 008 225 508 268 678 Export credit facilities 23 343 32 746 23 343 32 746 Floating rate notes 2 027 4 046 2 027 4 046 Development Other loans 9 707 26 393 9 990 28 255 financing institutions4 143 174 154 489 143 174 154 489 401 826 483 682 404 042 488 214 USD n/a 2 3.12 4.68 965 965 Jul 21 14 282 17 235 14 282 17 235 Maturity analysis 401 826 483 682 404 042 488 214 ZAR n/a 2 4.99 7.91 1 000 1 133 Aug 28 1 008 1 148 1 008 1 148 Non-current 356 852 408 151 355 927 408 107 USD n/a 2 1.46 2.93 145 165 Aug 28 2 145 2 946 2 145 2 946 Current 44 974 75 531 48 115 80 107 EUR n/a 2 – – 521 579 Aug 29 9 026 11 328 9 026 11 328 ZAR n/a 2 4.06 7.23 6 070 6 784 Aug 29 114 6 862 114 6 862 Group Company ZAR n/a 2 10.10 10.10 3 344 3 738 Sep 29 3 339 3 732 3 339 3 732 Currency Security Interest rate Nominal Maturity Carrying value Carrying value ZAR n/a 10.37 10.37 15 000 15 000 Jan 31 15 267 15 263 15 267 15 263 number date EUR n/a 2 1.50 1.50 448 470 Feb 31 7 222 8 733 7 222 8 733 2021 2020 2021 2020 2021 2020 2021 2020 USD n/a 2 0.95 2.37 6 7 Aug 31 6 110 125 6 110 125 % % m m Rm Rm Rm Rm ZAR n/a 4.07 6.78 1 006 1 099 Mar 32 1 008 1 103 1 008 1 103 USD n/a 2 2.45 3.28 2 943 2 488 Sep 33 42 786 43 914 42 786 43 914 Eskom bonds 161 171 157 037 161 171 157 037 USD n/a 2 3.12 4.68 8 9 Feb 36 94 149 94 149 ZAR E1741 – 10.13 – 2 928 Aug 20 – 3 020 – 3 020 ZAR n/a 2 7.64 10.56 4 410 4 704 Feb 36 4 382 4 695 4 382 4 695 ZAR E1751 9.97 9.97 2 928 2 928 Aug 21 3 023 3 115 3 023 3 115 USD n/a 2 0.74 2.41 81 25 May 38 1 191 445 1 191 445 ZAR ECN22 10.17 10.17 5 000 5 000 Mar 22 5 005 4 988 5 005 4 988 ZAR n/a 2 9.17 9.17 29 327 31 007 May 38 30 437 32 193 30 437 32 193 ZAR ES232 9.31 9.31 19 784 19 784 Jan 23 20 370 20 483 20 370 20 483 USD n/a 2 2.02 – 1 – Aug 38 8 – 8 – ZAR ECN24 10.37 10.37 5 000 5 000 Mar 24 4 972 4 958 4 972 4 958 ZAR n/a 2 4.45 – 255 – Nov 38 256 – 256 – ZAR ES262 9.29 9.29 32 904 32 898 Apr 26 32 336 32 052 32 336 32 052 USD n/a 2 1.36 2.16 25 11 Mar 39 369 191 369 191 ZAR EL282 2.55 2.55 6 278 5 278 May 28 9 549 7 996 9 549 7 996 ZAR n/a 2 10.24 10.21 2 917 2 978 Nov 40 2 991 3 052 2 991 3 052 ZAR EL292 1.90 1.90 4 653 3 709 Nov 29 6 715 5 457 6 715 5 457 USD n/a 2 0.25 0.25 35 35 May 51 515 622 515 622 ZAR EL302 2.30 2.30 4 396 3 665 Jul 30 6 061 5 083 6 061 5 083 USD n/a 2 0.25 0.25 42 42 Aug 51 624 753 624 753 ZAR EL312 2.10 2.10 4 843 4 076 Jun 31 6 338 5 395 6 338 5 395 Export credit ZAR ECN32 2.95 2.95 5 000 5 000 Mar 32 6 394 6 204 6 394 6 204 facilities2 23 343 32 746 23 343 32 746 ZAR ES332 9.21 9.21 34 542 34 530 Sep 33 30 389 30 205 30 389 30 205 ZAR EL362 2.25 2.25 4 637 3 753 Jan 36 5 761 4 832 5 761 4 832 JPY n/a 0.88 1.49 691 2 469 May 22 92 406 92 406 ZAR EL37 2 2.25 2.25 4 443 3 838 Jan 37 5 522 4 846 5 522 4 846 EUR n/a 1.25 1.25 25 35 Sep 23 414 658 414 658 ZAR ES42 2 10.38 10.34 21 295 20 909 Apr 42 18 736 18 403 18 736 18 403 EUR n/a 0.37 0.57 6 7 Jul 24 96 140 96 140 EUR n/a 4.74 4.74 489 604 Jan 27 8 067 11 330 8 067 11 330 Commercial EUR n/a 2.46 2.48 398 491 Jul 27 6 485 9 100 6 485 9 100 paper 1 251 5 444 3 184 8 114 ZAR n/a 5.67 9.06 1 320 1 528 Jul 27 1 210 1 419 1 210 1 419 ZAR ESNOICP 2 – 7.39 – 5 625 Sep 20 – 5 444 – 5 444 USD n/a 2.32 2.32 515 583 Mar 31 6 979 9 693 6 979 9 693 ZAR n/a3 4.62 7.52 3 269 2 786 Mar 224 – – 3 184 2 670 Floating rate ZAR n/a 8.40 – 154 – May 225 154 – – – notes4 ZAR n/a 2 6.87 6.22 2 000 4 000 Apr 21 2 027 4 046 2 027 4 046 ZAR n/a 8.48 – 728 – May 235 732 – – – Other loans 9 707 26 393 9 990 28 255 ZAR n/a 7.51 – 363 – May 525 365 – – – ZAR n/a 2 – 8.76 – 15 000 Feb 21 – 15 120 – 15 120 Eurorand zero coupon bonds1 5 600 4 964 5 600 4 964 ZAR n/a 6.39 9.31 1 000 1 000 Aug 23 1 009 1 014 1 009 1 014 ZAR n/a 7.45 8.84 1 750 2 955 Mar 24 1 753 2 985 1 753 2 985 ZAR n/a 13.33 13.33 8 000 8 000 Aug 27 3 598 3 175 3 598 3 175 ZAR n/a 8.57 11.18 4 250 5 550 Feb 25 4 299 5 640 4 299 5 640 ZAR n/a 11.89 11.89 7 500 7 500 Dec 32 2 002 1 789 2 002 1 789 ZAR n/a 11.54 12.80 2 500 1 500 Feb 27 2 602 1 589 2 602 1 589 On Foreign bonds 55 553 98 563 55 553 98 563 ZAR n/a3 3.52 6.58 326 1 822 demand – – 327 1 907 USD n/a – 5.87 – 1 750 Jan 21 – 31 479 – 31 479 On ZAR n/a 10.00 10.00 44 44 demand 44 45 – – USD n/a 6.90 6.90 1 000 1 000 Aug 23 14 845 17 922 14 845 17 922 USD n/a 7.39 7.39 1 250 1 250 Feb 25 18 436 22 241 18 436 22 241 401 826 483 682 404 042 488 214 USD n/a 8.47 8.47 500 500 Aug 28 7 438 8 991 7 438 8 991 USD n/a 2 6.37 6.37 1 000 1 000 Aug 28 14 834 17 930 14 834 17 930 Balances 1. Holders have a right to first charge against revenue and assets of Eskom in terms of section 7 of the Eskom Conversion Act. carried 2. Government guaranteed. 3. Includes, inter alia, instruments issued to subsidiaries. forward to the 4. Latest in a range of maturity dates is indicated for these instruments. next page 223 575 266 008 225 508 268 678 5. Nqaba breached an early amortisation event trigger in June 2020. As a result, the cash flows from the assets in the securitisation structure are applied to repay the capital to all noteholders in a reducing order of rank (pari passu if equal rank) on a quarterly basis on or before the final maturity date, which is 32 years from the scheduled maturity date. 86 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 87 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 26. Embedded derivatives 28. Employee benefit obligations 2021 2020 2021 2020 Commodity United Total Total Post- Pension Bonus Leave Total Total and/or States employment benefits foreign PPI and medical currency foreign benefits currency Note Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Group Group and company Balance at beginning of the year 14 200 – 447 2 176 16 823 18 804 Liability at beginning of the year 1 130 6 1 136 3 434 Charged to income statement Net fair value loss/(gain) 145 210 355 (2 298) Employee benefit expense 284 1 889 442 1 235 3 850 4 519 Liability at end of the year 1 275 216 1 491 1 136 Raised 284 1 889 442 1 235 3 850 4 549 Reversed – – – – – (30) Maturity analysis 1 275 216 1 491 1 136 Finance cost 41 1 910 89 – – 1 999 1 942 Non-current – 208 208 5 Charged to other comprehensive Current 1 275 8 1 283 1 131 income Re-measurement of benefits 402 488 – – 890 (3 883) Cash paid (675) (2 466) (443) (832) (4 416) (4 559) 27. Payments received in advance and contract liabilities and deferred income Balance at end of the year 16 121 – 446 2 579 19 146 16 823 2021 2020 Customer Government Other Total Total Maturity analysis 16 121 – 446 2 579 19 146 16 823 connections grant Note Rm Rm Rm Rm Rm Non-current 15 414 – – – 15 414 13 530 Current 707 – 446 2 579 3 732 3 293 27.1 Payments received in advance Group Company Balance at beginning of the year 3 937 1 227 621 5 785 5 397 Balance at beginning of the year 13 885 – 386 1 979 16 250 18 200 Payments received 962 1 725 257 2 944 4 007 Charged to income statement Transfers to the statement of financial position (311) (1 909) 2 (2 218) (2 799) Employee benefit expense – raised 283 1 652 386 1 109 3 430 4 052 Transfers to contract liabilities and deferred income 27.2 (309) (1 906) – (2 215) (2 716) Finance cost 41 1 868 89 – – 1 957 1 904 Other (2) (3) 2 (3) (83) Charged to other comprehensive income Income recognised (463) (95) (290) (848) (820) Re-measurement of benefits 399 488 – – 887 (3 815) Balance at end of the year 4 125 948 590 5 663 5 785 Cash paid (658) (2 229) (386) (759) (4 032) (4 091) Maturity analysis 4 125 948 590 5 663 5 785 Balance at end of the year 15 777 – 386 2 329 18 492 16 250 Non-current 2 700 – 167 2 867 2 355 Maturity analysis 15 777 – 386 2 329 18 492 16 250 Current 1 425 948 423 2 796 3 430 Non-current 15 089 – – – 15 089 13 232 Company Current 688 – 386 2 329 3 403 3 018 Balance at beginning of the year 3 937 1 227 628 5 792 5 405 Payments received 962 1 725 256 2 943 3 999 Refer to note 4 for relevant critical accounting estimates and assumptions. Transfers to the statement of financial position (311) (1 909) 2 (2 218) (2 799) Transfers to contract liabilities and deferred income 27.2 (309) (1 906) – (2 215) (2 716) 28.1 Post-employment medical benefits Other (2) (3) 2 (3) (83) Group Company Income recognised (463) (95) (283) (841) (813) 2021 2020 2021 2020 Rm Rm Rm Rm Balance at end of the year 4 125 948 603 5 676 5 792 Maturity analysis 4 125 948 603 5 676 5 792 Actuarial (loss)/gain Financial assumptions (1 407) 3 604 (1 382) 3 537 Non-current 2 700 – 167 2 867 2 355 Experience adjustments 1 005 (58) 983 (59) Current 1 425 948 436 2 809 3 437 (402) 3 546 (399) 3 478 27.2 Contract liabilities and deferred income Group and company Expected maturity analysis of undiscounted benefits Balance at beginning of the year 2 902 21 215 – 24 117 22 794 Non-current 551 255 366 528 546 433 362 634 Transfers of property, plant and equipment from Between one and two years 782 734 761 715 customers 993 – – 993 128 Between two and five years 3 120 2 897 3 041 2 825 Transfers from payments received in advance 27.1 309 1 906 – 2 215 2 716 After five years 547 353 362 897 542 631 359 094 Income recognised 38 (210) (1 443) – (1 653) (1 521) Balance at end of the year 3 994 21 678 – 25 672 24 117 Current 707 670 688 653 Maturity analysis 3 994 21 678 – 25 672 24 117 551 962 367 198 547 121 363 287 Non-current 3 776 20 167 – 23 943 22 577 The group expects to pay R707 million and the company R688 million in contributions to this plan in the 2022 financial year. Current 218 1 511 – 1 729 1 540 Refer to note 4.2 for the principal actuarial assumptions used and a sensitivity analysis. 88 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 89 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 28. Employee benefit obligations (continued) Group and company 28.2 Pension benefits 2021 2020 Movement reconciliation Rm Rm 2021 2020 Actuarial (loss)/gain Fund Asset Fund Net asset/ Fund Asset Fund Net asset/ Financial assumptions (16 289) 16 869 assets ceiling obligations (liability) assets ceiling obligations (liability) Experience adjustments 5 785 4 136 adjustment adjustment Rm Rm Rm Rm Rm Rm Rm Rm (10 504) 21 005 Asset/(liability) at Expected maturity analysis of undiscounted benefits beginning of the year 127 236 (35 459) (91 777) – 141 905 (38 388) (103 517) – Non-current 2 276 563 1 551 807 Charged to income Between one and two years 6 059 5 932 statement Between two and five years 21 270 20 605 Employee benefit After five years 2 249 234 1 525 270 expense – – (1 889) (1 889) – – (2 631) (2 631) Current 5 463 5 423 Finance cost 16 988 (4 787) (12 290) (89) 15 481 (4 223) (11 413) (155) 2 282 026 1 557 230 Charged to other comprehensive income The group expects to pay R2 480 million and the company R2 233 million in contributions to this plan in the 2022 financial year. Refer to note 4.3 for the principal actuarial assumptions used and a sensitivity analysis. Re-measurement of benefits 21 187 (11 171) (10 504) (488) (27 820) 7 152 21 005 337 28.3 Bonus The bonus comprises of an accrual for a thirteenth cheque generally paid in November. Managerial employees can choose to spread Return on plan assets in excess the payment over the course of the year instead of all being paid in November. of finance cost 21 187 – – 21 187 (27 820) – – (27 820) Adjustment to asset 29. Provisions ceiling – (11 171) – (11 171) – 7 152 – 7 152 Actuarial (loss)/gain – – (10 504) (10 504) – – 21 005 21 005 2021 2020 Power station-related Mine-related Compen- Other Total Total Payments received environmental closure, sation by the fund 3 866 – (1 400) 2 466 3 803 – (1 354) 2 449 restoration pollution events Nuclear Other control and Employer funded 2 466 – – 2 466 2 449 – – 2 449 plant generating rehabili Member funded 1 400 – (1 400) – 1 354 – (1 354) – plant tation Note Rm Rm Rm Rm Rm Rm Rm Payments made by the fund (6 661) – 6 661 – (6 133) – 6 133 – Group Benefit and pension Balance at beginning of the year 16 203 11 932 14 291 2 429 2 436 47 291 51 250 payments (6 027) – 6 027 – (5 538) – 5 538 – Charged to income statement 340 598 448 159 3 195 4 740 (2 486) Fund management Raised – 110 186 338 3 237 3 871 4 088 costs (303) – 303 – (283) – 283 – Reversed (1 242) (56) (233) (179) (42) (1 752) (1 953) Net transfers Change in discount rate 1 582 544 495 – – 2 621 (4 621) from the fund (331) – 331 – (312) – 312 – Capitalised to property, plant Asset/(liability) and equipment 8 845 1 523 – 1 011 – 3 379 (2 664) at end of the year 162 616 (51 417) (111 199) – 127 236 (35 459) (91 777) – Raised – 276 – 9 252 – 9 528 3 075 Reversed – (289) – (8 241) – (8 530) (2 377) Fund assets composition Change in discount rate 845 1 536 – – – 2 381 (3 362) Group and company Capitalised to future fuel 2021 2020 supplies 10 – – 619 – – 619 (1 063) Domestic International Total Domestic International Total Rm Rm Rm Rm Rm Rm Raised – – 212 – – 212 51 Reversed – – (501) – – (501) (77) Equities 68 527 33 689 102 216 47 300 39 676 86 976 Change in discount rate – – 908 – – 908 (1 037) Bonds 34 093 4 347 38 440 24 528 6 611 31 139 Capitalised to inventories 20 92 – (273) – – (181) 47 Issued by Eskom 3 008 – 3 008 2 901 – 2 901 Other 31 085 4 347 35 432 21 627 6 611 28 238 Raised 92 – – – – 92 252 Reversed – – (273) – – (273) (205) Property 117 – 117 118 – 118 Cash 7 149 892 8 041 4 818 338 5 156 Finance cost 41 1 633 1 217 1 228 – 20 4 098 3 945 Hedge funds 1 321 – 1 321 1 159 – 1 159 Cash paid (39) – (455) (480) (2 427) (3 401) (1 738) Collective investment schemes – 12 481 12 481 – 2 688 2 688 Balance at end of the year 19 074 15 270 15 858 3 119 3 224 56 545 47 291 111 207 51 409 162 616 77 923 49 313 127 236 Maturity analysis 19 074 15 270 15 858 3 119 3 224 56 545 47 291 Non-current 19 015 15 270 15 603 – 262 50 150 41 300 Current 59 – 255 3 119 2 962 6 395 5 991 90 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 91 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 29. Provisions (continued) Group Company 2021 2020 2021 2020 2021 2020 Power station-related Mine-related Compen- Other Total Total Note Rm Rm Rm Rm environmental closure, sation restoration pollution events Movement reconciliation Nuclear Other control and Balance at beginning of the year 9 350 9 462 9 347 9 462 plant generating rehabili Adoption of IFRS 16 – 139 – 139 plant tation Additions 119 172 119 168 Note Rm Rm Rm Rm Rm Rm Rm Disposals (8) – (8) – Company Finance costs 1 365 1 415 1 364 1 415 Balance at beginning of the year 16 203 11 932 14 291 2 429 2 356 47 211 51 114 Cash paid (1 857) (1 838) (1 855) (1 837) Charged to income statement 340 598 448 159 3 133 4 678 (2 439) Capital (497) (423) (496) (422) Raised – 110 186 338 3 161 3 795 4 135 Finance costs (1 360) (1 415) (1 359) (1 415) Reversed (1 242) (56) (233) (179) (28) (1 738) (1 953) Change in discount rate 1 582 544 495 – – 2 621 (4 621) Balance at end of the year 8 969 9 350 8 967 9 347 Capitalised to property, plant Refer to note 37 for short-term and low-value lease expenses. and equipment 8 845 1 523 – 1 011 – 3 379 (2 664) 31. Trade and other payables Raised – 276 – 9 252 – 9 528 3 075 Reversed – (289) – (8 241) – (8 530) (2 377) Financial instruments 35 924 38 700 38 086 40 420 Change in discount rate 845 1 536 – – – 2 381 (3 362) Trade and other payables 24 389 28 043 25 175 28 605 Accruals 5 910 5 605 7 287 6 763 Capitalised to future fuel Deposits 5 625 5 052 5 624 5 052 supplies 10 – – 619 – – 619 (1 063) Non-financial instruments 1 857 1 886 1 775 1 752 Raised – – 212 – – 212 51 Reversed – – (501) – – (501) (77) VAT 1 219 1 248 1 137 1 114 Change in discount rate – – 908 – – 908 (1 037) Environmental levy 638 638 638 638 Capitalised to inventories 20 92 – (273) – – (181) 47 37 781 40 586 39 861 42 172 Raised 92 – – – – 92 252 Maturity analysis 37 781 40 586 39 861 42 172 Reversed – – (273) – – (273) (205) Non-current 667 411 667 411 Finance cost 41 1 633 1 217 1 228 – 20 4 098 3 943 Current 37 114 40 175 39 194 41 761 Cash paid (39) – (455) (480) (2 429) (3 403) (1 727) Balance at end of the year 19 074 15 270 15 858 3 119 3 080 56 401 47 211 32. Revenue Maturity analysis 19 074 15 270 15 858 3 119 3 080 56 401 47 211 Redistributors (metropolitan and municipal customers) 84 436 79 918 84 436 79 918 Invoiced to customers 90 228 85 656 90 228 85 656 Non-current 19 015 15 270 15 603 – 191 50 079 41 278 Amounts not meeting collectability criteria 19 (11 727) (9 821) (11 727) (9 821) Current 59 – 255 3 119 2 889 6 322 5 933 Recognised on a cash received basis 19 5 935 4 083 5 935 4 083 Refer to note 4.5 for relevant critical accounting estimates and assumptions. Residential 6 366 5 993 6 366 5 993 Invoiced to customers 6 751 6 362 6 751 6 362 30. Lease liabilities Amounts not meeting collectability criteria 19 (385) (369) (385) (369) 2021 2020 Industrial 37 026 37 946 37 026 37 946 Gross Future Carrying Gross Future Carrying Mining 30 708 29 968 30 708 29 968 payables finance value payables finance value Commercial 14 304 14 067 14 304 14 067 charges charges Agricultural 10 262 9 839 10 262 9 839 Rm Rm Rm Rm Rm Rm International 10 383 12 229 10 383 12 229 Rail 2 977 3 323 2 977 3 323 Group Public lighting 232 218 232 218 Non-current 15 091 (6 644) 8 447 16 805 (7 930) 8 875 Post-paid electricity sales 196 694 193 501 196 694 193 501 Between one and five years 6 999 (4 319) 2 680 7 002 (4 676) 2 326 Prepaid electricity sales 9 941 9 489 9 941 9 489 After five years 8 092 (2 325) 5 767 9 803 (3 254) 6 549 Total electricity sales 206 635 202 990 206 635 202 990 Current 1 820 (1 298) 522 1 834 (1 359) 475 Connections 1 295 1 855 1 295 1 855 16 911 (7 942) 8 969 18 639 (9 289) 9 350 Other 387 306 387 306 Company Gross revenue 208 317 205 151 208 317 205 151 Non-current 15 089 (6 644) 8 445 16 802 (7 929) 8 873 Capitalised to property, plant and equipment (3 991) (5 683) (3 991) (5 683) Between one and five years 6 997 (4 319) 2 678 6 999 (4 675) 2 324 204 326 199 468 204 326 199 468 After five years 8 092 (2 325) 5 767 9 803 (3 254) 6 549 Sales of electricity to local customers are included in the distribution operating segment. International sales are included in the Current 1 820 (1 298) 522 1 833 (1 359) 474 transmission segment. Other revenue consists of reconnection fees and ad hoc sundry revenue. Connections occur mainly within the transmission and distribution operating segments. 16 909 (7 942) 8 967 18 635 (9 288) 9 347 92 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 93 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 Group Company Group Company 2021 2020 2021 2020 2021 2020 2021 2020 Note Rm Rm Rm Rm Note Rm Rm Rm Rm 36.2 Other assets 33. Other income Raised 1 486 933 1 490 933 Insurance proceeds – 14 1 194 858 Insurance premiums 331 165 – – Property, plant and equipment 8 – 919 – 919 Services income 349 359 – – Investment in subsidiaries – – 4 – Management fee income – – 131 132 Inventories 20 1 4861 14 1 4861 14 Operating lease income 242 274 200 225 Reversed Dividend income 47 66 1 086 46 Property, plant and equipment 8 – (58) – (58) Other 1 6931 360 1 7201 558 1 486 875 1 490 875 2 662 1 238 4 331 1 819 37. Other expenses 34. Primary energy Managerial, technical and other fees 566 318 548 288 Own generation costs 80 073 79 343 80 073 79 343 Lease expense 946 819 203 207 Generation costs 72 882 71 730 72 882 71 730 Short term 890 781 145 169 Environmental levy 7 191 7 613 7 191 7 613 Low value 56 38 58 38 International electricity purchases 4 998 4 716 4 998 4 716 Auditors’ remuneration2 176 169 161 156 Independent power producers 30 832 28 060 30 832 28 060 Net loss on disposals and writeoffs of property, plant and equipment 115 903 112 119 115 903 112 119 and intangible assets 1 800 4 646 1 799 4 643 Repairs and maintenance, transport and other expenses 20 530 12 722 29 544 20 957 Generation costs relate to the cost of coal (including logistics), uranium, water and liquid fuels that are used in the generation of electricity. Eskom 24 018 18 674 32 255 26 251 uses a combination of short-, medium- and long-term agreements with suppliers for coal purchases and long-term agreements with the Department of Water Affairs to reimburse the department for the cost 38. Depreciation and amortisation expense incurred in supplying water to Eskom. Depreciation of property, plant and equipment 8 28 145 28 773 28 197 28 741 Amortisation of intangible assets 9 314 355 229 301 35. Employee benefit expense Contract liabilities and deferred income recognised (government grant) 27.2 (1 443) (1 349) (1 443) (1 349) Salaries 25 001 25 159 22 455 22 655 27 016 27 779 26 983 27 693 Overtime 2 103 2 282 1 728 1 824 Post-employment medical benefits 284 409 283 407 Pension benefits 1 889 2 631 1 652 2 398 39. Net fair value and foreign exchange gain/(loss) (Loss)/gain on items carried at fair value (34 047) 35 019 (34 644) 35 386 Annual bonus2 1 362 1 352 1 197 1 191 Production bonus3 129 – 129 – Financial trading assets – (1) – (1) Leave 1 235 901 1 109 831 Financial trading liabilities (1) (9) (1) (9) Insurance investments 599 (368) – – Direct costs of employment 32 003 32 734 28 553 29 306 Derivatives held for risk management 16 (34 485) 33 133 (34 483) 33 132 Direct training and development 50 81 37 65 Embedded derivatives (355) 2 298 (355) 2 298 Temporary and contract staff costs 2 366 2 140 359 292 Payments made in advance 195 (34) 195 (34) Other staff costs 670 845 572 751 Gain/(loss) on foreign currency translation of items carried at Gross employee benefit expense 35 089 35 800 29 521 30 414 amortised cost 35 315 (40 089) 35 313 (40 091) Capitalised to property, plant and equipment (2 202) (2 642) (2 202) (2 642) Trade and other receivables (2) 8 – 6 32 887 33 158 27 319 27 772 Cash and cash equivalents (159) 136 (159) 136 Trade and other payables 58 (158) 54 (158) 36. Impairment and writedown of assets Debt securities and borrowings 35 418 (40 075) 35 418 (40 075) 36.1 Financial assets Amounts recycled from cash flow hedge reserve (385) 444 (385) 444 Loans receivable (7) 2 10 (29) Finance lease receivables 4 5 4 5 Amortisation of effective portion of terminated cash flow hedges 276 325 276 325 Trade and other receivables 5 (171) (943) (148) (898) Ineffective portion of cash flow hedges (661) 119 (661) 119 Insurance investments 67 7 – – 883 (4 626) 284 (4 261) (107) (929) (134) (922) Bad debts recovered – trade and other receivables (12) (7) (12) (7) (119) (936) (146) (929) 1. Includes R1 176 million recovery from a supplier. 1. An inventory clean-up exercise conducted in 2021 resulted in increased writeoffs in the year. 2. The annual bonus represents a thirteenth cheque. Refer to note 28.3. 2. There were no non-audit services rendered by the group’s statutory auditors. 3. The production bonus is self-funded and rewards employees for improved efficiency, operational productivity and performance in the production environment. 94 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 95 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 Group Company 2021 2020 2021 2020 2021 2020 Before Tax Net of Before Tax Net of Note Rm Rm Rm Rm tax tax tax tax Rm Rm Rm Rm Rm Rm 40. Finance income Recognised in other comprehensive income Financial trading assets 1 4 1 4 Group Insurance investments 669 699 – – Cash flow hedges (9 264) 2 594 (6 670) 6 747 (1 889) 4 858 Loans receivable 587 855 280 451 Finance lease receivables 43 47 43 47 Net change in fair value (9 249) 2 590 (6 659) 7 557 (2 115) 5 442 Trade and other receivables 310 412 311 412 Net amount transferred to profit or loss 385 (108) 277 (444) 124 (320) Net amount transferred to initial carrying amount of Invoiced to customers 1 430 3 639 1 431 3 639 hedged items (400) 112 (288) (366) 102 (264) Amounts not meeting collectability criteria 19 (1 120) (3 227) (1 120) (3 227) Foreign currency translation differences 12 – 12 (22) – (22) Cash and cash equivalents 790 593 774 554 Re-measurement of benefits (890) 250 (640) 3 883 (1 089) 2 794 2 400 2 610 1 409 1 468 (10 142) 2 844 (7 298) 10 608 (2 978) 7 630 Company 41. Finance cost Cash flow hedges (9 264) 2 594 (6 670) 6 747 (1 889) 4 858 Debt securities and borrowings 31 241 34 012 31 403 34 201 Net change in fair value (9 249) 2 590 (6 659) 7 557 (2 115) 5 442 Eskom bonds 13 225 13 468 13 225 13 468 Net amount transferred to profit or loss 385 (108) 277 (444) 124 (320) Commercial paper 236 234 343 304 Net amount transferred to initial carrying amount of Eurorand zero coupon bonds 636 565 636 565 hedged items (400) 112 (288) (366) 102 (264) Foreign bonds 5 728 5 536 5 728 5 536 Re-measurement of benefits (887) 249 (638) 3 815 (1 068) 2 747 Development financing institutions 8 125 9 359 8 125 9 359 Export credit facilities 1 450 1 552 1 450 1 552 (10 151) 2 843 (7 308) 10 562 (2 957) 7 605 Floating rate notes 264 381 264 381 Other loans 1 577 2 917 1 632 3 036 43. Cash generated from operations Derivatives held for risk management 6 583 6 878 6 583 6 878 Employee benefit obligations 28 1 999 1 942 1 957 1 904 Group Company Provisions 29 4 098 3 945 4 098 3 943 2021 2020 2021 2020 Lease liabilities 1 365 1 415 1 364 1 415 Rm Rm Rm Rm Trade and other payables 339 409 339 407 Loss before tax (24 758) (26 933) (27 482) (29 451) Gross finance cost 45 625 48 601 45 744 48 748 Adjustments for: 67 808 68 184 68 014 68 676 Capitalised to property, plant and equipment 8 (11 716) (14 584) (11 716) (14 584) Depreciation and amortisation expense 27 016 27 779 26 983 27 693 33 909 34 017 34 028 34 164 Depreciation expense – primary energy 12 12 12 12 Impairment and writedown of assets (excluding bad debts recovered) 1 379 (54) 1 356 (47) Net fair value (gain)/loss on financial instruments (883) 4 626 (284) 4 261 42. Income tax Net loss on disposals and writeoffs of property, plant and equipment 1 800 4 646 1 799 4 643 Recognised in profit or loss Transfer of assets from non-electricity purchasing customers (622) (1 293) (622) (1 293) Current tax 1 071 381 – – Dividend income (47) (66) (1 086) (46) Deferred tax 13 (6 895) (6 545) (6 880) (6 844) Increase in employee benefit obligations 3 850 4 519 3 430 4 052 Reversal of temporary differences 1 950 1 455 1 963 1 169 Increase/(decrease) in provisions 4 740 (2 486) 4 678 (2 439) Tax losses (8 845) (8 000) (8 843) (8 013) Decrease in contract liabilities and deferred income (210) (172) (210) (172) Payments made in advance recognised in profit or loss 183 149 180 129 (5 824) (6 164) (6 880) (6 844) Payments received in advance recognised in profit or loss (848) (820) (841) (813) Finance income (2 400) (2 610) (1 409) (1 468) Reconciliation between standard and effective tax rate: Finance cost 33 909 34 017 34 028 34 164 R million Share of profit of equity-accounted investees (71) (63) – – Tax income at standard rate (6 932) (7 541) (7 695) (8 246) Non-taxable income1 (905) (332) (884) (281) 43 050 41 251 40 532 39 225 Expenses not deductible for tax purposes2 2 013 1 709 1 699 1 683 Changes in working capital: (12 980) (4 913) (12 878) (4 751) Tax income per the income statement (5 824) (6 164) (6 880) (6 844) Payments made in advance (223) (240) (197) (227) % Increase in inventories (3 909) (4 853) (3 900) (4 841) Tax income at standard rate 28.00 28.00 28.00 28.00 Increase in trade and other receivables (1 809) (576) (2 624) (1 138) Non-taxable income 3.66 1.23 3.22 0.95 (Decrease)/increase in trade and other payables (3 051) 2 200 (2 550) 2 428 Expenses not deductible for tax purposes (8.14) (6.34) (6.19) (5.71) Expenditure incurred on employee benefit obligations (4 416) (4 559) (4 032) (4 091) Expenditure incurred on provisions (2 516) (892) (2 518) (881) Tax income per the income statement 23.52 22.89 25.03 23.24 Payments received in advance 2 944 4 007 2 943 3 999 30 070 36 338 27 654 34 474 1. Eskom received various non-taxable income including dividends, government grants and recoveries from suppliers. 2. Non-deductible expenditure includes fruitless and wasteful expenditure and donations made. 96 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 97 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 44. Net debt reconciliation 45. Guarantees and contingent liabilities Debt Lease Financial Financial Derivatives Payments Cash Net debt Group Company securities liabilities2 trading trading held for made in and cash Unit 2021 2020 2021 2020 and assets3 liabilities3 risk advance equivalents6 5 borrowings1 management4 45.1 Financial guarantees Rm Rm Rm Rm Rm Rm Rm Rm EFC loans to group employees EFC has granted loans (secured by mortgage bonds on the Group properties) to qualifying employees of the group. Eskom has Balance at 1 April 2019 440 610 9 462 (162) 238 (15 689) (1 608) (2 031) 430 820 issued guarantees to EFC to the extent to which the loan values Net cash increase/ of employees exceed the current value of the mortgage security. (decrease) 525 (423) 9 (33) 1 843 (642) (20 877) (19 598) Net fair value and foreign Historically, EFC has absorbed any losses incurred and has not exchange losses/(gains) 40 075 – 1 9 (39 449) – (136) 500 called up any guarantee payments. Eskom’s guarantee exposure is Foreign currency therefore governed by the default probability of EFC, which is translation – – – – – – 22 22 influenced by the risk of significant fluctuations in interest rates Assets and liabilities that might cause employees to default on their repayments. The held-for-sale – – – – – – 32 32 risk-adjusted credit exposure of EFC is calculated by applying a rating agency’s annual default probabilities. Other movements 2 472 311 – – (26) 657 – 3 414 Guarantee issued/contract value Rm – – 902 983 Balance at 31 March 2020 483 682 9 350 (152) 214 (53 321) (1 593) (22 990) 415 190 Default probability % – – 2.15 0.38 Net cash (decrease)/ increase (49 830) (497) 152 (213) 7 859 (329) 18 882 (23 976) Financial guarantee Rm – – 19 4 Net fair value and foreign Changes in variables will not have a significant impact on profit exchange (gains)/losses (35 418) – – 1 38 728 – 159 3 470 or loss. Foreign currency translation – – – – – – (12) (12) 45.2 Contingent liabilities Assets and liabilities Legal claims held-for-sale 1 462 – – – – – (80) 1 382 There are legal claims in process against Eskom as a result of Other movements 1 930 116 – – (257) 367 – 2 156 disputes with various parties. Based on the evidence available, there is no present obligation relating to these claims. The claims Balance at 31 March 2021 401 826 8 969 – 2 (6 991) (1 555) (4 041) 398 210 are disclosed as a contingent liability and amounted to Rm 178 329 168 318 Company Balance at 1 April 2019 445 047 9 462 (162) 238 (15 689) (1 608) (1 517) 435 771 Net cash increase/ (decrease) 525 (422) 9 (33) 1 843 (642) (20 661) (19 381) Net fair value and foreign exchange losses/(gains) 40 075 – 1 9 (39 449) – (136) 500 Other movements 2 567 307 – – (26) 657 – 3 505 Balance at 31 March 2020 488 214 9 347 (152) 214 (53 321) (1 593) (22 314) 420 395 Net cash (decrease)/ increase (50 731) (496) 152 (213) 7 859 (329) 19 652 (24 106) Net fair value and foreign exchange (gains)/losses (35 418) – – 1 38 728 – 159 3 470 Other movements 1 977 116 – – (257) 367 – 2 203 Balance at 31 March 2021 404 042 8 967 – 2 (6 991) (1 555) (2 503) 401 962 1. Refer to note 25. 2. Refer to note 30. 3. Refer to note 14.2. 4. Refer to note 16 (hedge exposure covering debt securities and borrowings). 5. Refer to note 18 (securing debt raised). 6. Refer to note 21. 98 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 99 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 Group Company 47. Related-party transactions and balances The group is wholly owned by the government represented by the DPE. Eskom (and its subsidiaries) are classified as schedule 2 2021 2020 2021 2020 public entities in terms of the PFMA. Eskom is part of the national sphere of government and its related parties in that sphere include Rm Rm Rm Rm national departments (including the shareholder), constitutional institutions and public entities (schedule 1, 2 and 3). A list of related parties is provided by National Treasury on its website www.treasury.gov.za. 46. Commitments 46.1 Capital expenditure Related parties include subsidiaries, associates and joint ventures of the group and post-employment benefit plans for the benefit of Contracted capital expenditure 28 118 31 508 28 041 31 424 employees. It also includes key management personnel of Eskom and close family members of these related parties. Key management personnel for Eskom include the group’s board of directors and Exco. Disclosure of related-party transactions with key management Within one year 14 297 11 735 14 221 11 651 personnel is included in note 50. Disclosure on the government guarantees to Eskom are included in note 5.3.2. One to five years 13 803 19 645 13 803 19 645 After five years 18 128 17 128 Group Company 2021 2020 2021 2020 Capital expenditure excludes finance costs capitalised and foreign Note Rm Rm Rm Rm currency fluctuations. Transactions The capital expenditure will be financed through debt with government Sales of goods and services1 12 827 12 552 13 837 13 384 support and internally generated funds. National departments 1 494 1 256 1 494 1 256 The capital programme will be reviewed and reprioritised by management Public entities 7 311 7 420 6 938 7 202 in line with the funds available. Subsidiaries, associates and joint ventures 4 022 3 876 5 405 4 926 46.2 Leases Government grant funding received for electrification As lessee National departments 1 724 2 717 1 724 2 717 The future minimum lease payments payable under non-cancellable leases are: Purchases of goods and services1 10 598 9 985 21 784 20 634 Within one year 85 244 41 65 Constitutional institutions 10 2 10 2 Short-term leases 41 201 – 23 National departments 1 975 1 811 1 975 1 811 Low-value leases 44 43 41 42 Public entities 5 990 5 610 4 593 4 913 Subsidiaries, associates and joint ventures 157 112 12 977 11 692 One to five years Eskom Pension and Provident Fund 2 466 2 450 2 229 2 216 Low-value leases 77 142 72 137 Net fair value and foreign exchange gain/(loss) Total 162 386 113 202 Subsidiaries, associates and joint ventures – – 2 (1) Short-term leases 41 201 – 23 Finance income 148 138 428 589 Low-value leases 121 185 113 179 National departments 9 11 9 11 The lease payments payable under non-cancellable leases are of a similar nature to the right-of-use, short-term and low-value leases recognised in Public entities 139 127 139 127 the statement of financial position and income statement. Subsidiaries, associates and joint ventures – – 280 451 As lessor Finance cost 2 7 460 7 772 7 707 8 101 The future minimum lease payments receivable under non-cancellable National departments 8 10 8 10 operating leases are: 145 67 69 54 Public entities 7 311 7 601 7 311 7 601 Within one year 110 46 34 40 Subsidiaries, associates and joint ventures – – 247 329 One to five years 35 21 35 14 Eskom Pension and Provident Fund 141 161 141 161 Dividend income The lease payments receivable under non-cancellable leases are of a similar nature to the right-of-use, short-term and low-value leases recognised in the statement of financial position and income statement. Subsidiaries, associates and joint ventures – – 1 085 46 Lease income 7 26 11 30 National departments 1 3 1 3 Public entities 6 23 6 23 Subsidiaries, associates and joint ventures – – 4 4 Lease expenses 8 7 11 10 Public entities 8 7 8 7 Subsidiaries, associates and joint ventures – – 3 3 Environmental levy Public entities 34 7 191 7 613 7 191 7 613 1. Goods and services are bought and sold to related parties on an arm’s length basis at market-related prices. 2. Bonds are bearer instruments and it is therefore unknown if the initial counterparty still holds the bonds. Transactions in the secondary market where Eskom is not the counterparty are therefore excluded. 100 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 101 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 47. Related-party transactions and balances (continued) 49. Restatement of comparatives The 2019 and 2020 statements of financial position as well as the 2020 income statements and statements of comprehensive income Group Company have been restated as a result of the following errors: 2021 2020 2021 2020 Note Rm Rm Rm Rm Pension benefits The rules of the EPPF have the effect that the fund is not a normal defined benefit fund in terms of IAS 19. Outstanding balances (due by related parties) Receivables and amounts owed by related parties 3 178 2 125 5 774 3 918 The fund has been in a net asset position since its commencement and Eskom has not previously provided any additional contributions to meet the benefits payable as per the benefit formula. There is therefore uncertainty as to the existence of an obligation as the rules National departments 135 119 135 119 provide for the option of an increase in the group’s contributions if consented to by the employer. Public entities 2 698 1 667 2 406 1 546 Subsidiaries, associates and joint ventures 345 339 3 233 2 253 A reassessment of the rules of the fund indicate that, although the group is paying a fixed contribution to the fund, the promised benefits to the members are based on a fixed formula which are not limited to the assets available in the fund. Despite an independent Loans receivable legal opinion that cited that there was no legal obligation on Eskom to make good any deficit, management noted when applying the Subsidiaries, associates and joint ventures1 – – 5 779 5 948 requirements in IAS 19 that the benefit formula does not limit the payments to the assets in existence in the fund at the payment date. As a result, management concluded that the actuarial and investment risk fall on Eskom when considering the requirements of Total due by related parties 3 178 2 125 11 553 9 866 IAS 19 and therefore followed a conservative approach to classify the fund as a defined benefit fund. Eskom previously accounted for Cash and cash equivalents the EPPF as a defined contribution fund. Public entities – 1 073 – 1 073 There was no impact on the statement of financial position as the fund is in a surplus position and the surplus is not controlled by Outstanding balances (due to related parties) Eskom. The only impact was the reallocation of income and expenses between profit and loss and other comprehensive income with no impact on the total comprehensive income. Debt securities and borrowings 118 967 115 106 122 478 119 682 National departments 32 16 32 16 Trust fund valuation Public entities 115 927 112 189 115 927 112 189 Eskom’s contributions towards environmental rehabilitation trust funds were previously measured at cost and have now been Subsidiaries, associates and joint ventures2 – – 3 511 4 576 corrected to account for Eskom’s share of the fair value of the trust funds. Eskom Pension and Provident Fund 3 008 2 901 3 008 2 901 Group Company Payables3 and amounts owed to related parties 3 391 3 462 6 413 5 823 Previously Adjust- Restated Previously Adjust- Restated reported ments reported ments National departments 445 404 445 404 Rm Rm Rm Rm Rm Rm Public entities 2 621 3 031 2 444 2 679 Statements of financial position at 31 March 2019 Subsidiaries, associates and joint ventures 30 18 3 229 2 731 Assets Eskom Pension and Provident Fund 295 9 295 9 Non-current Payments received in advance 942 1 197 958 1 213 Payments made in advance 1 734 318 2 052 1 733 318 2 051 National departments 942 1 197 942 1 197 Equity Subsidiaries, associates and joint ventures – – 16 16 Capital and reserves 149 978 229 150 207 135 399 229 135 628 Liabilities Derivative liabilities held for risk management Non-current Subsidiaries, associates and joint ventures – – 1 4 Deferred tax 7 138 89 7 227 6 601 89 6 690 Total due to related parties 123 300 119 765 129 850 126 722 Statements of financial position at 31 March 2020 Guarantees Assets Guarantees issued contract value Non-current Subsidiaries, associates and joint ventures 45.1 – – 902 983 Payments made in advance 1 614 284 1 898 1 613 284 1 897 Equity Commitments Capital and reserves 185 863 205 186 068 169 421 205 169 626 Eskom does not have any material commitments with its related parties. Liabilities Non-current 48. Events after the reporting date Deferred tax 3 678 79 3 757 2 724 79 2 803 Equity support Income statements for the year ended 31 March 2020 Eskom received R7 billion on 1 April 2021, R10 billion on 26 April 2021, R3 billion on 25 June 2021 and R11.7 billion on 1 July 2021 as Employee benefit expense (32 976) (182) (33 158) (27 590) (182) (27 772) part of the support from government. Net fair value and foreign exchange gain/(loss) (4 592) (34) (4 626) (4 227) (34) (4 261) Finance cost (33 862) (155) (34 017) (34 009) (155) (34 164) Medupi unit 4 generator explosion There was an explosion at the Medupi power station unit 4 on 8 August 2021 resulting in damage to the generator. Investigations are Loss before tax (26 562) (371) (26 933) (29 080) (371) (29 451) underway into the cause of the incident and the extent of the damage incurred. Income tax 6 060 104 6 164 6 740 104 6 844 Changes in board Loss for the year (20 502) (267) (20 769) (22 340) (267) (22 607) Ms N Magubane resigned from the Eskom board in August 2021. Statements of comprehensive income for the year ended 31 March 2020 Loss for the year (20 502) (267) (20 769) (22 340) (267) (22 607) Items that may be reclassified subsequently to profit or loss 4 836 – 4 836 4 858 – 4 858 Items that may not be reclassified subsequently to profit or loss 2 551 243 2 794 2 504 243 2 747 Re-measurement of post-employment medical benefits 3 546 – 3 546 3 478 – 3 478 Re-measurement of pension benefits – 337 337 – 337 337 Income tax thereon (995) (94) (1 089) (974) (94) (1 068) 1. The effective interest rate on the loans to subsidiaries is 3.67% (2020: 7.12%). 2. Refer to note 25 for effective interest rate and maturity date relating to intercompany instruments. Total comprehensive loss for the year (13 115) (24) (13 139) (14 978) (24) (15 002) 3. Purchase transactions with related parties are on an arm’s length basis with payment terms of 30 days from invoice date. 102 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 103 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 50. Directors’ remuneration 2021 2020 The background to directors’ remuneration and an overview of the main provisions of the remuneration policy is included in the R’000 R’000 remuneration and benefits section in the integrated report. The details of the board (governing body) and executive management remuneration are included in this note. The details regarding the appointments, resignations and other changes in roles of directors Housing loans during the year are included in the directors’ report. C Cassim 3 173 3 304 N Otto 478 – 50.1 Executive directors and group executives J Sankar 727 – The remuneration of the group chief executive and the chief financial officer (executive directors) and Exco members (group executives) are disclosed below. Eskom’s prescribed officers are the group executives. The group chief executive and the chief ML Bala – 2 736 financial officer have fixed-term contracts. The group executives have permanent contracts based on Eskom’s standard conditions of A Etzinger – 985 service. NB Hewu and SJ Mthembu were appointed on standard fixed-term contracts. 4 378 7 025 The emoluments for the executives of the group were as follows: Home loan balances are disclosed when an individual is in the role of an executive director or group executive (even if they were only in that capacity for a portion of the year). The interest rate on the 2021 2020 loans from EFC at 31 March 2021 was 5.25% (2020: 8.00%). The loans are repayable over a maximum Name Salary Notice Other Total Salary Notice Other Total period of 30 years. The terms and conditions applicable to ex-employees are applied on resignation. payment payments remuneration payment payments remuneration earned and earned and 50.2 Non-executive directors cash paid cash paid Non-executive directors receive a fixed fee and are reimbursed for out-of-pocket expenses incurred in R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 fulfilling their duties. Their emoluments were as follows: Executive directors 11 940 – 195 12 135 9 394 – 499 9 893 MW Makgoba (chairman in 2021) 1 687 952 JA Mabuza (chairman in 2020) – 4 261 AM de Ruyter 7 040 – 98 7 138 1 654 – 10 1 664 RDB Crompton 717 540 PS Hadebe – – – – 2 840 – 353 3 193 RSN Dabengwa 227 557 C Cassim 4 900 – 97 4 997 4 900 – 136 5 036 SN Mabaso-Koyana – 506 Group executives 21 616 – 373 21 989 27 493 850 1 173 29 516 NVB Magubane 645 498 BCE Makhubela 648 497 JA Oberholzer 5 496 – 78 5 574 5 496 – 303 5 799 B Mavuso 593 593 ML Bala – – – – 2 800 – 115 2 915 PE Molokwane 711 618 FS Burn 2 989 – 56 3 045 – – – – TH Mongalo 717 543 A Etzinger – – – – 599 – 19 618 ND Harris 263 – 2 265 1 874 – 17 1 891 5 945 9 565 NB Hewu 2 833 – – 2 833 3 400 – – 3 400 N Minyuku 1 444 – 41 1 485 – – – – SJ Mthembu – – – – 2 550 850 131 3 531 BJ Nxumalo – – – – 2 100 – 163 2 263 N Otto 678 – – 678 – – – – EM Pule 3 339 – 158 3 497 3 339 – 130 3 469 SM Scheppers – – – – 2 800 – 134 2 934 MS Tshitangano 2 385 – 38 2 423 2 353 – 110 2 463 J Sankar 145 – – 145 – – – – V Tuku 2 044 – – 2 044 – – – – N Zibi – – – – 182 – 51 233 33 556 – 568 34 124 36 887 850 1 672 39 409 Salaries Salaries consist of a guaranteed package that includes Eskom’s medical and pension fund contributions. No fees were paid to executives who serve on the boards of Eskom subsidiaries. Notice payments These consist of payments made in terms of contractual agreements. Other payments Other payments consist of accumulated leave paid out on resignation and fees related to telephone costs, security services and operating vehicle expenditure. Bonuses Short-term bonus If applicable, a short-term incentive bonus is paid after year end. No short-term bonuses were awarded in the current or prior financial years. Long-term bonus If applicable, a long-term incentive bonus is paid after year end in cash and consists of the vested amount in a reporting period. No new long-term bonus units have been awarded since 1 April 2017 due to Eskom’s current financial constraints. 104 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 105 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 51. New standards and interpretations 51.1 Standards, interpretations and amendments to published standards that are not yet effective The following new standards, interpretations and amendments to existing standards have been published that are applicable for future accounting periods that have not been adopted early by the group. These standards and interpretations will be applied in the first year that they are applicable to the group. Topic Summary of requirements Impact Topic Summary of requirements Impact Amendments to The amendments provide relief to lessees from applying No material impact. The group has not Property, plant and The amendments prohibit entities from deducting any The group is currently in the process of IFRS 16: COVID-19- IFRS 16 to rent concessions as a direct consequence of the offered or received any rent concessions in equipment: proceeds proceeds from selling items produced while bringing that evaluating the detailed requirements of the related rent COVID-19 pandemic. A lessee may elect as a practical response to the COVID-19 pandemic. before intended use asset to the location and condition necessary for it to be standard to assess the impact on the financial concessions expedient to not assess whether a COVID-19-related rent – amendments to capable of operating in the manner intended by management statements. It is expected that the (1 June 2020) concession from a lessor is a lease modification. A lessee IAS 16 from the cost of an item of property, plant and equipment. amendments will have an impact on the cost that makes this election accounts for a change in lease (1 January 2022) Instead, the proceeds from selling such items and the costs of power stations under construction from payments in terms of IFRS 16 as if the change were not a of producing those items are recognised in profit or loss. 1 April 2021 where the proceeds from selling lease modification. electricy and the cost to produce the The amendments are applicable retrospectively only to electricity is currently allocated to the cost Interest rate The amendments address issues that might affect financial The group has a number of instruments that items of property, plant and equipment made available for of the power station. benchmark reform reporting as a result of a reform of an interest rate are linked to IBOR and is currently in the use on or after the beginning of the earliest period phase 2 – benchmark, including the impact on contractual cash flows process of evaluating the detailed presented in the financial statements in which the These amendments will align the accounting amendments to and hedging relationships arising from the replacement of requirements of the standard to assess the amendments are first applied. and taxation treatments relating to proceeds IFRS 9, IAS 39, an interest rate benchmark with an alternative benchmark impact on financial statements. before intended use with no temporary IFRS 7, IFRS 4 and rate. The amendments provide practical relief from certain differences and deferred tax from the IFRS 16 requirements in IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 effective date. (1 January 2021) relating to: Annual The amendments to IFRS 1 First-time adoption of international The amendments to IFRS 1 are not applicable • changes in the basis for determining contractual cash improvements financial reporting standards simplifies the application of as all subsidiaries of the group apply IFRS. flows of financial assets, financial liabilities and lease 2018–2020 cycle IFRS 1 for a subsidiary that becomes a first-time adopter of liabilities – amendments to IFRS standards later than its parent. • hedge accounting IFRS 1, IFRS 9, The amendments to IFRS 9 clarify the fees that an entity The amendments to IFRS 9 are not expected The amendments introduce a practical expedient for IAS 41 and IFRS 16 includes when assessing whether the terms of a new or to have a material impact. Fees are normally modifications of financial instruments and leases that result (1 January 2022) modified financial liability are substantially different from taken into account in line with the amendment directly from IBOR reform. The amendments also provide the terms of the original financial liability. These fees include when assessing whether the terms of a new specific relief from discontinuing hedging relationships. only those paid or received between the borrower and the or modified financial liability are substantially lender, including fees paid or received by either the different to the original liability. Once the new benchmark rate is in place, the hedged items borrower or lender on the other’s behalf. An entity applies and hedging instruments are remeasured based on the new the amendments to financial liabilities that are modified or rate and any hedge ineffectiveness will be recognised in exchanged on or after the beginning of the annual reporting profit or loss. period in which the entity first applies the amendments. The amendments require additional disclosure about the The amendments to IAS 41 remove the requirement to IAS 41 is not applicable as the group does not entity’s exposure to risks arising from interest rate exclude cash flows for taxation when measuring fair value, have any agricultural assets as defined in benchmark reform and related risk management activities. thereby aligning the fair value measurement requirements IAS 41. The amendments apply retrospectively. in IAS 41 with those in IFRS 13 Fair value measurement. Onerous contracts: The amendments clarify that the costs of fulfilling a contract No material impact. The group already The amendments deleted references to reimbursements The amendments to IFRS 16 are not expected cost of fulfilling a comprise both: accounts for onerous contracts on the full relating to leasehold improvements in the illustrative to have a material impact. Contracts with contract – cost approach. example 13 in IFRS 16. The amendments remove the leasehold improvements have been • the incremental costs – direct labour and materials amendments potential for confusion in identifying lease incentives. considered in terms of the measurement • an allocation of other direct costs – an allocation of the to IAS 37 guidance of IFRS 16 and the update to the depreciation charge for an item of property, plant and (1 January 2022) illustrative example will not impact this equipment used in fulfilling the contract assessment. This clarification is unlikely to affect provisions that are Amendments to Amendments were made to replace older references that The amendments are not expected to have a already based on the full cost approach, but will result in IFRS 3 – reference referred to the Framework for the preparation and presentation material impact. There are currently no the recognition of larger and potentially more provisions for to the Conceptual of financial statements with Conceptual framework for financial business combinations in the group. those based on the incremental cost approach. framework for reporting. The Conceptual framework for financial reporting is This amendments will apply to open contracts on adoption financial reporting applicable from 1 January 2020 and the references and without the need to restate comparatives. (1 January 2022) related details were aligned accordingly. 106 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 107 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 51. New standards and interpretations (continued) 51.1 Standards, interpretations and amendments to published standards that are not yet effective (continued) Topic Summary of requirements Impact Topic Summary of requirements Impact Classification of IAS 1 has been amended to clarify the requirements of The group is currently in the process of Definition of The definition of material has been refined and practical No material impact. The adoption of the liabilities as current determining if a liability is current or non-current. evaluating the detailed requirements of the material – guidance on applying the concept of materiality has been updated definition and practical guidance did or non-current standard to assess the impact on the financial amendments to issued. not result in any significant changes based on – amendments to The amendments clarify: statements. IAS 1 and IAS 8 how materiality has been applied in the IAS 1 • what is meant by a right to defer settlement (1 January 2020) The revised definition of material is: Information is material 31 March 2021 financial statements. (1 January 2023) • that a right to defer must exist at the end of the reporting if omitting, misstating or obscuring it could reasonably be period expected to influence decisions that the primary users of • that classification is unaffected by the likelihood that an general purpose financial statements make on the basis of entity will exercise its deferral right those financial statements, which provide financial • that only if an embedded derivative in a convertible information about a specific reporting entity. liability is itself an equity instrument would the terms of a Interest rate The first phase of amendments to IFRS 9 Financial instruments, No material impact. Eskom has a number of liability not impact its classification benchmark reform IAS 39 Financial instruments: recognition and measurement and instruments that are linked to IBOR. The These amendments have to be applied retrospectively. phase 1 IFRS 7 Financial instruments: disclosures focused on hedge impact is not material as the amendments (amendments to accounting issues. Specific hedge accounting requirements provide targeted relief for financial IFRS 17 Insurance IFRS 17 introduces one accounting model for all insurance The group is currently in the process of IFRS 9, IAS 39 and have been amended to provide relief from the potential instruments qualifying for hedge accounting contracts and contracts in all jurisdictions that apply IFRS. Once effective, evaluating the detailed requirements of the IFRS 7) effects of the uncertainty caused by IBOR reform (ie in the lead up to IBOR reform amendments to IFRS 17 will replace IFRS 4 Insurance contracts. standard to assess the impact on the financial (1 January 2020) uncertainty about what the new benchmark will be and IFRS 17 statements. It is expected that the standard when it will take effect). Disclosure has been included in note 16 as (1 January 2023) It requires an entity to measure insurance contracts using will only impact the financial statements of the group applied this exemption. updated estimates and assumptions that reflect the timing Escap in the group. of cash flows and take into account any uncertainty relating Extension of the These amendments provide for the extension of the No material impact. The group does not to insurance contracts. The financial statements of an entity temporary temporary exemption for insurance entities to apply IFRS 9 apply IFRS 4 for insurance contracts. will have to reflect the time value of money of estimated exemption from to the same date as when IFRS 17 is effective payments required to settle incurred claims. Insurance applying IFRS 9 (from 1 January 2023). contracts will be measured only on the obligations created – amendments to by the contracts. An entity will also be required to IFRS 4 recognise profits as an insurance service is delivered, rather (1 January 2020) than on receipt of premiums. Sale or contribution These amendments address the conflict between the No material impact. The group is currently 52. Information required by the Public Finance Management Act of assets between guidance on consolidation and equity accounting when a not disposing of any of its investments in Section 55(2)(b)(i) of the PFMA requires that the particulars of any irregular expenditure, fruitless and wasteful expenditure as an investor and its parent loses control of a subsidiary in a transaction with an associates or joint ventures. well as material losses due to criminal conduct be disclosed in the annual financial statements. Any losses due to criminal conduct associate or joint associate or joint venture. The parent recognises the full that individually or collectively (where items are closely related) exceed R25 million in terms of the significance and materiality venture – gain on the loss of control under the consolidation standard, framework, as agreed with the shareholder, have to be reported. amendments to but under the standard on associates and joint ventures, the IFRS 10 and IAS 28 parent recognises the gain only to the extent of unrelated 52.1 Irregular expenditure (optional adoption, investors’ interests in the associate or joint venture. The Irregular expenditure is defined as expenditure, other than unauthorised expenditure, incurred in contravention of or that is not in effective date amendments require the full gain to be recognised when the accordance with a requirement of any applicable legislation. The scope includes transgressions of any laws and regulations regardless deferred indefinitely) assets transferred meet the definition of a business under of whether or not the expenditure was justified from a business perspective, value was received, the breaches were deliberate or IFRS 3 Business combinations. accidental, or the breaches happened unknowingly or in good faith. 51.2 Standards, interpretations and amendments to published standards that are effective and applicable Irregular expenditure is incurred when the related transaction is recognised in terms of IFRS. The irregular expenditure is removed to the group from the note through a process of condonation by the relevant authority, recovery or removal. Amendments to The main changes to the principles in the framework have No material impact. No impact on the references to the implications for how and when assets and liabilities are 31 March 2021 financial statements. Conceptual framework recognised and derecognised in the financial statements. It for financial reporting is expected that inconsistencies between accounting in IFRS standards policies and the new guidance will be rare. (1 January 2020) Definition of a The amendments provide more guidance on the definition No material impact. There were no business business – of a business. The new definition of a business is narrower. combinations impacting the 31 March 2021 amendments to This could result in fewer business combinations being financial statements. IFRS 3 recognised. (1 January 2020) 108 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 109 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 52. Information required by the Public Finance Management Act (continued) 52.1 Irregular expenditure (continued) Balance at Expenditure Condoned Recovered Balance Balance at Expenditure Condoned Recovered Balance beginning at end of beginning at end of of the year the year of the year the year Note Rm Rm Rm Rm Rm Note Rm Rm Rm Rm Rm 2021 2020 Group Group PFMA 29 850 8 285 (9 529) (1 176) 27 430 PFMA 16 301 13 744 (45) (150) 29 850 Use of sole source (a) 9 837 2 023 (7 961) – 3 899 Use of sole source (a) 7 103 2 734 – – 9 837 Incorrect classification as emergency procurement (b) 3 580 1 309 – – 4 889 Incorrect classification as emergency procurement (b) 340 3 2401 – – 3 580 Tender processes not adhered to and insufficient Tender processes not adhered to and insufficient delegation of authority (c) 8 748 3 978 (1 568) (1 176) 9 982 delegation of authority (c) 3 397 5 546 (45) (150) 8 748 Modifications exceeding allowed amounts (d) 7 685 975 – – 8 660 Modifications exceeding allowed amounts (d) 5 461 2 224 – – 7 685 PPPFA 4 292 1 300 – – 5 592 PPPFA 3 868 451 (27) – 4 292 Incorrect tender process applied (e) 852 8 – – 860 Incorrect tender process applied (e) 794 85 (27) – 852 Tax clearance certificates (f) 3 424 1 289 – – 4 713 Tax clearance certificates (f) 3 074 350 – – 3 424 Designated sectors (g) 16 3 – – 19 Designated sectors (g) – 16 – – 16 CIDB regulations CIDB regulations Contracts awarded without following CIDB Contracts awarded without following CIDB requirements (h) 1 533 230 – – 1 763 requirements (h) 1 377 156 – – 1 533 National Treasury instructions National Treasury instructions Expenditure not in accordance with National Expenditure not in accordance with National Treasury instructions (i) 497 260 – – 757 Treasury instructions (i) 496 1 – – 497 Various commercial requirements Various commercial requirements Breach of more than one commercial requirement (j) 69 1 572 – – 1 641 Breach of more than one commercial requirement (j) 69 – – – 69 Other 18 16 (3) – 31 Other – 18 – – 18 36 259 11 663 (9 532) (1 176) 37 214 22 111 14 370 (72) (150) 36 259 Company Company PFMA 20 523 6 884 (1 566) (1 176) 24 665 PFMA 9 158 11 544 (29) (150) 20 523 Use of sole source (a) 1 209 732 – – 1 941 Use of sole source (a) 500 709 – – 1 209 Incorrect classification as emergency procurement (b) 3 458 1 254 – – 4 712 Incorrect classification as emergency procurement (b) 254 3 2041 – – 3 458 Tender processes not adhered to and insufficient Tender processes not adhered to and insufficient delegation of authority (c) 8 253 3 923 (1 566) (1 176) 9 434 delegation of authority (c) 2 994 5 438 (29) (150) 8 253 Modifications exceeding allowed amounts (d) 7 603 975 – – 8 578 Modifications exceeding allowed amounts (d) 5 410 2 193 – – 7 603 PPPFA 4 002 1 293 – – 5 295 PPPFA 3 591 411 – – 4 002 Incorrect tender process applied (e) 673 1 – – 674 Incorrect tender process applied (e) 611 62 – – 673 Tax clearance certificates (f) 3 313 1 289 – – 4 602 Tax clearance certificates (f) 2 980 333 – – 3 313 Designated sectors (g) 16 3 – – 19 Designated sectors (g) – 16 – – 16 CIDB regulations CIDB regulations Contracts awarded without following CIDB Contracts awarded without following CIDB requirements (h) 1 527 228 – – 1 755 requirements (h) 1 374 153 – – 1 527 National Treasury instructions National Treasury instructions Expenditure not in accordance with National Expenditure not in accordance with National Treasury instructions (i) 496 260 – – 756 Treasury instructions (i) 496 – – – 496 Various commercial requirements Various commercial requirements Breach of more than one commercial requirement (j) 69 1 572 – – 1 641 Breach of more than one commercial requirement (j) 69 – – – 69 Other 16 16 (3) – 29 Other – 16 – – 16 26 633 10 253 (1 569) (1 176) 34 141 14 688 12 124 (29) (150) 26 633 1. Prior period figures were adjusted to account for corrections. 110 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 111 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 52. Information required by the Public Finance Management Act (continued) (b) Incorrect classification as emergency procurement 52.1 Irregular expenditure (continued) Irregular expenditure was incurred where emergency purchases did not meet the National Treasury requirements for emergency procurement. In cases where an emergency purchase is required for a period longer than 30 days with more than one payment, Expenditure analysis a contract is established to limit abuse and minimise any potential risk in execution. Appropriate action has been taken against 2021 2020 implicated individuals where the related investigations were completed. Current Prior Total Total year years The opening balance was restated by R3 204 million as a result of fuel oil that was inappropriately procured through the emergency Note Rm Rm Rm Rm procurement process that was confirmed as irregular expenditure in the current year. An additional R1 251 million was incurred relating to this matter in the current year. Group PFMA 4 754 3 531 8 285 13 744 (c) Tender processes not adhered to and insufficient delegation of authority Irregular expenditure was incurred where incorrect tender processes were followed. Requests for condonation have been submitted Use of sole source (a) 2 023 – 2 023 2 734 to National Treasury for a portion of the expenditure in this category. Consequence management was addressed as part of the Incorrect classification as emergency procurement (b) 1 251 58 1 309 3 2401 condonation process. Tender processes not adhered to and insufficient delegation of authority (c) 505 3 473 3 978 5 546 A refund of R1 176 million was received from a supplier on a contract that was irregularly awarded. Modifications exceeding allowed amounts (d) 975 – 975 2 224 (d) Modifications exceeding allowed amounts PPPFA 162 1 138 1 300 451 National Treasury requires that any modification to an original contract where the value of the modification is more than 20% or Incorrect tender process applied (e) 7 1 8 85 R20 million for construction-related goods, works or services and 15% or R15 million for all other goods or services has to be Tax clearance certificates (f) 153 1 136 1 289 350 approved by National Treasury effective from 1 May 2016. The group did not initially comply with this requirement and an estimated Designated sectors (g) 2 1 3 16 amount of irregular expenditure was reported in 2018, predominately due to the misinterpretation of the instruction note. CIDB regulations The full population of contracts with value changes from 1 May 2016 to 31 March 2018 was reviewed and the irregular expenditure Contracts awarded without following CIDB requirements (h) 164 66 230 156 was recalculated on the contract value (excluding cost price adjustment and contingency allowance). National Treasury did not National Treasury instructions approve the condonation request. A process is underway to remove the amount from the irregular expenditure register in terms of Expenditure not in accordance with National Treasury the relevant National Treasury instruction. instructions (i) 260 – 260 1 Various commercial requirements Modifications of task orders on panel contracts are monitored for compliance. Further guidance has been obtained from National Breach of more than one commercial requirement (j) 237 1 335 1 572 – Treasury on modification of task orders which has been communicated to the business and used to enhance controls. Other 10 6 16 18 (e) Incorrect tender process applied 5 587 6 076 11 663 14 370 The PPPFA requires that the preferential points calculation is determined inclusive of VAT. Certain procurement was incorrectly done where the preferential points calculation was determined exclusive of VAT. Only one new insignificant incident was reported Company during the year, indicating that the controls are effective. PFMA 3 431 3 453 6 884 11 544 Use of sole source (a) 732 – 732 709 (f) Tax clearance certificates The PPPFA regulations require that tenders may only be awarded to a person whose tax matters have been declared to be in order Incorrect classification as emergency procurement (b) 1 251 3 1 254 3 2041 by SARS. Internal processes require that the tax status of all successful tenderers is confirmed to be compliant prior to concluding Tender processes not adhered to and insufficient delegation of authority (c) 473 3 450 3 923 5 438 a contract. Modifications exceeding allowed amounts (d) 975 – 975 2 193 Most of the incidents reported relate to past transgressions which will no longer be irregular once condoned. A transgression of PPPFA 155 1 138 1 293 411 R1 189 million was reported in 2021 relating to a contract that was deemed irregular due to collusion in prior years. The condonation process relating to this incident, including the relevant consequence management, is currently in progress. Incorrect tender process applied (e) – 1 1 62 Tax clearance certificates (f) 153 1 136 1 289 333 (g) Designated sectors Designated sectors (g) 2 1 3 16 Where local production and content is of critical importance in the award of tenders in designated sectors, such tenders must be advertised with a specific tendering condition that only locally produced goods, services or works or locally manufactured goods that CIDB regulations meet the stipulated minimum threshold for local production and content will be considered. Contracts were awarded to suppliers Contracts awarded without following CIDB requirements (h) 164 64 228 153 despite having declared a local content threshold that was below the required stipulated threshold as per the Department of Trade National Treasury instructions and Industry list of designated materials. Expenditure not in accordance with National Treasury instructions (i) 260 – 260 – Internal processes make it mandatory for a commercial practitioner to indicate whether the transaction has designated elements Various commercial requirements or not. Breach of more than one commercial requirement (j) 237 1 335 1 572 – Other 10 6 16 16 (h) Contracts awarded without following CIDB requirements The group did not comply with the Construction Industry Development Board (CIDB) regulation regarding the advertising of 4 257 5 996 10 253 12 124 tenders, grading of contractors and publishing of awards. (a) Use of sole source (i) Expenditure not in accordance with National Treasury instructions State-owned entities are required to procure goods and services in a manner that is fair, equitable, transparent, competitive and One new incident was reported during the year relating to incorrect application of National Treasury approval relating to fuel oil cost-effective. Expenditure was incurred on awards which did not follow proper tender processes where awards were incorrectly purchases. allocated to predetermined suppliers. Eskom issued a notice of motion during the year for the winding-up of a sub-contractor to recover the outstanding amounts relating The internal procedures and system control enhancement continued to be effective as there were no new occurrences of irregular to an incident reported previously. Criminal charges have been laid against the implicated individuals. expenditure in this category. Sole source requests are scrutinised to confirm compliance with criteria before approval by the relevant governance processes. (j) Breach of more than one commercial requirement Investigations identified transgressions of more than one legislative requirement. All identified breaches have been logged in a central The irregular expenditure reported during the year relates to existing contracts from prior years. The irregular expenditure will fall condonation register for investigation. Condonation will be requested from National Treasury and improvements have been made away once those contracts are condoned. Eskom is engaging with National Treasury to expedite the condonation process. National to processes to address the breaches. Treasury approved a bulk condonation request of R7 961 million for Eskom Rotek Industries during the year. A standing committee has been established between Eskom, National Treasury and DPE to monitor the processing of submitted applications, including condonation of all historical irregular expenditure. 1. Prior period figures were adjusted to account for corrections. 112 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 113 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 52. Information required by the Public Finance Management Act (continued) The group experienced 45 (2020: 75) and the company 44 (2020: 73) incidents of fruitless and wasteful expenditure during the 52.2 Fruitless and wasteful expenditure reporting period. Fruitless and wasteful expenditure is expenditure made in vain that could have been avoided had reasonable care been exercised. An external investigation confirmed overpayments of R1 280 million relating to a fuel oil contract. Eskom is pursuing recovery Fruitless and wasteful expenditure is reported in the annual financial statements when it is confirmed. through civil proceedings. Balance Expenditure Recovered Removed Balance The opening balance for procurement and contract management was restated by R328 million for an amount that should have been at beginning at end of reported previously. of the year the year Rm Rm Rm Rm Rm The revenue management category disclosed in the prior year’s financial statements has been removed. 2021 52.3 Criminal conduct Group Material losses caused by criminal conduct and any disciplinary, civil or criminal action taken in respect of such losses are reported Project management 2 121 2 – – 2 123 in terms of the materiality framework. Procurement and contract management 335 1 283 – – 1 618 Interest and penalties 3 2 – (2) 3 Group Company Other 734 1 – (2) 733 Note 2021 2020 2021 2020 3 193 1 288 – (4) 4 477 Losses incurred (Rm) Theft of conductors, cabling and related equipment (a) 139 115 139 113 Company Project management 2 119 2 – – 2 121 Estimated non-technical revenue losses (b) 2 319 1 977 2 319 1 977 Procurement and contract management 334 1 283 – – 1 617 Fraud Interest and penalties 3 2 – (2) 3 Immaterial incidents (less than R25 million) (c) 12 38 4 38 Other 734 1 – (2) 733 Other crimes 77 117 77 110 3 190 1 288 – (4) 4 474 Material incidents (greater than R25 million) (d) – 58 – 58 2020 Immaterial incidents (less than R25 million) 77 59 77 52 Group Project management 7 2 114 – – 2 121 2 547 2 247 2 539 2 238 Procurement and contract management 3311 6 (2) – 335 Losses recovered (Rm) Interest and penalties 4 – – (1) 3 Theft of conductors, cabling and related equipment (a) 5 4 5 4 Other 5221 212 – – 734 Estimated non-technical revenue losses (b) 563 213 563 213 864 2 332 (2) (1) 3 193 Fraud Company Immaterial incidents (less than R25 million) (c) 8 – – – Project management 7 2 112 – – 2 119 Procurement and contract management 3301 6 (2) – 334 Other crimes Interest and penalties 3 – – – 3 Immaterial incidents (less than R25 million) 6 2 6 2 Other 5221 212 – – 734 582 219 574 219 862 2 330 (2) – 3 190 Number of incidents Theft of conductors, cabling and related equipment (a) 3 765 4 798 3 763 4 790 Expenditure analysis Fraud 2021 2020 Immaterial incidents (less than R25 million) (c) 17 29 9 25 Current Prior Total Total year years Other crimes 1 692 1 998 1 680 1 900 Rm Rm Rm Rm Material incidents (greater than R25 million) (d) – 2 – 2 Group Immaterial incidents (less than R25 million) 1 692 1 996 1 680 1 898 Project management – 2 2 2 114 Procurement and contract management 2 1 281 1 283 6 5 474 6 825 5 452 6 715 Interest and penalties – 2 2 – Number of arrests Other – 1 1 212 Theft of conductors, cabling and related equipment (a) 111 120 111 120 2 1 286 1 288 2 332 Fraud Company Immaterial incidents (less than R25 million) (c) 1 – – – Project management – 2 2 2 112 Other crimes Procurement and contract management 2 1 281 1 283 6 Immaterial incidents (less than R25 million) 84 46 84 46 Interest and penalties – 2 2 – Other – 1 1 212 196 166 195 166 2 1 286 1 288 2 330 (a) Theft of conductors, cabling and related equipment Actions to combat losses through criminal conduct are managed in collaboration with other affected state-owned companies, industry role players, the National Prosecuting Authority and the South African Police Service. 1. Prior period figures were adjusted to account for corrections. 114 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 115 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 52. Information required by the Public Finance Management Act (continued) 53. Reportable irregularities and matters under investigation 52.3 Criminal conduct (continued) 53.1 Reportable irregularities (b) Estimated non-technical revenue losses The external auditors raised certain reportable irregularities in terms of section 45 of the Auditing Profession Act. Progress was Non-technical losses arise mainly from meter tampering and bypasses, illegal connections to the electricity network and illegal made in clearing these reportable irregularities. vending of electricity. The management of non-technical losses focuses on ensuring that all energy supplied is accounted for. The energy losses management programme focused on minimising the non-technical revenue losses with increased revenue recoveries The table below reflects the status of the reportable irregularities at 31 March 2021. The discussion focused on items that were open in 2021. at the previous year end and new items identified in the current year. Eskom invoiced R685 million (2020: R318 million) of revenue relating to these losses during the year, of which R563 million Description Action Status (2020: R213 million) has been received. Reportable irregularities – 31 March 2017 (c) Fraud There were allegations that an early retirement • the Democratic Alliance and Solidarity Trade Union Closed Immaterial incidents (less than R25 million) agreement between Eskom and the former GCE successfully brought an application in the Gauteng Eskom concluded 9 (2020: 25) investigations into fraud during the year. The internal control measures in the affected areas have been (B Molefe) was irregular. Division of the High Court to set aside the early reviewed and enhancements recommended to the accountable line managers for implementation. This includes controls, disciplinary, retirement agreement between Eskom and the criminal and civil proceedings against those involved. former GCE • the former GCE appealed the High Court decision (d) Other crimes to the Supreme Court of Appeal Material incidents (greater than R25 million) • the Supreme Court of Appeal dismissed the appeal No incidents (2020: 2) occurred where the losses were greater than R25 million. in April 2019 • the former GCE subsequently appealed the matter 52.4 Matters under assessment and determination to the Constitutional Court, which also dismissed Matters under assessment and determination include the following: the case • various non-compliances to PFMA section 51(1)(a)(iii) regarding the principles of fair, equitable, transparent, competitive and cost • the EPPF issued a letter of demand to the former effective procurement including inappropriate: GCE in April 2019 for payment of the amounts – use of sole sources and emergencies ordered by the High Court, to date payment is – modifications to contracts outstanding – emergency procurement of fuel oil • the EPPF advised Eskom that it approached the court – significant matters on six modifications related to construction contracts for an order empowering it to repay the early – various non-adherence to tender processes including breaches of delegation of authority retirement to Eskom as the current court orders did • application of Preferential Procurement Regulations: not empower it to do so – designated sectors (minimum thresholds not stated in the tender advert and tenderer submissions) • the Hawks are currently investigating the matter – tax non-compliance • the EPPF launched new proceedings against the – period of tender advertisements former GCE – application of evaluation criteria for measuring functionality • the court case is ongoing and Eskom has taken • limitation where documents were not provided for audit purposes which may result in a non-compliance adequate measures to recover losses suffered • incorrect application of CIDB Act • possible undue influence due to a conflict of interest (supplier declaration of interest not completed) Reportable irregularities – 30 September 2017 • potential losses due to a lack of reasonable care in project and contract management A parliamentary inquiry was held into perceived • Eskom investigated and action was taken, including Open, pending • interest and penalties being levied against Eskom due to instances of late payment of suppliers maladministration, governance and procurement relevant reporting where appropriate, against those finalisation, • losses due to under-utilised information technology systems and licences issues at Eskom. Certain representations made implicated in the parliamentary inquiry conclusion and • potential overpayments to a number of contractors involved in the construction of the Kusile power station by previous and current directors and officials • some of the implicated employees resigned or their receipt of the final Some of the reviews and assessments are conducted by independent external parties. indicated that there could have been a breach of employment was terminated report of the fiduciary duties in terms of the requirements of • criminal charges were lodged against relevant Zondo Relevant disclosure will be made in a subsequent financial year should any losses or expenditure incurred prove to be irregular, the Companies Act. employees Commission. fruitless and wasteful or due to criminal conduct. • the final report on the inquiry was adopted by the Portfolio Committee on Public Enterprises on 28 November 2018 • the findings of the report, which were not conclusive, have been analysed. The report recommended that the findings and evidence be submitted to the Judicial Commission of Inquiry into Allegations of State Capture (Zondo Commission) for further investigation • the Zondo Commission is ongoing and Eskom is participating in this process 116 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 117 NOTES TO THE FINANCIAL STATEMENTS continued for the year ended 31 March 2021 53. Reportable irregularities and matters under investigation (continued) 53.1 Reportable irregularities (continued) Description Action Status Description Action Status The subcontracting of Trillian Management • executives and senior management resigned Closed Reportable irregularities – 30 September 2018 Consultancy (Trillian) by McKinsey did not follow • criminal charges were lodged against relevant Legal fees were paid on behalf of certain former • the former board members and executive resigned Closed the correct procurement process. employees board members and an executive that were not • it was confirmed that legal fees had been paid on • the business relationships with McKinsey and Trillian A further issue relating to this matter was raised directly related to their roles at Eskom. behalf of ZW Khoza, VJ Klein, DL Marokane, were terminated on 31 March 2018 where the former CPO DV Naidoo, BS Ngubane and MV Pamensky • information was provided to the Hawks for (E Mabelane), former GE: group capital • letters of demand and summons were issued to investigation (A Masango), former acting GE: group capital former board members and executive for recovery • the High Court ruled against Trillian on 18 June 2019 (P Govender) and former company secretary of fees paid and ordered it to repay R595 million to Eskom (CS) (S Daniels) approved payments to Trillian • ZW Khoza, VJ Klein, DL Marokane and BS Ngubane • Trillian applied for leave to appeal to the Supreme without the existence of a contract thereby are defending the action, MV Pamensky has defaulted Court of Appeal breaching their fiduciary duties. on the repayment arrangement and DV Naidoo has • liquidation proceedings have been launched against settled in full Trillian by Eskom and SARS. SARS has a preferent • trial dates have been applied for against ZW Khoza, claim. Accordingly, Eskom will submit a claim to the VJ Klein and BS Ngubane liquidators but will not contest SARS preferent claim • an application for default judgement has been made • the liquidation proceedings are ongoing and Eskom against MV Pamensky and DL Marokane has taken adequate measures to prevent or recover • legal processes are ongoing and Eskom has taken any losses suffered adequate measures to recover losses suffered The former CFO (A Singh) approved a guarantee • the former CFO resigned Closed Reportable irregularities – 31 March 2020 on behalf of Eskom to Tegeta Exploration and • the guarantee was not called on and expired on Resources (Pty) Ltd in December 2015 in 31 March 2017 Certain minutes of the board and its sub- • improvements were made to ensure minutes are Closed contravention of the PFMA without proper • guarantee fees were incurred and reported as committees were not signed as evidence of signed timeously delegation of authority. fruitless and wasteful expenditure in terms of the approval. • a process is in place to ensure that extracts of PFMA minutes are a true reflection of the approved • the cost incurred will be recovered from the former Certain resolutions purported to have been minutes. Where there are changes to draft minutes, CFO made at previous meetings could not be found an extract of the final minutes will be communicated • legal processes are being followed to recover the in the minutes of meetings. to the business cost incurred from the former CFO • a permanent company secretary has been appointed • legal processes are ongoing and Eskom has taken on 1 July 2020 which brought stability to this function adequate measures to recover losses suffered The underlying irregular expenditure register • Eskom is focussing on ongoing improvements to the Open, pending Reportable irregularities – 31 March 2018 used to disclose irregular expenditure as part of reporting process and clean-up of the reported implementation of the annual financial statements, per the information improvements and There were allegations that the former CFO • the former CFO and interim GCE resigned Closed requirements of the PFMA section 55(2)(b)(i), • training on the revised PFMA reporting procedures finalisation of (A Singh) and former interim GCE (S Maritz) • the agreement was not binding as the required formal was not complete and accurate. and guidelines is ongoing clean-up exercise. breached their fiduciary duties by contractually approval from the DPE and National Treasury was • a loss control department was established to assess and financially binding Eskom to a facilitation fee not obtained and investigate all occurrences of irregular with Huarong Asset Financing (Huarong). • there was no financial loss to Eskom expenditure and oversee consequence management • it was communicated to Huarong that Eskom would including disciplinary actions, condonations and not honour any agreement as it is considered not recovery of losses binding • the matter was discussed at the Zondo Commission Reportable irregularities – 31 March 2021 • the Zondo Commission is ongoing and Eskom is participating in the process A contract was awarded to Econ Oil & Energy • an independent investigation into irregularities Closed (Pty) Ltd (Econ Oil) by the board, at the involving a previous contract with Econ Oil There were allegations that Eskom incorrectly • the GE: security resigned Closed recommendation of the former CPO, after determined that Eskom overpaid on the contract. procured services from Bizz Tracers (Pty) Ltd • the investigation into the matter was finalised and the irregularities in a previous contract with the This investigation was finalised in December 2020 through the sole source supplier process. findings from the investigation are being actioned. supplier was discovered thereby breaching their and the report tabled at the board in March 2021 The findings of the reports are currently being re- fiduciary duties. • a new tender was awarded to Econ Oil in Subsequent to 31 March 2018, further suppliers confirmed October 2019. When the board became aware in were identified where services were incorrectly • letters of demand were issued to relevant suppliers March 2020 of compliance issues due to a lack of procured through the sole source supplier for recovery of monies paid compliance with procurement legislation and policies process. • legal processes are ongoing and Eskom has taken relating to this tender, the tender award was adequate measures to recover losses suffered cancelled • the board was not aware of the ongoing investigation into the previous contract at the time of the new tender award • the High Court ruled in Eskom’s favour that no contract was concluded between Eskom and Econ Oil. Econ Oil applied for leave to appeal against the High Court’s judgement. The application was dismissed on 22 July 2021 • the former CPO was dismissed • the business relationship with Econ Oil was terminated 118 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 119 NOTES TO THE FINANCIAL STATEMENTS continued APPENDIX – ABBREVIATIONS, ACRONYMS AND DEFINITIONS for the year ended 31 March 2021 53. Reportable irregularities and matters under investigation (continued) Accounting, audit and other financial terms 53.1 Reportable irregularities (continued) CGU Cash-Generating Unit Description Action Status EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation A fixed term contractor’s contract was • the contract was extended as the contractor had Closed GDP Gross Domestic Product extended for more than two terms, which is in critical skills that were not available within Eskom IAS International Accounting Standard/(s) contravention of Eskom’s procedures, thereby which were urgently required IFRIC International Financial Reporting Interpretations Committee breaching fiduciary duties. • an external investigation concluded that there was IFRS International Financial Reporting Standard/(s) no evidence of wrong-doing or violation of Eskom’s IRBA Independent Regulatory Board for Auditors procedure ISA International Standards on Auditing • the contractor’s contract expired on 31 July 2021 as PPI Producer Price Index the contract obligations were fulfilled, including R Rand transfer of skills, and the contractor is therefore no Rm Rand millions longer in the employment of Eskom VAT Value Added Tax Eskom failed to effect corrective action for • Eskom operated units at Kendal power station in Open, pending WACC Weighted Average Cost of Capital identified non-compliance to the National non-compliance to the approved emission limits from completion of Currencies Environment Management Act (NEMA) thereby 2015 as a result of maintenance issues, damage outstanding breaching fiduciary duties. caused by the 2018 industrial action and system activities relating to CAD Canadian dollar capacity constraints compliance notice. CHF Swiss Franc • incorrect interpretation of a letter from the EUR Euro Department of Forestry, Fisheries and the GBP Pound Sterling (United Kingdom) Environment resulted in further contraventions JPY Japanese Yen • Eskom submitted emergency incident notifications in SEK Swedish Krona accordance with section 30 of NEMA which have not USD United States Dollar been rejected by the authorities ZAR South African Rand • interim repairs completed on Kendal power station resulted in the station operating in general compliance Entities to its emission limits from December 2020 • a comprehensive recovery plan, including extended Company Eskom Holdings SOC Ltd outages, has been developed and progressively EFC Eskom Finance Company SOC Ltd implemented. Unit 5 returned after an outage in EPPF Eskom Pension and Provident Fund July 2021 and unit 6 will return in August 2021. These Escap Escap SOC Ltd units will operate in compliance after optimisation. Eskom Eskom Holdings SOC Ltd The full recovery plan should be completed in 2022 Eskom Uganda Eskom Uganda Ltd • several activities are being executed to close out the Group Eskom Holdings SOC Ltd and its subsidiaries compliance notice and management is tracking the Motraco Mozambique Transmission Company SARL progress of all action items in a weekly steering Nqaba Nqaba Finance 1 (RF) Ltd committee to ensure full compliance. Eskom reports UEGCL Uganda Electricity Generation Company Ltd to the Department of Forestry, Fisheries and the UETCL Uganda Electricity Transmission Company Ltd Environment monthly on the status of the progress made with the recovery plan and monthly emission Legislation reports Companies Act Companies Act, No. 71 of 2008 • the Environmental Management Inspectorate Insurance Act Insurance Act, No. 18 of 2017 conducted a criminal investigation at the Kendal power station and a criminal charge sheet against PAA Public Audit Act, No. 25 of 2004 Eskom was lodged for non-compliance with the PFMA Public Finance Management Act, No. 1 of 1999 atmospheric emission licence between April 2015 PPPFA Preferential Procurement Policy Framework Act, No. 5 of 2000 and April 2019. The criminal case is ongoing Measures 53.2 Matters under investigation GWh Gigawatt hour There are currently various internal and external investigations being conducted into alleged fraud and malfeasance by current and kg Kilogram former Eskom employees as well as external parties. Eskom is working with relevant authorities regarding these matters. km Kilometre kWh Kilowatt hour kWhSO Kilowatt hour Sent Out ℓ Litre Mt Million tons MVA Mega volt ampere MW Megawatt MWh Megawatt hour MWhSO Megawatt hour Sent Out 120 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 121 APPENDIX – ABBREVIATIONS, ACRONYMS AND DEFINITIONS continued CONTACT DETAILS Other Alco Asset and Liability Committee Telephone numbers Websites and email addresses Board Board of Directors www.eskom.co.za B-BBEE Broad-Based Black Economic Empowerment Eskom head office +27 11 800 8111 Eskom website Contact@eskom.co.za CA(SA) Chartered Accountant of South Africa CFO Chief Financial Officer +27 11 800 3343 CIDB Construction Industry Development Board Eskom Media Desk +27 11 800 3378 Eskom Media Desk MediaDesk@eskom.co.za DMRE Department of Mineral Resources and Energy +27 11 800 6103 DPE Department of Public Enterprises Investor Relations +27 11 800 2775 Investor Relations InvestorRelations@eskom.co.za EUF Energy Utilisation Factor Exco Executive Committee Eskom whistle-blowing hotline 0800 112 722 Forensic investigations Investigate@eskom.co.za GCE Group Chief Executive www.thehotlineapp.co.za DPE whistle-blowing hotline 0800 111 628 DPE whistle-blowing website GE Group Executive DPE@thehotline.co.za IPP Independent Power Producer Eskom Development www.eskom.co.za/csi MYPD Multi-Year Price Determination Eskom Development Foundation +27 11 800 8111 Foundation CSI@eskom.co.za NERSA National Energy Regulator of South Africa OCGT Open Cycle Gas Turbine 08600 ESKOM or Promotion of Access to National call centre PAIA@eskom.co.za RCA Regulatory Clearing Account 08600 37566 Information Act requests SARB South African Reserve Bank Customer SMS line 35328 Customer Service CustomerServices@eskom.co.za SARS South African Revenue Services TMPS Total Measured Procurement Spend Facebook EskomSouthAfrica YouTube EskomOfficialSite Twitter Eskom_SA MyEskom Customer app Definitions Cash interest cover ratio Net cash flows from operating activities divided by the aggregate of interest paid and received from financing activities Physical address Postal address EBITDA Revenue plus other income minus primary energy, employee benefit expense, impairment of financial Eskom Megawatt Park assets, impairment of other assets and other expenses 2 Maxwell Drive PO Box 1091 EBITDA margin EBITDA divided by revenue Sunninghill Johannesburg Free funds from operations Net cash flows from operating activities minus cash flows from changes in working capital Sandton 2000 Liquid assets Treasury investments plus cash and cash equivalents 2157 Net debt Debt securities and borrowings plus lease liabilities minus treasury investments minus financial trading Group Company Secretary Company registration number assets plus financial trading liabilities plus derivative liabilities held for risk management (used to hedge other items of net debt) minus derivative assets held for risk management (used to hedge Office of the Company Secretary other items of net debt) minus payments made in advance (used to secure borrowings raised) minus PO Box 1091 Eskom Holdings SOC Ltd cash and cash equivalents Johannesburg 2002/015527/30 Net debt service cover Net cash flows from operating activities divided by the aggregate of debt repaid and interest paid and 2000 received from financing activities Net profit margin Net profit divided by revenue Working capital current assets Inventories plus payments made in advance (current portion) plus trade and other receivables Feedback on or queries relating to our report may be directed to IRfeedback@eskom.co.za (current portion) plus taxation asset Our suite of reports covering our integrated results for 2021 is available at http://www.eskom.co.za/IR2021 Working capital current liabilities Trade and other payables (current portion) plus payments received in advance (current portion) plus provisions (current portion) plus employee benefit obligations (current portion) plus taxation liability Working capital ratio Working capital current assets divided by working capital current liabilities Refer to the integrated report for definitions relating to the shareholder compact key performance indicators on page 119. 122 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 ESKOM HOLDINGS SOC LTD | 123 NOTES JOINT VENTURE [0006] 124 | ANNUAL FINANCIAL STATEMENTS | 31 MARCH 2021 www.eskom.co.za